EVRAZ plc | Annual Report and Accounts 2014
EVRAZ plc is a global vertically
integrated steel, mining and
vanadium business
Financial highlights
Consolidated revenue by segment,
US$ million
Consolidated EBITDA* by segment,
US$ million
14,726
768
893
3,358
11,438
-1,731
2012
Steel
14,411
730
1,486
3,036
10,792
13,061
648
1,318
3,160
9,519
-1,633
2013
-1,584
2014
Other operations
2,027
135
224
353
1,471
-156
2012
Steel
Steel, N. America
Eliminations
Steel, N. America
Coal
Coal
Capital expenditure, US$ million
Net debt, US$ million
2,325
37
373
279
1,912
1,821
37
226
158
1,656
-256
2013
-276
2014
Other operations
Unallocated &
eliminations
1,261
6,376
6,534
5,814
902
654
2012
2013
2014**
2012
2013
2014
Operating highlights
Steel products output, kt
Raw coking coal production, kt
14,195
3,153
14,683
3,843
11,042
10,840
13,949
4,314
9,635
21,062****
10,789
18,934
11,110
15,508
8,506
7,002
7,824
10,223
2012
2013
2014
2012
***
2013
2014
Finished products
Semi-finished products
Raspadskaya
Yuzhkuzbassugol
– Operating cash flow was
US$1,957 million (+3%), while free
cash flow reached US$1,012 million
(+124%)
– Net loss was US$1,278 million
compared to US$551 million net loss
in 2013 mostly due to impairment of
assets (US$540 million) and foreign
exchange loss (US$1,005 million)
Corporate and M&A
developments
– Disposal of EVRAZ Vitkovice Steel
based on the enterprise value of
US$287 million
– EVRAZ’s subsidiary in North America
priced US$350 million aggregate
principal amount of 7.5% senior
secured notes due 2019
– EVRAZ received a US$500 million
syndicated pre-export credit facility
– 8.25% Eurobonds due in 2015 were
partly bought back in the amount of
US$439 million
– Consolidated crude steel output
reached 15.5 million tonnes (-4%) with
changes attributable to the disposal
of EVRAZ Vitkovice Steel and the
shutdown of EVRAZ Claymont
– Successful implementation of the
pulverised coal injection (PCI) project
– The launch of mass production on
EVRAZ Caspian Steel
– Coking coal production up 11% due to
increased output from Raspadskaya
Including payments on deferred terms recognised in financing activities.
See page 16 for EBITDA definition and Note 3 on page 142 for reconciliation of EBITDA to the loss before tax.
*
**
*** 2012 data for Raspadskaya is on a pro forma basis, as Raspadskaya is consolidated in the results of EVRAZ from 16 January 2013.
**** Includes 51,000 tonnes mined at Mezhegeyugol.
Strategic Report
Business Review
Governance
Financial Statements
EVRAZ in 2014:
“Fast changing market
conditions provide value
creating opportunities for EVRAZ.”
Alexander Frolov
Chief Executive Officer
Strategic Report
04–37
Governance
66–105
06
09
12
14
16
18
22
30
CEO review
Strategic context
– markets & trends
EVRAZ’s business model
Strategic objective
Key performance indicators
Principal risks and uncertainties
Financial review
Corporate social responsibility
Business Review
38–65
40
41
44
44
49
52
54
56
56
58
61
61
63
Steel segment
Financial performance
Operational performance
– Russia: Steel and Iron ore
– Ukraine: Steel and Iron ore
– South Africa: Steel
– Vanadium
Steel, North America segment
Financial performance
Operational performance
Coal segment
Financial performance
Operational performance
68
Letter from Chairman
Board of Directors
70
72 Management of EVRAZ plc
Corporate governance report
73
Remuneration report
90
Directors’ report
99
104 Directors’ responsibility
statements
Financial Statements
106–200
108
Independent Auditors’ Report to
the Members of EVRAZ plc
115 Consolidated Financial
Statements with Notes
193 Separate Financial Statements
with Notes
Additional Information
202 Definitions of selected
financial indicators
205 Data on Mineral Resources
207 Terms and Abbreviations
IBC Contact Details
To download a PDF version, go to:
http://www.evraz.com/investors
EVRAZ plc Annual Report and Accounts 2014
01
EVRAZ at a Glance
Global
presence
– Our main vertically-integrated steelmaking plants are located
in Russia, complemented by smaller mills and rolling
facilities in North America and South Africa
– Coal mining assets are based in Russia
– Iron ore mining operations are located in Russia,
Ukraine and South Africa
– Vanadium assets are scattered across the globe and
include Russia, the United States, Europe and South Africa
– EVRAZ employs almost 95 thousand people
4
3
2
1
5
6
7
Our Global Operations*
No.
Name
Location
Products
No.
Name
Location
Products
1
2
3
4
5
6
7
8
9
EVRAZ Portland
USA
14 TC EVRAZHolding
Russia
EVRAZ Calgary
Canada
15 EVRAZ Vanady Tula
Russia
EVRAZ Red Deer
Canada
EVRAZ Camrose
Canada
EVRAZ Regina
Canada
EVRAZ Pueblo
EVRAZ Stratcor
USA
USA
16 EVRAZ KGOK
17 EVRAZ NTMK
18 Evrazruda
19 EVRAZ ZSMK
20 Raspadskaya
Russia
Russia
Russia
Russia
Russia
East Metals
Switzerland
21 Yuzhkuzbassugol
Russia
EVRAZ Nikom
Czech Rep.
22 Mezhegeyugol
Russia
10 EVRAZ Palini e Bertoli
Italy
23 EVRAZ Caspian Steel
Kazakhstan
11 EVRAZ Bagleykoks
Ukraine
24 EVRAZ NMTP
Russia
12 EVRAZ Sukha Balka
Ukraine
13 EVRAZ DMZ
Ukraine
25 EVRAZ Vametco
Sth. Africa
26
EVRAZ Highveld Steel
and Vanadium
Sth. Africa
Iron ore
Iron ore
products
Coking coal
Coking coal
products
Slab, billet
Construction
products
Railway
products
Tubular
products
Flat-rolled
products
Vanadium
products
Logistics
Trading
Company
* EVRAZ corporate structure is available at: http://www.evraz.com/about/structure/
02
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
14
15
11
13
12
9
8
10
17
16
23
18
19
21
20
22
24
25
26
Output of finished steel products by region, %
Employees by region, %
Europe:
1%
Ukraine:
5%
South Africa:
5%
North America:
27%
Africa:
3%
North America:
5%
Ukraine:
12%
Russia:
62%
Russia:
80%
EVRAZ plc Annual Report and Accounts 2014
03
04
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Strategic
Report
This strategic report is intended to
provide a complete picture of EVRAZ’s
performance during 2014, whilst also
setting out the Company’s strategy,
business model, market position, future
prospects and plans for development.
In this section:
06
09
12
14
16
18
22
30
CEO review
Strategic context
– markets & trends
EVRAZ’s business model
Strategic objective
Key performance indicators
Principal risks and uncertainties
Financial review
Corporate social responsibility
EVRAZ plc Annual Report and Accounts 2014
05
Chief Executive Officer’s Review
Alexander Frolov
Fast changing market conditions
provide value creating
opportunities for EVRAZ.
06
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Dear shareholder,
2014 year was a dynamic year, typified
by significant change within the various
geographies, product markets and parts
of the value chain in which EVRAZ operates.
During this period we maintained our
conviction to our previously stated strategy,
and due to the fundamental strength of our
business model, we were resilient to the
external headwinds.
As a result EVRAZ has been able to capitalise
on some favourable market developments;
notably the rouble devaluation which further
strengthened our low cost position in the
global steel and coking coal markets.
Furthermore, the challenge of a volatile price
environment for the industry in general
allowed EVRAZ to demonstrate the flexibility
In 2014, EVRAZ continued to work on
streamlining its business. In April, we sold
our operations in the Czech Republic, EVRAZ
Vitkovice Steel, for US$287 million. At the
same time, we finalised the ramp-up of
Raspadskaya, transforming our coal business
into a large scale market participant in Russia
and internationally.
In September 2014, we announced our
plan and consequently filed a registration
statement with the U.S. Securities and
Exchange Commission relating to the
proposed initial public offering (“IPO”)
of ordinary shares in our North American
subsidiary, EVRAZ North America plc.
We continue to actively monitor the capital
markets but cannot assure you when (or if)
an IPO will be completed.
Our strategy is based on the particular competitive
advantages of our business.
of our business by switching steel volumes
between markets on a monthly basis. Due
to our low cost operations we were able to
achieve healthy margins in the key markets
where we operate. Importantly, a strong
operational performance and solid free cash
flow led to a reduction in financial leverage.
Safety
The safety of our employees remains a
priority for EVRAZ. In 2014, we successfully
reduced LTIFR from 1.96 to 1.60 following
sustained efforts and investment in this area
in recent years. Tragically, we did not however
manage to prevent 19 fatal accidents at our
facilities during the year. We are committed
to achieving the target of zero fatalities and
continue with range of initiatives to further
improve EVRAZ’s safety performance.
Strategy
Fast changing market conditions provide
value creating opportunities for EVRAZ.
Our strategy is based on five development
principles covering: Health, Safety and
Environment; Human Capital; Customer
Focus; EVRAZ Business System; and Growth.
EVRAZ also benefits from a strong asset
base and unique value drivers including:
– large, long life reserves in iron ore
and coal;
– competitive and efficient Russian steel
making operations;
– a full range of products with leading
market positions in the Russian
construction long steel market;
– global leadership in the rail production
market with leading positions in Russia
and the United States; and
– a strong footprint in North America.
EVRAZ’s capex in 2014 amounted to
US$654 million, down from US$902 million
in 2013. Most of the capex was spent on
sustaining current capacities, while
US$211 million was used for projects aimed
either at increasing production or decreasing
costs. The most important projects were the
commissioning of the pulverised coal injection
(PCI) system at EVRAZ ZSMK (remaining
capex in 2014 was US$24 million), the
Mezhegey coking coal deposit development
(US$41 million) and reconstruction of
Evrazruda’s Sheregesh mine (US$19 million).
We are committed to investing in projects
from our wide project portfolio, and our
selected projects will achieve a rate of return
that will significantly exceed our current cost
of capital. Though not all of these projects
will be realised, we are confident that they
will allow us to preserve our core competitive
advantages and also provide a level of capex
flexibility which is appropriate in the current,
uncertain market environment.
Our actions to reduce costs and improve
operational performance have had a
significant positive impact on overall
performance during the year. To facilitate
assessment of performance, by management
and the Board, our cost saving targets and
quantification are based on management
accounts adjusted to eliminate
macroeconomic impacts (such as exchange
rate fluctuations and inflation) and once-off
expenditure (such as employee severance
payments and other discontinuation costs).
On this basis there has been a cost
improvement of US$420 million during the
year. The major contributors to this
achievement were: the effects of the asset
portfolio optimisation realised in 2013 and
2014 (US$100 million), improving yields and
reduced raw material costs at our steel mills
(US$92 million) and a reduction in headcount
and related G&A costs (US$80 million).
Despite the considerable progress made
already, we are pursuing new initiatives which
have the potential to make an impact similar
to this year’s result. Naturally we benefited
from the devaluation of the Russian rouble
which substantially reduced the cash costs
of our Russian operations in US dollar terms.
In 2014, EVRAZ further extended its portfolio
of high value-added products and enhanced
the quality of its customer service. For
instance, at our modernised rolling mills in
Russia we can now produce rails and railway
wheels, the world class quality of which has
been proven by receipt of a number of quality
certifications from the EU and the USA
amongst others. EVRAZ has also become
the first Russian producer of 100-metre rails.
We have launched a new customer
relationship management system (CRM) for
our clients, which has migrated the purchase
and tracking processes online and
significantly improved efficiency. The Russian
market remains extremely important for our
business and we continue to closely monitor
recent developments. In the meantime we
retain some flexibility to re-allocate sales
from the Russian market to South East Asia.
Our customer focus and sales expertise has
brought about this flexibility and we are
planning to increase further our capabilities
in selling high value-added products in these
new markets in the year ahead.
Operational results
The efficacy of our strategy was underlined
by the strong operating results achieved by
EVRAZ’s business units in 2014.
In Russia, we significantly lowered cash
costs at our steelmaking operations at
EVRAZ ZSMK and EVRAZ NTMK, where
slab production cash costs decreased by
more than 25% in 2014, from US$367/t to
US$275/t. The launch of the PCI technology
at EVRAZ ZSMK was one of the factors which
led to this result, having already provided a
US$6/t cash cost reduction of crude steel.
Further sustained improvements are
anticipated in future years.
Despite increased competition in the Russian
construction market, we operated our rolling
mills at close to full capacity due to strong
domestic demand for most of the year and
substitution of decreased imports from
Ukraine. The launch of our new rebar rolling
mill in Kazakhstan looks particularly attractive
and will help to satisfy demand in this country’s
growing domestic market whilst also enabling
EVRAZ to maintain sales volumes in Russia.
EVRAZ plc Annual Report and Accounts 2014
07
Chief Executive Officer’s Review
(continued)
2014 was an important year for our railway
products operations. We successfully expanded
both the product range and geographic markets
for products from our new rail mill at EVRAZ
ZSMK; producing 530,000 tonnes in 2014 with
a planned production increase of 800,000
tonnes in 2015.
The increase in coal production of 11%
during the year was due to significant
production growth at the Raspadskaya coal
company (+31%). The increase followed the
successful ramp-up of the Raspadskaya mine
Financial results
The net loss for 2014 was US$1,278 million.
This reflects exchange losses of
US$1,005 million (including US$265 million
on intercompany balances) resulting from
the devaluation of the Russian rouble and
Ukrainian hryvnia, as well as a loss of
US$588 million on swaps of rouble-
denominated bonds. The compensating credit
from the swaps is netted against the loss
on translation in Comprehensive Income.
In addition, the net loss of US$1,278 million
Outlook
2015 started with a substantial decrease
in global steel prices, combined with a
difficult situation in the Russian economy
and a lower level of drilling activity in the U.S.
and Canada. However, we believe that the
actions taken by EVRAZ in recent years have
positioned the Company to be resilient during
challenging periods and even to discover new
opportunities from amongst these challenges.
As a result, we believe that EVRAZ will
continue to create value for its shareholders.
Events after the reporting period
On 31 March 2015 the Board reviewed the
positive financial performance of the Company
and improved business prospects for 2015.
In view of strong positive cash flow and the
liquidity to service debt and meet 2015
maturities, as well as the reduced 2016 debt
redemption requirement, the Board resolved to
announce a return of capital to be effected by
a tender offer to shareholders at $3.10 per
share in the amount of up to $375 million.
The Board is satisfied that this is consistent
with its continuing commitment to further
reductions in the Company’s EBITDA net
leverage. As noted above, this will be achieved
by strong free cash flow generation, reflecting
further operational gains and optimised
capital expenditure.
With the approved buyback tender offer
the Company remains committed to further
reduction of its net leverage.
Your sincerely,
Alexander Frolov
We believe that the actions taken
by EVRAZ in recent years have positioned the Company
to be resilient during challenging periods.
and stable production at the Yuzhkuzbassugol
coal company, despite the closure of its
Abashevskaya mine this year. We have also
reached record shipments of 5.6 million
tonnes of coal per annum at our Nakhodka
sea port in the Russian Far East underlining
our ability to export significant volumes to
Asian markets.
2014 was a turning point for the global iron
ore industry as the anticipated oversupply
caused prices to drop by 30%. We had
prepared for these developments and began
to restructure our iron ore business in 2013.
As a result, we entered today’s low price
environment with a comfortable cash cost
of US$47 per tonne of iron ore concentrate.
Healthy demand and EVRAZ North America’s
disciplined execution of its commercial and
operating strategies resulted in sales
increasing by 11% for ongoing operations.
In particular, production of tubular products
increased by 14% year-on-year driven by
strong market demand for small diameter
pipe most of the year, positive market trends
for large diameter pipe and operational
improvements implemented at North
American tubular facilities.
includes a charge on impairment of assets
of US$540 million.
At the same time, thanks to the solid
operational results and positive developments
in certain markets EVRAZ was able to
demonstrate significant growth in operating
profitability during the year as EBITDA
reached US$2,325 million, an almost
28% improvement compared to 2013.
Accompanied by lower capex and a positive
cash flow from divestitures this generated
positive free cash flow leading to a
decrease in net debt from US$6.5 billion
to US$5.8 billion. As a result our current
leverage is below our strategic goal of
3 times net debt/EBITDA.
In 2014, the devaluation of the functional
currencies of our Russian and Ukrainian
subsidiaries led to a significant decline in the
net equity of EVRAZ as defined by accounting
standards. It was caused by translating
assets, whose book values reflect historical
costs in the functional currencies (Russian
rouble, Ukrainian hryvnia), using the current
(31 December 2014) presentation currency
(US dollar) exchange rates.
A more detailed discussion is provided in
the Financial Review section of the Report.
08
EVRAZ plc Annual Report and Accounts 2014
Markets and Trends
Strategic Report
Business Review
Governance
Financial Statements
Strategic context
in 2014
EVRAZ is exposed to global steel and
mining industry trends as well as to
the following key regional and product
markets – Russia (construction long
steel market, railway product, coking
coal), North America (rail, flat-rolled
and tubular), Asia and South Africa.
Key global and regional trends
in steel market
Market conditions continued to be challenging
in 2014 with slowing demand from developing
countries, particularly China.
Global crude steel production saw moderate
growth of 2.0% in 2014 compared to 2013,
primarily driven by strong production levels
in Russia, EU, North America and China.
Despite this increase in production, the global
capacity utilisation rate was 76.8%, 1.3%
lower than in 2013. Global finished steel
Crude steel production growth by region y-o-y, %
12%
9%
6%
2%
0%
-2%
-6%
10
10
7
7
7
7
12
12
6
6
3
3
3
3
4
4
3
3
1
1
2
2
3
3
2
2
2
2
2
2
2
2
-2
-2
-2
-2
-1
-1
-5
-5
2011/10
2012/11
2013/12
2014/13
World
Russia
North America
China
EU(28)
Source: Worldsteel
Finished steel consumption growth by region y-o-y, %
15
12
8
9
7
9
8
4
2
16%
12%
8%
4%
0%
-4%
-8%
7
6
3
0
1
7
4
1
2
-1
-10
-12%
2011/10
2012/11
2013/12
2014/13
World
Russia
North America
China
EU(28)
consumption grew by 2.0% compared to 2013
with Chinese consumption of finished steel
products increasing by a marginal 1.0%.
Prices for steel were broadly stable across
the globe during most of 2014, allowing steel
producers to maintain margins. However, the
pressure from overcapacity caused prices to
decline significantly the end of the year.
Russian steel demand is primarily driven by
the construction and infrastructure sectors,
therefore it is highly sensitive to economic
cycles. The Russian economy stagnated in
2014 with GDP growing at a marginal rate of
0.6% year on year. However, Russian crude
steel production increased by approximately
1.8 million tonnes, or 2.6%, compared to 2013.
This was primarily the result of the decline
in the value of the rouble in the second half
of 2014, which helped to increase export
volumes, as well as a substitution in imports
from Ukraine.
Rebar consumption increased by 4.9% in
2014 and prices rose, on average, by 7.4%
in Rouble terms. However, in late 2014,
consumers increased inventories on the back
of price growth expectations due to the
devaluation of the rouble.
GDP growth is expected to decline by
approximately 4% in 2015, while the weak
rouble will support continued strong exports,
which together with import substitution could
lead to Russian production growth within a
year. Domestic steel prices are expected to
grow in step with net exports prices.
For more information on EVRAZ’s sales of
steel products in Russia please refer to
page 46.
2014 was a strong year for North American
steel demand. The US economic recovery
accelerated, GDP grew at an estimated 3%,
and there was a broad-based demand
recovery in steel consumption driven mainly
by growth in automobile manufacturing, oil
exploration, and construction.
US crude steel production increased by 1.4%
in 2014 compared to 2013, with consumption
of finished steel products increasing by 6.7%.
In 2014, the pricing environment was mixed:
rebar and bar prices decreased marginally,
hot rolled coil prices decreased by 9.4% and
plate prices increased by 3.8%.
EVRAZ plc Annual Report and Accounts 2014
09
Markets and Trends
(continued)
Steel imports to the US increased by more
than 30% in 2014 due to global overcapacity,
local plant outages, strong demand growth
and attractive local market prices compared
to the rest of the world. The impact of this on
pricing became more pronounced in Q4
following a destocking cycle across steel
distributors as a result of the collapsing oil
prices and lowered price expectations for
a variety of steel products.
During 2014, the steel industry in the
U.S. and Canada also initiated and obtained
successful outcomes in anti-dumping trade
cases against imports of a range of steel
products including oil country tubular goods
(OCTG). As a result of the trade cases, the
US Department of Commerce imposed tariffs
as high as 118% on OCTG imports from
countries such as South Korea, and the
Canada Border Services Agency announced
final duties ranging from 0% to 37.4% with
final injury determination expected in
April 2015.
The market for flat products was heavily
impacted by rising of demand across
non-residential construction, industrials,
transportation, and energy. Also, the US flat
market has experienced a net reduction in
capacity of c. 10 million tonnes over the past
2 years due to acquisitions and rationalisation.
OCTG prices were supported by a reduction
in rig counts and drilling activity and helped
by the introduction of trade restrictions in
summer 2014. In 2015, OCTG demand is
expected to face significant headwinds as
a result of the rapid declines in oil prices
in the second half of 2014.
US steel demand is expected to grow
in 2015, on the back of the recovering
economy and increasing activity levels in
the automotive, energy (in particular oil and
gas transmission) and construction sectors.
The strong US dollar and the good overall
economic environment will therefore stimulate
imports, which will require domestic
steelmakers to reduce prices to compensate.
For more information on EVRAZ’s sales of
steel products in North America please refer
to page 56.
Iron ore market
2014 was a challenging year for iron ore
producers as the market moved into
structural oversupply after a long period
of high returns.
Global iron ore supply grew by 2% year-on-year
in 2014 compared with 9% year-on-year
growth in 2013.
10
EVRAZ plc Annual Report and Accounts 2014
Steel products prices, US$/t
900
700
500
300
100
Jan 2013
Apr 2013
Jul 2013
Oct 2013
Jan 2014
Apr 2014
Jul 2014
Oct 2014
Dec 2014
Billets, FOB Black Sea
Rebars, Moscow, Russia
Scrap, Russia, CPT
Slab, East Asia, CFR
Scrap, USA, domestic
Plate, USA, domestic, ExW
Source: Metall Expert, Platts
Iron ore export*, share %
Iron ore import*, share %
Rest of World:
15%
Ukraine:
3%
Canada:
3%
South Africa:
4%
Brazil:
23%
Rest of World:
8%
Taiwan:
1%
South Korea:
5%
EU-28:
10%
Australia:
52%
Japan:
10%
China:
66%
* Total export, total import = 1,334 mt
Source: Goldman Sachs Global Investment Research
Coking coal export*, share %
Coking coal import*, share %
Rest of World:
5%
Russia:
8%
Canada:
10%
USA:
16%
Rest of World:
9%
Brazil:
6%
Japan & S.Korea:
32%
India:
15%
EU-28:
18%
Australia:
61%
China:
20%
* Total export, total import = 286 mt
Source: Goldman Sachs Global Investment Research
Strategic Report
Business Review
Governance
Financial Statements
Despite this deficit, excess vanadium
inventories and deteriorating steel
fundamentals in China affected the market.
Following a 9% decline in 2013, the
benchmark Europe CIF Ferrovanadium price
continued to fall in 2014 recording a 6%
decline over the course of the year to
US$24/kg as of 31 December 2014.
The average price in 2014 was US$26/kg,
an 8% decrease compared to 2013.
For more information on EVRAZ’s sales of
vanadium products please refer to page 54.
During 2014 China imported 936 million
tonnes of iron ore (13% year-on-year growth),
yet demand from Chinese customers was
insufficient to absorb the increased iron ore
supply – which mainly came from large
Australian and Brazilian producers. Overall,
Australia exported approximately 750 million
tonnes of iron ore in 2014, a 23% year-on-
year growth. Therefore iron ore prices (CFR
62% Fe) fell to US$71/t as of 31 December
2014, the lowest level since Q2 2009, and
the average price for 2014 was US$97/t,
a 29% decrease compared to 2013.
The outlook for the iron ore sector continues
to be challenging, particularly following the
announcement by the Chinese government
regarding the removal of VAT rebates on some
boron-added steel exports (approximately
30% of total Chinese exports in 2014). This
will have a significant impact on both steel
exports and production in 2015.
Prices for iron ore products in Russia
reflected the trends in international markets.
Coking coal market
In 2014, the global coking coal market
was affected by a 12 million tonne reduction
in Chinese import demand. This reduction
in demand, combined with growing supply,
resulted in falling prices that remained below
global marginal costs throughout the year.
Contract settlements during the year were in
the US$100-150/t range, with little prospect
for price increases in the next few years.
China and Australia materially increased
supplies of coking coal by 36 million tonnes
during the year, while supply from the USA
and Canada dropped by 15 million tonnes.
Overall, global supply rose by 37 million
tonnes (+3%) to 1,154 million tonnes.
In 2014, total global seaborne coking coal
exports decreased by 5.3% to 286 million
tonnes. However, Australia, which accounts
for 61% of global seaborne exports, slightly
increased exports in 2014.
Despite the approximately 12 million tonnes
reduction in imports over the year, China
accounted for 20% of coal imports in 2014
and remained the key driver of global demand
growth, with 58.4 million tonnes of imports.
A small number of countries, including
Vietnam, India, Japan, South Korea and the
United Kingdom, demonstrated material
growth in coal imports in 2014. OECD
demand remained largely flat over the period,
reflecting moderate recovery in steel/pig iron
production in Europe.
Continued supply-side pressure on prices
became apparent during the year, with the
benchmark FOB Queensland HCC spot price
falling by nearly 16% over the course of the
year to US$114/t as of 31 December 2014.
Spot prices averaged US$117/t in 2014,
a 23% decline compared to 2013. In the
medium term EVRAZ expects the global
coking coal market to stay relatively balanced
with the weak rouble continuing to support
Russian exporters.
In 2014, the production of coking coal
concentrate in Russia declined by 4% vs.
2013 to 60.3 million tonnes. The decrease
was mainly in the surplus and low margin lean
KS and KSN grades. In the higher demand
segment of fat coking coal there was a growth
of 3%. The production of coal concentrate
of these grades grew by 0.7 million tonnes
vs 2013 to 23.2 million tonnes.
For more information on EVRAZ’s sales of
coking coal please refer to page 61.
Vanadium market
Global vanadium demand in 2014 was
estimated at approximately 75-76 thousand
tonnes. Demand grew by 4% in 2014, largely
due to Chinese and US steel industries.
However, global supply grew by 5%, with the
production of EVRAZ’s saleable vanadium
products growing by almost 2% compared
to 2013.
EVRAZ plc Annual Report and Accounts 2014
11
EVRAZ’s Business Model
We apply our stated strategy to create long-term value by capitalising upon the
competitive advantages of our products, people and assets.
The fundamentals of our strategy
Health, Safety and
Environment
Human
capital
Customer
focus
Business
System
Growth of the
business
We create value by capitalising on our core strengths
Value
These strengths provide lasting, group-wide benefits which are critical to our
ability to generate, protect and capture value over the longer term.
1.
Low cost
production
2.
Strong
positions in
key steel
markets
3.
Leading
producer of
long steel
4.
Vertically
integrated
business
5.
Geographically
diversified
business
Low cost, long-life
mining operations;
efficient, steel
making and
rolling facilities;
programme
of continuous
improvement
Strong positions in
key steel markets
and geographies,
due to broad range
of products serving
high value markets
Leadership in
Russian and CIS
construction steel
products and
rails confers the
benefits of scale,
innovation, quality
control, security of
supply and service
excellence
Geographic
diversification
secures access to
Russia/CIS, North
America and Asia,
providing flexibility
to adapt to
changing markets
and reducing
cyclical volatility
Vertical
integration
enables us to
control each stage
in the value chain:
a. access to key
raw materials
and energy
for steel
production;
b. expertise in
steel processing
and finished
products;
c. secure logistics
and supply chain;
d. effective
customer driven
sales function
6.
Strong
management
and
governance
Management with
strong experience
in mining, steel
production as
well as sales
and trading;
effective controls
and oversight of
capital, innovation,
safety and risk
management
12
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Value drivers across our segments
These drivers of value across our business segments and along the value chain highlight the features which sustain the Group’s performance
in differing and competitive market environments.
Steel Segment
operations
Coal Segment
operations
Steel, North America
Segment operations
Iron ore mining
Coking coal production
Inputs*
Steelmaking
Internal consumption
Steelmaking
Rolling
Sales
Rolling
Sales
Sales
• Integrated businesses are located
close to one another, significantly
reducing transport costs and
providing proprietary raw materials
• One of the lowest cost steelmaking
operations in the world
• Compelling product proposition of
rails, rail wheels, construction as well
as semi-finished products
• Proprietary distribution and sales
channel in key Russian market
which helps to protect market share
in Russia
• Flexibility of sales between
geographical markets
• Proprietary technologies enable
extraction of vanadium from by-
products at low cost
• Strong competitive position on the
coking coal cost curve
• 2.1 billion tonnes of high quality
reserves
• Diversified product portfolio with large
share of high value added products
• Protected North American market with
consistent premium
• EVRAZ consumes a large portion
• Leading positions in regional markets
of the mined coking coal at its core
steelmaking plants in Russian and
Ukraine with excess production sold
to third parties
• Attractive portfolio of premium hard
and semi-hard coking coal grades
• Proprietary logistics infrastructure in
the Russian Far East
where mills are located
• Wholly owned recycling operations
supply approximately a third of
scrap needs
* Scrap to steelmaking operations, slabs directly
to rolling operations
Discover more: page 41
41
Discover more: page 61
61
Discover more: page 56
56
EVRAZ plc Annual Report and Accounts 2014
13
EVRAZ implements its strategy through an
annual strategic cycle and budget campaign.
During the strategic cycle we identify threats
and opportunities for all of our business and
develop high level plans to address those
requiring Board approval. Thereafter, we
develop asset level initiatives in order to
reach approved targets, the implementation
of which is tracked with tailored KPIs.
Health, Safety and Environment
Health and safety is a primary focus. We
prioritise the safety and reliability of our
businesses to protect the welfare of our
employees and the environment.
Our strategic goal is to have zero fatal
accidents at our plants. We believe
that we can achieve this goal through
extensive employee training and initiatives
to create a culture of personal involvement
and responsibility.
In 2014, we were focused on the
implementation of energy isolation initiatives
and improvement of safety training practices.
In conjunction with other initiatives this
helped us to reduce our LTIFR by 18%
in 2014. However, regrettably in 2014 the
Company recorded 19 (12 employee and
7 contractor) fatalities (vs. 24, 18 and 6,
fatal accidents in 2013, correspondingly).
In 2015, all initiatives with a focus on safety
training and LOTO (Lockout, Tryout) energy
isolation programme implementation will
be continued.
Compliance with environmental standards is
one of the major long-term targets of EVRAZ’s
HSE policy. EVRAZ is actively assessing its
environmental impacts and potential liabilities
to improve management of those exposures.
EVRAZ recognises the importance of abating
climate change and supports the global effort
to reduce greenhouse gas emissions into the
atmosphere. Total 2014 GHG emissions
decreased by 7% compared with the previous
year. See page 33 for details.
Human Capital
Skilled, productive employees are vital to
the successful delivery of our operational
objectives, particularly in challenging market
conditions. Although we continue to try to
reduce wage costs, EVRAZ is focused on
developing employees through the provision
of different educational programmes and
internal career opportunities.
In 2014, key initiatives undertaken included
a reduction in G&A staff and redundancies
at inefficient facilities. We also continued
to work on several educational programmes
for our employees to secure a talent pool
for the future.
As a result of a staff optimisation programme,
EVRAZ reduced its total workforce by 10% to
94,823 people (from 105,128 in 2013) and
improved labour productivity in all key
products segments (see KPIs on page 16)
in 2014.
In 2015 EVRAZ aims to continue current
initiatives to reduce G&A costs and increase
labour productivity.
Customer Focus
We work continuously to improve the quality
of our products and aim to provide excellent
service to ensure the loyalty of our clients.
We search for opportunities in new
geographies, products and markets.
In 2014, we shipped the first 100-metre
head-hardened rails to Russian Railways and
the Moscow metro. EVRAZ started production
of a number of new products, e.g. of high
value added micro-alloyed pipe grade slabs;
new types of premium rebar products etc.
We achieved our target of entering new
markets in 2014 following the completion of
certification processes for rails and wheels in
Europe. Moreover, in 2014 EVRAZ increased
sales of railway wheels to the USA and
Europe and signed two contracts to supply
rails to Brazil.
In 2014, EVRAZ was recognised as the best
Russian steel distribution company in terms
of service quality. We introduced a new
Customer Relationship Management (CRM)
system in our Steel segment. In 2015, we are
planning to improve the customer satisfaction
index further by implementing a claim
processing procedure.
We do not have a specific corporate level KPI
for Customer Focus. We track implementation
of the specific initiatives on a divisional level
with KPIs tailored to each particular objective
(i.e., number of certifications, number of
customer claims, percentage of deliveries
made on time and in full).
Strategic objective
EVRAZ’s ultimate objective is to be
a leading participant in the world’s
steel & mining industry, improving its
operations continuously, improving
profitability and creating added value.
We strive to supply the best quality
products for pioneering infrastructure
projects, with zero defects whilst
comprehensively meeting our clients’
needs. We aim to provide safe
working conditions, appropriately
evaluating and training our workforce
and rewarding our people for delivering
results and working responsibly.
We create value for our stakeholders by
capitalising upon the competitive advantages
of our assets:
– Across all geographies and products
we aim to be one of the lowest cost
producers, in each of our business
segments, throughout the cycle.
– Leadership positions in most of the
markets where we operate.
– A diversified portfolio of sophisticated
steel products, which combined with
superior customer service, represents a
unique value proposition to our customers.
EVRAZ’s operational strategy can be broadly
divided into 5 areas: Health, Safety and
Environment, Human Capital, Customer
Focus, EVRAZ Business System and Growth
of the Business. Each of the areas has its
own KPIs and targets. These metrics enable
the management to reinforce EVRAZ’s
competitive advantages and reach our
strategic objective.
Steel and commodities markets where
EVRAZ operates are often highly volatile.
This creates significant operational and
financial challenges for companies such as
EVRAZ. We address these challenges through
a relentless focus on operational efficiency
to ensure low cost supplies of raw materials
and protect our downstream margins. At the
same time, we remain opportunistic in our
investments, thus preserving flexibility in our
ability to respond to market challenges.
14
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
EVRAZ Business system (EBS)
Our EBS is based on LEAN principles. Due to
the uncertain economic environment which
has prevailed for the last two years, cost
reduction initiatives have been an important
area of focus for EVRAZ. We have rolled out a
number of different efficiency programmes to
improve operational efficiency, reduce general
and administrative expenses, enhance energy
efficiency and improve inventory management
and equipment maintenance systems.
These initiatives have enabled us to
significantly reduce costs. In 2014 we
achieved estimated cost savings of
US$420 million (excluding the result of
forex rates), with cost per tonne falling
for all our key products.
During 2014 we continued to deploy the
EVRAZ Business System throughout the
company by means of a rigorous training
programme that supports the continuous
development of our people. The system
covers all levels of the company and its
aim is to change the entire culture of the
organisation from top management to the
workers on the shop floor. The only way to
truly learn is by doing, so we use a mixture of
theoretical training and practical application.
We have successfully introduced model
production lines in all of our Divisions, they
act as laboratories where our employees can
test all of the LEAN tools and LEAN
techniques they are taught. The model
production lines also create an environment
where employees can safely make mistakes,
because a person that has not tried and
failed has simply not learned. These model
areas are also used as examples for our
employees to see best practice, so they can
go back to their areas with a better
understanding of how the system works.
EVRAZ Business System 2014 highlights:
– 4,500 employees were certified for
EBS Level 2
– 205 employees started EBS Level 3
training programme
– 1,621 RIEs (Rapid Improvement Event)
completed throughout the Company
– LEAN-based maintenance systems have
been successfully deployed for 30% of
EVRAZ’s critical equipment
Growth of the business
Under current market conditions we see
our goal as preserving resources and
strategic positions in order to secure future
opportunities. Therefore, our current priority
is to continue to gradually reduce CAPEX.
EVRAZ adheres to the approach of making
selective investments with a projected IRR
above 40%.
In 2014, we completed several important
projects at different EVRAZ operations.
Commissioning of a PCI unit at EVRAZ ZSMK
allowed us to reduce costs due to lower coke
and gas consumption. We’ll see the full effect
of this project over the next two years. We
have also launched the EVRAZ Caspian Steel
mill – a rolling rebar mill in Kazakhstan which
will be fed by EVRAZ ZSMK billets. EVRAZ
Caspian Steel will reach full capacity
utilisation in 2015 thus securing our leading
position in the local construction steel
market. Production at our new
Yerunakovskaya VIII mine at Yuzhkuzbassugol
exceeded its expected capacity of 3 million
tonnes of coking coal per annum in 2014.
Yuzhkuzbassugol’s total volumes were
maintained at 2013 levels despite the
planned shutdown of the Abashevskaya mine.
EVRAZ continues to work on two large
investment projects in raw materials:
construction of the Mezhegey coking coal
mine and the development of the Sheregesh
iron ore mine. Despite falling commodity
prices, we believe that these strategic
projects will help us to create value in the
long run. The Mezhegey mine is a world class
hard coking coal deposit which is in demand
in Russia. Moreover, given the recent rouble
devaluation, Mezhegey coal will be cost
competitive in the international market.
The Sheregesh iron ore mine development
will allow us to decrease costs at Evrazruda,
the iron ore supplier closest to the EVRAZ
ZSMK steel mill.
We also have a portfolio of promising projects
we are currently assessing. For instance,
we are looking for opportunities to strengthen
our large diameter pipe business in Canada,
where we expect large pipelines will be built
in the future. We are working on a project to
modernise EVRAZ ZSMK to secure its low
cost position in the global semi-finished
product market. We are investigating project
financing options for the greenfield Timir iron
ore development, which should secure a
supply of low cost iron ore for EVRAZ ZSMK
in the longer term.
EVRAZ plc Annual Report and Accounts 2014
15
Key Performance Indicators
EVRAZ measures its overall progress using nine
key performance indicators (KPIs). This year we have
amended our KPI list (excluding Inventory turnover and
adding Labour productivity and Free Cash Flow) to more
accurately reflect the development of our business, the
evolution of our business systems and the alignment
with division’s management focus and KPIs.
LTIFR (per million hours)
Steel sales volumes (million tonnes)
2.23
1.96
1.60
1.60
-18%
15.3
15.5
15.2
15.2
-2%
2012
2013
2014
2012
2013
2014
The Lost Time Injury Frequency Rate (LTIFR) represents the number of Lost
Time Injuries (LTI’s) that occurred over a period time per 1,000,000 hours
worked in that period.
The measurement of performance enables the Company to identify and
manage issues.
EVRAZ measures total steel sales in millions of tonnes, combining
all types of steel products which are produced around the world.
Steel sales are the most significant contributor to the Company’s
consolidated revenue. The sales volumes of steel products depend
on both market conditions and operational factors.
Detailed information on EVRAZ’s HSE performance is provided in the
Corporate Social Responsibility report on pages 30-37.
Detailed information on key factors that affected the Company’s sales
volumes is provided in the Business Review section on pages 38-65.
* LTIFR excludes fatalities. It will be the new standard from 2014 forward not to include
fatalities in the LTIFR numbers according to the World Steel Association practices.
EBITDA (US$ million)
Free cash flow (US$ million)
2,325
2,027
1,821
2,325
+28%
757
452
1,012
1,012
+124%
2012
2013
2014
2012
2013
2014
EBITDA represents profit from operations plus depreciation, depletion
and amortisation, impairment of assets, loss (gain) on disposal of
property, plant and equipment and foreign exchange loss (gain).
EBITDA reflects fundamental earnings potential, it measures the cash
earnings that can be used to pay interest, repay the principal, finance
capital expenditures and dividends.
Detailed information on the financial performance is provided in the
Financial Review section on pages 22-29.
16
EVRAZ plc Annual Report and Accounts 2014
Free cash flow is defined as net cash flow before financing activities,
investing activities in expansion projects and dividends. This measure
ensures that the profit generated by our assets is reflected by cash flow
in order to reduce leverage and fund future growth.
Detailed information on the financial performance is provided in the
Financial Review section on pages 22-29.
Strategic Report
Business Review
Governance
Financial Statements
Average cash cost of semi-finished products*
(US$/tonne)
Average cash cost of Russian iron ore products
(Fe 58%) (US$/tonne)
386
367
275
275
-25%
69
56
47
47
-16%
2012
2013
2014
Defined as the production cost less depreciation and the result is divided
by production volumes of saleable steel semi-products.
Raw materials from EVRAZ’s mining segment are accounted for on an
at-cost-basis.
EVRAZ considers cost leadership as key to its competitive advantage.
The results of our efforts to decrease cash costs are described in CEO
Review and Strategic Objective on pages 6-8 and 14-15.
* Cash cost of slabs and billets produced at Russian steel mills.
2012
2013
2014
Defined as the cost of revenues and SG&A expenses less depreciation
and other non-cash items, the result is divided by sales volumes.
Adjustments are made for iron ore products containing various grades
of Fe (pellets, sinter, iron ore concentrate) to reflect an average Fe content
of 58%. Cash costs are on an EXW basis.
The Company uses cash cost as a measure, because EVRAZ considers
cost leadership as key to its competitive advantage.
Information on the performance of the Company’s iron ore assets resulting
in a cash cost decrease is provided in Business Review on pages 44-51.
Average cash cost of coking coal concentrate
(US$/tonne)
Labour productivity (US$/tonne)
73
64
46
-28%
46
62.9
57.9
54.7
54.7
-6%
2012
2013
2014
2012
2013
2014
Defined as the production cost less depreciation, the result is divided
by production volumes.
Defined as labour costs exclusive of tax, the result is divided by production
volumes of steel products.
The Company uses cash cost as a measure, because EVRAZ considers
cost leadership as key to its competitive advantage.
A description of management’s initiatives to improve labour productivity
is provided in Strategic Objective on page 14-15.
The growth of coal production both at Yuzhkuzbassugol and the
Raspadskaya coal company (described on pages 63-65) contributed to
the reduction of cash costs of the coking coal business in 2014.
Environmental non-compliance (US$ million)
10.2
6.6
2.5
-62%
2.5
2012
2013
2014
Total sum of accrued environmental levies (taxes) for the impact caused
in excess of established standards and penalties/claims accepted
for payment
EVRAZ records all environmental incidents at its operations to measure
compliance with environmental standards covering water discharges,
air emissions, waste, and general work activity.
The Company is committed to minimising its impacts upon the
environment and has a target of achieving zero environmental incidents.
Please refer to Environmental Performance on pages 32-34.
EVRAZ plc Annual Report and Accounts 2014
17
Principal Risks and Uncertainties
Key Risks
Like all businesses, EVRAZ is affected by, and must manage,
risks and uncertainties that can impact its ability to deliver its
strategy. While the risks can be numerous, the principal risks
faced by the Group in 2014, and valid as of the date of this report’s
publication and as identified by the Board, are described below along
with the corresponding mitigating actions and changes in the
risk level during the year.
Risk Management System
utive Risk
mittee
c
e
x
E
m
o
C
Board
C o r porate level
A u d i t Committee
p
d o wn approach
o
T
l
E
v
a
u
a
t
i
o
n
Identification
Mitigation
g
n
i
r
o
t
i
n
o
M
I
n
t
A
e
u
r
n
d
i
a
t
l
a
Bottom up a p p r o
Regional Risk C o m m i
Regional and s i t e
h
c
s
e
e
t
t
l e v e l
Reviews the effectiveness of risk
management and internal controls
systems. Supports the Board in
monitoring risk exposure against
risk appetite.
Supports the Audit Committee in
reviewing the effectiveness of the
risk management and internal
controls systems.
Support the Executive Risk
Committee in reviewing and
monitoring effectiveness of
risk management.
Promoting risk awareness
and safety culture.
18
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Risks
Risk description
Risk level 2014 vs. 2013 and mitigating actions
Global economic factors, industry conditions and cost effectiveness
Risk direction:
EVRAZ operations are dependent on the global macroeconomic
environment and economic and industry conditions, e.g. global
supply / demand balance for steel and particularly for iron ore and
coking coal which has the potential to affect both product prices and
volumes across all markets. As EVRAZ operations have a high level
of fixed costs, global economic and industry conditions can impact
the Group’s operational performance.
In addition, any reduction in availability of long-term funding puts
constraints on the Company’s ability to grow its business. Poor
availability of long-term funding requires the Company to prioritise
debt repayments rather than focus on long-term capital investment
projects (see Treasury below).
EVRAZ has a focused investment policy aimed at reducing and
managing the cost base with the objective of being among the
sector’s lowest cost producers.
In respect of its mining operations the Company has a focus on
divestiture or downscaling of high cost and lower coal quality mining
assets and development of efficient low cost mining operations.
For both mining and steelmaking operations the Company executes
cost reduction projects to reinforce competitiveness of assets. In
particular, conversion and logistics cost optimisation programmes
were initiated during the year.
Reference
Capital and operational initiatives aligned with the overall EVRAZ
strategy are noted in the CEO’s review on pages 6 to 8 of this report.
For further information please refer to the strategic market context
section of the Strategic Report on pages 9 to 11.
Health, safety and environmental (HSE) issues
Risk direction:
Safety and environmental risks are inherent to the Company’s
principal business activities of steelmaking and mining. Further,
EVRAZ operations are subject to a wide range of HSE laws,
regulations and standards, the breach of any of which may result in
fines, penalties, suspension of production, or other sanctions. Such
actions could have a material adverse effect on the Company’s
business, financial condition and/or business prospects.
HSE issues have direct oversight at Board level and HSE procedures
and material issues are given top priority at all internal management
meetings. Management KPIs place significant emphasis on safety
performance. EVRAZ has instigated a programme to improve the
management of safety risks across all business units with the
objective of embedding a new safety, harm-free culture at all
management and operational levels.
The key environmental issues are primarily concerned with air
emissions, used water quality and tailings management.
The Company continues to focus on standardisation of critical safety
programmes with a main focus in 2014 on implementing an energy
isolation program, or LOTO (Lockout Tryout).
Reference
Further, EVRAZ has introduced a programme of Behaviour Safety
Conversations to drive a more proactive approach to preventing
injuries and incidents. Safety training has been reviewed and
strengthened and an operational safety assessment is undertaken
for all new projects.
Environmental commitments are detailed in Note 30 to the
consolidated financial statements.
For further information please refer to the Corporate Social
Responsibility report on pages 30 to 37.
EVRAZ plc Annual Report and Accounts 2014
19
Principal Risks and Uncertainties
(continued)
Risk description
Risk level 2013 – 2014 and Mitigating actions
Potential actions by governments
Risk direction:
Although these risks are mostly not within the Company’s control,
EVRAZ and its executive teams are members of various national
industry bodies and, as a result, contribute to the thinking of such
bodies and, when appropriate, participate in relevant discussions
with political and regulatory authorities.
The Company has diligently taken international legal advice in order
to assess the compliance requirements and risks of consequences
from sanctions against Russian businesses and develop procedures
to ensure that sanction requirements are complied with across the
Company’s operations.
EVRAZ operates in a number of countries and there is a risk that
governments or government agencies could adopt new laws and
regulations, or otherwise impact the Company’s operations. New
laws, regulations or other requirements could have the effect of
limiting the Company’s ability to obtain financing in international
markets, or sell its products.
To date the Company has not been significantly impacted by recent
geopolitical developments relating to Ukraine. There is a risk,
however, that if these events were to escalate, there could be an
impact on EVRAZ’s operations in the country (EVRAZ generates
approximately 5% of consolidated revenue from its Ukrainian
business), including on revenues from the sale of coking coal to
third party Ukrainian customers.
EVRAZ may also be adversely affected by government sanctions
against Russian business or otherwise reducing its ability to conduct
business with potential or existing counterparties. Despite the
potential negative impact from sanctions EVRAZ does not presently
expect them to have long term effects on the Company’s business.
Treasury
Risk direction:
EVRAZ, as with many other large and multi-national corporates, faces
various treasury risks including liquidity, credit access, currency and
interest rate fluctuation, and tax compliance risks. EVRAZ may be
impacted by a possible introduction of limitations on repatriation of
foreign currency proceeds from exports, as well as additional
regulations or limitations on cross-border capital flows. In addition,
and as mentioned above, potential actions by governments, including
economic sanctions impacting Russian entities may increase the
Company’s capital market risk in respect of new funding issues.
Reference
EVRAZ employs skilled specialists to manage and mitigate such risks
and the management of such risks is embedded in internal controls.
Oversight of the key risks is reported within the monthly Board
reports and compliance with the internal controls is reviewed by
the independent internal audit function, which reports to the Audit
Committee. In addition, the Company is developing a robust
sanctions risk management system.
EVRAZ continues to undertake actions in order to extend its debt
maturity profile and lower short-term external funding needs, as well
as to pro actively manage the remaining portion of debt subject to
maintenance covenants. Liquidity risk is managed through revisiting
capital expenditure plans, cost optimisation programmes and
continued asset portfolio rationalisation, and by pro-active liability
management and revision of the Company’s dividend policy. The
EVRAZ treasury management team and the directors regularly review
all funding requirements and exposures.
For further information please refer to the Financial Review on
pages 22 to 29.
20
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Risk description
Risk level 2013 – 2014 and Mitigating actions
Functional currency devaluation
Risk direction:
Group borrowing capacity may be impacted in times of severe
devaluation of the subsidiaries’ functional currencies relative to
the US dollar: while Group EBITDA and cash generating capacity
can increase (at least in the medium term) – because a large
proportion of sales are priced in dollars – its profit and equity
can decrease significantly.
EVRAZ works to reduce the amount of intercompany loans payable
from subsidiaries with Russian rouble and Ukrainian hryvnia
functional currencies, to limit the possible devaluation effect on
Group consolidated net income.
EVRAZ is also closely monitoring and controlling cost inflation
resulting from severe devaluations.
Reference
EVRAZ discloses ‘value in use’ information to illustrate the effect
of devaluation on the Group’s cash generating capacity and equity
value. For further information please refer to the Financial Review
on pages 22 to 29.
Business interruption
Risk direction:
Prolonged outages or production delays, especially in coal mining,
could have a material adverse effect on the Company’s operating
performance, production, financial condition and future prospects.
In addition, long term business interruption may result in a loss of
customers and competitive advantage, and damage to the
Company’s reputation.
Reference
Human Resources (HR)
The principal HR risk is the availability of management and
employees with the necessary attributes and skills. This is
particularly the case for certain regions and business units, e.g.
engineers, mining experts and project managers. Associated risks
involve selection, recruitment, training and retention of employees
and qualified executives.
The Company has defined and established disaster recovery
procedures which are subject to regular review. Business interruptions
in mining mainly relate to production safety. Measures to mitigate
these risks include methane monitoring and degassing systems,
timely mining equipment maintenance, employee safety training and
development of geodynamic monitoring systems. Detailed analysis of
causes of incidents is performed in order to develop and implement
preventative actions. Records of minor interruptions are reviewed to
identify any more significant underlying issues.
For further information please refer to the Coal section of the
Business Review on pages 61 to 65.
Risk direction:
Succession planning is a key feature of EVRAZ’s human resources
management. EVRAZ has invested substantial resource in training,
internal mentoring, and development of its pool of successors.
EVRAZ seeks to meet its leadership and skill needs through retention
of its employees, internal promotion, structured professional internal
mentoring and external development programmes. This includes
internal training, schools of engineers, technical forums, and
expertise certification programs. Additionally, training programmes at
the Moscow Skolkovo business school are used for the key strategic
management pool.
For further information please refer to the Corporate Social
Responsibility report on pages 30 to 37.
EVRAZ plc Annual Report and Accounts 2014
21
Financial Review
Pavel Tatyanin
We are very satisfied with our
performance in 2014 as we have
made material progress towards the
Group’s stated financial objectives.
22
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
We are very satisfied with our performance
in 2014 as we have made material progress
towards the Group’s stated financial
objectives. Despite the increased volatility
in steel and coal markets, as well as
challenging conditions in the capital markets,
we have managed to significantly improve
both our operational and financial
performance. Amongst our key financial
metrics, of particular note is the more than
28% increase in EBITDA to US$2,325 million
and strong free cash flow generation of
US$1,012 million.
Our balance sheet performance was
marked by a further reduction in net debt to
US$5,814 million at year end which, with the
stronger EBITDA generation, improved our net
debt to EBITDA ratio to 2.5 times.
We remain positive about our 2015
performance based on our conviction to
financial discipline and prudent policies.
Statement of operations
Group revenues decreased by 9.4% in 2014,
mostly as a result of a decline in the Steel
segment revenues, which account for 72.9%
of the total Group revenue. EVRAZ’s steel sales
volumes (including those from the Steel North
America segment) declined by 1.9% to
15.2 million tonnes in 2014. The decline in
the revenue of the Steel segment was largely
caused by lower prices of steel products, in line
with the general negative trend in steel pricing.
Additionally the timing of adjustments to
domestic steel prices in Russia and Ukraine
lagged behind the timing of the devaluation
of local currencies against the US dollar that
occurred in 2014. The selling prices of steel
products decreased by 7.3% year on year
accompanied by a fall in revenues from sales
of steel segment non-core products, including
iron ore, vanadium, coke, chemicals and scrap.
The Steel segment revenues were also
impacted by a number of changes in the
Group’s product mix during 2013–2014 due
to the suspension of operations of EVRAZ
Palini e Bertoli, EVRAZ Vitkovice Steel
disposal and the closure of EVRAZ Claymont
Steel and EVRAZ ZSMK plate rolling mill, as
well as decline in the production of railway
products. While sales volumes of flat-rolled
and railway steel products fell, a significant
proportion of semi-finished production was
switched successfully from internal
consumption to external sales. Overall,
changes in the sales mix contributed to
a 2.9% decrease in revenues.
Revenues of the Steel, North America segment
increased by 4.1% to US$3,160 million,
compared to US$3,036 million in 2013,
driven by higher sales volumes, particularly
of tubular and railway products.
1 Actual results excluding the effect of forex rate.
Revenues
(US$ million)
Segment
Steel
Steel, North America
Coal
Other operations
Eliminations
Total
Revenue by region
(US$ million)
Region
Russia
Americas
Asia
CIS (excl. Russia)
Europe
Africa
Rest of the world
Total
EBITDA
(US$ million)
Segment
Steel
Steel, North America
Coal
Other operations
Unallocated
Eliminations
Total
2013
Change
Relative
Change
10,792
(1,273)
(11.8)%
2014
9,519
3,160
1,318
648
(1,584)
13,061
2014
5,279
3,529
1,954
926
916
447
10
3,036
1,486
730
(1,633)
14,411
2013
6,136
3,242
2,062
1,175
1,385
404
7
124
(168)
(82)
49
(1,350)
Change
(857)
287
(108)
(249)
(469)
43
3
13,061
14,411
(1,350)
2014
1,912
279
373
37
(225)
(51)
2,325
2013
1,656
158
226
37
(226)
(30)
1,821
Change
256
121
147
–
1
(21)
504
4.1%
(11.3)%
(11.2)%
(3.0)%
(9.4)%
Relative
Change
(14.0)%
8.9%
(5.2)%
(21.2)%
(33.9)%
10.6%
42.9%
(9.4)%
Relative
Change
15.5%
76.6%
65.0%
0.0%
(0.4)%
70.0%
27.7%
Please refer to Additional Information on page 202 for reconciliation of profit (loss) from operations to EBITDA.
Coal segment revenues dropped by 11.3%,
primarily due to reduced selling prices,
partially offset by increased volumes.
Steel segment EBITDA increased in 2014
as a result of cost reduction activities and
a decrease in expenses in US dollar terms
at the Russian and Ukrainian subsidiaries
following the local currency devaluations
during the year. Lower prices for coking coal
and iron ore also positively impacted the
results for this segment. The benefits of cost
reduction were partially offset by a decline in
sales prices in steel products due both to the
weak global market environment and to the
lag in price adjustment in Russia and Ukraine
after the currency devaluation.
The Steel North America segment EBITDA was
positively impacted by growing sales of tubular
and long steel products, accompanied by
implementation of cost reduction initiatives.
EVRAZ plc Annual Report and Accounts 2014
23
Financial Review
(continued)
The year on year increase in Coal segment
EBITDA was related to the increase in sales
volumes of coking coal and coking coal
concentrate and a decrease in costs associated
with the Russian rouble weakening, portfolio
optimisation at Yuzhkuzbassugol and
operational improvements.
Eliminations mostly reflect the unrealised profits
or losses of the Steel segment in transactions
with the Steel North America segment.
The implementation of the efficiency
improvement plan brought about
US$420 million of savings, including,
as planned, an approximate reduction of
US$55 million in General and administrative
(G&A) costs (before the Russian rouble and
Ukranian hryvnia devaluation effects) which
contributed to the overall G&A contraction.
General and administrative (G&A) expenses
declined by 15.3% year on year due to the
asset portfolio optimisation, a G&A expense
reduction programme implemented in 2014 as
well as to a positive effect of the local currency
devaluation in Russia and Ukraine. As a result
our G&A expenses reduced to 5.7% of our
revenues compared to 6.1% a year before.
To facilitate assessment of performance, by
management and the Board, our cost saving
targets and quantification are based on
management accounts adjusted to eliminate
macroeconomic impacts (such as exchange
rate fluctuations and inflation) and once-off
expenditure (such as employee severance
payments and other discontinuation costs).
On this basis there has been a cost
improvement of US$420 million during the year.
The following table provides a description
of the cost cutting initiatives:
(US$ million)
Cost cutting initiatives at ongoing operations, including
Reduction of headcount and related G&A costs
Optimisation of tunnelling works, maintenance costs, degassing and
ventilation costs in the Coal segment
Improving yields and raw material costs at steel mills
Other cost optimisation
Optimisation of asset portfolio
Mines shutdowns and disposals at Evrazruda and Yuzhkuzbassugol
Suspension of EVRAZ Claymont, disposal of Central heat and Power Plant
and shutdown of a plate rolling mill at EVRAZ ZSMK
Increase in production
Volume growth at EVRAZ North America’s ongoing assets
Recovery of production at the Raspadskaya mine
Total
245
80
45
92
28
100
56
44
75
48
27
420
Cost of revenues, expenses and results
(US$ million)
Segment
Cost of revenue
Gross profit
Selling and distribution costs
General and administrative expenses
Impairment of assets
Foreign exchange losses net
Other operating income and expenses, net
Loss from operations
Interest expense, net
Loss on financial assets and liabilities, net
Gain on disposal group classified as held for sale, net
Other non-operating gains, net
Loss before tax
Income tax benefit/(expense)
Net loss
The Group’s cost of revenue decreased by 15.4% due to reduction in all costs.
24
EVRAZ plc Annual Report and Accounts 2014
2014
2013
(9,734)
(11,501)
3,327
2,910
(1,009)
(1,213)
(743)
(540)
(1,005)
(131)
(101)
(546)
(583)
136
10
(1,084)
(194)
(1,278)
(877)
(563)
(258)
(160)
(161)
(676)
(43)
131
112
(637)
86
(551)
Change
1,767
417
204
134
23
Relative
Change
(15.4)%
14.3%
(16.8)%
(15.3)%
(4.1)%
(747)
289.5%
29
60
130
(540)
5
(102)
(447)
(280)
(727)
(18.1)%
(37.3)%
(19.2)%
n/a
3.8%
(91.1)%
70.2%
n/a
131.9%
Strategic Report
Business Review
Governance
Financial Statements
A detailed breakdown of the cost of revenue is as follows:
% of
revenue
Change
Relative
Change
(US$ million)
Revenue
Cost of revenue
Raw materials, incl.
– Iron ore
– Coking coal
– Scrap
– Other raw materials
Semi-finished products
Auxiliary materials
Services
Goods for resale
Transportation
Staff costs
Depreciation
Electricity
Natural gas
Other costs
2014
13,061
9,734
3,086
700
431
1,251
704
187
823
753
843
660
% of
revenue
74.5%
23.7%
5.4%
3.3%
9.6%
5.4%
1.4%
6.3%
5.8%
6.5%
5.1%
2013
14,411
11,501
3,396
730
563
1,331
772
489
1,025
813
828
826
79.8%
23.6%
5.1%
3.9%
9.2%
5.4%
3.4%
7.1%
5.6%
5.7%
5.7%
1,577
12.1%
1,951
13.5%
714
568
294
229
5.5%
4.3%
2.3%
1.8%
951
642
398
182
6.6%
4.5%
2.8%
1.3%
(1,767)
(15.4)%
(310)
(30)
(132)
(80)
(68)
(302)
(202)
(60)
15
(166)
(374)
(237)
(74)
(104)
47
(9.1)%
(4.1)%
(23.4)%
(6.0)%
(8.8)%
(61.8)%
(19.7)%
(7.4)%
1.8%
(20.1)%
(19.2)%
(24.9)%
(11.5)%
(26.1)%
25.8%
The cost of raw materials decreased by 9.1%
in 2014 driven mostly by lower coking coal and
scrap costs which fell by US$132 million and
US$80 million respectively. The decrease
was accompanied by lower coal and scrap
consumption, mainly as a result of mothballing
one of EVRAZ ZSMK’s coking plants, the
shutdown of EVRAZ Claymont and the EVRAZ
Vitkovice Steel disposal. The implementation
of operational improvements resulted in better
raw material mix at the Russian steel mills
which was another factor which led to the
decrease in raw material costs.
The costs of purchased semi-finished
products fell by 61.8% primarily due to the
lower consumption of slab purchased from
third parties by EVRAZ North America’s
assets which were substituted by shipments
from EVRAZ NTMK. The EVRAZ Vitkovice
Steel disposal also helped to reduce the
semi-finished cost profile overall.
The 19.7% reduction in costs of auxiliary
materials resulted from the disposal and
suspension of certain subsidiaries as well
as from cost optimisation programmes,
in particular in the Coal segment, and the
weakening of the Russian rouble and
Ukrainian hryvnia.
The decrease in transportation costs was
related to the Russian rouble weakening,
the disposal of EVRAZ VGOK and Evrazruda’s
asset optimisation.
Staff costs decreased by US$374 million,
or by 19.2%, which reflects the effect of
the asset and personnel optimisation
programmes, and impact on costs in Russia
and Ukraine of local currency devaluation.
Palini e Bertoli. Electricity and natural gas
prices were generally stable in US dollar
terms, while in Russia and Ukraine higher
nominal prices were offset by the impact
of currency movements.
Total depreciation, depletion and amortisation
in the cost of revenue amounted to
US$714 million in 2014 compared to
US$951 million in 2013. The depletion charge
was significantly reduced in the Coal segment
driven by a lower depletion expense at
Yuzhkuzbassugol following the revision and
detailing of future mine plans and lower the
remaining useful lives of plant and equipment
were reassessed and extended at EVRAZ
NTMK, EVRAZ ZSMK and EVRAZ DMZ. This
was also accompanied by a decrease of the
US dollar amount of depreciation at our
Russian and Ukrainian sites due to weakening
of the local currencies.
Electricity costs decreased by 11.5%, due to
lower consumption volumes, predominantly
because of asset optimisation and disposals,
and as a result of continued operational
improvements. Natural gas expenditure was
down by 26.1% due to a number of factors,
including the disposal of Central Heat and
Power Plant in H2 2013 which consumed
significant volumes of natural gas,
operational improvements at EVRAZ DMZ,
the introduction of PCI technology at EVRAZ
ZSMK, the disposal of EVRAZ Vitkovice Steel
and the suspension of operations at EVRAZ
Other costs include taxes, change in work
in progress (“WIP”) and finished goods,
and certain energy costs. The increase in
other costs in 2014 is mostly driven by a
decrease in stock of WIP and finished goods.
The key drivers of lower selling and
distribution expenses were reduced sales
volumes to third parties and the Russian
rouble weakening. This was accompanied
by the impact of the EVRAZ Vitkovice Steel
disposal closure of EVRAZ Claymont and
suspension of operations at and EVRAZ
Palini e Bertoli.
Impairment losses during the reporting
period include US$261 million related to
impairments of several cash generating units
at EVRAZ North America, US$112 million
related to idled EVRAZ Palini e Bertoli assets,
and a US$58 million impairment for EVRAZ
Highveld Steel and Vanadium resulting from
the decrease in prices for steel and steel
products and the changes in forecast
production volumes and the increase in the
discount rates, as well as US$71 million
relating to several Yuzhkuzbassugol mines
which were idled (Kusheyakovskaya and
Abashevskaya).
EVRAZ plc Annual Report and Accounts 2014
25
Financial Review
(continued)
Foreign exchange losses of US$1,005 million
arose, in particular, due to the US dollar-
denominated amounts payable by subsidiaries
in Russia and Ukraine, where the national
currencies, which are also functional
currencies of these subsidiaries, depreciated
by 42% and 49%, respectively. In addition,
there are debts between subsidiaries with
different functional currencies and,
consequently, gains/(losses) of one subsidiary
recognised in the Statement of Operations
cannot be not offset with the exchange gains/
(losses) of another subsidiary with a different
functional currency. The net amount of foreign
exchange losses relating to intra-group debt
included in foreign exchange losses was
US$265 million.
Interest expenses incurred by the Group
have fallen steadily over recent years as a
result of the decrease in the level of debt and
the refinancing of debt at lower interest rates.
The interest expense for bank loans, bonds
and notes amounted to US$503 million in
2014, down from US$617 million in 2013.
It was also impacted by a decrease in the
interest expense of the rouble-denominated
bonds due to the rouble weakening.
As described in detail in Notes 22 and 25 of
the consolidated financial statements, during
2010-2013 the Group issued rouble-
denominated bonds that at issuance were
economically swapped into fixed rate USD
borrowings. Losses on financial assets and
liabilities amounted to US$583 million and
included, inter alia, US$94 million of realised
losses and US$494 million of unrealised
losses on the change in the fair value of
these currency and interest rate swaps.
As the Group does not apply hedge
accounting to these swaps and the related
economically hedged rouble-denominated
borrowings, the offsetting reduction in the
US dollar value of the rouble-denominated
bonds was credited directly to the exchange
differences on translation of foreign
operations into the presentation currency
in Other Comprehensive Income/(Loss).
In the reporting period the Group had an
income tax expense of US$194 million in
comparison with a US$86 million benefit for
2013. The change reflects better operating
results of the Group as well as an increase
in the amount of non-deductible expenses
and unrecognised temporary differences,
mostly caused by the forex exchange losses
and losses on derivatives, which either
cannot be utilised or cannot be deductible for
tax purposes in the respective subsidiaries.
Cash flow
(US$ million)
Item
Cash flows from operating activities before change in working capital
Changes in working capital
Net cash flows from operating activities
Short-term deposits at banks, including interest
Purchases of property, plant and equipment and intangible assets
Purchase of subsidiaries, net of cash acquired
Proceeds from sale of disposal groups classified as held for sale, net of
transaction costs
Other investing activities
Net cash flows from/(used in) investing activities
Net cash flows from financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
2014
1,976
(19)
1,957
8
(612)
(102)
311
6
(389)
2013
1,535
365
1,900
677
(902)
31
1
(71)
(264)
(1,811)
(1,367)
(282)
(525)
(48)
221
Change
441
(384)
57
(669)
290
(133)
310
77
(125)
(444)
(234)
(746)
Relative
Change
28.7%
n/a
3.0%
(98.8)%
(32.2)%
n/a
n/a
n/a
47.3%
32.5%
n/a
n/a
Cash flows from operating activities before
changes in working capital increased by
28.7% in 2014 to US$1,976 million compared
to US$1,535 million in 2013 reflecting better
operational results.
Free cash flow for the period was a positive
US$1,012 million.
26
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Calculation of free cash flow
(US$ million)
Item
EBITDA
EBITDA excluding non-cash items
Changes in working capital
Income tax accrued
Net Cash flows from operating activities
Interest and similar payments
Capital expenditure, including recorded in financing activities
Purchases of subsidiaries (net of cash acquired) and interests in associates/joint ventures
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs
Other cash flows from investing activities
Equity transactions
Free cash flow*
* Please refer to Additional Information on page 203 for the definition of free cash flow.
2014
2,325
2,333
(19)
(357)
1,957
(493)
(654)
(131)
311
35
(13)
1,012
In 2014, we commenced sales of 100 metre
rails from EVRAZ ZSMK and the EVRAZ
Caspian Steel (formerly the Vostochny rolling
mill) started commercial operations. The
Yerunakovskaya VIII mine reached planned
mining volumes, and our PCI project at EVRAZ
ZSMK became fully operational at all blast
furnaces. We completed stage one of
Sheregesh ore mine output enhancement
project, and we continued to develop
Mezhegey coal deposit. Also we commenced
the execution phase for the continuous
casting machines reconstruction project
at EVRAZ ZSMK.
A summary of our capital expenditure
(including amounts recognised in financing
activities) for 2014 in millions of USD is
as follows:
Capex and key projects
In 2014, we continued to reduce our total
capital expenditure to US$654 million
compared to US$902 million in 2013 as
a result of a comprehensive review of the
Company’s investment programme, as well
as the decrease in expenses in US dollar
terms at Russian and Ukrainian subsidiaries
due to the local currencies devaluation in
2014. The majority of 2014 capex was
directed towards maintenance spending.
Mezhegey coal mine development (Phase I)
Construction of Yerunakovskaya VIII coal mine
PCI at EVRAZ ZSMK
Reconstruction of Sheregesh ore mine
EVRAZ ZSMK rail mill modernisation
Reconstruction of continuous casting machines at EVRAZ ZSMK
EVRAZ Caspian Steel (Vostochny rolling mill, Kazakhstan)
Other development projects
Maintenance
Total
Ramp-up to be completed by 2016. Capacity of
2.0 mtpa
Ramp-up of long-wall 48-3. Production of ca. 3 million
tonnes of raw coking coal.
PCI units launched at all EVRAZ ZSMK’s blast
furnaces. Ramp-up to be completed in Q1 2015.
Stage one completed and mining commenced at a
new +115-metre level. The mine’s annual output to
reach 4.8 million tonnes of raw ore.
Ramp-up largely completed, equipment adjustment
continues. In May 2014, shipments of first 100
metre rails commenced.
In progress since Q2 2014, to be completed in Q4
2015. Capacity of 2.0 mtpa
The mill commenced production and shipments
of products in H1 2014.
41
35
24
19
17
11
10
54
443
654
EVRAZ plc Annual Report and Accounts 2014
27
Financial Review
(continued)
Effect of Russian rouble devaluation
on book value
Under IAS 21, the financial information of
each subsidiary is prepared in its functional
currency and then translated into the Group
reporting currency – the US dollar – for
consolidation and presentation purposes.
Changes in the carrying values of each
subsidiary’s assets and liabilities when
translated into US dollars are recognised
as a translation difference directly in other
comprehensive income/(loss). Thus any
significant depreciation or appreciation of
the subsidiaries’ functional currencies has a
significant effect on the carrying values of
subsidiaries’ and the Group’s equity.
At the beginning of 2014, EVRAZ had
approximately US$7 billion net asset
exposure in Russian rouble (RUB) (the
functional currency of Russian subsidiaries)
and Ukrainian hryvnia (UAH) (the functional
currency of the Ukrainian subsidiaries).
These net assets mostly represented
historical cost of property, plant and
equipment of the RUB and UAH functional
currency subsidiaries less related rouble
and hryvnia denominated liabilities.
Company
NTMK
ZSMK
Raspadskaya
Country
Russia
Russia
Russia
Yuzhkuzbassugol
Russia
KGOK
DMZ
Sukha Balka
Total
Russia
Ukraine
Ukraine
Rouble-denominated bonds are not a part
of these net assets, as at issuance they
were economically swapped into fixed rate
US dollar borrowings.
In 2014, there was a 42% depreciation of
the Russian rouble and 49% depreciation of
the Ukrainian hryvnia against the US dollar.
This depreciation led to an approximately
US$3 billion decline in the US dollar
equivalent of the carrying values of net assets
(primarily property, plant and equipment)
of these subsidiaries and a corresponding
decline in the Group’s consolidated equity.
Based on the Group’s existing capital
structure, including the character and amount
of intercompany loans between subsidiaries
with different functional currencies, this
decline was divided between
– the translation loss in Other
Comprehensive Income/(Loss) of
approximately US$2 billion, and
– the foreign exchange gains/(losses),
net in the Statement of Operations of
approximately US $1 billion, including
US$0.3 billion of net loss on intercompany
loans between subsidiaries with different
functional currencies.
Management believes that the market
value of the respective property, plant and
equipment measured in US dollars declined
on average to a significantly lower extent.
This was also the case for their US dollar-
measured cash-generating capacity, as
determined by IAS 36 discounted cash flows
value-in-use methodology (VIU). Most of the
changes in the value in use during 2014 were
caused by the shift in the product mix as a
result of the decreasing Russian demand and
related economic instability in the domestic
markets of the related cash generating units,
increase in the weighted average cost of capital
as well as by the change in the long term
forecasts for global iron ore and coal prices.
Even though IAS 16 allows the use of a fair
value option for accounting for property, plant
and equipment, fair value accounting is rarely
used in metals and mining industries and it is
complicated for a capital intensive business.
Moreover, the use of a fair value model for
accounting for property, plant and equipment
would decrease the comparability of EVRAZ
financial statements.
The schedule below provides the value in use
of property, plant and equipment of the major
Russian and Ukrainian subsidiaries, and their
carrying values:
Carrying value*
of PP&E as of
31 December 2013
Value in use**
of PP&E as of
31 December 2013
Carrying value*
of PP&E as of
31 December 2014
Value in use**
of PP&E as of
31 December 2014
1,145
1,433
2,350
1,318
337
241
306
3,802
1,441
3,178
1,342
1,678
251
334
632
824
1,316
704
175
115
145
3,023
3,127
1,588
965
348
157
179
Hypothetical net of tax
increase in carrying
value of equity as of
31 December 2014
if VIU were used
to value PP&E
1,913
1,842
218
209
138
34
28
7,130
12,026
3,911
9,387
4,382
* as included in the Group’s consolidated financial statements under IFRS.
** calculated in accordance with IAS 36 for the impairment test at 31 December 2014. More details are provided in Note 6 “Impairment of Assets” and Note 2 “Significant Accounting
Policies” in the Group’s consolidated financial statements under IFRS.
28
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Financing and liquidity
In 2014, in line with our financial strategic
priorities we focused on effective liquidity
management, positive free cash flow
generation and debt reduction. 2014 started
with total debt of US$8,166 million and during
the year a number of refinancing actions and
debt repayments have been completed. In
January 2014, US$70 million was borrowed
under a US Ex-Im guaranteed facility to
refinance part of the EVRAZ ZSMK rail mill
capex. On 12 August 2014, a US$425 million
5-year syndicated pre-export financing facility
was signed, which was subsequently
increased to $500 million. The proceeds were
mainly used to refinance RUB 20 billion bonds
which matured in October 2014. In November
2014, the North American operations issued
$350 million of senior secured notes with
maturity in May 2019 as a debut transaction
in a US High-yield market and in December
2014 extended the existing asset-backed
loan facility, originally maturing in 2016,
until May 2019.
On 8 December 2014 EVRAZ launched a
public tender offer for 8.25% guaranteed
notes issued by Evraz Group S.A. maturing
in November 2015. As a result of the tender
and a series of bilateral purchases, we
redeemed and cancelled in aggregate
US$439 million or 76% of the outstanding
notes. A further US$9 million was repurchased
in January and February of 2015, thus leaving
US$129 million of the notes outstanding
after the described transactions.
As a result of these actions, as well as a
number of scheduled drawings and repayments
of bank indebtedness, our total debt decreased
by US$1,259 million to US$6,907 million as
at 31 December 2014, while our net debt
decreased by US$720 million to
US$5,814 million at 31 December 2014
compared to US$6,534 million as at
31 December 2013. Interest expense accrued
in respect of loans, bonds and notes was
US$503 million for 2014, compared to
US$617 million for 2013. Our net debt to
EBITDA stood at 2.5 times compared to 3.6
times as at 31 December 2013.
As at 31 December 2014, debt with
maintenance financial covenants comprised
the $500 million syndicated facility and a
number of bilateral facilities totalling
approximately US$341 million. The covenants
under the syndicated facility include only two
key ratios calculated on the basis of EVRAZ
plc’s consolidated financials: a maximum
net leverage and a minimum EBITDA interest
cover. The ratios are tested two times a year
on a 12-month basis with the levels of 4.5x
and 2.0x respectively. Some of the older
bilateral facilities have similar covenant ratios
tested on the basis of Evraz Group S.A.’s
consolidated figures.
As at 31 December 2014, we were in full
compliance with our financial covenants in
respect of the level of total debt and of net
leverage (net debt to EBITDA not to exceed
4.5 times).
With the improved cash flow and net debt
reduction in 2014, the risk of breaching
financial covenants in the foreseeable future
has reduced. Eurobond covenants currently
do not limit the Group’s ability to refinance
EVRAZ’s consolidated indebtedness.
Our cash on 31 December 2014 amounted
to US$1,086 million and our short-term loans
and current portion of long-term loans mainly
represented by maturing capital markets
instruments adjusted for hedging exposure
under cross-currency swaps related to
rouble-denominated bonds stood at
US$1,040 million.
Dividends
On 2 July 2014, EVRAZ paid dividends in the
amount of US$90.4 million which represented
the approximate cash portion of the proceeds
from the sale of EVRAZ Vitkovice Steel.
Tender offer
On 31 March 2015, the Board resolved to
announce a return of capital to be effected by
a tender offer to shareholders at $3.10 per
share in the amount of up to $375 million.
In the future, the Company may consider
returning cash to its shareholders should net
debt/EBITDA ratio continue to be below 3x
with net debt reduction on track.
Pavel Tatyanin
Chief Financial Officer
EVRAZ plc
2 Please refer to Additional Information on page 204 for the definition and calculation of total and net debt.
EVRAZ plc Annual Report and Accounts 2014
29
Corporate Social Responsibility
Lost time injury frequency rate (LTIFR, per 1 million hours)
and fatalities
EVRAZ key air emissions dynamics, kt
124.6
122.1
119.1
124.2
32
24
19
2.23
1.96
1.60
2013
2014
2011
2012
2013
2014
2012
LTIFR*
Fatalities**
LTIFR excludes fatalities
*
** Includes employee and contractor fatalities
EVRAZ GHG emissions in 2014, MtCO2e
Number of employees*
110,997
105,128
94,823
7.96
37.57
6.31
29.52
EVRAZ Total
Steel segment
0.67
0.68
Steel,
NA segment
0.96
7.23
Coal segment
0.02
0.14
Other
2012
2013
2014
Indirect energy emissions (Scope 2)
Direct emissions (Scope 1)
* As of 31 December 2014
Employees by business
Employees by region
Other operations &
Unallocated:
5%
Steel,
North America:
5%
Coal:
20%
Africa:
3%
North America:
5%
Ukraine:
12%
Steel:
70%
Russia:
80%
30
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
EVRAZ approach
EVRAZ takes its social responsibilities
seriously, addressing and monitoring all
aspects of corporate social responsibility
(CSR) that are relevant to the business.
This section of the report provides an
overview of EVRAZ policies and performance
in 2014 in key areas of CSR including human
rights, health and safety, environmental
performance, human capital management
and community engagement as well as
an outline of how the Company intends to
improve its performance in the years ahead.
enhanced business processes, as well as
management and control systems. Strategic
direction in the areas of health, safety and
environment comes from the Board of
Directors, which has established a dedicated
Health, Safety and Environment (HSE)
Committee to lead the Board’s thinking on
health and safety issues, as well as taking
responsibility for environmental, safety and
local community matters. Details of the terms
of reference and activities of the Committee
are set out in the Corporate Governance
Report on pages 87-88.
Human rights
EVRAZ implements the OECD Guidelines for
Multinational Enterprises to ensure a uniform
approach to business standards across the
Company’s global operations. The company’s
commitments are based on internationally
recognised standards and respect for all
human rights, including civil, political,
economic, social, and cultural rights.
In particular, EVRAZ fully endorses the
provisions of the Universal Declaration of
Human Rights and strives at all times to
uphold them.
Additional relevant disclosures are contained
in the Strategic Report (Principal Risks and
Uncertainties section on pages 18-21) and
the Corporate Governance Report on
pages 73-89.
Strategy and governance
EVRAZ’s directors and management share
the opinion that a company cannot – in the
long-term – operate in isolation from the
wider community in which it operates. The
Company’s broader stakeholder base is
making increasing demands that EVRAZ
takes responsibility for the social and
environmental impacts of its operations.
The Company is committed to improving HSE
performance through the implementation of
The HSE function at the corporate and site
level is coordinated by the Vice President
of HSE Michael Shuble who regularly reports
to the Board Committee on material HSE
issues and attends certain meetings of
the Board of Directors. At site level, each
plant manager takes overall responsibility
for HSE compliance, reporting to both
the site management and corporate-level
HSE management.
The safety, health and environmental policy
implemented at the Group-wide level aims
at meeting or exceeding all applicable
national legislation and increasing the level
of industrial safety and labour protection as
well as reducing the Group’s environmental
footprint across the operations.
EVRAZ seeks to develop and maintain
a work environment that is free from
discrimination and ensures equal rights,
where every employee has the opportunity
to contribute to the Company’s overall results,
and to realise his/her abilities and potential.
This aspiration is reflected in the Company’s
internal codes and principles, including our
Business Conduct Policy “The EVRAZ Way”,
downloadable from the corporate website
http://www.evraz.com/governance/
documents/
For additional details on employee
engagement and social and community
programmes please refer to pages 36-37.
2014 progress
In 2012 after determining the key challenges and focus areas, EVRAZ set five year targets (2012-2017) for its sustainability performance.
This table sets out progress towards these goals in 2014.
Area of focus
Challenges
Targets
Progress to date
Health and Safety
Impact of operations on the
health and physical condition
of EVRAZ employees
– consistent reduction in lost time
injury frequency rate (LTIFR)
– avoidance of any fatal incidents
18% reduction 2014 LTIFR 1.60
(2013: 1.96)
across the Group
36% reduction since 2009
Environment1
Impact of operations on the
environment (air, water, waste)
– 5% reduction in air emissions2
– 15% decrease in fresh water
19 employee and contractor
fatalities in 2014 (2013: 24)
3.8% increase since 2011
Human Capital
Community Relations
Development of employees to
secure the long-term stability
of the business
Effective management of relations
with local communities, which
affect the Company’s reputation
and ongoing licence to operate
consumption
17% reduction since 2011
– 100% of non-mining waste
recycled or used3
110%3 in 2014 (2013: 105.7%,
2012: 103.9%, 2011: 109.6%)
– 100% of target groups covered
by development programme
Achieved 100% coverage of
personal development plans (PDP)
– contribution to the local
development of communities
in which EVRAZ operates,
through education, training
and employment of the
local population
EVRAZ continued supporting
community initiatives with
US$30 million of social expenses
spent worldwide
1 Environmental targets are based on 2011 performance levels. In 2014, the HSE Committee of the Board reviewed implementation of the environmental targets and agreed
to re-base Fresh Water Consumption and Air Emission targets by excluding data related to the disposed assets due to their material effect on performance.
Including nitrogen oxides (NOx), sulphur oxides (SOx), dust and volatile organic compounds only.
The ratio of amount of waste recycled or used vs. annual waste generation, not including mining waste. It can exceed 100% due to recycling of prior periods’ waste.
2
3
EVRAZ plc Annual Report and Accounts 2014
31
Corporate Social Responsibility
(continued)
In line with its strategic objectives,
relevant non-financial metrics (LTIFR
and Environmental non-compliance) are
incorporated into the Company’s KPIs to
measure and manage its performance.
For EVRAZ KPIs please refer to pages 16-17.
Health and safety performance
In 2014 we saw a continued improvement
in our health and safety performance.
Regrettably the Company recorded 12
employee and 7 contractor fatalities,
however this was a decrease from the
24 (18 employees and 6 contractors)
experienced in 2013. The Company has
a target to achieve zero fatalities and
serious incidents. Behavioural safety training
and safety audits have been instigated at
the Company’s assets with the objective of
embedding a new safety, harm-free culture
at all management and operational levels.
In 2014, EVRAZ’s LTIFR continued to show a
quarter on quarter improving trend with a final
year end decrease of 18% in comparison with
the previous year, in line with our stated goal
of achieving a long-term downward trend in
Lost Time Injury Frequency Rate.
In 2015 the Company aims to continue to
sustainably reduce its LTIFR.
Reviewing the 2014 serious incidents
indicates negative trends in the areas of
mobile equipment, railroad operations, and
underground mining operational hazards.
These areas have been targeted with focused
improvement plans for 2015. Ongoing
progress in the area of designated walkways,
implementation of energy isolation principles
(LOTO) and behaviour based conversations
will remain a focus at all facilities. Our zero
tolerance policy towards alcohol and drug
intoxication remains in place and we have
increased accountability when safety
violations are identified.
The Company will focus on improving
safety training in 2015 and require all
operations employees to receive at least
10 hours of focused training above required
compliance training levels. We believe that
the ongoing initiative of behaviour based
conversations involving all levels of the
organisation will be instrumental in driving
a change in safety culture.
Environmental performance
Steelmaking and mining sites use substantial
amounts of energy and water; their operations
can significantly affect water quality, air
quality, waste and land use. EVRAZ’s
environmental strategy is to seek to minimise
the negative impact of its operations and use
natural resources efficiently, seeking optimal
solutions for industrial waste management.
EVRAZ is on track to meet the five-year
environmental targets adopted in 2012:
– 5% reduction in air emissions;
– 15% decrease in fresh water
consumption; and
– 100% of non-mining waste recycled
or used.
In March 2014, the Health Safety and
Environmental Committee of the Board
reviewed implementation of Environmental
targets and agreed to re-base Fresh Water
Consumption and Air Emission targets by
excluding data related to the disposed assets
due to its material effect on performance.
In 2014, EVRAZ spent approximately
US$40 million on measures to ensure
environmental compliance and US$19 million
on projects to improve its environmental
performance. In the period from 2015
to 2022, the Group is committed to
spending more than US$1674 million
on environmental programmes across
its operations.
The Group’s non-compliance related
environmental levies and fines decreased
2.6 times from US$6.6 million in 2013 to
US$2.5 million in 2014. Three major legal
cases related to environmental claims were
resolved in favour of EVRAZ. No significant
environmental permits or licences were
missing or revoked during this period.
There were no significant environmental
incidents at EVRAZ assets during 2014.
EVRAZ is committed to continuing to
strengthen its environmental management
system. In 2014, EVRAZ arranged a number
of internal environmental audits and
continued its external ISO 14001 audit
programme. EVRAZ currently has 12 ISO
14001 certified sites, including the largest
facilities: EVRAZ NTMK, EVRAZ ZSMK, EVRAZ
DMZ Petrovskogo, EVRAZ Highveld. The
certificate of EVRAZ Palini e Bertoli has
been temporary suspended due to
production stoppage.
EVRAZ supports the human health and the
environment goals of REACH, a European
Union regulation concerning the Registration,
Evaluation, Authorisation & restriction of
CHemicals5. EVRAZ’s goal is to ensure
continued compliance with REACH
requirements in order to eliminate possible
risks to supplying customers in the European
Economic Area.
Air emissions
The reduction of air emissions is one of
EVRAZ’s main environmental objectives. The
key air emissions are primarily comprised of
nitrogen oxides (NOx), sulphur oxides (SOx),
dust and volatile organic compounds.
The Company has made significant progress
in air emission reduction since 2011. The
present air emissions reduction strategy
includes modernisation of gas treatment
systems as well as implementation of modern
technologies and withdrawal of obsolete
equipment. In 2014, EVRAZ ZSMK introduced
the Pulverised Coal Injection (PCI) technology
and completed installation of hydraulic valves
on the coke chemical production equipment.
EVRAZ DMZ modernised the gas treatment
system of the converter shop mixer, and
EVRAZ KGOK upgraded the aspiration
systems for roasting and sintering machines.
Nevertheless the key air emissions have
increased by 5.1 thousand tonnes (or 4.3%)
compared to 2013. The growth in the
emissions was caused by higher sulphur
content in coal and iron ore used at EVRAZ
ZSMK’s power and sinter plants which
resulted in SOx emissions growth and by an
increase in dust emissions at EVRAZ ZSMK
Heat & Power plant due to low efficiency of
electrostatic precipitators. Because of these
two factors the air emissions by EVRAZ ZSMK
have increased by 7 thousand tonnes
compared to 2013.
4 As of 31 December 2014.
5 REACH – Regulation (EC) No 1907/2006 of the European Parliament and of the Council according to which as of June 1, 2007 all chemical substances, mixtures and substances
in articles (in some cases) produced in or imported to European Economic Area (EEA) territory above 1 tonne per year are subject to mandatory procedures such as registration, evaluation,
authorisation and restriction of chemicals. If chemicals are not registered in accordance with REACH the products are not allowed to be manufactured in or imported into the EEA.
32
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
In addition, EVRAZ Highveld has been updating
its monitoring system to provide more accurate
data and to improve operational control. As a
result, the enhanced control tools helped to
identify additional 3 thousand tonnes of dust
and sulphur emissions.
Taking into account the management decision
to re-base the targets by excluding data
related to the disposed assets (EVRAZ VGOK,
EVRAZ Vitkovice Steel, three mines of
Evrazruda, the ZSMK Central Power Plant of
ZSMK and EVRAZ NTMK’s Nizhnesaldinsky
mill), the key air emissions from operations
have increased by 3.8% since 2011.
Greenhouse gas emissions
EVRAZ recognises the importance of abating
climate change and supports the global
effort to reduce greenhouse gas emissions
into the atmosphere. In fulfilment of the
requirements of the Companies Act 2006
(Strategic and Directors’ Report) Regulations
2013, EVRAZ undertook to assess full
greenhouse gas (GHG) emissions from
facilities under its control.
The assessment covered direct (Scope 1)
emissions of all seven “Kyoto” GHGs6 and
indirect (Scope 2) emissions from the use of
electricity and heat. The inventory approach7
was based on the 2006 IPCC Guidelines for
National Greenhouse Gas Inventories (IPCC
2006) and WRI/WBCSD GHG Protocol
Corporate Accounting and Reporting
Standard. The Company provides data in
tonnes of carbon dioxide (CO2) equivalent
(tCO2e) calculated using IPCC 2006 global
warming potentials.
GHG emissions data was collected for 2014
and compared to the 2013 levels which were
established as a baseline. The steel segment
is still responsible for more than half of gross
greenhouse gas emissions from operations,
while almost 90% of full emissions from the
coal segment are due to fugitive methane
leakage, caused by methane ventilation from
underground mines and post-mining
emissions from coal.
GHG emissions per net revenue, kg CO2e/US$
6.2
6.2
3.4
3.5
3.4
3.8
EVRAZ
Steel segment
Steel, NA segment
Coal segment
Other
0.5
0.4
1.8
0.2
2014
2013
EVRAZ GHG
Emissions, MtCO2e
Total GHG
emissions
Split:
2013*
2014
49.04
45.55
Specific Scope 1 and 2 GHG emissions in
steel segment, t CO2e per t of steel products
2.15
2.23
Direct (Scope 1)
40.99
37.59
Consisting of:
CO2
CH4
N2O
33.30
30.88
7.61
0.08
6.63
0.08
PFC+HFC
0.0002
0.0002
SF6
NF3
–
–
–
–
Indirect (Scope 2)
8.05
7.96
Total 2014 GHG emissions decreased by
7% compared with the previous year. The
decrease of coking coal consumption at
EVRAZ ZSMK due to implementation of the
pulverised coal technology in 2014, lower
consumption of fuel coal at EVRAZ NTMK,
and sale of some of the EVRAZ assets, that
took place in 2013 and the beginning of
2014, have led to the decrease in CO2
emissions by 7%. Lower methane content
2013
2014
EVRAZ steel operations (incl. NA)
Worldsteel average 2013 (1.80)
in the coal mined and decrease in coal
production at some of the mines have
resulted in 13% CH4 emissions reduction
in the coal segment. Overall, these factors
led to an 8% decrease of the EVRAZ Scope 1
emissions. Scope 2 emissions decreased
by approximately 1%.
6 Carbon dioxide – CO2, methane – CH4, nitrous oxide – N2O, hydrofluorocarbons and perfluorocarbons – HFC+PFC, sulphur hexafluoride – SF6 and nitrogen trifluoride – NF3.
7
The inventory of emissions includes all entities the Group controls. Entities that were disposed of during the year were included for the period they were part of the Group. Only entities
that were deemed immaterial for consolidated emissions based on their operational indicators were omitted. Direct CO2 emissions from operations were calculated using the carbon
balance method for carbon flows within production facilities, including fuel use. Emissions of other GHGs were calculated based on measured volumes, inventory changes or IPCC 2006
factors and models (including that for post-mining coal methane emissions) where direct measurement data were not available. Indirect emissions were estimated using emission
factors specifically developed for the country or region, if available, or otherwise factors provided by UK Defra.
The results of 2013 have been recalculated due to change in the approach to estimation of fugitive post-mining methane emissions from produced coal as well as due to improvements
in data quality and several identified inaccuracies. In order to estimate post-mining methane emissions, data on the in situ methane content of the coal provided in the National
Greenhouse Gas Inventory Reports are now used where available, or else the highest relevant default emission factor provided by IPCC 2006. Locally obtained factors that were
previously used proved to be inapplicable. The total effect of these changes for 2013 amounted to –3.72 MtCO2e for Scope 1 emissions. Identified improvements in quality of the data
and inaccuracies regarding material flows have summarily resulted in the corrections of the 2013 GHG emissions of –1.11 MtCO2e for Scope 1 emissions.
*
EVRAZ plc Annual Report and Accounts 2014
33
Corporate Social Responsibility
(continued)
EVRAZ reports an intensity ratio relating
its annual GHG emissions to its activities
– total Scope 1 and 2 emissions per
consolidated revenue for the Company as
a whole and each operating segment (see
graphs) according to the new divisional
structure. Additionally, specific emissions in
the steel segment per tonne of steel products
for both 2013 and 2014 years are compared
to average specific emissions of World Steel
Association members for 2013. Higher
specific GHG emissions in the EVRAZ steel
segment may be due to the key role that
integrated iron and steel works (that
inherently emit more GHGs than rolling mills)
play in EVRAZ steel production output.
Water consumption and water discharge
The objective of the Company is to use water
resources efficiently and to prevent any
negative impacts on water quality through
environmental incidents. In 2014, almost 76%
of EVRAZ total water intake was from surface
sources, including rivers, lakes and reservoirs
versus 80% in 2013.
Total fresh water consumption in 2014 was
332 million cubic metres, 9.8% less than in
2013 (368 million cubic metres) and 26.6%
less than in 2011. Taking into account the
decision by the HSE Committee of the Board
to re-base the target by excluding data related
to the disposed assets, the fresh water
consumption decreased by 17% versus the
2011 adjusted baseline.
EVRAZ fresh water consumption dynamics,
million m3
451.6
422.3
368.4
332.1
2011
2012
2013
2014
Water discharge decreased by 73.8 million
cubic meters during 2012-2014.
In 2014, EVRAZ sites significantly improved
the water management performance.
Yuzhkuzbassugol put into operation new water
treatment facilities at Uskovskaya and
Yerunakovskaya-VIII mines. The Alardinskaya
mine completed installation of domestic
waste water treatment resulting in more
treated water used in production instead
of fresh water.
Water pumped from mines (mine dewatering
process) is not included in the fresh water
consumption target although pumped water
is used in the production process. In 2014,
44.7 million cubic meters of mine water were
pumped out and used compared to 37 million
cubic meters in 2013.
EVRAZ ZSMK has commissioned new water
rotation cycles in the gas treatment installation
at the ingot shop, a water cooling system of
the rail and beam mill, reconstructed the pump
station and replaced gravity conduits of “dirty”
and “clean” cycles. These measures along
with operational improvements allowed to
decrease water consumption at EVRAZ ZSMK
by 14 million cubic meters.
The Bagleykoks coke plant in Ukraine has
commissioned a new chemical water
treatment plant.
Waste management
Mining and steelmaking operations produce
significant amounts of waste including waste
rock, spent ore and tailings (waste from
processing ore and concentrates). EVRAZ aims
to reduce the amount of waste it produces, to
reuse natural resources where possible and to
dispose of waste in a manner that minimises
the environmental impact whilst maximising
operational and financial efficiency.
In line with the Company’s strategy to reduce
waste storage volumes and enhance waste
disposal, EVRAZ sites regularly reviews
opportunities for waste recycling and reuse.
For example, in 2014 EVRAZ ZSMK has
started operation of the new installation for
converter slag processing. The main goal is
100% recycling of converter slag. This will
allow us to extract 20-25% of the metal from
the slag with the remainder after the crushing
and screening becoming by-product.
In 2014, EVRAZ steel mills generated
9 million tonnes of metallurgical waste (slag,
sludge, scale) while 10.8 million tonnes were
recycled and reused. In total, in 2014, EVRAZ
recycled or reused 110% of non-mining waste
and by-products compared to 106% in 2013.
EVRAZ’s strategy of dealing with non-
hazardous mining wastes, such as depleted
rock, tailings and overburden is to use them
where possible for land rehabilitation and the
construction of dams or roads. In 2014, 11%
or 15.4 million tonnes of such waste material
were reused compared to 14% or 21 million
tonnes in 2013.
All non-recyclable waste is stored in facilities
which are designed to prevent any harmful
substances contained in the waste escaping
into the environment.
Human capital
EVRAZ recognises the importance of working
with people and for people. Great efforts are
invested in ensuring EVRAZ is a sustainable
Company that can support its growth strategy
through its human capital management.
Goals and initiatives of EVRAZ’s HR strategy
are aimed at developing employee skills and
improving production safety levels through
training and performance management.
In 2014, the Company employed almost
95,000 people. The 10% decrease from 2013
was mainly caused by:
– the optimisation of production personnel
(more than 4,000 employees)
– optimisation of general and administrative
personnel (more than 2,500 employees)
– the closure of uneconomic facilities at
EVRAZ ZSMK and Yuzhkusbassugol mines
(more than 2,000 employees)
– the disposal of assets (more than 2,000
employees) and
– outsourcing of support functions (about
500 employees).
The number of compulsory redundancies
across all operations totalled some 6,500
employees in 2013.
34
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Educational programmes
EVRAZ capitalises on its technical
employees’ expertise by involving them in
the development of educational materials
and training courses. 46 schools of chief
specialists took place during the last 3 years
aimed at developing and preparing
successors (490 employees) for 240
technical experts. In addition, 11 technical
forums including The Youth Scientific
Technical Conference aimed at solving
production issues were highly assessed
by the management. TIPS (Theory of Inventive
Problem Solving) methods were actively
implemented in all such initiatives. EVRAZ’s
most gifted engineers undertake master’s
degrees in the Moscow Institute of Physics
and Technology with a specialisation in
systems engineering.
In 2014, more than 2,000 managers of
all levels, including President and vice-
presidents, were trained on EVRAZ’s
corporate standard of Behaviour Safety
Conversations which could help to manage
safety culture, attitude and prevent
staff injuries.
Performance management
To encourage good performance and ensure
there is a clear link between corporate and
individual objectives, performance
management systems are implemented
across the Company. Business tasks and
development targets of the performance
management process include Key
performance indicators (KPI) of certain
business units aligned with the Company’s
strategic principles and personal development
plans. Further initiatives to motivate
employees and provide career development
perspectives are based on the results of
these performance management plans.
Talent management
EVRAZ places a great deal of emphasis
on selecting, developing and promoting of
high potential employees, as set out in our
five year target. There are several tools to
achieve this target – self-promotion and
standard educational programs for all
management levels.
In 2014, 51 EVRAZ technical specialists
from the USA, Canada, South Africa, the
Czech Republic, Switzerland, Ukraine and
Russia participated in the 5th EVRAZ New
Leaders Programme hosted by the Skolkovo
Moscow School of Management. In 2014
this programme was conducted with the
Massachusetts Institute of Technology.
Talent management issues are supervised
by the Talent Committee which is comprised
of key EVRAZ executives, all of whom are
actively involved in and personally responsible
for, tutoring and overseeing a given pool of
high potential employees. Talent Committees,
which were introduced at all sites in 2013,
will be used to engage management into
the process of identifying and developing
successors for key positions in the Company.
Diversity
The Company believes that diversity plays
an important role in a successful business.
EVRAZ remains committed to providing equal
rights to its employees regardless of their
race, nationality, gender or sexual orientation,
and the Company recognises the importance
of diversity when recruiting employees. Full
consideration is given to applications from
people with disabilities, having regard to their
particular aptitude and abilities. EVRAZ
values all types of diversity, but focuses on
gender balance at all levels of the business
with a view of improving the percentage of
women in senior management each year to
help the Company ensure a more balanced
range of skills and management styles.
Diversity of employees, senior management
and directors
9
0
%
8
6
%
7
0
%
3
0
%
1
0
%
1
4
%
Board
Senior management
Employees
Men
Women
As at 31 December 2014, 66,484 (70%)
of EVRAZ workforce were men and 28,339
(30%) women. Of these, 44 are considered
senior management (38 men and 6 women).
EVRAZ’s current female representation
amongst the Board’s membership is 10%
with one woman on the Company’s board
of directors.
After considerable consideration and research
Deborah Gudgeon was identified as a strong
candidate to succeed Terry Robinson as an
independent non-executive director and as a
member of the Audit Committee.
EVRAZ plc Annual Report and Accounts 2014
35
Corporate Social Responsibility
(continued)
Cooperation with labour unions
EVRAZ respects its employees’ rights and
aims to build a constructive and positive
relationship with the labour unions which
represent them. All EVRAZ sites operate
through the collective bargaining agreement
model. The Company has generally high levels
of unionisation at operations (about 75%),
although this can vary significantly across
operations and countries.
Regular discussions and formal and informal
meetings of the management and the unions
are conducted at all EVRAZ facilities in Russia
and globally.
employees well informed. In 2014, EVRAZ’s
communication program devoted to Health,
Safety and Environment was recognised as
one of the best internal communications
projects in Russia, acknowledging our
success in motivating people to work
safe, value their health and wellbeing.
In 2014, EVRAZ introduced a number of
new communications tools, such as town
hall meetings with EVRAZ vice presidents
and plant CEOs, quarterly top management
letters, infographics as an easy way to explain
our complex business processes and a new
communications campaign, designed to
promote the EVRAZ Business System.
Internal communications
EVRAZ pays great attention to its internal
communications processes and constantly
develops it in order to build an efficient
system, designed not only for keeping
information flowing, but also for raising
employees’ loyalty and motivation.
The company searches, evaluates and
implements best communications practices,
such as corporate Intranet, bulletins, town
halls, internal advertising campaigns. Our
goals are to provide up-to-date, full and
transparent information regarding our
business and strategies, our progress and
bottlenecks, to support EVRAZ development
by engaging our employees into company’s
initiatives, by building a strong international
team of people, committed to our Company,
customers and industry.
Company’s internal communications
processes are built based on five
fundamentals of EVRAZ’s strategy. According
to the EVRAZ PEOPLE strategy we develop
transparent and easy-to-reach systems for
delivering the information to different groups
of employees – from white collar workers to
thousands of steelmakers and miners.
For example, our corporate Intranet unites
employees from the Russian Far East and
Western Siberia to Dnipropetrovsk, Ukraine,
providing them with one unified newswire and
knowledge data-base, available for all
corporate computer users. Our weekly
corporate newspaper with over 50,000
copies covers over 10 plants and mines;
unified information desks keep operational
EVRAZ encourages two-way communication
processes and collects feedback via the
EVRAZ Compliance Hot Line. Thus the
Company ensures that every complaint is
received and taken into account, and that
Company’s policies and procedures are
used as a part our plants’ and employees’
daily routine.
We strongly believe that our efforts help
EVRAZ in achieving market leadership and
in becoming the employer of choice.
Social and community programmes
The main charity programmes within the
company have remained consistent for
several years: EVRAZ supports children,
local communities and sports.
Charity funds in Siberia, the Urals, and Russia
help children with cerebral palsy. EVRAZ
implements all modern techniques that help
to treat the kids. Phototherapy is one of the
latest successful techniques, along with
aquatherapy, hippotherapy and traditional
medical care.
EVRAZ continues to support orphanages,
providing equipment, educational materials,
clothes and New Year presents. In Siberia
EVRAZ organised a boat tour to Evenkia for
the children from one of the orphanages of
Novokuznetsk. The children passed more
than 500 km by rivers and land.
Support for local communities includes
infrastructure and cultural programmes.
In 2014, EVRAZ continued to support the
Drama theatre of Novokuznetsk. The company
supported the project of exchange road tours
“Theatre spaces” which gave the citizens
opportunities to visit the plays of theatres
from other cities.
Once again EVRAZ ran the grant competition
“City of friends, city of ideas” in Kachkanar,
the Urals. 12 social projects proposed by
citizens were awarded grants, including those
aimed at taking care of elderly people,
improving the cultural life of the city, promoting
sports and safety rules for children, as well as
organising volunteer services.
EVRAZ continued its partnership with the
Russian Geographical Society. For the fifth
consecutive year EVRAZ sponsored the Kyzyl
– Kuragino archeological expedition in the
republic of Tyva. In 2014, EVRAZ also helped
organise the expedition in the North of Russia
Looking for the last giant of the Arctic Region.
The expedition reached by boat the location
where mammoth remains were found in the
beginning of the 20th century and made a
number of important new research findings.
EVRAZ North America continued to develop
its Reading Sparks®programme that provides
literacy support to children in EVRAZ
communities in the United States and
Canada. In addition to establishing book
nooks in elementary schools in Alberta
(Camrose and Calgary), Canada, we again
sponsored the Saskatchewan Young Readers’
Choice awards as well as the second and
third years of the Prairie Valley school
system’s Battle of the Books program in
Regina, Saskatchewan, Canada. In the U.S.,
we extended our support of the Pueblo City
elementary school system’s literacy program
to fund first- through third-grade classes.
EVRAZ began its multi-year commitment as
the presenting sponsor of the Enbridge Ride
to Conquer Cancer, which benefits the Alberta
Cancer Foundation. Additional non-profit
organisations and charitable causes in
Canada supported by EVRAZ North America
include the United Way, Hull Services, and
the Alzheimer Society. The company also
36
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
provides scholarships for Canadian
Aboriginals to the Universities of Alberta and
Regina, Notre Dame College, Northern Alberta
Institute of Technology and Saskatchewan
Polytechnic. In addition, EVRAZ is an
associate partner of the new University of
British Columbia Pipeline Integrity Initiative
to foster education, training and research
for BC’s pipeline programs.
EVRAZ also continues to support four-year
skilled apprenticeships for maintenance
and electrician tradespeople at Pueblo
Community College and the Pueblo Workforce
Center in Colorado. In Portland, Oregon,
EVRAZ supported the First Growth Children
and Family Charities annual fundraiser
benefitting the YWCA Clark County, Randall
Children’s Hospital, New Avenues for Youth,
Metropolitan Family Services, and Friends
of the Children.
EVRAZ Highveld Steel and Vanadium Ltd
sets a focus on socioeconomic development,
education and health, to the benefit of the
most vulnerable members of the eMalahleni
community. Programmes include meals to
underprivileged children and a secure
playground for them after school, donation
for the construction of the hall in Pine Ridge
School, as well as support to SANTA – South
African National Tuberculosis Association.
Mapochs Mine supports a Hydroponics
and agricultural project. The mine supplied
infrastructure – hothouse tunnels and water
tanks and trained the households to produce
their own fruit and vegetables. Surplus
produce is bought by the Mapochs Canteen
and two boarding schools in the area.
Indigenous Nursery supports the Mapochs
Mine ground rehabilitation programme and
is used to grow seedlings and rescue plants
from the mined areas.
In Ukraine, EVRAZ concentrated on
environmental efforts, social projects and
improving infrastructure in the regions where
it is present.
The staff remain involved in EVRAZ-driven
community programmes. In April 2014
four hundred of EVRAZ DMZ Petrovskogo
employees participated in a regular
environmental event to clear the littered
banks of the Dnepro river.
EVRAZ Ukraine has promoted the prestige of
the metallurgical profession – the industrial
heart of the country. Over ten thousand
people visited the virtual room Feel Yourself
EVRAZ Steelworker in Dnepropetrovsk
trying on virtual suits of a blast furnace
and a converter shop worker.
Our Strategic Report, as set out on pages 4
to 37 inclusive, has been reviewed and
approved by the Board of Directors
on 31 March 2015.
By the order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
31 March 2015
EVRAZ plc Annual Report and Accounts 2014
37
38
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Business
Review
Here we analyse the Company’s results by
reportable operating segments and discuss
the performance of EVRAZ’s business
divisions throughout the year.
In this section:
40
41
44
44
49
52
54
56
56
58
61
61
63
Steel segment
Financial performance
Operational performance
– Russia: Steel and Iron ore
– Ukraine: Steel and Iron ore
– South Africa: Steel
– Vanadium
Steel, North America segment
Financial performance
Operational performance
Coal segment
Financial performance
Operational performance
EVRAZ plc Annual Report and Accounts 2014
39
Business Review
Operating over
four continents
Overview
In 2014, EVRAZ re-grouped its operations into
different operating segments compared to
2013 in order to better reflect the resource
allocation and relations between business
divisions. Therefore, for the year ended
31 December 2014, we have reported our
financial performance based on the following
new segments: Steel (excluding North
American steel operations); Steel, North
America; Coal; and Other operations.
decrease compared to 2013, while external
sales of steel products of 15.2 million tonnes
were marginally lower than the 15.5 million
tonnes achieved in 2013. The decline is
mostly attributable to the disposal of EVRAZ
Vitkovice Steel in the Czech Republic and the
shutdown of EVRAZ Claymont in the USA.
For a description of EVRAZ’s steelmaking
operations in different geographical locations
please refer to the respective parts of this
Business Review.
The production of steel and steel products
output remains the core of EVRAZ’s business
with operations spread over four continents.
The Company is represented in many steel
product markets with a specialised focus on
the infrastructure sector.
In 2014, EVRAZ’s consolidated crude steel
output totalled 15.5 million tonnes, a 4%
The Company’s iron ore mining and
beneficiation operations, including the
vanadium operations, are part of EVRAZ’s
Steel segment given their close integration
with our steelmaking assets. In 2014, the
production of saleable iron ore products
decreased by 3% compared to 2013, as
a result of disposals and the closure of
inefficient iron ore assets in Russia,
EVRAZ’s consolidated external steel sales by product
such as EVRAZ VGOK and several mines at
Evrazruda. However, the majority of iron ore
consumed by EVRAZ’s steel mills in 2014
was still supplied from the Company’s own
operations. More information on EVRAZ’s iron
ore and vanadium operations can be found in
this review.
With the acquisition of the Raspadskaya coal
company EVRAZ’s coal mining has developed
into a very strong business which supplies
coking coal to EVRAZ’s steel plants and sells
coal in the market. Raw coking coal output
increased by 11% driven by enhanced
production by the Raspadskaya coal company
due to the successful completion of the
Raspadskaya mine’s restoration programme
and stable performance at the
Yuzhkuzbassugol coal company. EVRAZ’s
Coal segment sold 16 million tonnes of coal
products, including 6.2 million tonnes
supplied for the Company’s internal
consumption. The results and prospects
of the Company’s coal operations are
described in more detail on pages 61-65.
Product
Semi-finished products
Construction products
Railway products
Flat-rolled products
Tubular products
Other steel products
Total
US$ million
‘000 tonnes
2014
2,359
3,623
1,535
1,106
1,499
357
2013
2,028
4,156
1,791
1,776
1,266
Change
16.3%
(12.8)%
(14.3)%
(37.7)%
18.4%
458
(22.1)%
2014
4,737
5,548
1,862
1,406
1,046
577
2013
4,013
5,732
1,929
2,358
883
625
10,479
11,475
(8.7)%
15,176
15,540
Change
18.0%
(3.2)%
(3.5)%
(40.4)%
18.5%
(7.7)%
(2.3)%
Please see the Company’s quarterly and annual production press releases at http://www.evraz.com/media/news/ or visit
http://www.evraz.com/investors/production_results/ for quarterly and annual production data.
40
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
STEEL segment
Financial performance
Our Steel segment
includes steelmaking and
iron ore mining operations
in Russia, Ukraine,
Kazakhstan and South
Africa, our trading
companies and EVRAZ’s
global vanadium business.
(US$ million)
Revenue
EBITDA
EBITDA margin
CAPEX
Steel segment revenues
(US$ million)
To third parties
2014
2013
Change
9,519
10,792
(11.8)%
1,912
1,656
15.5%
20.1%
15.3%
4.8%
317
476
(33.4)%
Year ended 31 December
2014
2013
Change
8,933
10,392
(14.0)%
To steel North America segment
532
328
62.2%
To coal segment
To other operations
Total Steel segment
18
36
19
53
(5.3)%
(32.1)%
9,519
10,792
(11.8)%
Steel segment revenues by products
Year ended 31 December
2014
2013
US$ million
% of total
segment
revenue
US$ million
% of total
segment
revenue
2014 v
2013
Change
Steel products, external sales
7,510
78.9%
8,625
80.0%
(12.9)%
Semi-finished products1
Construction products2
Railway products3
Flat-rolled products4
Other steel products5
Steel products, intersegment sales
Iron ore products
Vanadium products
Other revenues6
Total
1
2
3
4
5
6
Includes billets, slabs, pig iron, pipe blanks and other semi-finished products
Includes rebars, wire rods, wire, beams, channels and angles
Includes rail, wheels, tyres and other railway products
Includes commodity plate and other flat-rolled products
Includes rounds, grinding balls, mine uprights and strips
Includes coke and coking products, refractory products, ferroalloys, scrap, energy and services.
2,359
24.9%
2,028
18.8%
16.3%
3,286
34.5%
3,866
35.8%
(15.0)%
1,022
10.7%
1,324
12.3%
(22.8)%
487
356
543
278
484
704
5.1%
3.7%
5.7%
2.9%
5.1%
7.4%
988
419
338
409
530
890
9.2%
(50.7)%
3.9%
(15.0)%
3.1%
60.7%
3.8%
(32.0)%
4.9%
(8.7)%
8.2%
(20.9)%
9,519
100.0%
10,792
100.0%
(11.8)%
EVRAZ plc Annual Report and Accounts 2014
41
Business Review (continued)
STEEL segment
Financial performance (continued)
Sales volumes of Steel segment
(‘000 tonnes, unless otherwise stated)
Steel products, external sales
Semi-finished products
Construction products
Railway products
Flat-rolled products
Other steel products
Steel products, intersegment sales
Total steel products
Vanadium products (tonnes of pure Vanadium)
Vanadium in slag
Vanadium in alloys and chemicals
Iron ore products
Pellets
Other iron ore products*
Year ended 31 December
2014
2013
12,566
12,913
4,737
5,140
1,325
789
575
954
13,520
20,806
3,220
17,586
4,542
1,288
3,254
4,013
5,367
1,450
1,490
593
608
13,521
23,078
5,883
17,195
4,815
1,257
3,558
* Other iron ore products include lumping ore of Sukha Balka, sinter and concentrate.
Geographic breakdown of external steel products’ sales
Russia
Asia
Europe
CIS
Africa & America & RoW
Total
US$ million
‘000 tonnes
2014
4,088
1,621
523
671
607
2013
4,835
1,637
920
803
429
Change
(15.4)%
(1.0)%
(43.2)%
(16.4)%
41.5%
2014
6,428
3,182
956
965
1,035
2013
6,576
3,151
1,476
1,065
645
7,510
8,624
(12.9)%
12,566
12,913
Change
(2.7)%
18.0%
(4.2)%
(8.6)%
(47.0)%
(3.0)%
56.9%
(0.0)%
(9.8)%
(45.3)%
2.3%
(5.7)%
2.5%
(8.6)%
Change
(2.3)%
1.0%
(35.2)%
(9.4)%
60.5%
(2.7)%
The Steel segment’s revenues decreased by
11.8% largely as a result of lower revenue from
the sales of steel products. Steel products
sales revenues were US$8,053 million in 2014
compared to US$8,963 million in 2013, the
decline was predominantly due to lower prices,
accompanied by negative impact from changes
in the sales mix, i.e. higher share of sales of
semi-finished products and lower share of
final products.
The growth in revenues from external sales
of semi-finished products was due to higher
sales volumes, which reflected the changes
in Group product mix. Sales of slabs to third
parties in 2014 rose compared to prior year
mainly as a result of reduced internal
consumption of billets and slabs. This relates
to the suspension of operations at EVRAZ
Palini e Bertoli, the disposal of EVRAZ
Vitkovice Steel, closure of EVRAZ ZSMK flat
plate mill and a decrease in the production
of railway products.
External revenues from sales of railway
products (rails, wheels etc.) fell due to lower
sales volumes and prices. The decrease in
volumes was attributable to lower orders for
solid wheels and railcar sections from railcar
producers and railcar repair shops.
Revenues from the sales of construction
products to third parties were down by 15.0%
in the year, primarily as a result of reduced
prices accompanied by lower sales volumes.
Lower sales volumes resulted from a
decrease in the consumption of steel
sections and growing competition among
beam producers in Russia. Revenue was
affected by a decline in the prices of
construction products in Russia, caused by
lag in a local price adjustment after the fall
in the Russian rouble.
Flat rolled product external revenues in 2014
were significantly lower than in 2013 due to
lower sales volumes following the disposal
of EVRAZ Vitkovice Steel (approx. 360,000
tonnes), the suspension of operations of
EVRAZ Palini e Bertoli (approx. 290,000
tonnes), and the shutdown of the EVRAZ ZSMK
plate rolling mill (approx. 115,000 tonnes).
42
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Steel segment revenues from the sales
of iron ore products decreased by 32.0%,
primarily as a result of the fall in iron ore
prices. This was also accompanied by lower
sales volumes, primarily because of the sale
of VGOK in October 2013.
During the year, approximately 57% of EVRAZ’s
iron ore consumption by steelmaking was
supplied by the Group’s own operations,
compared with 68% in 2013.
Steel segment revenues from the sales of
vanadium products declined by 8.7% mainly
due to lower prices.
Steel segment cost of revenue
Cost of revenue
Raw materials
Iron ore
Coking coal
Scrap
Other raw materials
Semi-finished products
Transportation
Staff costs
Depreciation
Energy
Other*
Year ended 31 December
2014
2013
2014 v
2013
US$ million
% of segment
revenue
US$ million
% of segment
revenue
Change
6,940
72.9%
8,388
77.7%
(17.3)%
2,633
27.7%
3,068
28.4%
(14.2)%
702
892
495
544
87
454
7.4%
734
6.8%
(4.4)%
9.4%
1,180
10.9%
(24.4)%
5.2%
5.7%
0.9%
4.8%
541
613
178
655
5.0%
(8.5)%
5.7%
(11.3)%
1.6%
(51.1)%
6.1%
(30.7)%
950
10.0%
1,200
11.1%
(20.8)%
337
823
3.5%
483
4.5%
(30.2)%
8.6%
1,020
9.5%
(19.3)%
1,656
17.4%
1,784
16.5%
(7.2)%
* Includes repairs and maintenance, industrial services, auxiliary materials, goods for resale, taxes in cost of revenue, and effect of changes in work-in-progress and finished goods inventories.
Steel segment gross profit
Steel segment gross profit increased by
7.3% to US$2,579 million in 2014 from
US$2,404 million in 2013, reflecting the
decline in steel segment revenues by 11.8%,
while cost of revenues decrease by 17.3%.
A summary of our Steel segment’s assets
and operations and FY2014 performance
is presented on pages 40-55.
EVRAZ’s steel segment cost of revenue
decreased to US$6,940 million in 2014, from
US$8,388 million in 2013.
Palini e Bertoli was partially offset by wage
inflation at EVRAZ NTMK and EVRAZ
ZSMK, and other changes.
The principal factors for this decline, in
absolute terms compared to 2013 were:
– The cost of raw materials decreased by
14.2% mainly due to a decline in prices for
coking coal and iron ore in the Russian
market, lower coal consumption at EVRAZ
ZSMK due to the coke plant shutdown.
This decline was, in turn, partially offset
by higher prices of iron ore and coke at
Ukrainian sites.
– Transportation costs decreased by 30.7%,
for which the primary causes were the
weakening of the Russian rouble, disposal
of VGOK and certain Evrazruda’s assets.
– Decrease in staff costs by 20.8% was
largely attributable to the Russian rouble
and Ukrainian hryvnia weakening.
Additionally, the reduction in staff costs
caused by the disposal of VGOK, Vitkovice,
Evrazruda’s assets, suspension of EVRAZ
– Depreciation and depletion costs were
mostly reduced by the local currencies
weakening, as well as reassessment of
the remaining useful lives of plant and
equipment at EVRAZ NTMK, EVRAZ ZSMK
and EVRAZ DMZ.
– Lower energy costs were driven by the
Russian rouble and Ukrainian hryvnia
weakening, the reduced consumption
of natural gas by EVRAZ DMZ due to
technology optimisation, disposal of
Vitkovice and VGOK, the EVRAZ Palini
e Bertoli suspension and reduced
production at Evrazruda.
– Other costs decreased primarily due to
lower auxiliary material costs, changes in
work in progress and finished goods and
goods for resale costs.
EVRAZ plc Annual Report and Accounts 2014
43
Business Review (continued)
STEEL segment
Operational performance
RUSSIA: Steel and Iron Ore
Output of crude steel (‘000 tonnes)
11,798
Output of steel products (‘000 tonnes)
10,795
EVRAZ KGOK
EVRAZ NTMK
ST PETERSBURG
MOSCOW
EVRAZ ZSMK
EVRAZRUDA
EVRAZ Caspian Steel
Steel
Key steelmaking production facilities
Fast facts
Operations
Products
EVRAZ ZSMK (Russia)
Capacity:
• Crude steel: 8.9 million tonnes per annum
• Construction products: 3.6 million tonnes
per annum
• Rails: 950,000 tonnes per annum
Employees*: 20,424 (2013: 22,508)
Ownership: 100%
EVRAZ NTMK (Russia)
Capacity:
• Crude steel: 4.5 million tonnes per annum
• Construction products: 1.1 million tonnes
per annum
• Rails: 510,000 tonnes per annum
• Other railway products: 425,000 tonnes
per annum
Employees: 15,404 (2013: 17,419)
Ownership: 100%
EVRAZ Caspian Steel (Kazakhstan)
Capacity (steel products): 450 ktpa
Employees: 231 (2013: 175)
Ownership: 65%
Two fully integrated steelmaking plants EVRAZ
NTMK and EVRAZ ZSMK include:
• Metallurgical products: coke, pig iron
• Semi-finished products: slabs, billets,
pipe blanks
• Long products: rebars, rod, structural
products
• Railway products: heavy-haul rails,
low-temperature and high speed rails,
head hardened, 100 metre rails, wheels,
etc. Industrial steel: grinding balls, arch
rock support, etc.
– coke and chemical processing facilities
– sinter plant
– blast furnaces
– basic oxygen furnaces
– blooming plant, slab and billet
continuous casting machines
– electric arc furnaces, ladle furnaces
and vacuum vessel
– rolling mills: medium section mill 450,
light section mills 250-1 and 250-2,
wire mill, rail and structural mills, rail
fastening mill, broad-flange beam mill,
heavy section mill, wheel rolling mill,
ball rolling mill
• Rolling mill
• Rebars
• Small sections
* Number of employees here and throughout the report as of 31 December 2014.
44
EVRAZ plc Annual Report and Accounts 2014
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Business Review
Governance
Financial Statements
What EVRAZ said and did in 2014 and 2015 targets
2014 targets
2014 achievements
2015 targets
Launch PCI technology at EVRAZ ZSMK
PCI unit was commissioned at EVRAZ ZSMK
in July 2014 allowing sustainable reduction in
operating costs of up to US$6 per tonne of
crude steel
Reach design parameters: coke consumption
to decrease from 420 kg/t to 358 kg/t of pig
iron, and natural gas decrease from 69m3/t to
34m3/t of pig iron, on the back of usage of
129 kg of PCI coal per tonne of pig iron
In 2014 US$7 million savings on coke and
natural gas were achieved (coke consumption
decreased from 423 kg/t to 420 kg/t of pig
iron, and natural gas decreased from 72m3/t
to 69m3/t)
Launch a converter slag processing complex
at EVRAZ ZSMK
The slag processing complex was launched in
November 2014
Finalise the construction of modern air
separation units at EVRAZ NTMK in order to
outsource supply of industrial gases
Postponed to Q2 2015 due to delay in
commissioning of new equipment by a
contractor
EVRAZ Caspian Steel to reach its designed
annual nameplate capacity of 450,000
tonnes of rebars in H2 2014
The mill was commissioned in mid-2014 with
mass production beginning in August and
totalling 62 kt of rebars by year-end
Master high grade slab production at
EVRAZ NTMK
Produce 665,000 tonnes of rails at
EVRAZ ZSMK
Pilot batch of slabs was delivered to a client
EVRAZ ZSMK produced 530,000 tonnes
of rails; a number of new rail types have
been developed and received compliance
certificates from Russian and European
certification agencies
Reach the design parameters of 100% slag
processing and save on consumption of scrap
and iron ore products
Commission air separation units at
EVRAZ NTMK
The mill is expected to produce ca. 365 kt
of rebars in 2015, gradually ramping up
production to the nameplate annual capacity
of 450 kt
Increase production and sales of the NTMK
high value added micro-alloyed pipe grade slabs
Produce 800,000 tonnes of rails at EVRAZ ZSMK,
including 45,000 tonnes of 100-metre rails
Expand product portfolio by developing new
rail profiles
Start qualification of 60E2 rails at Deutsche Bahn
Start supplying 100-metre rails, and to
expand the product line of head-hardened
rails for high speed applications
First batch of 100-metre head-hardened R65
DT-350 rails was shipped to Russian Railways
in May. Shipments of 100-metre rails amounted
to 5,000 tonnes
Develop railway wheel sales to North America
and start supplies to Europe
Target sales to both North America and
European markets have been achieved: 5,600
tonnes of railway wheels were shipped
Expand shipments of wheels to export markets
Improve the quality of work with claims
in accordance with a new CRM project
A new CRM system was launched where every
customer has a personal online account for
order tracking and monitoring of payment and
application status
Improve the customer satisfaction index by
implementing the claim processing procedure,
which will reduce the time of response to the
claims and delineate responsibility zones
EVRAZ plc Annual Report and Accounts 2014
45
Business Review (continued)
STEEL segment
Operational performance (continued)
RUSSIA: Steel and Iron Ore (continued)
Production
Crude steel output at EVRAZ’s Russian steel
mills was largely unchanged in 2014 compared
to 2013, reaching 11.8 million tonnes.
In 2014 EVRAZ ZSMK produced 5.9 million
tonnes of pig iron, 7.6 million tonnes of crude
steel and 6.8 million tonnes of steel products.
EVRAZ ZSMK focused on reducing operating
costs by closing a number of coke batteries
and launching the PCI technology. As a result
of the introduction of PCI technology, EVRAZ
ZSMK has increased annual pig iron capacity
by 234,000 tonnes to 6,150,000 tonnes.
Following the scheduled launch of PCI at
EVRAZ ZSMK and the resulting decline in
internal coke consumption, accompanied by
the weak demand for coke in the domestic and
export markets, the EVRAZ ZSMK steel plant
shut down its coke chemical plant EKS-2.
In 2014, EVRAZ NTMK produced 4.8 million
tonnes of pig iron, 4.2 million tonnes of crude
steel and 4.2 million tonnes of steel products.
Production of vanadium slag by EVRAZ NTMK
amounted to 15, 125 tonnes of vanadium. For
details on the performance of the Vanadium
segment please refer to pages 54-55.
Sales
In 2014, shipments of steel products
manufactured by Russian mills remained
stable with capacity utilisation remaining
high. The Russian and other CIS market
accounted for approximately 64% of EVRAZ
Russian plants’ overall sales volumes
(in 2014) with the remainder exported.
Most of the export sales were comprised
of semi-finished products, billets and slabs,
while in the domestic markets EVRAZ sold
predominantly finished steel goods,
such as construction or railway products.
Sales volumes of steel products
by destination
Export:
43%
Russia:
57%
46
EVRAZ plc Annual Report and Accounts 2014
External steel sales by products
US$ million
‘000 tonnes
2014
2013
Change
2014
2013
Change
Steel products
6,597
7,147
(7.7)%
11,071
10,719
3.3%
Semi-finished
products
2,130
1,814
17.4%
4,253
3,592
18.4%
Construction products
2,920
3,417
(14.5)%
4,581
4,742
(3.4)%
Railway products
Flat-rolled products
Other steel products
989
217
341
1,278
(22.6)%
1,295
1,413
(8.4)%
265
(18.1)%
373
(8.6)%
389
553
437
(11.0)%
535
3.4%
Construction products
The majority of construction products produced
by EVRAZ’s Russian steel mills were supplied to
Russian steel distributors, with construction
companies being the main end-users.
In 2014, consumption of rebars in Russia
increased by 5% to almost 8.9 million tonnes.
Rouble prices demonstrated a 3-4% growth
compared to 2013 mainly due to the rouble
devaluation. EVRAZ’s sales of rebars in
Russia were up by 4% year-on-year.
Annual consumption of steel sections decreased
by 9% in 2014 to 3.1 million tonnes due to the
lack of large infrastructure projects. EVRAZ
increased its market share from 43% to 48% in
U-beams and angles; it decreased from 78% to
70% in the H-beams and I-beams segments due
to pressure from competitors and substitutes.
Despite high volatility, rouble prices have risen,
increasing by 5% in 2014.
Activities related to enhancing the Company’s
customer focus remained among the key
priorities for EVRAZ in 2014. Deliveries via
a logistics hub in Siberia more than doubled
compared to 2013. A new CRM system
launched in June 2014 allows clients to
effectively carry out a number of tasks, including
placing and tracking online orders, checking
payment statuses and filing claims online,
optimising the claim processing procedure.
In 2014, EVRAZ’s trading arm for Russian
& CIS markets, Trading Company (TC)
EvrazHolding, maintained the highest
customer satisfaction level (improving it to
8.6% from 8.4% in 2013) among its Russian
competitors, according to the results of an
independent study.
EVRAZ’s steel distribution and service network
EVRAZ Metall Inprom (EMI) is the second largest
Russian steel trading company with an 11%
market share. In 2014, it sold 2 million tonnes
of steel products, with EVRAZ steel products
amounting to 1.07 million tonnes, or 54% of
EMI’s total sales. In 2014, EVRAZ Metall Inprom
received an award for having the best sales
network in Russia for the second year in a row.
The strength of the sales network is largely due
to its wide geographic presence, customer
focus, portfolio and the quality of products and
services it offers.
EVRAZ construction products’ market share
in Russia
30%
50%
84%
70%
50%
16%
Beams
Structural shapes
(angles and channels)
Rebars
EVRAZ
Others
Research and development
EVRAZ Russia continued to develop new
products to better meet customers’ needs by
developing niche steel products produced with
new proprietary technologies. Production of
rebar Aт1000 was launched by EVRAZ ZSMK,
the only steel plant in Russia which can produce
this type of rebars from steel grade 28C, the
use of which reduces the rebar cash cost.
EVRAZ ZSMK mastered rebar A600C, a
premium niche product which is resistant to
temperature changes and corrosion. Mass
production of rebar A600C began in September
2014. Mastering of rebars to meet Hong Kong’s
standard CS:2012 and US standard ASTM
A615 is underway.
Strategic Report
Business Review
Governance
Financial Statements
Railway products
EVRAZ’s Russian mills produced 1.3 million
tonnes of railway products in 2014, an 8%
decrease compared to 2013 as a result of lower
orders for solid wheels and railcar sections from
railcar producers and railcar repair shops. Rails
remained a key product for EVRAZ in 2014,
accounting for approximately 12% of the
Group’s total Russian steel product output.
In November 2014, EVRAZ completed TSI
certification of its 60E1 and 60E2 rails which
are now cleared for use in both high-speed
routes and general purpose railway tracks.
Issued by TUV Rheinland InterTraffic, the
compliance certificate allows EVRAZ to start
deliveries to Europe and other regions where
these types of rails are in demand. 60E1 is
the widest-spread rail type in Europe, while
60E2 is actively used by Deutsche Bahn.
In 2014, 897,000 tonnes of rails produced in
Russia were sold by the Company, including
650,500 tonnes supplied to Russian
Railways, 6% more than in 2013.
In 2014, the CIS freight wheels market shrank
by 40% as a result of a decrease in freight
car construction and repairs. EVRAZ
increased wheel shipments to the European
market in order to partially compensate for
lower domestic sales. Wheel sales amounted
to 119,000 tonnes.
EVRAZ intends to grow its railway business by
entering new markets and product segments.
Production at EVRAZ ZMSK’s rail rolling mill
can be flexibly adjusted to customer
requirements to produce raw (R260) and
head-hardened (R350HT) rails in lengths
of up to 100 metres.
EVRAZ ZMSK received compliance
certificates for two new rail types: head-
hardened DT350 rails for use in high-speed
mixed-traffic railway operations and DT370
rails with higher wear resistance and contact
fatigue life, from the Register of Certification
on the Russian Federal Railway. Both rail
types are produced using the innovative
head-hardening technology. No comparable
rails have been produced in Russia before.
In January 2015, EVRAZ delivered the first
batch of 100-metre head-hardened R65 rail,
produced by EVRAZ ZSMK, to the Moscow
metro. It is the first-ever use of 100-metre
rail in an underground transit system
internationally.
EVRAZ continues to strengthen its presence
in export railway wheel markets, in line with
targets set out for the year. This is
demonstrated by EVRAZ receiving the
Association of American Railroads (AAR)
certificate and expanding wheel sales to North
American and European railway wheel markets.
In September 2014, EVRAZ NTMK completed
the TSI certification of its BA-004 solid-rolled
railway wheels for freight cars. The Compliance
Certificate was issued by Výzkumný Ústav
Železni(cid:1)ní (VUZ) in the Czech Republic, the
European certificating authority for rail
transport. Earlier, in June 2014, two other
wheel types, BA-318 and BA-319, received
TSI certificates. The tests showed that the
wheels produced at EVRAZ NTMK are fully
compliant with the EU requirements for freight
car wheels.
Research and development
Our dedicated team of engineers based at
the state-of-the-art rail mill in Novokuznetsk
is focused on improving the length of the rail
life-cycle for passenger, freight, urban and
high-speed traffic. Recent innovations
developed include new, unique head-
hardened rails for low-temperature
applications used in heavy-haul lines in
Siberia, rails with high wear resistance for
sharp curves and high speed applications.
Another important area of R&D focus is the
development of new non-destructive testing
technologies for rails.
Our unique R&D centre for railway wheels
in Nizhny Tagil is constantly working on
improving the properties of freight, passenger
and high-speed wheels as well as special
solid wheels and tyres for locomotives sold
all over the world.
Outlook
Russian steel consumption is expected to
weaken in 2015 but can be partly offset by
higher exports.
In 2015, stronger competition is expected
in the Russian construction products, mainly
rebar and section, markets, as new minimills
launched by steelmakers are expected to
reach their designed capacity. Growing
competition is expected to result in increased
import substitution and price falls. The launch
of a new rolling mill by EVRAZ in Kazakhstan
should allow EVRAZ to increase its rebar
shipments in 2015. EVRAZ may also reallocate
some sales volumes to export markets.
Iron ore
EVRAZ’s key iron ore production facilities
Fast facts
Operations
EVRAZ KGOK
Run of mine: 58.1 million tonnes per annum
Saleable products: 9.9 million tonnes per
annum
Employees: 6,972 (2013: 7,102)
Ownership: 100% interest
• 3 open pits at Gusevogorskoye deposit
• Crushing, beneficiation, sintering and
pelletising workshops
• Licence for development of Sobstvenno-
Kachkanarskoye deposit
Evrazruda
Run of mine: 5.7 million tonnes per annum
Saleable products: 3.1 million tonnes per
annum*
Employees: 4,947 (2013: 5,524)
Ownership: 100% interest
• 3 iron ore mines:
– Tashtagol, Kaz, Sheregesh
• 1 processing plant:
– Abagursky
• 1 limestone mine:
– Gurevsky
Products
• Sinter
• Pellets
• Crushed stone
• Iron ore concentrate
• Crushed stone
• Limestone
* includes volume produced from third parties raw materials (dry magnetic separation product).
Iron ore reserves are given on page 206.
EVRAZ plc Annual Report and Accounts 2014
47
Business Review (continued)
STEEL segment
Operational performance (continued)
RUSSIA: Steel and Iron Ore (continued)
What EVRAZ said and did in 2014 and 2015 targets
2014 plans
2014 achievements
2015 targets
Maintain full mining capacity utilisation at
EVRAZ KGOK
Obtain necessary approvals and permits
covering technical aspects, land,
environmental and other issues of the
Sobstvenno-Kachkanarskoye deposit
Mining volumes at EVRAZ KGOK increased
from 56.8 million tonnes in 2013 to
58.1 million tonnes in 2014; saleable
products – from 9.8 million tonnes to
9.9 million tonnes
All necessary approvals and permits for the
first stage of the Sobstvenno-Kachkanarskoye
deposit development were received.
Commissioning of Sobstvenno-
Kachkanarskoye deposit was shifted to 2020
– previously 2018 – to minimise capital
expenditure
Intensify production at EVRAZ KGOK to
support achieved mining volumes
Revise the second stage of Sobstvenno-
Kachkanarskoye deposit development in order
to postpone capital expenditure
Conduct environmental and state expert
reviews in order to obtain permits and
approvals for construction of a new EVRAZ
KGOK tailing dump
The project was revised: investment on new
technology will be postponed as existing
technology allows the operation of the existing
tailing dump up to 2020
Define most effective methods and terms to
reconstruct the existing tailing dump
Implement the expansion project at
Evrazruda’s Sheregesh mine and establish a
development programme for the Abagursky
processing plant
The project implementation is on time
Development programme for the Abagursky
processing plant has been drawn up
Continue realisation of the Sheregesh mine
project according to the plan
Define the best option for reconstruction of
the Abagursky stockyard
Conduct a pre-feasibility study and evaluate
project finance options of Timir project
Pre-feasibility study was completed and the
technical project is undergoing government
approval; project financing is being discussed
Continue realisation of the Timir project
according to the plan
Expand production at KGOK
Develop cash cost reduction programme
at EVRAZ KGOK and Evrazruda
Conduct a pre-feasibility study for a
technological upgrade of the Tashtagol mine
in order to decrease the cash cost and
increase LOM by 2030
Production
Production of iron ore products (sinter and
pellets) in Russia decreased by 4% in 2014,
amounting to 17.6 million tonnes compared to
18.4 million tonnes in 2013, as a result of the
disposal of high cost loss making assets,
such as VGOK in 2013.
In 2014, EVRAZ KGOK mined 58 million tonnes
of ore with an average Fe content of 15.52%.
Total output of saleable products was
9.9 million tonnes, including 6.4 million tonnes
of pellets (61% of Fe content) and 3.4 million
tonnes of sinter (54% of Fe content).
The key customers of EVRAZ KGOK, EVRAZ
NTMK and EVRAZ ZSMK accounted for 82%
of supplies, with the remaining iron ore
products sold externally. In order to cut
transportation costs and improve profit
margins, sales to domestic customers have
been prioritised over export customers.
Domestic sales were 75% of total external
48
EVRAZ plc Annual Report and Accounts 2014
sales in 2014 compared to 29% in 2013 and
this positive trend is expected to continue.
In 2014, Evrazruda mined 5.7 million tonnes
of iron ore with an average Fe content of
29.2% and produced 2.8 million tonnes of iron
ore concentrate (61.0% Fe content), which was
supplied to EVRAZ ZSMK.
In 2014 Evrazruda has been successfully
carrying out the Sheregesh mine expansion
project and reduced cash costs to US$56 per
tonne compared to US$96 per tonne in 2013.
Sales
Most of the iron ore produced in Russia
was consumed by EVRAZ’s Russian steel
mills. External sales of iron ore products,
mostly pellets, amounted to 1.3 million
tonnes (2013: 1.3 million tonnes), including
964,731 tonnes sold in the Russian market.
Strategic Report
Business Review
Governance
Financial Statements
Ukraine: Steel and Iron ore
KIEV
EVRAZ Bagleykoks
EVRAZ Sukha Balka
EVRAZ DMZ
Output of crude steel (‘000 tonnes)
986
Output of steel products (‘000 tonnes)
840
Steel
Steelmaking production facilities
Fast facts
Operations
Products
EVRAZ DMZ
Capacity: 1.4 million tonnes per annum
of crude steel
Employees: 5,398 (2013: 5,913)
Ownership: 96.83% interest
EVRAZ Bagleykoks
Capacity: 707,000 tonnes of coke dry weight
Employees: 1,322 (2013: 1,484)
Ownership: 94.94% interest
Steel plant:
• Blast furnaces
• Basic oxygen furnaces
• Rolling and blooming mills
Coke plants
• Billets
• Specialty construction products
• Specialty flat products
• Coke
EVRAZ plc Annual Report and Accounts 2014
49
Business Review (continued)
STEEL segment
Operational performance (continued)
Ukraine: Steel and Iron ore (continued)
What EVRAZ said and did in 2014 and 2015 targets
All major capex projects are on hold because of the political and economic unrest in the region. However EVRAZ is working to lower costs
by implementing an energy efficiency programme.
2014 plans
2014 achievements
2015 targets
Complete technical designs of a sinter
screening installation at EVRAZ DMZ
Petrovskogo (DMZ)
The sinter screening project was completed
with content of sinter fines decreasing to 8%
Implement an energy efficiency programme
at DMZ
Natural gas consumption decreased by 35%
compared to 2013
Implementation of energy efficiency programme
at DMZ (turbo generator technical design; switch
to electricity purchase in the market; oxygen
waste elimination, BF oxygen enrichment)
Implement the project to debottleneck Mill
1050 in order to produce higher margin long
billets (instead of short billets)
Complete technical designs of a reheat
furnace reconstruction at Mill 550 at
EVRAZ DMZ
Reduce wastewater discharges by 9 million
cubic tonnes per annum starting from 2014
Equipment was installed and testing and
commissioning were completed
Increase production of Mill 1050 by 53,000
tonnes of billets per year
Project was put on hold as of March 2014
Develop a feasibility study for the Mill 550
reheat furnace
Water recycling equipment for Mill 1050 was
commissioned; sewage discharge volume
reduced by 6.8 million cubic metres per year
(11%). The feasibility study for West Collector
sewage treatment was executed
Commence construction works at the West
Collector sewage treatment with a target of
the purification of 49 million cubic metres per
year (76%) to the quality level of water in
river Dnipro
External steel sales
Steel products
Semi-finished
products
Construction
products
Railway products
Other steel
products
US$ million
‘000 tonnes
2014
469
216
2013
533
207
Change
(12.0)%
4.3%
2014
847
457
2013
861
411
Change
(1.6)%
11.2%
216
261
(17.3)%
352
383
(8.1)%
26
11
36
29
(27.8)%
(62.1)%
20
18
25
42
(20.0)%
(57.1)%
Outlook
In 2015, due to expected reduced demand
from Russia, DMZ plans to increase export
sales to Europe, Middle East, and North
African countries.
Production
In 2014, EVRAZ DMZ (DMZ) produced
986,000 tonnes of crude steel and 840,000
tonnes of steel products.
DMZ has continued to increase the share
of higher value added products in its product
portfolio. In 2014, six new construction
profiles (EU standard) and five auto rim
profiles for the Russian market were designed
and production commenced.
Sales
In 2014, sales of construction steel
amounted to 352,000 tonnes, 8% lower than
in 2013 given the difficulties with sales to
countries with unstable political environments
(Iraq, Syria, and Libya).
The company’s share in the Ukrainian
construction market increased to
approximately 70% in the fourth quarter
of 2014, as all the major competitors were
affected by social unrest; major smelters
located in the Donbass region were idled.
Sales of semi-finished goods – billets –
increased by 11% mainly due to higher
exports to Middle East supported by the
Ukrainian hryvnia depreciation.
50
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Iron ore
Iron ore production facilities
Fast facts
EVRAZ Sukha Balka
Run of mine: 3.0 million tonnes per annum
P&P reserves: 81 million tonnes*
Employees: 4,067 (2013: 4,199)
Ownership: 99.42% interest
Operations/deposits
2 underground mines:
• Yubileynaya
• Frunze
Products
• Lumpy ore
* As of 1 January 2014, total proven and probable reserves under the JORC Code were estimated at 81 million tonnes with Fe grade of 57%.
What EVRAZ said and did in 2014 and 2015 targets
2014 plans
2014 achievements
2015 targets
To complete the electrical safety programme
reaching the target of removing 50% of
electrical networks in the underground areas
To start the extraction of blast furnace iron
ore with Fe content of 63%
The first stage of the programme, dismantling
of the contact-wire line at the 1,260 metres
horizon, was carried out. 3km (~30%) of
overhead wiring was dismantled at
loading areas
A trial batch of 2,000 tonnes was shipped to
EVRAZ DMZ Petrovskogo. A full-scale
experiment of direct blast furnace charging
was carried out and, as a result, a sodium
carbonate ore (Fe content 60.2%) selective
mining project was developed
To launch the sodium carbonate ore (Fe
content 60.2%) selective mining project
aiming to sell 230,000 to EVRAZ DMZ
Petrovskogo
The reconstruction of dry magnetic separation
facilities to increase the quality of iron ore,
and stop the production of iron ore with Fe
content of 56%
Production and sales
In 2014, Sukha Balka produced 2.9 million
tonnes of lumpy iron ore, which was 3% lower
than in 2013 due to poor quality of raw ore at
the Yubileynaya mine and a switch to a lower
mining horizon.
EVRAZ Sukha Balka’s total sales were
2.6 million tonnes of ore compared to
3 million tonnes in 2013. Domestic sales
amounted to 1.7 million tonnes, or 64%
of total external sales volumes, including
deliveries to the Yuzhny Mining and
Enrichment Plant (YuGOK) and EVRAZ DMZ
36% of total output was shipped to European
customers outside of Ukraine in Europe by
rail and sea.
EVRAZ plc Annual Report and Accounts 2014
51
Business Review (continued)
STEEL segment
Operational performance (continued)
South Africa: Steel
EVRAZ
Highveld Steel
and Vanadium
Output of crude steel (‘000 tonnes)
621
Output of steel products (‘000 tonnes)
529
EVRAZ’s South African steelmaking assets
Fast facts
Operations
Products
EVRAZ Highveld Steel and Vanadium
Capacity: 815,000 tonnes of crude steel
Employees: 2,353 (2013: 2,303)
Ownership: 85.11% interest
Steel plant:
• Pre-reduction kilns and smelter furnaces
Blast oxygen furnaces
• Blooming machines and slab and billet
continuous casting machines
Universal structural mill
• Flat product complex
Iron ore:
• Mapochs open cast mine
• Medium and heavy structural sections
• Thick plate
• Coil
• Billets
• Vanadium slag
• Ore fines
External sales
Steel products
Semi-finished
products
Construction products
Flat-rolled products
Other products
Iron ore products
US$ million
‘000 tonnes
2014
345
12
135
191
7
23
2013
350
Change
(1.4)%
7
71.4%
123
210
10
20
9.8%
(9.0)%
(30.0)%
15.0%
2014
523
26
191
296
10
662
2013
489
Change
7.0%
12
116.7%
168
297
13.7%
(0.3)%
12
(16.7)%
445
48.8%
In August 2014, EVRAZ plc signed an
agreement to sell a 34% stake in the issued
share capital of EVRAZ Highveld to Macrovest
147 Proprietary Limited (“Macrovest”) led
by Barend Petersen, for ZAR 289 million
(approximately USD 27 million). The sale of
the interest to a local strategic investor will
be an important step to ensure sustainable
development of Highveld as South Africa’s
leading steel and vanadium business.
52
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Production
In 2014, EVRAZ Highveld Steel and Vanadium
produced 666,000 tonnes of pig iron. Iron
production improved by 4% compared to 2013
(or by 27,000 tonnes), resulting in a 5%
increase in saleable rolled and casted
production. This was largely attributable to
improved management focus on the iron
operation and improved equipment
availability. Production of Vanadium slag
showed a significant increase of 7% due to
better yields after plant maintenance and
due to the reprocessing of secondary rejects
and spillages.
Costs in 2014 were largely the same in real
terms on a per tonne basis, increasing mainly
due to inflation and other annual prices
increases, such as payroll (7%).
Improvements and cost cutting initiatives
largely took effect in the last quarter of 2014
and the positive implications of these
improvements will be seen in Q1 2015.
pressure on the market throughout the year,
with the full impact made apparent in the final
quarter. The depreciation of the South African
Rand further negatively impacted the market.
Sales
Total 0.5 million tonnes of steel products
were sold in 2014, 5% more than in 2013.
The South African domestic market faced
many challenges during 2014, largely driven
by ongoing labour strikes which resulted in
both growing market stock and reduced
investment into key areas of mining, OEM
suppliers and government infrastructure.
A five month strike in the platinum mining
industry during H1 2014 and a one month
strike in the engineering and fabrication
industries in the third quarter of 2014 put
Demand for flat products in the domestic
market was strong during the first half of the
year; however the strikes greatly affected the
heavy plate market from the last quarter of
2014. Coil and light gauge plate demand
remained consistent throughout the year.
The demand for long products was weaker
in the first half, while an increase in private
infrastructure development spurred an
increase in demand during H2.
EVRAZ plc Annual Report and Accounts 2014
53
Business Review (continued)
STEEL segment
Operational performance (continued)
Vanadium
EVRAZ Vanady Tula
Output of vanadium in final products,
saleable (tonnes of V*)
18,361
EVRAZ Nikom
* Calculated in pure vanadium equivalent
EVRAZ Stratcor
EVRAZ
Vametco
EVRAZ
Highveld Steel
and Vanadium
Key vanadium production facilities
Fast facts
Operations/facilities
Products
EVRAZ Vanady Tula (Russia)
Capacity:
7,500 mtV of vanadium pentoxide:
5,000 mtV of FeV
Employees: 599 (2013: 657)
Ownership: 100% interest
EVRAZ Nikom (Czech Republic)
Capacity: 4,940 mtV of FeV
Employees: 52 (2013: 53)
Ownership: 100% interest
EVRAZ Stratcor (USA)
Capacity: 2,750 mtV of vanadium oxides
Employees: 95* (2013: 82)
Ownership: 100% interest
EVRAZ Vametco (South Africa)
Capacity:
3,600 mtV of modified vanadium oxide
3,000 mtV of Nitrovan®
Employees: 407 (2013: 412)
Ownership: 66.95% effective interest
• Hydrometallurgical shop (V2O5 production);
• Electrometallurgical shop (FeV production)
• Vanadium pentoxide (V2O5)
• Ferrovanadium (FeV)
• Oxide vanadium product
• Metallurgical shop (FeV production)
• Ferrovanadium (FeV)
• Chemicals production
• Oxides
• Specialty vanadium chemicals
• Vanadium alloys
• Modified vanadium oxide production
• Nitrovan® production
• Modified vanadium oxide (V2O3)
• Nitrovan®
* Increased due to integration of North American vanadium sales team (used to be part of EVRAZ Inc. North America).
54
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
What EVRAZ said and did in 2014 and 2015 targets
2014 plans
2014 achievements
2015 targets
Complete the project to use EVRAZ NTMK’s
slag to alleviate feedstock shortages at
EVRAZ Stratcor
Increase output of specialty high value-added
vanadium chemicals at EVRAZ Stratcor
Decrease costs and improve productivity
following the installation of pulp filtration
equipment at EVRAZ VanadyTula
The manufacturing of an oxides vanadium
product in Russia began and the stable
deliveries of this product to EVRAZ Stratcor
reduced dependence on third-party feedstock
sources. Additionally, the supply chain from
Russia to the USA was established
Proactive marketing efforts allowed year-on-
year production of specialty high value-added
vanadium chemicals to grow by 8%
Commissioning of the pulp filtration equipment,
use to improve the overall technological
performance of a project, was postponed due
to project redesign
Maximise usage of the oxides vanadium
product to feed EVRAZ Stratcor operations
and further decrease dependence on
third-party feedstock material, and thus
reduce input costs
Increase production of chemicals at EVRAZ
Stratcor by 5%
Commission the pulp filtration equipment,
with the subsequent rise in output and yields
Production
EVRAZ Vanady Tula produced 7,309 tonnes
of vanadium pentoxide: 2,755 tonnes were
further processed into ferrovanadium at
EVRAZ Vanady Tula, 3,538 tonnes were
consumed by EVRAZ Nikom, and the
remainder was sold to a third party. Intake
from Russian & CIS customers generally
remained strong during 2014, with
ferrovanadium sales volumes growing by
7.6% when compared to 2013.
EVRAZ Nikom maintained stable production
in 2014 and increased vanadium yields. To
reduce costs and improve revenues, two
investment projects were initiated during the
year; a slag & MgO crushing line and a new
packaging unit. Both projects are expected to
be fully operational in 2015. A number of
labour optimisation initiatives were carried
out during the year to improve productivity
and secure cost savings.
In 2014, EVRAZ Nikom produced 4,803
tonnes of ferrovanadium, 1% less compared
to 2013, due to unforeseen feedstock supply
disruptions. Europe and North America
accounted for 80% of EVRAZ Nikom’s total
sales volume, with the remainder sold in Asia
and South America.
EVRAZ Stratcor enjoyed a stable supply of
internally-sourced feedstock. The reduced
use of feedstock from other sources resulted
in improved reagent utilisation and oxides
recovery rates, helping to cut oxides
production costs by over 10% compared to
2013. Production of oxides, vanadium
aluminium and chemicals at EVRAZ Stratcor
increased by 6% compared to 2013.
EVRAZ Vametco’s operations underwent
a full audit to ensure compliance with Mine
Health & Safety legislation and prevent plant
stoppages by the South African Department
of Mineral Resources (“DMR”). The audit also
reinforced EVRAZ’s commitment to
implementing global best practices at the
mill. Key operational improvements in 2014
targeted the overall maintenance system in
order to maximise the availability of key
equipment and optimise both yields and
throughput. As a result, EVRAZ Vametco
produced 3,206 tonnes of modified vanadium
oxide in 2014 (a 25% increase compared to
2013) and 2,463 tonnes of its proprietary
Nitrovan® product (a 7% increase compared
to 2013).
In 2014, EVRAZ continued to expand its
customer base and increased the number of
its long-term agreements, which secure the
major share of sales and guarantee stable
off-take. EVRAZ increased its focus on
value-adding products – chemicals and high
purity oxides. Growth in demand from major
aircraft manufacturers, driven by renewal of
airline fleets around the world, had a positive
impact on sales of vanadium-aluminium; a
significant component in EVRAZ’s specialty
products. Together with research centres in
the USA and China, EVRAZ continues to work
to find potential applications for vanadium in
flat steel products and new chemicals used in
energy storage, to support the global
technological progress.
Sales
In 2014, EVRAZ’s external and intersegment
sales of vanadium products decreased by
10%. This was largely due to the stagnation
of the Japanese economy and steep
deterioration of steel fundamentals in
China during H2 2014 which reduced the
attractiveness of the Asian markets.
EVRAZ negated much of the potential
negative impact by reallocating material to
other regions.
EVRAZ’s third party sales of vanadium
products in Russia grew by 11% driven by
growth in consumption by the large diameter
pipe (LDP) and the thick plate sectors. Sales
in Europe increased by 6% due to the growth
of the construction and automotive sectors
(1.8% and 4.5% respectively).
Outlook
Vanadium consumption and prices are
expected to continue to be largely driven by
trends in the steel market. Due to the launch
of new projects in 2015, vanadium supply
growth is expected to slightly outpace
demand. The European economic outlook
is flat, while growth forecasts for the U.S.
remains optimistic. Growth in Chinese
exports of vanadium products may put an
extra pressure on global pricing.
EVRAZ production is expected to grow
in 2015, mainly driven by the output of
Nitrovan®, a Group’s proprietary product
with advanced technological properties that
is recognised by a growing number of
steel producers.
EVRAZ plc Annual Report and Accounts 2014
55
Business Review (continued)
STEEL, North America segment
Financial performance
Steel, North America is a
segment, which includes
production of steel and
steel products in the USA
and Canada.
(US$ million)
Revenue
EBITDA
EBITDA margin
CAPEX
Steel, North America segment revenues
(US$ million)
To third parties
To Steel segment
2014
2013
Change
3,160
3,036
4.1%
279
8.8%
84
158
76.6%
5.2%
3.6%
89
(5.6)%
Year ended 31 December
2014
2013
Change
3,158
3,020
4.6%
2
16
(87.5)%
Total Steel, North America
3,160
3,036
4.1%
Steel, North America segment revenues by products
Steel products
Construction products1
Railway products2
Flat-rolled products3
Tubular products4
Other steel products
Other revenues5
Total
Year ended 31 December
2014
2013
US$ million
% of total
segment
revenue
US$ million
% of total
segment
revenue
2,969
94.0%
2,865
94.4%
2014 v
2013
Change
3.6%
337
513
619
10.7%
16.2%
19.6%
291
481
788
9.6%
15.8%
15.8%
6.7%
26.0%
(21.4)%
1,499
47.4%
1,266
41.7%
18.4%
1
191
0.0%
6.0%
39
171
1.3%
(97.4)%
5.6%
11.7%
3,160
100.0%
3,036
100.0%
4.1%
1
2
3
4
5
Includes beams, rebars and structural tubing.
Includes rails.
Includes commodity plate, specialty plate and other flat-rolled products.
Includes large diameter line pipes, ERW pipes and casing, seamless pipes, casing and tubing, other tubular products.
Includes scrap and services.
Sales volumes of Steel, North America segment
(‘000 tonnes)
Steel products
Construction products
Railway products
Flat-rolled products
Tubular products
Other steel products
Total
2014
2013
Change
408
537
617
1,046
365
492
867
883
11.8%
9.1%
(28.8%)
18.5%
2
32
(93.8%)
2,610
2,639
(1.1%)
56
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Revenues for Steel, North America increased
by 4.1% largely as a result of higher sales
volumes and improved pricing.
Flat-rolled product revenues in 2014 fell by
21.4% when compared with 2013 due to
lower sales volumes largely resulting from
the shutdown of EVRAZ Claymont.
Revenues from tubular product sales
increased by 18.4%, primarily as a result of
strong demand for large diameter line pipe
and operational improvements implemented
at EVRAZ North America’s OCTG facilities.
Revenues from sales of construction products
increased by 15.8% primarily due to higher
sales volumes of beams produced by EVRAZ
in Russia and resold in the American market
by EVRAZ North America.
Railway products revenues increased by 6.7%
when compared to 2013, due to record rail
sales volumes resulting from the completion
of the rail mill upgrade project.
Steel, North America segment cost of revenue
Cost of revenue
Raw materials
Semi-finished products
Transportation
Staff costs
Depreciation
Energy
Other*
Year ended 31 December
2014
2013
2014 v
2013
US$ million
% of segment
revenue
US$ million
% of segment
revenue
Change
2,623
83.0%
2,643
87.1%
(0.8)%
962
30.4%
981
32.3%
(1.9)%
589
18.6%
580
19.1%
1.6%
5
301
114
154
0.2%
9.5%
3.6%
4.9%
6
0.2%
(16.7)%
310
10.2%
(2.9)%
136
159
4.5%
(16.2)%
5.2%
(3.1)%
498
15.8%
471
15.6%
5.7%
* Includes primarily contractor services and materials for maintenance and repairs and certain taxes.
Steel, North America segment gross profit
The Steel, North America segment’s gross profit
increased to US$537 million in 2014 from
US$393 million in 2013. Gross profit margin
improved mainly due to increase of tubular
and railway products sales volumes and cost
declines of 0.8% resulting from the Claymont’s
closure and operational improvements.
A summary of our Steel, North America
segment’s assets and operations and
FY2014 performance is presented below.
The Steel, North America segment costs of
revenue in 2014 remained in line with 2013.
The principal factors affecting the Steel,
North America segment cost of revenue
changes during the year were as follows:
– Raw material costs decreased by 1.9%,
primarily due to lower scrap purchases
resulting from the Claymont disposal.
These savings were partially offset by
higher consumption of other raw materials
following higher production volumes of
tubular products and higher prices for
some items.
– Semi-finished products costs increased
slightly due to higher production volumes
of tubular products.
– Staff costs decreased by 2.9% driven
by Claymont’s closure and were partially
offset by increased headcount and
wages inflation.
– Depreciation and depletion costs decreased
by 16.2% due to Claymont’s closure.
– Other costs increased by 5.7% due to
increase of goods for resale partially
offset by reductions in auxiliary materials.
EVRAZ plc Annual Report and Accounts 2014
57
Business Review (continued)
STEEL, North America segment
Operational performance
EVRAZ’s assets in North America
EVRAZ Red Deer
EVRAZ Camrose
Output of crude steel (‘000 tonnes)
1,980
EVRAZ Calgary
EVRAZ Portland
EVRAZ Pueblo
EVRAZ Regina
Output of steel products (‘000 tonnes)
EVRAZ North America
Headquarters
2,557
Key North American steel production facilities
Fast facts
EVRAZ North America (ENA)
Capacity:
Crude steel*: 2.1 mtpa
Flat-rolled* products: 0.7 mtpa
Tubular products: 1.4 mtpa
Long products: 1.0 mtpa
Employees: 4,210 (2013: 4,151)
Ownership: 100% interest
Operations
Flat product group:
• Portland, Oregon
Tubular product group:
• Portland, Oregon
• Calgary, Alberta
• Red Deer, Alberta
• Camrose, Alberta
• Regina, Saskatchewan
Long product group:
• Pueblo, Colorado
Products
• Flat products: steel plate, coil and
structural tubing used in the construction
of liquid storage tanks, vessels, bridges,
rail cars, armour; coil and plate used in
manufacturing of goods by the tubular
products group
• Tubular products: steel pipes including
large-diameter American Petroleum
Institute (API) grade pipes used for oil and
gas pipelines and small-diameter API grade
welded for use in down-hole drilling and in
the collection of oil and gas
• Long products: railroad rail, seamless pipe
for use in down-hole drilling, and wire rod
used to make wire products
* Hereinafter excludes capacity of suspended Claymont steel mill and includes the updated effective capacity at other North American steel mills Flat, Tubular, and Long reported according
to new operating divisions.
58
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
What EVRAZ said and did in 2014 and 2015 targets
2014 plans
2014 achievements
2015 targets
Increase raw steel volumes to 1.1 million
tonnes at EVRAZ Pueblo
Installed and commissioned investments to
expand volume and improve quality
Improve operating availability to realise
1.1 million tonnes
Develop plate products to participate in LNG
tank market in the Northwest
Developed slab supply, rolling practices, and
market relations with major customers
Complete production trials and finalise
technical and economic feasibility
Make yields and operational stability a high
priority for 2014
10% improvement in rail yield
Maintain rail prime yield gains
8% prime yield improvement in the Seamless mill
Improve seamless prime yield by 2%
1% – 2% yield improvement at the Portland
plate mill
Improve Portland Rolling yield by 2%
Improve Regina Steel yield to 84.1%
Fully utilise EVRAZ Red Deer’s premium
threading capacity and expand the range of
OCTG premium and semi-premium connections
Launch new welding technology; expand
production of the Pueblo rail mill to 526,000
tonnes (10%) and launch next generation
premium rail
Year-on-year premium & semi premium
connection sales volumes increased by 20%
Improve quality performance through
strengthened quality organisation, training,
and maintenance optimisation
Rail mill equipment upgrades were
commissioned, the patent application for
the next generation premium rail was filed
and laboratory testing of next generation rail
was completed
Begin in-track testing of next generation
premium rails and of new welding technology
and
Maintain full production levels in the Pueblo
rail mill
Introduce new wire rod products
ENA was successfully approved as wire rod
supplier for tire cord to a major Japanese
tire producer
Continue to identify high value market
segments to expand volumes
During 2014, EVRAZ North America
completed a successful private placement of
US$350 million in 7.5% senior secured notes
due 2019.
investments also create a platform to
continue developing the next generations
of rail products.
During the year, EVRAZ North America also
filed a registration statement with the SEC
in preparation for an initial public offering
of stock. The segment reporting has
been realigned to effectively reflect the
overall business management at EVRAZ
North America.
Production
Favourable market conditions and EVRAZ
North America’s disciplined execution of its
commercial and operations strategies
resulted in a strong profitability performance
during the year with stronger sales and
production volumes when compared to 2013.
Long products division
In the Long products division, EVRAZ
completed upgrades to the rail mill in Pueblo,
Colorado to improve rail quality, implement
advanced automated inspection systems,
improve end straightness and improve head
hardening capabilities. These improvements
resulted in record sales and an annual output
increase from 492,000 tonnes in 2013 to
537,000 tonnes in 2014. We believe these
Our product technology team developed,
in cooperation with leading scientists from
around the world, a new rail welding
technology. We applied for a patent for this
new technology and expect customer-in-track
testing will be carried out during 2015.
The primary goals of EVRAZ North America’s
rail segment in 2015 are to establish our
welding technology as a best practice that
obviates the need for long rail and to progress
the in-track testing of our next generation
premium rail which improves total life cycle
costs and safety for customers.
Tubular products division
Production of Tubular products increased
14% year-over-year driven by growing large
diameter volumes and strong market demand
for OCTG products coupled with operational
improvements implemented at EVRAZ North
America’s OCTG facilities.
In Regina, Steel making successfully
completed its bi-annual outage in 2014, and
succeeded in producing and shipping 27,000
tonnes more than in 2013.
In large diameter pipe, EVRAZ enjoys a
leading market share in North America due
to strong customer relationships, multiple
plant footprint, and favourable geographic
locations. During 2014, sales of line pipe
increased to 595 thousand tonnes, a 12%
increase year-on-year. EVRAZ expects
demand for large diameter pipe to continue
strengthening on the back of the need for
infrastructure to cost effectively transport oil
and gas from the non-conventional producing
regions in North America. To keep up with the
increasing levels of large diameter demand,
we started ramping up production at the
Portland spiral mill during the fourth quarter
of 2014.
Small diameter OCTG sales increased to 283
thousand tonnes, a 40% increase year-on-
year. In addition, prices in the second half of
the year benefited from an affirmative injury
determination by the U.S. International Trade
Commission in August of 2014. During the
year, the Tubular division also improved OCTG
yields and volumes at its Calgary mill and
achieved a 15% cost reduction when
compared to 2013.
EVRAZ plc Annual Report and Accounts 2014
59
Business Review (continued)
STEEL, North America segment
Operational performance (continued)
EVRAZ continues to focus on higher-value
heat treated pipe products and premium
connections to meet the needs of
unconventional drilling operators. We are
currently expanding the heat treatment
capacity at our Calgary facility to serve the
high margin alloy pipe market in Western
Canada and the US. EVRAZ North America
also plans to continue developing Premium
and Semi-Premium OCTG connections
to offer a full range of sizes and applications
to clients.
Flat products division
The plate and coil end markets benefited
from broad based demand recovery in
non-residential construction, industrials,
transportation, and energy. Additionally, high
domestic capacity utilisation rates across the
domestic producers supported robust pricing
growth. Margins at EVRAZ’s Portland mill
were exceptionally strong largely due to its
proximity to a deep-water port and access
to low cost Far East slabs.
The Portland mill rolled within 4,000 tonnes
of its all-time production record and
successfully overcame record levels of steel
plate import, which were up almost 100%
compared to 2013. The mill implemented
numerous operational improvements during
the year resulting in fixed cost cuts of
US$1.6 million. These cuts predominantly
came from labour, but increased volume
drove overall production costs higher.
Production of flat-rolled products by EVRAZ
North America fell by 320,000 tonnes
compared to 2013, reflecting the closure
of the Claymont mill in Q4 2013.
Going forward, the Flat product group will
focus on developing its capabilities to capture
a large share of the incremental high value
demand created by LNG liquefaction projects
and the market opportunity to export high
value armour products.
Sales
EVRAZ North America’s sales volumes
remained marginally unchanged compared to
2013 despite the closure of the Claymont mill
(in Q4 2013) and the sale of both the Surrey
(Q4 2013) and Regina cut-to-length facilities
(Q2 2014).
Despite import pressure, product pricing was
strong in 2014, and EVRAZ’s North American
operations were able to utilise the favourable
market conditions.
Research and development
Our research and development centre
in Regina is a comprehensive facility with
10 engineers and other support personnel
dedicated full-time to the development
of solutions for the oil and gas and plate
markets that enable us to stay ahead of
evolving customer needs.
Our state-of-the-art Product Technology
Centre in Pueblo, Colorado, focuses on
development of next generation rail products
and wire rod. Our expanded team of
engineers, scientists, and metallurgists
use advanced equipment to perform on-site
testing, conduct complex analytical
procedures, and provide customer support
that enable us to build deep technical
partnerships with our customers.
Outlook
The outlook for steel demand in North
America for 2015 remains positive with
robust demand across most sectors.
However, elevated imports, together with an
inventory overhang will likely continue weigh
on margins during the first half of the year as
distributors go through a de-stocking cycle.
EVRAZ anticipates strong performances
across the rail products, wire rod, and large
diameter pipe markets.
We expect continued strength in capital
spending by Class-I railroads to underpin
moderate growth in rail over the next few
years approximately in-line with GDP growth.
Strong demand for large diameter pipes is
expected to continue into 2015 as low cost
market access continues to be a priority for
oil and gas producers. We believe that strong
oil and natural gas production in the US and
Canada will continue to drive demand for
pipeline infrastructure in North America in
the short and medium term.
We expect demand for Oil Country Tubular
Goods (OCTG) and seamless pipe in 2015 to
be unfavourably affected by spending cuts in
exploration and production capital. However,
EVRAZ anticipates demand will quickly
respond to positive changes in the market
once the oil price stabilises and the de-
stocking cycle concludes.
60
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
COAL segment
Financial performance
Our Coal segment includes
coal mining and enrichment
as well as operations of
the Nakhodka Trade Sea
Port used to a significant
extent for shipping our
coal products to the
Asian markets.
Coal segment revenues by products
(US$ million)
Revenue
EBITDA
EBITDA margin
CAPEX
Coal segment revenues
(US$ million)
To third parties
To steel segment
To other operations
Total Coal segment
External sales
Coal products
Coking coal
Coal concentrate
Steam coal
Other
Intersegment sales
Coal products
Coking coal
Coal concentrate
Other revenues
Total
Sales volumes of Coal segment
(‘000 tonnes)
External sales
Coal products
Coking coal
Coal concentrate
Steam coal
Intersegment sales
Coal products
Coking coal
Coal concentrate
Total, coal products
2014
2013
Change
1,318
1,486
(11.3)%
373
226
65.0%
28.3%
15.2%
13.1%
232
343
(32.4)%
Six months ended 30 June
2014
789
528
1
2013
805
679
Change
(2.0)%
(22.2)%
2
(50.0)%
1,318
1,486
(11.3)%
Year ended 31 December
2014
2013
2014 v 2013
US$ million
% of total
segment
revenue
US$ million
% of total
segment
revenue
Change
722
54.8%
732
49.3%
(1.4)%
60
4.6%
47
3.2%
27.7%
605
45.9%
616
41.5%
(1.8)%
56
1
4.2%
0.1%
64
5
4.3%
(12.5)%
0.3%
(80.0)%
493
37.4%
650
43.7%
(24.2)%
85
6.4%
154
10.4%
(44.8)%
408
31.0%
496
33.4%
(17.7)%
103
7.8%
104
7.0%
(1.0)%
1,318
100.0%
1,486
100.0%
(11.3)%
2014
2013
Change
9,809
8,188
19.8%
1,314
784
67.6%
7,267
6,184
17.5%
1,228
1,220
0.7%
6,232
7,186
(13.3)%
1,782
2,607
(31.6)%
4,450
4,579
(2.8)%
16,041
15,374
4.3%
EVRAZ plc Annual Report and Accounts 2014
61
Business Review (continued)
COAL segment
Financial performance (continued)
Total coal segment revenues decreased
by 11.3% compared to 2013, which was
principally the result of lower sales prices
accompanied by increased coking coal
concentrate sales volumes following the
successful implementation of the
Raspadskaya underground mine’s
restoration programme.
External sales volumes of coal products
increased by 19.8% in 2014 mainly due to
higher sales of coking concentrate, since total
production volumes grew while internal
consumption of coking coal decreased.
Internal coal products sales volumes fell
by 13.3% in 2014 as a result of lower
requirements for coke from the steel segment
following the introduction of PCI technology
at EVRAZ ZSMK resulting in the mothballing
of one of its coking plants.
In 2014, Coal segment sales to the Steel
segment amounted to US$528 million and
40.1% of sales, compared to US$679 million
and 45.7% of sales in 2013.
During the period, approximately 72%
of EVRAZ’s steelmaking coking coal
consumption was satisfied by the Group’s
own operations, compared with 75% in 2013.
Coal segment cost of revenue
Year ended 31 December
2014
2013
2014 v 2013
US$ million
% of segment
revenue
US$ million
% of segment
revenue
Change
Cost of revenue
1,040
78.9%
1,304
87.8%
(20.2)%
Raw materials
Transportation
Staff costs
Depreciation
Energy
Other*
4
0.3%
1
0.1%
300.0%
170
12.9%
148
10.0%
14.9%
305
23.1%
411
27.7%
(25.8)%
259
19.7%
328
22.1%
(21.0)%
51
3.9%
63
4.2%
(19.0)%
251
19.0%
353
23.7%
(28.9)%
* Includes primarily contractor services and materials for maintenance and repairs and certain taxes.
The coal segment cost of revenue decreased
to US$1,040 million in 2014 compared with
US$1,304 million in 2013.
The principal factors behind this 20.2%
year-on-year decline in the cost of revenue were:
– Transportation costs increased by 14.9%
due to higher export sales and production
volumes.
– Staff costs fell by 25.8%. The decrease
was attributable to headcount optimisation,
the closure of the Yuzhkuzbassugol mines
(Abashevskaya, Kusheyakovskaya) and the
sale of Gramoteinskaya mine as well as
the impact of the devaluation of the
Russian rouble weakening on
Yuzhkuzbassugol and Raspadskaya.
– Depreciation and depletion costs
decreased by 21.0% mainly due to a
lower depreciation and depletion expense
at Yuzhkuzbassugol caused by the revision
and detailing of future mining plans and
lower mineral deposits depletion, assets
optimisation. This was also accompanied
by a decrease in the US dollar amount
of depreciation due to the weakening
of the rouble.
– Energy costs were down by 19.0% due to
the closure of mines at Yuzhkuzbassugol
as well as the impact of currency
movements that was slightly offset by
higher electricity costs related to higher
production volumes at Raspadskaya.
– Other costs decreased by 28.9% primarily
due to a reduction in auxiliary material
costs at Raspadskaya partially due to
higher coal volumes purchased from
Yuzhkuzbassugol, lower service and
auxiliary materials costs due to assets
optimisations and cost cutting initiatives
at Yuzhkuzbassugol, lower mineral
extraction tax payments, changes in stock
of WIP and finished goods and the and the
impact of the decline in the Russian rouble.
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EVRAZ plc Annual Report and Accounts 2014
Coal segment gross profit
The coal segment’s gross profit increased to
US$278 million in 2014 from US$182 million
in 2013 The increase in the gross profit
margin was primarily attributable to effect
of Russian Rouble weakening influence on
costs, lower depreciation and depletion, cost
cutting initiatives and mines restructuring at
Yuzhkuzbassugol, and lower mineral
extraction tax payments.
A summary of our key Coal segment’s assets
and operations and FY2014 performance is
presented on pages 63-65.
Strategic Report
Business Review
Governance
Financial Statements
Operational performance
Raw coking coal mined (‘000 tonnes)
21,062
ST PETERSBURG
MOSCOW
Raspadskaya
Mezhegeyugol
13,936
Yuzhkuzbassugol
Coking coal concentrate production
(‘000 tonnes)
Coking coal production assets
Fast facts
Operations/deposits
Products
Yuzhkuzbassugol (Russia)
Run of mine: 10.8 million tonnes per annum
Employees: 9,263 (2013: 11,536)
Ownership: 100% interest
5 coking coal mines:
• Alardinskaya
• Yesaulskaya
• Osinnikovskaya
• Uskovskaya
• Yerunakovskaya VIII
3 coal washing plants:
• Abashevskaya
• Kuznetskaya
• ZSMK coal washing plant
• Hard and semi-hard coking coal
(grades Zh, GZh and KS under Russian
classification)
• Steam coal (grades G under Russian
classification)
• PCI coal*
Raspadskaya (Russia)
Run of mine: 10.2 million tonnes per annum
Employees: 7,628 (2013: 8,232)
Ownership: 81.95% interest
3 underground mines:
• Raspadskaya
• Raspadskaya-Koksovaya
• MUK-96
Mezhegeyugol (Russia)
Employees: 336 (2013: 158)
Ownership: 60.02% interest
1 open-pit mine: Razrez Raspadsky
1 coal washing plant
2 deposits:
• Mezhegey coal deposit
• Eastern field of the Western part of the
Ulug-Khemsky coking coal deposit
• Hard coking coal (grade K under Russian
classification)
• Semi-hard coking coal (grades GZh, KO
under Russian classification)
• Semi-soft coking coal (grade GZhO under
Russian classification)
• Hard coking coal (grade Zh under Russian
classification)
* A wide range of coals can be used in PCI, including steam coal which has lower carbon content than coking coal.
Coking coal reserves are given on page 205.
EVRAZ plc Annual Report and Accounts 2014
63
Business Review (continued)
COAL segment
Operational performance (continued)
What EVRAZ said and did in 2014 and 2015 targets
2014 plans
2014 achievements
2015 targets
Yerunakovskaya VIII mine to achieve full
mining capacity of 2.5 million tonnes of
coking coal per annum
Maintain Yuzhkuzbassugol’s raw coking coal
production at approximately 10 million tonnes in
2014 despite closure of the Abashevskaya mine
2.9 million tonnes of raw coking coal was
mined in 2014
10.8 million tonnes of raw coking coal
was mined, despite the closure of the
Abashevskaya mine in January 2014,
due to increased production at the
Yerunakovskaya VIII and Uskovskaya mines
Complete integration of Raspadskaya business Integration of certain management functions
Increase coal production at Raspadskaya
by approximately 40% compared to 2013,
depending on the performance of the
Raspadskaya underground mine
has been completed (financial reporting,
headcount and salary budgeting, sales and
marketing processes). Integration of LoTo and
LEAN processes has been initiated, together
with implementation of EVRAZ’s HSE policies
and programmes
Raw coking coal production was 10.2 million
tonnes in 2014, a 31% increase on 2013, due
to successful ramp-up at Raspadskaya mine
which almost tripled production (from
1.4 million tonnes to 4.1 million tonnes of raw
coking coal per annum)
Continue headcount optimisation program and
reduce cash costs and stock levels
Produce 12 million tonnes of raw coking coal
by expanding production at Raspadskaya mine
and beginning bord and pillar mining at
Raspadskaya-Koksovaya mine
Enhance EVRAZ’s sales expertise in the
domestic and international coking coal markets
Raspadskaya’s export sales of coal
concentrate rose by 41% compared to 2013
Increase sales in premium markets of CIS,
Japan, Korea and Europe
Mine 0.3 million tonnes of coking coal at the
Mezhegey deposit
Continue optimisation of the asset portfolio
Most surface infrastructure was completed
with construction of underground
infrastructure underway. 51,000 tonnes of
raw coal was mined
Cost optimisation programme resulted in
US$124 million of savings in 2014.
Abashevskaya and Kusheyakovskaya mines
terminated production and mines’
conservation is underway
Launch longwall 2-1 in September 2015
Complete conservation of Abashevskaya and
Kusheyakovskaya mines
Increase cargo turnover at the Nakhodka sea
port to 9.4 million tonnes in 2014
Port handling volumes increased to 9.3 million
tonnes in 2014
To increase port handling volumes to
10.8 million tonnes
To increase coal port handling volumes by
56% to 5.6 million tonnes per annum
Coal port handling volumes increased by 56%
to 5.6 million tonnes per annum
To increase coal port handling volumes by
another 30% to 7.3 million tonnes per annum
in 2015 and to begin modernisation of the
Astafyeva Cape railway station in order to
increase coal handling capacity up to
12 million tonnes per annum by 2017
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EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Production
In 2014, EVRAZ’s coal companies –
Yuzhkuzbassugol and Raspadskaya – mined
21 million tonnes of raw coking coal and
produced 12 million tonnes of coking coal
concentrate.
In 2014, in line with the strategic decision to
cease production of non-core steam coal, the
Kusheyakovskaya mine of Yuzhkuzbassugol,
the only remaining steam coal mine within
EVRAZ’s Russian coal assets, ceased
production and entered conservation.
Sales
EVRAZ’s steel plants remained the main
customer for the coking coal produced by the
Company: intracompany coking coal product
supplies – both raw coal and coal concentrate
– to EVRAZ’s Russian and Ukrainian plants
amounted to 39% of total coal shipments,
or 6.2 million tonnes, including 1.8 million
tonnes of raw coking coal. Another 40% was
supplied to other customers in Russia and
other CIS countries. Export sales were
3.3 million tonnes, or 21% of total shipments,
with major destinations being Japan and
South Korea, which purchased 2 million
tonnes or 57% of total export volumes.
Yuzhkuzbassugol
Yuzhkuzbassugol mined 10.8 million tonnes
of coking coal in 2014 compared to
11.1 million tonnes in 2013. The 3%
decrease was mainly due to longwall moves
at the Osinnikovskaya and Alardinskaya
mines, carried out in Q4 2014. The
successful ramp up of the Yerunakovskaya
VIII mine and increased production at the
Uskovskaya mine helped to replace the
volumes lost following the closure of the
Abashevskaya mine at the beginning of 2014.
In 2014, Yuzhkuzbassugol sold 9.0 million
tonnes of coal products, including 2.2 million
tonnes of raw coking coal and 5.7 million
tonnes of coking coal concentrate. 1.7 million
tonnes of coking coal concentrate were sold
to the market and 4 million tonnes were
shipped to EVRAZ plants.
EVRAZ’s Russian and Ukrainian steel
mills remained Yuzhkuzbassugol’s key
customers in 2014. Intragroup deliveries by
Yuzhkuzbassugol accounted for 66% of its
total sales.
The Company expects to maintain
Yuzhkuzbassugol’s mining volumes at
approximately 10 million tonnes of coal
in 2015.
Raspadskaya
In 2014, overall raw coking coal production by
the Raspadskaya coal company amounted to
10.2 million tonnes, 31% higher than in 2013,
mostly due to the successful implementation
of the restoration programme and the launch
of new longwalls at the Raspadskaya
underground mine.
Annual production of coking coal concentrate
went up by 13% compared to 2013 due to
higher raw coal production.
Sales volumes of coking coal concentrate
rose by 17% compared to 2013 and
amounted to 6.0 million tonnes, driven
by increased raw coal production.
Domestic sales of coking coal concentrate
recovered to 2013 levels, amounting to
3.0 million tonnes due to increased raw
coking coal production and growth in demand,
a result of better quality coal concentrate.
Export sales of coal concentrate in 2014
amounted to 3.0 million tonnes, or 51% of
total coal concentrate sales, with shipments
to the Asia-Pacific region accounting for 83%
and shipments to Europe – 17% of export
sales. This was a result of higher production
and sales to the new markets in the
Asia-Pacific region.
In 2015, the Raspadskaya coal company is
planning to produce some 12 million tonnes
of raw coking coal.
The new licence area 9-11 was put into
operation at the Razrez Raspadsky open pit.
The area has a potential mine life of 40 years.
Tunnelling works began at Field 2 of the
Raspadskaya-Koksovaya mine with first
volumes of premium K grade coal expected
to be mined in 2015.
Mezhegeyugol
In 2014, most surface infrastructure was
completed with construction of underground
infrastructure underway in 2015. Mining
works at Mezhegey started at the end of
2013. 51,000 tonnes of hard coking coal
(grade Zh under Russian classification)
were mined in the year.
Total capital expenditures for the project so
far amount to US$144 million, including
US$41 million invested in 2014.
EVRAZ Nakhodka trade sea port
The majority of EVRAZ’s exports to Asian
countries are shipped through EVRAZ NMTP,
Nakhodka Trade Sea Port, in the Russian
Far East.
In 2014, cargo turnover at the port increased
by 25% and totalled 9.3 million tonnes,
including 5.6 million tonnes of coal and
3.7 million tonnes of ferrous metals. EVRAZ
shipped 2.2 million tonnes of proprietary coal
and 3.6 million tonnes of steel products
through EVRAZ NMTP.
In 2014, coal handling volumes increased
by 56% mostly due to the expansion of
warehouse capacity and the expansion and
construction of new discharges which allowed
the unloading of 450 railcars per day.
Outlook
In 2015, EVRAZ is planning to expand sales
in Russia, whilst maintaining the volumes
shipped to premium export markets.
In 2015, coke production in Russia is
expected to decrease by 2-3%, which will
result in a higher competition in the Russian
coal market; quality grade coal will be in great
demand and the oversupply of soft coal
grades is expected to be maintained.
EVRAZ plc Annual Report and Accounts 2014
65
66
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Governance
We introduce the Board of Directors
and senior management. We describe
our approach to corporate governance
and remuneration.
In this section:
Letter from Chairman
68
70
Board of Directors
72 Management of EVRAZ plc
Corporate governance report
73
Remuneration report
90
99
Directors’ report
104 Directors’ responsibility
statements
EVRAZ plc Annual Report and Accounts 2014
67
Letter from Chairman
Alexander Abramov
Challenging trading conditions
serve to highlight the importance
of the Board’s leadership in overseeing
the Company’s performance.
68
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Dear stakeholders,
I am pleased to introduce our 2014
Governance Report. Many of EVRAZ’s markets
experienced significant volatility and instability
during 2014, with significant declines in the
prices of key commodities such as oil, coking
coal and iron ore accompanied, during the
latter part of the year, by the steep fall in
the value of the Russian rouble. Despite these
challenges EVRAZ performed well during the
year achieving high EBITDA, strong free cash
flow generation and further debt reduction.
This robust outcome illustrated the success
of many of the strategic initiatives approved by
the Board in previous years to better position
the Company to weather economic uncertainty.
Challenging trading conditions serve to
highlight the importance of the Board’s
leadership role in overseeing the Company’s
performance and setting strategic aims.
During the year the Directors held regular
meetings with the Company’s senior
management to receive information updates
and facilitate appropriate action where
required. Such discussions proved mutually
challenging and highly constructive.
The Board discussed the potential for an
Initial Public Offering (IPO) of a minority stake
in EVRAZ North America (“ENA”). Although,
The Board, in line with corporate governance
best practice, undertook a review of the
effectiveness of its performance during
the year. The evaluation of the Board was
externally facilitated in 2014 and the findings
and action points of this review are detailed
on page 75. While there are areas for
improvement, which will be addressed
going forward, the review, in overall terms,
was encouraging and beneficial.
As a result of Terry’s decision not to stand
for re-election at the 2015 AGM in June,
a number of changes will be made to the
Board. Michael Peat will assume Chairmanship
of the Audit Committee (in succession to
Terry Robinson) and Alexander Izosimov
will become Chairman of the Nominations
Committee (in succession to Michael Peat).
In addition, Karl Gruber will join the
Nominations Committee.
During 2014, the Health, Safety and
Environment Committee undertook a review
of EVRAZ’s health, safety and environmental
initiatives and performance. In both cases,
performance was reviewed against targets
previously set by the Board in addition to
regulatory developments. The review
recommended the development of further
health and safety initiatives in order to
accelerate the improvement of our
performance. It should be noted that, despite
two years of improvements, EVRAZ’s health
and safety performance remains significantly
below our objectives. I regret to report that 19
fatalities, involving workers and contractors,
occurred during 2014 compared with 24 in
2013. Any number of fatalities is clearly
unacceptable and management will continue
to strive to achieve a zero incident rate. In
terms of environmental performance, the
After thorough review, the Board has
identified Deborah Gudgeon as a compelling
candidate to succeed Terry Robinson as an
independent non-executive director and as
a member of the Audit Committee. Miss
Gudgeon is a chartered accountant, with
extensive corporate and international
experience, which encompasses the mining
sector. All Board changes will become
effective after the conclusion of the 2015
Annual General Meeting.
Finally, I would like to thank all of EVRAZ’s
employees for their invaluable contributions
during 2014. The strength of the Company’s
performance, in a challenging environment,
is due in no small measure to their efforts
and commitment.
The Board, in line with corporate governance best
practice, undertook a review of the effectiveness of its
performance during the year.
Alexander Abramov
Chairman of the Board
EVRAZ plc
in the light of abnormal market conditions
during the latter part of 2014 we ultimately
decided to postpone any transaction, we
remain committed to continuing to examine
the potential to deliver value to shareholders
and reduce leverage through the most
advantageous management of our
portfolio of assets.
We continued to build upon our already
significant investor relations programme
in 2014. During the year, EVRAZ
representatives, including senior executives,
took part in more than 300 meetings,
conferences and other public events involving
the investment community and EVRAZ hosted
an investor day in June 2014. The Company
also engaged directly with socially responsible
investors and promoted a dialogue with
regard to operational risks, health and
industrial safety policies and environmental
and social issues. We are always open to
requests from shareholders and other
stakeholders to discuss Company related
issues. Sir Michael Peat, our Senior
Independent Director, is also available to
discuss any issues that shareholders may
not wish to raise with the Company directly.
Committee found that although EVRAZ’s
overall performance is improving, further
work is required to raise standards to the
levels to which we aspire.
Succession planning has been a further
focus for the Company during the year to
ensure the Board has the right balance of
skills and experience to take the Company
forward. To comply with the UK Corporate
Governance Code’s provision on director’s
independence, Terry Robinson, who has
served as a Director for nine years, has let
it be known that he will not seek re-election
at the 2015 Annual General Meeting. As an
Independent Non–Executive Director of
EVRAZ plc since 2011 and, prior to that,
a Board member of Evraz Group S.A. since
2005, Terry has made a major contribution to
the development of the Company throughout
the past decade. On behalf of the Board,
I would like to thank him for his considerable
efforts. He will be greatly missed, although
we will continue to benefit from his expertise
in his role as an advisor to EVRAZ’s Board
and various Board committees and as a
Non-Executive Director of the Raspadskaya
coal company.
EVRAZ plc Annual Report and Accounts 2014
69
Board of Directors
Alexander Abramov
Alexander Frolov
Olga Pokrovskaya
Eugene Shvidler
Eugene Tenenbaum
Non-Executive Chairman
(born 1959)
Chief Executive Officer
(born 1964)
Non-Executive Director
(born 1969)
Non-Executive Director
(born 1964)
Non-Executive Director
(born 1964)
Appointment
Founded EvrazMetall, a
predecessor of the Group,
in 1992. CEO of EVRAZ
Group S.A. until 1 January
2006, Chairman of EVRAZ
Group S.A.’s Board until
1 May 2006. Appointed
Chairman of EVRAZ plc
on 14 October 2011.
Joined EvrazMetall in 1994
and served as EvrazMetall’s
Chief Financial Officer from
2002 to 2004 and as Senior
Executive Vice President of
Evraz Group S.A. from 2004
to April 2006. Chairman of the
Board of Directors of Evraz
Group S.A. from May 2006
until December 2008 and
appointed CEO with effect
from January 2007. Appointed
CEO of EVRAZ plc on
14 October 2011.
Has been a member of the
Board of Directors of Evraz
Group S.A. since August
2006. Appointed to the
Board of EVRAZ plc on
14 October 2011.
Member of the Board of
Directors of Evraz Group S.A.
since August 2006. Appointed
to the Board of EVRAZ plc on
14 October 2011.
Member of the Board of
Directors of Evraz Group S.A.
since August 2006. Appointed
to the Board of EVRAZ plc on
14 October 2011.
Committee membership
Member of the
Nominations Committee.
Member of the Health, Safety
and Environment Committee.
Member of the Audit
Committee and of the Health,
Safety and Environment
Committee.
Member of the
Nominations Committee.
None.
Alexander Frolov has held
various positions at
EvrazMetall and other
companies, predecessors
of Evraz Group S.A., since
joining in 1994 and has been
a member of the Board of
Directors of Evraz Group S.A.
since 2005. Prior to joining
EVRAZ, Mr. Frolov worked as
a research fellow at the I.V.
Kurchatov Institute of
Atomic Energy.
Ms. Pokrovskaya is a financial
adviser at Millhouse LLC and
a member of the Board of
Directors of Highland Gold
Mining Ltd. Since 1997,
Ms. Pokrovskaya has held
several key finance positions
with Sibneft, including head
of corporate finance. From
1991 to 1997, she worked
as a senior audit manager
at the accounting firm
Arthur Andersen.
Eugene Shvidler currently
serves as Chairman of
Millhouse LLC and Highland
Gold Mining Ltd. He is also on
the board of directors of AFC
Energy plc. Mr. Shvidler served
as President of Sibneft from
1998 to 2005.
Skills and experience
Mr. Abramov served as a
non-executive director from
May 2006 until his re-
appointment as Chairman
of the Board on 1 December
2008. A director of OJSC
Raspadskaya, a member
of the Bureau of the Board
of Directors, a member of
the Board of Directors of the
Russian Union of Industrialists
and Entrepreneurs (an
independent non-governmental
organisation), a director of
OJSC Bank International
Financial Club, a member of
the Board of Skolkovo Institute
for Science and Technology
and a member of the Board
of Moscow University of
Physics and Technology.
Mr. Tenenbaum is currently
Managing Director of MHC
(Services) Ltd. and serves on
the Board of Chelsea FC Plc
and Highland Gold Mining Ltd.
He served as Head of
Corporate Finance for Sibneft
in Moscow from 1998 to
2001. Mr. Tenenbaum joined
Salomon Brothers in 1994 as
Director for Corporate Finance
where he worked until 1998.
Prior to that, he spent five
years in Corporate Finance
with KPMG in Toronto, Moscow
and London, including three
years (1990-1993) as National
Director at KPMG International
in Moscow. Mr. Tenenbaum
was an accountant in the
Business Advisory Group at
Price Waterhouse in Toronto
from 1987 until 1989.
70
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Duncan Baxter
Karl Gruber
Terry Robinson
Sir Michael Peat
Alexander Izosimov
Independent Non-Executive
Director (born 1952)
Independent Non-Executive
Director (born 1952)
Independent Non-Executive
Director (born 1944)
Senior Independent
Non-Executive Director
(born 1949)
Independent Non-executive
Director (born 1964)
Member of the Board of
Directors of Evraz Group S.A.
since May 2011. Appointed to
the Board of EVRAZ plc on
14 October 2011.
Member of the Board of
Directors of Evraz Group S.A.
since May 2010. Appointed to
the Board of EVRAZ plc on
14 October 2011.
Member of the Board of
Directors of Evraz Group S.A.
since April 2005. Appointed to
the Board of EVRAZ plc on
14 October 2011.
Appointed to the Board of
EVRAZ plc on 14 October
2011.
Appointed to the Board
of EVRAZ plc on 28 February
2012.
Chairman of the Remuneration
Committee and a member of
the Audit Committee.
Chairman of the Health, Safety
and Environment Committee
and a member of the
Remuneration Committee.
Mr. Gruber has over 35 years’
experience in the international
metallurgical mill business.
He has held various
management positions,
including eight years as a
member of the Managing
Board of VOEST-Alpine
Industrieanlagenbau (VAI),
first as Executive Vice
President of VAI and then
as Vice Chairman of the
Managing Board of Siemens
VAI. He also served as
Chairman on the Boards
of Metals Technologies (MT)
Germany and MT Italy. Further
he has executed various
consultancy projects for steel
industry and served as
CEO and Chairman of the
Management Board of
LISEC Group.
Duncan Baxter has had
many years’ experience of
international banking. He
began his career in banking
with Barclays International
Bank in Zimbabwe before
joining RAL Merchant Bank in
1978. In 1985, he became a
director of Commercial Bank
(Jersey) Ltd, which was
subsequently acquired by
Swiss Bank Corporation (SBC).
In 1988, he became managing
director of SBC Jersey Branch.
Since leaving SBC in 1998
after its merger with UBS AG,
he has undertaken a number
of consultancy projects for
international banks and
investment management
companies. He is a
Non-Executive Director of
Highland Gold Mining Ltd and
also holds other non-executive
directorships. Mr. Baxter is
a Fellow of the Institute of
Chartered Secretaries and
Administrators, the Securities
Institute, the Chartered
Institute of Bankers, the
Institute of Management
and the Institute of Directors.
Chairman of the Audit
Committee and a member of
the Nominations Committee
and of the Health, Safety and
Environment Committee. He
also chairs the Group’s Risk
Committee, which is an
Executive Committee.
Mr. Robinson is a qualified
chartered accountant and
has 40 years’ international
business experience. He spent
20 years at Lonrho PLC, the
international mining and
trading group, the last 10 years
of which he served as a main
board director. Since 1998,
he has been variously occupied
with international business
recovery engagements and
investment projects including
natural resources in the UK,
Russia, the CIS and Brazil.
He is independent director and
Deputy Chairman of Katanga
Mining Limited and is also an
independent and senior
non-executive director of
Highland Gold Mining Ltd.
He is a Fellow of the Institute
of Chartered Accountants of
England and Wales. Terry
Robinson was elected to the
Board of OJSC Raspadskaya,
a subsidiary of EVRAZ, at the
Company’s AGM in May 2013.
Appointed Chairman of
Raspadskaya on 27 May 2013.
The Board is satisfied that this
nomination has no impact on
Mr Robinson’s independence.
Chairman of the Nominations
Committee and a member of
the Audit Committee.
Member of the Remuneration
Committee and the
Nominations Committee.
Sir Michael Peat is a qualified
chartered accountant with
over 40 years’ experience.
He served as Principal Private
Secretary to HRH The Prince
of Wales from 2002 until
2011. Prior to this, he spent
nine years as the Royal
Household’s Director of
Finance and Property
Services, Keeper of the Privy
Purse and Treasurer to the
Queen, and Receiver General
of the Duchy of Lancaster.
Sir Michael Peat was at KPMG
from 1972, and became a
partner in 1985. He left KPMG
in 1993 to devote himself to
his public roles. Sir Michael
Peat is an Independent
Non-executive on the Board
of Deloitte LLP, a director of
CQS Management Limited,
a Non-executive Director of
Tamar Energy Limited,
Chairman of GEMS MENASA
Holdings Limited, a
Non-executive Director of
Arbuthnot Latham Limited
and Chairman of the Advisory
Board of BellAziz Holdings
Limited.. He is an MA, MBA
and Fellow of the Institute of
Chartered Accountants in
England and Wales.
Alexander Izosimov has
extensive managerial and
board experience. From 2003
to 2011, he was President
and CEO of VimpelCom,
a leading emerging market
telecommunications operator.
From 1996 to 2003 he held
various managerial positions
at Mars Inc. and was Regional
President for CIS, Central
Europe and Nordics, and
a member of the executive
board. Prior to Mars Inc,
Mr Izosimov was a consultant
with McKinsey & Co.
(Stockholm, London)
(1991-1996) and was involved
in numerous projects in
transportation, mining,
manufacturing and oil
businesses. Mr Izosimov
currently serves on the
boards of MTG AB, Dynasty
Foundation, LM Ericsson AB
and Transcom SA. He
previously served as director
and Chairman of the GSMA
(global association of mobile
operators) board of directors,
and was also a director
of Baltika Breweries,
confectionery company
Sladko, and IT company
Teleopti AB.
EVRAZ plc Annual Report and Accounts 2014
71
Management of EVRAZ plc
Alexander Frolov
CEO
Pavel Tatyanin
Senior Vice President, CFO
Leonid Kachur
Senior Vice President, Business Support and
Interregional Relations
Marat Atnashev
Vice President, Major Projects, Head of the
Iron Ore Division
Giacomo Baizini
Vice President, Corporate Finance
and Treasury
Scott Baus
Vice President, EVRAZ Business System
Grigory Botvinovskiy
Vice President, Raw Materials Sales
Natalia Ionova
Vice President, Human Resources
Aleksey Ivanov
Vice President, Head of the Steel Division
Alexander Kuznetsov
Vice President, Strategic Development and
Operational Planning
Artem Natrusov
Vice President, Information Technologies
Sergey Savchuk
Vice President, Compliance with Business
Procedures and Asset Protection
Vsevolod Sementsov
Vice President, Corporate Communications
Ilya Shirokobrod
Vice President, Sales, the Steel Division
Michael Shuble
Vice President, Health, Safety and
Environment
Sergey Stepanov
Vice President, Head of the Coal Division
Yury Stepin
Vice President, Administration and
Maintenance
Timur Yanbukhtin
Vice President, Business Development,
International Business
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Corporate Governance Report
Strategic Report
Business Review
Governance
Financial Statements
Chairman and Chief Executive
The Board determines the division of
responsibilities between the Chairman
and the Chief Executive Officer.
The Chairman’s principal responsibility is
the effective running of the Board, ensuring
that the Board as a whole plays a full and
constructive part in the development and
determination of the Group’s strategy and
overall commercial objectives. The Board
is chaired by Alexander Abramov.
The Chief Executive Officer (CEO) is
responsible for leading the Group’s operating
performance and day-to-day management
of the Company and its subsidiaries.
The Company’s chief executive is
Alexander Frolov.
The CEO is supported by the executive team.
Membership of the executive team is set out
on page 72.
Board responsibilities and
performance
The Board and management of EVRAZ aim
to pursue objectives in the best interests
of EVRAZ, its shareholders and other
stakeholders, and particularly to create
long-term value for shareholders.
The EVRAZ Board is responsible for the
following key aspects of governance and
performance:
– Financial and operational performance;
– Strategic direction;
– Major acquisitions and disposals;
– Overall risk management;
– Capital expenditure and operational
budgeting;
– Business planning;
– Approval of internal regulations and policies.
During the year ended 31 December 2014,
the Board considered a wide range of
matters, including:
– the Company’s strategy and key priorities;
– the performance of key businesses;
– consolidated budget and budgets of
business units;
– the interim and full year results and 2013
Annual Report;
– HSE updates;
– consideration of a registered initial public
offering of the North American subsidiary,
EVRAZ North America;
– a review of investment projects;
– the consolidation of Raspadskaya and
Yuzhkuzbassugol coal companies;
– the potential divestment of EVRAZ
Highveld Steel and Vanadium;
– corporate governance matters including an
externally facilitated review of the Board
and committees; and
– amendments to the Board committees’
terms of reference.
Introduction
EVRAZ plc is a public company limited by
shares incorporated in the United Kingdom.
The Company is committed to high standards
of corporate governance and control.
Further information on the Company’s
Corporate Governance policies and principles
are available on the Company’s website:
www.evraz.com. The UK Corporate
Governance Code is available at
www.frc.org.uk.
Compliance with corporate
governance standards
EVRAZ’s approach to corporate governance
is primarily based on the UK Corporate
Governance Code (September 2012) published
by the Financial Reporting Council (FRC) and
the Listing Rules of the UK Listing Authority.
The Company complies with the UK Corporate
Governance Code or, if it does not comply,
explains the reasons for non-compliance.
As of 31 December 2014 EVRAZ complied
with all the principles and provisions of the
UK Corporate Governance Code (September
2012) with the following exception:
– Contrary to provision C.3.1 of the UK
Corporate Governance Code, Olga
Pokrovskaya is a member of the Audit
Committee, but does not meet the
independence criteria set out in the UK
Corporate Governance Code. More than
50% of EVRAZ activities and operations
are based in the Russian Federation, and
Olga Pokrovskaya’s technical and regional
experience and qualification, as a past
senior audit manager at Arthur Andersen
and as Head of Corporate Finance at
Russian oil company Sibneft is of
particular value to the Committee. Her
experience would be extremely difficult to
replicate, particularly as EVRAZ is seeking
to strengthen diversity on its Board. The
Company considers that, in light of her
involvement with the Group over a number
of years and her experience in this area,
her membership of the Audit Committee
is to the benefit of the Group. The Audit
Committee includes three non-executive
directors, all independent, which we
believe mitigates any potential risks.
EVRAZ plc Annual Report and Accounts 2014
73
Corporate Governance Report (continued)
Meetings of the Board,
Board composition and AGM
EVRAZ plc held 10 scheduled Board meetings
and 2 ad-hoc meetings held in form of
conference calls during 2014. In 2015, up to
the date of this report’s publication, three
Board meetings were held.
Members of senior management attended
meetings of the Board by invitation. They
delivered presentations on the status of
projects and performance of the business units.
The following table sets out the attendance of
each director at scheduled EVRAZ plc Board
and Board Committee meetings in 2014:
Total meetings
Directors’ participation:
Alexander Abramov
Duncan Baxter
Alexander Frolov
Karl Gruber
Alexander Izosimov
Sir Michael Peat
Olga Pokrovskaya
Terry Robinson
Eugene Shvidler
Eugene Tenenbaum
Board
12
12/12
12/12
12/12
11/12
12/12
12/12
12/12
12/12
10/12
12/12
Remuneration
Committee
HSE Committee
Audit Committee
Nominations
Committee
AGM
3
–
3/3
–
3/3
3/3
–
–
–
–
–
2
–
–
2/2
2/2
–
–
2/2
2/2
–
–
12
–
12/12
–
–
–
12/12
12/12
12/12
–
–
2
2/2
–
–
–
2/2
2/2
–
2/2
2/2
–
1
1
1
1
1
1
1
1
1
1
1
Board composition and independence as at 31 December 2014
Non-Executive Independent Directors (5)
Duncan Baxter
Karl Gruber
Alexander Izosimov
Sir Michael Peat, Senior Independent Director
Terry Robinson
Non-Executive Directors (4)
Alexander Abramov, Chairman
Olga Pokrovskaya
Eugene Shvidler
Eugene Tenenbaum
Executive Director (1)
Alexander Frolov, CEO
Total Board size (10)
* At EVRAZ plc, does not include tenure at Evraz Group S.A.
74
EVRAZ plc Annual Report and Accounts 2014
Date of appointment
14 October 2011
14 October 2011
28 February 2012
14 October 2011
14 October 2011
14 October 2011
14 October 2011
14 October 2011
14 October 2011
14 October 2011
Years of
tenure* as at
31 December
2014
4
4
3
4
4
4
4
4
4
4
Strategic Report
Business Review
Governance
Financial Statements
The Chairman has proposed organising a
visit by the directors to one or more of the
Company’s production sites in 2015, and the
directors supported this initiative.
Performance evaluation
The Company undertakes an annual
performance evaluation of the Board
and committees. In 2014, in accordance
with the provisions of the UK Corporate
Governance Code, the Board engaged
Lintstock LLP to undertake an independent,
externally facilitated evaluation of
effectiveness of the Board and Board
Committees. Lintstock neither had nor
have any connection with the Company.
The first stage of the evaluation involved
Lintstock engaging with the Senior
Independent Director and the Company
Secretary to set the context, and to tailor
the surveys to the specific circumstances
of the Group.
All Board members were requested to
complete a comprehensive online survey
addressing the performance of the Board,
its committees, the Chairman and individual
directors. Following completion of the survey,
the members of the Board were invited to
build on their responses and raise any other
matters concerning the performance of the
Board at an interview with representatives
from Lintstock. The anonymity of all
respondents was ensured throughout the
process in order to promote an open and
frank exchange of views.
Appointments to the Board are made on
merit, against objective, appropriately formal,
transparent and rigorous criteria.
In light of the Board’s declared stance on
diversity and following Terry Robinson’s
decision to not seek re-election as a director
of the Company at the 2015 Annual General
Meeting, the Nominations Committee and
the Board gave considerable thought and
research to finding a successor. As part of
this process, Deborah Gudgeon was
identified as a strong candidate to succeed
Terry Robinson as an independent non-
executive director and as a member of the
Audit Committee. The Nominations
Committee and the Board noted that
Miss Gudgeon is a chartered accountant,
with extensive corporate and international
experience, including some experience of
mining. Previously, Olga Pokrovskaya had
been the only female director of the Company
but with Deborah Gudgeon joining the Board,
the level of female board representation will
rise to 20%.
With the appointment of Deborah Gudgeon,
the Company believes that the Board
structure provides an appropriate balance
of skills, knowledge and experience.
The members comprise a number of different
nationalities with a wide range of skills,
capabilities and experience from a variety
of business backgrounds.
Board expertise
The Board has determined that as a whole
it has the appropriate skills and experience
necessary to discharge its functions.
Executive and Non-Executive Directors have
the experience required to contribute
meaningfully to the Board’s deliberations and
resolutions. Non-Executive Directors assist
the board by constructively challenging and
helping develop strategy proposals. Most of
the directors have been in post since the date
of EVRAZ plc incorporation in October 2011.
Full details of the skills and experience of the
Board members are provided in the Board of
Directors section above on pages 70 to 71.
Induction and professional
development
The Chairman is responsible for ensuring that
there is a properly constructed and timely
induction for new directors upon joining the
Board. Directors have full access to a regular
supply of financial, operational, strategic and
regulatory information to help them discharge
their responsibilities.
10%
10%
30%
50%
Independent non-executive directors
Non-executive directors
Chairman, non-executive
Executive director (CEO)
The Board currently comprises the
Chairman, one executive director, and eight
non-executive directors, including a senior
independent director.
The Board considers that five non-executive
directors (Duncan Baxter, Karl Gruber,
Alexander Izosimov, Sir Michael Peat and
Terry Robinson) are independent in character
and judgement and free from any business
or other relationship which could materially
interfere with the exercise of their
independent judgement, in compliance
with the UK Corporate Governance Code.
The independent non-executive Directors
comprise the majority on and chair all
Board Committees.
The Board has also satisfied itself that there
is no compromise to the independence of,
or existence of conflicts of interest, for those
directors who serve together as directors on
the boards of outside entities.
Boardroom diversity
EVRAZ recognises the importance of diversity
both at Board level and throughout the whole
organisation. The Company remains
committed to increasing diversity across
its global operations and we take diversity
into account during each recruitment and
appointment process, working to attract
outstanding candidates with diverse
backgrounds, skills, ideas and culture.
When making new appointments, the Board’s
stance on diversity, including gender, is to
act in good faith towards meeting the
recommendation contained in Lord Davies’
report of achieving 25% female board
representation while appointing the most
appropriate candidate. To this end, female
representation on the Board has been a
particular area of focus for the Nominations
Committee. (See the Nominations
Committee’s report on page 85).
EVRAZ plc Annual Report and Accounts 2014
75
Corporate Governance Report (continued)
Lintstock subsequently produced a report
which addressed the following areas of Board
performance.
Areas
Findings and action points
The composition of the Board, and the key changes that should be
made to the Board’s profile to match the strategic goals
The Board’s composition was rated highly, with planned changes
including additional mining expertise and North American knowledge,
and increased female representation
The Board’s understanding of the markets in which the Group
operates, and of the views of major investors and shareholders
The rating was positive
The relationships between the members of the Board and between
the Board and management, and the involvement of non-executives
in the affairs of the Company outside Board meetings
The management of time at the Board, including the annual cycle of
work and the Board’s agenda
Board dynamics and relationships with senior management were
rated highly. The programme of site visits for Board members, and
the discussion of Board and Company matters during these visits,
is to be expanded and formalised
The Board commits considerable time and effort to its monthly
meetings and Board effectiveness was rated highly. Further thought is
to be given to managing the time devoted to individual agenda items
and to the organisation of papers circulated prior to Board meetings
The quality of advisers that support the Board and its committees,
and directors’ training needs
Performance was rated as adequate. Further thought is to be given
to the provision of training for directors
The data provided to support the Board’s analysis of the
performance of the business, and the Board’s knowledge of the
performance of the Group relative to its main competitors
The Board’s testing and development of the Company’s strategy,
and the involvement of the Board in determining strategic direction
This was considered to be good. Information about the Group’s
competitors is to be brought together in a specific presentation
Performance was rated as good, with strategy considered
specifically by the Board on three occasions during the year.
The linking of annual planning and budgeting to the strategy
is to be brought out more clearly
The Board’s management of the main risks facing the Group, and
risk appetite
Performance was rated positively
The structure of the company at senior levels, and succession
planning for the Chief Executive and other key management
The structure of the Group at senior levels was rated positively.
The Board, in addition to the Nominations Committee, is to devote
more time to considering succession planning
The composition and performance of the committees of the Board,
the performance of the Chairman and the individual performance
of directors
The contribution of the Chairman was rated highly and the performance
of the Board’s subcommittees was considered good, with the Audit
Committee’s contribution commented on particularly favourably
While there are areas for improvement, which
will be addressed, in overall terms the review
was encouraging and useful.
76
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Board Committees
The Board is supported in its work by the
following principal committees: the Audit
Committee, the Remuneration Committee,
the Nominations Committee and the Health,
Safety and Environment Committee.
The table below sets out the role and
composition of each committee:
Function
Name of committee
Composition
Audit, financial reporting, risk
management and controls
Audit Committee
All 4 members are non-executive
directors, of which 3 are
independent
Link to Audit Committee report
on page 78-84
Selection and nomination of
Board members
Remuneration of Board
members and top management
Nominations Committee
All 5 members are non-executive
directors, 3 are independent
Link to Nominations Committee
report on page 85
Remuneration Committee
All 3 members are independent
directors
Link to Remuneration Committee
and Remuneration reports on
pages 90-98
Link to HSE Committee report on
page 87
HSE issues
HSE Committee
3 of 4 members are non-
executive directors, of which 2
are independent
Each committee has written terms
of reference, approved by the Board,
summarising its role and responsibilities.
The terms of reference for each committee
are available on the Company’s website
www.evraz.com.
Reports from each committee follow.
EVRAZ plc Annual Report and Accounts 2014
77
Corporate Governance Report (continued)
Audit Committee
Dear Shareholders,
I am pleased to present the report of
the Audit Committee for the financial
year to 31 December 2014. I would
like to thank the Committee members,
the executive and finance teams of
the Company, the internal audit group
and Ernst & Young (EY), our external
auditors, for the continuing diligence
and for their valued contributions to the
discussions and reviews made at the
meetings of the Committee.
Terry Robinson
Chairman, Audit Committee
Work of the Committee in 2014
At the Committee’s meetings during 2014,
we focused on financial reporting, including the
Company’s Interim Management Statements,
Internal Controls, Internal Audit, External Audit
and Risk Management, including finance,
operations, regulation, fraud and compliance.
These matters were comprehensively reviewed
and, when required, formally presented to the
Committee by the Company’s financial and
operational management, Internal Audit, the
Compliance Officer and legal team, the external
auditors and the external legal advisers.
Furthermore, during the year the Committee
reviewed its own terms of reference, the
internal audit charter, the Group’s insurance
policy, the effectiveness of the anti-corruption
policy and the development of sanctions risk
compliance controls and initiated compliance
steps to address the governance
requirements as detailed in the Financial
Reporting Council’s Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting.
Financial Reporting for the financial
year 2014
In addressing our key objective, namely to
assist the Board in ensuring the integrity of
its financial statements, the Audit Committee,
with assistance from both management and
the external auditor, concentrated on:
– Compliance with financial reporting
standards and governance requirements
– Accounting areas that require significant
accounting judgment
– The substance, consistency and fairness
of management estimates
– Whether the Annual Report, taken as a
whole, is fair, balanced and
understandable, providing the necessary
information for shareholders to assess the
Group’s business model, strategy,
principal risks and uncertainties and
performance
Among other matters, the following were
reviewed and challenged by the Audit
Committee in respect of the Interim
Condensed Consolidated Financial
Statements (ICCFS) and the 2014
Consolidated Financial Statements (CFS):
Financial reporting standards and
governance requirements
The Audit Committee has considered the
following financial reporting issues which they
determined to be significant. The full financial
statements can be found on pages 115-201.
Interim Financial Statements and
Consolidated Financial Statements:
Reclassification of Asset Held for
Sale (AHFS)
The Group’s decision to retain control
of EVRAZ Highveld Steel and Vanadium
Limited (EHSV)
Note 2 of the ICCFS 2014, and of CFS 2014.
EHSV had been classified as a disposal
group held for sale as at 31 December 2012
and 2013.
Subsequent to the interim balance sheet
date, on 12 August 2014, the Group signed
an agreement to sell, subject to certain
pre-conditions, 34 per cent of the issued
share capital of EHSV and to retain control
over the remaining 51.1 per cent ownership
interest. On management’s advice that the
Company intends to retain control of EHSV,
the Committee concurred with management’s
judgments that EHSV had ceased to be an
AHFS at 31 December 2014. As the Group
still believes that the EHSV investment will
be realised, primarily through sales proceeds
(even though it does not meet the criteria
to be classified as AHFS), the market value
of the shares of the subsidiary as of
31 December 2014 was used as a basis to
determine the recoverable amount of this
cash generating unit. As a result, an
additional impairment (US$58 million) was
recognised and charged to the 2014
Statement of Operations.
As at 31 December 2013 AHFS included the
Moscow administrative office building. In the
second half of 2014, in view of the Moscow
property market and related economic
outlook, the management decided not to sell
this asset and, consequently, the Moscow
administrative office building ceased to be
an AHFS at 31 December 2014. US$14 million
of the impairment charged to the Statement of
Operations in the first half of 2014 in respect
of the Moscow office building was reversed in
the second half of 2014 on cessation of
AHFS classification.
Upon cessation of classification of EHSV and
the Moscow administrative office building as
AHFS, the Group, in accordance with the
requirements of IFRS 5 “Non-current Assets
Held for Sale and Discontinued Operations”,
restated all prior periods as though these
subsidiaries were never classified as held for
sale. As described in Note 2 of the Financial
Statements, apart from reclassification of
assets in the Group balance sheet this also
led to recognised additional depreciation
expense (US$63 million), an increase in Gain
on disposal groups classified as held for sale,
net (US$156 million), impairment of assets
(US$117 million), and income tax benefit
(US$45 million) recognised in the 2013
Statement of Operations.
78
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
USD/RUB 2014/2013, year-end exchange
rates: 56.26/32.73 and average exchange
rates: 38.42/31.85; USD/UAH 2014/ 2013
year-end exchange rates: 15.77/7.99 and
average exchange rates: 11.9/7.99. The
30 June 2014 exchange rates/average
rates for USD/RUB and USD/UAH were
33.63/34.98 and 11.82/10.28 respectively.
The significant impact of the foreign exchange
movements described above has made the
process of challenging the consistency and
comparability of balances in the Financial
Statements difficult. The financial analysis of
areas of significant judgement and estimates
provided by management separated out
where possible the foreign exchange impact.
The Audit Committee challenged and
recommended improvements to the
explanations of the impact of foreign
exchange on the position and the
performance of the group in the Annual
Report and Accounts.
Impairment, Goodwill, note 5 CFS, Assets,
Note 6 CFS
Before the Audit Committee reviewed the
management’s Impairment recommendation,
the Committee noted that the Net Book Value
(NBV) had been impacted as a result of
currency devaluation by a ‘translation
difference’ of US$3,338 million (note 9 CFS).
Thus, the carrying values of the primary
Russian Cash Generating Units (CGU) to be
tested by separate ‘value in use’ calculations
had suffered significant value reduction on
translation and, as a consequence, current
devalued ‘carrying values’ are not challenged
by ‘value in use’ comparisons.
To give some illustrative indication of the
continuing ‘value in use’ of the Russian and
Ukrainian Property, Plant and Equipment (PPE)
please see the Financial Review page 22, in
the Strategic Review section of the Annual
Report. The Audit Committee has reviewed
and discussed the illustrative presentation.
The goodwill impairment of US$330 million
is driven by declining oil prices, driving lower
product sales prices and a higher WACC in
North America because of higher risks in the
industry, and by the idling of the Italian plant
EVRAZ Palini e Bertoli (EPB). The impairment
charge of US$210 million, represents the
cash generating unit level and specific PPE
and Intangible Assets impairment including
EHSV PPE impairment, described above,
EPB, also above, various mines at
Yuzgkuzbassugol, relating to costs of site
restoration following closure, and other.
Depreciation
Depreciation, depletion and amortisation
expense has declined from US$1,114 million
to US$833 million, primarily as a result of the
17% decline in the average USD/RUB
exchange rate.
Site Restoration Provision, note 2 CFS
Following a review by appropriately qualified
executives of site restoration provisions
across the Group’s operations, encompassing
mines and steel plants, the Audit Committee
conducted a review of the amounts provided.
In particular the Committee discussed
whether the amounts so provided had been
compared with the restoration of mines and
plants elsewhere in Russia and whether the
Group’s provisions were comparable.
As a result of this review a US$72 million
additional liability was determined.
Yuzhny GOK (YuGOK) note 16 CFS
The Group purchases sinter and scrap from
YuGOK (a related party) for production of
pig iron at the Group’s Ukraine steel plant.
Such purchases are valued by reference to
USD per tonne but recorded in the books of
the Ukrainian subsidiary in the functional
currency, hryvnia, invoices being issued and
paid in hryvnia. Over the period 2012 to 2013
the Group subsidiary had accumulated a
non-interest bearing account payable of
US$336 million invoiced and recorded in the
Ukrainian subsidiary as a hryvnia account
payable. During this period the USD/UAH
exchange rate was stable at 7.99 UAH to
the USD.
During 2014 the USD/UAH depreciated to
15.77 and YuGOK sought confirmation that,
irrespective of the hryvnia devaluation, EVRAZ
has recognised that in substance the product
invoiced to the Group subsidiary was in USD
and the outstanding payable was a USD
payable. The Audit Committee questioned the
evidence that the substance of the valuation
of the payable for the sinter etc. was a USD
payable. Evidence was given that the
Company had always shown the liability as a
USD liability and further, from a commercial
consideration, if the matter had gone to
dispute proceedings EVRAZ’s Ukrainian steel
mill would cease operations without YuGOK
sinter, thereby incurring a serious cash cost.
The Committee requested management to
regularise the YuGOK sinter etc. invoicing with
an agreement to the effect that, while
invoicing was in hryvnia as required by a
Ukrainian entity, each invoice had a fixed
equivalent USD value. This agreement was
duly made in 2014.
Segment reporting Note 3 CFS
In the second half of 2014, the Group’s CEO
proposed a reorganisation of the Group’s
operating business units. The revised
segments reflect a new emphasis and
approach to resource allocation focused on
Steel, including vanadium and the inter-group
related iron ore mining, Coal and Operations
in North America. Segment reporting for the
comparative years 2013 and 2012 has been
restated accordingly.
Going Concern note 2 CFS
The Audit Committee considered a going
concern analysis, prepared by management,
using the Company’s business model. The
presentation included a base case and flexed
pessimistic case. The base case utilised
parameters, USD/RUB average exchange
rates, Budget Capex, product budget costs and
volumes, and product selling budget prices,
tested against investment bank analysts’
indicative forward market prices. The 2016
parameters (for free cash flow estimates,
January to June 2016) drew on the Company’s
forward strategy operational expectations.
While base case product selling prices are
below average prices for 2014, the Company’s
going concern consideration remains primarily
sensitive to the forward market prices of Steel
products and the forward prices of coal
concentrate within Russia.
The Audit Committee carefully considered the
forward ‘Use and Sources of Funds’
statement, which included loan repayments,
new committed funding and free cash flow
after capital expenditure. In challenging the
going concern presentation, the Committee
questioned any potential impact from
reported issues with regard to Russian banks
obtaining funding for on-lending to commercial
borrowers and Western banks’ constraints on
lending to Russian entities as a consequence
of the prevailing sanctions regime.
Following the described considerations, the
Audit Committee resolved to recommend the
going concern basis of preparation for the
Financial Statements as at 31 December
2014 to the Company’s directors.
Areas of significant management estimates
Critical considerations made by the Audit
Committee included:
The Financial Statements from 31 December
2013 to 30 June 2014 and as at
31 December 2014 are materially impacted
by the devaluation of the Russian rouble and
to a lesser extent the devaluation of the
Ukrainian hryvnia. The Group’s presentational
currency is the US dollar, although a
significant part of the Group’s operations and
net assets have the Russian rouble as a
functional currency and a less significant part
of operations have the Ukrainian hryvnia as a
functional currency. Note 2, CFS page 28,
EVRAZ plc Annual Report and Accounts 2014
79
Corporate Governance Report (continued)
On 10 April 2014 the Group paid a hryvnia
equivalent of US$311 million and at
31 December 2014 the outstanding USD
equivalent of the hryvnia account payable
is US$96 million.
In respect of these purchases from YuGOK
and the repayment of outstanding payables
and the balance held for payment there is an
exchange rate loss of US$88 million.
Fair, balanced and understandable
The Audit Committee has reviewed the form
and content of the Group’s 2014 Annual Report
to shareholders. Taking into account the
disclosure implications of the issues discussed
in this report, the Committee reported to the
Board that it considers the Annual Report,
taken as a whole, to be fair, balanced and
understandable. In addition, the Committee
recommended approval by the Board of the
Group’s Consolidated Financial Statements
for the year ended 31 December 2014.
Other Matters
Group Financial Reporting Procedures
manual (FRP)
The Group’s administrative and financial
functions and personnel during the first
part of the year were party to a significant
rationalisation process and, as a
consequence, the Audit Committee asked
for a complete review of the Group’s financial
and organisational controls to be undertaken
and, where appropriate, to amend the FRP
so that effective and proper controls are
sustained. In October 2014, the revised FRP
was received and reviewed by the Committee.
Subsequently, the FRP was tabled at the
Board for the Directors’ consideration,
consistent with Directors’ duties to have
responsibility for the effectiveness of the
corporate’s internal controls.
UK Bribery Act
The Audit Committee continues to exert
regular oversight of the effectiveness of the
procedures, controls and record keeping of
matters subject to the Group’s anti-corruption
policy and Code of Conduct. During the year,
the Internal Audit function carried out an
assurance audit of matters raised for
improvement and implementation by the
external independent audit undertaken
following the adoption of the Group’s
anti-corruption policy. The Committee has
requested sight of and has reviewed the
record of all gifts and entertainment
consented to by the Group’s Compliance
Officer over and above the Group’s
designated threshold for such costs. Further,
and subsequent to the CEO’s approval in
November 2014 of the Regulation for
interaction with state authorities the
Committee has reviewed the Group’s
procedures and records for authorising each
and every separate meeting by the designated
officers and employees with government
bodies or persons, and the register of
80
EVRAZ plc Annual Report and Accounts 2014
subsequent meeting reports required to
be submitted by the officer or employee
authorised to attend a particular meeting.
Sanctions Compliance Controls
In response to concerns expressed by the
Board regarding the risk to the Company
inadvertently contravening any sanction
constraint or legal requirement (as highlighted
in the introduction to this report), the Risk
Committee and subsequently this Committee
undertook to seek external legal advice and
external legal assistance to perform a
sanctions risk assessment. This was followed
up by the implementation of recommended
processes, procedures and the training of
critical officers and employees under the
control of the Group’s Compliance Officer,
whereby the Board can have assurance that
the Company is knowledgeable as to all
sanctions that might possibly impact the
Group’s operations and the Group’s personnel
and business activities are subject to
appropriate compliance controls in order to
avoid the risk of breaching any sanction.
Full implementation of the recommended
controls has been prioritised.
Audit Committee self-assessment
A self-assessment of the Audit Committee was
undertaken encompassing its composition, its
duties and responsibilities, its access to
management and its performance.
In addition, as detailed in the Nomination
Committee report, an externally facilitated
Board assessment was undertaken during
the year and, as part of that process, a
separate Audit Committee assessment
was undertaken.
Risk Management and Internal Control
See Risk management and Internal Control
on pages 82-83.
Cyber Risk
The Risk Committee has continued to review
the Group’s risk relating to Cybercrime. To
assess the risk to Cybercrime and to review
the Group’s existing IT security protocols and
procedures, the Group has initiated an external
assessment of three critical IT function areas:
the Group’s payment systems, IT Information
data bases and IT process production controls.
In view of the numerous and separate IT
platforms within the Group, it has been
evaluated that the risk of Cybercrime is not
critical. This external assessment is intended
to more accurately define the Group’s risk
exposure in this area.
Long Term Viability Statement
In preparation for the requirement in the
updated UK Corporate Governance Code,
applicable for EVRAZ’s 2015 year end, to
include a ‘Long Term Viability Statement’,
the Audit Committee has considered the
appropriate timescale and recommended that
EVRAZ’s statement should look forward over
a period of five years. This recommendation
was made considering the term of the Group’s
annual strategic review and considering the
ageing of the Group’s debt profile. This
recommendation has been accepted by the
Board. Further, the Risk Committee has
agreed that it will review a pro forma viability
statement following the Board’s consideration
of the 2015 Strategy Review. Following the
Risk Committee’s review it is intended that
the Audit Committee will consider the
elements of the pro forma statement in
preparation for a final statement for the 2015
Annual Report.
Assessment of the Group’s risk profile
and control environment
Internal Audit undertakes a bi-annual review
of the Group’s risk control environment and
this is reviewed at the Risk Committee and
the Audit Committee following upon which the
Chairman of the Audit Committee reports to
the Board on the Internal Audit’s summary
judgment on the risk and control environment.
An issue identified in 2013 was the
assurance that is required to establish stock
values of bulk stock; ore stocks, scrap and
Vanadium slag. In 2014, 15 per cent of bulk
stock was measured by independent external
surveyors with management’s commitment to
extend the measurement by independent
valuation to the other bulk stock categories.
The Audit Committee continues to receive
monthly updates concerning whistleblowing
events, together with a security report on the
progress of follow-up investigations and any
consequent actions in relation to fraud or theft.
The Audit Committee reports to the Board
all Internal Audit findings on control issues
that have a risk rating over and above the
Group’s risk appetite. These matters are
routinely followed up at the Group’s
Management Committee.
In August and October 2014 and in March
2015, the Audit Committee reviewed the
considerations of the Group’s Risk
Committee, including the Group’s Risk
Register and in August 2014 and February
2015; the Audit Committee reviewed the draft
of the proposed Statement of Principal Risks
and Uncertainties for inclusion in the Interim
Report to shareholders and the Annual
Report. The Audit Committee further
considered the Risk Committee’s
recommendations as to any amendment to
the Group’s Risk Appetite. The Audit
Committee tabled all these matters; the Risk
Register, the Risk Appetite recommendation
and Principal Risks and Uncertainties, to the
Board for its consideration and adoption.
A full description of the Company’s Principal
Risks and Uncertainties is on pages 18-21.
Strategic Report
Business Review
Governance
Financial Statements
Internal Audit
See Risk Management and Internal Control
section, Internal Audit on pages 82-84.
The Audit Committee has reviewed the internal
audit plans for 2015 and recommended certain
revisions to reflect particular risks to the
control environment. In 2014 the Committee
requested Internal Audit to review the risks to
the control environment following the changes
to the administrative functions following a
significant retrenchment in personnel.
In addition, the Committee considered
the Internal Audit personnel resource and
recommended to the Company that some
additions be made to the Internal Audit
function. Further, on the appointment of
the Head of Internal Audit to a commercial
role in the Company, the Committee’s
recommendation as to the new Head of
Internal Audit was adopted by the Company.
The Committee reviewed the Internal Audit
Charter during the year and added a
responsibility to present an overview of the
good standing of the Group’s internal controls
based on a traffic light assessment of all the
key business cycles. This report will be tabled
for the Board’s consideration, in addition to
the Board’s receipt of the biannual review
of the risk control environment, thereby
assisting the Directors in their duty to ensure
that the Group possesses sound risk
management and internal control systems.
The Committee undertakes an annual
assessment of the effectiveness,
independence and quality of the Internal
Audit function by way of a questionnaire to
Committee members, management and the
external auditors. This assessment was most
satisfactory. In addition, the Committee has
initiated an external assessment of the
Internal Audit function, an exercise that the
Committee oversees every five years.
The Head of Internal Audit also acts as
secretary to the Committee and prepares
the Committee’s minutes. These minutes are
tabled at the Board for consideration and are
also the subject of a verbal presentation from
the Chairman of the Committee.
External Audit
The Audit Committee reviews and discusses
the external audit programme with regard to
the Interim Review and the Year-end audit.
In particular the Committee reviews the key
audit risks, audit materiality measures, and
challenges the audit scope and independence
of the external audit. The Committee reviewed
and accepted the external auditor’s
engagement letter.
At the request of the Committee, the external
auditor also includes in the audit planning
presentation the audit plan’s response to the
FRC’s Audit Quality Thematic Review guidance
to auditors and Audit Committees, and further
an inclusion of an appendix detailing the
external auditor’s response and actions to the
FRC’s Quality Inspections report, May 2014.
The Committee particularly discussed the
procedures and actions initiated or previously
in existence to ensure audit quality.
Non-Audit Services note 31 CFS
Non-audit services are managed in
accordance with the Group’s policy for
approval of services to be provided by the
external auditor; the policy can be found on
the Company’s website: www.evraz.com.
Irrespective of prior approval of the CFO
or the Audit Committee Chairman, all
non-audit fees are reported to the Committee
for noting and comment.
In 2014, non-audit fees totalled US$2.01 million
of which US$1.92 million was in respect of
expected market engagements relating to the
potential IPO in the United States of America of
EVRAZ’s North American steel operations and
the bond offering by EVRAZ North America.
Reappointment of the external Auditor
The Audit Committee has considered the
UK Governance Code’s guidance and the
EU legislation on audit regulation adopted in
2014 requiring companies to put the external
audit contract out to tender at least every ten
years. Ernst & Young LLP (EY) were the
auditors to the EVRAZ predecessor group
of companies and the audit was last tendered
in 2009. The Committee reviewed the
continuing engagement of EY and resolved
that an early audit tender was not currently
appropriate. The Committee will continue to
monitor the implementation of the EU audit
regulation by the UK and Luxembourg and
assess whether this has any impact on audit
tender timing.
The senior statutory auditor rotates every five
years. Mr Ken Williamson assumed that role
in respect of the 2011 audit. Mr Dmitry
Zhigulin, the lead audit partner in EY’s
Moscow team, rotates out at the conclusion
of the 2014 audit.
Following the completion of a questionnaire
by members of the Audit Committee and
management, assessing the independence of
EY and quality of the audit together with the
review of the FRC’s Quality Inspection report
referred to above, the Audit Committee has
recommended the reappointment of EY as
the Group’s and Company’s external auditor.
In August 2014, the Audit Committee met to
review the independence of EY with regard to
their proposed engagement as Reporting
Accountants in connection with the potential
IPO of EVRAZ’s North American operations.
Prior to EY’s appointment, it was necessary
for EY to comply with the independence rules
and standards of the US Public Company
Accounting Oversight Board (PCAOB) and of
the US Securities and Exchange Commission
(SEC). The EVRAZ entity, a UK subsidiary,
Viscaria Ltd, was the intended potential
foreign private issuer Registrant with the SEC.
There were two issues which required
explanation, the first: that EY had provided
expert services during the period 2010
to February 2013; and the second: a director
of Viscaria was an ex-employee of EY, a
participant of an EY pension plan and in 2014
had become an independent trustee of the
relevant pension plan.
Under the UK Auditing Practices Board Ethical
Standards these issues and roles do not
affect EY’s independence as EVRAZ’s
external auditor. Having considered the
explanations from EY, their proposed
remediation where applicable and legal advice
from a prominent international law firm, the
Audit Committee supported the independence
of EY in connection with its role as reporting
accountants for Viscaria and EY’s
independence as external auditor to the
EVRAZ group.
The Committee reviewed the Interim review
and Year-end Audit reports with particular
consideration given to the external auditor’s
reports on areas of significant estimation
within the Group’s Financial Statements and
other areas of audit focus. The Committee
also considered in some detail the auditor’s
Representation Letters.
The Committee, together with the relevant
management, considered the external
auditor’s management letter following the
2013 audit together with management’s
responses as to proposed action or opinion
on issues detailed in the management letter.
The Committee requested Internal Audit to
carry out a follow up audit on all indicated
management actions which has been
reviewed by the Committee.
The Committee held sessions with the
external auditor without management present
and enquired as to the appropriateness of the
Company’s accounting policies and of the
audit process. The external auditor confirmed
the Company’s policies were appropriate.
EVRAZ plc Annual Report and Accounts 2014
81
Corporate Governance Report (continued)
Committee members and attendance
The majority of the Audit Committee’s members
are Independent Non-Executive Directors.
As explained in the Corporate Governance
report (page 73), the technical experience
and regional expertise that Olga Pokrovskaya,
a non-Independent Non-Executive Director,
brings to the Committee is of immense value,
particularly given the scale of the Company’s
Russian operations.
The Audit Committee met 12 times in 2014
and four times from the beginning of 2015
until the publication of this Annual Report.
Additional attendees at Committee meetings
comprised: the external auditors, EY, head
of Group Internal Audit/secretary to the
Committee and of the Risk Committee, and
senior members of the Group’s financial
accounting team.
The Committee also invited the VP’s of
Strategy, Projects, Steel, IT, Legal and the
Group Compliance Officer and Director of IR.
In addition, other members of the EVRAZ
management team and Internal Audit were
invited to attend several Committee meetings.
Separately, as Audit Committee Chairman,
I held a number of meetings with the
Group’s CEO.
I have been Chairman of the Audit Committee
since EVRAZ originally floated on the
secondary market in 2005 as Evraz Group
S.A. and subsequently since the Group’s
primary listing in 2011. Recognising the
guidance of the UK Corporate Governance
Code and possible challenges to my
independence as a director of EVRAZ plc,
given my combined years of office as a
non-executive director, I am standing down
as a Director at the Company’s AGM in June
2015. Sir Michael Peat will assume the chair
of the Committee after the AGM and Ms
Deborah Gudgeon, who has been nominated
an Independent Non-Executive Director and
approved by the Board, will be joining the
Audit Committee as a member, subject to
shareholder approval at the AGM.
Role of the Audit Committee
To assist the Board in ensuring the integrity
of its Financial Statements.
Responsibilities of the Audit
Committee
– To review the announcements of the
Financial Results, Financial Statements
and Annual Report and provide assurance
in respect of all reporting regulations
– To review the appropriateness of
accounting policies and key judgments
and estimates
82
EVRAZ plc Annual Report and Accounts 2014
– To assess and monitor the scope and
effectiveness of internal controls and
systems and to report to the Board the
overall standing of the Group’s internal
controls
– To identify and challenge management as
to financial and non-financial risks and to
present to the Board the Group’s Risk
Register and principal risks and
uncertainties
– To review and propose to the Board the
appropriate level of the Group’s risk
appetite
– To review the procedures of detecting,
monitoring and managing the risk of fraud
and regulatory compliance
– To oversee the relationship with the
external auditor and make
recommendations to the Board regarding
the appointment of the external auditor
– To review the scope, resources,
relationship, results, effectiveness and
management action of internal audit and
of internal audit recommendations
– To report to the Board on whether the
Audit Committee considers the Annual
Report taken as a whole, to be fair,
balanced and understandable
Risk management
and internal control
Risk management process
The Company maintains a comprehensive
financial reporting procedures’ (FRP) manual
detailing the Group’s financial internal
controls and risk management systems
and activity. This Manual was last updated
in December 2014. The Board has overall
responsibility for the Group’s processes
of Risk Management and Internal Control,
and for reviewing the effectiveness of these
processes. In line with the FRC Guidance
on Risk Management, Internal Control and
Related Financial and Business Reporting
issued in September 2014, the purpose of
the risk management process is to identify,
evaluate and manage significant risks
associated with the achievement of the
Group’s objectives. The Board has delegated
to the Audit Committee the oversight of the
Risk Committee’s deliberations. The chair of
the Group’s Risk Committee in 2014 was also
the chair of the Audit Committee.
The Company’s risk management procedures
are designed to meet the risks to which it is
exposed. Consequently, it can only provide
reasonable and not absolute assurance against
a risk being realised and the occurrence of a
material misstatement or loss.
The Group’s Risk Committee undertakes a
twice yearly review of the Group’s risk profile
and the Group’s risk register. The terms of
reference of the Group’s Risk Committee
can be found on the Company’s web site:
www.evraz.com.
The Risk Committee reviews the Group’s
operations and determines the Group’s
principal risks and uncertainties according to
an impact and probability score, nominating
the appropriate risk owner and reviewing the
actions necessary to mitigate such risks and
their implementation by management at the
Group and Regional levels. The Group
examines particularly closely those risks
which are considered to be above acceptable
levels and takes mitigating action where
possible to reduce them to levels at which the
residual risk becomes acceptable.
The Audit Committee reviews the Group’s
major risks and uncertainties prior to the
publication of the Annual Report and the
interim results and presents the major risk
register and risk matrix for the Board’s
consideration and approval, together with
a review and recommendations in respect
of the Group’s risk appetite.
Reviewing the FRC Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting, the Risk
Committee has proposed to the Audit
Committee and to the Board that the annual
strategic review be considered by the
committee together with a pro forma viability
statement. The first consideration of the pro
forma viability statement will be reviewed in
September 2015 and recommended to the
Audit Committee for consideration. In October
2014 the Risk Committee recommended to
the Audit Committee that the appropriate
period for the consideration of the longer
term viability of the Group should be five
years after consideration of the strategic
planning period.
The Group Enterprise Risk Management
(ERM) process is designed to identify,
quantify, respond to and monitor the
consequences of a Risk Committee agreed
risk register that encompasses both internal
and external critical risks. This process in
2014 was consistent with the UK Corporate
Governance Code issued by the FRC in 2012
and the Guidance on the Strategic Report
issued in June 2014 in respect of the
principal risks and uncertainties.
An important part of the risk management
process is the determination of appropriate risk
appetite at Group management level, thereby
identifying particular risks and uncertainties
which require specific Board oversight.
The Group’s executive management is
responsible for embedding the agreed Risk
Management related internal controls and
mitigating actions throughout the entirety of
the Group’s business and operations and
through all levels of management and
supervisory personnel. Such practices serve to
encourage a risk conscious business culture.
Strategic Report
Business Review
Governance
Financial Statements
Risk management activity in 2014
In 2014, regional risk committees and
Business Unit management teams continued
to identify, evaluate and instigate regional risk
management mitigating actions. Detailed risk
assessments and risk evaluations were
conducted at plant and mine levels in 2014.
The Group’s Risk Committee reviewed the
Group’s risk profile in June and October 2014,
and finalised the assessment in February
2015. It was agreed that the Board will review
the relevant principal risks at the time of the
annual consideration of the Group’s strategic
review, in addition to the customary twice
annual reviews.
A separate matrix of compliance risks has
been drafted and adopted by the Risk
Committee. This matrix covers compliance
risks, including, but not limited to: disclosure,
tax, legal compliance, compliance with
corporate governance requirements and
anti-corruption regulations.
The Head of Internal Audit served as
Secretary to the Risk Committee and
participated in discussions of the Group’s
risk profile and mitigation actions as part
of its monitoring process.
The Audit Committee and Risk Committee
continued to oversee EVRAZ’s anti-bribery
and anti-corruption programme, ensuring
recommendations made by an independent
and external party which reviewed the Group’s
anti-bribery and anti-corruption processes were
successfully introduced during the year. The
compliance of documents and UK Bribery Act
compliant procedures relating to anti-bribery
and anti-corruption was confirmed following a
review by Internal Audit. Meanwhile the Group
has a set of established procedures, involving
senior management, compliance officers and
the Group’s security operation, aimed at
preventing corruption and fraud.
Controls
The Board has delegated primary oversight
of the Group’s internal control regime to the
Audit Committee which has direction as to
the internal audit function resources and the
annual audit programme thereby ensuring
that the Group’s ongoing internal control
process is adequate and effective. Further
with regard to the Board discharging its
duties in respect of its oversight of the
Group’s internal controls, the Audit
Committee has tabled for the consideration
of the Directors of EVRAZ the financial
reporting procedures manual, minutes of
the Audit Committee meetings and, where
appropriate, major internal control findings
in excess of the risk appetite.
In 2012 the Group adopted regular, semi-
annual management self-assessments of
the effectiveness of the system of internal
controls using the Assurance Framework of
EVRAZ plc to ensure the effective operation
of comprehensive controls across the Group.
The Group’s management rates and certifies
the individual components of this framework.
This process is supervised by the Group’s
internal audit function and the result of this
self-assessment is regularly reviewed by the
Risk Committee and the Audit Committee of
the Group. Certification of the effectiveness
of internal control in 2014 was performed in
December 2014 – January 2015.
Raspadskaya’s integration into the control
environment of the entire EVRAZ Group was
completed in 2014.
A department of the Company headed by
Senior Vice President Leonid Kachur has
specific responsibility for preventing and
detecting business fraud and abuse, including
fraudulent behaviour of the Company’s
employees, customers and suppliers, which
may cause a direct economic loss to the
business. Solid internal controls help minimise
the risk, and EVRAZ’s business security
department ensures that appropriate
processes are in place to protect the
Company’s interests.
EVRAZ applies the following core principles to
the identification, monitoring and management
of risk throughout the organisation:
– Risks are identified, documented,
assessed, monitored, tested and the risk
profile communicated to the relevant risk
management team on a regular basis;
– Business management and the risk
management team are primarily
responsible for ERM and accountable for
all risks assumed in their operations;
– The Board is responsible for assessing the
optimum balance of risk (risk appetite)
through the alignment of business strategy
and risk tolerance on an enterprise-wide
basis, and the Board has oversight of risks
above the Group’s risk defined appetite
and internal control weaknesses measured
in excess of the risk appetite; and
– All acquired businesses are brought within
the Group’s system of internal control as
soon as practicable.
We also use a “bottom up” approach to
identify, assess and evaluate risks.
Regional risk committees have been
established at our major sites, with the
purpose of identifying, evaluating and
establishing management actions for risk
mitigation at a regional level and at our major
steel and mining operations. These regional
committees are accountable to the Group
Risk Committee by way of the Group Risk
Committee membership (Vice Presidents
of Business Units and functional Vice
Presidents).
Risk management processes and internal
controls operate across our steel plants,
mines, ancillary service operations, capital
projects and administrative functions. Risk
management and internal control procedures
are embedded within our business practices
across function areas including finance, HSE,
human resources, procurement, IT, legal,
security, anti-corruption and insurance
management. There is a detailed assessment
of safety risks at all hazardous work places,
steel plants and mines, and in respect of
project risks for all major projects which
include environmental risk assessments. The
finance and strategic risks of major projects
are prepared by the executive and presented
to the Board for its consideration and key
associated risks are kept under regular review
by the Board.
EVRAZ plc Annual Report and Accounts 2014
83
Corporate Governance Report (continued)
Components of the system of internal control
Components of the system of internal control
Basis for assurance
Actions in 2014
Assurance framework – principal entity-level
controls to prevent and detect error or
material fraud, ensure effectiveness of
operations and compliance with principal
external and internal regulations
• Self-assessment by management
at all major operations
• Review of the self-assessment
by Internal Audit
• Certification of the system of internal
control took place in mid-year and at
the end of 2014 and was facilitated
and reviewed by Internal audit
Investment projects management
• Monitored by established management
committee and sub-committees
• Reviewed by Internal Audit
Operating policies and procedures
• Implemented, updated and monitored
Operating budgets
by management
• Reviewed by Internal Audit
• Monitored by Controlling Unit
• Reviewed by Internal Audit
• Approved by the Board of Directors
• Procedures were strengthened in regard to
quality control, reporting control, and other
elements of the investment projects control
during the year
• Operating policies and procedures were
updated as per internal initiatives by
operational management and in response
to recommendations from Internal Audit
• Operating budgets were prepared and
approved by the Board of Directors
Accounting policies and procedures as per
the corporate accounting manual
• Developed and updated by
Reporting department
• Reviewed by Internal Audit
• Accounting policies and procedures were
updated as part of the standard annual
review process
of identification of management concerns
based on the results of previous audits,
and ends with an internal audit plan which
is approved by the Audit Committee. Audit
resource is predominantly allocated to areas
of higher risk and to the extent considered
necessary, resource is allocated to the
financial and business control and processes
with appropriate resource reservation for
ad hoc and follow-up assignments.
During 2014 internal audit projects covered
the following principal Group risks:
1. Cost effectiveness
2. Health and safety and environmental
3. Business interruption and equipment
downtime management
4. Capital projects management
5. Treasury and working capital management
6. Compliance
The Company’s internal audit is structured on
a regional basis, reflecting the geographic
diversity of the Group’s operations. In light of
this, the head office internal audit function is
in the process of aligning common internal
audit practices throughout the Group through
its quality assurance and improvement
programmes.
Further information regarding the Company’s
internal control and risk management
processes can be found on the Company’s
website: www.evraz.com/governance/control.
Internal Audit
Internal audit is an independent appraisal
function established by the Board to evaluate
the adequacy and effectiveness of controls,
systems and procedures within EVRAZ,
in order to reduce business risks to an
acceptable level in a cost effective manner.
The latest version of the Internal Audit Charter
of EVRAZ plc was approved by the Board on
5 March 2015.
The Internal Audit Department’s role in the
Group is to provide an independent, objective,
innovative, responsive and effective value-
added internal audit service. This is achieved
through a systematic and disciplined
approach based upon assisting management
in controlling risks, monitoring compliance,
improving the efficiency and effectiveness
of internal control systems and governance
processes. Internal audit provides a
half-yearly opinion of the overall effectiveness
of the Group’s internal controls.
In 2014, EVRAZ’s Head of Internal Audit,
being Secretary to the Audit Committee,
attended all the Audit Committee’s meetings
and addressed any reported deficiencies
in internal control as required by the Audit
Committee. The Audit Committee continued
to engage with executive management during
the year to monitor the effectiveness of
internal control and accordingly considered
certain deficiencies that had been
identified in internal control together with
management’s response to such deficiencies.
The internal audit planning process starts with
the Group’s strategy and includes the formal
risk assessment process, and the process
84
EVRAZ plc Annual Report and Accounts 2014
Nominations Committee
Sir Michael Peat
Chairman, Nominations Committee
Strategic Report
Business Review
Governance
Financial Statements
At its meeting on 11 December 2014 the
Committee considered the following issues:
– After considerable consideration and
research Deborah Gudgeon was identified
as a strong candidate to succeed Terry
Robinson as an independent non-executive
director and as a member of the Audit
Committee. External agents were not used
during the search to identify a replacement
for Mr Robinson and an advertisement was
not placed because a number of possible
candidates had previously been identified
by Board members. Members of the
Committee, not including Mr Robinson
who had previously worked with her, had
interviewed Miss Gudgeon. The fact that
Miss Gudgeon is a chartered accountant,
with extensive corporate and international
experience, including some experience
of mining, was noted. It was agreed that
Miss Gudgeon’s appointment as an
independent non-executive director should
be discussed by the Board and that,
subject to the Board’s approval in principle
and to the various checks and clearances
required, a formal proposal to appoint
Miss Gudgeon would be put to the Board
meeting on 31 March 2015. The
appointment has now been approved and
Miss Gudgeon has been appointed, with
effect from 1 May 2015, as an
independent non-executive director.
– The Committee considered the
composition and chairmanship of the
Board committees. It was agreed that
recommendations should be put to the
Board to: appoint Sir Michael Peat as
chairman of the Audit Committee (to
succeed Terry Robinson); to appoint Karl
Gruber as a member of the Nominations
Committee (to succeed Terry Robinson);
and to appoint Alexander Izosimov as
chairman of the Nominations Committee
(to succeed Sir Michael Peat). These
recommendations were put to and
approved by the Board on 31 March 2015.
The appointments are effective from after
the 2015 Annual General Meeting.
Committee members and attendance
The members of the Nominations Committee
at 31 December 2014 and throughout the
year were Sir Michael Peat (Chairman),
Alexander Abramov, Terry Robinson, Alexander
Izosimov and Eugene Shvidler. Three of the
five members of the Committee were
independent non-executives.
The Committee met on two occasions during
2014, on 26 August and 11 December. See
the directors’ attendance on page 74.
The Chief Executive was in attendance at
both meetings and the Company Secretary
acted as the Committee’s Secretary.
Matters considered by the
Committee during the year
At its meeting on 26 August 2014 the
Committee considered the following issues:
– The composition of the Board and the age,
diversity and length of time in office of its
members. It was agreed that the Board
represented a good mix of skills and
experience, and that the Company had
benefited from having a stable Board and
a group of people who interact well. It was
noted that the UK Corporate Governance
Code includes an assumption that a
non-executive director is no longer
considered independent once he or she
has served as a director for nine years. In
view of this, Terry Robinson has said that
he will not seek re-election as a director of
the Company at the 2015 Annual General
Meeting. Mr Robinson’s contribution to the
Company has been considerable and he
will be a great loss to the Board. The
identification of a successor, as an
independent non-executive director and as
a member of the Audit Committee, was
discussed.
– The appointment of the directors to the
Company’s subsidiary holding company
for the Company’s North American
operations, EVRAZ North America plc,
was discussed.
– The Committee discussed the tendering
process for the appointment of
consultants to undertake an external,
independent evaluation of the Board’s
performance, in line with the Company’s
policy to have an external evaluation every
three years.
Lintstock LLP were subsequently appointed
and a summary of their conclusions is given
on page 76.
EVRAZ plc Annual Report and Accounts 2014
85
2015 priorities
The Committee will continue to fulfil its
general responsibilities, with particular
emphasis on compliance with the UK
Corporate Governance Code, development
and succession planning for senior
management, providing and encouraging
training for directors and implementing the
recommendations from the external review
of the Board’s performance.
Corporate Governance Report (continued)
– The appointment of directors of EVRAZ
North America plc was discussed again.
It was agreed to recommend to the Board
that EVRAZ North America plc should have
nine directors, five of whom would be
independent non-executives, including the
chairman. The search to identify the
independent directors, in particular the
chairman, was discussed.
– The Committee considered the
performance of senior management and
senior management development and
succession planning, with important input
from the Chief Executive. It was a
wide-ranging and constructive discussion
with changes to the senior management
team noted.
– Finally, the Committee considered the
status of each of the Company’s remaining
independent non-executive directors and
agreed that it remained satisfied that each
continued to be independent. It was agreed
that the Committee would confirm its
conclusions in this respect to the Board.
Performance of the Chairman
and individual directors
The Senior Independent Non-executive
Director sought views from all directors
about the performance and contribution
of the Chairman. The conclusions of this
review were considered by the independent
non-executive directors at a meeting on
16 October 2014. It was concluded, as
previously, that the Chairman makes an
important contribution to the Company,
including his knowledge and experience of,
and contacts in, the industry. Prior to the
Nominations Committee meeting on
11 December 2014, the Chairman of the
Company and the Chairman of the
Nominations Committee discussed the
performance of the individual directors,
including time available to devote to the
Company’s business.
Diversity Policy
The Board’s diversity policy is to have Board
membership which reflects the international
nature of the Group’s operations and at least
two women (20%) as Board members. The
former objective has been achieved and the
latter will be achieved when Deborah Gudgeon
becomes a director on 1 May 2015.
86
EVRAZ plc Annual Report and Accounts 2014
Health, Safety and
Environment Committee
Karl Gruber
Chairman, HSE Committee
Strategic Report
Business Review
Governance
Financial Statements
Committee members and attendance
The members of the Health, Safety and
Environmental Committee at 31 December
2014 were Karl Gruber (Chairman), Alexander
Frolov, Terry Robinson and Olga Pokrovskaya.
HSE Performance Assessment
of the Group
The HSE Committee reviewed HSE
performance and progress in implementing
EVRAZ HSE policy.
The Committee met on two occasions during
2014, on 5 March 2014 at EVRAZ Vanady
Tula, our vanadium processing facility in Tula,
Russia, and on 7 October 2014 in EVRAZ HQ
in Moscow, Russia. See the directors’
attendance on page 74.
Additionally, members of the committee
undertook three site visits: EVRAZ Vanady Tula,
EVRAZ ZSMK and Raspadskaya. The Chairman
also visited POSCO sites to see the
implementation of Health and Safety initiatives.
Health & Safety
Health & Safety performance includes the
following metrics:
– Fatal incidents
– Lost Time Injuries (LTI)
– Lost Time Injury Frequency Rate (LTIFR)
calculated as the number of injuries
resulted in lost time per 1 million
hours worked
– Cardinal safety rules enforcement
Role of the Health, Safety and
Environmental Committee
The Health, Safety and Environment
Committee leads the Board’s thinking on
health and safety issues, as well as
maintaining responsibility for environmental
and local community matters.
The HSE Committee reviewed the causes
of all fatalities and serious property damage
incidents within the Group and the follow-up
actions taken by the management as well as
the information related to the Company’s
internal incident investigation system
(immediate actions/root causes/ systemic
corrective actions).
Responsibilities of the Health, Safety
and Environment Committee are:
– Assessing the performance of the Group
with regard to the impact of health, safety,
environmental and community relations
decisions and actions upon employees,
communities and other third parties and
on the reputation of the Group;
– On behalf of the Board, receiving reports
from management concerning all fatalities
and serious incidents within the Group and
actions taken by management as a result
of such fatalities or serious incidents;
– Reviewing the results of any independent
audits of the Group’s performance in
regard to environmental, health, safety
and community relations matters,
reviewing any strategies and action plans
developed by management in response
to issues raised and, where appropriate,
making recommendations to the Board
concerning the same; and
– Making whatever recommendations it
deems appropriate to the Board on any
area within its remit where action or
improvement is needed.
The Committee receives a monthly HSE
summary report and reports directly to
the Board of Directors on HSE issues
on a quarterly basis.
The following sections summarise how the
Committee has fulfilled its duties in 2014.
The Committee undertook a benchmark
analysis of H&S performance and safety
initiatives in EVRAZ ore and coal divisions
compared to global industry leaders. It was
concluded that the key initiatives and efforts
of EVRAZ to improve H&S performance are
very similar to those undertaken by POSCO in
recent periods and the LTIFR of EVRAZ can be
estimated as “average” in comparison with
the World Steel Association statistics.
The Committee reconfirmed the need to
continue driving a cultural change where
safety is recognised as a core value by every
employee and contractor alongside a more
proactive approach to instill a risk or hazard
assessment methodology into the daily
activity of every employee. The Committee
members concluded that the key task is to
set standard work requirements on safety
for all management levels. With that in mind,
ensuring regular communications between the
employees and their supervisors in the form
of behaviour safety conversations is a key
tool in incident prevention. Furthermore,
effective safety training (such as hazard
recognition, safety leadership, energy
isolation) should be obligatory for managers,
employees and contractors.
EVRAZ plc Annual Report and Accounts 2014
87
Corporate Governance Report (continued)
The Committee implemented an
environmental performance benchmark
analysis of Russian sites compared to
existing and expected new Russian regulatory
limits (such as best available techniques and
greenhouse gases) as well as reviewing
mercury emissions at EVRAZ North American
sites compared to the requirements of
expected US regulation.
HSE audit results review
EVRAZ operations are subject to HSE
compliance inspections undertaken by
supervisory governmental agencies.
The consequential risks of violating HSE
regulations might be regulatory fines,
penalties or – in the worst case scenario –
withdrawal of mining or plant environmental
licences thus curtailing operations.
Overall the Company’s environmental
performance is improving:
The Committee members reviewed:
– The findings of industrial safety audits
performed by Internal Industrial Audit
Department (IIAD); and
– The status of external environmental
inspections carried out by environmental
authorities.
Other issues and recommendations
The HSE Committee set aside time for safety
training for its members and a HSE strategy
review conference with senior management
of EVRAZ is scheduled for 2015.
– Fresh water consumption has fallen due
to the implementation of water
management programmes as well as
improved waste processing resulting in
more efficient fresh water consumption
and greater recycling of non-mining waste.
– Three major legal cases related to
environmental claims have been resolved
in favour of EVRAZ.
– No significant environmental permits or
licences were missing or revoked during
2014 period.
However, the Company has seen an increase
in key air emissions due to increased sulphur
content in coal and sinter at EVRAZ ZSMK.
The Committee reviewed environmental
initiatives underway to minimise risks
(such as air emissions reduction, water
usage and quality of return discharged water,
metallurgical waste recycling and tailing dam
overflow or collapse) and concluded that
in most areas additional work is required.
New environmental initiatives will therefore
be developed to mitigate newly identified
environmental risks and ensure the
Company keeps up with changes to
environmental regulation.
The Committee members agreed to re-base
the Company’s fresh water consumption
target (15% decrease in fresh water
consumption within 5 years) by excluding
data related to assets which have been
disposed of due to their material effect on
performance. See updated chart on page 34.
Further details on HSE performance can be
found in the Corporate Social Responsibility
section on pages 30-37.
The Committee reviewed the status of the
2012 – 2014 H&S initiatives and concluded
that in most areas the initiatives underway
have to be further expanded during 2015.
These include:
– ongoing implementation of the lock
out/try out (LOTO) energy isolation
programme to establish a zero energy
state of all equipment before any type
of work is commenced and completed,
especially during maintenance and repair;
– enforcement of the minimum personal
protective equipment requirements;
– targeted improvements in railroad,
hazardous gas and confined space
programmes;
– a focused drug testing programme;
– a focused H&S improvement plan for
Coal Division;
– implementation and enforcement
of a comprehensive contractor safety
programme including pre-contract and
pre-job safety review, daily pre-task
planning and a focused effort to reduce
the number of contractor companies by
signing long term contracts.
Additionally the Committee recommended
increasing the focus on health issues and
related reporting; designing a valid health-
related KPI to start tracking progress and
developing a health-related action plan for
the next year.
Environmental performance
Environmental performance includes the
following metrics:
– Non-compliance related environmental
levies (taxes) and penalties.
– Air emissions (nitrogen oxides NOx,
sulphur oxides SOx, dust and volatile
organic compounds).
– Non-mining waste and by-products
generation, recycling and re-use.
– Fresh water Intake and water
management aspects.
In 2014, the Committee undertook a review
of EVRAZ’s environmental performance to
determine the extent to which the Company
is complying with standards and improving
environmental performance. Key areas
reviewed included progress against the
5-year environmental targets set in 2012
and environmental programmes and
initiatives at individual facilities.
88
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Conflicts of interest
For information on the Shareholder Agreement
please refer to Significant contractual
arrangements in Directors’ Report on
pages 99-103.
Alexander Abramov is the Chairman of the
Company and Alexander Frolov is the CEO.
Ms. Pokrovskaya, Mr. Shvidler,
Mr. Tenenbaum, Mr. Abramov and Mr. Frolov
have been appointed to the Board of Directors
of the Company by the major shareholder
pursuant to the terms of the relationship
agreement. The indirect and direct
shareholdings of these Directors in the share
capital of the Company are set out in the
Directors’ Report. No other conflicts of
interests exist between the private interests
of the directors or members of senior
management and their duties to the Company.
For completeness, in 2012 the Board
considered an arm’s length business
arrangement between one of the Non-
independent directors and the son of
Sir Michael Peat, the senior Independent
Director of the Company, and satisfied itself
that this arrangement has no impact on
Sir Michael Peat’s independence.
In addition, in 2013 the Board noted
the nomination of Terry Robinson to the
Board of OJSC Raspadskaya, a subsidiary
of the Company, and was satisfied that
this nomination had no impact on
Mr. Robinson’s independence.
The Independent non-executive directors
meet periodically outside of Board and formal
Committee meetings to discuss a range of
matters including the continued good
standing of the shareholder relationship
agreement, dividends (where applicable) and
the performance evaluation of the chairman.
As set out in the shareholder relationship
agreement, the Independent non-executive
directors have discussed any matters that
could be deemed to potentially create a
conflict of interest between the Company and
the Major Shareholder, including the
amendments made to the shareholder
relationship agreement in December 2014
in order to comply with certain changes to the
Listing Rules.
Relations with shareholders
The Company is committed to communicating
its strategy and activities clearly to its
shareholders and, to that end, maintains an
active dialogue with investors through a wide
range of investor relations activities and
communication channels including
announcements made via the London Stock
Exchange, the Annual Report and accounts,
the Annual General Meeting (the AGM), the
Investor Day and the Company’s website
www.evraz.com.
The Chairman of the Board, the Chief
Executive, senior management and the
investor relations team regularly engage with
institutional investors through roadshows,
group and one-on-one meetings and
conference calls to discuss the Company’s
operations and a wide range of issues
including governance. More than 300
individual/group meetings, conferences and
other public events involving the investment
community took place during 2014. The
Company’s top management took an active
part in the meetings giving the investors and
analysts an opportunity to receive first-hand
information about Company’s operations and
discuss concerns. The Company also hosted
an Investor Day in London on 11 June 2014
during which Alexander Abramov (Chairman),
Sir Michael Peat (Senior Independent
Non-Executive Director) and Alexander Frolov
(Chief Executive Officer) as well as by
members of the senior management team
set out EVRAZ’s near-term strategic priorities
and answered questions on the Company’s
performance and financial position.
We also held conference calls and a meeting
with socially responsible investors (SRI) to
discuss operational risks, health and
industrial safety policies, environmental
and social issues.
The Senior Independent Director, Sir Michael
Peat, has a specific responsibility to be
available to shareholders who have concerns
that cannot or have not been resolved by
contact through the normal channels of the
Chairman, Chief Executive Officer or Chief
Financial Officer or for which such contact
is inappropriate.
Constructive use of Annual
General Meeting
The AGM is an opportunity for shareholders
to communicate with the Board and the Board
welcomes their participation. The next AGM
will be held on 18 June 2015. The Chairman
and the respective Chairmen of Committees
will be present at the AGM to answer
shareholders’ questions.
Details of the resolutions to be proposed at the
next AGM can be found in the Notice of AGM at
http://www.evraz.com/investors/information/
general_meeting/.
The Board has determined that voting on all
resolutions at the AGM will be by way of a
poll. Each member present in person or by
proxy has one vote for each fully paid ordinary
share of which she/he is a holder.
Geographical distribution of
institutional investor share ownership
by geography as at 26 January 2015
3% 2% 4% 1%
13%
36%
41%
United Kingdom
Russian Federation
United States
Norway
Sweden
Rest of Europe
Rest of World
Information pursuant to
the takeovers directive
The Company has provided the additional
information required by DTR 7.2.7 (directors
interests in shares; appointment and
replacement of directors; powers of the
directors; restrictions on voting rights and
rights regarding control of the Company)
in the Directors’ Report on pages 99-103.
EVRAZ plc Annual Report and Accounts 2014
89
Remuneration Report
Remuneration Report
This report has been prepared in
accordance with the Companies Act
2006 and Schedule 8 to the Large
and Medium-sized Companies and
Groups (Accounts and Reports)
Regulations 2008 (as amended in
2013). It also meets the relevant
requirements of the Financial Conduct
Authority’s Listing Rules and describes
how the Board has applied the
principles of good governance as set
out in the UK Corporate Governance
Code (September 2012) and considered
the changes to the Code issued by
the Financial Reporting Council in
September 2014 which will apply to
the 2015 annual report.
This report fully complies with the
Directors’ Remuneration Reporting
Regulations introduced in 2013 by
the UK Government.
This report contains both auditable
and non-auditable information. The
information subject to audit by the
Group’s auditors, Ernst & Young LLP,
is set out in the Annual Remuneration
Report and has been identified
accordingly.
Duncan Baxter
Chairman, Remuneration Committee
90
EVRAZ plc Annual Report and Accounts 2014
Annual statement by the Chairman
of the Remuneration Committee
Dear Shareholders,
On behalf of the board, I am pleased to
present our Remuneration Report for 2014.
Code issued by the FRC in September 2014
does not apply to our 2014 annual report,
the Committee has considered the changes
to the Code, in particular the requirements
around alignment with shareholders’
long-term interests and malus and clawback:
– Promoting long-term success. The current
remuneration policy is tailored to be
appropriate for the current CEO’s specific
circumstances, namely his significant
shareholding in the company (almost 11%
of the issued share capital). The
Committee considers that this
shareholding ensures very strong
alignment with the delivery of long-term
growth in shareholder value.
– Malus and clawback. The CEO’s incentive
arrangements are subject to malus
arrangements, under which the Committee
may adjust bonus payments downwards
to reflect the overall performance of the
Company. Clawback arrangements are not
enforceable under the Russian Labor Code
and as such no clawback arrangements
are currently in place. The Committee will
keep this under review, should the Russian
Labor Code change.
In line with our commitment to good corporate
governance, we will continue to monitor our
investors’ views, best practice developments
and market trends on executive remuneration.
These will be taken into account when
deciding upon executive remuneration at
EVRAZ in order to ensure our policy remains
appropriate in the context of business
performance and strategy.
Policy Report
The Remuneration Policy was approved by
shareholders at the AGM in 2014. For the
benefit of shareholders, we have reproduced
the policy below. We have updated the date
of the Executive Director’s service contract
to reflect the date of the current contract.
No other changes have been made.
The Policy Report, as approved by
shareholders, can be found in last year’s
Remuneration Report, a copy of which can be
found on the website: http://www.evraz.com/
upload/iblock/f4a/Remuneration%20
Report%202013.pdf.
During the year EVRAZ performed well,
despite the challenging and volatile trading
conditions.
In the current competitive environment we aim
to ensure that our remuneration policy is aligned
with our business objectives and retains and
motivates qualified senior executives in order
to deliver sustainable, long-term returns to the
Company’s shareholders.
Directors’ Remuneration Policy
As required by the regulations, we put our
Directors’ Remuneration Policy to a binding
shareholder vote at the 2014 AGM. Over 99%
of shareholders voted in favour and we were
delighted with the high level of support received.
We believe that our Remuneration Policy
remains appropriate, and as such, we are
not proposing to make any changes this year.
We have included a copy of the Directors’
Remuneration Policy Report as approved by
shareholders in this Remuneration Report
for ease of reference. There will be no
separate vote on this part of the report
at the 2015 AGM.
Annual Remuneration Report
The second part of the report, the Annual
Remuneration Report, sets out details of
remuneration paid in 2014 and how we intend
to apply our policy in 2015. This section will
be put to an advisory shareholder vote at the
forthcoming AGM.
Key decisions taken during the year
The Committee reviewed the CEO’s salary
and determined that his salary for 2015 will
remain frozen at the same level as in 2014,
reflecting the continuing challenging market
conditions and low level of wage increases to
employees across the Company in general.
With regard to the annual bonus, the
Committee reviewed the KPIs against which
the bonus is measured with regard to the
Company’s financial, operational and
strategic measures to ensure they remained
appropriate. As a result, the Committee
determined that in order to simplify the bonus
structure the EBITDA profitability adjustment
on the annual bonus would no longer form
part of the bonus assessment. This change
will be applied for bonuses from FY 2014
onwards, and has resulted in a lower bonus
payout in respect of FY 2014 than would have
been achieved had the EBITDA profitability
adjustment been applied. Based on
performance against the pre-determined KPIs
and targets, the CEO’s annual bonus payout
for 2014 was 77% of the maximum.
Whilst the revised UK Corporate Governance
Strategic Report
Business Review
Governance
Financial Statements
Remuneration policy
Element
Purpose and link to strategy
Operation
Maximum potential value
Performance metrics
Executive Director
Base
salary
Provides a level of
base pay to reflect
individual experience
and role to attract
and retain high
calibre talent
Benefits
To provide market
level of benefits,
as appropriate
for individual
circumstances
Normally reviewed annually, taking
into account individual and market
conditions, including:
size and nature of the role,
relevant market pay levels,
individual experience and pay
increases for employees across
the Group.
For the current CEO, base salary
incorporates a Director’s fee (paid
to all Directors of the company for
participation in the work of the
Board committees – see the
section on Non-Executive Director
remuneration policy below).
Benefits currently include:
– private healthcare
– meal allowances
Other benefits (including pension
benefits) may be provided if the
Committee considers it appropriate.
The current CEO does not currently
participate in any pension scheme.
In the event that an executive
Director is required by the Group to
relocate, benefits may include but
are not limited to relocation
allowance and housing allowance.
Annual
bonus
Aligns executive
remuneration to
Company strategy
through rewarding
the achievement
of annual financial
and strategic
business targets
The Company operates an annual
bonus arrangement under which
awards are generally delivered
in cash.
Targets are reviewed annually and
linked to corporate performance
based on predetermined targets.
Generally, the maximum
increase per year will be in
line with general level of
increases within the Group.
None
However, there is no overall
maximum opportunity as
increases may be made
above this level at the
Committee’s discretion, to
take account of individual
circumstances such as
increase in scope and
responsibility and to reflect
the individual’s development
and performance in the role.
Generally the cost of
benefits will be in line
with that for the senior
management team. However
the cost of insurance
benefits may vary from year
to year depending on the
individual’s circumstances.
The overall benefit value
will be set at a level the
Committee considers
proportionate and
appropriate to reflect
individual circumstances.
There is no total maximum
opportunity.
200% of base salary per
financial year.
None
The bonus is based on
achievement of the Company’s
key quantitative financial,
operational and strategic
measures in the year to ensure
focus is spread across the key
aspects of Company performance
and strategy.
The exact measures and
associated weighting will be
determined on an annual basis,
according to the Company’s
strategic priorities, however at
least 60% will be based on Group
financial measures.
For achievement of threshold
performance, 0% of maximum will
be paid, rising straight line to
50% of maximum for target
performance and 100% of
maximum for outstanding
performance.
The Committee retains discretion
to adjust bonus payments to
reflect the overall performance of
the Company.
EVRAZ plc Annual Report and Accounts 2014
91
Remuneration Report (continued)
Non-Executive Directors
Chairman
and Director
Fees
To provide
remuneration that is
sufficient to attract
and retain high
calibre non-
executive talent
Director fees are paid in the form of cash fees, but with the flexibility to forgo all or part of such fees
(after deduction of applicable income tax and social taxes) to acquire shares in the Company should the
Non-Executive Director so wish. Non-Executive Director fees are reviewed from time to time.
Non-Executive Directors receive an annual fee for membership of the Board.
Additional fees are payable by reference to other Board responsibilities taken on by the Non-Executive
Directors (for example membership and chairmanship of the Board committees).
The Chairman of the Board receives an all-inclusive annual fee.
Expenses incurred in the performance of Non-Executive duties for the Company may be reimbursed or
paid for directly by the Company, including any tax due on the expenses. This may include travel
expenses, professional fees incurred in the furtherance of duties as a Director and the provision of
training and development. In addition, the Company contributes an annual amount towards secretarial
and administrative expenses of Non-Executive Directors.
Non-Executive Directors may not participate in the Company’s share incentive schemes or pension
arrangements.
Total fees paid to Non-Executive Directors will remain within the limit stated in the Articles of Association.
Remuneration arrangements
throughout the Group
The remuneration approach and philosophy is
applied consistently at all levels, including the
Executive Director. This ensures that there is
alignment with business strategy throughout
the Company. Remuneration arrangements
below the Board reflect the seniority of the
role and local market practice and therefore
the components and levels of remuneration
for different employees may differ in parts
from the policy set out above.
For instance, in addition to a base salary,
a performance related bonus (KPIs aligned
with Company’s strategy) and the provision
of benefits, senior managers are also entitled
to participation in a long-term incentive
programme. This is designed to align
interests of these individuals to the delivery
of long-term growth in shareholder value.
The current CEO already holds a substantial
shareholding in the Company and therefore
does not participate in this plan.
Illustration of the application
of the remuneration policy
The chart below provides an indication
of what could be received by the
Executive Director under the proposed
remuneration policy.
US$7,515
67%
US$5,015
50%
US$2,515
0100%
50%
33%
Minimum
In line with
expectations
Maximum
Annual bonus
Base pay
The Committee reserves the right to make any
remuneration payments and payments for loss
of office that are not in line with the policy set
out above where the terms of the payment
were agreed before the policy came into effect
or at a time when the relevant individual was
not a Director of the Company and, in the
opinion of the Committee, the payment was
not in consideration of the individual becoming
a Director of the Company.
The Committee does not operate “clawback”
arrangements on Directors’ remuneration on
the basis that such arrangements would not
be enforceable under the Russian Labor Code.
The Committee may make minor amendments
to the policy set out above (for regulatory,
exchange control, tax or administrative
purposes or to take account of a change
in legislation) without obtaining shareholder
approval for that amendment.
Performance measures and targets
Annual bonus measures and targets are
selected to provide an appropriate balance
between incentivising the Director to meet
financial objectives for the year and achieving
key operational objectives. They are reviewed
annually by the Committee to ensure that the
measures and weightings are in line with the
strategic priorities and needs of the business.
92
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Minimum
In line with expectations
Maximum
Base pay
Base salary + value of annual benefits provided in 2014
Annual bonus 0% of salary
100% of salary
(target opportunity)
200% of salary
(maximum opportunity)
– To facilitate recruitment the Committee
may need to compensate loss of
remuneration arrangements on joining the
company. In granting any buyout award,
the Committee will take into account
relevant factors including any performance
conditions attached to the awards
forfeited, the form in which they were
granted (e.g. cash or shares) and the time
frame of the awards. The Committee will
generally seek to structure the buyout on a
comparable basis to awards forfeited. The
overriding principle is that any buyout
award would be at or below the
commercial value of remuneration
forfeited.
– The Committee retains the flexibility to
alter the performance measures of the
annual bonus for the first year of
appointment, if the Committee determines
that the circumstances of the recruitment
merit such alteration.
Where an Executive Director is appointed
from within the organisation, the normal
policy is that any legacy arrangements would
be honoured in line with the original terms
and conditions. Similarly, if an Executive
Director is appointed following an acquisition
of, or merger with another company, legacy
terms and conditions will be honoured.
On the appointment of a new Chairman or
Non-Executive Director, their fees will typically
be in line with the Policy as set out above.
Any specific cash or share arrangements
delivered to the Chairman or Non-Executives
will not include share options or any other
performance related elements.
Executive Director’s service contract
and loss of office policy
The CEO has a service contract with a
subsidiary of EVRAZ plc.
The terms of the CEO’s service contract are
summarised below:
Executive
Director
Date of
contract
Notice period
(months)
Alexander V.
Frolov
31 December
2014
N/A
The CEO’s service contract does not provide
for any specific notice period and therefore,
in the event of termination, the applicable
notice period will be as provided for as in the
Russian labour code from time to time (where
the termination is at the Company’s initiative
the entitlement to pay in lieu of notice is
currently limited to 3 months’ base salary).
The Committee may determine that a
termination payment of up to 12 months’
base salary should be paid, taking into
consideration the circumstances of
departure. Going forward, all new executive
Directors contracts will provide for a notice
period of no more than 12 months and for
any compensation provisions for termination
without notice will be capped at 12 months
base salary and contractual benefits.
There is no automatic entitlement to annual
bonus, and Executive Directors would not
normally receive a bonus in respect of the
financial year of their cessation. However,
where an Executive Director leaves by reason
of death, disability, ill-health, or other reasons
that the Committee may determine, a bonus
may be awarded. Any such bonus would
normally be subject to performance and time
pro-rating, unless the Committee determines
otherwise.
Non-Executive Directors letters
of appointment
Each Non-Executive Director has a letter
of appointment setting out the terms and
conditions covering his or her appointment.
They are required to stand for election at the
first AGM following their appointment and,
subject to the outcome of the AGM, the
appointment is for a further one year term.
Over and above this arrangement, the
appointment may be terminated by the
Director giving three months’ notice or in
accordance with the Articles of Association.
Letters of appointment do not provide for
any payments in the event of loss of office.
All Directors are subject to annual
re-appointment and accordingly each
Non-Executive Director will stand for
re-election at the AGM on 18 June 2015.
Policy on recruitment of executive Directors
In the event of hiring a new Executive Director,
remuneration would be determined in line
with the following policy. This policy has been
developed to enable the Company to recruit
the best candidate possible who will be able
to contribute to the Company’s performance
and will help to reach its goals.
– So far as practicable and appropriate, the
Committee will seek to structure pay and
benefits of any new executive Directors in
line with the current remuneration policy.
– Notwithstanding this, the Committee
recognises that the Executive Director
Remuneration policy set out above is
tailored towards the only current Executive
Director, the CEO, who has a significant
shareholding in the Company. Any new
Executive Director is likely to have a
different fact-pattern to the current CEO,
and thus the Committee believe it is
important to retain the flexibility to be able
to offer other elements, namely market
competitive, share-based incentive
programs, which are linked to the
company’s performance and designed to
align the executive Director’s interests to
the delivery of growth in shareholder value.
– The maximum level of variable
remuneration which may be granted at the
time of recruitment (excluding any buyouts)
will not exceed the on-going policy
described in the policy table above by
more than 200% of base salary. This
additional headroom has been capped
at a level comparable to maximum award
levels seen in conventional long-term
incentive plans operated in the wider
UK listed market.
– The Committee’s intention would be for
any share-based incentive awards to be
subject to performance conditions. Where
the intention is to grant regular long-term
incentive awards to a candidate, the
Committee would seek appropriate
shareholder approval for a new share
plan in accordance with the Listing Rules.
– When setting salaries for new hires, the
Committee will take into account all
relevant factors, including the skills and
experience of the individual, the market
from which they are recruited and the
market rate for the role. For interim
positions a cash supplement may be paid
rather than salary (for example a non-
executive Director taking on an executive
function on a short-term basis).
EVRAZ plc Annual Report and Accounts 2014
93
Remuneration Report (continued)
The key terms of the non-executive Directors’
appointment letters are summarised below:
Non-executive
Directors
Date of contract
Notice
period
Alexander G.
Abramov
14 October
2011
3 months
Duncan Baxter
Karl Gruber
Alexander
Izosimov
Sir Michael Peat
14 October
2011
14 October
2011
28 February
2012
14 October
2011
3 months
3 months
3 months
3 months
Olga Pokrovskaya 14 October
3 months
Terry Robinson
Eugene Shvidler
Eugene
Tenenbaum
2011
14 October
2011
14 October
2011
14 October
2011
3 months
3 months
3 months
Copies of the Directors’ letters of
appointment or, in the case of the Chief
Executive Officer, his service contract,
are available for inspection by shareholders
at the Company’s registered office.
Consideration of conditions elsewhere
in the Company
Management prepares details of all employee
pay and conditions which is considered by
the Committee on an annual basis. The
Committee takes this into consideration
when setting the CEO’s remuneration. However
the Committee does not consider any direct
comparison measures between the Executive
Director and wider employee pay. The company
does not formally consult with employees on
Executive Director remuneration.
Consideration of shareholder views
When determining executive Director
remuneration policy, the Committee takes
into account the guidelines of investor bodies
and shareholder views.
94
EVRAZ plc Annual Report and Accounts 2014
Annual Remuneration Report
In this section we provide a summary of
remuneration paid out to our Directors for
the 2014 financial year, and details of how
the remuneration policy will be implemented
in the following financial year.
Executive Director’s remuneration
In 2014 Mr Alexander Frolov, as the Chief
Executive Officer (CEO) was entitled to a
base salary, a performance related bonus
and provision of benefits. As a member of
the Board of Directors he is also entitled
to a Director’s fee (US$150,000) and any
applicable fees for participation in the work
of the Board committees as laid out in the
section below on Non-Executive Director
remuneration. However the Committee
consider these fees to be incorporated
in his base salary. Alexander Frolov’s current
shareholding (10.88% of issued share capital
as of 31 March 2015) provides alignment
with the delivery of long-term growth in
shareholder value. As such, we do not
consider it necessary for the CEO to
participate in any long term incentive plans,
or to impose formal shareholding guidelines.
However, the Remuneration Committee will
continue to review this on an ongoing basis.
Pension and benefits (audited)
The CEO does not participate in any private
pension plans. Benefits consist principally
of private healthcare and meal allowances.
Annual bonus
The CEO is eligible to participate in a
performance-related bonus which is subject
to the agreement of the Remuneration
Committee and approval by the Board of
Directors and paid in cash. The bonus is
linked to the achievement of performance
conditions based on predetermined targets
set by the Board of Directors. The target
bonus is 100% of base salary with a maximum
potential of 200% of base salary.
Annual bonus for 2014 (audited)
The bonus is linked to the Company’s main
quantitative financial, operational and
strategic measures during the year to ensure
alignment with the key aspects of Company
performance and strategy. For 2014, the
following five indicators, with equal weightings
of 20% were taken into account when
determining the CEO’s annual bonus: LTIFR,
EBITDA, Free Cash Flow (adjusted for
disposals higher than US$50 million), Cash
Cost Index and Board assessment of overall
performance against strategic objectives.
Single figure of remuneration (audited)
Key elements of the CEO’s remuneration
package received in relation to 2014
(compared to the prior year) are set out below.
The Committee reviews the resulting bonus
payout to ensure that the payout is appropriate
in light of overall Company performance.
As shown in the table below, Company
performance against the pre-determined KPIs
and targets was strong, resulting in an annual
bonus payout of 77% of maximum. Cash flow
in particular was very strong due to improved
EBITDA, lower than budgeted capex
(optimisation of spending) and better
investments management. Better EBITDA was
attributable not only to the Russian rouble
devaluation but also to management efforts
driving EVRAZ’s cost reduction programme
throughout the year. Additionally higher than
planned export volumes supported profitability
of the business during the price fall in the
domestic market. These were aided by better
performance of subsidiaries in North America.
2014
(US$)
2013
(US$)
1,954,113
2,379,382
Alexander V.
Frolov
Salary and
Director
fees(1)
Benefits
14,895
14,904
Bonus
Total
3,839,744
2,500,000
5,808,752
4,894,286
1 The CEO’s salary of US $2,500,000 was set in US$ in
2008. In 2012 it was converted to Russian roubles at the
prevailing exchange rate, reflecting the currency of
payment, and this amount has remained unchanged
since. Fluctuations in exchange rates means that the
retranslated, reported US$ figure may vary year on year.
Base salary
The current CEO’s salary was approved by
the Remuneration Committee on 23 May
2008 at a level of US$2,500,000 (which
includes, for the avoidance of doubt, the
Director’s fee, the fees that are paid for
committees’ membership and any salary
from an EVRAZ plc subsidiary).
For 2015, the CEO’s salary will remain
unchanged at US$2,500,000 but will be
converted at an appropriate exchange rate,
as determined by the Committee. This will
continue to be paid in Russian roubles.
Strategic Report
Business Review
Governance
Financial Statements
The table below sets out details of the targets
set for each KPI, the actual achievement in
the year and total pay-out level for the 2014
year bonus:
KPIs
LTIFR
EBITDA
FCF (adjusted)
Cash cost index
Board assessment of overall performance
against strategic objectives
Total
Target 2014
Upper level
1.56
US$1,863m
80%
120%
Result Measurement
Planned level
(% of target)
100%
100%
Lower level
Actual 2014
120%
80%
106%1
125%
US$200m
US$400m
US$0m
US$(70)m
US$748m
100%
90%
100%
110%
87%
Committee assessment of overall Company performance
during the year, including consideration of operational
performance, financial performance, shareholder value
creation, outcome of key projects and stakeholder relationship
management.
See
commentary
below
Bonus payout
(% of max)
34%
100%
100%
100%
50%
77%
1 The LTIFR of 1.66 used for remuneration purposes in 2014 is different to the figure of 1.60 reported on page 16 of the report under Key Performance Indicators (KPI). This is because
the LTIFR methodology used for the KPI was amended during the year to incorporate data from a larger number of EVRAZ offices. As a result of this change the data is a more meaningful
and accurate performance indicator.
The Remuneration Committee does not believe it would have been appropriate to revise the LTIFR number for CEO remuneration during 2014 (from 1.66 to 1.60) as to do so would have
the effect of making the target reduction in LTIFR easier to achieve. For 2015, the calculation of CEO remuneration will be based on the revised KPI methodology.
Annual bonus for 2015
For 2015, the bonus framework will be
in line with 2014. Forward targets are
considered by the Board to be commercially
sensitive; however they will generally be
disclosed in the subsequent year. In line with
previous years, a malus arrangement will
apply under which bonus payouts may be
adjusted downwards to reflect the overall
performance of the Company.
Board assessment of overall performance
2014 has been a strong year for EVRAZ,
evidenced by key achievements and good
progress against a background of continued
challenge and turbulence in the external
environment. The Committee assessed
overall Company performance and the
contribution of the CEO by assessing a wide
range of metrics, including:
– Operational performance. Healthy margins
were achieved in the Company’s key
markets. Production out-turns were mixed
and remain a key area of focus for the
company going forward. Actions to reduce
costs have been successful, resulting in
a total reduction of nearly 4% of the total
cost base.
– Financial performance. EVRAZ achieved
significant growth in EBITDA during the
year. Strong cash flows and progress in
cost control enabled EVRAZ to reduce
financial leverage, which is now below the
strategic goal of 3x Net debt/EBITDA.
– Shareholder value creation. 2014 saw a
recovery in the share price, with the
year-end price over a third higher than at
the start of the year.
– Key projects. In 2014, EVRAZ continued
to make progress in streamlining the
business. In April we successfully
completed the sale of our Czech Republic
operations for US$287 million. In addition,
the integration of Raspadskaya was
finalised, transforming the coal business
into a large scale market participant both
in Russia and internationally. The CEO
successfully orchestrated a reorganisation
of senior management during the year to
ensure continued delivery of the
Company’s strategic targets.
– Stakeholder relationship management.
The CEO made significant progress
towards achieving his succession planning
and talent development objectives.
Despite an improvement in LTIFR
compared to 2013, overall health and
safety outcomes were disappointing and
remain a key area of focus for 2015. From
the client perspective, EVRAZ launched a
new customer relationship management
system in 2014, improving efficiency and
the customer experience.
EVRAZ plc Annual Report and Accounts 2014
95
Remuneration Report (continued)
Non-Executive Directors remuneration
Non-Executive remuneration payable in respect of 2014 and 2013 is given below (audited information):
Single figure of remuneration (audited)
2014 (US$, ‘000)
2013 (US$, ‘000)
Total fees(1)
Admin(2)
Non-executive Director
Alexander G. Abramov
Alexander Izosimov
Eugene Shvidler
Eugene Tenenbaum
Karl Gruber
Duncan Baxter
Olga Pokrovskaya
Sir Michael Peat
Terry Robinson(3)
Total fees(1)
Admin(2)
750
198
174
150
224
224
198
224
376.1
30
30
30
30
30
30
30
30
30
Total
780
228
204
180
254
254
228
254
750
198
174
150
224
224
198
224
406.1
351.1
30
30
30
Total
780
228
204
32.5
182.5
30
30
32.5
30
35.7
254
254
230.5
254
386.8
1
2
Total fees include annual fees and fees for committee membership or chairmanship (pro rata working days).
The Company contributes an annual amount of US$30,000 towards secretarial and administrative expenses of Non-Executive Directors. In addition to the amounts disclosed above,
the Directors incur travel and accommodation expenses necessarily incurred in the discharge of their duties. These expenses are reimbursed by the company.
3 Also includes US$78,100 paid as fees for Chairmanship in Raspadskaya Coal Company, a company in which EVRAZ has a controlling shareholding.
A Non-Executive Director’s remuneration consists of an annual fee of US$150,000 and a fee for committee membership (US$24,000) or
chairmanship (US$100,000 in respect of the Audit Committee chairmanship and US$50,000 for the chairmanship of other committees). For
reference, the fees payable for the chairmanship of a committee include the membership fee, and any Director elected Chairman of more than one
committee is only generally entitled to receive fees in respect of one chairmanship. The fee for the Chairman of the Board amounts to US$750,000
from 1 March 2012 (this fee includes, for the avoidance of doubt, the Directors fees and the fees that are paid for committee membership).
Fees will remain unchanged for 2015.
Aggregate Directors’ Remuneration
The aggregate amount of Directors’ remuneration payable in respect of qualifying services for the year ended 31 December 2014 was
US$8,597 thousand (2013: US $7,668 thousand).
Share ownership by the Board of Directors (audited)
As set out earlier in this report, there are no formal minimum shareholding requirements currently in place, reflecting the CEO’s current
shareholding in EVRAZ.
The Directors’ interests in EVRAZ’s shares as of 31 December 2014 were as follows:
Directors
Alexander Abramov
Alexander Frolov
Eugene Shvidler
Number of
shares
328,170,157
163,870,710
46,864,423
Total holding, Ordinary
shares, %
21.78%
10.88%
3.11%
There have been no changes in the Directors’ interests since 31 December 2014 until 31 March 2015.
All shares held by Directors are held outright, with no performance or other conditions attached to them, other than those applicable to all
shares of the same class.
Other Directors do not currently hold any shares in the Company.
96
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Relative importance of spend on pay
The graph below shows the Company’s total expenditure on employee remuneration in the current and the prior year in comparison to key
financial metrics in US$ millions.
The 16% fall in employee pay has been significantly influenced by the Russian rouble devaluation.
2
,
3
2
5
+28%
1
,
8
2
1
2
,
6
1
7
-16%
2
,
2
1
0
9
0
0
EBITDA
Dividends
2014
2013
Total
employee pay
Performance graph
The following graph shows the Company’s performance measured by total shareholder return compared to the performance of the FTSE 250
Index since EVRAZ plc’s admission to the premium listing segment of the London Stock Exchange on 7 November 2011. The FTSE 250 Index
has been selected as an appropriate benchmark as it is a broad based index of which the Company is a constituent member.
Total shareholder return performance
180
140
100
60
40
0
2011
2012
2013
2014
EVRAZ
FTSE 250
The table below shows the CEO’s single figure of total remuneration over the past three years along with a comparison of variable payments
with maximum opportunity.
(US$)
2014
2013
2012
2011
CEO single figure of total remuneration
Annual variable element award rates
against maximum opportunity
5,808,752
4,894,286
2,141,000
1,667,000
77%
50%
0%
11.3%
Percentage change in remuneration
The table below sets out the percentage change in the elements of remuneration for the Director undertaking the role of CEO compared with
average figures for Russian based administrative personnel. We have selected this group of employees as an appropriate comparator as they
are based in the same geographic market as the CEO, meaning they are subject to similar external environment/pressures.
Salary
Benefits
Annual bonus
CEO
0%
0%
54%
Russian administrative personnel(1)
-15%
-18%
-18%
1) There was a significant weakening of the Russian rouble during 2014 which significantly impacted the US dollar value of the salaries of the Russian personnel. For reference the relevant
percentages calculated on a Russian rouble basis would be 2%, -1% and -1% for salary, benefits and annual bonus respectively.
EVRAZ plc Annual Report and Accounts 2014
97
Remuneration Report (continued)
Remuneration Committee
In this section we give details of the
composition of the Remuneration Committee
and activities undertaken over the past year.
Members of the Remuneration Committee
The EVRAZ plc Remuneration Committee
was constituted and appointed by the Board
on 14 October 2011, and the Committee
comprised the following independent
Non-Executive Directors during the 2014 year:
– Duncan Baxter (Committee Chairman);
– Karl Gruber;
– Alexander Izosimov
See Directors’ attendance at Committee
meetings on page 74.
No Directors are involved in deciding their
own remuneration. The Committee may
invite other individuals to attend Committee
meetings, in particular the Chief Executive
Officer, the Head of Human Resources and
external advisers for all or part of any
Committee meeting as and when appropriate
and necessary.
Role of the Remuneration Committee
The Remuneration Committee is a formal
committee of the Board and can operate
with a quorum of two Committee members.
It is operated according to its Terms of
Reference, a copy of which can be found
on the Company’s website.
The main responsibilities of the Remuneration
Committee are:
– to set and implement the remuneration
policy for the remuneration of the
Chairman of the Board, the Company’s
Chief Executive Officer, the Company
Secretary and key senior management;
– to take into account all factors which it
deems necessary to determine such a
framework or policy, including all relevant
legal and regulatory requirements, the
provisions and recommendations of the
UK Corporate Governance Code and
associated guidance;
advice provided to the Committee during the
year was £55,300. No other services were
provided to the Company by the advisor
during the financial year.
– to review and take into account
remuneration trends across the Group
when setting the remuneration policy
for Directors;
– to review regularly the on-going
appropriateness and relevance of the
remuneration policy;
– to determine the total individual
remuneration package of the Chairman of
the Board, the Company Secretary and key
senior management, including pension
rights, bonuses, benefits in kind, incentive
payments and share options or other
share based remuneration within the
terms of the agreed policy;
– to approve awards for participants where
existing share incentive plans are in place;
– to review and approve any compensation
payable to executive Directors and senior
executives; and
– to oversee any major changes in employee
benefits structures throughout the Group.
During 2014, the Remuneration Committee met
three times. The purpose of the meetings was
to consider and to make recommendations to
the Board in relation to the remuneration
packages of the Executive Director and key
senior managers, to approve the annual bonus
for the 2013 results as well as to approve the
2014 LTIP awards and list of participants.
Advisors
The Committee received advice during the
year from independent remuneration
consultants Deloitte LLP. Deloitte LLP was
selected by the Committee to provide the
Company remuneration consultancy services.
During the year, Deloitte advised the
Committee on developments in the regulatory
environment and investor views and in the
development and disclosure of the Company’s
incentive arrangements. The total fee for
Deloitte is a founding member of the
Remuneration Consultant’s Group and, as
such, voluntarily operates under the code of
conduct in relation to executive remuneration
consulting in the UK.
Sir Michael Peat, an Independent Non-
Executive Director of EVRAZ, is also an
Independent Non-Executive on the Board
of Deloitte LLP. Both the Chairman and the
Remuneration Committee Chairman recognise
the need to ensure that there is no conflict
of interest arising from the appointment of
Deloitte LLP as independent remuneration
consultants. We are satisfied that the nature
of Sir Michael’s role at Deloitte LLP does not
give rise to such conflict and that there are
appropriate internal controls and segregation
of duties in place. Sir Michael did not play
a part in the tender and selection process.
The Committee is satisfied that the advice
they have received has been objective
and independent.
Shareholder considerations
We remain committed to ongoing share-
holder dialogue and take an active interest in
feedback received from our shareholders and
voting outcomes.
Where there are substantial votes against
resolutions in relation to Directors’
remuneration, we shall seek to understand
the reasons for any such vote and will detail
any actions in response to these.
The following table sets out actual voting
results from the Annual General Meeting
which was held on 12 June 2014 in respect
of our previous Remuneration Report.
Number of votes
For
Against
Withheld
Total votes as % of
issued share
capital
To approve the Directors’
Remuneration Report for the year ended 31 December 2013
1,024,991,904
(99.36%)(1)
6,623,345
(0.64%)
10,265,194
68.48%
That the Directors’ Remuneration Policy contained in the Directors’
Remuneration Report for the year ended 31 December 2013 be approved
1,024,608,770
(99.32%)
6,996,299
(0.68%)
10,265,194
68.48%
1) Percentage of votes cast.
These results illustrate the strong level of
shareholder support for the Directors’
remuneration framework.
Signed on behalf of the Board of Directors,
Duncan Baxter
Chairman of the Remuneration Committee
31 March 2015
98
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Directors’ Report
The Directors present their report to
shareholders for the financial year ending
31 December 2014, which they are required
to produce by law.
Introduction
For the purposes of the disclosures required
under the Disclosure and Transparency Rules
and the Listing Rules of the UKLA, cross
references are made where appropriate to
other sections of the Annual Report.
The Company was incorporated under the
name EVRAZ plc as a public company limited
by shares on 23 September 2011. EVRAZ plc
listed on the London Stock Exchange in
November 2011 and is a member of the
FTSE 250 index.
Sustainable development
The Corporate Social Responsibility section
of this report focuses on the health and
safety, environmental and employment
performance of the Company’s operations,
and outlines the Company’s core values
and commitment to the principles of
sustainable development and development
of community relations programmes. Details
of the Company’s policies and performance
are provided in the Corporate Social
Responsibility Section on pages 30-37.
Going concern
The financial position and performance of the
Group and its cash flows are set out in the
Financial Review section of the report on
pages 22-29.
The Directors have considered the Group’s
debt maturity and cash flow projections and
an analysis of projected debt covenants
compliance for the period to the end of June
2016. The Board is satisfied that the Group’s
forecasts and projections, taking into account
reasonably possible changes in trading
performance, show that the Group will
continue in operation for the foreseeable
future and has neither the intention nor the
need to liquidate or materially curtail the
scale of its operations.
For this reason the Group continues to adopt
the going concern basis in preparing its
financial statements. More details are
provided in Note 2 to the consolidated financial
statements on page 123.
Events since the reporting date
The major events after 31 December 2014 are
disclosed in Note 33 to the Consolidated
Financial Statements on page 192.
Tender Offer to purchase
Ordinary Shares
On 31 March 2015, the Board resolved to
announce a return of capital to be effected by
a tender offer to shareholders at $3.10 per
share in the amount of up to $375 million.
Directors and their interests
Biographical details of the directors who
served on the Board during the year are set out
in the Corporate Governance section on pages
70-71.
Detailed information on share ownership by
directors can be found in the Remuneration
Report on page 96.
Members of EVRAZ plc Board do not receive
share-based compensation.
Powers of directors
Subject to the Company’s Articles of
Association, UK legislation and to any
directions given by special resolution, the
business of the Company is managed by
the Board, which may exercise all the powers
of the Company. The Articles of Association
contain specific provisions concerning the
Company power to borrow money and also
provide the power to make purchases of any
of its own shares. The directors have the
authority to allot shares or grant rights to
subscribe for or to convert any security
into shares in the Company. Further details
of the proposed authorities are set out in the
Notice of AGM.
Director appointment
and re-election
The Board has the power at any time to elect
any person to be a director, but the number
of directors must not exceed the maximum
number fixed by the Articles of Association of
the Company. Any person so appointed by the
directors will retire at the next Annual General
Meeting and then be eligible for election.
In accordance with the UK Corporate
Governance Code, the directors are subject
to annual re-election by shareholders.
All directors will stand for re-election at the
2015 AGM to be held on 18 June 2015 with
the exception of Terry Robinson who has
decided not to stand for re-election.
Dividends
As a result of the dividend policy revision on
8 April 2014 allowing payment of regular
dividends only when the net leverage (net
debt/EBITDA) target of below 3.0x is
achieved, no regular dividends were paid in
2014.
On the back of the disposal of EVRAZ
Vitkovice Steel in April 2014, the Board
declared a special dividend in the amount
of US$90.4 million, or US$0.06 per share,
which was paid out in July 2014.
Overseas branches
EVRAZ does not have any branches. The
Company does, however, have a controlling
interest in Evraz Group S.A., which owns steel
production, mining and trading companies,
as well as in EVRAZ Greenfield Development
S.A. Information about the direct and indirect
subsidiaries of EVRAZ is provided at the
following link:
http://www.evraz.com/about/structure/
Future developments
Information on the Group and its subsidiaries’
future developments is provided in the Chief
Executive Officer’s Review, Strategic Report,
Financial Review and Review of Operations
sections of this report.
Financial instruments
The financial risk management and internal
control processes and policies and details
of hedging policy and exposure to the risks
associated with financial instruments can
be found in Note 28 to the Consolidated
Financial Statements, the Corporate Governance
section of this report on pages 73-89 and in
the Financial Review on pages 22-29.
Political donations
No political donations were made in 2014.
Greenhouse gas emissions
In 2014, following the requirements of the
Companies Act 2006 (Strategic and Directors’
Report) Regulations 2013 EVRAZ undertook
to assess full greenhouse gases’ (GHGs)
emissions from facilities under its control.
Details can be found in the Corporate Social
Responsibility section on pages 30-37.
Research and development
EVRAZ is constantly engaged in process
and product innovation. EVRAZ Research
and Development centres located at the
Company’s production sites improve and
develop high quality steel products to better
meet customers’ needs and to ensure that
the Company remain competitive in the global
and local markets. For examples of Company’s
efforts in R&D in different operations please
refer to pages 46, 47 and 60.
EVRAZ plc Annual Report and Accounts 2014
99
Directors’ Report (continued)
Directors’ liabilities (directors’ indemnities)
As at the date of this report, the Company has granted qualifying third party indemnities to each of its directors against any liability that
attaches to them in defending proceedings brought against them, to the extent permitted by the Companies Acts. In addition, directors and
officers of the Company and its subsidiaries have been and continue to be covered by Directors & Officers liability insurance.
Substantial shareholdings
The Company’s issued share capital as of 31 December 2014 is 1,506,527,294 ordinary shares.
As of 31 December 2014 and 31 March 2015, the following significant holdings of voting rights in the share capital of the Company were
disclosed to the Company under Disclosure and Transparency Rule 5.
Lanebrook Ltd.*
Lanebrook Ltd. Affiliates
Kadre Enterprises Ltd.**
Verocchio Enterprises Ltd.***
Number of
Ordinary Shares
% of Issued
Ordinary Shares
968,385,484
64.28
42,195,614
83,751,827
82,887,014
2.80
5.56
5.50
*
Lanebrook Ltd. (the Major Shareholder) is a limited liability company incorporated under the laws of Cyprus on 16 March 2006. It was established for the purpose of holding a majority
interest in the Group. Lanebrook Ltd. is controlled by Mr. Abramovich, Mr. Abramov, Mr. Frolov, and Mr. Shvidler.
** Includes shares held by Gennady Kozovoy, Kadre’s shareholder, both indirectly through Kadre and directly.
*** Verocchio Ltd. is owned by Alexander Vagin.
In January 2014, Lanebrook Ltd. exercised the 33,944,928 warrants it had acquired in 2013 (for details please refer to Annual Report 2013,
page 106) to subscribe for new ordinary shares in EVRAZ plc. 33,944,928 new ordinary shares of US$1 each fully paid, ranking pari passu with
the existing issued ordinary shares, were issued by the Company in favour of Lanebrook Ltd. and application was made to the London Stock
Exchange and the UK Listing Authority of the FCA for their listing. The new shares were admitted to the Official List and to trading on the London
Stock Exchange on 28 January 2014.
The following ultimate beneficial owners had interests in EVRAZ plc share capital (in each case, except for Mr. Kozovoy, held indirectly) as of
31 December 2014 and 31 March 2015.
Ultimate beneficial owner
ROMAN ABRAMOVICH
ALEXANDER ABRAMOV
ALEXANDER FROLOV
GENNADY KOZOVOY
ALEXANDER VAGIN
EUGENE SHVIDLER
Number of
ordinary shares
% of issued
share capital
471,675,808
328,170,157
163,870,710
83,751,827
82,887,014
46,864,423
31.31
21.78
10.88
5.56
5.50
3.11
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EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Disclosure table pursuant to
Listing Rule LR 9.8.4C
For the purposes of LR 9.8.4C R, the
information required to be disclosed by
LR 9.8.4 R can be found in the following
parts of this Annual Report:
Section
Subject Matter
Location
(1)
(2)
(4)
(5)
(6)
(7)
(8)
(9)
(10)(a)
(10)(b)
(11)
(12)
(13)
(14)
Interest capitalised
Note 9 to the Consolidated Financial Statements
Publication of unaudited financial information
Not applicable
Details of specified long-term incentive scheme
Note 21 to the Consolidated Financial Statements,
Remuneration Report
Waiver of emoluments by a director
Waiver of future emoluments by a director
Non pre-emptive issues of equity for cash
Item (7) in relation to major subsidiary undertakings
Parent participation in a placing by a listed subsidiary
Contract of significance in which director is interested
None
None
None
None
None
None
Contract of significance with controlling shareholder
Directors’ Report
Provision of services by a controlling shareholder
Shareholder waivers of dividends
Shareholder waivers of future dividends
None
None
None
Agreement with controlling shareholder
Directors’ Report
Significant contractual arrangements
The Major Shareholder and the Company have
entered into a relationship agreement which
regulates the on-going relationship between
them, ensures that the Company is capable
of carrying on its business independently of
the Major Shareholder and ensures that any
transactions and relationships between the
Company and the Major Shareholder are at
arm’s length and on normal commercial
terms. This agreement was last amended
and restated in Q4 2014 in order to comply
with certain changes to the Listing Rules.
This agreement terminates if the Major
Shareholder ceases to own or control (directly
or indirectly) at least 30% of the Ordinary
Shares in the Company or if the Major
Shareholder ceases to have a larger interest
in the Company than the interest of any other
shareholder of the Company.
Under the relationship agreement, the Major
Shareholder and the Company agree that: (a)
the Major Shareholder has the right to appoint
the maximum number of Non-Executive
Directors that may be appointed whilst
ensuring that the composition of the Board
remains compliant with the UK Corporate
Governance Code for so long as it holds an
interest in 30% or more of the Company with
each appointee being a ‘‘Shareholder
Director’’; (b) the Major Shareholder and its
Associates shall not take any action that
would have the effect of preventing the
Company from complying with its obligations
under the Companies Act, the Disclosure and
Transparency Rules; (c) neither the Major
Shareholder nor any of its Associates will
propose or procure the proposal of a
shareholder resolution which is intended or
appears to be intended to circumvent the
proper application of the listing rules; (d)
transactions, relationships and agreements
between the Company and/or its subsidiaries
(on the one hand) and the Major Shareholder
or a member of the Major Shareholder Group
(on the other) shall be entered into and
conducted on an arm’s length and normal
commercial terms; (e) the Major Shareholder
shall not, and shall procure, insofar as it is
legally able to do so, that each member of the
Major Shareholder Group shall not, take any
action which precludes or inhibits the
Company and/or its subsidiaries from carrying
on its business independently of the Major
shareholder or any member of the Major
Shareholder Group; (f) the quorum for any
Board meeting of the Company shall be two,
of which at least one must be a Director other
than a Shareholder Director and/or a Director
who is (or has, in the 12 months prior to the
relevant date) any business or other
relationship with the Major Shareholder or any
member of the Major Shareholder Group
which could materially interfere with the
exercise of his or her independent judgement
in matters concerning the Company
(‘‘Lanebrook Director’’); (g) the Major
Shareholder shall not, and shall procure,
insofar as it is legally able to do so, that each
member of the Major Shareholder Group shall
not, exercise any of its voting or other rights
and powers to procure any amendment to the
Articles which would be inconsistent with,
undermine or breach any of the provisions of
the Relationship Agreement, and will abstain
from voting on, and will procure that the
Lanebrook Directors abstain from voting on,
any resolution to approve a transaction with a
related party (as defined in the Listing Rules)
involving the Major Shareholder or any
member of the Major Shareholder Group; (h) if
any matter which, in the opinion of an
independent Director, gives rise to a potential
conflict of interest between the Company
and/or its subsidiaries (on the one hand) and
the Lanebrook Directors, the Major
Shareholder or any member of the Major
Shareholder Group (on the other), such matter
must be approved at a duly convened meeting
of a committee comprising Non-Executive
Directors of the Company whom the Board
considers to be independent in accordance
with paragraph B.1.1 or the UK Corporate
Governance Code (the “Independent
Committee”) or in writing by a majority of the
Independent Committee; and (i) for so long as
the Major Shareholder holds an interest in
50% or more in the Company, the Major
Shareholder undertakes that it will not and
will use its reasonable endeavours to procure
EVRAZ plc Annual Report and Accounts 2014
101
Directors’ Report (continued)
that no other member of the Controlling
Shareholder Group becomes involved in any
competing business (subject to certain
exceptions) in Russia, the Ukraine or the CIS
without giving the Company the opportunity to
participate in the relevant competing
business.
Annual General Meeting (AGM)
An annual general meeting shall be held in
each period of six months beginning with
the day following the Company’s annual
accounting reference date, at such place
or places, date and time as may be decided
by the Directors.
Articles of Association
The Company’s Articles of Association have
been adopted with effect from June 2012 and
contain among others provisions on the rights
and obligations attaching to the Company’s
shares, including the redeemable non-voting
preference shares and the subscriber shares.
The Articles of Association may only be
amended by special resolution at a general
meeting of the shareholders.
Share Rights
Without prejudice to any rights attached
to any existing shares, the Company may
issue shares with rights or restrictions as
determined by either the Company by ordinary
resolution or, if the Company passes a
resolution, the Directors. The Company may
also issue shares which are, or are liable to
be, redeemed at the option of the Company
or the holder and the directors may determine
the terms, conditions and manner of
redemption of any such shares.
Voting Rights
There are no other restrictions on voting
rights or transfers of shares in the Articles
other than those described in these
paragraphs. Details of deadlines for
exercising voting rights and proxy appointment
will be set out in the 2015 notice of AGM.
The 2015 AGM will be held on 18 June 2015
in London. At the AGM, shareholders will
have the opportunity to put questions to
the Board, including the chairmen of the
Board committees.
Full details of the AGM, including explanatory
notes, are contained in the Notice of AGM
which will be distributed at least 20 working
days before the meeting. The Notice sets out
the resolutions to be proposed at the AGM
and an explanation of each resolution. All
documents relating to the AGM are available
on the Company’s website at www.evraz.com.
Electronic Communications
A copy of the 2014 Annual Report, the Notice
of the AGM and other corporate publications,
reports and announcements are available on
the Company’s website at www.evraz.com.
Shareholders may elect to receive notification
by email of the availability of the Annual
Report on the Company’s website instead
of receiving paper copies.
Purchase of Own Shares
Details of transactions with treasury shares
are provided in Note 20 of the Consolidated
Financial Statements on page 167.
At a general meeting, subject to any special
rights or restrictions attached to any class of
shares on a poll, every member present in
person or by proxy has one vote for every
share held by him.
A proxy is not be entitled to vote where the
member appointing the proxy would not have
been entitled to vote on the resolution had he
been present in person. Unless the directors
decide otherwise, no member shall be
entitled to vote either personally or by proxy
or to exercise any other right in relation to
general meetings if any sum due from him
to the Company in respect of that share
remains unpaid.
The trustee of the Company’s Employee
Share Trust is entitled, under the terms of the
trust deed, to vote as it sees fit in respect of
the shares held on trust.
Share Capital
In January 2014, in connection with an
exercise by Lanebrook Limited (“Lanebrook”),
EVRAZ’s major shareholder, of 33,944,928
warrants to subscribe for new ordinary shares
in EVRAZ plc, the Company issued
33,944,928 new ordinary shares of US$1
each fully paid, ranking pari passu with the
existing issued ordinary shares. The newly
issued shares were admitted to the Official
List and to trading on the London Stock
Exchange on 28 January 2014.
Since 28 January 2014, the Company’s
issued share capital has consisted of
1,506,527,294 ordinary shares, and the
total number of voting rights in the Company
is 1,506,527,294.
The Company’s issued ordinary share
capital ranks pari passu in all respects
and carries the right to receive all dividends
and distributions declared, made or paid on
or in respect of the ordinary shares.
There are currently no redeemable non-voting
preference shares or subscriber shares of the
Company in issue.
The Board is satisfied that the Company is
capable of carrying on its business
independently of the major shareholder and
makes its decisions in a manner consistent
with its duties to the Company and
stakeholders of EVRAZ plc. Furthermore, the
Independent Non-Executive Directors of the
Company have conducted an annual review to
consider the continued good standing of the
Relationship Agreement and are satisfied that
the terms of the Relationship Agreement are
being fully observed by both parties.
9.50% notes due 2018, issued by Evraz
Group S.A., contain change of control
provisions. If a change of control occurs
under the terms of these notes, note holders
will have the option to require Evraz Group
S.A. to redeem notes together with interest
accrued, if any. At 31 December 2014, the
principal amount of these notes amounted
to US$509 million.
The change of control provisions contained in
the US$500 million syndicated loan agreement
dated 12 August 2014 specify that, If change
of control occurs, each lender has a right to
cancel its commitments and request
prepayment of its portion of the loan. However,
a change of control does not constitute an
event of default under the agreement.
The US$350 million High-Yield Bonds issued
by EVRAZ Inc. NA Canada on 7 November
2014 contain change of control provisions. If
change of control occurs under the terms of
these notes, the Issuer should make an offer
to purchase all outstanding notes together
with accrued interest, if any.
102
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Transfer of Shares
The Company’s Articles provide that transfers
of certificated shares must be effected in
writing, and duly signed by or on behalf of the
transferor and, except in the case of fully paid
shares, by or on behalf of the transferee.
The transferor shall remain the holder of the
shares concerned until the name of the
transferee is entered in the Register of
Members in respect of those shares.
As of the date hereof, the Company does
not have certificated shares. Transfers of
uncertificated shares may be effected by
means of CREST unless the CREST
Regulations provide otherwise.
The directors may refuse to register an
allotment or transfer of shares in favour of
more than four persons jointly.
Auditors
Ernst & Young is the Company’s auditor and
will be proposed at the forthcoming Annual
General Meeting.
Our Directors’ Report as set out on pages 99-
103 inclusive has been prepared in accordance
with, applicable UK company law and was
approved by the Board on 31 March 2015.
By order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
31 March 2015
EVRAZ plc Annual Report and Accounts 2014
103
Directors’ Statement as to Disclosure of Information to Auditors
The directors who were members of the Board
at the time of approving the directors’ report
are listed on pages 70-71. Having made
enquiries of fellow directors and of the
Company’s auditors, each of these directors
confirms that:
– to the best of each director’s knowledge
and belief, there is no information (that is,
information needed by the Group’s
auditors in connection with preparing their
report) of which the Company’s auditors
are unaware; and
– each director has taken all the steps a
director might reasonably be expected to
have taken to be aware of relevant audit
information and to establish that the
Company’s auditors are aware of that
information.
Responsibility Statement under the Disclosure and Transparency Rules
Each of the directors whose names and
functions are listed on pages 70-71 confirm
that to the best of their knowledge:
– the consolidated financial statements of
EVRAZ plc, prepared in accordance with
International Financial Reporting
Standards as adopted by the European
Union, give a true and fair view of the
assets, liabilities, financial position and
profit or loss of the Company and the
undertakings included in the consolidation
taken as a whole (the ‘Group’);
– the Annual Report and Accounts, including
the Strategic Report include a fair review of
the development and performance of the
business and the position of the Company
and the Group, together with a description
of the principal risks and uncertainties
that they face.
104
EVRAZ plc Annual Report and Accounts 2014
Statement Under the UK Corporate Governance Code
Strategic Report
Business Review
Governance
Financial Statements
The Board considers that the report and
accounts taken as a whole, which
incorporates the Strategic Report and
Directors Report, is fair, balanced and
understandable, and that it provides the
information necessary for shareholders to
assess the Company’s performance,
business model and strategy.
Statement of Directors’ Responsibilities in Relation to the Annual Report and
Financial Statements
The directors are also responsible for
preparing the Director’s Report, the Directors’
Remuneration Report and the Corporate
Governance Report in accordance with the
Companies Act 2006 and applicable
regulations, including the requirements
of the Listing Rules and the Disclosure and
Transparency Rules of the United Kingdom
Listing Authority. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
By order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
31 March 2015
The directors are responsible for preparing
the Annual Report and the Group and parent
company financial statements in accordance
with applicable United Kingdom law and
regulations. Company law requires the
directors to prepare Group and parent
company financial statements for each
financial year. Under the law, the directors
are required to prepare Group financial
statements under IFRSs as adopted by the
European Union and applicable law and have
elected to prepare the parent company
financial statements on the same basis.
Under Company Law the directors must not
approve the Group and parent company
financial statements unless they are satisfied
that they give a true and fair view of the state
of affairs of the Group and parent company
and of the profit or loss of the Group and
parent company for that period. In preparing
each of the Group and parent company
financial statements the directors are
required to:
– Present fairly the financial position,
financial performance and cash flows
of the Group and parent company;
– Select suitable accounting policies in
accordance with IAS8:Accounting Policies,
Changes in Accounting Estimates and
Errors and then apply them consistently;
– Present information, including accounting
policies, in a manner that provides
relevant, reliable, comparable and
understandable information;
– Make judgements and estimates that are
reasonable;
– Provide additional disclosures when
compliance with the specific requirements
in IFRSs as adopted by the European
Union is insufficient to enable users to
understand the impact of particular
transactions, other events and conditions
on the Group’s and parent company’s
financial position and financial
performance; and
– State that the Group and parent company
financial statements have been prepared
in accordance with IFRSs as adopted by
the European Union, subject to any
material departures discloses and
explained in the financial statements.
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group’s
and parent company’s transactions and
disclose with reasonable accuracy at any time
the financial position of the Group and parent
company and enable them to ensure that the
financial statements comply with the
Companies Act 2006 and, with respect to the
Group financial statements, Article 4 of the
IAS Regulation. They are also responsible for
safeguarding the assets of the Group and
parent company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
EVRAZ plc Annual Report and Accounts 2014
105
106
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Financial
Statements
In this section:
Consolidated Financial Statements
Separate Financial Statements
108
115
116
117
118
120
122
Independent Auditors’ Report
to the Members of EVRAZ plc
Consolidated Statement
of Operations
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Cash Flows
Consolidated Statement
of Changes in Equity
Notes to the Consolidated
Financial Statements
193
194
Separate Statement
of Comprehensive Income
Separate Statement
of Financial Position
195 Separate Statement of Cash Flows
196
197
Separate Statement
of Changes in Equity
Notes to the Separate
Financial Statements
EVRAZ plc Annual Report and Accounts 2014
107
Independent Auditor’s Report To The Members Of EVRAZ PLC
We present our audit report on the Group and Company Financial Statements (as defined below) of EVRAZ plc, which comprise the
Group Primary Statements and related notes set out on pages 115 to 192 and the Company Primary Statements and related notes set out
on pages 193 to 201.
Opinion on the Financial Statements
In our opinion EVRAZ plc’s Financial Statements (the “Financial Statements”):
– give a true and fair view of the state of the Group and of the Parent Company’s affairs as at 31 December 2014 and of the Group
and Parent Company’s loss for the year then ended;
– have been properly prepared in accordance with IFRSs as adopted by the European Union; and
– have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements,
Article 4 of the IAS Regulation.
Overview
Materiality
Overall Group materiality of $62.8 million which represents 2.7% of EBITDA
Audit scope
We performed an audit of the complete financial information of five components and audit procedures on specific
balances, where we consider the risk of material misstatement to be higher, for a further 10 components.
The 15 reporting components where we performed audit procedures accounted for 87% of the Group’s EBITDA and
90% of the Group’s revenue (of which 71% and 66% of these metrics were covered by full scope components).
For the remaining 54 reporting components in the Group we have performed other procedures appropriate to
respond to the risk of material misstatement.
We have obtained an understanding of the entity-level controls of the Group which assisted us in identifying and
assessing risks of material misstatement due to fraud or error, as well as assisting us in determining the most
appropriate audit strategy.
Areas of focus
Goodwill and non-current asset impairment.
Going concern.
Political disturbances and economic sanctions.
Impact of foreign exchange rate fluctuations.
Changes in reportable segments.
What has changed
Changes in our scope since the 2013 audit included increased procedures undertaken on the Group’s North
American operations in response to the potential IPO of that part of the business and a reduction in scope of
some of the Group’s Russian operations. Following the removal of the requirement for separate audited financial
statements in respect of the Russian entities in the current year, we have assessed their scope solely based
on their potential impact on the financial results and position of the Group.
We increased our focus on the risks associated with political disturbances and economic sanctions in the current
year due to the evolving situation in Russia.
The focus on the Group’s assets held for sale reduced as a result of the decrease in the significance of these assets.
The impact of foreign exchange and segmental reporting are new areas of focus for the current year given the
significant devaluation of the Russian Rouble in the year and changes to internal management reporting.
Our application of materiality
The scope of our work is influenced by materiality. We apply the concept of materiality in planning and performing the audit, in evaluating the
effect of identified misstatements on the audit and in forming our audit opinion.
As we develop our audit strategy, we determine materiality at the overall level and at the individual account level (referred to as our
‘performance materiality’).
Materiality
$62.8 million
Performance
materiality
$31.4 million
Reporting
threshold
$3.1 million
108
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Materiality
The magnitude of an omission or misstatement
that, individually or in the aggregate could
reasonably be expected to influence the
economic decisions of the users of the
Financial Statements.
We determined materiality for the Group to
be $62.8 million (2013: $54.7 million), which
we set at 2.7% (2013: 3%) of EBITDA. We
decreased our materiality as a percentage
of EBITDA in the current year in response to
the increased risk profile of the economic
environment in which the Group operates.
Our materiality amount provides a basis for
determining the nature and extent of our risk
assessment procedures, identifying and
assessing the risk of material misstatement
and determining the nature and extent of
further audit procedures. Materiality is
assessed on both quantitative and qualitative
grounds. With respect to disclosure and
presentational matters, amounts in excess
of the quantitative thresholds above may not
be adjusted if their effect is not considered to
be material on a qualitative basis.
Rationale for basis
We have used an earnings based measure
as our basis of materiality. It was considered
inappropriate to calculate materiality using
group profit or loss before tax due to the
historic volatility of this metric. EBITDA is
a key performance indicator for the Group
and is also a key metric used by the Group
in the assessment of the performance of
management. We also noted that market
and analyst commentary on the performance
of the Group uses EBITDA as a key metric.
We therefore, considered EBITDA to be the
most appropriate performance metric on
which to base our materiality calculation as
we considered that to be the most relevant
performance measure to the stakeholders
of the entity.
Performance materiality
The application of materiality at the individual
account or balance level. It is set at an
amount to reduce to an appropriately low
level the probability that the aggregate of
uncorrected and undetected misstatements
exceeds materiality.
On the basis of our risk assessment, together
with our assessment of the Group’s overall
control environment, our judgment was that
overall performance materiality for the Group
should be 50% (2013: 50%) of materiality,
namely $31.4 million (2013: $27.3 million).
Audit work on individual components is
undertaken using a percentage of our total
performance materiality. This percentage is
based on the size of the component relative
to the Group as a whole and our assessment
of the risk of misstatement at that
component. In the current year the range
of performance materiality allocated to
components was $6.3 million to
$22.0 million.
Reporting threshold
An amount below which identified
misstatements are considered as being
clearly trivial.
We agreed with the Audit Committee that
we would report to the Committee all audit
differences in excess of $3.1 million (2013:
$2.7 million), as well as differences below
that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements
against both the quantitative measures of
materiality discussed above and in light of
other relevant qualitative considerations.
Scope of the audit of the
Financial Statements
An audit involves obtaining evidence about
the amounts and disclosures in the Financial
Statements sufficient to give reasonable
assurance that the Financial Statements are
free from material misstatement, whether
caused by fraud or error. This includes an
assessment of: whether the accounting
policies are appropriate to the Group’s
circumstances and have been consistently
applied and adequately disclosed; the
reasonableness of significant accounting
estimates made by the directors; and the
overall presentation of the Financial
Statements. In addition, we read all the
financial and non-financial information in
the Annual Report to identify material
inconsistencies with the audited Financial
Statements and to identify any information
that is apparently materially incorrect based
on, or materially inconsistent with, the
knowledge acquired by us in the course of
performing the audit. If we become aware
of any apparent material misstatements or
inconsistencies we consider the implications
for our report.
Tailoring the scope
Our assessment of audit risk, our evaluation of
materiality and our allocation of performance
materiality determine our audit scope for each
entity within the Group which, when taken
together, enable us to form an opinion on the
Consolidated Financial Statements under
International Standards on Auditing (UK and
Ireland). We take into account size, risk profile,
changes in the business environment and
other factors when assessing the level of work
to be performed at each entity.
The EVRAZ Group has centralised processes
and controls over the key areas of our audit
focus with responsibility lying with group
management for the majority of judgemental
processes and significant risk areas. We have
tailored our audit response accordingly and
thus, for the majority of our focus areas,
audit procedures were undertaken directly
by the Group audit team with testing
undertaken by the Component audit teams
on the verification of operational data and
other routine processes.
In assessing the risk of material
misstatement to the Group Financial
Statements, and to ensure we had adequate
quantitative coverage of significant accounts,
of the 69 reporting components of the Group
we selected 15 components covering entities
within Russia, Ukraine, Switzerland and the
USA, which represent the principal business
units within the Group.
Of the 15 components selected we performed
an audit of the complete financial information
of five components (full scope components),
which were selected based on their size or
risk characteristics. For the remaining 10
selected components (specific scope
components) we performed audit procedures
on specific selected accounts within the
component that we considered had the
potential for the greatest impact on the
amounts in the Group Financial Statements
either because of the size of these accounts
or their risk profile.
The 15 reporting components where we
performed audit procedures accounted for
87% of the Group EBITDA and 90% of the
Group’s revenue. A further breakdown of the
size of these components compared to key
metrics of the Group is provided below.
10%
24%
16% 13%
EBITDA
71%
Revenue 66%
Full
Specific
Other
For the remaining 54 components, we
performed other procedures, including
analytical review, testing of consolidation
journals and intercompany eliminations
and foreign currency translation recalculations
to respond to any potential significant risks
of material misstatement to the Group
Financial Statements.
EVRAZ plc Annual Report and Accounts 2014
109
Independent Auditor’s Report To The Members Of EVRAZ PLC (continued)
Changes from the prior year
Our audit approach and assessment of areas
of focus changes in response to changes in
circumstances affecting the EVRAZ business
and impacting the Group Financial Statements.
Since the 2013 audit we have made the
following changes to our areas of focus:
– At 31 December 2014 the balance of
assets held for sale is no longer
significant to the Group. We have therefore
removed this as a focus area of our audit.
– The deterioration of the economic
situation and continued political unrest
in the Group’s main area of operation has
increased the potential impact of this risk
on the Group’s business. This has led us
to an increased focus on this area.
– The impact of foreign exchange is a new
area of focus for the current year in
response to the significant devaluation
of the Russian Rouble.
– We have also included segmental reporting
as a new focus area in response to the
restatement of the Group’s Financial
Statement disclosures resulting from
changes in internal management reporting.
Integrated team structure
The overall audit strategy is determined by
the senior statutory auditor, Ken Williamson.
The senior statutory auditor is based in the
UK but, since Group management and
operations reside in Russia, the Group audit
team includes members from both the UK
and Russia. The senior statutory auditor
visited Russia three times during the current
year’s audit and members of the Group audit
team in both jurisdictions work together as an
integrated team throughout the audit process.
Whilst in Russia, he focused his time on the
significant risks and judgemental areas of the
audit. He attended management’s going
concern, impairment and significant
estimates and judgements presentations to
the Audit Committee where he challenged
management on their assumptions. He met
with Russian based members of the Group
audit team including internal valuation
specialists used in the audit. During the
current year’s audit he reviewed key working
papers and met, or held conference calls,
with representatives of the component audit
team for all Russian based full scope
components to discuss the audit approach
and issues arising from their work.
Our assessment of focus areas
We identified the following risks that had the
greatest effect on the overall audit strategy;
the allocation of resources in the audit; and
directing the efforts of the engagement team.
This is not a complete list of all the risks
identified in our audit.
Details of why we identified these issues as
areas of focus and our audit response are set
out in the table on pages 111 to 113. This is
not a complete list of all the procedures we
performed in respect of these areas. The
arrows in the table indicate whether we
consider the financial statement risk
associated with this focus area to have
increased, decreased or stayed the same
compared to 2013.
We have obtained an understanding of the
entity-level controls of the Group as a whole
which assisted us in identifying and assessing
risks of material misstatement due to fraud or
error, as well as assisting us in determining the
most appropriate audit strategy.
Changes from the prior year
Our scope allocation in the current year is
broadly consistent with 2013 in terms of
overall coverage of the Group and the number
of full and specific scope entities. However
we have made some changes in the identity
of components subject to full and specific
scope audit procedures. Changes in our
scope since the 2013 audit include increased
procedures undertaken on the Group’s North
American operations in response to the
potential IPO of that part of the business and
a reduction in scope of some of the Group’s
Russian operations. Following the removal of
the requirement for separate audited financial
statements in respect of the Russian entities
in the current year, we have assessed
their scope solely based on their potential
impact on the financial results and position
of the Group.
Involvement with component teams
In establishing our overall approach to the
Group audit we determined the type of work
that needed to be undertaken at each of the
components by us, as the Group audit team or
by component auditors from other EY global
network firms operating under our instruction.
Of the 10 specific scope components selected
audit procedures were performed on five of
these directly by the Group audit team. For the
components where the work was performed by
component auditors, we determined the
appropriate level of involvement to enable us
to determine that sufficient audit evidence had
been obtained as a basis for our opinion on
the Group as a whole.
During the current year’s audit cycle visits
were undertaken by the Group audit team to
component teams in Russia and Ukraine.
These visits involved discussing the audit
approach with the component team and any
issues arising from the work. The Group audit
team visited the component team in the USA
in 2013 but not in the current year’s audit
cycle. For 2014 the main focus of the Group
audit team was on the Russian and Ukrainian
entities in response to the increased risk of
the economic environment in those areas.
The Group audit team interacted regularly with
the component teams where appropriate
during various stages of the audit, reviewed
key working papers and were responsible for
the scope and direction of the audit process.
This, together with the additional procedures
performed at group level, gave us appropriate
audit evidence for our opinion on the Group
Financial Statements.
110
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Area of focus
Our audit approach and conclusion
Goodwill and non-current asset impairment
Refer to the Group Audit Committee Report on page 79, the estimates and judgments
on page 131 and the disclosures of impairment in note 6 of the Consolidated Financial Statements
Risk
direction:
At 31 December 2014 the carrying value of goodwill was
US$1,541 million. The Group recognised impairment charges in
respect of goodwill, other intangible assets, items of PP&E and
other non-current assets during the year of US$540 million.
We performed audit procedures on all impairment models relating
to material cash generating units. Our audit procedures were performed
mainly by the Group audit team with the exception of certain location
specific inputs to management’s models which were assessed by the
component teams.
In accordance with IAS 36 management disclosed that in addition
to the impairment charge already recognised, a reasonably
possible change in discount rates, sales prices, sales volumes
and cost control measures could lead to impairments in other
CGUs where no impairment is currently recognised.
Our audit procedures included the review of management’s
assumptions used in their impairment models. The assumptions
to which the models were most sensitive and most likely to lead
to further impairments were:
We focused on this area due to the significance of the carrying
value of the assets being assessed, the number and size of recent
impairments, the current economic environment in the Group’s
operating jurisdictions and because the assessment of the
recoverable amount of the Group’s Cash Generating Units (“CGUs”)
involves significant judgements about the future results of the
business and the discount rates applied to future cash flow forecasts.
In particular we focused our effort on those CGU’s with the largest
carrying values, those for which an impairment had been
recognised in the year and those with the lowest headroom.
• Decreases in steel prices; and
• Increases in production costs.
We challenged management’s assumptions with reference to historical
data and, where applicable, external benchmarks noting the
assumptions used fell within an acceptable range.
We tested the integrity of models with the assistance of our own
specialists and carried out audit procedures on management’s
sensitivity calculations.
We assessed the historical accuracy of management’s budgets and
forecasts. We compared current performance with forecasts, and
sought appropriate evidence for any anticipated improvements in major
assumptions such as production volumes or cost reductions. We
corroborated previous forecasts with actual data.
We considered the appropriateness of the related disclosures provided
in the Group Financial Statements. In particular we considered the
completeness of the disclosures regarding those CGUs with material
goodwill balances and where a reasonably possible change in certain
variables could lead to impairment.
Going concern
Refer to the Group Audit Committee Report on page 79, the Directors’ report on page 99
and within significant accounting policies on page 123 of the Consolidated Financial Statements
Risk
direction:
The Group is highly geared (net debt at 31 December 2014
US$5,814 million, 2013 US$6,534 million), has regular debt
repayments and some covenants over a proportion of its debt.
Since management’s going concern model and analysis are prepared
centrally, audit procedures on this area were performed directly by the
Group team. Covenant compliance testing was split between the Group
and component teams as appropriate.
Management and the Board prepare a cash flow forecast and
undertake sensitivity analysis (Base and Pessimistic case) of the
key assumptions to ensure that the Group can operate as a going
concern for at least 12 months from the date the Financial
Statements are approved.
We discussed the detailed cash flow forecasts prepared by
management in their model and the supporting presentation.
The main procedures performed on the model and areas where
we challenged management were as follows:
• We have assessed the quality of management forecasting
by comparing cash flow forecasts for prior periods to actual outcomes;
• We ensured the consistency of forecasts used in the going concern
assessment with those used for impairment calculations;
• We challenged the appropriateness of the assumptions that
had the most material impact. In challenging these assumptions we
took account of actual results, external data and market conditions;
• We tested the arithmetic integrity of the calculations including those
related to management’s sensitivities;
• We also performed our own sensitivity calculations to test the
adequacy of the available headroom and, in particular, in relation
to covenant compliance.
EVRAZ plc Annual Report and Accounts 2014
111
Independent Auditor’s Report To The Members Of EVRAZ PLC (continued)
Area of focus
Our audit approach and conclusion
We agreed the sources of liquidity and uses of funds to supporting
documentation.
We considered the appropriateness of the disclosures made in the
Group Financial Statements in respect of going concern.
Based on our work on the going concern analysis prepared by
management, we agree with the conclusion reached by management
that there is currently no material uncertainty in relation to the going
concern assumption for the preparation of the Financial Statements.
Political disturbances and economic sanctions
Refer to the Group Audit Committee Report on page 80
The current geopolitical situation remains an important area of
focus for the Group and our audit. Continuing escalation of political
and economic tension between the US, EU and Russia has
resulted in an economic slowdown and deterioration of liquidity
in the banking sectors of Russia.
The deterioration in liquidity may impact the Group’s ability to
obtain finance in the future and therefore cast doubt over the
Company’s ability to continue as a going concern. Operational
restrictions could impact the profitability of the Group’s operations
and lead to asset impairments.
There has been an increase in economic sanctions affecting
Russian individuals and companies during the year, increasing
the regulatory compliance burden on the Company.
The devaluation of the Rouble and Hryvnia during the year has had
a significant impact on the Group’s operations and the carrying
value of its assets held in Russia and Ukraine.
Risk
direction:
We inquired of management about the potential impact on financing
and the operational activities of the Group in the foreseeable future.
We investigated existing loan agreements for force majeure clauses to
verify that debt maturities were accurately recorded in the Financial
Statements and had not been impacted by the geopolitical situation.
As part of our impairment work we challenged management
assumptions used in impairment models in respect of Ukrainian and
Russian operations. Areas such as country risk premiums used in
discount rate calculations and foreign exchange rate forecasts were
agreed to third party data where applicable.
We discussed, and understood the scope of, the processes
management have to prevent illegal transactions being undertaken with
countries subject to sanction or embargo. We reviewed reports and held
discussions with a third party advisor engaged by management in
relation to sanctions compliance.
We focused on this area because of the potential operational
and financial impact on the Group.
We have tested exchange gains/losses for the period and assessed the
Group’s adjustments arising on the translation of foreign operations
noting no material inconsistencies.
Impact of foreign exchange rate fluctuations
Refer to the Strategic report on pages 5 to 37 and to the Group Audit Committee Report on page 79
Risk
direction:
During 2014, the Rouble devalued against the US Dollar, with
a closing rate of RUB 56.3 to the US Dollar as of 31 December
2014, representing a 72% increase in the exchange rate since the
previous year end. The devaluation of the Hryvnia was even more
significant representing a 97% increase in the exchange rate since
the previous year end. As a result, the translation reserve has
changed by US$1,959 million (after tax effect).
The devaluation has given rise to significant operating losses
of US$1,005 million and contributed to losses of $588 million
on derivatives not designated as hedging instruments in the
consolidated statement of operations.
In addressing this area of focus, audit procedures were performed by
the component teams in Russia and Ukraine and the Group
engagement team.
As part of our audit procedures we performed substantive testing
on foreign exchange movements at a component level for all the
Russian and Ukrainian full and specific scope entities noting no
significant issues.
We have also performed audit procedures on movements in the
translation reserve shown in Other Comprehensive Income and the foreign
exchange impact on balances in the Statement of Financial Position.
Given the significant movements in the Consolidated Financial
Statements and impact on the net assets of the Group,
we consider this to be a key area of focus.
We have tested exchange gains/losses for the period and assessed
the Group’s adjustments arising on the translation of foreign operations
noting no material inconsistencies.
We performed substantive analytical procedures on open swap
agreements using forward rates obtained from our internal specialists
noting no material differences.
We have read and considered how the impact of the devaluation
on the performance and position of the Group is disclosed in the
Strategic Report and Financial Statements.
112
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Area of focus
Our audit approach and conclusion
Changes in reportable segments
Refer to the Group Audit Committee Report on page 79 and note 3 of the Consolidated Financial Statements
Risk
direction:
In the Group’s Financial Statements for the year ended
31 December 2013 the Group disclosed four operating segments;
Steel production, Mining, Vanadium products and Other operations.
In addressing this area of focus audit procedures were performed
by the Group engagement team.
In 2014, the management reporting used by the chief operating
decision maker for making decisions about resource allocation
changed to put more emphasis on analysis of the operating results
of the coal segment and operations in North America. As such,
new reportable segments were identified and the comparative
segment information has been restated accordingly.
We discussed the rationale for the change in segmental disclosure with
management and obtained and reviewed management reports used by
the Board to make strategic decisions to ensure the presentation of
data in such reports was consistent with the new segmental structure.
We reviewed copies of Board minutes to satisfy ourselves that the
reports had been used by the Board.
Given the significant changes to disclosure included in the
Consolidated Financial Statements including restatements of prior
year disclosures we considered this to be a key area of focus.
We checked the arithmetic accuracy of the disclosures and
recalculated the restatement of the prior year data noting no material
inconsistencies.
What we have audited
We have audited the Primary Statements and related notes of EVRAZ plc for the year ended 31 December 2014 which comprise:
Group
Company
the Consolidated Statement of Operations, the Consolidated
Statement of Comprehensive Income;
the Separate Statement of Comprehensive Income;
the Consolidated Statement of Financial Position
the Separate Statement of Financial Position;
the Consolidated Statement of Cash Flows;
the Separate Statement of Cash Flows;
the Consolidated Statement of Changes in Equity; and
the Separate Statement of Changes in Equity; and
the related notes 1 to 33.
the related notes 1 to 10.
The financial reporting framework that has been applied in the preparation of both the Group and Company Financial Statements
is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the company’s
members those matters we are required to
state to them in an auditor’s report and for
no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the company and the company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.
Opinion on other matters prescribed
by the Companies Act 2006
In our opinion:
– the part of the Directors’ Remuneration
Report to be audited has been properly
prepared in accordance with the
Companies Act 2006; and
– the information given in the Strategic
Report and the Directors’ Report for the
financial year for which the Financial
Statements are prepared is consistent
with the Financial Statements;
– the information given in the Corporate
Governance Statement in the Annual
Report with respect to internal control and
risk management systems in relation to
financial reporting processes and about
share capital structures is consistent with
the Financial Statements.
Respective responsibilities
of directors and auditor
As explained more fully in the Statement
of Directors’ Responsibilities set out on
page 105, the directors are responsible for the
preparation of the Group Financial Statements
and for being satisfied that they give a true and
fair view. Our responsibility is to audit and
express an opinion on the Group Financial
Statements in accordance with applicable
law and International Standards on Auditing
(UK and Ireland). Those standards require
us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
EVRAZ plc Annual Report and Accounts 2014
113
Independent Auditor’s Report To The Members Of EVRAZ PLC (continued)
– the Parent Company Financial Statements
and the part of the Directors’ Remuneration
Report to be audited are not in agreement
with the accounting records and returns; or
– certain disclosures of directors’
remuneration specified by law are not
made; or
– we have not received all the information
and explanations we require for our audit.
– a Corporate Governance Statement has
not been prepared by the company.
Under the Listing Rules we are required
to review:
– the directors’ statement, set out on page 99,
in relation to going concern; and
– the part of the Corporate Governance
Statement relating to the company’s
compliance with the nine provisions of the
UK Corporate Governance Code specified
for our review.
Ken Williamson (Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
31 March 2015
Matters on which we are
required to report by exception
We have nothing to report in respect
of the following:
Under the ISAs (UK and Ireland), we are
required to report to you if, in our opinion,
information in the Annual Report is:
– materially inconsistent with the
information in the audited Financial
Statements; or
– apparently materially incorrect based on,
or materially inconsistent with, our
knowledge of the Group acquired in the
course of performing our audit; or
– is otherwise misleading.
In particular, we are required to
consider whether we have identified any
inconsistencies between our knowledge
acquired during the audit and the directors’
statement (included on page 105 of the Annual
Report) that they consider the Annual Report is
fair, balanced and understandable and whether
the Annual Report appropriately discloses
those matters that we communicated to the
Audit Committee which we consider should
have been disclosed.
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
– adequate accounting records have not
been kept by the Parent Company, or
returns adequate for our audit have not
been received from branches not visited
by us; or
114
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Consolidated Statement of Operations
(in millions of US dollars, except for per share information)
Continuing operations
Revenue
Sale of goods
Rendering of services
Cost of revenue
Gross profit
Selling and distribution costs
General and administrative expenses
Social and social infrastructure maintenance expenses
Loss on disposal of property, plant and equipment
Impairment of assets
Foreign exchange gains/(losses), net
Other operating income
Other operating expenses
Profit/(loss) from operations
Interest income
Interest expense
Share of profits/(losses) of joint ventures and associates
Gain/(loss) on derecognition of equity investments, net
Gain/(loss) on financial assets and liabilities, net
Gain/(loss) on disposal groups classified as held for sale, net
Other non-operating gains/(losses), net
Loss before tax
Income tax benefit/(expense)
Net loss
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Earnings/(losses) per share:
basic, for profit/(loss) attributable to equity holders of the parent entity,
US dollars
diluted, for profit/(loss) attributable to equity holders of the parent entity,
US dollars
Year ended 31 December
Notes
2014
2013
restated*
2012
restated*
3
3
7
7
7
6
7
7
7
11
4
7
12
8
20
20
$12,745
316
13,061
(9,734)
3,327
(1,009)
(743)
(30)
(48)
(540)
(1,005)
35
(88)
(101)
17
(563)
10
–
(583)
136
–
(1,084)
(194)
$14,071
340
14,411
(11,501)
2,910
(1,213)
(877)
(50)
(47)
(563)
(258)
53
(116)
(161)
23
(699)
8
89
(43)
131
15
(637)
86
$14,367
359
14,726
(11,803)
2,923
(1,211)
(839)
(51)
(56)
(413)
(41)
75
(129)
258
23
(654)
1
–
164
23
(6)
(191)
(229)
$(1,278)
$(551)
$(420)
$(1,175)
(103)
$(504)
(47)
$(393)
(27)
$(1,278)
$(551)
$(420)
$(0.78)
$(0.34)
$(0.29)
$(0.78)
$(0.34)
$(0.29)
*
The amounts shown here do not correspond to the 2013 and 2012 financial statements and reflect adjustments made in connection with the cessation of classification of subsidiaries
as held for sale (Note 2).
The accompanying notes form an integral part of these consolidated financial statements.
EVRAZ plc Annual Report and Accounts 2014
115
Consolidated Statement of Comprehensive Income
(in millions of US dollars)
Net loss
Other comprehensive income/(loss)
Other comprehensive income to be reclassified to profit or loss in
subsequent periods
Exchange differences on translation of foreign operations into
presentation currency
Exchange differences recycled to profit or loss
Net gains/(losses) on available-for-sale financial assets
Effect of translation to presentation currency of the Group’s joint ventures
and associates
Net gains/(losses) on available-for-sale financial assets of the Group’s joint
ventures and associates
Items not to be reclassified to profit or loss in subsequent periods
Gains/(losses) on re-measurement of net defined benefit liability
Income tax effect
Gains/(losses) on re-measurement of net defined benefit liability recognised
by the Group’s joint ventures and associates
Decrease in revaluation surplus in connection with the impairment of
property, plant and equipment
Income tax effect
Total other comprehensive income/(loss)
Total comprehensive income/(loss), net of tax
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Year ended 31 December
Notes
2014
$(1,278)
2013
restated*
$(551)
2012
restated*
$(420)
4,12
13
11
11
23
8
11
9
8
(1,918)
(66)
(12)
(1,996)
(79)
–
(79)
(33)
15
(18)
–
–
–
–
(2,093)
$(3,371)
$(3,164)
(207)
$(3,371)
(375)
90
7
(278)
(11)
–
(11)
119
(30)
89
–
(9)
2
(7)
(207)
$(758)
$(677)
(81)
$(758)
281
96
4
381
44
1
45
(74)
14
(60)
(2)
–
–
–
364
$(56)
$(28)
(28)
$(56)
*
The amounts shown here do not correspond to the 2013 and 2012 financial statements and reflect adjustments made in connection with the cessation of classification of subsidiaries
as held for sale (Note 2).
The accompanying notes form an integral part of these consolidated financial statements.
116
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Consolidated Statement of Financial Position
(in millions of US dollars)
The financial statements of EVRAZ plc (registered number 7784342) on pages 115-192 were approved by the Board of Directors on
31 March 2015 and signed on its behalf by Alexander Frolov, Chief Executive Officer.
31 December
Notes
2014
2013
restated*
2012
restated*
Assets
Non-current assets
Property, plant and equipment
Intangible assets other than goodwill
Goodwill
Investments in joint ventures and associates
Deferred income tax assets
Other non-current financial assets
Other non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Loans receivable
Receivables from related parties
Income tax receivable
Other taxes recoverable
Other current financial assets
Cash and cash equivalents
Assets of disposal groups classified as held for sale
Total assets
Equity and liabilities
Equity
Equity attributable to equity holders of the parent entity
Issued capital
Treasury shares
Additional paid-in capital
Revaluation surplus
Other reserves
Unrealised gains and losses
Accumulated profits
Translation difference
Non-controlling interests
Non-current liabilities
Long-term loans
Deferred income tax liabilities
Employee benefits
Provisions
Other long-term liabilities
Current liabilities
Trade and other payables
Advances from customers
Short-term loans and current portion of long-term loans
Payables to related parties
Income tax payable
Other taxes payable
Provisions
Dividends payable by the Group’s subsidiaries to non-controlling shareholders
Liabilities directly associated with disposal groups classified as held for sale
9
10
5
11
8
13
13
14
15
16
17
18
19
12
20
20
20
20
11,13
22
8
23
24
25
26
22
16
27
24
12
$5,796
441
1,541
121
97
98
40
8,134
1,372
654
82
24
53
23
158
40
1,086
3,492
4
3,496
$9,490
588
1,988
191
86
144
62
12,549
1,744
915
124
21
13
59
283
71
1,604
4,834
302
5,136
$8,064
735
2,203
551
70
92
64
11,779
2,080
944
143
19
12
59
330
712
1,382
5,681
277
5,958
$11,630
$17,685
$17,737
$1,507
–
2,481
155
–
–
1,299
(3,644)
1,798
218
2,016
5,470
471
364
173
442
6,920
1,379
155
761
108
86
151
41
–
2,681
13
2,694
$1,473
(1)
2,326
162
156
12
2,589
(1,685)
5,032
431
5,463
6,041
841
492
254
230
7,858
1,488
180
1,816
458
57
203
45
5
4,252
112
4,364
$1,340
(1)
1,820
173
–
5
3,009
(1,424)
4,922
200
5,122
6,375
928
593
332
181
8,409
1,531
157
1,795
257
48
195
40
8
4,031
175
4,206
Total equity and liabilities
$11,630
$17,685
$17,737
*
The amounts shown here do not correspond to the 2013 and 2012 financial statements and reflect adjustments made in connection with the cessation of classification of subsidiaries
as held for sale (Note 2).
The accompanying notes form an integral part of these consolidated financial statements.
EVRAZ plc Annual Report and Accounts 2014
117
Consolidated Statement of Cash Flows
(in millions of US dollars)
Cash flows from operating activities
Net profit/(loss)
Adjustments to reconcile net profit/(loss) to net cash flows from operating activities:
Deferred income tax (benefit)/expense (Note 8)
Depreciation, depletion and amortisation (Note 7)
Loss on disposal of property, plant and equipment
Impairment of assets
Foreign exchange (gains)/losses, net
Interest income
Interest expense
Share of (profits)/losses of associates and joint ventures
(Gain)/loss on derecognition of equity investments, net
(Gain)/loss on financial assets and liabilities, net
(Gain)/loss on disposal groups classified as held for sale, net
Other non-operating (gains)/losses, net
Bad debt expense
Changes in provisions, employee benefits and other long-term assets and liabilities
Expense arising from equity-settled awards (Note 21)
Other
Changes in working capital:
Inventories
Trade and other receivables
Prepayments
Receivables from/payables to related parties
Taxes recoverable
Other assets
Trade and other payables
Advances from customers
Taxes payable
Other liabilities
Year ended 31 December
2014
2013
restated*
2012
restated*
$(1,278)
$(551)
$(420)
(163)
833
48
540
1,005
(17)
563
(10)
–
583
(136)
–
41
(62)
30
(1)
1,976
(87)
(1)
(2)
(246)
33
11
150
27
100
(4)
(335)
1,114
47
563
258
(23)
699
(8)
(89)
43
(131)
(15)
8
(68)
25
(2)
1,535
229
65
15
131
48
(17)
(135)
30
4
(5)
(38)
1,259
56
413
41
(23)
654
(1)
–
(164)
(23)
6
12
(55)
22
(6)
1,733
121
(78)
37
141
120
18
96
(1)
(43)
(1)
Net cash flows from operating activities
Cash flows from investing activities
Issuance of loans receivable to related parties
Proceeds from repayment of loans issued to related parties, including interest
Issuance of loans receivable
Proceeds from repayment of loans receivable, including interest
Return of capital by a joint venture (Note 11)
Purchases of subsidiaries, net of cash acquired (Note 4)
Purchases of interest in associates/joint ventures (Note 11)
Restricted deposits at banks in respect of investing activities
Short-term deposits at banks, including interest
Purchases of property, plant and equipment and intangible assets
Proceeds from disposal of property, plant and equipment
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs
(Note 12)
Dividends received
Other investing activities, net
Net cash flows used in investing activities
1,957
1,900
2,143
(4)
–
–
3
–
(102)
(29)
1
8
(612)
14
311
2
19
(389)
(2)
–
(2)
3
–
31
(61)
(2)
677
(902)
7
1
1
(15)
(264)
(5)
1
–
4
38
(12)
–
–
(656)
(1,261)
9
311
88
(61)
(1,544)
*
The amounts shown here do not correspond to the 2013 and 2012 financial statements and reflect adjustments made in connection with the cessation of classification of subsidiaries
as held for sale (Note 2).
Continued on the next page.
118
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Consolidated Statement of Cash Flows (continued)
(in millions of US dollars)
Year ended 31 December
2014
2013
restated*
2012
restated*
Cash flows from financing activities
Purchase of treasury shares in the course of the Group’s reorganisation (Note 20)
Purchase of treasury shares (Note 20)
Proceeds from loans provided by related parties
Repayment of loans provided by related parties
Purchases of non-controlling interests (Note 4)
Dividends paid by the parent entity to its shareholders (Note 20)
Dividends paid by the Group’s subsidiaries to non-controlling shareholders
Proceeds from bank loans and notes
Repayment of bank loans and notes, including interest
Net proceeds from/(repayment of) bank overdrafts and credit lines, including interest
Payments for purchase of property, plant and equipment on deferred terms
Payments under covenants reset (Note 22)
Gain/(loss) on derivatives not designated as hedging instruments (Note 25)
Collateral under swap contracts (Note 18)
Restricted deposits at banks in respect of financing activities
Payments under finance leases, including interest
Other financing activities
Net cash flows used in financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
$–
(13)
267
(251)
–
(90)
(3)
2,579
(3,223)
(942)
(42)
–
(94)
14
–
(1)
(12)
(1,811)
(282)
(525)
1,604
$–
(6)
–
–
–
–
(1)
1,976
(3,978)
621
–
(1)
51
(21)
–
(8)
–
(1,367)
(48)
221
1,382
Add back: decrease/(increase) in cash of disposal groups classified as assets held for sale
(Note 12)
7
1
$(4)
–
–
–
(1)
(375)
(1)
2,706
(2,716)
292
–
(7)
81
10
2
(29)
–
(42)
32
589
801
(8)
Cash and cash equivalents at the end of the year
$1,086
$1,604
$1,382
Supplementary cash flow information:
Cash flows during the year:
Interest paid
Interest received
Income taxes paid by the Group
$(517)
10
(263)
$(586)
23
(249)
$(559)
7
(298)
*
The amounts shown here do not correspond to the 2013 and 2012 financial statements and reflect adjustments made in connection with the cessation of classification of subsidiaries
as held for sale (Note 2).
The accompanying notes form an integral part of these consolidated financial statements.
EVRAZ plc Annual Report and Accounts 2014
119
Consolidated Statement of Changes in Equity
(in millions of US dollars)
At 31 December 2013 (as previously reported)
Cessation of classification of subsidiaries as held
for sale (Note 2)
At 31 December 2013 (as restated)
Net loss
Other comprehensive income/(loss)
Reclassification of revaluation surplus to accumulated
profits in respect of the disposed items of property,
plant and equipment
Total comprehensive income/(loss) for the period
Issue of shares (Note 20)
Acquisition of non-controlling interests in subsidiaries
Purchase of treasury shares (Note 20)
Transfer of treasury shares to participants of the Incentive
Plans (Notes 20 and 21)
Share-based payments (Note 21)
Dividends declared by the parent entity to its
shareholders (Note 20)
Dividends declared by the Group’s subsidiaries to
non-controlling shareholders (Note 20)
Attributable to equity holders of the parent entity
Issued
capital
Treasury
shares
Additional
paid-in
capital
Revaluation
surplus
Other
reserves
Unrealised
gains and
losses
Accumulated
profits
Translation
difference
Non-
controlling
interests
Total
Total
equity
$1,473
$(1)
$2,326
$162
$156
$12
$2,566
$(1,687)
$5,007
$427
$5,434
–
$1,473
–
–
–
–
34
–
–
–
–
–
–
–
$(1)
–
–
–
–
–
–
(13)
14
–
–
–
–
$2,326
–
–
–
$162
–
–
–
–
122
3
–
–
30
–
–
(7)
(7)
–
–
–
–
–
–
–
–
$156
–
–
–
–
(156)
–
–
–
–
–
–
–
$12
–
(12)
–
(12)
–
–
–
–
–
–
–
23
2
25
4
29
$2,589
(1,175)
(18)
$(1,685)
–
(1,959)
$5,032
(1,175)
(1,989)
$431
(103)
(104)
$5,463
(1,278)
(2,093)
7
–
–
(1,186)
–
–
–
(1,959)
–
–
–
(3,164)
–
3
(13)
(14)
–
(90)
–
–
–
–
–
–
30
(90)
–
(3)
–
(207)
–
(3)
–
–
–
–
–
(3,371)
–
–
(13)
–
30
(90)
(3)
At 31 December 2014
$1,507
$–
$2,481
$155
$–
$–
$1,299
$(3,644)
$1,798
$218
$2,016
Attributable to equity holders of the parent entity
Issued
capital
Treasury
shares
Additional
paid–in
capital
Revaluation
surplus
Other
reserves
Unrealised
gains and
losses
Accumulated
profits
Translation
difference
Non-
controlling
interests
Total
Total
equity
At 31 December 2012 (as previously reported)
Cessation of classification of subsidiaries as held
for sale (Note 2)
At 31 December 2012 (as restated)
Net loss*
Other comprehensive income/(loss)*
Reclassification of additional paid-in capital
to accumulated profits in respect of the
disposed subsidiaries
Reclassification of revaluation surplus to accumulated
profits in respect of the disposed items of property,
plant and equipment
Total comprehensive income/(loss) for the period*
Issue of shares (Note 20)
Acquisition of non-controlling interests in
subsidiaries (Note 4)
Non-controlling interests arising on acquisition of
subsidiaries (Note 4)
Contribution of a non-controlling shareholder to share
capital of the Group’s subsidiary (Note 20)
Purchase of treasury shares (Note 20)
Transfer of treasury shares to participants of the Incentive
Plans (Notes 20 and 21)
Share-based payments (Note 21)
Dividends declared by the Group’s subsidiaries to
non-controlling shareholders (Note 20)
$1,340
$(1)
$1,820
$173
–
$1,340
–
–
–
$(1)
–
–
–
$1,820
–
–
–
–
–
133
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(6)
6
–
–
2
–
2
478
1
–
–
–
–
25
–
–
$173
–
(7)
–
(4)
(11)
–
–
–
–
–
–
–
–
$–
–
$–
–
–
–
–
–
156
–
–
–
–
–
–
–
$5
–
$5
–
7
–
–
7
–
–
–
–
–
–
–
–
$3,004
$(1,424)
$4,917
$200
$5,117
5
–
5
–
5
$3,009
(504)
88
$(1,424)
–
(261)
$4,922
(504)
(173)
$200
(47)
(34)
$5,122
(551)
(207)
(2)
4
–
–
–
–
(414)
–
(261)
–
(677)
767
–
–
–
–
(6)
–
–
–
–
–
–
–
–
–
1
–
–
(6)
–
25
–
–
–
(81)
–
(3)
–
–
(758)
767
(2)
314
314
2
–
–
–
(1)
2
(6)
–
25
(1)
At 31 December 2013
$1,473
$(1)
$2,326
$162
$156
$12
$2,589
$(1,685)
$5,032
$431
$5,463
*
The amounts shown here do not correspond to the 2013 and 2012 financial statements and reflect adjustments made in connection with the cessation of classification of subsidiaries
as held for sale (Note 2).
The accompanying notes form an integral part of these consolidated financial statements.
120
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Consolidated Statement of Changes in Equity (continued)
(in millions of US dollars)
At 31 December 2011
Net loss*
Other comprehensive income/(loss)*
Reclassification of revaluation surplus to accumulated
profits in respect of the disposed items of property,
plant and equipment
Total comprehensive income/(loss) for the period*
Issue of shares in the course of the Group’s
reorganisation (Note 20)
Acquisition of non-controlling interests in
subsidiaries (Note 4)
Derecognition of non-controlling interests on sale
of subsidiaries (Note 12)
Contribution of a non-controlling shareholder to share
capital of the Group’s subsidiary (Note 20)
Buyback of own shares by a joint venture’s
subsidiary (Note 11)
Purchase of treasury shares (Note 20)
Transfer of treasury shares to participants of the Incentive
Plans (Notes 20 and 21)
Share-based payments (Note 21)
Reclassification of distributed dividends to share
premium account (Note 20)
Dividends declared by the parent entity to its
shareholders (Note 20)
Dividends declared by the Group’s subsidiaries
to non-controlling shareholders (Note 20)
Attributable to equity holders of the parent entity
Issued
capital
Treasury
shares
Additional
paid-in
capital
Revaluation
surplus
Other
reserves
Unrealised
gains and
losses
Accumulated
profits
Translation
difference
$1,338
–
–
$(8)
–
–
$2,289
–
–
$171
–
–
$–
–
–
$–
–
5
$3,406
(393)
(62)
$(1,846)
–
422
Non-
controlling
interests
Total
equity
$236
(27)
(1)
$5,586
(420)
364
Total
$5,350
(393)
365
–
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4)
11
–
–
–
–
–
–
–
–
–
–
–
–
–
22
(491)
–
–
2
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
–
–
–
–
–
–
–
–
–
–
(2)
–
(457)
422
8
(31)
–
–
(22)
–
(11)
–
491
(375)
–
–
–
–
–
–
–
–
–
–
–
–
–
(28)
10
(31)
–
–
(22)
(4)
–
22
–
(375)
–
(28)
(10)
–
(56)
–
(6)
(37)
2
7
–
–
–
–
–
–
2
7
(22)
(4)
–
22
–
(375)
–
(1)
(1)
At 31 December 2012
$1,340
$(1)
$1,820
$173
$–
$5
$3,009
$(1,424)
$4,922
$200
$5,122
*
The amounts shown here do not correspond to the 2013 and 2012 financial statements and reflect adjustments made in connection with the cessation of classification of subsidiaries
as held for sale (Note 2).
The accompanying notes form an integral part of these consolidated financial statements.
EVRAZ plc Annual Report and Accounts 2014
121
Notes to the Consolidated Financial Statements
Year ended 31 December 2014
1. Corporate Information
These consolidated financial statements were authorised for issue by the Board of Directors of EVRAZ plc on 31 March 2015.
EVRAZ plc (“EVRAZ plc” or “the Company”) was incorporated on 23 September 2011 as a public company under the laws of the United
Kingdom with the registered number 7784342. The Company’s registered office is at 5th Floor, 6 St. Andrew Street, London, EC4A 3AE,
United Kingdom.
The Company is a parent entity of Evraz Group S.A. (Luxembourg), a holding company which owns steel production, mining and trading companies.
The Company, together with its subsidiaries (the “Group”), is involved in the production and distribution of steel and related products and coal
and iron ore mining. In addition, the Group produces vanadium products. The Group is one of the largest steel producers globally. Lanebrook
Limited (Cyprus) is the ultimate controlling party of the Group.
The major subsidiaries included in the consolidated financial statements of the Group were as follows at 31 December:
Subsidiary
EVRAZ Nizhny Tagil Metallurgical Plant
EVRAZ Consolidated West-Siberian Metallurgical Plant
EVRAZ Vitkovice Steel a.s.
EVRAZ Highveld Steel and Vanadium Limited
EVRAZ Dnepropetrovsk Iron and Steel Works
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya (till 16 January 2013 accounted for under
equity method – Notes 4 and 11)
Yuzhkuzbassugol
EVRAZ Kachkanarsky Mining-and-Processing Integrated
Works
Evrazruda
EVRAZ Sukha Balka
Effective
ownership interest, %
2014
100.00
100.00
–
85.11
96.90
100.00
100.00
81.95
100.00
100.00
100.00
99.42
2013
100.00
100.00
100.00
85.11
96.78
100.00
100.00
81.95
100.00
100.00
100.00
99.42
2012
100.00
100.00
100.00
85.11
96.78
100.00
100.00
40.98
100.00
100.00
100.00
99.42
Business
activity
Steel production
Steel production
Steel production
Steel production
Steel production
Steel production
Steel production
Location
Russia
Russia
Czech Republic
South Africa
Ukraine
USA
Canada
Coal mining
Coal mining
Ore mining and
processing
Ore mining
Ore mining
Russia
Russia
Russia
Russia
Ukraine
122
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
2. Significant Accounting Policies
Basis of Preparation
These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards
(“IFRS”), as adopted by the European Union.
International Financial Reporting Standards are issued by the International Accounting Standard Board (“IASB”). IFRSs that are mandatory
for application as of 31 December 2014, but not adopted by the European Union, do not have any impact on the Group’s consolidated
financial statements.
The consolidated financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies
below. Exceptions include, but are not limited to, property, plant and equipment at the date of transition to IFRS accounted for at deemed cost,
available-for-sale investments measured at fair value, assets classified as held for sale measured at the lower of their carrying amount or fair
value less costs to sell and post-employment benefits measured at present value.
Going Concern
These consolidated financial statements have been prepared on a going concern basis.
The Group’s activities in all of its operating segments continue to be affected by the uncertainty and instability of the current economic
environment (Note 30). In response the Group implemented a number of cost cutting initiatives, reduced capital expenditures and continues to
reduce the level of debt.
Based on the currently available facts and circumstances the directors and management have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable future.
Restatement of Financial Statements
Subsidiaries that Ceased to Be Classified as Held for Sale
During the year the Group revised its plan to dispose of all of its investment in EVRAZ Highveld Steel and Vanadium Limited, which was
classified as a disposal group held for sale as at 31 December 2012 and 2013. On 12 August 2014 the Group signed an agreement to sell
a 34% shareholding (at 31 December 2014 the transaction continues to be pending as certain conditions of the sale have not been met)
and to retain control over the remaining 51.1% ownership interest. However, management expects to recover the investment in EVRAZ Highveld
Steel and Vanadium Limited principally through sale. At the end of 2014, the sale of the subsidiary within one year was not considered to be
highly probable.
At 31 December 2013, the disposal groups held for sale relating to the other segment included an office building in Moscow. In the 2nd half of
2014, due to the current market conditions management decided not to sell this asset.
As a result of these changes in circumstances, EVRAZ Highveld Steel and Vanadium Limited and the subsidiary owning the office building
ceased to meet the definition of a disposal group held for sale. In accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued
Operations” the Group restated its consolidated financial statements, including the relevant notes, for the periods in which the assets were
classified as held for sale as if the subsidiaries had not been classified as assets held for sale in the past and all assets and liabilities and the
results of operations had been accounted for in accordance with the applicable International Financial Reporting Standards as adopted by the
European Union.
EVRAZ plc Annual Report and Accounts 2014
123
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
The effects of the restatements on the previously reported amounts are set out below.
Statement of Operations
Revenue
Sale of goods
Rendering of services
Cost of revenue
Gross profit
Selling and distribution costs
General and administrative expenses
Social and social infrastructure maintenance expenses
Loss on disposal of property, plant and equipment
Impairment of assets
Foreign exchange gains/(losses), net
Other operating income
Other operating expenses
Profit/(loss) from operations
Interest income
Interest expense
Share of profits/(losses) of joint ventures and associates
Gain/(loss) on derecognition of equity investments, net
Gain/(loss) on financial assets and liabilities, net
Gain/(loss) on disposal groups classified as held for sale, net
Other non-operating gains/(losses), net
Loss before tax
Income tax benefit/(expense)
Net profit/(loss)
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Earnings/(losses) per share:
Year ended 31 December 2013
As previously
reported
Subsidiary that
ceased to be held
for sale
$14,071
340
14,411
(11,468)
2,943
(1,183)
(877)
(50)
(47)
(446)
(258)
53
(116)
19
23
(699)
8
89
(43)
(25)
15
(613)
41
$(572)
$(522)
(50)
$(572)
$–
–
–
(33)
(33)
(30)
–
–
–
(117)
–
–
–
(180)
–
–
–
–
–
156
–
(24)
45
$21
$18
3
$21
Restated
$14,071
340
14,411
(11,501)
2,910
(1,213)
(877)
(50)
(47)
(563)
(258)
53
(116)
(161)
23
(699)
8
89
(43)
131
15
(637)
86
$(551)
$(504)
(47)
$(551)
for profit/(loss) attributable to equity holders of the parent entity, US dollars, basic and diluted
$(0.35)
$0.01
$(0.34)
124
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Comprehensive Income
Net profit/(loss)
Other comprehensive income/(loss)
Other comprehensive income to be reclassified to profit or loss in subsequent periods
Exchange differences on translation of foreign operations into presentation currency
Exchange differences recycled to profit or loss
Net gains/(losses) on available-for-sale financial assets
Effect of translation to presentation currency of the Group’s joint ventures and associates
Items not to be reclassified to profit or loss in subsequent periods
Gains/(losses) on re-measurement of net defined benefit liability
Income tax effect
Decrease in revaluation surplus in connection with the impairment of property, plant
and equipment
Income tax effect
Total other comprehensive income/(loss)
Total comprehensive income/(loss), net of tax
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Statement of Changes in Equity
Accumulated profits
Translation difference
Non-controlling interests
Year ended 31 December 2013
As previously
reported
Subsidiary that
ceased to be held
for sale
$(572)
$21
(378)
90
7
(281)
(11)
(11)
119
(30)
89
(9)
2
(7)
(210)
$(782)
$(697)
(85)
$(782)
3
–
–
3
–
–
–
–
–
–
–
–
3
$24
$20
4
$24
Restated
$(551)
(375)
90
7
(278)
(11)
(11)
119
(30)
89
(9)
2
(7)
(207)
$(758)
$(677)
(81)
$(758)
Year ended 31 December 2013
As previously
reported
Subsidiary that
ceased to be held
for sale
$2,566
(1,687)
427
$23
2
4
Restated
$2,589
(1,685)
431
EVRAZ plc Annual Report and Accounts 2014
125
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Financial Position
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets other than goodwill
Goodwill
Investments in joint ventures and associates
Deferred income tax assets
Other non-current financial assets
Other non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Loans receivable
Receivables from related parties
Income tax receivable
Other taxes recoverable
Other current financial assets
Cash and cash equivalents
Assets of disposal groups classified as held for sale
Total assets
EQUITY AND LIABILITIES
Equity
Equity attributable to equity holders of the parent entity
Issued capital
Treasury shares
Additional paid-in capital
Revaluation surplus
Other reserves
Unrealised gains and losses
Accumulated profits
Translation difference
Non-controlling interests
Non-current liabilities
Long-term loans
Deferred income tax liabilities
Employee benefits
Provisions
Other long-term liabilities
Current liabilities
Trade and other payables
Advances from customers
Short-term loans and current portion of long-term loans
Payables to related parties
Income tax payable
Other taxes payable
Provisions
Dividends payable by the Group’s subsidiaries to non-controlling shareholders
Liabilities directly associated with disposal groups classified as held for sale
Total equity and liabilities
126
EVRAZ plc Annual Report and Accounts 2014
31 December 2013
Subsidiaries that
ceased to be held
for sale
As previously
reported
$9,251
525
1,988
191
86
140
62
12,243
1,641
873
122
21
13
59
281
71
1,576
4,657
804
5,461
$17,704
$1,473
(1)
2,326
162
156
12
2,566
(1,687)
5,007
427
5,434
$6,039
827
481
194
230
7,771
1,395
179
1,816
458
57
202
39
5
4,151
348
4,499
$17,704
$239
63
–
–
–
4
–
306
103
42
2
–
–
–
2
–
28
177
(502)
(325)
$(19)
$–
–
–
–
–
–
23
2
25
4
29
$2
14
11
60
–
87
93
1
–
–
–
1
6
–
101
(236)
(135)
$(19)
Restated
$9,490
588
1,988
191
86
144
62
12,549
1,744
915
124
21
13
59
283
71
1,604
4,834
302
5,136
$17,685
$1,473
(1)
2,326
162
156
12
2,589
(1,685)
5,032
431
5,463
$6,041
841
492
254
230
7,858
1,488
180
1,816
458
57
203
45
5
4,252
112
4,364
$17,685
Strategic Report
Business Review
Governance
Financial Statements
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Operations
Revenue
Sale of goods
Rendering of services
Cost of revenue
Gross profit
Selling and distribution costs
General and administrative expenses
Social and social infrastructure maintenance expenses
Loss on disposal of property, plant and equipment
Impairment of assets
Foreign exchange gains/(losses), net
Other operating income
Other operating expenses
Profit from operations
Interest income
Interest expense
Share of profits/(losses) of joint ventures and associates
Gain/(loss) on financial assets and liabilities, net
Gain/(loss) on disposal groups classified as held for sale, net
Other non-operating gains/(losses), net
Profit/(loss) before tax
Income tax expense
Net profit/(loss)
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Earnings/(losses) per share:
Year ended 31 December 2012
As previously
reported
Subsidiaries that
ceased to be held
for sale
$14,367
359
14,726
(11,803)
2,923
(1,211)
(839)
(51)
(56)
(413)
(41)
75
(129)
258
23
(654)
1
164
18
(6)
(196)
(229)
$(425)
$(398)
(27)
$(425)
$–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
5
–
$5
$5
–
$5
Restated
$14,367
359
14,726
(11,803)
2,923
(1,211)
(839)
(51)
(56)
(413)
(41)
75
(129)
258
23
(654)
1
164
23
(6)
(191)
(229)
$(420)
$(393)
(27)
$(420)
for profit/(loss) attributable to equity holders of the parent entity, US dollars, basic and diluted
$(0.30)
$0.01
$(0.29)
EVRAZ plc Annual Report and Accounts 2014
127
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Comprehensive Income
Net loss
Other comprehensive income/(loss)
Other comprehensive income to be reclassified to profit or loss in subsequent periods
Exchange differences on translation of foreign operations into presentation currency
Exchange differences recycled to profit or loss
Net gains/(losses) on available-for-sale financial assets
Effect of translation to presentation currency of the Group’s joint ventures and associates
Net gains/(losses) on available-for-sale financial assets of the Group’s joint ventures
and associates
Items not to be reclassified to profit or loss in subsequent periods
Gains/(losses) on re-measurement of net defined benefit liability
Income tax effect
Gains/(losses) on re-measurement of net defined benefit liability recognised by the Group’s joint
ventures and associates
Total other comprehensive income/(loss)
Total comprehensive income/(loss), net of tax
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Statement of Changes in Equity
Accumulated profits
Translation difference
Year ended 31 December 2012
As previously
reported
$(425)
Subsidiaries that
ceased to be held
for sale
$5
Restated
$(420)
281
96
4
381
44
1
45
(74)
14
(60)
(2)
364
$(61)
$(33)
(28)
$(61)
–
–
–
–
–
–
–
–
–
–
–
$5
$5
–
$5
281
96
4
381
44
1
45
(74)
14
(60)
(2)
364
$(56)
$(28)
(28)
$(56)
31 December 2012
Subsidiaries that
ceased to be
held for sale
$5
–
As previously
reported
$3,004
(1,424)
Restated
$3,009
(1,424)
128
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Financial Position
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets other than goodwill
Goodwill
Investments in joint ventures and associates
Deferred income tax assets
Other non-current financial assets
Other non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Loans receivable
Receivables from related parties
Income tax receivable
Other taxes recoverable
Other current financial assets
Cash and cash equivalents
Assets of disposal groups classified as held for sale
Total assets
EQUITY AND LIABILITIES
Equity
Equity attributable to equity holders of the parent entity
Issued capital
Treasury shares
Additional paid-in capital
Revaluation surplus
Unrealised gains and losses
Accumulated profits
Translation difference
Non-controlling interests
Non-current liabilities
Long-term loans
Deferred income tax liabilities
Employee benefits
Provisions
Other long-term liabilities
Current liabilities
Trade and other payables
Advances from customers
Short-term loans and current portion of long-term loans
Payables to related parties
Income tax payable
Other taxes payable
Provisions
Dividends payable by the Group’s subsidiaries to non-controlling shareholders
Liabilities directly associated with disposal groups classified as held for sale
Total equity and liabilities
31 December 2012
Subsidiaries that
ceased to be held
for sale
As previously
reported
$7,792
586
2,180
551
70
92
64
11,335
1,978
895
143
19
12
59
329
712
1,320
5,467
930
6,397
$17,732
$1,340
(1)
1,820
173
5
3,004
(1,424)
4,917
200
5,117
$6,373
855
577
257
181
8,243
1,414
157
1,783
257
48
195
32
8
3,894
478
4,372
$17,732
$272
149
23
–
–
–
–
444
102
49
–
–
–
–
1
–
62
214
(653)
(439)
$5
$–
–
–
–
–
5
–
5
–
5
$2
73
16
75
–
166
117
–
12
–
–
–
8
–
137
(303)
(166)
$5
Restated
$8,064
735
2,203
551
70
92
64
11,779
2,080
944
143
19
12
59
330
712
1,382
5,681
277
5,958
$17,737
$1,340
(1)
1,820
173
5
3,009
(1,424)
4,922
200
5,122
$6,375
928
593
332
181
8,409
1,531
157
1,795
257
48
195
40
8
4,031
175
4,206
$17,737
EVRAZ plc Annual Report and Accounts 2014
129
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
2. Significant Accounting Policies (continued)
Changes in Accounting Policies
In the preparation of these consolidated financial statements, the Group followed the same accounting policies and methods of computation as
compared with those applied in the previous year, except for the adoption of new standards and interpretations and revision of the existing
standards as of 1 January 2014.
New/Revised Standards and Interpretations Adopted in 2014:
– IFRS 10 “Consolidated Financial Statements”, IAS 27 “Separate Financial Statements”
IFRS 10 replaced the portion of IAS 27 “Consolidated and Separate Financial Statements” that addresses the accounting for consolidated
financial statements. It also addresses the issues raised in SIC-12 “Consolidation — Special Purpose Entities”. IFRS 10 establishes a single
control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 require management to exercise
significant judgement to determine which entities are controlled and therefore are required to be consolidated by a parent, compared with the
requirements that were in IAS 27.
– IFRS 12 “Disclosure of Interests in Other Entities”
IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the
disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint
arrangements, associates and structured entities. A number of new disclosures are also required and have been disclosed by the Group
in Note 32, but they have no impact on the Group’s financial position or performance.
– Amendments to IFRS 10, IFRS 12 and IAS 27
These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under
IFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss.
– IFRS 11 “Joint Arrangements”, IAS 28 “Investments in Associates and Joint Ventures”
IFRS 11 replaced IAS 31 “Interests in Joint Ventures” and SIC-13 “Jointly-controlled Entities” — Non-monetary Contributions by Venturers”. IFRS
11 removed the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition
of a joint venture must be accounted for using the equity method. As a consequence of the new IFRS 11 and IFRS 12, IAS 28 “Investments in
Associates”, has been renamed IAS 28 “Investments in Associates and Joint Ventures”, and describes the application of the equity method to
investments in joint ventures in addition to associates.
– Amendments to IAS 32 – Offsetting Financial Assets and Financial Liabilities
These amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria for non-simultaneous settlement
mechanisms of clearing houses to qualify for offsetting.
– Amendments to IAS 36 – Recoverable Amount Disclosures for Non-financial Assets
These amendments remove the unintended consequences of IFRS 13 “Fair Value Measurement” on the disclosures required under IAS 36
“Impairment of Assets”. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units
(CGUs) for which an impairment loss has been recognised or reversed during the period.
– Amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets
certain criteria.
– IFRIC 21 “Levies”
IFRIC 21 is applicable to all levies imposed by governments under legislation, other than outflows that are within the scope of other standards
(e.g., IAS 12 Income Taxes) and fines or other penalties for breaches of legislation. The interpretation clarifies that an entity recognises a
liability for a levy no earlier than when the activity that triggers payment, as identified by the relevant legislation, occurs. It also clarifies that a
levy liability is accrued progressively only if the activity that triggers payment occurs over a period of time, in accordance with the relevant
legislation. For a levy that is triggered upon reaching a minimum threshold, no liability is recognised before the specified minimum threshold is
reached. The Group early adopted IFRIC 21 (in the European Union it is effective for annual periods beginning on or after 17 June 2014).
The new standards, interpretations and amendments described above did not have a significant impact on the financial position or performance
of the Group. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
130
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
Standards Issued But Not Yet Effective in the European Union
Standards not yet effective for the financial statements for the year ended 31 December 2014
Effective for annual periods
beginning on or after
– Annual Improvements to IFRSs 2011-2013 Cycle
– Amendments to IAS 19 – Defined Benefit Plans: Employee Contributions
– Annual Improvements to IFRSs 2010-2012 Cycle
– IFRS 14 “Regulatory Deferral Accounts”
– Amendments to IAS 1 – Disclosure Initiative
– Amendments to IFRS 11 – Accounting for Acquisitions of Interests
– Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation
– Amendments to IAS 16 and IAS 41 – Bearer Plants
– Amendments to IAS 27 – Equity Method in Separate Financial Statements
– Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment Entities: Applying the Consolidation Exemption
– Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
– Annual Improvements to IFRSs 2012-2014 Cycle
– IFRS 15 “Revenue from Contracts with Customers”
– IFRS 9 “Financial Instruments”
1 July 2014
1 February 2015
1 February 2015
1 January 2016*
1 January 2016*
1 January 2016*
1 January 2016*
1 January 2016*
1 January 2016*
1 January 2016*
1 January 2016*
1 January 2016*
1 January 2017*
1 January 2018*
* Subject to EU endorsement
The Group expects that the adoption of the pronouncements listed above will not have a significant impact on the Group’s results of operations
and financial position in the period of initial application.
Significant Accounting Judgements and Estimates
Accounting Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, apart from those involving
estimates, which have the most significant effect on the amounts recognised in the consolidated financial statements:
– The Group determined that it obtained control over Corber on 16 January 2013 (Note 11). As of 31 December 2012, certain conditions
relating to acquisition of an additional 50% ownership interest in Corber were not met. As such, the Group did not consolidate Corber in 2012.
– The Group determined that the 51% ownership interest in Timir (Note 11) does not provide control over the entity. In April 2013, the Group
concluded a joint venture agreement with Alrosa under which major operating and financial decisions are made by unanimous consent of the
Group and Alrosa, it ensures that no single venturer is in a position to control the activity unilaterally. Consequently, the Group determined
that Timir constitutes a joint venture under IFRS 11 “Joint Arrangements”.
Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Impairment of Property, Plant and Equipment
The Group assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the
Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating
unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value
of money and the risks specific to the assets. In 2014, 2013 and 2012, the Group recognised an impairment loss of $192 million, $307 million
and $404 million, respectively (Note 9).
The determination of impairments of property, plant and equipment involves the use of estimates that include, but are not limited to, the cause,
timing and amount of the impairment. Impairment is based on a large number of factors, such as changes in current competitive conditions,
expectations of growth in the industry, increased cost of capital, changes in the future availability of financing, technological obsolescence,
discontinuance of service, current replacement costs and other changes in circumstances that indicate that impairment exists.
The determination of the recoverable amount of a cash-generating unit involves the use of estimates by management. Methods used to determine
the value in use include discounted cash flow-based methods, which require the Group to make an estimate of the expected future cash flows from
the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. These estimates,
including the methodologies used, may have a material impact on the value in use and, ultimately, the amount of any impairment.
Useful Lives of Items of Property, Plant and Equipment
The Group assesses the remaining useful lives of items of property, plant and equipment at least at each financial year end and, if expectations
differ from previous estimates, the changes are accounted for as a change in an accounting estimate in accordance with IAS 8 “Accounting
Policies, Changes in Accounting Estimates and Errors”. These estimates may have a material impact on the amount of the carrying values of
property, plant and equipment and on depreciation expense for the period.
On 1 January 2014, the Group changed its estimation of useful lives of property, plant and equipment, which resulted in a $52 million decrease
in depreciation expense as compared to the amounts that would have been charged had no change in estimate occurred.
EVRAZ plc Annual Report and Accounts 2014
131
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
Estimation Uncertainty (continued)
Fair Values of Assets and Liabilities Acquired in Business Combinations
The Group is required to recognise separately, at the acquisition date, the identifiable assets, liabilities and contingent liabilities acquired or
assumed in a business combination at their fair values, which involves estimates. Such estimates are based on valuation techniques which
require considerable judgement in forecasting future cash flows and developing other assumptions.
Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-
generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future
cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
The carrying amount of goodwill at 31 December 2014, 2013 and 2012 was $1,541 million, $1,988 million and $2,203 million, respectively.
In 2014, 2013 and 2012, the Group recognised an impairment loss in respect of goodwill in the amount of $330 million, $168 million and $Nil,
respectively. More details of the assumptions used in estimating the value in use of the cash-generating units to which goodwill is allocated are
provided in Note 5.
Mineral Reserves
Mineral reserves and the associated mine plans are a material factor in the Group’s computation of a depletion charge. The Group estimates
its mineral reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves
(“JORC Code”). Estimation of reserves in accordance with the JORC Code involves some degree of uncertainty. The uncertainty depends mainly
on the amount of reliable geological and engineering data available at the time of the estimate and the interpretation of this data, which also
requires use of subjective judgement and development of assumptions. Mine plans are periodically updated which can have a material impact
on the depletion charge for the period.
Site Restoration Provisions
The Group reviews site restoration provisions at each reporting date and adjusts them to reflect the current best estimate in accordance with
IFRIC 1 “Changes in Existing Decommissioning, Restoration and Similar Liabilities”.
The amount recognised as a provision is the best estimate of the expenditures required to settle the present obligation at the end of the
reporting period based on the requirements of the current legislation of the country where the respective operating assets are located.
The carrying amount of a provision is the present value of the expected expenditures, i.e. cash outflows discounted using pre-tax rates that
reflect current market assessments of the time value of money and the risks specific to the liability.
The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of
a provision. Considerable judgement is required in forecasting future site restoration costs.
Future events that may affect the amount required to settle an obligation are reflected in the amount of a provision when there is sufficient
objective evidence that they will occur.
Post-Employment Benefits
The Group uses an actuarial valuation method for the measurement of the present value of post-employment benefit obligations and related
current service cost. This involves the use of demographic assumptions about the future characteristics of the current and former employees
who are eligible for benefits (mortality, both during and after employment, rates of employee turnover, disability and early retirement, etc.) as
well as financial assumptions (discount rate, future salary and benefit levels, expected rate of return on plan assets, etc.). More details are
provided in Note 23.
Allowances
The Group makes allowances for doubtful receivables to account for estimated losses resulting from the inability of customers to make required
payments. When evaluating the adequacy of an allowance for doubtful accounts, management bases its estimates on the current overall
economic conditions, the ageing of accounts receivable balances, historical write-off experience, customer creditworthiness and changes in
payment terms. Changes in the economy, industry or specific customer conditions may require adjustments to the allowance for doubtful
accounts recorded in the consolidated financial statements. As of 31 December 2014, 2013 and 2012, allowances for doubtful accounts in
respect of trade and other receivables have been made in the amount of $57 million, $60 million and $101 million, respectively (Note 28).
The Group makes an allowance for obsolete and slow-moving raw materials and spare parts. In addition, certain finished goods of the Group are
carried at net realisable value (Note 14). Estimates of net realisable value of finished goods are based on the most reliable evidence available
at the time the estimates are made. These estimates take into consideration fluctuations of price or cost directly relating to events occurring
subsequent to the end of the reporting period to the extent that such events confirm conditions existing at the end of the period.
Deferred Income Tax Assets
Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will
be available to allow all or part of the deferred tax asset to be utilised. The estimation of that probability includes judgements based on the
expected performance. Various factors are considered to assess the probability of the future utilisation of deferred tax assets, including past
operating results, operational plans, expiration of tax losses carried forward, and tax planning strategies. If actual results differ from these
estimates or if these estimates must be adjusted in future periods, the financial position, results of operations and cash flows may be
negatively affected. In the event that the assessment of future utilisation of deferred tax assets must be reduced, this reduction will be
recognised in the statement of operations.
132
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
2. Significant Accounting Policies (continued)
Foreign Currency Transactions
The presentation currency of the Group is the US dollar because presentation in US dollars is convenient for the major current and potential
users of the consolidated financial statements.
The functional currencies of the Group’s subsidiaries are the Russian rouble, US dollar, euro, Czech koruna, South African rand, Canadian dollar
and Ukrainian hryvnia. As at the reporting date, the assets and liabilities of the subsidiaries with functional currencies other than the US dollar
are translated into the presentation currency at the rate of exchange ruling at the end of the reporting period, and their statements of operations
are translated at the exchange rates that approximate the exchange rates at the dates of the transactions. The exchange differences arising on
the translation are taken directly to a separate component of equity. On disposal of a subsidiary with functional currency other than the US dollar,
the deferred cumulative amount recognised in equity relating to that particular subsidiary is recognised in the statement of operations.
The following exchange rates were used in the consolidated financial statements:
USD/RUB
EUR/RUB
EUR/USD
USD/CAD
USD/ZAR
EUR/ZAR
USD/UAH
RUB/UAH
2014
2013
2012
31 December
average
31 December
average
31 December
average
56.2584
68.3427
1.2141
1.1601
11.5719
14.0668
15.7686
0.2803
38.4217
50.8150
1.3285
1.1048
10.8488
14.4054
11.9064
0.3050
32.7292
44.9699
1.3791
1.0636
10.4675
14.4210
7.9930
0.2450
31.8480
42.3129
1.3281
1.0301
9.6508
12.8249
7.9930
0.2512
30.3727
40.2286
1.3194
0.9949
8.4838
11.1902
7.9930
0.2632
31.0930
39.9275
1.2848
0.9994
8.2137
10.5553
7.9910
0.2574
Transactions in foreign currencies in each subsidiary of the Group are initially recorded in the functional currency at the rate ruling at the date of
the transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the
fair value was determined. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of
exchange ruling at the end of the reporting period. All resulting differences are taken to the statement of operations.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities
arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.
Basis of Consolidation
Subsidiaries
Subsidiaries, which are those entities in which the Group has an interest of more than 50% of the voting rights, or otherwise has power to
exercise control over their operations, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the
Group and are no longer consolidated from the date that control ceases.
All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are
also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, accounting policies for
subsidiaries have been changed to ensure consistency with the policies adopted by the Group.
Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests are presented in
the consolidated statement of financial position within equity, separately from the parent’s shareholders’ equity.
Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-
controlling interests having a deficit balance.
Acquisition of Subsidiaries
Business combinations are accounted for using the acquisition method.
The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the
amount of any non-controlling interest in the acquiree. For each business combination, the Group measures the non-controlling interest in the
acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Acquisition costs incurred are expensed and included in administrative expenses.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree
is remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair
value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or
loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it
is finally settled within equity.
EVRAZ plc Annual Report and Accounts 2014
133
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
2. Significant Accounting Policies (continued)
Basis of Consolidation (continued)
Acquisition of Subsidiaries (continued)
The initial accounting for a business combination involves identifying and determining the fair values to be assigned to the acquiree’s
identifiable assets, liabilities and contingent liabilities and the cost of the combination. If the initial accounting for a business combination can
be determined only provisionally by the end of the period in which the combination is effected because either the fair values to be assigned to
the acquiree’s identifiable assets, liabilities or contingent liabilities or the cost of the combination can be determined only provisionally, the
Group accounts for the combination using those provisional values. The Group recognises any adjustments to those provisional values as a
result of completing the initial accounting within twelve months of the acquisition date.
Comparative information presented for the periods before the completion of initial accounting for the acquisition is presented as if the initial
accounting had been completed from the acquisition date.
Increases in Ownership Interests in Subsidiaries
The differences between the carrying values of net assets attributable to interests in subsidiaries acquired and the consideration given for
such increases is either added to additional paid-in capital, if positive, or charged to accumulated profits, if negative, in the consolidated
financial statements.
Purchases of Controlling Interests in Subsidiaries from Entities under Common Control
Purchases of controlling interests in subsidiaries from entities under common control are accounted for using the pooling of interests method.
The assets and liabilities of the subsidiary transferred under common control are recorded in these financial statements at the historical cost
of the controlling entity (the “Predecessor”). Related goodwill inherent in the Predecessor’s original acquisition is also recorded in the financial
statements. Any difference between the total book value of net assets, including the Predecessor’s goodwill, and the consideration paid is
accounted for in the consolidated financial statements as an adjustment to the shareholders’ equity.
These financial statements, including corresponding figures, are presented as if a subsidiary had been acquired by the Group on the date it was
originally acquired by the Predecessor.
Put Options over Non-controlling Interests
The Group derecognises non-controlling interests if non-controlling shareholders have a put option over their holdings. The difference between
the amount of the liability recognised in the statement of financial position over the carrying value of the derecognised non-controlling interests
is charged to accumulated profits.
Investments in Associates
Associates are entities in which the Group generally has between 20% and 50% of the voting rights, or is otherwise able to exercise significant
influence, but which it does not control or jointly control.
Investments in associates are accounted for under the equity method of accounting and are initially recognised at cost including goodwill.
Subsequent changes in the carrying value reflect the post-acquisition changes in the Group’s share of net assets of the associate and goodwill
impairment charges, if any.
The Group’s share of its associates’ profits or losses is recognised in the statement of operations and its share of movements in reserves is
recognised in equity. However, when the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does
not recognise further losses, unless the Group has legal or constructive obligations to make payments to, or on behalf of, the associate. If the
associate subsequently reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals the
share of losses not recognised.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates;
unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Interests in Joint Ventures
The Group’s interest in its joint ventures is accounted for under the equity method of accounting whereby an interest in jointly ventures is initially
recorded at cost and adjusted thereafter for post-acquisition changes in the Group’s share of net assets of joint ventures. The statement of
operations reflects the Group’s share of the results of operations of joint ventures.
Property, Plant and Equipment
The Group’s property, plant and equipment is stated at purchase or construction cost, excluding the costs of day-to-day servicing, less
accumulated depreciation and any impairment in value. Such cost includes the cost of replacing part of plant and equipment when that cost is
incurred and recognition criteria are met.
The Group’s property, plant and equipment include mining assets, which consist of mineral reserves, mine development and construction costs
and capitalised site restoration costs. Mineral reserves represent tangible assets acquired in business combinations. Mine development and
construction costs represent expenditures incurred in developing access to mineral reserves and preparations for commercial production,
including sinking shafts and underground drifts, roads, infrastructure, buildings, machinery and equipment.
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2. Significant Accounting Policies (continued)
Property, Plant and Equipment (continued)
At each end of the reporting period management makes an assessment to determine whether there is any indication of impairment of property,
plant and equipment. If any such indication exists, management estimates the recoverable amount, which is the higher of an asset’s fair value
less cost to sell and its value in use. The carrying amount is reduced to the recoverable amount, and the difference is recognised as
impairment loss in the statement of operations or other comprehensive income. An impairment loss recognised for an asset in previous years
is reversed if there has been a change in the estimates used to determine the asset’s recoverable amount.
Land is not depreciated. Depreciation of property, plant and equipment, except for mining assets, is calculated on a straight-line basis over the
estimated useful lives of the assets. The useful lives of items of property, plant and equipment and methods of their depreciation are reviewed,
and adjusted as appropriate, at each fiscal year end. The table below presents the useful lives of items of property, plant and equipment.
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Other assets
Useful lives
(years)
Weighted average
remaining useful
life (years)
15–60
4–45
7–20
3–15
22
11
7
7
The Group determines the depreciation charge separately for each significant part of an item of property, plant and equipment.
Depletion of mining assets including capitalised site restoration costs is calculated using the units-of-production method based upon proved and
probable mineral reserves. The depletion calculation takes into account future development costs for reserves which are in the production phase.
Maintenance costs relating to items of property, plant and equipment are expensed as incurred. Major renewals and improvements are
capitalised, and the replaced assets are derecognised.
The Group has the title to certain non-production and social assets, primarily buildings and facilities of social infrastructure, which are carried
at their recoverable amount of zero. The costs to maintain such assets are expensed as incurred.
Exploration and Evaluation Expenditures
Exploration and evaluation expenditures represent costs incurred by the Group in connection with the exploration for and evaluation of mineral
resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. The expenditures include
acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling, activities
in relation to evaluating the technical feasibility and commercial viability of extracting mineral resources. These costs are expensed as incurred.
When the technical feasibility and commercial viability of extracting a mineral resource are demonstrable, the Group commences recognition
of expenditures related to the development of mineral resources as assets. These assets are assessed for impairment when facts and
circumstances suggest that the carrying amount of an asset may exceed its recoverable amount.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date as to whether
the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised
from the commencement of the lease term at the fair value of the leased property or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance charges are charged to interest expense.
The depreciation policy for depreciable leased assets is consistent with that for depreciable assets which are owned. If there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term
or its useful life.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating
lease payments are recognised as an expense in the statement of operations on a straight-line basis over the lease term.
Goodwill
Goodwill represents the excess of the aggregate of the consideration transferred for an acquisition of a subsidiary or an associate and the
amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower
than the fair value of the net assets of the acquiree, the difference is recognised in the consolidated statement of operations.
Goodwill on acquisition of a subsidiary is included in intangible assets. Goodwill on acquisition of an associate is included in the carrying
amount of the investments in associates.
EVRAZ plc Annual Report and Accounts 2014
135
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
2. Significant Accounting Policies (continued)
Goodwill (continued)
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually
or more frequently, if events or changes in circumstances indicate that the carrying amount may be impaired. For the purpose of impairment
testing, goodwill acquired in a business combination is allocated to each of the Group’s cash-generating units that are expected to benefit from
the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit, or the group of cash-generating units, to which the
goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.
An impairment loss recognised for goodwill is not reversed in a subsequent period.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the
operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.
Goodwill disposed of in this circumstance is measured based on the relative fair values of the operation disposed of and the portion of the
cash-generating unit retained.
Intangible Assets Other Than Goodwill
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated
amortisation and any accumulated impairment losses. Expenditures on internally generated intangible assets, excluding capitalised
development costs, are expensed as incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation
period and the amortisation method for an intangible asset with a finite life are reviewed at least at each year end. Changes in the expected
useful life or the expected pattern of consumption of future economic benefits embodied in the asset are treated as changes in accounting
estimates.
Intangible assets with indefinite useful lives are not amortised, they are tested for impairment annually either individually or at the cash-
generating unit level.
The table below presents the useful lives of intangible assets.
Customer relationships
Contract terms
Other
Useful lives
(years)
Weighted average
remaining useful
life (years)
1–15
10
5–19
11
9
9
Certain water rights and environmental permits are considered to have indefinite lives as management believes that these rights will
continue indefinitely.
The most part of the Group’s intangible assets represents customer relationships arising on business combinations (Note 10).
Financial Assets
The Group classified its investments into the following categories: financial assets at fair value through profit or loss, loans and receivables,
held-to-maturity, and available-for-sale. When investments are recognised initially, they are measured at fair value plus, in the case of
investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its
investments after initial recognition.
Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as held for
trading and included in the category “financial assets at fair value through profit or loss”. Investments which are included in this category are
subsequently carried at fair value; gains or losses on such investments are recognised in income.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such
assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in income when the loans and
receivables are derecognised or impaired, as well as through the amortisation process.
Non-derivative financial assets with fixed or determinable payments and fixed maturity that management has the positive intent and ability to
hold to maturity are classified as held-to-maturity. Held-to-maturity investments are carried at amortised cost using the effective yield method.
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Financial Statements
2. Significant Accounting Policies (continued)
Financial Assets (continued)
Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest
rates, are classified as available-for-sale; these are included in non-current assets unless management has the express intention of holding the
investment for less than 12 months from the end of the reporting period or unless they will need to be sold to raise operating capital, in which
case they are included in current assets. Management determines the appropriate classification of its investments at the time of the purchase
and re-evaluates such designation on a regular basis. After initial recognition available-for-sale investments are measured at fair value with
gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined
to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the statement of operations. Reversals of
impairment losses in respect of equity instruments are not recognised in the statement of operations. Impairment losses in respect of debt
instruments are reversed through profit or loss if the increase in fair value of the instrument can be objectively related to an event occurring
after the impairment loss was recognised in the statement of operations.
For investments that are actively traded in organised financial markets, fair value is determined by reference to stock exchange quoted market
bid prices at the close of business on the end of the reporting period. For investments where there is no active market, fair value is determined
using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to the current market value of
another instrument, which is substantially the same, discounted cash flow analysis or other generally accepted valuation techniques.
All purchases and sales of financial assets under contracts to purchase or sell financial assets that require delivery of the asset within the time
frame generally established by regulation or convention in the market place are recognised on the settlement date i.e. the date the asset is
delivered by/to the counterparty.
Accounts Receivable
Accounts receivable, which generally are short-term, are recognised and carried at the original invoice amount less an allowance for any
uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written
off when identified.
The Group establishes an allowance for impairment of accounts receivable that represents its estimate of incurred losses. The main
components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component
established for groups of similar receivables in respect of losses that have been incurred but not yet identified. The collective loss allowance is
determined based on historical data of payment statistics for similar financial assets.
Inventories
Inventories are recorded at the lower of cost and net realisable value. Cost of inventory is determined on the weighted average basis and
includes expenditure incurred in acquiring or producing inventories and bringing them to their existing location and condition. The cost of
finished goods and work in progress includes an appropriate share of production overheads based on normal operating capacity, but excluding
borrowing costs.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs
necessary to make the sale.
Value Added Tax
The tax authorities permit the settlement of sales and purchases value added tax (“VAT”) on a net basis.
The Group’s subsidiaries apply the accrual method for VAT recognition, under which VAT becomes payable upon invoicing and delivery of goods
or rendering services as well upon receipt of prepayments from customers. VAT on purchases, even if not settled at the end of the reporting
period, is deducted from the amount of VAT payable.
Where provision has been made for impairment of receivables, an impairment loss is recorded for the gross amount of the debtor, including VAT.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash at bank and in hand and deposits with an original maturity of three months or less.
Borrowings
Borrowings are initially recognised at fair value, net of directly attributable transaction costs. After initial recognition, borrowings are measured
at amortised cost using the effective interest rate method; any difference between the amount initially recognised and the redemption amount
is recognised as interest expense over the period of the borrowings.
Borrowing costs relating to qualifying assets are capitalised (Note 9).
Financial Guarantee Liabilities
Financial guarantee liabilities issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it
incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee
contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issue of the
guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation
at the end of the reporting period and the amount initially recognised.
EVRAZ plc Annual Report and Accounts 2014
137
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
2. Significant Accounting Policies (continued)
Equity
Share Capital
Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are shown as a deduction in equity from the
proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recognised as additional paid-in capital.
Treasury Shares
Own equity instruments which are acquired by the Group (treasury shares) are deducted from equity. No gain or loss is recognised in statement
of operations on the purchase, sale, issue or cancellation of the treasury shares.
Dividends
Dividends are recognised as a liability and deducted from equity only if they are declared before the end of the reporting period. Dividends are
disclosed when they are proposed before the end of the reporting period or proposed or declared after the end of the reporting period but
before the financial statements are authorised for issue.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is
recognised as a separate asset but only when the reimbursement is virtually certain.
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate
that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time is recognised as an interest expense.
Provisions for site restoration costs are capitalised within property, plant and equipment.
Employee Benefits
Social and Pension Contributions
Defined contributions are made by the Group to the Russian and Ukrainian state pension, social insurance, medical insurance and
unemployment funds at the statutory rates in force based on gross salary payments. The Group has no legal or constructive obligation to pay
further contributions in respect of those benefits. Its only obligation is to pay contributions as they fall due. These contributions are expensed
as incurred.
Defined Benefit Plans
The Group companies provide pensions and other benefits to their employees (Note 23). The entitlement to these benefits is usually conditional
on the completion of a minimum service period. Certain benefit plans require the employee to remain in service up to retirement age. Other
employee benefits consist of various compensations and non-monetary benefits. The amounts of benefits are stipulated in the collective
bargaining agreements and/or in the plan documents.
The Group involves independent qualified actuaries in the measurement of employee benefit obligations.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Re-measurements,
comprising of actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets (excluding net
interest), are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through
other comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
Past service costs are recognised in profit or loss on the earlier of the date of the plan amendment or curtailment, and the date that the Group
recognises restructuring-related costs.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. It is recorded within interest expense in the
consolidated statement of operations.
The Group recognises current service costs, past-service costs, gains and losses on curtailments and non-routine settlements in the
consolidated statement of operations within “cost of sales”, “general and administrative expenses” and “selling and distribution expenses”.
Other Costs
The Group incurs employee costs related to the provision of benefits such as health services, kindergartens and other services. These amounts
principally represent an implicit cost of employment and, accordingly, have been charged to cost of sales.
Share-based Payments
The Group has management compensation schemes (Note 21), under which certain senior executives and employees of the Group receive
remuneration in the form of share-based payment transactions, whereby they render services as consideration for equity instruments (“equity-
settled transactions”).
The cost of equity-settled transactions with grantees is measured by reference to the fair value of the Company’s shares at the date on which
they are granted. The fair value is determined using the Black-Scholes-Merton model. In valuing equity-settled transactions, no account is taken
of any conditions, other than market conditions.
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Financial Statements
2. Significant Accounting Policies (continued)
Share-based Payments (continued)
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity (additional paid-in capital), over the
period in which service conditions are fulfilled, ending on the date on which the relevant persons become fully entitled to the award (“the
vesting date”). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the
extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.
The charge or credit in the statement of operations for a period represents the movement in cumulative expense recognised as at the beginning
and end of that period.
No expense is recognised for awards that do not ultimately vest. Once a share-settled transaction is vested, no further accounting entries are
made to reverse the cost already charged, even if the instruments that are the subject of the transaction are subsequently forfeited. In this
case, the Group makes a transfer between different components of equity.
Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified.
In addition, an expense is recognised for any modification which increases the total fair value of the share-based payment arrangement,
or is otherwise beneficial to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for
the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award
on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the
previous paragraph.
Cash-settled share-based payments represent transactions in which the Group acquires goods or services by incurring a liability to transfer
cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of the Group’s shares or other
equity instruments.
The cost of cash-settled transactions is measured initially at fair value at the grant date using the Black-Scholes-Merton model. This fair value
is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured to fair value at each
reporting date up to and including the settlement date with changes in fair value recognised in the statement of operations.
The dilutive effect of outstanding share-based awards is reflected as additional share dilution in the computation of earnings per share (Note 20).
Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.
When goods are sold or services are rendered in exchange for dissimilar goods or services, the revenue is measured at the fair value of the
goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the goods or services
received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of
any cash or cash equivalents transferred.
The following specific recognition criteria must also be met before revenue is recognised:
Sale of Goods
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue
can be measured reliably. The moment of transfer of the risks and rewards of ownership is determined by the contract terms.
Rendering of Services
The Group’s revenues from rendering of services include electricity, transportation, port and other services. Revenue is recognised when
services are rendered.
Interest
Interest is recognised using the effective interest method.
Dividends
Revenue is recognised when the shareholders’ right to receive the payment is established.
Rental Income
Rental income is accounted for on a straight-line basis over the lease term on ongoing leases.
Current Income Tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the end
of the reporting period.
Current income tax relating to items recognised outside profit or loss is recognised in other comprehensive income or equity and not in the
statement of operations.
EVRAZ plc Annual Report and Accounts 2014
139
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
2. Significant Accounting Policies (continued)
Deferred Income Tax
Deferred tax assets and liabilities are calculated in respect of temporary differences using the liability method. Deferred income taxes are
provided for all temporary differences arising between the tax basis of assets and liabilities and their carrying values for financial reporting
purposes, except where the deferred income tax arises from the initial recognition of goodwill or of an asset or liability in a transaction that is
not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
A deferred tax asset is recorded only to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences can be utilised. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset
is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted at the end of the reporting period.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where
the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the
foreseeable future.
3. Segment Information
For management purposes, in 2013 and previous periods the Group was organised into business units based on their products and services,
and had four reportable operating segments:
– Steel production segment included production of steel and related products at eleven steel mills.
– Mining segment included iron ore and coal mining and enrichment.
– Vanadium products segment included extraction of vanadium ore and production of vanadium products. Vanadium slag arising in the
steel-making process was also allocated to the vanadium segment.
– Other operations included energy-generating companies, seaports, shipping and railway transportation companies.
In 2014, the management reporting used by the chief operating decision maker for making decisions about resource allocation has changed to
put more emphasis on analysis of the operating results of the coal segment and operations in North America. As such, new reportable segments
were identified and the comparative segment information has been restated accordingly. The new reportable operating segments are:
– Steel segment includes production of steel and related products at all mills except for those located in North America. Extraction of
vanadium ore and production of vanadium products, iron ore mining and enrichment and certain energy-generating companies are also
included in this segment as they are closely related to the main process of steel production.
– Steel, North America is a segment, which includes production of steel and related products in the USA and Canada.
– Coal segment includes coal mining and enrichment. It also includes operations of Nakhodka Trade Sea Port as it is used to a significant
extent for shipping of products of the coal segment to the Asian markets.
– Other operations include energy-generating companies, shipping and railway transportation companies.
Management and investment companies are not allocated to any of the segments. Operating segments have been aggregated into reportable
segments if they show a similar long-term economic performance, have comparable production processes, customer industries and distribution
channels, operate in the same regulatory environment, and are generally managed and monitored together.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
Management monitors the results of the operating segments separately for the purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated based on EBITDA. This performance indicator is calculated based on
management accounts that differ from the IFRS consolidated financial statements for the following reasons:
1) for the last month of the reporting period, the management accounts for each operating segment are prepared using a forecast for that month;
2) the statement of operations is based on local GAAP figures with the exception of depreciation expense which is adjusted to approximate the
amount under IFRS.
Segment revenue is revenue reported in the Group’s statement of operations that is directly attributable to a segment and the relevant portion
of the Group’s revenue that can be allocated to it on a reasonable basis, whether from sales to external customers or from transactions with
other segments.
Segment expense is expense resulting from the operating activities of a segment that is directly attributable to the segment and the relevant
portion of an expense that can be allocated to it on a reasonable basis, including expenses relating to external counterparties and expenses
relating to transactions with other segments.
Segment result is segment revenue less segment expense that is equal to earnings before interest, tax, depreciation and amortisation
(“EBITDA”).
Segment EBITDA is determined as a segment’s profit/(loss) from operations adjusted for impairment of assets, profit/(loss) on disposal of
property, plant and equipment and intangible assets, foreign exchange gains/(losses) and depreciation, depletion and amortisation expense.
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EVRAZ plc Annual Report and Accounts 2014
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Governance
Financial Statements
3. Segment Information (continued)
The following tables present measures of segment profit or loss based on management accounts.
Year ended 31 December 2014
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
Year ended 31 December 2013
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
Year ended 31 December 2012
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
Steel
Steel,
North America
$9,135
570
9,705
$1,756
$3,159
–
3,159
$282
Steel
Steel,
North America
$10,849
370
11,219
$1,352
$3,056
–
3,056
$139
Steel
Steel,
North America
$10,824
478
11,302
$1,159
$3,373
–
3,373
$358
Coal
$540
676
1,216
$311
Coal
$728
706
1,434
$141
Coal
$195
649
844
$230
Other
operations
Eliminations
Total
$128
446
574
$31
$–
(1,692)
(1,692)
$2
$12,962
–
12,962
$2,382
Other
operations
Eliminations
Total
$142
468
610
$34
$–
(1,544)
(1,544)
$142
$14,775
–
14,775
$1,808
Other
operations
Eliminations
Total
$142
573
715
$147
$–
(1,700)
(1,700)
$87
$14,534
–
14,534
$1,981
EVRAZ plc Annual Report and Accounts 2014
141
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
3. Segment Information (continued)
The following table shows a reconciliation of revenue and EBITDA used by management for decision making and revenue and profit or loss
before tax per the consolidated financial statements prepared under IFRS.
Year ended 31 December 2014
US$ million
Revenue
Reclassifications and other adjustments
Revenue per IFRS financial statements
EBITDA
Exclusion of management services from
segment result
Unrealised profits adjustment
Reclassifications and other adjustments
Steel
$9,705
(186)
$9,519
$1,756
128
9
19
156
Steel,
North America
$3,159
1
$3,160
$282
–
(1)
(2)
(3)
Coal
Other operations
Eliminations
Total
$(1,692)
108
$12,962
99
$(1,584)
$13,061
$1,216
102
$1,318
$311
10
1
51
62
$574
74
$648
$31
1
–
5
6
$2
–
(53)
–
(53)
EBITDA based on IFRS financial statements
Unallocated subsidiaries
$1,912
$279
$373
$37
$(51)
(389)
(196)
(20)
84
(165)
(261)
(1)
(21)
$1,391
$(169)
(267)
(81)
(27)
(333)
$(335)
(4)
(2)
–
4
–
–
–
–
$35
$(51)
Depreciation, depletion and amortisation
expense
Impairment of assets
Gain/(loss) on disposal of property, plant and
equipment and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
Profit/(loss) from operations
Interest income/(expense), net
Share of profits/(losses) of joint ventures and
associates
Gain/(loss) on financial assets and liabilities
Gain/(loss) on disposal groups classified as
held for sale
Profit/(loss) before tax
142
EVRAZ plc Annual Report and Accounts 2014
$2,382
139
(44)
73
168
$2,550
(225)
$2,325
(825)
(540)
(48)
(266)
$646
(747)
$(101)
$(546)
10
(583)
136
$(1,084)
Strategic Report
Business Review
Governance
Financial Statements
Coal
Other operations
Eliminations
Total
3. Segment Information (continued)
Year ended 31 December 2013
US$ million
Revenue
Reclassifications and other adjustments
Revenue per IFRS financial statements
EBITDA
Exclusion of management services from
segment result
Unrealised profits adjustment
Reclassifications and other adjustments
Steel
$11,219
(427)
$10,792
$1,352
186
(30)
148
304
Steel,
North America
$3,056
(20)
$3,036
$139
–
2
17
19
$1,434
52
$1,486
$141
10
(1)
76
85
$610
120
$730
$34
1
–
2
3
EBITDA based on IFRS financial statements
Unallocated subsidiaries
$1,656
$158
$226
$37
(551)
(92)
(25)
(29)
$959
(200)
(350)
(2)
(4)
(348)
(110)
(20)
(35)
$(398)
$(287)
(9)
(11)
–
–
$17
Depreciation, depletion and amortisation
expense
Impairment of assets
Gain/(loss) on disposal of property, plant and
equipment and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
Profit/(loss) from operations
Interest income/(expense), net
Share of profits/(losses) of joint ventures and
associates
Gain/(loss) on derecognition of equity
investments, net
Gain/(loss) on financial assets and liabilities
Gain/(loss) on disposal groups classified as
held for sale
Other non-operating gains/(losses), net
Profit/(loss) before tax
$(1,544)
(89)
$(1,633)
$142
–
(172)
–
(172)
$(30)
–
–
–
–
$(30)
$14,775
(364)
$14,411
$1,808
197
(201)
243
239
$2,047
(226)
$1,821
(1,108)
(563)
(47)
(68)
$35
(196)
$(161)
$(676)
8
89
(43)
131
15
$(637)
EVRAZ plc Annual Report and Accounts 2014
143
$14,534
192
$14,726
$1,981
159
–
86
245
$2,226
(199)
$2,027
(1,252)
(413)
(56)
76
$382
(124)
$258
$(631)
1
164
23
(6)
$(191)
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
3. Segment Information (continued)
Year ended 31 December 2012
US$ million
Revenue
Reclassifications and other adjustments
Revenue per IFRS financial statements
EBITDA
Exclusion of management services from
segment result
Unrealised profits adjustment
Reclassifications and other adjustments
Steel
$11,302
136
$11,438
$1,159
148
44
120
312
Steel,
North America
$3,373
(15)
$3,358
$358
–
–
(5)
(5)
Coal
Other operations
Eliminations
Total
$844
49
$893
$230
8
–
(14)
(6)
$715
53
$768
$147
3
–
(15)
(12)
$(1,700)
(31)
$(1,731)
$87
–
(44)
–
(44)
$43
EBITDA based on IFRS financial statements
Unallocated subsidiaries
$1,471
$353
$224
$135
(576)
(415)
(41)
62
$501
(204)
(1)
(2)
16
(460)
3
(13)
(3)
(12)
–
–
1
–
–
–
–
$162
$(249)
$124
$43
Depreciation, depletion and amortisation
expense
Impairment of assets
Gain/(loss) on disposal of property, plant and
equipment and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
Profit/(loss) from operations
Interest income/(expense), net
Share of profits/(losses) of joint ventures and
associates
Gain/(loss) on financial assets and liabilities
Gain/(loss) on disposal groups classified as
held for sale
Other non-operating gains/(losses), net
Profit/(loss) before tax
144
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
3. Segment Information (continued)
The revenues from external customers for each group of similar products and services are presented in the following table:
US$ million
Steel
Construction products
Flat-rolled products
Railway products
Semi-finished products
Other steel products
Other products
Iron ore
Vanadium in slag
Vanadium in alloys and chemicals
Rendering of services
Steel, North America
Construction products
Flat-rolled products
Railway products
Tubular products
Other steel products
Other products
Rendering of services
Coal
Coal
Other products
Rendering of services
Other operations
Rendering of services
2014
2013
2012
$3,286
487
1,022
2,359
356
604
278
27
456
58
8,933
337
619
513
1,499
1
177
12
3,158
722
2
65
789
181
181
$3,866
988
1,324
2,028
419
788
389
46
477
67
10,392
291
788
467
1,266
39
159
10
3,020
732
4
69
805
194
194
$4,053
1,273
1,241
2,066
452
879
347
31
465
129
10,936
282
1,048
510
1,329
44
135
9
3,357
211
1
72
284
149
149
$13,061
$14,411
$14,726
EVRAZ plc Annual Report and Accounts 2014
145
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
3. Segment Information (continued)
Distribution of the Group’s revenues by geographical area based on the location of customers for the years ended 31 December was as follows:
2014
2013
2012
$5,279
384
333
209
6,205
1,727
1,589
213
3,529
485
429
285
254
120
103
88
51
43
26
8
–
62
$6,136
456
494
225
7,311
1,940
1,233
69
3,242
549
272
332
135
62
280
57
99
64
43
13
–
156
$6,191
355
473
168
7,187
2,293
1,234
44
3,571
492
355
451
118
59
178
64
87
87
67
27
10
120
1,954
2,062
2,115
139
114
74
60
58
37
143
242
49
916
363
84
447
10
173
157
163
123
151
100
183
314
21
160
224
204
96
155
131
261
182
37
1,385
1,450
361
43
404
7
323
74
397
6
$13,061
$14,411
$14,726
US$ million
CIS
Russia
Kazakhstan
Ukraine
Others
America
USA
Canada
Others
Asia
Taiwan
Indonesia
Thailand
Korea
Japan
China
Jordan
Philippines
United Arab Emirates
Mongolia
Vietnam
Syria
Others
Europe
Austria
Italy
Germany
Slovakia
Czech Republic
Poland
Other members of the European Union
Turkey
Others
Africa
South Africa
Others
Other countries
None of the Group’s customers amounts to 10% or more of the consolidated revenues.
146
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
3. Segment Information (continued)
Non-current assets other than financial instruments, deferred tax assets and post-employment benefit assets were located in the following
countries at 31 December:
US$ million
Russia
Canada
USA
Ukraine
Republic of South Africa
Italy
Kazakhstan
Czech Republic
Other countries
2014
$4,273
1,553
1,468
302
130
54
118
35
6
$7,939
2013
$7,566
1,837
1,670
652
232
197
119
40
6
2012
$6,062
2,046
2,014
668
487
204
65
42
29
$12,319
$11,617
4. Acquisition of Subsidiaries
Acquisitions of Controlling Interests
Corber
In October 2012, EVRAZ plc concluded a preliminary agreement with Adroliv Investments Limited for an acquisition of a 50% ownership interest
in Corber, the parent of a coal mining company Raspadskaya, subject to the receipt of regulatory approvals and fulfillment of certain other
conditions. On 16 January 2013, all the conditions were met and the Group obtained control over the entity. As a result, Corber became a
wholly owned subsidiary of the Group on 16 January 2013.
Management believes that this acquisition will increase the Group’s coking coal self-coverage and generate substantial operational synergies
to the Group, including the optimal use of various coal grades.
The purchase consideration included 132,653,006 shares of EVRAZ plc issued on 16 January 2013, warrants to subscribe for an additional
33,944,928 EVRAZ plc shares exercisable at zero price in the period from 17 January to 17 April 2014 and a cash consideration of $202 million
to be paid in equal quarterly instalments to 15 January 2014. Fair value of the consideration transferred totalled to $964 million, including
$611 million relating to the shares issued, $156 million representing the fair value of the warrants and $197 million being the present value
of the cash component of the purchase consideration. The fair value of shares and warrants was determined by reference to the market value
of EVRAZ plc shares at the date of acquisition.
In accordance with IFRS 3 “Business Combinations” in a business combination achieved in stages, the acquirer shall remeasure its previously
held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss in the income statement. The fair
value of the equity interest previously held by an acquirer is further added to the purchase consideration in the purchase price calculation. The
fair value of the equity interest previously held by the Group was $658 million. The fair value of the investment in Corber was determined using
the market price of shares of Raspadskaya at the date of acquisition of an additional 50% share in Corber.
The Group recorded a $94 million gain on derecognition of the equity interest in Corber held before the business combination. This gain was
determined as follows:
US$ million
Fair value of shares held before the business combination
Less: carrying value of the investment in the joint venture at the date of business combination based on equity method of
accounting (Note 11)
Less: accumulated foreign exchange losses of the acquiree attributed to the Group’s share in the joint venture
Gain on derecognition of equity investment
16 January 2013
$658
(496)
(68)
$94
The table below sets forth the fair values of identifiable assets, liabilities and contingent liabilities of Corber at the date of acquisition:
US$ million
Mineral reserves and property, plant and equipment
Other non-current assets
Inventories
Accounts and notes receivable
Cash
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Non-controlling interests
Net assets
Purchase consideration
16 January 2013
$2,607
9
94
134
144
2,988
283
649
123
1,055
311
$1,622
$1,622
EVRAZ plc Annual Report and Accounts 2014
147
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
4. Acquisition of Subsidiaries (continued)
Acquisitions of Controlling Interests (continued)
Corber (continued)
At the acquisition date the Group measured non-controlling interests at fair value based on the market price of shares of Raspadskaya.
In 2013, cash flow on the acquisition was as follows:
US$ million
Net cash acquired with the subsidiary
Cash paid
Net cash inflow
$144
(101)
$43
For the period from 16 January 2013 to 31 December 2013, Corber reported a net loss amounting to $157 million.
In 2014, the Group fully settled its liabilities for the purchase of Corber.
Acquisition of a Controlling Interest in MediaHolding Provincia
In 2013, the Group acquired an additional 45.5% ownership interest in MediaHolding Provincia for a cash consideration of $11 million.
The fair value of the equity interest previously held by the Group (30%) was $4 million. The Group recorded a $5 million loss on derecognition
of the equity interest in MediaHolding Provincia held before the business combination. The Group recognised $4 million of goodwill on the
transaction. Subsequently, the Group acquired all non-controlling interests ($3 million) settled by the transfer of property and recognised the
excess of the carrying value of the acquired non-controlling interests over the amount of consideration amounting to $1 million in additional
paid-in capital.
Disclosure of Other Information in Respect of Business Combinations
If these business combinations had occurred as of the beginning of 2013, the revenue and net profit/(loss) of the combined entity would have
been $14,438 million and $(558) million, respectively.
Acquisition of Other Controlling Interests
In 2013, the Group paid $1 million to an entity under control of two major shareholders for an acquisition of Telekon, a broadcasting company in
Nizhny Tagil, Russia. An independent appraiser valued that business at $5 million.
On 1 January 2012, the Group obtained control over the operating activities of Kachkanar Heat and Power Plant (Russia), for which the Group
paid $20 million in 2011. This payment was included in other non-current assets as of 31 December 2011 (Note 13). Goodwill arising on this
business combination amounted to $3 million.
In 2012, the Group paid $12 million for the scrap yards located in the USA. Goodwill arising on this acquisition amounted to $1 million.
Acquisitions of Non-controlling Interests in Subsidiaries
Evraz Group S.A.
On 17 February 2012, the Group purchased the remaining global depository receipts, representing 96,607.67 shares of Evraz Group S.A., for
$4 million and exchanged them for the newly issued shares of EVRAZ plc. Since that date Evraz Group S.A. became a wholly-owned subsidiary
of EVRAZ plc and a non-controlling interest amounting to $10 million was derecognised.
Mezhegey Project
In June 2012, the Group acquired an additional 9.996% ownership interest in Actionfield Limited, which holds and operates the Mezhegey coal
field project (Note 20). As a result, the Group increased its share in the project to approximately 60.016%.
The fair value of the consideration amounted to $36 million. It was agreed to settle the liabilities for the purchase by an offset with a loan
receivable by the Group. The excess of the consideration over the carrying value of the acquired non-controlling interest amounting to
$30 million was charged to accumulated profits.
148
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
5. Goodwill
The table below presents movements in the carrying amount of goodwill.
US$ million
At 31 December 2011
Goodwill recognised on acquisition of subsidiaries (Note 4)
Adjustment to contingent consideration
Sale of subsidiaries (Note 12)
Translation difference
At 31 December 2012
Goodwill recognised on acquisition of subsidiaries (Notes 4 and 11)
Impairment
Claymont Steel
EVRAZ Highveld Steel and Vanadium Limited
Kazankovskaya
Adjustment to contingent consideration
Sale of subsidiaries (Note 12)
Translation difference
At 31 December 2013
Impairment
Oregon Steel Portland Mill
Calgary
EVRAZ Palini e Bertoli
Adjustment to contingent consideration
Sale of subsidiaries (Note 12)
Translation difference
At 31 December 2014
Gross
amount
3,091
4
(5)
(72)
24
3,042
18
–
–
–
–
(4)
(14)
(61)
$2,981
–
–
–
–
(7)
(3)
(343)
$2,628
Impairment
losses
Carrying amount
(911)
–
–
72
–
(839)
–
(168)
(135)
(19)
(14)
–
14
–
$(993)
(330)
(171)
(90)
(69)
–
–
236
$(1,087)
2,180
4
(5)
–
24
2,203
18
(168)
(135)
(19)
(14)
(4)
–
(61)
$1,988
(330)
(171)
(90)
(69)
(7)
(3)
(107)
$1,541
Goodwill relates to the assembled workforce and synergy from integration of the acquired subsidiaries into the Group. The carrying amount of
goodwill was allocated among cash-generating units as follows at 31 December:
US$ million
EVRAZ Inc. NA
Oregon Steel Portland Mill
Rocky Mountain Steel Mills
OSM Tubular – Camrose Mills
Claymont Steel
General Scrap
Others
EVRAZ Inc. NA Canada
Calgary
Red Deer
Regina Steel
Regina Tubular
Others
EVRAZ Palini e Bertoli
EVRAZ Vanady-Tula
EVRAZ Vametco Holdings
EVRAZ Nikom, a.s.
EVRAZ Highveld Steel and Vanadium Limited
EVRAZ Kachkanar Heat and Power Plant
Provincia
2014
$825
241
410
157
–
16
1
634
109
48
340
118
19
–
36
9
33
–
2
2
2013
$996
412
410
157
–
16
1
791
217
52
373
128
21
79
62
16
37
–
3
4
2012
$1,131
412
410
157
135
16
1
845
232
56
397
137
23
76
66
20
39
23
3
–
$1,541
$1,988
$2,203
EVRAZ plc Annual Report and Accounts 2014
149
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
6. Impairment of Assets
The summary of impairment losses recognition and reversals is presented below.
Year ended 31 December 2014
US$ million
EVRAZ Highveld Steel and Vanadium Limited
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
EVRAZ Palini e Bertoli
Raspadskaya
Yuzhkuzbassugol
Others, net
Recognised in profit or loss
Year ended 31 December 2013
US$ million
Evrazruda
EVRAZ Claymont Steel
EVRAZ Highveld Steel and Vanadium Limited
EVRAZ Dnepropetrovsk Iron and Steel Works
EVRAZ Inc. NA Canada
EVRAZ Nizhny Tagil Metallurgical Plant
EVRAZ Consolidated West-Siberian Metallurgical Plant
Kazankovskaya
Shipping companies
Yuzhkuzbassugol
Others, net
Recognised in profit or loss
Recognised in other comprehensive income
Year ended 31 December 2012
US$ million
Evrazruda
EVRAZ Dnepropetrovsk Iron and Steel Works
Others, net
Recognised in profit or loss
Goodwill and
intangible
assets
Property, plant
and equipment
Inventory
Taxes
receivable
$(17)
(171)
(90)
(69)
–
–
–
$(347)
(347)
$(41)
–
–
(43)
(9)
(71)
(28)
$(192)
(192)
$–
–
–
–
–
–
–
$–
–
$–
–
–
–
(1)
–
–
$(1)
(1)
Goodwill and
intangible
assets
Property, plant
and equipment
Inventory
Taxes
receivable
$–
(154)
(50)
–
(19)
–
–
(14)
–
–
–
$(237)
(237)
–
$32
(147)
(67)
30
(6)
(8)
(20)
–
(11)
(105)
(5)
$(307)
(298)
(9)
$–
(25)
–
–
–
–
–
–
–
–
–
$(25)
(25)
–
$–
–
–
(2)
–
–
–
–
–
–
(1)
$(3)
(3)
–
Goodwill and
intangible assets
Property, plant
and equipment
Inventory
Taxes receivable
$(1)
–
–
$(1)
(1)
$(355)
(47)
(2)
$(404)
(404)
$–
–
–
$–
–
$–
(4)
(4)
$(8)
(8)
Total
$(58)
(171)
(90)
(112)
(10)
(71)
(28)
$(540)
(540)
Total
$32
(326)
(117)
28
(25)
(8)
(20)
(14)
(11)
(105)
(6)
$(572)
(563)
(9)
Total
$(356)
(51)
(6)
$(413)
(413)
The Group recognised the impairment losses as a result of the impairment testing at the level of cash-generating units. In addition, the Group
made a write-off of certain functionally obsolete items of property, plant and equipment and recorded an impairment relating to VAT with a
long-term recovery.
For the purpose of the impairment testing as of 31 December 2014 the Group assessed the recoverable amount of each cash-generating unit
to which the goodwill was allocated or where indicators of impairment were identified.
The recoverable amounts have been determined based on calculation of either value-in-use or fair value less costs to sell. Both valuation
techniques used cash flow projections based on the actual operating results and business plans approved by management and appropriate
discount rates reflecting time value of money and risks associated with respective cash-generating units. For the periods not covered by
management business plans, cash flow projections have been estimated by extrapolating the results of the respective business plans using a
zero real growth rate. In determination of fair value less costs to sell the asset’s value additionally includes the cashflows of future projects not
started yet and the associated capital expenditure costs.
The major drivers that led to impairment were the changes in expectations of long-term prices for iron ore and steel products, the increase in
forecasted costs, changes in forecasted production volumes and the increase in the discount rates.
150
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
6. Impairment of Assets (continued)
The key assumptions used by management in the value-in-use calculations with respect to the cash-generating units to which the goodwill was
allocated are presented in the table below.
EVRAZ Inc. NA (all CGU)
including Oregon Steel Portland Mill
EVRAZ Inc. NA Canada (all CGU)
including Calgary
EVRAZ Palini e Bertoli
EVRAZ Vanady-Tula
EVRAZ Vametco Holdings
EVRAZ Nikom, a.s.
Period of
forecast,
years
Pre-tax
discount
rate, %
5
5
5
5
5
5
5
5
9.75-12.95
12.29
12.32-13.67
13.67
15.19
15.96
14.51
13.26
Commodity
steel products
steel products
steel products
steel products
steel plates
vanadium
products
ferrovanadium
products
ferrovanadium
products
Average
price of
commodity
per tonne
in 2015
$870
$833
$905
$1,244
€503
$18,061
$24,898
$21,136
Recoverable
amount of CGU,
US$ million
2,563
579
1,936
243
54
333
105
64
Carrying
amount
of CGU
before
impairment,
US$ million
1,747
750
1,423
333
165
65
23
35
In addition, the Group determined that there were indicators of impairment in other cash generating units and tested them for impairment using
the following assumptions.
EVRAZ Dnepropetrovsk Iron and Steel Works
EVRAZ Nizhny Tagil Metallurgical Plant
EVRAZ Consolidated West-Siberian Metallurgical Plant
EVRAZ Caspian Steel
EVRAZ Yuzhny Stan
EVRAZ Bagleykoks
EVRAZ Stratcor Inc.
Yuzhkuzbassugol
Raspadskaya
Mezhegeyugol
EVRAZ Kachkanarsky Mining-and-Processing Integrated Works
EVRAZ Sukha Balka
Evrazruda
Period of
forecast,
years
5
5
5
5
5
5
5
15
20
27
25
19
20
Pre-tax
discount
rate, %
27.14
15.96
16.83
13.65
14.44
18.34
13.98
17.98
16.10
18.36
17.08
24.08
17.87
Commodity
steel products
steel products
steel products
steel mill under
construction
steel mill under
construction
coke
ferrovanadium
products
coal
coal
undeveloped
coal field
ore
ore
ore
Average
price of
commodity
per tonne
in 2015
$471
$491
$409
$490
–
$168
$33,741
$67
$47
$95
$45
$43
$60
The value in use of the cash-generating units for which an impairment loss was recognised or reversed in the reporting year was as follows at
31 December.
US$ million
Oregon Steel Portland Mill
Calgary
EVRAZ Palini e Bertoli
2014
$579
243
54
2013
$788
433
220
As management expects to recover investments in EVRAZ Highveld Steel and Vanadium Limited principally through sale, the recoverable
amount of this cash-generating unit was measured at $107 million as fair value less costs of disposal, which was determined based on the
share prices of the subsidiary (Level 1) at 31 December 2014.
The calculations of value in use are most sensitive to the following assumptions:
Discount Rates
Discount rates reflect the current market assessment of the risks specific to each cash-generating unit. The discount rates have been
determined using the Capital Asset Pricing Model and analysis of industry peers. Reasonably possible changes in discount rates could lead
to an additional impairment at EVRAZ Stratcor Inc., EVRAZ Palini e Bertoli, EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units.
If discount rates were 10% higher, this would lead to an additional impairment of $147 million.
EVRAZ plc Annual Report and Accounts 2014
151
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
6. Impairment of Assets (continued)
Sales Prices
The prices of the products sold by the Group were estimated using industry research. The Group expects that the nominal prices will fluctuate
with a compound annual growth rate of (3.3)%-2.9% in 2015 – 2019, 2.5%-3.0% in 2020 and thereafter. Reasonably possible changes in sales
prices could lead to an additional impairment at EVRAZ Palini e Bertoli, EVRAZ Stratcor Inc., EVRAZ Inc. NA and EVRAZ Inc. NA Canada
cash-generating units. If the prices assumed for 2015 and 2016 in the impairment test were 10% lower, this would lead to an additional
impairment of $156 million.
Sales Volumes
Management assumed that the sales volumes of steel products would increase by 1% in 2015 and would grow evenly during the following
four years to reach normal asset capacity utilisation thereafter. Reasonably possible changes in sales volumes could lead to an additional
impairment at EVRAZ Palini e Bertoli EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units. If the sales volumes were 10% lower than
those assumed for 2015 and 2016 in the impairment test, this would lead to an additional impairment of $15 million.
Cost Control Measures
The recoverable amounts of cash-generating units are based on the business plans approved by management. A reasonably possible deviation
of cost from these plans could lead to an additional impairment at EVRAZ Dnepropetrovsk Iron and Steel Works, EVRAZ Sukha Balka, EVRAZ
Stratcor Inc., EVRAZ Palini e Bertoli, EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units. If the actual costs were 10% higher than
those assumed for 2015 and 2016 in the impairment test, this would lead to an additional impairment of $175 million.
The unit’s recoverable amount would become equal to its carrying amount if the assumptions used to measure the recoverable amount
changed by the following percentages:
EVRAZ Stratcor Inc.
EVRAZ Sukha Balka
EVRAZ Dnepropetrovsk Iron and Steel Works
EVRAZ Inc. NA
General Scrap
Discount
rates
8.7%
–
–
Sales
prices
(8.4)%
–
–
–
–
Sales
volumes
Cost control
measures
–
–
–
–
2.1%
8.2%
6.9%
8.6%
7. Income and Expenses
Cost of revenues, selling and distribution costs, general and administrative expenses include the following for the years ended 31 December:
US$ million
Cost of inventories recognised as expense
Staff costs, including social security taxes
Depreciation, depletion and amortisation
2014
2013
2012
$(7,848)
(2,210)
(833)
$(5,673)
(2,617)
(1,114)
$(6,266)
(2,398)
(1,259)
In 2014, 2013 and 2012, the Group recognised (expense)/income on allowance or net reversal of the allowance for net realisable value in the
amount of $(4) million, $33 million and $2 million, respectively.
Staff costs include the following:
US$ million
Wages and salaries
Social security costs
Post-employment benefit expense
Share-based awards
Other compensations
The average number of staff employed under contracts of service was as follows:
Steel
Steel, North America
Coal
Other operations
Unallocated
2014
$1,611
398
31
30
140
$2,210
2013
$1,922
488
74
25
108
$2,617
2014
2013
69,404
3,936
20,460
1,465
3,270
80,160
4,300
23,727
1,856
3,624
2012
$1,766
412
77
22
121
$2,398
2012
84,239
4,272
16,708
1,837
3,404
98,535
113,667
110,460
152
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
7. Income and Expenses (continued)
The major components of other operating expenses were as follows:
US$ million
Idling, reduction and stoppage of production, including termination benefits
Restoration works and casualty compensations in connection with accidents
Other
Interest expense consisted of the following for the years ended 31 December:
US$ million
Bank interest
Interest on bonds and notes
Finance charges payable under finance leases
Net interest expense on employee benefits obligations (Note 23)
Discount adjustment on provisions (Note 24)
Unwinding of the discount and interest relating to liabilities for the purchase of Corber and Timir
Other
Interest income consisted of the following for the years ended 31 December:
US$ million
Interest on bank accounts and deposits
Interest on loans and accounts receivable
Other
Gain/(loss) on financial assets and liabilities included the following for the years ended 31 December:
US$ million
Impairment of available-for-sale financial assets (Note 13)
Loss on extinguishment of debts (Note 22)
Gain/(loss) on derivatives not designated as hedging instruments (Note 25)
Other
2014
$(52)
(10)
(26)
$(88)
2014
$(55)
(448)
(1)
(30)
(15)
(5)
(9)
$(563)
2014
$9
4
4
$17
2014
$(1)
(6)
(588)
12
$(583)
2013
$(73)
(18)
(25)
2012
$(77)
(8)
(44)
$(116)
$(129)
2013
$(104)
(513)
(1)
(39)
(20)
(13)
(9)
$(699)
2013
$15
5
3
$23
2013
$–
–
(55)
12
$(43)
2012
$(103)
(485)
(3)
(37)
(19)
–
(7)
$(654)
2012
$13
6
4
$23
2012
$–
–
177
(13)
$164
EVRAZ plc Annual Report and Accounts 2014
153
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
8. Income Taxes
The Group’s income was subject to tax at the following tax rates:
Russia
Canada
Cyprus
Czech Republic
Italy
South Africa
Switzerland
Ukraine
USA
Major components of income tax expense for the years ended 31 December were as follows:
US$ million
Current income tax expense
Adjustment in respect of income tax of previous years
Deferred income tax benefit/(expense) relating to origination and reversal of temporary differences
Income tax (expense)/benefit reported in the consolidated statement of operations
2014
2013
2012
20.00%
25.61%
12.50%
19.00%
31.40%
28.00%
9.65%
18.00%
37.78%
2014
$(356)
(1)
163
$(194)
20.00%
25.54%
12.50%
19.00%
31.40%
28.00%
9.87%
19.00%
38.90%
2013
$(243)
(6)
335
$86
20.00%
25.54%
10.00%
19.00%
31.40%
28.00%
9.82%
21.00%
38.20%
2012
$(336)
69
38
$(229)
The major part of income taxes is paid in the Russian Federation. A reconciliation of income tax expense applicable to profit before income tax
using the Russian statutory tax rate to income tax expense as reported in the Group’s consolidated financial statements for the years ended
31 December is as follows:
US$ million
Profit/(loss) before income tax
At the Russian statutory income tax rate of 20%
Adjustment in respect of income tax of previous years
Deferred income tax expense arising on the adjustment to current income tax of prior periods
and the change in tax base of underlying assets
Effect of non-deductible expenses and other non-temporary differences
Unrecognised temporary differences recognition/reversal
Effect of the difference in tax rates in countries other than the Russian Federation
Tax on dividends distributed by the Group’s subsidiaries to parent company
Income tax (expense)/benefit reported in the consolidated statement of operations
2014
$(1,084)
217
(1)
(4)
(73)
(505)
170
2
$(194)
2013
$(637)
127
(6)
4
38
(184)
107
–
$86
2012
$(191)
38
69
(53)
(135)
(165)
31
(14)
$(229)
The increase in the amount of non-deductible expenses and unrecognised temporary differences is mostly caused by the significant forex
exchange losses and losses on derivatives (Note 25), which either cannot be utilised or cannot be deductible for tax purposes in
certain subsidiaries.
Deferred income tax assets and liabilities and their movements for the years ended 31 December were as follows:
Year ended 31 December 2014
US$ million
Deferred income tax liabilities:
Valuation and depreciation of
property, plant and equipment
Valuation and amortisation of
intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
2014
$741
112
59
912
247
177
13
101
538
97
Change
recognised in
statement of
operations
Change
recognised
in other
comprehensive
income
Change
due to
business
combinations
Change due to
disposal of
subsidiaries
Transfer to
disposal
groups
classified as
held for sale
Translation
difference
2013
(40)
(21)
13
(48)
101
29
4
(19)
115
46
–
–
–
–
–
15
–
–
15
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5)
–
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(339)
$1,120
(12)
(22)
145
68
(373)
1,333
(128)
(35)
(7)
–
(170)
(38)
(241)
274
173
16
115
578
86
$841
Net deferred income tax liability
$471
(117)
(12)
154
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
8. Income Taxes (continued)
Year ended 31 December 2013
US$ million
Deferred income tax liabilities:
Valuation and depreciation of
property, plant and equipment
Valuation and amortisation of
intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
2013
$1,120
145
68
1,333
274
173
16
115
578
86
Net deferred income tax liability
$841
Year ended 31 December 2012
US$ million
Deferred income tax liabilities:
Valuation and depreciation of
property, plant and equipment
Valuation and amortisation of
intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
2012
$959
192
73
102
202
32
30
366
70
Net deferred income tax liability
$928
Change
recognised in
statement of
operations
Change
recognised in
other
comprehensive
income
Change
due to
business
combinations
Change due to
disposal of
subsidiaries
Transfer to
disposal
groups
classified as
held for sale
(103)
(38)
(8)
(149)
106
12
(12)
80
186
9
(326)
(2)
–
–
(2)
–
(30)
–
–
(30)
(3)
25
353
4
13
370
69
12
–
(1)
80
3
293
(9)
–
(3)
(12)
3
(16)
(1)
7
(7)
–
(5)
(1)
–
–
(1)
10
2
–
–
12
13
–
Translation
difference
2012
(77)
$959
(13)
(7)
(97)
(16)
(9)
(3)
(1)
(29)
(6)
(74)
192
73
1,224
102
202
32
30
366
70
$928
Change
recognised in
statement of
operations
Change
recognised in
other
comprehensive
income
Change
due to
business
combinations
Change due to
disposal of
subsidiaries
Transfer to
disposal
groups
classified as
held for sale
Translation
difference
2011
1,224
(103)
(64)
(30)
(9)
(37)
26
(2)
(52)
(65)
(5)
(43)
–
–
(3)
(3)
–
11
–
–
11
1
(1)
–
–
(1)
–
–
–
–
–
–
(13)
(1)
(13)
–
(4)
(17)
–
(12)
(1)
–
(13)
–
(4)
(13)
–
–
(13)
(16)
(4)
–
(7)
(27)
(13)
1
29
1
3
33
4
2
2
2
10
5
28
$1,021
221
86
1,328
151
179
33
87
450
82
$960
As of 31 December 2014, 2013 and 2012, deferred income taxes in respect of undistributed earnings of the Group’s subsidiaries have not been
provided for, as management does not intend to distribute accumulated earnings in the foreseeable future. The current tax rate on intra-group
dividend income varies from 0% to 10%. The temporary differences associated with investments in subsidiaries were not recognised as the Group
is able to control the timing of the reversal of these temporary differences and does not intend to reverse them in the foreseeable future.
In the context of the Group’s current structure, tax losses and current tax assets of the different companies may not be set off against current
tax liabilities and taxable profits of other companies, except for the companies registered in Cyprus, Russia and the United Kingdom where
group relief can be applied. As of 31 December 2014, the unused tax losses carry forward approximated $8,060 million (2013: $7,509 million,
2012: $5,751 million). The Group recognised deferred tax assets of $247 million (2013: $280 million, 2012: $118 million) in respect of unused
tax losses. Deferred tax asset in the amount of $1,771 million (2013: $1,549 million, 2012: $1,351 million) has not been recorded as it is
not probable that sufficient taxable profits will be available in the foreseeable future to offset these losses. Tax losses of $6,767 million
(2013: $6,084 million, 2012: $4,868 million) for which deferred tax asset was not recognised arose in companies registered in Cyprus,
Czech Republic, Italy, Luxembourg, the Republic of South Africa, Russia, Ukraine, the United Kingdom and the USA. Losses in the amount of
$6,513 million (2013: $5,602 million, 2012: $4,590 million) are available indefinitely for offset against future taxable profits of the companies
in which the losses arose and $254 million will expire during 2015–2025 (2013: $482 million, 2012: $278 million).
EVRAZ plc Annual Report and Accounts 2014
155
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
9. Property, Plant and Equipment
Property, plant and equipment consisted of the following as of 31 December:
US$ million
Cost:
Land
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Mining assets
Other assets
Assets under construction
Accumulated depreciation, depletion and impairment losses:
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Mining assets
Other assets
2014
2013
2012
$124
1,908
5,094
249
2,572
60
428
$157
2,860
6,861
395
4,312
77
992
$183
2,837
6,321
413
3,113
77
1,187
10,435
15,654
14,131
(790)
(2,633)
(147)
(1,024)
(45)
(4,639)
(1,203)
(3,090)
(206)
(1,616)
(49)
(6,164)
(1,222)
(2,906)
(232)
(1,651)
(56)
(6,067)
$5,796
$9,490
$8,064
The movement in property, plant and equipment for the year ended 31 December 2014 was as follows:
US$ million
At 31 December 2013, cost, net of
accumulated depreciation
Additions
Assets put into operation
Disposals
Depreciation and depletion charge
Impairment losses recognised in
statement of operations
Impairment losses reversed through
statement of operations
Transfer to assets held for sale
Change in site restoration and
decommissioning provision
Translation difference
At 31 December 2014, cost, net of
accumulated depreciation
Buildings
and
constructions
Machinery
and
equipment
Land
Transport
and motor
vehicles
Mining
assets
Other
assets
Assets
under
construction
$1,655
1
198
(7)
(112)
$3,781
8
450
(41)
(470)
$188
1
22
(3)
(38)
$2,690
–
172
(10)
(150)
(20)
5
(4)
(85)
10
(3)
–
–
–
(79)
–
–
$27
–
5
–
(5)
–
–
–
Total
$9,490
619
–
(68)
(775)
$992
609
(847)
(5)
–
(21)
(209)
2
–
17
(7)
6
(604)
(4)
(1,185)
–
(68)
61
(1,136)
–
(12)
4
(306)
67
(3,338)
$124
$1,118
$2,461
$102
$1,548
$15
$428
$5,796
The movement in property, plant and equipment for the year ended 31 December 2013 was as follows:
Buildings
and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
Mining
assets
Other
assets
Assets
under
construction
US$ million
At 31 December 2012, cost, net of
accumulated depreciation
Assets acquired in business combination
Additions
Assets put into operation
Disposals
Depreciation and depletion charge
Impairment losses recognised in
statement of operations
Impairment losses reversed through
statement of operations
Impairment losses recognised
or reversed through other
comprehensive income
Transfer to assets held for sale
Change in site restoration and
decommissioning provision
Translation difference
At 31 December 2013, cost, net of
accumulated depreciation
156
EVRAZ plc Annual Report and Accounts 2014
$1,615
203
1
147
(12)
(155)
$3,415
539
4
861
(35)
(583)
(49)
21
(4)
(6)
4
(110)
(184)
31
(1)
(23)
7
(250)
$181
61
3
34
(3)
(47)
(14)
–
–
(15)
–
(12)
$1,462
1,527
4
191
(2)
(196)
(86)
56
(2)
(57)
(6)
(201)
$21
8
–
8
–
(6)
$1,187
275
907
(1,241)
(2)
–
Total
$8,064
2,613
922
–
(54)
(987)
(1)
(49)
(410)
–
–
–
–
(3)
3
(2)
(1)
–
(85)
112
(9)
(113)
20
(668)
$157
$1,655
$3,781
$188
$2,690
$27
$992
$9,490
$157
–
–
(2)
–
(4)
–
–
–
(27)
Land
$183
–
3
–
–
–
(27)
1
–
(11)
15
(7)
Strategic Report
Business Review
Governance
Financial Statements
9. Property, Plant and Equipment (continued)
The movement in property, plant and equipment for the year ended 31 December 2012 was as follows:
US$ million
At 31 December 2011, cost, net of
accumulated depreciation
Assets acquired in business combination
Additions
Assets put into operation
Disposals
Depreciation and depletion charge
Impairment losses recognised in
statement of operations
Impairment losses reversed through
statement of operations
Transfer to assets held for sale
Change in site restoration and
decommissioning provision
Translation difference
At 31 December 2012, cost, net of
accumulated depreciation
Buildings
and
constructions
Machinery
and
equipment
Land
Transport
and motor
vehicles
Mining
assets
Other
assets
Assets
under
construction
$187
3
1
–
(1)
–
$1,640
7
2
210
(12)
(152)
$3,440
14
4
590
(43)
(534)
(3)
–
(8)
–
4
(96)
2
(62)
4
72
(81)
10
(92)
(3)
110
$281
–
8
59
(3)
(42)
$1,708
–
8
281
(3)
(467)
(15)
(199)
–
(121)
–
14
6
–
52
76
$23
–
1
4
–
(7)
$1,027
–
1,295
(1,144)
(5)
–
–
–
–
–
–
(28)
–
(12)
–
54
Total
$8,306
24
1,319
–
(67)
(1,202)
(422)
18
(295)
53
330
$183
$1,615
$3,415
$181
$1,462
$21
$1,187
$8,064
Assets under construction include prepayments to constructors and suppliers of property, plant and equipment in the amount of $22 million,
$29 million and $92 million as of 31 December 2014, 2013 and 2012, respectively.
On 1 January 2014, certain of the Group’s subsidiaries reassessed the remaining useful lives of property, plant and equipment, which resulted in
a $52 million decrease in depreciation expense as compared to the amounts that would have been charged had no change in estimate occurred.
Impairment losses were identified in respect of certain items of property, plant and equipment that were recognised as functionally obsolete or
as a result of the testing at the level of cash-generating units (Note 6).
The amount of borrowing costs capitalised during the year ended 31 December 2014 was $18 million (2013: $11 million, 2012: $16 million).
In 2014, the rate used to determine the amount of borrowing costs eligible for capitalisation was 4.8% (2013: 5.3%, 2012: 4.8%), which is the
effective interest rate of borrowings that were outstanding during the period, other than borrowings made specifically for the purpose of obtaining
qualifying assets.
10. Intangible Assets Other Than Goodwill
Intangible assets consisted of the following as of 31 December:
US$ million
Cost:
Customer relationships
Water rights and environmental permits
Contract terms
Other
Accumulated amortisation:
Customer relationships
Water rights and environmental permits
Contract terms
Other
2014
2013
2012
$981
57
26
65
1,129
(642)
–
(3)
(43)
(688)
$441
$1,054
57
45
90
1,246
(606)
–
(1)
(51)
(658)
$588
$1,222
57
–
72
1,351
(568)
–
–
(48)
(616)
$735
As of 31 December 2014, 2013 and 2012, water rights and environmental permits with a carrying value of $57 million had an indefinite useful life.
The movement in intangible assets for the year ended 31 December 2014 was as follows:
US$ million
At 31 December 2013, cost, net of accumulated amortisation
Additions
Amortisation charge
Impairment loss recognised in statement of operations
Transfer to assets held for sale
Translation difference
At 31 December 2014, cost, net of accumulated amortisation
Customer
relationships
Water rights and
environmental
permits
Contract
terms
$448
–
(60)
(16)
(1)
(32)
$339
$57
–
–
–
–
–
$57
$44
–
(4)
–
–
(17)
$23
Other
$39
4
(8)
–
–
(13)
$22
Total
$588
4
(72)
(16)
(1)
(62)
$441
EVRAZ plc Annual Report and Accounts 2014
157
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
10. Intangible Assets Other Than Goodwill (continued)
The movement in intangible assets for the year ended 31 December 2013 was as follows:
US$ million
At 31 December 2012, cost, net of accumulated amortisation
Assets acquired in business combination
Additions
Amortisation charge
Impairment loss recognised in statement of operations
Translation difference
At 31 December 2013, cost, net of accumulated amortisation
Customer
relationships
Water rights and
environmental
permits
$654
–
–
(86)
(68)
(52)
$448
$57
–
–
–
–
–
$57
Contract
terms
$–
–
47
(1)
–
(2)
$44
The movement in intangible assets for the year ended 31 December 2012 was as follows:
US$ million
At 31 December 2011, cost, net of accumulated amortisation
Assets acquired in business combination
Additions
Amortisation charge
Emission allowances granted
Emission allowances used/sold/purchased for the period
Impairment loss recognised in statement of operations
Transfer to assets held for sale
Translation difference
At 31 December 2012, cost, net of accumulated amortisation
Customer
relationships
Water rights and
environmental
permits
Contract
terms
$750
1
–
(99)
–
–
–
–
2
$654
$57
–
–
–
–
–
–
–
–
$57
$12
–
–
–
–
–
–
(12)
–
$–
11. Investments in Joint Ventures and Associates
The Group accounted for investments in joint ventures and associates under the equity method.
The movement in investments in joint ventures and associates was as follows:
Other
$24
19
5
(7)
(1)
(1)
$39
Other
$19
–
13
(4)
4
(7)
(1)
–
–
$24
US$ million
Investment at 31 December 2011
Additional investments
Write-off of loan receivable (Note 16)
Share of profit/(loss)
Reversal of impairment of investments
Dividends paid
Acquisition of non-controlling interests
Return of capital
Unrealised gains on financial assets
Gains/(losses) on re-measurement of net defined benefit liability
Translation difference
Investment at 31 December 2012
Additional investments
Share of profit/(loss)
Dividends paid
Acquisition of controlling interests (Note 4)
Translation difference
Investment at 31 December 2013
Share of profit/(loss)
Dividends paid
Translation difference
Investment at 31 December 2014
Corber
$613
–
–
(11)
–
(86)
(22)
(38)
1
(2)
42
$497
–
–
–
(496)
(1)
$–
–
–
–
$–
Timir
Streamcore
Other
associates
$–
–
–
–
–
–
–
–
–
–
–
$–
149
(1)
–
–
(7)
$141
–
–
(59)
$82
$24
–
–
7
5
(2)
–
–
–
–
2
$36
–
7
–
–
(3)
$40
8
–
(19)
$29
$18
5
(5)
–
–
–
–
–
–
–
–
$18
–
2
(1)
(9)
–
$10
2
(1)
(1)
$10
Share of profit/(loss) of joint ventures and associates which is reported in the statement of operations comprised the following:
US$ million
Share of profit/(loss), net
Reversal of impairment/(impairment) of investments
Share of profits/(losses) of joint ventures and associates recognised in the consolidated
statement of operations
2014
$10
–
$10
2013
$8
–
$8
158
EVRAZ plc Annual Report and Accounts 2014
Total
$735
19
52
(94)
(69)
(55)
$588
Total
$838
1
13
(103)
4
(7)
(1)
(12)
2
$735
Total
$655
5
(5)
(4)
5
(88)
(22)
(38)
1
(2)
44
$551
149
8
(1)
(505)
(11)
$191
10
(1)
(79)
$121
2012
$(4)
5
$1
Strategic Report
Business Review
Governance
Financial Statements
11. Investments in Joint Ventures and Associates (continued)
Corber Enterprises Limited
Corber Enterprises Limited (“Corber”) was a joint venture established in 2004 for the purpose of exercising joint control over economic activities
of Raspadskaya Mining Group. Since March 2014 Corber is registered in Luxembourg. The Group had a 50% share in the joint venture, i.e. at
31 December 2012 it effectively owned approximately 41% in JSC Raspadskaya. On 16 January 2013, the Group acquired a controlling interest
in Corber (Note 4) and the joint venture accounting and disclosures ceased to apply from that date.
The table below sets forth Corber’s assets and liabilities as of 31 December:
US$ million
Mineral reserves
Other property, plant and equipment
Other non-current assets
Inventories
Accounts and notes receivable
Cash
Total assets
Non-current liabilities
Deferred income tax liabilities
Current liabilities
Total liabilities
Non-controlling interests
Net assets
Group’s share of net assets
Add: cost of guarantee
Investment
The table below sets forth Corber’s income and expenses:
US$ million
Revenue
Cost of revenue
Other expenses, including income taxes
Net profit/(loss)
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Net profit/(loss)
50% of unrealised profits on transactions with the joint venture
Group’s share of profits/(losses) of the joint venture
2012
$742
924
70
111
252
8
2,107
617
172
106
895
223
$989
495
2
$497
2012
$542
(460)
(112)
$(30)
$(23)
(7)
$(30)
1
$(11)
Period from
1 to 16 January
2013
$32
(26)
(6)
$–
$–
–
$–
–
$–
Buyback of Shares by Raspadskaya
In 2012, Raspadskaya, a subsidiary of Corber, the Group’s joint venture, made a buyback of 9.94% of its shares from shareholders. At the end
of February 2012, Corber sold 48,351,712 shares back to Raspadskaya for $248 million. As a result of the buyback, Corber effectively acquired
an additional 1.95% share in Raspadskaya and its ownership interest increased to 81.95%.
The Group’s share in the excess of the amounts of consideration over the carrying values of non-controlling interests acquired amounting to
$22 million was charged to accumulated profits of the Group.
Return of Capital
In September 2012, the Board of directors of Corber decided to reduce its additional paid-in capital by $76 million by the return of funds to its
shareholders. The Group received $38 million in cash.
Timir Iron Ore Project
On 3 April 2013, the Group acquired a 51% ownership interest in the joint venture with Alrosa for the development of 4 iron ore deposits in the
southern part of the Yakutia region in Russia. Total investments in the first phase of the Timir project are estimated at $180 million during
the period from 2014 to 2016, with major investments starting from 2015.
The Group’s consideration for this stake amounted to 4,950 million roubles ($159 million at the exchange rate as of the date of the transaction)
payable in instalments till 15 July 2014. The consideration was measured as the present value of the expected cash outflows. In 2014 and
2013, the Group paid 990 million roubles ($28 million) and 1,980 million roubles ($61 million), respectively, of purchase consideration. In July
2014, the parties agreed to amend the payment schedule and postponed two instalments of 990 million roubles each till 31 July 2015 and
2016. From the date of the amendment the Group incurred interest charges on the unpaid liability at a rate of 8.5% per annum. These charges
amounted to $3 million in 2014, out of which $1 million was paid.
EVRAZ plc Annual Report and Accounts 2014
159
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
11. Investments in Joint Ventures and Associates (continued)
Timir Iron Ore Project (continued)
The Group accounted for its interest in Timir under the equity method (Note 2 – Accounting Judgements).
The table below sets forth the fair values of Timir’s consolidated identifiable assets and liabilities at the date of acquisition:
US$ million
Mineral reserves and property, plant and equipment
Accounts and notes receivable
Cash
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Net assets attributable to 51% ownership interest
Purchase consideration
The table below sets forth Timir’s assets and liabilities as of 31 December:
US$ million
Mineral reserves and property, plant and equipment
Accounts and notes receivable
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Net assets attributable to 51% ownership interest
3 April 2013
$358
2
2
362
37
7
25
69
293
149
$149
2013
$343
1
344
36
7
25
68
276
141
2014
$202
1
203
21
–
21
42
161
82
In 2014 and 2013, Timir’s income and expenses comprised $Nil and $1 million, respectively, of other expenses.
Kazankovskaya
ZAO Kazankovskaya (“Kazankovskaya”) is a Russian coal mining company that was acquired as part of the purchase of Yuzhkuzbassugol in
2007. The Group owned 50% in Kazankovskaya.
The table below sets forth Kazankovskaya’s assets and liabilities as of 31 December:
US$ million
Other current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net liabilities
At 31 December the accumulated unrecognised losses in respect of Kazankovskaya amounted to:
US$ million
Unrecognised losses
The table below sets forth Kazankovskaya’s income and expenses:
US$ million
Revenue
Cost of revenue
Other expenses, including income taxes
Net loss
Group’s share of loss of the associate
2012
$2
2
9
116
125
$(123)
2012
$(39)
2012
$–
–
(23)
(23)
$(12)
In January 2013, the Group acquired an additional 50% in Kazankovskaya from Magnitogorsk Steel Plant for a cash consideration of 167
US dollars. The primary reason for the business combination was a preparation for the subsequent sale of the mine. The Group fully impaired
$14 million goodwill, which arose on this acquisition. In August 2013, Kazankovskaya was sold (Note 12).
160
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
11. Investments in Joint Ventures and Associates (continued)
Streamcore
The Group owns a 50% interest in Streamcore (Cyprus), a joint venture established for the purpose of exercising joint control over facilities for
scrap procurement and processing in Siberia, Russia.
The table below sets forth Streamcore’s assets and liabilities as of 31 December:
US$ million
Property, plant and equipment
Inventories
Accounts receivable
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Group’s share of net assets
The table below sets forth Streamcore’s income and expenses:
US$ million
Revenue
Cost of revenue
Other expenses, including income taxes
Net profit
Group’s share of profit of the joint venture
2014
$27
5
51
83
1
–
24
25
$58
29
$29
2014
$478
(450)
(12)
$16
$8
2013
$49
8
131
188
2
31
75
108
$80
40
$40
2013
$477
(440)
(23)
$14
$7
2012
$55
9
50
114
3
–
39
42
$72
36
$36
2012
$504
(472)
(18)
$14
$7
EVRAZ plc Annual Report and Accounts 2014
161
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
12. Disposal Groups Held for Sale
The major classes of assets and liabilities of the disposal groups measured at the lower of carrying amount and fair value less costs to sell
were as follows as of 31 December:
US$ million
Property, plant and equipment
Other non-current assets
Inventories
Accounts receivable
Cash and cash equivalents
Assets classified as held for sale
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Liabilities directly associated with assets classified as held for sale
Non-controlling interests
Net assets classified as held for sale
2014
$3
–
1
–
–
4
–
13
–
13
–
2013
$172
14
61
48
7
302
–
2
110
112
–
2012
$96
35
–
138
8
277
2
31
142
175
–
$(9)
$190
$102
The net assets of disposal groups classified as held for sale at 31 December related to the following reportable segments:
US$ million
Assets classified as held for sale
Steel production
Coal
Other operations
Liabilities directly associated with assets classified as held for sale
Steel production
Steel, North America
Coal
2014
$4
1
3
–
13
–
13
–
2013
$302
289
–
13
112
112
–
–
2012
$277
261
16
–
175
134
–
41
At 31 December 2013 and 2012, the disposal groups held for sale relating to the steel segment consisted mostly of the assets and liabilities
of EVRAZ Vitkovice Steel sold in April 2014. In 2012, the difference between the carrying value of the net assets of the subsidiary and
the expected consideration amounting to $78 million was recognised as a loss on disposal groups classified as held for sale and in 2013 it
was fully reversed due to the change in the amount of consideration.
The table below demonstrates the carrying values of assets and liabilities, at the dates of disposal, of the subsidiaries and other business units
disposed of during 2012–2014.
US$ million
Property, plant and equipment
Other non-current assets
Inventories
Accounts receivable
Cash and cash equivalents
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Non-controlling interests
Net assets
The net assets of disposal groups sold in 2012–2014 related to the following reportable segments:
US$ million
Assets classified as held for sale
Steel
Steel, North America
Coal
Other operations
Liabilities directly associated with assets classified as held for sale
Steel
Coal
Other operations
Non-controlling interests
Steel production
162
EVRAZ plc Annual Report and Accounts 2014
2014
$178
19
79
64
20
360
–
28
100
128
–
$232
2014
$360
330
9
–
21
128
126
–
2
–
–
2013
$113
16
17
49
23
218
7
114
84
205
–
$13
2013
$218
128
13
39
38
205
100
70
35
–
–
2012
$130
13
10
70
2
225
12
7
99
118
(2)
$109
2012
$225
78
–
–
147
118
88
–
30
(2)
(2)
Strategic Report
Business Review
Governance
Financial Statements
12. Disposal Groups Held for Sale (continued)
Cash flows on disposal of subsidiaries and other business units were as follows:
US$ million
Net cash disposed of with subsidiaries
Cash received
Net cash inflow
The disposal groups sold during 2012–2014 are described below.
2014
$(20)
331
$311
2013
$(23)
24
$1
2012
$(2)
313
$311
EVRAZ Vitkovice Steel
On 3 April 2014, the Group sold its wholly-owned subsidiary EVRAZ Vitkovice Steel to a third party for a cash consideration of $287 million
on a debt free and normalised working capital basis. Transaction costs amounted to $3 million. As of 31 December 2014, the Group owed
$25 million to the purchaser of EVRAZ Vitkovice Steel.
The Group recognised a $90 million gain on the sale of the subsidiary, including $61 million of cumulative exchange gains reclassified from
other comprehensive income to the consolidated statement of operations. Cash disposed with the subsidiary amounted to $20 million.
Assets of Evrazruda
In 2014, the Group sold an iron ore mine and heat and power plant located in the Krasnoyarsk and Kemerovo regions of Russia. The gain on
these transactions amounted to $25 million, including $5 million of cumulative exchange gains reclassified from other comprehensive income
to the consolidated statement of operations.
In 2013, the Group sold 2 iron ore mines, ore processing plant and 2 electricity generating companies located in the Khakassia region of
Russia. The gain on these transactions amounted to $21 million.
VGOK
In October 2013, the Group sold a wholly-owned subsidiary EVRAZ Vysokogorsky Iron Ore Mining and Processing Plant (“VGOK”) to NPRO URAL.
The consideration comprised $20 million cash with a net present value of $18 million and the fair value of a 10-year agreement for the
processing by VGOK of certain EVRAZ NTMK’s waste products. The fair value of this contract was measured based on an incremental income
to the Group and approximated $47 million. It was recognised as an intangible asset within the Contract terms category.
The Group recognised a $2 million loss on the sale of VGOK, including $23 million of cumulative exchange losses reclassified from other
comprehensive income to the consolidated statement of operations.
Central Heat and Power Plant
In September 2013, the Group sold Central Heat and Power Plant located in the Kemerovo region (Russia) for 300 US dollars. The Group
recognised a $1 million loss on this transaction.
Mines of Yuzhkuzbassugol
In 2013, the Group sold 3 coal mines in the Kemerovo region of Russia: Yubileinaya, Gramoteinskaya and Kazankovskaya. The aggregate
consideration amounted to 630 US dollars. The Group recognised a gain of $34 million on these transactions, including $1 million cumulative
exchange gains reclassified from other comprehensive income to the consolidated statement of operations.
Evraztrans
In December 2012, the Group sold to a third party a business of its wholly owned subsidiary Evraztrans, which renders long-distance railway
transportation services using own and rented railcars. Cash consideration amounted to $306 million. The Group recognised a gain of
$190 million on this transaction.
Dneprodzerzhinsky Coke-chemical Plant
In August 2012, the Group sold to its parent a controlling interest in a loss-making coke-chemical plant located in Ukraine. Cash consideration
amounted to $4. The Group recognised a $68 million loss on this sale, including $82 million of cumulative exchange losses reclassified from
other comprehensive income to the consolidated statement of operations.
Frotora Holdings Ltd.
In April 2012, the Group sold its ownership interest in a subsidiary whose assets comprised only rights under a long-term lease of land to be
used for a construction of a commercial seaport in Ukraine. These rights were included in contract terms category of the intangible assets.
In 2010, the Group recognised an impairment loss of $30 million in respect of these rights due to the change in plans for the use of this land.
In 2012, the Group recognised a $20 million loss on sale of this subsidiary, including a $14 million of cumulative exchange losses reclassified
from other comprehensive income to the consolidated statement of operations.
Other Disposal Groups Held for Sale
Other disposal groups held for sale included a few small subsidiaries involved in non-core activities (construction business, trading activity and
recreational services) and other non-current assets.
EVRAZ plc Annual Report and Accounts 2014
163
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
13. Other Non-current Assets
Other non-current assets consisted of the following as of 31 December:
Non-current Financial Assets
US$ million
Available-for-sale financial assets
Derivatives not designated as hedging instruments (Note 25)
Restricted deposits
Receivables from related parties
Loans receivable
Trade and other receivables
Other
Other Non-current Assets
US$ million
Income tax receivable
Input VAT
Other
2014
$17
–
7
1
21
4
48
$98
2014
$4
12
24
$40
2013
$30
–
10
3
10
22
69
$144
2013
$20
23
19
$62
2012
$21
2
4
–
12
4
49
$92
2012
$33
17
14
$64
Available-for-Sale Financial Assets
The Group holds approximately 15% in Delong Holdings Limited (“Delong”), a flat steel producer headquartered in Beijing (China). The
investments in Delong are measured at fair value based on market quotations ($16 million, $28 million and $21 million at 31 December 2014,
2013 and 2012, respectively). The change in the fair value of these shares is initially recorded in other comprehensive income.
In 2013 and 2012, the Group recognised a gain of $7 million and $4 million, respectively, on the increase in market quotations in other
comprehensive income. In 2014, an $11 million impairment loss relating to the decline in quotations of Delong shares was recorded through
other comprehensive income and $1 million was recognised in the statement of operations.
14. Inventories
Inventories consisted of the following as of 31 December:
US$ million
Raw materials and spare parts
Work-in-progress
Finished goods
2014
$588
307
477
2013
$797
343
604
$1,372
$1,744
2012
$1,001
435
644
$2,080
As of 31 December 2014, 2013 and 2012, the net realisable value allowance was $47 million, $58 million and $102 million, respectively.
As of 31 December 2014, 2013 and 2012, certain items of inventory with an approximate carrying amount of $25 million, $63 million and
$319 million, respectively, were pledged to banks as collateral against loans provided to the Group (Note 22).
15. Trade and Other Receivables
Trade and other receivables consisted of the following as of 31 December:
US$ million
Trade accounts receivable
Other receivables
Allowance for doubtful accounts
Ageing analysis and movement in allowance for doubtful accounts are provided in Note 28.
2014
$684
25
709
(55)
$654
2013
$909
63
972
(57)
$915
2012
$988
32
1,020
(76)
$944
164
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
16. Related Party Disclosures
Related parties of the Group include associates and joint venture partners, key management personnel and other entities that are under the
control or significant influence of the key management personnel, the Group’s ultimate parent or its shareholders. In considering each possible
related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
Amounts owed by/to related parties at 31 December were as follows:
Amounts due from related parties
Amounts due to related parties
US$ million
2014
2013
Kazankovskaya
Raspadsky Ugol
Vtorresource-Pererabotka
Yuzhny GOK
Liability to management of Raspadskaya for
the acquisition of Corber (Note 4)
Other entities
Less: allowance for doubtful accounts
$–
–
11
37
–
7
55
(2)
$53
$–
–
4
5
–
7
16
(3)
$13
2012
$23
2
3
4
–
14
46
(34)
$12
2014
$–
–
5
96
–
7
108
–
$108
2013
$–
–
13
336
102
7
458
–
$458
In 2014, 2013 and 2012, the Group recognised an expense for bad and doubtful debts of related parties in the amount of $Nil, $Nil and
$4 million, respectively.
Transactions with related parties were as follows for the years ended 31 December:
US$ million
Genalta Recycling Inc.
Interlock Security Services
Kazankovskaya
Raspadsky Ugol
Vtorresource-Pererabotka
Yuzhny GOK
Other entities
Sales to related parties
Purchases from related parties
2014
2013
2012
$–
1
–
–
17
42
3
$–
1
–
–
16
62
7
$–
1
1
8
14
66
9
2014
$24
39
–
–
465
125
24
2013
$22
51
–
5
462
150
38
2012
$–
42
45
163
–
7
257
–
$257
2012
$14
48
1
127
485
124
31
$63
$86
$99
$677
$728
$830
In addition to the disclosures presented in this note, some of the balances and transactions with related parties are disclosed
in Notes 4, 11, 13 and 25.
Genalta Recycling Inc. is a joint venture of a Canadian subsidiary of the Group. It sells scrap metal to the Group.
Interlock Security Services is a group of entities controlled by a member of the key management personnel, which provide security services
to the Russian and Ukrainian subsidiaries of the Group.
Kazankovskaya was an associate of the Group (Note 11). The Group purchased coal from the entity and sold mining equipment and inventory
to Kazankovskaya. In 2012, the Group issued short-term loans to Kazankovskaya bearing an interest rate ranging from 8.1% to 8.5% per
annum. At the reporting dates, the Group assessed the recoverability of these loans and recognised a loss, which was included in the other
non-operating expenses caption of the consolidated statement of operations (2012: $5 million). In 2013, the Group acquired a controlling
interest in Kazankovskaya (Note 11) and subsequently sold the subsidiary to a third party (Note 12), consequently, this entity ceased to be
a related party to the Group.
Lanebrook Limited is a controlling shareholder of the Company. In 2008, the Group acquired from Lanebrook a 1% ownership interest in Yuzhny
GOK for a cash consideration of $38 million (Note 18). As part of the transaction, the Group signed a put option agreement that gives the Group
the right to sell these shares back to Lanebrook Limited for the same amount. In January 2014, the Group sold 0.14% of the shares to
Lanebrook Limited for $6 million. The put option for the remaining shares expires on 31 December 2015.
In addition, in 2012 the Group sold one of its subsidiaries to Lanebrook (Note 12).
OOO Raspadsky Ugol (“Raspadsky Ugol”), a subsidiary of Raspadskaya (Note 11), sold coal to the Group and the Group sold steel products and
rendered services to Raspadsky Ugol. In 2013, Raspadsky Ugol ceased to be a related party as the Group obtained control over the entity (Note 4).
Vtorresource-Pererabotka is a subsidiary of Streamcore, the Group’s joint venture, acquired in 2012. It sells scrap metal to the Group and
provides scrap processing and other services. In 2014, 2013 and 2012, the purchases of scrap metal from Vtorresource-Pererabotka
amounted to $383 million (1,601,041 tonnes), $370 million (1,420,990 tonnes) and $399 million (1,366,423 tonnes), respectively.
EVRAZ plc Annual Report and Accounts 2014
165
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
16. Related Party Disclosures (continued)
Yuzhny GOK, an ore mining and processing plant, is an associate of Lanebrook Limited. The Group sold steel products to Yuzhny GOK and
purchased sinter from the entity. In 2014, the volume of purchases was 1,486,415 tonnes. In 2014, the Ukrainian hryvnia has depreciated
against the US dollar by 97%. As a result, the Group recognised a $88 million foreign exchange loss on the balances and transactions with
Yuzhny GOK.
On 1 April 2014, the Group received a non-interest bearing loan of 2,935 million Ukrainian hryvnias ($267 million at the exchange rate as of the
date of disbursement) from Standart IP, an entity under control of one of the major shareholders. The proceeds were used for the purposes of
short-term liquidity management for a Ukrainian subsidiary. The loan was fully repaid in several instalments by 10 April 2014.
The transactions with related parties were based on prevailing market terms.
Compensation to Key Management Personnel
Key management personnel include the following positions within the Group:
– directors of the Company,
– vice presidents,
– top managers of major subsidiaries.
In 2014, 2013 and 2012, key management personnel totalled 51, 57 and 55 people, respectively. Total compensation to key management
personnel were included in general and administrative expenses in the consolidated statement of operations and consisted of the following:
US$ million
Salary
Performance bonuses
Social security taxes
Share-based payments (Note 21)
Termination benefits
Other benefits
2014
$20
29
4
14
1
1
$69
2013
$24
13
3
11
–
1
$52
2012
$21
14
3
10
–
1
$49
Other disclosures on directors’ remuneration required by the Companies Act 2006 and those specified for audit by the Directors’ Remuneration
Report Regulations 2002 are included in the Directors’ Remuneration Report.
17. Other Taxes Recoverable
Taxes recoverable consisted of the following as of 31 December:
US$ million
Input VAT
Other taxes
2014
$71
87
$158
2013
$209
74
$283
2012
$207
123
$330
Input VAT, representing amounts payable or paid to suppliers, is recoverable from the tax authorities via offset against VAT payable to the tax
authorities on the Group’s revenue or direct cash receipts from the tax authorities. Management periodically reviews the recoverability of the
balance of input value added tax and believes it is fully recoverable within one year.
18. Other Current Financial Assets
Other current assets included the following as of 31 December:
US$ million
Investments in Yuzhny GOK (Note 16)
Bank deposits
Restricted deposits at banks
Collateral under swap agreements (Note 25)
2014
$32
–
1
7
$40
2013
$38
–
12
21
$71
2012
$38
674
–
–
$712
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EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
19. Cash and Cash Equivalents
Cash and cash equivalents, mainly consisting of cash at banks, were denominated in the following currencies as of 31 December:
US$ million
US dollar
Russian rouble
Canadian dollar
Euro
South African rand
Ukrainian hryvnia
Other
2014
$943
108
6
6
10
3
10
$1,086
2013
$1,300
195
50
9
32
17
1
$1,604
2012
$855
347
80
74
15
9
2
$1,382
At 31 December 2014, 2013 and 31 December 2012, the assets of disposal groups classified as held for sale included cash amounting to
$Nil, $7 million and $8 million, respectively.
20. Equity
Share Capital
Number of shares
31 December
2014
2013
2012
Ordinary shares of $1 each, issued and fully paid
1,506,527,294
1,472,582,366
1,339,929,360
Share Issue
On 16 January 2013, EVRAZ plc issued 132,653,006 shares in connection with the acquisition of a controlling interest in Corber (Note 4).
These shares were valued at their market quotation at the date of acquisition of Corber. The excess of the market value of shares issued over
their nominal value in the amount of $478 million was recognised in a merger reserve within additional paid-in capital under section 612 of the
Companies Act 2006 as all of the criteria for merger relief have been satisfied.
The purchase consideration for Corber included warrants to subscribe for an additional 33,944,928 EVRAZ plc shares exercisable at zero price
in the period from 17 January to 17 April 2014. The number of the shares to be issued under these warrants was adjustable for dividends that
could be paid during the period from the date of issue of the warrants until the date of their exercise. The fair value of warrants issued
amounting to $156 million was credited to a separate reserve within equity. On 27 January 2014, EVRAZ plc issued 33,944,928 shares in
connection with the exercise of the warrants included in the purchase consideration for Raspadskaya. The difference between the fair value
of warrants ($156 million) and the par value of shares issued ($34 million) was credited to the merger reserve.
Treasury Shares
Number of treasury shares
2014
–
31 December
2013
302,717
2012
146,731
In 2014, the Group purchased 7,439,383 shares of EVRAZ plc for $13 million and transferred 7,742,100 shares to participants of
Incentive Plans. The cost of treasury shares transferred to the participants of Incentive Plans, amounting to $14 million, was charged to
accumulated profits.
In 2013, the Group purchased 3,720,298 shares of EVRAZ plc for $6 million and transferred 3,564,312 shares to participants of Incentive
Plans (Note 21). The cost of treasury shares gifted under Incentive Plans, amounting to $6 million, was charged to accumulated profits.
In 2012, the Group purchased 869,469 shares of EVRAZ plc for $4 million and transferred 1,498,148 shares to participants of Incentive Plans
(Note 21). The cost of treasury shares gifted under Incentive Plans, amounting to $11 million, was charged to accumulated profits.
Earnings per Share
Earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted average number of ordinary
shares in issue during the period. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity
holders by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares
that would be issued on the conversion of all the potential dilutive ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Weighted average number of ordinary shares for basic and diluted earnings per share
Profit/(loss) for the year attributable to equity holders of the parent, US$ million
Earnings/(losses) per share, basic and diluted
1,505,833,080
$(1,175)
$(0.78)
1,499,457,909
$(504)
$(0.34)
1,339,027,567
$(393)
$(0.29)
2014
2013
2012
In 2012-2014, share-based awards (Note 21) were antidilutive as the Group reported net losses.
The warrants issued in connection with the acquisition of a controlling interest in Corber (2013 Share Issue above) are included in the
calculation of basic earnings per share starting from the date of their issue.
EVRAZ plc Annual Report and Accounts 2014
167
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
20. Equity (continued)
Dividends
Dividends declared by the parent company during 2012–2014 were as follows:
Final for 2011
Interim for 2012
Special for 2014
Date of declaration
To holders
registered at
18/06/2012
29/08/2012
08/04/2014
08/06/2012
07/09/2012
06/06/2014
Dividends
declared,
US$ million
228
147
90
US$ per share
0.17
0.11
0.06
The Board of directors decided not to declare a final dividend for 2012 and 2013 and these decisions were approved by the Annual General
Meeting of shareholders of EVRAZ plc.
On 8 April 2014, the Board of directors of EVRAZ plc proposed to declare special dividends in the amount of $90.4 million representing
$0.06 per share. The dividends were paid out of the sale proceeds for EVRAZ Vitkovice Steel.
In addition, certain subsidiaries of the Group declared dividends. The share of non-controlling shareholders in those dividends was $3 million,
$1 million and $1 million in 2014, 2013 and 2012, respectively.
Other Movements in Equity
Reclassification within Equity
In 2011, prior to the Group’s reorganisation, Evraz Group S.A. declared interim dividends in the amount of $491 million, which were charged
against accumulated profits. At the annual meeting held in 2012, the shareholders of Evraz Group S.A. approved the distribution of those
dividends from share premium of Evraz Group S.A. Consequently, in 2012, the Group decreased its additional paid-in capital and increased
accumulated profits by $491 million.
Non-controlling Interests in Subsidiaries
In 2013, as a result of the acquisition of a controlling interest in Raspadskaya (Note 4), the Group recognised $311 million representing
non-controlling shareholders owning approximately 18% in the entity.
In 2012, the Group acquired non-controlling interests in certain subsidiaries (Note 4). The excess of consideration over the carrying value
of non-controlling interests amounting to $30 million was charged to accumulated profits.
In 2012, as a result of the completion of the Group’s reorganisation, in which the remaining global depository receipts of Evraz Group S.A.
were converted into the newly issued shares of EVRAZ plc, a 0.18% non-controlling interest in Evraz Group S.A. was derecognised (Note 4).
This increased the shareholders’ equity by $6 million.
In 2012, the Group acquired an additional 9.996% ownership interest in the Mezhegey coal field project and its share increased to
approximately 60.016% (Note 4). During 2012 the non-controlling shareholder contributed $7 million to the Mezhegey coal field project.
168
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
21. Share-based Payments
On 13 October 2011, 6 September 2012 and 24 September 2013 and 8 August 2014 the Group adopted Incentive Plans under which certain
senior executives and employees (“participants”) could be gifted shares of the parent company upon vesting.
The vesting date for each tranche occurs within the 90-day period after announcement of the annual results. The expected vesting dates of the
awards outstanding at 31 December 2014 are presented below:
Number of Shares of EVRAZ plc
April 2015
April 2016
April 2017
April 2018
Total
Incentive Plan
2014
Incentive Plan
2013
Incentive Plan
2012
10,315,580
9,218,488
11,182,538
5,891,446
3,927,623
3,927,623
5,891,428
5,891,446
3,527,250
5,290,865
5,291,110
–
2,860,707
–
–
–
36,608,052
19,638,120
14,109,225
2,860,707
The plans are administrated by the Board of Directors of EVRAZ plc. The Board of Directors has the right to accelerate vesting of the grant.
In the event of a participant’s employment termination, unless otherwise determined by the Board or by a decision of the authorised person,
a participant loses the entitlement for the shares that were not gifted up to the date of termination.
There have been no modifications or cancellations to the plans during 2012–2014.
The Group accounted for share-based compensation at fair value pursuant to the requirements of IFRS 2 “Share-based Payment”. The
weighted average fair value of share-based awards granted in 2014, 2013 and 2012 was $1.51, $1.89 and $3.41 per share of EVRAZ plc,
respectively. The fair value of these awards was estimated at the date of grant and measured at the market price of the shares of a parent
company reduced by the present value of dividends expected to be paid during the vesting period. The following inputs, including assumptions,
were used in the valuation:
Dividend yield (%)
Expected life (years)
Market prices of the shares of EVRAZ plc
Incentive Plan
2014
Incentive Plan
2013
Incentive Plan
2012
Incentive Plan
2011
3.6 – 4.8
0.6 – 3.6
$1.68
4.0 – 8.8
0.6 – 3.6
$2.13
1.9 – 5.4
0.6 – 2.6
$3.61
3.6 – 4.8
0.5 – 2.5
$51.57
The following table illustrates the number of, and movements in, share-based awards during the years.
Outstanding at 1 January
Granted during the year
Forfeited during the year
Vested during the year
Outstanding at 31 December
Vested, not exercised
2014
2013
2012
27,692,062 12,069,571
20,220,620
(3,064,281)
(8,240,349)
20,832,297
(1,221,683)
(3,988,123)
4,460,547
9,892,313
(785,141)
(1,498,148)
36,608,052 27,692,062 12,069,571
–
98,647
–
In 2014 and 2013, the actual quantity of the vested shares transferred by EVRAZ plc to the participants was reduced by 596,896 and
325,164 shares, respectively, that represent withholding taxes and other deductions.
The weighted average share price at the dates of exercise was $1.72, $1.52 and $4.31 in 2014, 2013 and 2012, respectively.
The weighted average remaining contractual life of the share-based awards outstanding as of 31 December 2014, 2013 and 2012 was
1.6, 1.7 and 1.2 years, respectively.
In the years ended 31 December 2014, 2013 and 2012, expense arising from the equity-settled share-based compensations was as follows:
US$ million
Expense arising from equity-settled share-based payment transactions
2014
$30
2013
$25
2012
$22
EVRAZ plc Annual Report and Accounts 2014
169
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
22. Loans and Borrowings
As of 31 December 2014, 2013 and 2012, total interest-bearing loans and borrowings consisted of short-term loans and borrowings in the
amount of $164 million, $1,069 million and $539 million, respectively, and long-term loans and borrowings in the amount of $6,030 million,
$6,739 million and $7,654 million, respectively, including the current portion of long-term liabilities of $532 million, $660 million and
$1,164 million, respectively.
Short-term and long-term loans and borrowings were as follows as of 31 December:
US$ million
Bank loans
European commercial papers
8.875% notes due 2013
8.25% notes due 2015
7.40% notes due 2017
9.5% notes due 2018
6.75% notes due 2018
7.5% senior secured notes due 2019
6.50% notes due 2020
9.25% bonds due 2013
13.5% bonds due 2014
8.75% bonds due 2015
9.95% bonds due 2015
8.40% bonds due 2016
Liabilities under 7.75% bonds due 2017 assumed in business combination (Note 4)
Fair value adjustment to liabilities assumed in business combination
Other liabilities
Unamortised debt issue costs
Interest payable
2014
$1,662
–
–
138
600
509
850
350
1,000
–
–
69
267
356
392
20
1
(57)
74
$6,231
2013
$2,065
–
–
577
600
509
850
–
1,000
–
611
119
458
611
400
27
8
(68)
90
$7,857
2012
$2,574
242
534
577
600
509
850
–
–
494
658
–
494
658
–
–
3
(116)
93
$8,170
At 31 December 2014, 2013 and 2012, the borrowings relating to the subsidiaries classified as held for sale (Note 12) amounted to $Nil,
$76 million and $65 million of short-term loans. In the statement of financial position they were included in liabilities directly associated with
the assets held for disposal.
The average effective annual interest rates were as follows at 31 December:
US dollar
Russian rouble
Euro
Canadian dollar
South African rand
Long-term borrowings
Short-term borrowings
2014
6.78%
9.00%
3.55%
–
–
2013
7.33%
10.49%
3.60%
3.30%
–
2012
7.13%
10.51%
3.93%
3.85%
–
2014
2.72%
–
–
–
9.98%
2013
1.56%
7.21%
3.75%
–
–
2012
3.00%
11.52%
2.75%
–
–
The liabilities are denominated in the following currencies at 31 December:
US$ million
US dollar
Russian rouble
Euro
Canadian dollar
South African rand
Unamortised debt issue costs
2014
2013
2012
$5,387
700
193
–
8
(57)
$6,231
$5,808
1,837
268
10
2
(68)
$7,857
$5,446
2,349
381
108
2
(116)
$8,170
Pledged Assets
The Group pledged its rights under some export contracts as collateral under the loan agreements. All proceeds from sales of steel pursuant to
these contracts can be used to satisfy the obligations under the loan agreements in the event of a default.
At 31 December 2014, 2013 and 2012, the Group had inventory with a carrying value of $25 million, $63 million and $319 million, respectively,
pledged as collateral under the loan agreements.
At 31 December 2014, 100% shares of Mezhegeyugol and EVRAZ Caspian Steel were pledged as collateral under bank loans with a carrying
value of $212 million. These subsidiaries represented 2.3% of the consolidated assets at 31 December 2014 and generated $10 million of
intra-group revenues in 2014.
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EVRAZ plc Annual Report and Accounts 2014
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Business Review
Governance
Financial Statements
22. Loans and Borrowings (continued)
Extension of the 9.25% Notes Due 2013
In March 2013, the holders of 9.25% rouble-denominated notes received an option to accept a new coupon of 8.75% per annum till
20 March 2015 or put the notes back to the Group at a nominal value. By 26 March 2013, the date of the expiration of the option, the Group
re-purchased back notes totalling 12,265 million roubles ($399 million at the exchange rate as of the date of the transaction). The remaining
notes with the aggregate principal amount of 2,735 million roubles ($84 million at the exchange rate as of 31 December 2013) continue to be
traded on the Moscow Exchange.
The Group has a right to resell the repurchased notes on the market at any time and at its own discretion. In April and May 2013, the Group
resold part of the notes for 1,000 roubles each and received 1,150 million roubles ($35 million at the exchange rate as of 31 December 2013).
Issue of Notes and Bonds
In November 2014, the Group issued 7.5% senior secured notes due 2019 notes in the amount of $350 million. The proceeds from the issue
of the notes were used for the partial repayment of the 8.25% notes maturing on 10 November 2015.
In April 2013, the Group issued notes for the amount of $1,000 million due in 2020. The notes bear semi-annual coupon at the annual rate
of 6.50% and must be redeemed at their principal amount on 22 April 2020. The proceeds from the issue of the notes were used for the
repayment of the 8.875% notes maturing on 24 April 2013, as well as certain bank loans.
In April 2012, the Group issued notes in the amount of $600 million due in 2017. The notes bear semi-annual coupon at the annual rate of
7.40% and must be redeemed at their principal amount on 24 April 2017. The proceeds from the issue of the notes were used for the
repayment of certain bank loans.
In December 2012, the Group issued European commercial papers in the amount of $80 million and $170 million bearing an interest rate
of 3.50% and 3.75%, respectively, and maturing on 6 September 2013 and 4 December 2013, respectively. The liabilities were fully settled
upon maturity.
Repurchase of Notes and Bonds
In 2014, the Group partially repurchased 8.25% notes due 2015 for a cash consideration of $437 million. The nominal value of the notes was
$439 million. As a result, the Group recognised a loss on extinguishment of debts in the amount of $6 million within gain/(loss) on financial
assets and liabilities caption of the consolidated statement of operations (Note 7).
In 2014, the Group partially repurchased 7.75% bonds due 2017 for a cash consideration of $6 million. The nominal value of the bonds was
$8 million. As a result, the Group recognised a gain on extinguishment of debts in the amount of $2 million within gain/(loss) on financial assets
and liabilities caption of the consolidated statement of operations (Note 7).
In April 2014, the Group repurchased 13.5% bonds due 16 October 2014 for a nominal amount totalling 2,258 million roubles ($64 million at
the exchange rates as of the dates of the transactions). In October 2014, the Group settled the remaining 17,742 million roubles ($440 million
at the date of the transaction). There was no gain or loss on these transactions.
Compliance with Financial Covenants
Some of the loan agreements and terms and conditions of notes provide for certain covenants in respect of EVRAZ plc and its subsidiaries.
The covenants impose restrictions in respect of certain transactions and financial ratios, including restrictions in respect of indebtedness
and profitability.
$500 million pre-export credit facility received in 2014 from a syndicate of banks is subject to certain financial maintenance covenants.
These covenants require EVRAZ plc to maintain two key ratios, consolidated net indebtedness to 12-month consolidated EBITDA and 12-month
consolidated EBITDA to adjusted 12-month consolidated interest expense, within certain limits. Also the covenants contain a limitation on the
amount of EVRAZ plc total consolidated indebtedness. A breach of one or both of these ratios or excess of the indebtedness limit would
constitute an event of default under the facility which in turn may trigger cross default events under other debt instruments of the Group.
The facility terms also set certain limitations on dividend payments by EVRAZ plc, acquisitions and disposals.
Notes due in 2015, 2017, 2018 and 2020 totalling $3,098 million issued by Evraz Group S.A., a holding company directly wholly owned by
EVRAZ plc, have covenants restricting the incurrence of indebtedness by the issuer and its consolidated subsidiaries conditional on a gross
leverage ratio. While the ratio level itself does not constitute a breach of covenants, exceeding the threshold triggers a restriction on incurrence
of consolidated indebtedness, which is removed once the ratio goes back below the threshold. The effect of the restriction is such that Evraz
Group S.A. and its subsidiaries are not allowed to increase the consolidated indebtedness at the level of Evraz Group S.A., but are allowed to
refinance existing indebtedness subject to certain conditions.
The $400 million notes due 2017 issued by Raspadskaya in 2012 have covenants similar to those of Evraz Group S.A., but with the ratio
calculation based on the consolidated numbers of OAO Raspadskaya and the restrictions applying only to OAO Raspadskaya and its
subsidiaries. These restrictions have the same effect on Raspadskaya, but no effect on EVRAZ plc and its other subsidiaries that are not part
of the Raspadskaya Group.
The $350 million notes due 2019 issued by EVRAZ Inc NA Canada in November 2014 have certain covenants, that contain restrictions on the
incurrence of new debt by EVRAZ North America plc, the parent company of EVRAZ Inc NA and EVRAZ Inc NA Canada, and its subsidiaries
(together, “EVRAZ North America”) and restrictions on the certain type of payments, including dividends, from EVRAZ North America.
EVRAZ plc Annual Report and Accounts 2014
171
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
22. Loans and Borrowings (continued)
OOO UK Mezhegeyugol, which is a direct subsidiary of EVRAZ plc, is not subject to restrictions imposed by the above mentioned covenants.
However, as a borrower of a $195 million project loan by Gazprombank, it is restricted from incurring any additional indebtedness without the
consent of the lender.
The incurrence covenants are in line with the Group’s financial strategy and, therefore, do not constitute any excessive restriction on its operations.
In addition to the incurrence covenants mentioned above, at 31 December 2014 the Group had loans with an aggregate principal amount
of $341 million, which are subject to financial maintenance covenants. Under $251 million out of this amount the covenants require Evraz
Group S.A. to maintain two key ratios, consolidated net indebtedness to 12-month consolidated EBITDA and 12-month consolidated EBITDA
to adjusted 12-month consolidated interest expense, within certain limits, under the remaining $90 million only the first ratio is applicable.
A breach of one or both of the ratios would constitute an event of default under the above mentioned facility agreements, which in its turn may
trigger cross default events under other debt instruments of Evraz Group S.A. and its subsidiaries.
During 2014 the Group was in compliance with all financial and non-financial covenants.
Unamortised Debt Issue Costs
Unamortised debt issue costs represent agent commission and transaction costs paid by the Group in relation to the arrangement and reset
of loans and notes.
Unutilised Borrowing Facilities
The Group had the following unutilised borrowing facilities as of 31 December:
US$ million
Committed
Uncommitted
Total unutilised borrowing facilities
2014
$439
1,225
2013
$437
811
2012
$421
725
$1,664
$1,248
$1,146
23. Employee Benefits
Russian Plans
Certain Russian subsidiaries of the Group provide regular lifetime pension payments and lump-sum amounts payable at retirement date.
These benefits generally depend on years of service, level of remuneration and amount of pension payment under the collective bargaining
agreements. Other post-employment benefits consist of various compensations and certain non-cash benefits. The Group funds the benefits
when the amounts of benefits fall due for payment.
In addition, some subsidiaries have defined benefit plans under which contributions are made to a separately administered non-state pension
fund. The Group matches 100% of the employees’ contributions to the fund up to 4% of their monthly salary. The Group’s contributions become
payable at the participants’ retirement dates.
Defined contribution plans represent payments made by the Group to the Russian state pension, social insurance and medical insurance funds
at the statutory rates in force, based on gross salary payments. The Group has no legal or constructive obligation to pay further contributions in
respect of those benefits.
Ukrainian Plans
The Ukrainian subsidiaries make regular contributions to the State Pension Fund thereby compensating preferential pensions paid by the fund
to employees who worked under harmful and hard conditions. The amount of such pension depends on years of service and salary.
In 2011 and before, these preferential pensions were partially funded by the State Pension Fund. The Ukrainian subsidiaries gradually increased
these contributions and starting from 2012 they pay 100% of preferential pensions. In addition, employees receive lump-sum payments on
retirement and other benefits under collective labour agreements. These benefits are based on years of service and level of compensation.
All these payments are considered as defined benefit plans.
In 2013, the amended pension legislation introduced annual indexation of pensions, at least up to the level of CPI. The indexation of pensions
in a particular year depends on the availability of financial resources in the State pension fund. The subsidiaries are obliged to pay preferential
pensions indexed according to the government’s decision. The Group determined the amount of defined benefit obligations based on the
assumption that pensions will be indexed despite possible insufficiency of money in the State pension fund, which would result in a non-
fulfilment of this law by the fund itself and, consequently, would cancel the obligations of Ukrainian enterprises to pay higher pensions.
US and Canadian Plans
The Group’s subsidiaries in the USA and Canada have defined benefit pension plans that cover specified eligible employees. Benefits are based
on pensionable years of service, pensionable compensation, or a combination of both depending on the individual plan. Certain employees that
were hired after specified dates are no longer eligible to participate in the defined benefit plans. Those employees are instead enrolled in
defined contribution plans and receive a contribution funded by the Group’s subsidiaries equal to 2–7% of annual wages, including applicable
bonuses. The defined contribution plans are funded annually, and participants’ benefits vest after three years of service. The subsidiaries also
offer qualified Thrift (401(k)) plans to all of their eligible employees.
172
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
23. Employee Benefits (continued)
Other Plans
Defined benefit pension plans and defined contribution plans are maintained by the subsidiaries located in South Africa, Italy and the
Czech Republic.
Defined Contribution Plans
The Group’s expenses under defined contribution plans were as follows:
US$ million
Expense under defined contribution plans
2014
2013
$398
$488
2012
$412
Defined Benefit Plans
The Russian, Ukrainian and other defined benefit plans are mostly unfunded and the US and Canadian plans are partially funded.
In 2014, there were no significant plan amendments, curtailments, or settlements.
The Group’s defined benefit plans are exposed to the risks of unexpected growth in benefit payments as a result of increases in life expectancy,
inflation, and salaries. As the plan assets include significant investments in quoted and unquoted equity shares, corporate and government
bonds and notes, the Group is also exposed to equity market risk.
The components of net benefit expense recognised in the consolidated statement of operations for the years ended 31 December 2014, 2013
and 2012 and amounts recognised in the consolidated statement of financial position as of 31 December 2014, 2013 and 2012 for the
defined benefit plans were as follows:
Net benefit expense (recognised in the statement of operations within cost of sales and selling, general and administrative expenses
and interest expense)
Year ended 31 December 2014
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term employee
benefits obligation
Curtailment gain
Net benefit expense
Year ended 31 December 2013
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term employee
benefits obligation
Past service cost
Curtailment gain
Net benefit expense
Year ended 31 December 2012
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term employee
benefits obligation
Past service cost
Net benefit expense
Russian
plans
$(7)
(15)
22
6
$6
Russian
plans
$(12)
(20)
7
(7)
2
Ukrainian
plans
$(3)
(7)
–
–
US
& Canadian
plans
$(19)
(6)
–
–
Other
plans
$–
(2)
–
–
Total
$(29)
(30)
22
6
$(10)
$(25)
$(2)
$(31)
Ukrainian
plans
$(4)
(9)
US
& Canadian
plans
$(23)
(9)
–
–
–
–
–
2
Other
plans
$(1)
(1)
1
–
–
Total
$(40)
(39)
8
(7)
4
$(30)
$(13)
$(30)
$(1)
$(74)
Russian
plans
Ukrainian
plans
$(6)
(17)
(5)
(5)
$(3)
(8)
–
–
US
& Canadian
plans
$(20)
(10)
–
(1)
Other
plans
$–
(2)
–
–
Total
$(29)
(37)
(5)
(6)
$(33)
$(11)
$(31)
$(2)
$(77)
EVRAZ plc Annual Report and Accounts 2014
173
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
23. Employee Benefits (continued)
Gains/(losses) recognised in other comprehensive income
Year ended 31 December 2014
US$ million
Return on plan assets, excluding amounts included in net
interest expense
Net actuarial gains/(losses) on post-employment benefit
obligation
Effect of asset ceiling
Year ended 31 December 2013
US$ million
Return on plan assets, excluding amounts included in net
interest expense
Net actuarial gains/(losses) on post-employment benefit
obligation
Year ended 31 December 2012
US$ million
Return on plan assets, excluding amounts included in net
interest expense
Net actuarial gains/(losses) on post-employment benefit
obligation
Actual return on plan assets was as follows:
US$ million
Actual return on plan assets including:
US & Canadian plans
Russian plans
Russian
plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
$–
15
–
$15
$–
$46
$–
(17)
–
(78)
2
(1)
–
$(17)
$(30)
$(1)
Russian
plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
$(1)
52
$51
$–
$30
$–
(11)
$(11)
48
$78
1
$1
Russian
plans
Ukrainian
plans
US
& Canadian
plans
$–
(20)
$(20)
$–
(5)
$(5)
$27
(75)
$(48)
2014
$73
73
–
Other
plans
$–
(1)
$(1)
2013
$51
52
(1)
Total
$46
(81)
2
$(33)
Total
$29
90
$119
Total
$27
(101)
$(74)
2012
$50
50
–
174
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
23. Employee Benefits (continued)
Net defined benefit liability
31 December 2014
US$ million
Benefit obligation
Plan assets
31 December 2013
US$ million
Benefit obligation
Plan assets
31 December 2012
US$ million
Benefit obligation
Plan assets
Movements in net defined benefit liability/(asset)
US$ million
At 31 December 2011
Net benefit expense recognised in the statement of operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Disposal of subsidiaries
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
At 31 December 2012
Change in net benefit liability due to business combination
Net benefit expense recognised in the statement of operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Disposal of subsidiaries
Translation difference
At 31 December 2013
Net benefit expense recognised in the statement of operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
At 31 December 2014
Russian
Plans
$110
–
110
Ukrainian
plans
$58
–
58
US
& Canadian
plans
$790
(608)
182
US
& Canadian
plans
$728
(564)
164
US
& Canadian
plans
$793
(537)
256
Ukrainian
plans
$83
–
83
Ukrainian
plans
$68
–
68
Ukrainian
plans
US
& Canadian
plans
$65
11
(8)
5
(5)
–
–
68
–
13
(9)
11
–
–
83
10
(6)
17
–
(46)
$230
31
(54)
48
–
–
1
256
–
30
(40)
(78)
–
(4)
164
25
(34)
30
–
(3)
Russian
Plans
$232
(1)
231
Russian
Plans
$251
(1)
250
Russian
plans
$202
33
(16)
20
(1)
–
12
250
58
30
(25)
(51)
(10)
(21)
231
(6)
(13)
(15)
(1)
(86)
Other
plans
$14
–
14
Other
plans
$14
–
14
Other
plans
$19
–
19
Other
plans
$21
2
(2)
1
–
(1)
(2)
19
–
1
(1)
(1)
–
(4)
14
2
(2)
1
–
(1)
Total
$972
(608)
364
Total
$1,057
(565)
492
Total
$1,131
(538)
593
Total
$518
77
(80)
74
(6)
(1)
11
593
58
74
(75)
(119)
(10)
(29)
492
31
(55)
33
(1)
(136)
$364
$110
$58
$182
$14
EVRAZ plc Annual Report and Accounts 2014
175
Russian
plans
$203
17
6
5
(16)
Ukrainian
plans
US
& Canadian
plans
$65
8
3
–
(8)
$700
33
20
1
(44)
Other
plans
$21
2
–
–
(2)
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
23. Employee Benefits (continued)
Movements in benefit obligation
US$ million
At 31 December 2011
Interest cost on benefit obligation
Current service cost
Past service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation related to
changes in demographic assumptions
Actuarial (gains)/losses on benefit obligation related to
changes in financial assumptions
Actuarial (gains)/losses on benefit obligation related to
experience adjustments
Disposal of subsidiaries
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
At 31 December 2012
Change in benefit obligation due to business combination
Interest cost on benefit obligation
Current service cost
Past service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation related to
changes in demographic assumptions
Actuarial (gains)/losses on benefit obligation related to
changes in financial assumptions
Actuarial (gains)/losses on benefit obligation related to
experience adjustments
Curtailment gain
Disposal of subsidiaries
Translation difference
At 31 December 2013
Interest cost on benefit obligation
Current service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation related to
changes in demographic assumptions
Actuarial (gains)/losses on benefit obligation related to
changes in financial assumptions
Actuarial (gains)/losses on benefit obligation related to
experience adjustments
Curtailment gain
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
At 31 December 2014
2
25
(2)
(1)
–
12
251
58
20
12
7
(24)
25
(81)
(3)
(2)
(10)
(21)
$232
15
7
(14)
–
(21)
(16)
(6)
(1)
(86)
$110
–
3
2
(5)
–
–
68
–
9
4
–
(9)
–
11
–
–
–
–
$83
7
3
(6)
1
13
3
–
–
(46)
$58
The weighted average duration of the defined benefit obligation was as follows:
Years
Russian plans
Ukrainian plans
US & Canadian plans
Other plans
176
EVRAZ plc Annual Report and Accounts 2014
Total
$989
60
29
6
(70)
3
100
3
(6)
(1)
18
1,131
58
61
40
7
(77)
48
(143)
(3)
(4)
(10)
(51)
1
72
2
–
–
8
793
–
31
23
–
(43)
23
(71)
–
(2)
–
(26)
–
–
1
–
(1)
(2)
19
–
1
1
–
(1)
–
(2)
–
–
–
(4)
$728
33
19
(37)
$14
2
–
(2)
$1,057
57
29
(59)
17
71
(10)
–
–
(31)
$790
2014
9.8
10.4
14.6
20.3
–
1
–
–
–
(1)
$14
2013
10.0
10.0
14.4
10.0
18
64
(23)
(6)
(1)
(164)
$972
2012
11.8
9.9
15.8
11.6
Strategic Report
Business Review
Governance
Financial Statements
23. Employee Benefits (continued)
Changes in the fair value of plan assets
US$ million
At 31 December 2011
Interest income on plan assets
Return on plan assets (excluding amounts included in net
interest expense)
Contributions of employer
Benefits paid
Translation difference
At 31 December 2012
Interest income on plan assets
Return on plan assets (excluding amounts included in net
interest expense)
Contributions of employer
Benefits paid
Translation difference
At 31 December 2013
Interest income on plan assets
Return on plan assets (excluding amounts included in net
interest expense)
Contributions of employer
Benefits paid
Effect of asset ceiling
Translation difference
At 31 December 2014
Russian
plans
Ukrainian
plans
US
& Canadian
plans
$1
–
$–
–
$470
23
Other
plans
$–
–
Total
$471
23
27
80
(70)
7
538
22
29
75
(77)
(22)
–
8
(8)
–
–
–
–
9
(9)
–
27
54
(44)
7
537
22
30
40
(43)
(22)
–
2
(2)
–
–
–
–
1
(1)
–
$–
–
$564
27
$–
–
$565
27
–
6
(6)
–
–
46
34
(37)
2
(28)
–
2
(2)
–
–
46
55
(59)
2
(28)
$–
$608
$–
$608
–
16
(16)
–
1
–
(1)
25
(24)
–
$1
–
–
13
(14)
–
–
$–
The amount of contributions expected to be paid to the defined benefit plans during 2015 approximates $61 million.
The major categories of plan assets as a percentage of total plan assets were as follows at 31 December:
US & Canadian plans:
Equity funds and investment trusts
Corporate bonds and notes
Government bonds and notes
Property
Cash
2014
2013
2012
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
31%
13%
–
–
6%
50%
49%
1%
–
–
–
50%
42%
15%
–
–
–
57%
38%
1%
–
2%
2%
43%
43%
12%
–
–
–
55%
18%
12%
8%
2%
5%
45%
EVRAZ plc Annual Report and Accounts 2014
177
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
23. Employee Benefits (continued)
The principal assumptions used in determining pension obligations for the Group’s plans are shown below:
2014
2013
2012
Russian
plans
Ukrainian
plans
11%
8%
8%
15.0%
10%
10%
US &
Canadian
plans
3.6-4.9%
–
3-3.3%
Other
plans
Russian
plans
Ukrainian
plans
2.8-8.8%
3%
–
8%
6%
6%
14.0%
6%
7%
US &
Canadian
plans
4.3-4.9%
–
3.1-4%
Other
plans
3-9.5%
3%
–
Russian
plans
Ukrainian
plans
7%
8%
8%
14.0%
8%
8%
US &
Canadian
plans
3.9-5.1%
–
3.1-3.5%
Other
plans
2.0-8.8%
2%
3%
Discount rate
Future benefits increases
Future salary increase
Average life expectation, male,
years
68.0
65.2 86.4-87.8
74.9-79
67.5
64.2 82.5-85.2
73.9-81
65.8
64.2 83.0-84.7 73.3-81.1
Average life expectation, female,
years
Healthcare costs increase rate
78.5
–
75.3 88.9-89.8
5.5-7%
–
73.4-85
7.5-7.7%
78.3
–
74.7
–
86.7-87.7
6.1-7%
73.0-87
7.8-7.9%
74.3
–
74.7
–
84.7-85.9 68.2-86.9
7.0-7.3%
6-7%
The following table demonstrates the sensitivity analysis of reasonable changes in the significant assumptions used for the measurement of
the defined benefit obligations, with all other variables held constant.
Discount rate
Future benefits increases
Future salary increase
Average life expectation,
male, years
Average life expectation,
female, years
Healthcare costs increase rate
Impact on the defined benefit obligation
at 31 December 2014,
US$ million
Impact on the defined benefit obligation
at 31 December 2013,
US$ million
Reasonable
change in
assumption
Russian
plans
Ukrainian
plans
US &
Canadian
plans
Other
plans
Russian
plans
Ukrainian
plans
US &
Canadian
plans
10%
(10%)
10%
(10%)
10%
(10%)
1
(1)
1
(1)
10%
(10%)
$(11)
14
9
(8)
1
(1)
1
(1)
1
(1)
–
–
$(6)
7
2
(2)
3
(2)
–
–
–
–
–
–
$(53)
58
–
–
3
(2)
15
(15)
4
(4)
–
–
$(6)
6
–
–
–
–
–
–
–
–
3
–
$(16)
19
12
(11)
2
(2)
2
(2)
2
(2)
–
–
$(8)
10
2
(2)
2
(2)
1
(1)
–
–
–
–
$(45)
52
–
–
2
(2)
14
(15)
4
(5)
1
(1)
Other
plans
$(4)
5
–
–
–
–
–
–
–
–
2
(2)
178
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
24. Provisions
At 31 December the provisions were as follows:
US$ million
Non-current
Current
Non-current
Current
Non-current
Current
2014
2013
2012
Site restoration and decommissioning costs
Legal claims
Other provisions
$171
–
2
$173
$34
3
4
$41
$251
–
3
$254
$29
9
7
$45
$327
–
5
$332
In the years ended 31 December 2014, 2013 and 2012, the movement in provisions was as follows:
Site restoration
and decom-
missioning costs
Legal
claims
Other
provisions
US$ million
At 31 December 2011
Additional provisions
Increase from passage of time
Effect of change in the discount rate
Effect of changes in estimated costs and timing
Utilised in the year
Unused amounts reversed
Reclassification to liabilities directly associated with disposal groups classified
as held for sale
Translation difference
At 31 December 2012
Additional provisions
Increase from passage of time
Effect of change in the discount rate
Effect of changes in estimated costs and timing
Utilised in the year
Unused amounts reversed
Change in provisions due to business combinations
Reclassification to liabilities directly associated with disposal groups classified
as held for sale
Translation difference
At 31 December 2013
Additional provisions
Increase from passage of time
Effect of change in the discount rate
Effect of changes in estimated costs and timing
Utilised in the year
Unused amounts reversed
Reclassification to liabilities directly associated with disposal groups classified
as held for sale
Translation difference
At 31 December 2014
$310
27
19
35
(1)
(7)
(6)
(38)
9
348
49
20
(33)
3
(11)
(7)
16
(72)
(33)
$280
56
15
(40)
72
(39)
(2)
(41)
(96)
$205
$15
18
–
–
(4)
(11)
(6)
–
1
13
6
–
–
(2)
(3)
(5)
–
–
–
$9
4
–
–
–
(2)
(6)
–
(2)
$3
$13
21
–
–
–
(20)
(1)
(2)
–
11
24
–
–
–
(20)
(5)
1
–
(1)
$10
19
–
–
–
(16)
(6)
–
(1)
$21
13
6
$40
Total
$338
66
19
35
(5)
(38)
(13)
(40)
10
372
79
20
(33)
1
(34)
(17)
17
(72)
(34)
$299
79
15
(40)
72
(57)
(14)
(41)
(99)
$6
$214
Site Restoration Costs
Under the legislation, mining companies and steel mills have obligations to restore mining sites and contaminated land. The respective liabilities
were measured based on estimates of restoration costs which are expected to be incurred in the future discounted at the annual rate ranging
from 1.5% to 22.6% in 2014 (2013: from 1.1% to 14%, 2012: from 3.7% to 14%). The majority of costs are expected to be paid after 2061.
EVRAZ plc Annual Report and Accounts 2014
179
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
25. Other Long-Term Liabilities
Other long-term liabilities consisted of the following as of 31 December:
US$ million
Derivatives not designated as hedging instruments
Contingent consideration payable for the acquisition of Stratcor
Deferred consideration payable for the acquisition of Inprom
Dividends payable under cumulative preference shares of a subsidiary to a related party
Employee income participation plans and compensations
Tax liabilities
Finance lease liabilities
Other liabilities to related parties
Other liabilities
Less: current portion (Note 26)
2014
$713
2
–
15
6
5
4
1
48
794
(352)
2013
$219
8
–
14
5
9
6
2
51
314
(84)
$442
$230
2012
$115
12
10
14
7
18
13
–
16
205
(24)
$181
Derivatives Not Designated as Hedging Instruments
To manage the currency exposure on the rouble-denominated bonds, the Group partially economically hedged these transactions: in 2010-2013,
the Group concluded currency and interest rate swap contracts under which it agreed to deliver US dollar-denominated interest payments at the
rates ranging from 3.06% to 8.90% per annum plus the US dollar notional amount, in exchange for rouble-denominated interest payments plus
the rouble notional amount. The exchange is exercised on approximately the same dates as the payments under the bonds.
The swap contracts are summarised in the table below.
9.25 per cent bonds due 2013
13.5 per cent bonds due 2014
9.95 per cent bonds due 2015
8.40 per cent bonds due 2016
8.75 per cent bonds due 2015
Year of
issue
2010
2009
2010
2011
2013
Bonds
principal,
millions of
roubles
15,000
20,000
15,000
20,000
3,885
Hedged
amount,
millions of
roubles
14,778
14,019
14,997
19,996
3,735
Swap
amount,
US$ million
Interest rates on
the swap amount
5.75% – 5.90%
$500
7.50% – 8.90%
475
5.65% – 5.88%
491
4.45% – 4.60%
711
121 3.06% – 3.33%
The aggregate amounts under swap contracts translated at the year end exchange rates are summarised in the table below.
US$ million
Bonds principal
Hedged amount
Swap amount
2014
$692
688
1,323
2013
$1,799
1,612
1,798
2012
$2,305
2,101
2,177
These swap contracts were not designated as cash flow or fair value hedges. The Group accounted for these derivatives at fair value which was
determined using valuation techniques.
The fair value was calculated as the present value of the expected cashflows under the contracts at the reporting dates. Future rouble-
denominated cashflows were translated into US dollars using the USD/RUB implied yield forward curve. The discount rates used in the valuation
were the non-deliverable forward rate curve and the interest rate swap curve for US dollar at the reporting dates.
In 2014, 2013 and 2012, the change in fair value of the derivatives of $(494) million, $(106) million and $96 million, respectively, together with
a realised gain/(loss) on the swap transactions, amounting to $(94) million, $51 million and $81 million, respectively, was recognised within
gain/(loss) on financial assets and liabilities in the consolidated statement of operations (Note 7).
In 2014 and 2013, upon repayment of the 13.5% and 9.25% bonds, the related swap contracts matured.
Contingent Consideration Payable
Contingent consideration represents additional payments for the acquisition of Stratcor in 2006. This consideration could be paid each year up
to 2019. The payments depend on the deviation of the average prices for vanadium pentoxide from certain levels and the amounts payable for
each year are limited to maximum amounts. In 2014–2012, the Group was not required to pay this consideration due to the movements in the
vanadium pentoxide market relative to the levels set in the agreement.
180
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
26. Trade and Other Payables
Trade and other payables consisted of the following as of 31 December:
US$ million
Trade accounts payable
Accrued payroll
Other long-term obligations with current maturities (Note 25)
Other payables
The maturity profile of the accounts payable is shown in Note 28.
27. Other Taxes Payable
Taxes payable were mainly denominated in roubles and consisted of the following as of 31 December:
US$ million
VAT
Social insurance taxes
Property tax
Land tax
Personal income tax
Other taxes, fines and penalties
2014
$774
196
352
57
$1,379
2013
$1,054
233
84
117
$1,488
2012
$1,200
266
24
41
$1,531
2014
$78
40
15
4
7
7
2013
$88
64
15
10
14
12
2012
$87
61
11
11
14
11
$151
$203
$195
28. Financial Risk Management Objectives and Policies
Credit Risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Financial
instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and trade accounts receivable.
To manage credit risk related to cash, the Group maintains its available cash, mainly in US dollars, in reputable international banks and major
Russian banks. Management periodically reviews the creditworthiness of the banks in which it deposits cash.
The Group’s trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. There are no
significant concentrations of credit risk within the Group. The Group defines counterparties as having similar characteristics if they are related
entities. In 2014, the major customers were Russian Railways and Enbridge Inc. (3.6% and 4.4% of total sales, respectively).
Part of the Group’s sales is made on terms of letter of credit. In addition, the Group requires prepayments from certain customers. The Group
does not require collateral in respect of trade and other receivables, except when a customer applies for credit terms which are longer than
normal. In this case, the Group requires bank guarantees or other collateral. The Group has developed standard credit terms and constantly
monitors the status of accounts receivable collection and the creditworthiness of the customers.
Certain of the Group’s long-standing Russian customers for auxiliary products, such as heat and electricity, represent municipal enterprises and
governmental organisations that experience financial difficulties. The significant part of doubtful debts allowance consists of receivables from
such customers. The Group has no practical ability to terminate the supply to these customers and negotiates with regional and municipal
authorities the terms of recovery of these receivables.
At 31 December the maximum exposure to credit risk is equal to the carrying amount of financial assets, which is disclosed below.
US$ million
Restricted deposits at banks (Notes 13 and 18)
Financial instruments included in other non-current and current assets (Notes 13 and 18)
Long-term and short-term investments (Notes 13 and 18)
Trade and other receivables (Notes 13 and 15)
Loans receivable
Receivables from related parties (Notes 13 and 16)
Cash and cash equivalents (Note 19)
2014
2013
$8
55
49
658
45
43
1,086
$22
90
68
937
31
13
1,604
2012
$4
51
733
948
31
12
1,382
$1,944
$2,765
$3,161
Receivables from related parties in the table above do not include prepayments in the amount of $11 million, $3 million and $Nil as of
31 December 2014, 2013 and 2012, respectively.
EVRAZ plc Annual Report and Accounts 2014
181
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
28. Financial Risk Management Objectives and Policies (continued)
Credit Risk (continued)
The ageing analysis of trade and other receivables, loans receivable and receivables from related parties at 31 December is presented in the
table below.
US$ million
Not past due
Past due
less than six months
between six months and one year
over one year
2014
2013
2012
Gross
amount
$537
266
178
46
42
$803
Impairment
$–
(57)
(13)
(8)
(36)
Gross
amount
$642
399
328
21
50
Impairment
$(1)
(59)
(4)
(8)
(47)
Gross
amount
$796
296
209
21
66
Impairment
$(16)
(85)
(11)
(11)
(63)
$(57)
$1,041
$(60)
$1,092
$(101)
In the years ended 31 December 2014, 2013 and 2012, the movement in allowance for doubtful accounts was as follows:
US$ million
At 1 January
Charge for the year
Utilised
Disposal of subsidiaries
Translation difference
At 31 December
2014
$(60)
(40)
14
1
28
$(57)
2013
$(101)
(8)
36
7
6
$(60)
2012
$(108)
(14)
25
–
(4)
$(101)
Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing
liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group manages liquidity risk by maintaining adequate cash reserves and borrowing facilities, by continuously monitoring forecast and actual
cash flows and matching the maturity profiles of financial assets and liabilities.
The Group prepares a rolling 12-month financial plan which ensures that the Group has sufficient cash on demand to meet expected
operational expenses, financial obligations and investing activities as they arise. The Group exercises a daily monitoring of cash proceeds and
payments. The Group maintains credit lines and overdraft facilities that can be drawn down to meet short-term financing needs. If necessary,
the Group refinances its short-term debt by long-term borrowings. The Group also uses forecasts to monitor potential and actual financial
covenants compliance issues (Note 22). Where compliance is at risk, the Group considers options including debt repayment, refinancing or
covenant reset. The Group has developed standard payment periods in respect of trade accounts payable and monitors the timeliness of
payments to its suppliers and contractors.
182
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
28. Financial Risk Management Objectives and Policies (continued)
Liquidity Risk (continued)
The following tables summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments, including
interest payments.
Year ended 31 December 2014
US$ million
Fixed-rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Financial instruments included
in long-term liabilities
Total fixed-rate debt
Variable-rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Total variable-rate debt
Non-interest bearing debt
Financial instruments included
in other liabilities
Trade and other payables
Payables to related parties
Total non-interest bearing debt
Year ended 31 December 2013
US$ million
Fixed-rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Financial instruments included
in long-term liabilities
Total fixed-rate debt
Variable-rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Total variable-rate debt
Non-interest bearing debt
Financial instruments included
in other liabilities
Trade and other payables
Payables to related parties
Dividends payable
Total non-interest bearing debt
On
demand
Less than
3 months
3 to 12
months
1 to 2
years
2 to 5
years
After
5 years
Total
$–
–
–
–
–
82
–
–
82
–
174
78
252
$73
9
–
63
145
86
13
–
99
–
615
29
644
$430
358
–
305
1,093
25
36
1
62
–
42
1
43
$410
320
–
467
1,197
606
43
1
650
1
–
–
1
$2,836
589
–
7
3,432
$1,032
70
2
24
1,128
543
33
1
577
2
–
–
2
71
3
–
74
2
–
–
2
$4,781
1,346
2
866
6,995
1,413
128
3
1,544
5
831
108
944
$334
$888
$1,198
$1,848
$4,011
$1,204
$9,483
On
demand
Less than
3 months
3 to 12
months
1 to 2
years
2 to 5
years
After
5 years
Total
$–
–
–
–
–
81
–
–
81
–
236
326
5
567
$847
7
–
29
883
148
10
–
158
–
819
125
–
944
$635
492
–
53
1,180
18
25
1
44
1
116
6
–
123
$1,186
412
–
72
1,670
$3,077
627
1
152
3,857
$1,053
106
3
28
1,190
25
33
1
59
2
–
–
–
2
672
31
2
705
2
–
–
–
2
66
5
–
71
2
–
–
–
2
$6,798
1,644
4
334
8,780
1,010
104
4
1,118
7
1,171
457
5
1,640
$648
$1,985
$1,347
$1,731
$4,564
$1,263
$11,538
EVRAZ plc Annual Report and Accounts 2014
183
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
28. Financial Risk Management Objectives and Policies (continued)
Liquidity Risk (continued)
Year ended 31 December 2012
US$ million
Fixed-rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Financial instruments included
in long-term liabilities
Total fixed-rate debt
Variable-rate debt
Loans and borrowings
Principal
Interest
Total variable-rate debt
Non-interest bearing debt
Financial instruments included
in other liabilities
Trade and other payables
Payables to related parties
Amounts payable under
put options for shares
of subsidiaries
Dividends payable
Total non-interest bearing debt
On
demand
Less than
3 months
3 to 12
months
1 to 2
years
2 to 5
years
After
5 years
Total
$7
–
–
–
7
170
–
170
–
266
218
–
8
492
$669
$501
23
1
14
539
119
22
141
1
909
39
–
–
949
$1,629
$795
404
2
3
1,204
112
68
180
–
66
–
4
–
70
$678
396
4
21
1,099
359
84
443
3
–
–
6
–
9
$2,395
647
8
100
3,150
1,601
121
1,722
2
–
–
–
–
2
$1,380
58
3
24
1,465
76
7
83
2
–
–
–
–
2
$5,756
1,528
18
162
7,464
2,437
302
2,739
8
1,241
257
10
8
1,524
$1,454
$1,551
$4,874
$1,550
$11,727
Payables to related parties in the tables above do not include advances received in the amount of $Nil, $1 million and $Nil as of 31 December
2014, 2013 and 2012, respectively.
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures, while optimising the return on risk.
Interest Rate Risk
The Group borrows on both a fixed and variable rate basis and has other interest-bearing liabilities, such as finance lease liabilities and
other obligations.
The Group incurs interest rate risk on liabilities with variable interest rates. The Group’s treasury function performs analysis of current interest
rates. In case of changes in market fixed or variable interest rates management may consider the refinancing of a particular debt on more
favourable terms.
The Group does not have any financial assets with variable interest rates.
Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Group does not account for any fixed rate financial assets or liabilities at fair value through profit or loss. Therefore, a change in interest
rates at the reporting date would not affect the Group’s profits.
The Group does not account for any fixed rate financial assets as assets available for sale. Therefore, a change in interest rates at the reporting
date would not affect the Group’s equity.
184
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
28. Financial Risk Management Objectives and Policies (continued)
Market Risk (continued)
Interest Rate Risk (continued)
Cash Flow Sensitivity Analysis for Variable Rate Instruments
Based on the analysis of exposure during the years presented, reasonably possible changes in floating interest rates at the reporting date
would affect profit before tax (“PBT”) by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency
rates, remain constant.
In estimating reasonably possible changes the Group assessed the volatility of interest rates during the reporting periods.
Liabilities denominated in US dollars
Decrease in LIBOR
Increase in LIBOR
Liabilities denominated in euro
Decrease in EURIBOR
Increase in EURIBOR
2014
Basis
points
(2)
2
(7)
7
Effect on
PBT
US$
millions
$–
–
–
$–
2013
Basis
points
(2)
2
(5)
5
Effect on
PBT
US$
millions
$–
–
–
$–
2012
Basis
points
(2)
2
(4)
4
Effect on
PBT
US$
millions
$–
–
–
$–
Currency Risk
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in currencies other than the functional
currencies of the respective Group’s subsidiaries. The currencies in which these transactions are denominated are primarily US dollars,
Canadian dollars and euro.
The Group does not have formal arrangements to mitigate currency risks of the Group’s operations. However, management believes that the
Group is partly secured from currency risks as foreign currency denominated sales are used to cover repayment of foreign currency
denominated borrowings.
The Group’s exposure to currency risk determined as the net monetary position in the respective currencies was as follows at 31 December:
US$ million
USD/RUB
EUR/RUB
CAD/RUB
EUR/USD
USD/CAD
EUR/CZK
USD/CZK
USD/ZAR
EUR/ZAR
USD/UAH
RUB/UAH
USD/KZT
2014
$(439)
(220)
372
109
(469)
(1)
1
(34)
10
(248)
2
(150)
2013
2012
$(2,686)
(337)
774
108
(209)
(18)
(155)
(32)
26
(48)
15
(131)
$(1,478)
(382)
–
109
(24)
4
(176)
(9)
69
(168)
28
(73)
EVRAZ plc Annual Report and Accounts 2014
185
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
28. Financial Risk Management Objectives and Policies (continued)
Market Risk (continued)
Currency Risk (continued)
Sensitivity Analysis
The following table demonstrates the sensitivity to reasonably possible changes in the respective currencies, with all other variables held
constant, of the Group’s profit before tax. In estimating reasonably possible changes the Group assessed the volatility of foreign exchange
rates during the reporting periods.
USD/RUB
EUR/RUB
CAD/RUB
EUR/USD
USD/CAD
EUR/CZK
USD/CZK
USD/ZAR
EUR/ZAR
USD/UAH
RUB/UAH
USD/KZT
2014
2013
2012
Change in
exchange rate
Effect on
PBT
Change in
exchange rate
Effect on
PBT
Change in
exchange rate
Effect on
PBT
%
US$ millions
%
US$ millions
%
US$ millions
(28.74)
28.74
(29.58)
29.58
(28.37)
28.37
(6.23)
6.23
(6.21)
6.21
(2.43)
2.43
(6.84)
6.84
(11.33)
11.33
(11.34)
11.34
(28.90)
28.90
(39.93)
39.93
(17.37)
17.37
126
(126)
65
(65)
(105)
105
(7)
7
29
(29)
–
–
–
–
4
(4)
(1)
1
72
(72)
(1)
1
26
(26)
(10.10)
15.00
(7.79)
15.00
(10.10)
15.00
(7.76)
7.76
(5.83)
5.83
(5.85)
5.85
(10.82)
10.82
(16.21)
16.21
(15.17)
15.17
–
30
–
13
(10.00)
30.00
271
(403)
26
(51)
(78)
116
(8)
8
12
(12)
1
(1)
17
(17)
5
(5)
(4)
4
–
(14)
–
2
13
(39)
(11.09)
11.09
(8.12)
8.12
–
–
(8.45)
8.45
(6.69)
6.69
(6.38)
6.38
(12.64)
12.64
(19.27)
19.27
(12.09)
12.09
(0.08)
0.08
(11.07)
11.07
(1.57)
1.57
164
(164)
31
(31)
–
–
(9)
9
2
(2)
–
–
22
(22)
2
(2)
(8)
8
–
–
(3)
3
1
(1)
Except for the effects of changes in the exchange rates disclosed above, the Group is exposed to currency risk on derivatives not designated as
hedging instruments (Note 25). The impact of currency risk on the fair value of these derivatives is disclosed below.
USD/RUB
2014
2013
2012
Change in
exchange rate
Effect on
PBT
Change in
exchange rate
Effect on
PBT
Change in
exchange rate
Effect on
PBT
%
US$ millions
%
US$ millions
%
US$ millions
(28.74)
28.74
228
(126)
(10.10)
15.00
183
(213)
(11.09)
11.09
271
(217)
186
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
28. Financial Risk Management Objectives and Policies (continued)
Market Risk (continued)
Currency Risk (continued)
Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
– Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
– Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
– Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
(unobservable inputs).
The carrying amounts of financial instruments, such as cash, short-term and long-term investments, short-term accounts receivable and
payable, short-term loans receivable and payable and promissory notes, approximate their fair value.
At 31 December the Group held the following financial instruments measured at fair value:
US$ million
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
2014
2013
2012
Assets measured at fair value
Available-for-sale financial
assets (Note 13)
Derivatives not designated as
hedging instruments
Liabilities measured at fair value
Derivatives not designated as
hedging instruments (Note 25)
Deferred consideration payable
for the acquisition of Inprom
(Note 25)
Contingent consideration
payable for the acquisition
of Stratcor (Note 25)
17
–
–
–
–
–
–
713
–
–
–
–
–
–
2
30
–
–
–
–
–
–
219
–
–
–
–
–
–
8
21
–
–
10
–
–
2
115
–
–
–
–
–
–
12
During the reporting period, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of
Level 3 fair value measurements.
The following table shows financial instruments for which carrying amounts differ from fair values at 31 December.
2014
2013
2012
US$ million
Long-term fixed-rate bank loans
Long-term variable-rate bank loans
8.875 per cent notes due 2013
8.25 per cent notes due 2015
7.40 per cent notes due 2017
9.5 per cent notes due 2018
6.75 per cent notes due 2018
7.50 per cent bonds due 2019
6.50 per cent notes due 2020
9.25 per cent bonds due 2013
13.5 per cent bonds due 2014
8.75 per cent bonds due 2015
9.95 per cent bonds due 2015
8.40 per cent bonds due 2016
Liabilities under 7.75 per cent bonds due 2017
assumed in business combination (Note 4)
Other liabilities
Carrying
amount
$254
1,235
–
139
606
507
856
345
1,008
–
–
71
271
358
417
–
Fair
value
$251
1,059
–
140
531
471
730
345
801
–
–
70
250
299
278
–
Carrying
amount
$209
776
–
569
605
505
855
–
1,007
–
627
122
466
614
431
–
Fair
value
$249
814
–
621
634
568
858
–
951
–
645
121
464
592
417
–
Carrying
amount
$105
2,115
542
562
604
503
854
–
–
506
675
–
501
661
–
1
Fair
value
$131
1,956
554
643
642
591
889
–
–
508
728
–
511
630
–
1
$6,067
$5,225
$6,786
$6,934
$7,629
$7,784
The fair value of the non-convertible bonds and notes was determined based on market quotations (Level 1). The fair value of long-term bank
loans was calculated based on the present value of future principal and interest cash flows, discounted at the Group’s market rates of interest
at the reporting dates (Level 3). The discount rates used for valuation of financial instruments were as follows:
Currency in which financial instruments are denominated
USD
EUR
RUB
2014
2013
2012
8.9 – 14.7%
4.5 – 8.2%
1.9%
–
2.7%
10.4%
7.5 – 8.6%
2.9%
9.2%
EVRAZ plc Annual Report and Accounts 2014
187
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
28. Financial Risk Management Objectives and Policies (continued)
Capital Management
Capital includes equity attributable to the equity holders of the parent entity. Revaluation surplus which is included in capital is not subject to
capital management because of its nature.
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order
to support its business and maximise the return to shareholders. The Board of Directors reviews the Group’s performance and establishes key
performance indicators. There were no changes in the objectives, policies and processes during 2014.
The Group manages its capital structure and makes adjustments to it by the issue of new shares, dividend payments to shareholders, and the
purchase of treasury shares. In addition, the Group monitors distributable profits on a regular basis and determines the amounts and timing of
dividend payments.
The capital requirements imposed by certain loan agreements included a $2,000 million minimum representing consolidated equity of Evraz
Group S.A. less goodwill. In 2012–2013, the Group was in compliance with this requirement. In June 2013, this covenant was abolished.
29. Non-cash Transactions
Transactions that did not require the use of cash or cash equivalents were as follows in the years ended 31 December:
US$ million
Liabilities for purchases of property, plant and equipment
Loan issued to a partner of the Mezhegey coal field project
Purchase of a non-controlling interest in the Mezhegey coal field project settled by an offset
with a loan due to the Group (Note 4)
2014
$45
–
–
2013
$148
2
–
2012
$144
7
40
30. Commitments and Contingencies
Operating Environment of the Group
The Group is one of the largest vertically integrated steel producers globally and the largest steel producer in Russia. The Group’s major
subsidiaries are located in Russia, Ukraine, the European Union, the USA, Canada and the Republic of South Africa. Russia, Ukraine and the
Republic of South Africa are considered to be developing markets with higher economic and political risks. Steel consumption is affected by the
cyclical nature of demand for steel products and the sensitivity of that demand to worldwide general economic conditions.
The global economic recession resulted in a significantly lower demand for steel products and decreased profitability. In addition, the political
crisis over Ukraine led to an additional uncertainty in the global economy. The unrest in the Southeastern region of Ukraine and the economic
sanctions imposed on Russia caused the depreciation of national currencies, economic slowdown, deterioration of liquidity in the banking
sector, and tighter credit conditions within Russia and Ukraine. In addition, a significant drop in crude oil prices in the latter half of 2014
negatively impacted the Russian economy. In December 2014, the rouble interest rates have increased significantly after the Central Bank
of Russia raised its key rate to 17%.The combination of the above resulted in reduced access to capital, a higher cost of capital, increased
inflation and uncertainty regarding economic growth. If the Ukrainian crisis broadens and further sanctions are imposed on Russia, this could
have an adverse impact on the Group’s business.
Management believes it is taking appropriate measures to support the sustainability of the Group’s business in the current circumstances.
The global economic climate continues to be unstable and this may negatively affect the Group’s results and financial position in a manner not
currently determinable.
Taxation
Russian and Ukrainian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently.
Further, the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Group’s entities may not coincide
with that of management. As a result, tax authorities may challenge transactions and the Group’s entities may be assessed for additional taxes,
penalties and interest. In Russia and Ukraine the periods remain open to review by the tax and customs authorities with respect to tax liabilities
for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.
Management believes that it has paid or accrued all taxes that are applicable. Where uncertainty exists, the Group has accrued tax liabilities
based on management’s best estimate of the probable outflow of resources embodying economic benefits, which will be required to settle these
liabilities. Possible liabilities which were identified by management at the end of the reporting period as those that can be subject to different
interpretations of the tax laws and other regulations and are not accrued in these financial statements could be up to approximately $23 million.
Contractual Commitments
At 31 December 2014, the Group had contractual commitments for the purchase of production equipment and construction works for an
approximate amount of $179 million.
In 2010, the Group concluded an agreement for the supply of oxygen, nitrogen and argon by a third party for a period of 20 years.
The contractual price comprises a fixed component and a variable component. The total amount of the fixed component approximates
256 million euro. The agreement is within the scope of IFRIC 4 “Determining whether an Arrangement Contains a Lease”. At 31 December
2014, the lease had not commenced.
188
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
30. Commitments and Contingencies (continued)
Social Commitments
The Group is involved in a number of social programmes aimed to support education, healthcare and social infrastructure development in towns
where the Group’s assets are located. The Group budgeted to spend approximately $70 million under these programmes in 2015.
Environmental Protection
In the course of the Group’s operations, the Group may be subject to environmental claims and legal proceedings. The quantification of
environmental exposures requires an assessment of many factors, including changing laws and regulations, improvements in environmental
technologies, the quality of information available related to specific sites, the assessment stage of each site investigation, preliminary findings
and the length of time involved in remediation or settlement.
The Group has a number of environmental claims and proceedings which are at an early stage of investigation. Environmental provisions in
relation to these proceedings that were recognised at 31 December 2014 amounted to $8 million. Preliminary estimates available of the
incremental costs indicate that such costs could be up to $89 million. The Group has insurance agreements, which will provide partial
reimbursement of the costs actually incurred. Management believes that, as of now, an economic outflow of the additional costs is not probable
and any pending environmental claims or proceedings will not have a material adverse effect on its financial position and results of operations.
In addition, the Group has committed to various environmental protection programmes covering periods from 2015 to 2022, under which the
Group will perform works aimed at reductions in environmental pollution and contamination. As of 31 December 2014, the costs of
implementing these programmes are estimated at $167 million.
Legal Proceedings
The Group has been and continues to be the subject of legal proceedings, none of which has had, individually or in aggregate, a significant
effect on the Group’s operations or financial position.
The Group exercises judgement in measuring and recognising provisions and the exposure to contingent liabilities related to pending litigations
or other outstanding claims subject to negotiated settlement, mediation, arbitration or government regulation, as well as other contingent
liabilities. Judgement is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the
possible range of the final settlement. Because of the inherent uncertainties in this evaluation process, actual losses may be different from
the originally estimated provision. These estimates are subject to change as new information becomes available, primarily with the support of
internal specialists or with the support of outside consultants. Revisions to the estimates may significantly affect future operating results.
31. Auditor’s Remuneration
The remuneration of the Group’s auditor in respect of the services provided to the Group was as follows.
US$ million
Audit of the parent company of the Group
Audit of the subsidiaries
Total assurance services
Services in connection with capital market transactions
Other non-audit services
Total other services
2014
$2
5
7
2
–
2
$9
2013
$2
5
7
–
1
1
$8
2012
$2
5
7
–
1
1
$8
32. Material Partly-Owned Subsidiaries
Financial information of subsidiaries that have material non-controlling interests is provided below.
Name
Raspadskaya
EVRAZ Highveld Steel and Vanadium Limited
New CF&I (subsidiary of EVRAZ Inc NA)
US$ million
Accumulated balances of material non-controlling interest
Raspadskaya
EVRAZ Highveld Steel and Vanadium Limited
New CF&I (subsidiary of EVRAZ Inc NA)
Others
Profit allocated to material non-controlling interest
Raspadskaya
EVRAZ Highveld Steel and Vanadium Limited
New CF&I (subsidiary of EVRAZ Inc NA)
Others
Non-controlling interests
Country of incorporation
2014
2013
Russia
Republic of South Africa
USA
18.05%
14.89%
10.00%
18.05%
14.89%
10.00%
2012
–
14.89%
10.00%
2014
2013
2012
$108
4
98
8
218
(58)
(19)
9
(35)
$(103)
$262
24
90
55
431
(30)
(18)
9
(8)
$(47)
$–
49
83
68
200
–
(27)
10
(10)
$(27)
EVRAZ plc Annual Report and Accounts 2014
189
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
32. Material Partly-Owned Subsidiaries (continued)
The summarised financial information of these 3 subsidiaries is provided below. This information is based on amounts before inter-
company eliminations.
Summarised statement of profit or loss
Raspadskaya
US$ million
Revenue
Cost of revenue
Gross profit/(loss)
Operating costs
Impairment of assets
Foreign exchange gains/(losses), net
Profit/(loss) from operations
Non-operating gains/(losses)
Profit/(loss) before tax
Income tax benefit/(expense)
Net profit/(loss)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to non-controlling interests
dividends paid to non-controlling interests
EVRAZ Highveld Steel and Vanadium Limited
US$ million
Revenue
Cost of revenue
Gross profit/(loss)
Operating costs
Impairment of assets
Foreign exchange gains/(losses), net
Profit/(loss) from operations
Non-operating gains/(losses)
Profit/(loss) before tax
Income tax benefit/(expense)
Net profit/(loss)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to non-controlling interests
dividends paid to non-controlling interests
New CF&I
US$ million
Revenue
Cost of revenue
Gross profit/(loss)
Operating costs
Impairment of assets
Foreign exchange gains/(losses), net
Profit/(loss) from operations
Non-operating gains/(losses)
Profit/(loss) before tax
Income tax benefit/(expense)
Net profit/(loss)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to non-controlling interests
dividends paid to non-controlling interests
190
EVRAZ plc Annual Report and Accounts 2014
2014
$444
(437)
7
(85)
(9)
(277)
(364)
(32)
(396)
77
$(319)
(598)
(917)
(154)
–
2014
$544
(539)
5
(81)
(58)
(3)
(137)
(7)
(144)
13
$(131)
(7)
(138)
(20)
–
2014
$922
(768)
154
(49)
–
–
105
18
123
(37)
$86
(10)
76
8
–
2013
$519
(481)
38
(159)
–
(30)
(151)
(39)
(190)
33
$(157)
(126)
(283)
(49)
–
2013
$538
(510)
28
(90)
(99)
–
(161)
(7)
(168)
46
$(122)
(45)
(167)
(24)
–
2013
$858
(738)
120
(42)
–
–
78
48
126
(40)
$86
(15)
71
7
–
2012
$–
–
–
–
–
–
–
–
–
–
$–
–
–
–
–
2012
$529
(597)
(68)
(91)
–
3
(156)
(5)
(161)
(18)
$(179)
(10)
(189)
(28)
–
2012
$915
(764)
151
(43)
–
–
108
46
154
(51)
$103
(1)
102
10
–
Strategic Report
Business Review
Governance
Financial Statements
32. Material Partly-Owned Subsidiaries (continued)
Summarised statement of financial position as at 31 December
Raspadskaya
US$ million
Property, plant and equipment
Other non-current assets
Current assets
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Total equity
attributable to:
equity holders of parent
non-controlling interests
EVRAZ Highveld Steel and Vanadium Limited
US$ million
Property, plant and equipment
Other non-current assets
Current assets
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Total equity
attributable to:
equity holders of parent
non-controlling interests
New CF&I
US$ million
Property, plant and equipment
Other non-current assets
Current assets
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Total equity
attributable to:
equity holders of parent
non-controlling interests
2014
$1,316
32
117
1,465
93
530
107
730
735
627
108
2014
$80
30
149
259
–
64
169
233
26
22
4
2014
$237
929
186
1,352
85
86
201
372
980
882
98
2013
$2,350
12
180
2,542
213
570
107
890
1,652
1,390
262
2013
$137
66
178
381
15
73
129
217
164
140
24
2013
$235
812
183
1,230
90
72
164
326
904
814
90
2012
$–
–
–
–
–
–
–
–
–
–
–
2012
$271
149
215
635
73
94
137
304
331
282
49
2012
$231
720
216
1,167
98
97
139
334
833
750
83
EVRAZ plc Annual Report and Accounts 2014
191
Notes to the Consolidated Financial Statements (continued)
Year ended 31 December 2014
32. Material Partly-Owned Subsidiaries (continued)
Summarised cash flow information
Raspadskaya
US$ million
Operating activities
Investing activities
Financing activities
EVRAZ Highveld Steel and Vanadium Limited
US$ million
Operating activities
Investing activities
Financing activities
New CF&I
US$ million
Operating activities
Investing activities
Financing activities
2014
$120
(61)
(41)
2014
$(15)
(15)
7
2014
$154
(154)
–
2013
$25
(73)
(89)
2013
$(30)
(19)
16
2013
$140
(145)
5
2012
$–
–
–
2012
$(60)
(28)
13
2012
$123
(117)
(6)
33. Subsequent Events
On 31 March 2015, the Board resolved to announce a return of capital to be effected by a tender offer to shareholders at $3.10 per share in
the amount of up to $375 million.
In March 2015 the Group fully settled the 8.75% notes due 2015 and the related liabilities under the swap contracts. The total cash outflow
amounted $123 million.
192
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Separate Statement of Comprehensive Income
(In millions of US dollars)
General and administrative expenses
Impairment of investments
Foreign exchange gain
Interest expense
Dividend income
Other income
Net profit/(loss)for the year
Total comprehensive income/(loss) for the year
The accompanying notes form an integral part of these separate financial statements.
Notes
3
3
3,7,9
8
7
31 December
2014
$(11)
(470)
29
(5)
150
1
(306)
2013
$(14)
(181)
7
(21)
715
–
506
$(306)
$506
EVRAZ plc Annual Report and Accounts 2014
193
Separate Statement of Financial Position
(In millions of US dollars)
The Financial Statements on pages 193 to 201 were approved by the Board of Directors on 31 March 2015 and signed on its behalf by
Alexander Frolov, Chief Executive Officer.
31 December
Notes
2014
2013
3
3
4
7
7,8
3
5
5
3,5
5
6
3
7
3
7
7
$2,925
92
6
6
3,029
4
–
34
38
$3,318
139
–
–
3,457
113
14
–
127
3,067
3,584
1,507
(584)
57
–
81
1,960
3,021
18
6
24
18
1
3
22
46
1,473
(584)
478
156
51
1,819
3,393
–
–
–
88
103
–
191
191
$3,067
$3,584
ASSETS
Non–current assets
Investments in subsidiaries
Investments in joint ventures
Financial assets
Receivables from related parties
Current assets
Receivables from related parties
Current income tax receivable
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Capital and reserves
Issued capital
Reorganisation reserve
Merger reserve
Warrants reserve
Share-based payments
Accumulated profits
LIABILITIES
Non-Current Liabilities
Trade and other payables
Financial guarantee liabilities
Current liabilities
Trade and other payables
Payables to related parties
Financial guarantee liabilities
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
The accompanying notes form an integral part of these separate financial statements.
194
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Separate Statement of Cash Flows
(In millions of US dollars)
Cash flows from operating activities
Net profit/(loss)
Adjustments to reconcile net profit to net cash flows from operating activities:
Impairment of investments
Foreign exchange gain
Interest expense
Dividend income
Other income
Changes in working capital:
Taxes receivable
Trade and other payables
Net cash flow from/(used in) operating activities
Cash flows from investing activities
Investments in subsidiaries
Payments to acquire shares in joint ventures
Payments to acquire financial assets
Dividends received
Return of funds by subsidiaries
Net cash flow from investing activities
Cash flows from financing activities
Purchase of treasury shares
Repayment of bank loans and notes, including interest
Dividends paid to shareholders
Net cash flow used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The accompanying notes form an integral part of these separate financial statements.
31 December
Notes
2014
2013
$(306)
$506
3
3
3,7,9
8
7
3
3
3
4
8
3
6
9
5
470
(29)
5
(150)
(1)
(11)
15
–
4
(102)
(29)
(6)
263
–
126
(6)
–
(90)
(96)
34
–
$34
181
(7)
21
(715)
–
(14)
(14)
(3)
(31)
(558)
(61)
–
602
300
283
(2)
(250)
–
(252)
–
–
$–
EVRAZ plc Annual Report and Accounts 2014
195
Separate Statement of Changes in Equity
(In millions of US dollars)
At 31 December 2012
$1,340
$–
$(584)
$–
$–
$26
$1,315
$2,097
Notes
Issued
capital
Treasury
shares
Reorganisation
reserve
Merger
reserve
Warrants
reserve
Share-based
payments
Accumulated
profits
Total
Total comprehensive
income/(loss) for the year
Issue of share capital
Share-based payment
Purchase of treasury
shares
Transfer of treasury shares
to participants of the
Incentive Plans
At 31 December 2013
Total comprehensive
income/(loss) for the year
Exercise of warrants
Impairment of the
investment in Corber
Share-based payment
Purchase of treasury
shares
Transfer of treasury shares
to participants of the
Incentive Plans
Dividends declared
At 31 December 2014
5
6
6
6
5
3
6
6
6
5
–
133
–
–
–
$1,473
–
34
–
–
–
–
–
$1,507
–
–
–
(2)
2
$–
–
–
–
–
(6)
6
–
$–
–
–
–
–
–
–
478
–
–
–
–
156
–
–
–
–
–
25
–
–
506
–
–
–
(2)
506
767
25
(2)
–
$(584)
$478
$156
$51
$1,819
$3,393
–
–
–
–
–
–
–
–
122
(543)
–
–
–
–
–
(156)
–
–
–
–
–
–
–
–
30
–
–
–
(306)
–
543
–
–
(6)
(90)
(306)
–
–
30
(6)
–
(90)
$(584)
$57
$–
$81
$1,960
$3,021
The accompanying notes form an integral part of these separate financial statements.
196
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Notes to the Separate Financial Statements
For the year ended 31 December 2014
1. Corporate Information
These separate financial statements of EVRAZ plc were authorised for issue in accordance with a resolution of the directors on 31 March 2015.
EVRAZ plc (“EVRAZ plc” or “the Company”) was incorporated on 23 September 2011 as a public company under the laws of the United
Kingdom. The company was incorporated under the Companies Act 2006 with the registered number 7784342. The Company’s registered
office is at 5th Floor, 6 St. Andrew Street, London, EC4A 3AE, United Kingdom.
As a result of the reorganisation implemented by way of the share exchange offer made by the Company for the shares of Evraz Group S.A.,
on 7 November 2011, the Company became a new parent entity of Evraz Group S.A., a joint stock company registered in Luxembourg in 2004.
The Company, together with its subsidiaries (the “Group”), is involved in the production and distribution of steel and related products and coal
and iron ore mining. In addition, the Group produces vanadium products. The Group is one of the largest steel producers globally.
Lanebrook Limited (Cyprus) is the ultimate controlling party of the Group.
2. Significant Accounting Policies
Basis of Preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the
European Union and in accordance with the Companies Act 2006.
International Financial Reporting Standards are issued by the International Accounting Standard Board (“IASB”). IFRSs that are mandatory for
application as of 31 December 2014, but not adopted by the European Union, are not expected to have a significant impact on the Company’s
financial statements.
These financial statements have been prepared on a going concern basis as the directors believe there are no material uncertainties which
could create a significant doubt as to the Company’s ability to continue as a going concern in the foreseeable future.
Foreign Currency Transactions
The presentation and functional currency of the Company is the US dollar. Transactions in foreign currencies are initially recorded in US dollar at
the rate on the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange at
the balance sheet date. Exchange gains and losses are recognised in profit or loss.
Investments
Investments in subsidiaries, associates or joint ventures are initially recorded at acquisition cost. Write–downs are recorded if, in the opinion
of the management, there is any impairment in value.
The cost of the investment in Evraz Group S.A. was measured at the carrying amount of the equity items of Evraz Group S.A. as a separate legal
entity at the date of the reorganisation (Note 3).
Dividend income is recognised as revenue when the Company’s right to receive the payment is established.
All purchases and sales of investments are recognised on the settlement date, which is the date when the investment is delivered to or
by the Company.
Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest
rates, are classified as available-for-sale; these are included in non-current assets unless management has the express intention of holding the
investment for less than 12 months from the end of the reporting period or unless they will need to be sold to raise operating capital, in which
case they are included in current assets. Management determines the appropriate classification of its investments at the time of the purchase
and re-evaluates such designation on a regular basis. After initial recognition available-for-sale investments are measured at fair value with
gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined
to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the statement of operations. Reversals of
impairment losses in respect of equity instruments are not recognised in the statement of operations. Impairment losses in respect of debt
instruments are reversed through profit or loss if the increase in fair value of the instrument can be objectively related to an event occurring
after the impairment loss was recognised in the statement of operations.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.
Borrowings
Borrowings are initially recognised at fair value, net of directly attributable transaction costs. After initial recognition, borrowings are measured
at amortised cost using the effective interest rate method; any difference between the amount initially recognised and the redemption amount
is recognised as interest expense over the period of the borrowings.
Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, and when it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. Where the Company expects a provision to be reimbursed, for example under an insurance contract, the
reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
EVRAZ plc Annual Report and Accounts 2014
197
Notes to the Separate Financial Statements
For the year ended 31 December 2014 (continued)
3. Investments in Subsidiaries and Joint Ventures
Investments in subsidiaries and joint ventures consisted of the following as of 31 December 2014 and 2013:
Subsidiaries
Evraz Group S.A.
EVRAZ Greenfield Development S.A.
Corber Enterprises S.a r.l.
Joint Ventures
OJSC Mining and Metallurgical Company Timir
The movement in investments was as follows:
$US million
31 December 2012
Additional investments
Share-based compensations
Impairment loss (recognition)/reversal
31 December 2013
Share-based compensations
Impairment loss (recognition)/reversal
31 December 2014
Ownership interest
Cost, net of impairment US$ million
2014
100%
100%
50%
2013
100%
100%
50%
2014
2,250
254
421
2,925
2013
2,220
134
964
3,318
51.00001%
51.00001%
92
139
Evraz Group S.A.
EVRAZ Greenfield
Development S.A.
$2,095
100
25
$2,220
30
–
$2,250
$248
57
–
(171)
$134
–
120
$254
Corber
$–
964
–
–
$964
–
(543)
$421
Timir
$–
149
–
(10)
$139
–
(47)
$92
Total
$2,343
1,270
25
(181)
$3,457
30
(470)
$3,017
Evraz Group S.A.
The Company acquired Evraz Group S.A. in 2011 by means of the share exchange offer made by the Company to the shareholders of Evraz
Group S.A., which were entitled to receive 9 shares of EVRAZ plc for each share of Evraz Group S.A. The cost of investments in Evraz Group S.A.
was measured at the carrying amount of the equity items shown in the separate accounts of Evraz Group S.A. at the dates of share exchange.
In 2013, the Company made a cash contribution to the share capital of Evraz Group S.A. for a total amount of $100 million.
In addition, the Company recognises share-based payments made to employees of subsidiaries under control of Evraz Group S.A. as an
addition to the cost of its investments in Evraz Group S.A. (Note 6). In 2014 and 2013, share-based compensations amounted to $30 million
and $25 million.
EVRAZ Greenfield Development S.A.
In 2012, the Company made a cash contribution to the share capital of EVRAZ Greenfield Development S.A. (“EGD”) in the amount of
$248 million. This contribution was used by EGD for the purchase of a 60.016% share in the Mezhegey coal field project from Mastercroft
Limited, an indirect subsidiary of the Company, for $245 million. In 2013, the Company made cash contributions to the share capital of EGD for
a total amount of $357 million. Subsequently in 2013, when external financing was received, EGD decreased the share capital by $300 million
and returned this amount to the Company in cash. As such, the net investment in the subsidiary amounted to $305 million.
At 31 December 2014 and 2013, the Company assessed the recoverability of its investment in EGD. The recoverable amount of the asset was
based on a value-in-use calculation using cash flow projections based on the business plans approved by management and an appropriate
discount rate reflecting time value of money and risks associated with the asset. The discount rates were 18.36% and 13.72% in 2014 and
2013, respectively.
As a result, in 2013, the Company recognised an impairment loss of $171 million. The major drivers that led to impairment were the changes in
expectations of long-term prices for coal and the decrease in the sales volumes. In 2014, $120 million impairment loss was reversed due to the
increased estimation of the value in use of the subsidiary as a result of the improved technological methods of development of the project and
better quality of coal than the originally estimated.
Corber Enterprises S.a r.l.
On 16 January 2013, EVRAZ plc acquired a 50% ownership interest in Corber Enterprises S.a r.l. (“Corber”), the parent of a coal mining
company Raspadskaya, and, consequently, the Group obtained control over the entity (the other 50% share in Corber is held by an indirect
subsidiary of Evraz Group S.A.). The sellers were Adroliv Investments Limited, Verocchio Enterprises Limited and Kadre Enterprises Limited,
entities under control of key management persons of Raspadskaya.
The purchase consideration included 132,653,006 shares of EVRAZ plc issued on 16 January 2013, warrants to subscribe for an additional
33,944,928 EVRAZ plc shares exercisable at zero price in the period from 17 January to 17 April 2014 and a cash consideration of $202 million
to be paid in equal quarterly instalments to 15 January 2014. Fair value of the consideration transferred totalled to $964 million, including
$611 million relating to the shares issued, $156 million representing the fair value of the warrants and $197 million being the present value
of the cash component of the purchase consideration. The fair value of shares and warrants was determined by reference to the market value
of EVRAZ plc shares at the date of acquisition. In 2013, the Company paid $101 million relating to this acquisition.
198
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Strategic Report
Business Review
Governance
Financial Statements
3. Investments in Subsidiaries and Joint Ventures (continued)
In 2014, the Company fully settled its liabilities for the purchase of Corber, including $101 million of purchase consideration and $1 million
of accrued interest.
In 2013, the Company paid $14 million of corporate tax in connection with the issue of warrants. As these warrants were exercised in 2014
and the Company claimed reimbursement of payments made.
At 31 December 2014 and 2013, the Company assessed the recoverability of its investment in Corber. The recoverable amount of the asset
was based on a value-in-use calculation using cash flow projections based on the business plans approved by management and an appropriate
discount rate reflecting time value of money and risks associated with the asset. The discount rates were 16.10% and 13.37% in 2014 and
2013, respectively. As a result, in 2014 the Company recognised an impairment loss of $543 million, which was all recognised in the statement
of comprehensive income and transferred out of the merger reserve. The major drivers that led to impairment were the increase in the discount
rate and the planned temporary stoppage of one of the largest mines of Raspadskaya (MUK-96) due to unfavourable coal prices.
OJSC Mining and Metallurgical Company Timir
On 3 April 2013, the Company acquired a 51% ownership interest in the joint venture with Alrosa for the development of 4 iron ore deposits
in the southern part of the Yakutia region in Russia. The Company’s consideration for this stake amounted to $149 million being the present
value of the expected cash outflows at the exchange rate as of 31 December 2013. The consideration denominated in roubles is payable in
instalments till 15 July 2014. In 2014 and 2013, the Company recognised within interest expense $2 million and $7 million, respectively,
representing the unwinding of the discount on this liability.
In 2014 and 2013, the Group paid 990 million roubles ($28 million) and 1,980 million roubles ($61 million), respectively, of purchase
consideration. In July 2014, the parties agreed to amend the payment schedule and postponed two instalments of 990 million roubles each
(in total $35 million at the exchange rate as of 31 December 2014) until 31 July 2015 and 2016. From the date of the amendment the Group
incurred interest charges on the unpaid liability at a rate of 8.5% per annum. These charges amounted to $3 million in 2014, out of which
$1 million was paid.
In 2014 and 2013, the Company recognised $28 million and $7 million of foreign exchange gains on liabilities for Timir shares due to
depreciation of the Russian rouble.
At 31 December 2014 and 2013, trade and other accounts payable included liabilities relating to this acquisition in the amount of $36 million
and $88 million, respectively.
At 31 December 2014 and 2013, the Company assessed the recoverability of its investment in Timir. The recoverable amount of the asset was
based on a value-in-use calculation using cash flow projections based on the business plans approved by management and an appropriate
discount rate reflecting time value of money and risks associated with the asset. The discount rates were 14.46% and 16.20% in 2014 and
2013, respectively. As a result, in 2014 and 2013, the Company recognised impairment losses of $47 million and $10 million, respectively.
The major driver that led to impairment was the changes in expectations of long-term prices for iron ore.
Any change to the key assumptions in the value in use calculations could materially impact the recoverable value and result in further
impairment or a reversal of previously recognised impairment. For further analysis of these key assumptions please refer to Note 6 of the
consolidated financial statements.
Additional information is provided in Note 11 of the consolidated financial statements.
4. Financial Assets
In December 2014, the Company purchased certain bonds of Raspadskaya, an indirect subsidiary, on the market. The bonds bear interest
of 7.74% per annum and mature on 27 April 2017. The Company paid $6 million for the bonds with a nominal value of $8 million and fair value
of $6 million at the date of the transaction.
Management determined that this investment should be classified as available for sale financial assets. As such, they were measured at fair
value, which was calculated based on the market prices of the bonds (Level 1).
5. Equity
Share Capital
Number of shares
31 December
2014
2013
Ordinary shares of $1 each, issued and fully paid
1,506,527,294
1,472,582,366
EVRAZ plc does not have an authorised limit on its share capital.
At 31 December 2014 and 2013, the Company held Nil and 159,649 of its own shares, respectively. In addition, Mastercroft Finance Limited,
an indirect subsidiary, had Nil and 143,068 shares of the Company at 31 December 2014 and 2013, respectively.
In January 2013, the Company issued 132,653,006 shares as part of consideration paid for acquisition of Corber (Note 3). These shares were
valued at their market quotation at the date of acquisition of Corber. The excess of the market value of shares issued over their nominal value in
the amount of $478 million was recognised in a merger reserve under section 612 of the Companies Act 2006 as all of the criteria for merger
relief have been satisfied. Any future impairments of the carrying value of the investment in Corber can be transferred to the merger reserve,
thus protecting distributable reserves.
EVRAZ plc Annual Report and Accounts 2014
199
Notes to the Separate Financial Statements
For the year ended 31 December 2014 (continued)
5. Equity (continued)
In addition, in 2013, the Company issued warrants to subscribe for an additional 33,944,928 EVRAZ plc shares exercisable at zero price in the
period from 17 January to 17 April 2014. The fair value of warrants issued amounting to $156 million was credited to a separate reserve within
equity (“Warrant reserve”). These warrants were exercised on 27 January 2014. The difference between the fair value of warrants ($156 million)
and the par value of shares issued ($34 million) was credited to the merger reserve.
Reorganisation Reserve
Reorganisation reserve represents the difference between the net assets of Evraz Group S.A. at the date of the Group’s reorganisation
(7 November 2011) and the par value of the issued shares of EVRAZ plc. This charge to equity reduced the amount of distributable reserves.
Dividends
In 2013-2014, the Company declared dividends as follows:
Special for 2014
Date of declaration
To holders
registered at
Dividends
declared,
US$ million
US$ per share
08/04/2014
06/06/2014
90
0.06
On 8 April 2014, the Board of directors of EVRAZ plc proposed to declare special dividends in the amount of $90.4 million representing
$0.06 per share. The dividends were paid out of the sale proceeds for EVRAZ Vitkovice Steel.
6. Share-based Payments
As disclosed in Note 21 of the consolidated financial statements, the Group has incentive plans under which certain employees (“participants”)
can be gifted shares of the Company.
In 2014, the Company spent $6 million for the purchase of its shares on the market for the subsequent transfer of these shares to participants
(2013: US$2 million). The cost of treasury shares gifted under Incentive Plans, amounting to $6 million, was charged to accumulated profits.
In 2014 and 2013, the Company recognised a $30 million and $25 million expense under the share-based compensations as a cost of
investments in Evraz Group S.A. with a corresponding increase in equity.
The share-based awards which were not exercised at 31 December 2014 and 2013 amounted to 36,608,052 and 27,692,062 shares of EVRAZ
plc, respectively. At 31 December 2014, all these awards were unvested, at 31 December 2013, they included 98,647 vested shares. More
details are provided in Note 21 of the consolidated financial statements.
7. Related Party Transactions
Related parties of the Company include its direct and indirect subsidiaries, associates and joint venture partners, key management personnel
and other entities that are under the control or significant influence of the key management personnel, the Company’s parent or its
shareholders.
At December 2013, liabilities to related parties included $102 million payable for Corber’s shares to Adroliv Investments Limited, Verocchio
Enterprises Limited and Kadre Enterprises Limited. These liabilities were fully settled in 2014. In 2013, the Company recognised within interest
expense $6 million representing the unwinding of the discount to the liability and an interest on a tranche, for which payment was postponed.
In 2014, OOO Evrazholding, an indirect subsidiary of the Company, rendered consulting services in the amount of $2 million (2013: $6 million). At
31 December 2014, the balances with related parties included accounts payable to OOO Evrazholding in the amount of $1 million (2013: $1 million).
In 2014, the Company issued a guarantee in respect of the liabilities of EVRAZ NTMK and EVRAZ ZSMK, indirect subsidiaries of the Company,
under a $500 million syndicated loan. The loan bears interest of 3.49% per annum and matures in August 2019. The Company earns a 0.6%
guarantee fee in respect of this bank loan and in 2014 it accrued income of $1 million. At 31 December 2014, this amount was not received.
The Company recognised a financial guarantee liability of $9 million, which is the fair value of the guarantee upon initial recognition, being equal
to the estimated future cash inflows receivable from the subsidiaries under the guarantee agreement. The liability is amortised on a straight-
line basis over the life of the guarantee, unless it is considered probable that the guarantee will be called, in which case it is measured at the
value of the guaranteed amount payable, if higher. If the guarantees were to be called, the entire guaranteed amount would become immediately
payable, 50% by the Company and 50% by a co-guarantor.
Other disclosures on directors’ remuneration required by the Companies Act 2006 and those specified for audit by the Directors’ Remuneration
Report Regulations 2002 are included in the Directors’ Remuneration Report.
200
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
8. Dividend Income
In 2013, Evraz Group S.A. declared dividends to the Company in the amount of $715 million. The Company received $602 million in cash and
$113 million were unpaid as of 31 December 2013.
In 2014, Evraz Group S.A. declared dividends to the Company in the amount of $150 million. In 2014, the Company received $263 million in cash.
9. Short–term Loans
In December 2012, the Group issued European commercial papers with principal amounts of $80 million and $170 million. These commercial
papers bore interest rates of 3.50% and 3.75%, respectively, and matured on 6 September 2013 and 4 December 2013, respectively, when
they were repaid in full.
In 2013, the Company accrued $8 million of interest expense in respect to these borrowings.
10. Subsequent Events
On 31 March 2015, the Board resolved to announce a return of capital to be effected by a tender offer to shareholders at $3.10 per share in
the amount of up to $375 million.
EVRAZ plc Annual Report and Accounts 2014
201
Additional Information
Definitions of selected financial indicators
EBITDA
EBITDA represents profit from operations plus depreciation, depletion and amortisation, impairment of assets, loss (gain) on disposal of
property, plant and equipment, and foreign exchange loss (gain). EVRAZ presents an EBITDA because it considers EBITDA to be an important
supplemental measure of its operating performance and believes that EBITDA is frequently used by securities analysts, investors and other
interested parties in the evaluation of companies in the same industry. EBITDA is not a measure of financial performance under IFRS and it
should not be considered as an alternative to net profit as a measure of operating performance or to cash flows from operating activities as a
measure of liquidity. EVRAZ’s calculation of EBITDA may be different from the calculation used by other companies and therefore comparability
may be limited. EBITDA has limitations as an analytical tool and potential investors should not consider it in isolation, or as a substitute for an
analysis of our operating results as reported under IFRS. Some of these limitations include:
– EBITDA does not reflect the impact of financing or financing costs on EVRAZ’s operating performance, which can be significant and could
further increase if EVRAZ were to incur more debt.
– EBITDA does not reflect the impact of income taxes on EVRAZ’s operating performance.
– EBITDA does not reflect the impact of depreciation and amortisation on EVRAZ’s operating performance. The assets of EVRAZ’s businesses
which are being depreciated and/or amortised will have to be replaced in the future and such depreciation and amortisation expense may
approximate the cost of replacement of these assets in the future. EBITDA, due to the exclusion of these costs, does not reflect EVRAZ’s future
cash requirements for these replacements. EBITDA also does not reflect the impact of a loss on disposal of property, plant and equipment.
Reconciliation of profit (loss) from operations to EBITDA is as follows:
(US$ million)
Consolidated EBITDA reconciliation
Profit/(loss) from operations
Add:
Depreciation, depletion and amortisation
Impairment of assets
Loss on disposal of property, plant & equipment
Foreign exchange (gain)/loss
Consolidated EBITDA
Steel segment EBITDA reconciliation
Profit/(loss) from operations
Add:
Depreciation, depletion and amortisation
Impairment of assets
Loss on disposal of property, plant & equipment
Foreign exchange (gain)/loss
Steel segment EBITDA
Steel, North America segment EBITDA reconciliation
Profit/(loss) from operations
Add:
Depreciation, depletion and amortisation
Impairment of assets
Loss on disposal of property, plant & equipment
Foreign exchange (gain)/loss
Steel, North America segment EBITDA
202
EVRAZ plc Annual Report and Accounts 2014
Year ended 31 December
2014
2013
(101)
(161)
833
540
48
1,005
2,325
1,114
563
47
258
1,821
1,391
959
389
196
20
(84)
551
92
25
29
1,912
1,656
(169)
(398)
165
261
1
21
279
200
350
2
4
158
Strategic Report
Business Review
Governance
Financial Statements
(US$ million)
Coal segment EBITDA reconciliation
Profit/(loss) from operations
Add:
Depreciation, depletion and amortisation
Impairment of assets
Loss on disposal of property, plant & equipment
Foreign exchange (gain)/loss
Coal segment EBITDA
Other operations EBITDA reconciliation
Profit/(loss) from operations
Add:
Depreciation, depletion and amortisation
Impairment of assets
Gain on disposal of property, plant & equipment
Foreign exchange (gain)/loss
Other operations EBITDA
Unallocated EBITDA reconciliation
Profit/(loss) from operations
Add:
Depreciation, depletion and amortisation
Foreign exchange (gain)/loss
Other unallocated operations EBITDA
Intersegment eliminations
Eliminations EBITDA
Year ended 31 December
2014
2013
(335)
(287)
267
81
27
333
373
35
4
2
–
(4)
37
348
110
20
35
226
17
9
11
–
–
37
(972)
(422)
8
739
(225)
6
190
(226)
(51)
(30)
Definition of Free Cash Flow
Free Cash Flow represents EBITDA, net of non-cash items, less changes in working capital, income tax paid, interest paid and covenant reset
charges, conversion premiums, premiums on early repurchase of bonds and realised gain/(losses) on interest payments under swap contracts,
interest income and debt issue costs, less capital expenditure, including recorded in financing activities, purchases of subsidiaries, net of cash
acquired, proceeds from sale of disposal groups classified as held for sale, net of transaction costs, less purchases of treasury shares for
participants of the incentive plans, plus other cash flows from investing activities. Free Cash Flow is not a measure under IFRS and it should
not be considered as an alternative to other measures of financial position. EVRAZ’s calculation of Free Cash Flow may be different from the
calculation used by other companies and therefore comparability may be limited.
Cash and short-term bank deposits
Cash and short-term bank deposits is not a measure under IFRS and it should not be considered as an alternative to other measures of
financial position. EVRAZ’s calculation of cash and short-term bank deposits may be different from the calculation used by other companies
and therefore comparability may be limited.
(US$ million)
Cash and short-term bank deposits Calculation
Cash and cash equivalents
Cash of disposal groups classified as held for sale
Short-term bank deposits
Cash and short-term bank deposits
31 December
2014
31 December
2013
1,086
1,604
–
–
7
–
1,086
1,611
EVRAZ plc Annual Report and Accounts 2014
203
Additional Information
Definitions of selected financial indicators (continued)
Total debt
Total debt represents the nominal value of loans and borrowings plus unpaid interest, finance lease liabilities, loans of assets classified as held
for sale, the nominal effect of cross-currency swaps on principal of rouble-denominated notes. Total debt is not a measure under IFRS and it
should not be considered as an alternative to other measures of financial position. EVRAZ’s calculation of total debt may be different from the
calculation used by other companies and therefore comparability may be limited. The current calculation shall not be considered for covenant
compliance reasons.
Total debt has been calculated as follows:
Total debt calculation
(US$ million)
Long-term loans, net of current portion
Short-term loans and current portion of long-term loans
Add back: Unamortised debt issue costs and fair value adjustment to liabilities assumed in
business combination
Nominal effect of cross-currency swaps on principal of rouble-denominated notes
Loans of assets classified as held for sale
Finance lease liabilities, including current portion
Total debt
31 December
2014
5,470
761
37
635
–
4
31 December
2013
6,041
1,816
41
186
76
6
6,907
8,166
Net debt
Net debt represents total debt less cash and liquid short-term financial assets, including those related to disposal groups classified as held for
sale. Net debt is not a measure under IFRS and it should not be considered as an alternative to other measures of financial position. EVRAZ’s
calculation of net debt may be different from the calculation used by other companies and therefore comparability may be limited. The current
calculation shall not be considered for covenant compliance reasons.
Net debt has been calculated as follows:
Net debt calculation
(US$ million)
Total debt
Short-term bank deposits
Cash and cash equivalents
Cash of assets classified as held for sale
Collateral under swaps
Net debt
31 December
2014
6,907
–
31 December
2013
8,166
–
(1,086)
(1,604)
–
(7)
(7)
(21)
5,814
6,534
204
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Additional Information
Data on Mineral Resources
COAL
Yuzhkuzbassugol JORC Equivalent Coal Reserves as at 31 December 2014
Mine
Alardinskaya
Yesaulskaya
Osinnikovskaya
Uskovskaya
Yerunakovskaya VIII
Total
Note
Reserves and Resources are in-situ or ROM (Run of Mine) tonnes.
Raspadskaya JORC Equivalent Coal Reserves as at 31 December 2014
Mine
Raspadskaya
MUK-96
Raspadskaya Koksovaya
Razrez Raspadsky
Total
Note
Reserves are in-situ or ROM (Run of Mine) tonnes.
Proved and
Probable
‘000t
90,125
9,720
58,524
127,576
118,171
404,116
Proved and
Probable
‘000t
887,655
132,224
187,732
142,263
1,349,874
EVRAZ plc Annual Report and Accounts 2014
205
Additional Information
Data on Mineral Resources (continued)
IRON ORE
Evrazruda JORC Equivalent Iron Ore Reserves as at 31 December 2014
Mine
Tashtagol
Sheregesh
Kaz
Total
Note
Reserves are in-situ or ROM (Run of Mine) tonnes.
Kachkanarsky GOK (EVRAZ KGOK) JORC Equivalent Iron Ore Reserves as at 31 December 2014
Mine
Gusevogorskoye Deposit
Main pit
Southern pit
Northern pit
Western pit
Kachkanar Proper (Sobstvenno-Kachkanarskoye) Deposit
Total
Note
Reserves are in-situ or ROM tonnes.
EVRAZ Sukha Balka JORC Equivalent Iron Ore Reserves as at 31 December 2014
Mine
Total
Note
Reserves are in-situ or ROM tonnes.
Proved and
probable
‘000t
5,925
70,113
8,983
85,021
Proved and
probable
‘000t
427,919
48,334
598,316
158,562
6,904,420
8,137,551
Fe %
38
29.8
32.9
28.0
S %
1
0.9
0.9
0.8
Fe %
V2O5 %
16.1
16.6
15.6
16.1
16.5
16.4
0.14
0.16
0.12
0.16
0.14
0.14
Proved and
Probable
‘000t
74,883
206
EVRAZ plc Annual Report and Accounts 2014
Strategic Report
Business Review
Governance
Financial Statements
Additional Information
Terms and Abbreviations
Beam
A structural element. Beams are
characterised by their profile (the shape of
their cross-section). One of the most common
types of steel beam is the I-beam, also known
as H-beam, or W-beam (wide-flange beam), or
a ‘universal beam/column’. Beams are widely
used in the construction industry and are
available in various standard sizes, e.g. 40-k
beam, 60Sh beam, 70Sh beam as mentioned
in this report
Coke battery
A group of coke ovens operating as a unit and
connected by common walls
Coking coal
Highly volatile coal used to manufacture coke
Concentrate
A product resulting from iron ore/coal
enrichment, with a high grade of extracted
mineral
Billet
A usually square, semi-finished steel product
obtained by continuous casting or rolling of
blooms. Sections, rails, wire rod and other
rolled products are made from billets
Blast furnace
The blast furnace is the classic production
unit to reduce iron ore to molten iron, known
as hot metal. It operates as a counter-current
shaft system, where iron ore and coke is
charged at the top. While this charge
descends towards the bottom, ascending
carbon containing gases and coke reduces
the iron ore to liquid iron. To increase
efficiency and productivity, hot air (often
enriched with oxygen) is blown into the
bottom of the blast furnace. In order to save
coke, coal or other carbon containing
materials are sometimes injected with this
hot air
By-product
A secondary product which results from a
manufacturing process or chemical reaction
Capital expenditure
Capex
Capital expenditure
CFR
Cost and freight, the seller must pay the
costs and freight to bring the goods to the
port of destination. However, risk is
transferred to the buyer once the goods are
loaded on the vessel. Insurance for the goods
is not included
Channel
U-shaped section for construction
Coal washing
The process of removing mineral matter from
coal usually through density separation, for
coarser coal and using surface chemistry for
finer particles
Coke
A product made by baking coal without oxygen
at high temperatures. Unwanted gases are
driven out of the coal. The unwanted gases
can be used as fuels or processed further to
recover valuable chemicals. The resulting
material (coke) has a strong porous structure
which makes it ideal for use in a blast furnace
Construction products
Include beams, channels, angles, rebars, wire
rods, wire and other goods
Converter
A type of furnace that uses pure oxygen in the
process of producing steel from cast iron or
dry mix
Continuous casting machine
Process whereby molten metal is solidified
into a “semi-finished” billet, bloom, or slab for
subsequent rolling in the finishing mills
Crude steel
Steel in its solidified state directly after
casting. This is then further processed by
rolling or other treatments, which can change
its properties
Debottlenecking
Increasing capacity of a supply or production
chain through the modification of existing
equipment or infrastructure to improve
efficiency
Deposit
An area of coal resources or reserves
identified by surface mapping, drilling or
development
Electric arc furnace
A furnace used in the steelmaking process
which heats charged material via an electric
arc
Feasibility study
A comprehensive engineering estimate of all
costs, revenues, equipment requirements and
production levels likely to be achieved if a
mine is developed. The study is used to
define the technical and economic viability of
a project and to support the search for project
financing
Finished products
Products that have completed the
manufacturing process but have not yet been
sold or distributed to the end user
Flat products or Flat-rolled
steel products
Include commodity plate, specialty plate and
other products in flat shape such as sheet,
strip and tin plate
Greenfield
The development or exploration of a new
project not previously examined
Grinding balls
Balls used to grind material by impact and
pressure
Head-hardened rails
High strength rails with head hardened by
heat treatment
Heat-treatment
A group of industrial and metalworking
processes used to alter the physical, and
sometimes chemical, properties of a material
Iron ore
Chemical compounds of iron with other
elements, mainly oxygen, silicon, sulphur or
carbon. Only extremely pure (rich) iron-oxygen
compounds are used for steelmaking
ISO 14001
The International Standardisation
Organisation’s standard for environmental
management systems
ISO 9001:2008
The International Standardisation
Organisation’s standard for a quality
management system
JORC Code
The Australasian Joint Ore Reserves
Committee, which is widely accepted as a
standard for professional reporting of Mineral
Resources and Ore Reserves
Kt
Thousand tonnes
Ladle furnace
The secondary metallurgy vessel used
between steelmaking and casting operations
to allow the composition of molten steel to be
brought to the required customer
specification
Lean
Lean is philosophy of managing the business
that is based on a set of principles that
define the way of work
EVRAZ plc Annual Report and Accounts 2014
207
Additional Information
Terms and Abbreviations (continued)
Long products
Include bars, rods and structural products
that are ‘long’ rather than ‘flat’ and are
produced from blooms or billets
Longwall
An underground mining process in which the
coal face is dug out by a shearer and
transported above ground by conveyors
LTIFR
Lost time injury frequency rate, which
represents the number of lost time injuries (1
day or more of absence) divided by the total
number of hours worked expressed in millions
of hours
Railway products
Include rails, rail fasteners, wheels, tyres and
other goods for the railway sector
Rebar
Reinforcing bar, a commodity grade steel
used to strengthen concrete in highway and
building construction. Rebar A500SP is a type
of reinforcing bar that allows for a reduction in
the metallic component of reinforced
concrete, thereby significantly lowering
construction costs
Slag
Slag is a byproduct generated when non-
ferrous substances in iron ore, limestone and
coke are separated from the hot metal in
metallurgical production. Slag is used in
cement and fertiliser production as well as for
base course material in road construction
Steam coal
All other types of hard coal not classified as
coking coal. Coal of this type is also
commonly referred to as thermal coal
Rolled steel products
Products finished in a rolling mill; these
include bars, rods, plate, beams etc
Lumpy ore
Iron ore between 6mm and 30mm in size.
Lump is preferred in the blast furnace as its
particle size allows oxygen to circulate around
the raw materials and melt them efficiently
Rolling mill
A machine which converts semi-finished steel
into finished steel products by passing them
through sets of rotating cylinders which form
the steel into finished products
Tailings
Also called mine dumps, are the materials left
over after the process of separating the
valuable content from the uneconomic
remainder (gangue) of an ore. These materials
can be reprocessed using new methods to
recover additional minerals
Tubular products
Include large diameter line pipes, ERW pipes
and casings, seamless pipes and other
tubular products
SG&A
Selling, General and Administrative Expenses
Saleable products
Products produced by EVRAZ mines or steel
mills which are suitable for sale to third
parties
Vanadium
A grey metal that is normally used as an
alloying agent for iron and steel. It is also
used to strengthen titanium based alloys
Vanadium pentoxide
The chemical compound with the formula
V2O5: this orange solid is the most important
compound of vanadium. Upon heating, it
reversibly loses oxygen
Vanadium slag
Vanadium slag produced from pig iron in the
converter shop and used as a raw material by
producers of ferroalloys and vanadium
products
Self-coverage
The raw material requirement of EVRAZ’s
steelmaking facilities fulfilled by EVRAZ
owned mines
Scrap
Iron containing recyclable materials (mainly
industrial or household waste) that is
generally remelted and processed into new
steel
Semi-finished products
The initial product forms in the steel making
process including slabs, blooms, billets and
pipe blanks that are further processed into
more finished products such as beams, bars,
sheets, tubing, etc
Sinter
An iron rich clinker formed by heating iron ore
fines and coke in a sinter line. The materials,
in pellet form, combine efficiently in the blast
furnace and allow for more consistent and
controllable iron manufacture
Slab
A common type of semi-finished steel product
which can be further rolled into sheet and
plate products
Mt
Million tonnes
Mtpa
Million tonnes per annum
Open pit mine
A mine working or excavation open to the
surface where material is not replaced into
the mined out areas
OCTG pipe
Oilfield Casing and Tubing Goods or Oil
Country Tubular Goods – pipes used in the oil
industry
Pellet
An enriched form of iron ore shaped into
small balls or pellets. Pellets are used as raw
material in the steel making process
Pig iron
The solidified iron produced from a blast
furnace used for steel production. In liquid
form, pig iron is known as hot metal
Pipe blank
A flat sheet of metal, a semi-finished product,
sold to pipemakers to manufacture pipes
Plate
A long thin square shaped construction
element made from slabs
Pulverised coal injection (PCI)
A cost-reducing technique in iron-making,
where cheaper coal is prepared to replace
normal coking coal in the blast furnace. The
coal is pulverised into very small particles
before injection into the furnace
208
EVRAZ plc Annual Report and Accounts 2014
Additional Information
Additional Information
Contact Details
Contact Details
Registered Name and Number
EVRAZ plc (Company No. 07784342)
Registered Office
5th Floor, 6 St. Andrew Street,
London EC4A 3AE
Directors
Alexander Abramov
Duncan Baxter
Alexander Frolov
Karl Gruber
Alexander Izosimov
Sir Michael Peat
Olga Pokrovskaya
Terry Robinson
Eugene Shvidler
Eugene Tenenbaum
Secretary
TMF Corporate Administration
Services Limited
Investor Relations
Tel:
London: +44 (0) 207 832 8990
Moscow: +7 (495) 232 1370
ir@evraz.com
Auditors
Ernst & Young LLP
Solicitors
Linklaters LLP
Registrars
For information about proxy voting, dividends
and to report changes in personal details,
shareholders should contact the
Company’s registrar:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
United Kingdom
Tel: +44 (0) 870 873 5848
Fax +44 (0) 870 703 6101
Email: webqueries@computershare.co.uk
Unsolicited telephone calls
and correspondence
Shareholders are advised to be wary of any
unsolicited advice, offers to buy shares at a
discount, or offers of free reports about the
Company. These are typically from overseas-
based ‘brokers’ who target US or UK
shareholders, offering to sell them what often
turns out to be worthless or high risk shares.
These operations are commonly known as
‘boiler rooms’ and the ‘brokers’ can be very
persistent and extremely persuasive.
If you receive any unsolicited
investment advice:
– Make sure you get the correct name of the
person and organisation.
– Check that they are properly authorised by
the FSA before getting involved by visiting
www.fsa.gov.uk/fsaregister and contacting
the firm using the details on the register.
– Report the matter to the FSA either by
calling 0845 606 1234 or visiting
www.fsa.gov.uk/scams.
– If the calls persist, hang up.
Details of any share dealing facilities that
the company endorses will be included in
Company mailings.
Electronic shareholder
communications
EVRAZ uses its website www.evraz.com as
its primary means of communication with its
shareholders provided that the shareholder
has agreed or is deemed to have agreed that
communications may be sent or supplied in
that manner in accordance with the
Companies Act 2006.
Electronic communications allow
shareholders to access information instantly
as well as helping EVRAZ reduce its costs
and its impact on the environment.
Shareholders can sign up for electronic
communications via Computershare’s
Investor Centre website at
www.investorcentre.co.uk. Shareholders
that have consented or are deemed to have
consented to electronic communications can
revoke their consent at any time by contacting
the Company’s registrar, Computershare.
www.evraz.com