2015
Annual Report
& Accounts
MAKING THE WORLD STRONGER
Report
This annual report (“the Report”) presents the results for EVRAZ plc and its subsidiaries
for 2015, divided into segments: Steel, Steel North America and Coal.
It details the Group’s operational and financial results and corporate social responsibility activities in 2015.
The Report has been prepared in accordance with the information disclosure requirements of the United
Kingdom and the Financial Conduct Authority:
Č the Companies Act 2006;
Č the Listing Rules;
Č the Disclosure and Transparency Rules;
Č Competition and Market Authority Order.
The Report has also been prepared on the basis of the International Integrated Reporting Framework
and the GRI G4 Sustainability Reporting Guidelines and contains elements of an integrated and a
sustainability report. It has been approved by the Board of Directors.
The main theme of the Report is value creation, as detailed in the EVRAZ Business Model section.
On 13 April 2015, Evraz Highveld Steel and Vanadium Ltd. (“EHS”) implemented a business rescue
procedure and the regulator appointed an external business rescue practitioner to EHS. As of 13 April
2015, control over EHS passed to the business rescue practitioner, and EVRAZ has no influence over the
executives or management of EHS and does not have ongoing access to information about its current
activities. The Group has relinquished control over and deconsolidated EHS. Information about EHS for
the period to 13 April 2015 was disclosed in corresponding disclosure announcements.
1
CONTENTS
MEET EVRAZ
EVRAZ is a leader
in infrastructure steel
products globally and in
Russian coking coal market.
STRATEGIC REPORT
BUSINESS REVIEW
6 Chairman’s introduction
28 Principal risks and uncertainties
54 Steel segment
8 Chief executive officer’s letter
32 Corporate social responsibility review
66 Steel, North America segment
12 EVRAZ Business Model
34 Financial review
74 Coal segment
14 Strategic priorities and key
performance indicators
18 Market overview
50 Business culture: EVRAZ Business
System
CSR REPORT
82 Our Approach
83 Health, safety and environment
93 Energy-saving measures
95 Social policy
GOVERNANCE
FINANCIAL STATEMENTS
104 Board of Directors
108 Management
152 Independent Auditor’s Report to the
Members of EVRAZ plc
110 Corporate governance report
161 Consolidated Financial Statements
130 Remuneration Report
142 Directors’ Report
148 Directors’ responsibility statements
240 Separate Financial Statements
ADDITIONAL INFORMATION
252 Stock performance indicators
and shareholder information
254 Definitions of selected financial
indicators
256 Data on mineral resources
258 Terms and Abbreviations
ONLINE VERSION
OF THE ANNUAL
REPORT FOR 2015
2
MEET EVRAZ
Operating highlights
Steel products output by region, kt
Russia and Kazakhstan
North America
Ukraine
South Africa
Europe
Re-rolled volumes
–530
–849
–1,034
2015
2015
2014
2014
2013
2013
10,423
10,807
10,799
2,241
857 123
13,115
13,115
2,556
840 529 129
14,012
14,012
2,769
854 502 792
0
1
–1,179
10,55
1Change to the previously reported figures due to corrections of Q4 2014 production data.
2012
2012
6
14,682
14,682
2,662702 461
14,230
14,230
2011
Iron ore products output by region, kt
2011
Raw coking coal production in Russia, kt
Russia
2010
2010
Ukraine
2015
2009
2009
2014
2013
17,636
2,809
17,578
2,889
18,384
2,973
20,445
2015
20,467
2014
21,357
2013
16,364
2,608
18,972
2012
2Change to the previously reported figures due to reclassification of KS coal grade from steam to coking coal.
2012
2011
,2973
10,31
2
6,052
2010
Global presence
2,608
2009
Steel
Č Russia
Č Kazakhstan
Č Ukraine
Č Switzerland
Č Czech Republic
Č Italy
Steel, North America
Č USA
Č Canada
2011
2010
2009
Coal
Č Russia
EVRAZ corporate structure
is available at: www.evraz.com/
about/structure/
of life of coal mines
19 years
>90 years
of coal reserves under
current extraction level
8.3 bn t
of iron ore proved
& probable reserves
1.8 bn t
of coking coal proved
& probable reserves
2
2
20,889
21,461
19,050
15,508
Our customers
Headquarters
Product type
Customer type
Č London
Semi-finished steel
products
> Steel rolling facilities
Construction products
> Wholesale companies,
traders
Railway products
> Railways, rail carriers
Industrial products
> Industrial companies
Coking coal concentrate
> Steelmaking facilities
Raw coking coal
> Steelmaking facilities
Tubular products
> Energy transmission
operators
www.evraz.comAnnual Report & Accounts 2015 3
Financial highlights
Shareholders structure
Consolidated revenue by segment, US$ million
Ultimate beneficial owners, % of voting rights4
Steel
Steel, NA
Coal
Other operations
Eliminations
–991
5,987
2,270
1,068 433
2015
2014
2013
2012
–1,584
–1,633
–1,73
9,519
3,160
1,318 648
10,792
11,43
3,036
1,486 730
8
3,358 893
Consolidated EBITDA3 by segment, US$ million
Steel
Steel, NA
Coal
Other operations
Eliminations
2015
2014
2013
–63
–271
–247
–156
1,081
55
351
14
1,933
280
376
37
1,690
159
232 37
1,471
353
224 135
Roman Abramovich5
Alexander Abramov5
Alexander Frolov5
Gennady Kozovoy6
Alexander Vagin6
Eugene Shvidler5
Other
31.28%
21.79%
10.88%
5.95%
5.89%
3.11%
21.10%
Institutional shares by investment style, %
Index
Value
GARP
Growth
Hedge Fund
Other
41%
25%
18%
11%
2%
3%
8,767
8,767
13,061
13,061
14,411
14,411
14,726
14,726
1,438
2,325
2,355
2,325
1,871
1,821
3 In 2015, management changed the definition of segment expense and EBITDA to make these indicators more
2012
2,027
2,027
comparable with Russian steel peers. Segment expense and EBITDA have now been adjusted to not include social
and social infrastructure maintenance expenses. As a result, the Group restated EBITDA for both financial reporting
and management accounts purposes for the years ended 31 December 2014 and 2013.
Institutional shares by geography, %
US$ 5,349 million
Net debt Δ 2015/2014 -8%
US$ 428 million
CAPEX Δ 2015/2014 -35%
Net loss US$719 million vs. US$1,278 million in 2014
United Kingdom
United States
Russia
Norway
Germany
Rest of Europe
Rest of the World
34%
30%
17%
12%
3%
3%
1%
Personnel
4 The Group is aware of the following ultimate beneficial
owners who have an interest in three percent or more
of EVRAZ plc’s share capital (in each case, except for
Employees by region in 2015, people
Number of employees, thousand people
Gennady Kozovoy, held indirectly).
Russia & CIS
Noth America
Europe & Africa
95%
4%
1%
2015
2014
2013
2012
2011
2010
2009
84.5
94.8
5 As per TR-1 Form: Notification of major interest in shares
dated 7 October 2015. Includes pro-rata shareholding
held via Lanebrook and additional shares held outside
Lanebrook.
6 As per TR-1 Form: Notification of major interest in shares
dated 6 February 2013. For Mr Kozovoy, includes shares
105.1
held directly.
111.0
Meet EVRAZ
4
2–3
Meet EVRAZ
4–51
Strategic report
6 Chairman’s introduction
8 Chief executive officer’s
letter
12 EVRAZ Business Model
14 Strategic priorities and key
performance indicators
18 Market overview
28 Principal risks and
uncertainties
32 Corporate social
responsibility review
34 Financial review
50 Business culture:
EVRAZ Business System
52–79
Business review
80–101
CSR report
102–149
Governance
150–249
Financial statements
250–262
Additional information
Annual Report & Accounts 2015www.evraz.com 5
STRATEGIC
REPORT
EVRAZ 2015 market share
in Russia by key products
and volumes, %
EVRAZ
Others
Rebars
16
Beams
Wire rod
12
64
Structural shapes
48
Grinding balls
68
Rails
84
88
36
52
32
97
3
Railway wheels
28
72
EVRAZ 2015 market share
in North America by key products
and volumes, %
EVRAZ
Others
LDP
27
Rails
73
38
62
EVRAZ 2015 share of Russia’s
high-vol coking coal grades
(Zh, GZh, GZhO) market, volumes, %
EVRAZ
Others
Сoking coal concentrate (Zh, GZh, GZhO)
43
44
57
56
37.4 mt
Russian steel consumption
in 2015
117.0 mt
US and Canada finished steel
consumption in 2015
38.8 mt
Russian coking coal concentrate
consumption in 2015
Strategic report 6
CHAIRMAN’S
INTRODUCTION
Dear shareholder,
I am pleased to introduce EVRAZ annual
report for 2015. The year proved a difficult
one, as conditions in the Group’s key
markets deteriorated throughout. Despite
these headwinds, EVRAZ proven strategy
of pursuing a vertically integrated business
model, underpinned by a strong set of assets
in advantageous locations, allowed the Group
to maintain its positions in key markets. Over
the year, EVRAZ made good progress with its
cost leadership initiatives, improving product
quality while reducing costs.
Safety
Safe working conditions at all facilities are
and always will be EVRAZ overriding priority.
In 2015, the Group implemented enhanced
management and control systems, enabling
accidents at facilities to be tracked better.
The subsequent increase in reporting was
reflected in EVRAZ lost-time injury frequency
rate (LTIFR), which rose noticeably year-on-year.
Despite the Group’s commitment, I regret to
report that there were 13 fatalities at sites
during the year, including three contractors (for
more information, see pages 81-101 of the
Corporate Social Responsibility section).
Management activities
As part of the focus on cost control
and operations, EVRAZ streamlined its
organisational structure in 2015, establishing
new divisions based on the geography of
assets: Ural, Siberia and Ukraine. To head
these, the Group appointed new vice-
presidents based on the ground thereby
moving the management focus to assets (see
page 109 for more details).
Despite the many challenges posed by
the ongoing macroeconomic instability,
the management team proved that it can
accomplish the most ambitious tasks, and
this gives me great confidence in the positive
prospects for EVRAZ and its future success.
www.evraz.com Governance and succession
One of EVRAZ strengths is its experienced board, which reviews its composition and
performance regularly.
In 2015, Terry Robinson stepped down as an independent non-executive director, having
been a Board member for nine years. On behalf of EVRAZ, I would like to thank him for his
major contribution to the business. Terry remained an adviser to the Board and the Audit
Committee until 14 March 2016.
Succeeding Terry is Deborah Gudgeon, who has also become Chairman of the Audit
Committee. She is a chartered accountant with extensive experience and I would like to
welcome her once again. Her presence on the Board increases gender diversity in line with
the recommendations of the report by Lord Davies.
In 2015, Sir Michael Peat, our senior independent non-executive director, stepped
down from the Audit Committee. He remains Chairman of the Nominations Committee.
Succeeding Sir Michael on the Audit Committee is Alexander Izosimov, an independent
non-executive director.
In addition, Karl Gruber, an independent non-executive director, has replaced Terry
Robinson on the Nominations Committee.
As part of our duty to run the Group in a responsible, sustainable and transparent manner for
all shareholders, our paramount ongoing priority is to ensure that the business is governed as
required. The Board follows changes to corporate governance reporting requirements closely
and remains actively involved in discussing and shaping EVRAZ strategy.
Board changes
To respond both to today’s challenges and EVRAZ future strategic direction, the Board
reviewed the appropriate composition and has made a decision to downsize the Board of
Directors in 2016.
Duncan Baxter, the current chair of the Remuneration Committee, and Olga Pokrovskaya
stood down as directors on 14 March 2016.
As a result, a number of changes will be made to the Board Committees: Alexander
Izosimov will assume the Chairmanship of the Remuneration Committee (in succession
to Duncan Baxter), Deborah Gudgeon and Sir Michael Peat will join the Remuneration
Committee, and Karl Gruber will step down from the Remuneration Committee. In addition,
Karl Gruber will join the Audit Committee.
On behalf of the Board I would like to thank them for their considerable efforts and many
years of successful service. (pls, see page 112 for more detail).
As we progress through 2016, the external environment remains challenging. At the same
time, EVRAZ is well positioned to adapt rapidly to any economic turbulence and maintain its
industry-leading positions. In large part, this is due to the unswerving commitment of our
team, and I would like to thank the members of the Board, the management and every one
of our employees for their efforts and dedication.
I firmly believe that we have the right team and strategy to fulfil our ultimate objective,
namely to deliver long-term sustainable returns to shareholders, whom I would also like to
thank for their support in 2015.
7
As part of our duty
to run the Group
in a responsible,
sustainable and
transparent
manner for
shareholders,
our paramount
ongoing priority
is to ensure that
the business
is governed
appropriately.
ALEXANDER ABRAMOV
Chairman of the Board
EVRAZ plc
Strategic report 8
CHIEF EXECUTIVE
OFFICER’S LETTER
Dear shareholder,
The year 2015 was challenging year
both for the global steel industry and
for EVRAZ. The first half of the year
was positively impacted by the Russian
rouble devaluation, which significantly
lowered the Group’s costs and improved
profitability. By the end of the year,
however, lower prices of steel and bulk
commodity products had negatively
impacted EVRAZ results.
Alongside the negative global dynamics,
the key markets of Russia and North
America faced specific regional issues.
Stagnation in the Russian economy led
to a fall in domestic steel consumption
in the construction and infrastructure
segments of 14% year-on-year. The North
American market was affected by low oil
and gas activity and high steel imports.
The market for coking coal was mainly
driven by a decline in Chinese imports,
and prices dropped by 21% year-on-year.
In response to the difficult environment,
EVRAZ introduced a programme of
countermeasures, delivering continuous
revenue and cost improvements. In
2015, they contributed an additional
US$374 million to EBITDA, which
together with working capital and
investment discipline resulted in a
strong year end free cash flow. The
Group also sought to acknowledge the
ongoing support of both its equity and
credit investors, conducting a share
buyback of US$339 million and reducing
net debt by US$465 million in 2015.
www.evraz.com 9
In 2015, EVRAZ
maintained a
strong focus on
its competitive
advantages
to meet the
challenges of the
current market,
extending its
leadership in
infrastructure
steel products
worldwide and
in the Russian
coking coal
market.
Strategy: focus on competitive advantages
In 2015, EVRAZ maintained a strong focus on its competitive advantages to meet the
challenges of the current market, extending its leadership in infrastructure steel products
worldwide and in the Russian coking coal market.
Leader in infrastructure steel products
The Group’s work to develop high-value-added steel products in Russia and North America
is of great importance for enhancing its favourable positions in key market segments.
In 2015, EVRAZ’s railway product business sold 545 thousand tonnes of special-purpose
premium rails to Russian Railways and exported 150 thousand tonnes of rails and
wheels, including to CIS countries. The Group obtained the necessary quality certification
and developed its customer base in new destinations, such as Brazil, Turkey, Malaysia,
Vietnam, Cuba, Peru, Slovenia and the Czech Republic.
Expanding its international presence in another segment, EVRAZ exported 806 thousand
tonnes of construction steel products from its Russian mills in 2015, up by 80 thousand
tonnes from 2014. The Group supplying the markets of United States, United Kingdom,
United Arab Emirates, Hong Kong and Taiwan as well as multiple other overseas
destinations with beams, rebar and wire rod.
Due to the strong oil and gas transmission market in the US and Canada and established
client relationships there, EVRAZ increased sales of large-diameter pipes (LDP) by 6% in
2015.
Altogether, customer focus initiatives contributed US$53 million to the Group’s EBITDA in
2015.
Strong position in coking coal market
As the largest producer of coking coal in Russia, EVRAZ considers this part of its business
to be an important separate value stream, one that brings product diversification and a
strong client base in Russia and abroad.
In 2015, EVRAZ sold 10 million tonnes of coking coal domestically, half of which were
external sales mostly covered by long-term contracts. Its share in of the market for fat
grades was c.43% for the year.
In 2015, the Group increased coking coal sales to the premium markets of Japan, South
Korea, Europe and Ukraine during the year to 2.7 million tonnes.
Strategic report US$ 321 million
of cost savings
10
Vertically integrated low-cost operations
Having low-cost operations is crucial for EVRAZ, especially in a period of declining steel
and raw material prices. During 2015, the Group implemented a strong pipeline of
initiatives to improve its cost position in key segments.
EVRAZ achieved US$321 million of cost savings in 2015, as per management accounts
adjusted to eliminate macroeconomic affects (such as exchange-rate fluctuations
and inflation) and once-off expenditures (such as employee severance payments and
other discontinuation costs), reaching the initially stated target. The main contributors
were improvements in raw material consumption yields and in productivity, the energy
efficiency programme, maintenance procedures, general and administrative expenses,
and asset optimisation.
Delivering the focus on key assets EVRAZ sold its non-core structural tubing business in
Portland, the US, for US$51 million.
During the year, EVRAZ completed two investment projects that improved its long-term
cost competitiveness. The billet caster at ZSMK was rebuilt (total CAPEX of US$50
million) and the upgraded equipment was recommissioned in the fourth quarter. The
project aimed to increase the capacity of the facility’s continuous casting machine from
1.2 million tonnes to 2.2 million tonnes to partly replace the billet volumes produced at
the blooming mill and then processed into long steel products or exported. Lower yields
and conversion consumables of new equipment improved billet cash costs, supporting
profitability of exports. Overall, the Group’s semi-finished products cash costs1 were
US$195 per tonne for 2015, allowing all exports to be sold profitably.
EVRAZ also completed the transformation of the Sheregesh iron ore mine (total CAPEX
of US$72 million), under way since 2014. By increasing the run-of-mine capacity
from 2.2 million tonnes to 4.8 million tonnes and applying new underground mining
technologies, the project reduced iron ore cash costs at the mine by 49%. In 2015, the
Group’s iron ore products cash costs1 were US$30 per tonne, lower than the domestic
market price of US$44 per tonne, proving the efficiency of its vertically integrated
business model.
Operating results
Despite the market downturn, EVRAZ was able to maintain full utilisation capacity in
2015 due to its low cost positions across the industry. The Group also maintained its
premium product portfolio, helping to mitigate margin deterioration.
Crude steel production volumes at the Group’s mills in Russia and Ukraine were lower
by 3% overall, mainly because of planned downtime due to investment projects. Product
1FCA basis
www.evraz.comAnnual Report & Accounts 2015 11
US$ 799 million
Free cash flow
portfolio improvements and the increase of international exposure helped EVRAZ reach
the production target of 694 thousand tonnes of rails at the new mill at ZSMK. The
Group is committed to reaching full capacity in 2016 by increasing rail volumes by a
further 100 thousand tonnes.
Steel production at the North American operations declined by 9.4% year-on-year, mainly
due to planned outages at steelmaking facilities and moderate demand, although key
product results were strong. LDP production volumes were 0.4 million tonnes while rails
volumes were 0.5 million tonnes.
In 2015, coking coal production volumes at operating mines were relatively stable at
20.9 million tonnes, while the care and maintenance of the MUK-96 mine was off-set by
an increase in volumes at the Raspadskaya mine.
Financial performance
Despite the market conditions, the Group’s cost-efficiency programme and market
initiatives helped to achieve an EBITDA margin of 16.4% in 2015, just 1.6 percentage
points lower than in 2014. Total EBITDA was US$1,438 million, 38.9% lower than
US$2,355 million in 2014. The Group incurred a net loss in 2015 of $719 million,
43.7% lower than the loss of US$1,278 million in 2014.
EVRAZ was able to show strong net cash flows from operating activities which
contracted only by 17% from US$1,957 in 2014 to US$1,622 in 2015, US$329 of which
is attributed to changes in net working capital.
During the year total capital expenditures of EVRAZ were US$428 million, 35% lower
than US$654 million in 2014 mainly due to the completion of major capital-intensive
projects and Russian rouble devaluation.
Free cash flow totalled US$799 million in 2015, allowing EVRAZ to make a share
buyback offer and reduce net debt. As of 31 December 2015, the Group’s net debt was
US$5,349 million,compared to US$5,814 million a year earlier.
Outlook
As the world moves into 2016, the fundamentals of the steel and bulk commodities
industries remain poor. Given the current environment, EVRAZ will remain focused on
cost efficiency and product development to support its financial stability and optimise its
positioning to enable it to capitalise on any recovery in wider market conditions.
ALEXANDER FROLOV
Chief Executive Officer
EVRAZ plc
Strategic report 12
EVRAZ BUSINESS MODEL
1
OUR
VISION
EVRAZ is a leader in infrastructure
steel products globally and in the
Russian coking coal market.
2STRATEGIC
PRIORITIES
To be a leader EVRAZ is implementing
the strategy based on five success
factors each of which is of crucial
importance.
3MARKET
OVERVIEW
Market demand and dynamics are the key inputs
to our strategy and initiatives pipeline and have
direct immediate impact on our financial results.
To maintain leading market positions in domestic
geographies as well as the global market place
EVRAZ maintains a continuous effort to develop
new products and increase the share of high-
value-added products in our portfolio.
See pages 18-27
EVRAZ has changed one of its success factors from
growth to asset development, highlighting the shift from
external business expansion to cost efficiency.
Health, Safety & Environment
Encouraging 100% safe working conditions and 100% environmental compliance
Human Capital
Appreciating the Group’s people by providing professional development and career growth opportunities
Customer Focus
Responding to the evolving needs of our customers, providing tailored services and developing new products
Asset Development
Maintaining cost leadership, applying new technologies and optimising asset configurations
EVRAZ Business System
Continuous operational improvements and implementing a culture driving for change
SUPPORTING
BUSINESS
PROCESSES
6 |
Environment
7 |
Safety
8 |
Health
See pages 14-17
9 |
Human
resources
See pages 87-92
See pages 84-86
See pages 84-86
See pages 95-101
www.evraz.comAnnual Report & Accounts 2015 EVRAZ’s strategy is to be at the forefront of the industry with
a world-class product portfolio and sustainable low-cost position.
13
5COMPETITIVE
ADVANTAGES
Our competitive advantages provide lasting,
group-wide benefits which are critical to our
ability to generate, sustain and capture value
over the long-term.
1. Leader in infrastructure steel products
Premium portfolio of railway, construction and tubular
products with firm footprint in Russian, North American and
global markets
2. Strong position in coking coal market
Largest coking coal producer in Russia with attractive
portfolio of hard and semi-hard coking coal grades
3. Vertically integrated low-cost operations
Sound base of steel and coal assets in the first quartile of the
global cost curve
4BUSINESS
SEGMENTS
Steel
Steel segment of EVRAZ is mainly focused
on steel production in the CIS from closely
located raw materials to serve the domestic
infrastructure and construction market
while maintaining export flexibility. EVRAZ
steelmaking business is self-covered in iron
ore by 85%. Processing vanadium slag from
steelmaking operations also decreases
production cost and is the base for the EVRAZ
vanadium business.
See pages 54-65
Steel
North
America
Iron ore mining
Steelmaking
Rolling
Logistic & sales
Customers
The North American steel segment business
model serves premium markets of Western
United States and Western Canada with high
value-added steel products for infrastructure,
rails and LD/OCTG pipes. Being vertically
integrated in scrap and re-rolling slab from
Russian steel operations also helps protect
margins.
Scrap recycling
Steelmaking
Rolling
Customers
See pages 66-73
Coal
EVRAZ Coal segment not only supplies own
steel mills with necessary raw material but
also provides coking coal to major Russian
coke and steel producers and serves export
markets with its own sea port. Being the
largest coking coal producer in Russia EVRAZ
is able to capture additional margins due to
an attractive product portfolio and a low-cost
position.
See pages 74-79
Coal mining
Coal washing
Logistic & sales
Customers
10 |
EVRAZ BUSINESS SYSTEM
and Quality management
See pages 50-51
11 |
Corporate
governance
12 |
Risk
management
See pages 103-149
See pages 115-117
See pages 4-51
Strategic report 14
STRATEGIC PRIORITIES
AND KEY PERFORMANCE
INDICATORS
EVRAZ’s strategy focuses
on five success factors. Each
factor has an established set
of strategic goals. Based on
these strategic goals EVRAZ
executes agreed initiatives
and tracks the process
of strategy deployment
through certain KPIs.
KPIs
EVRAZ measures its overall progress
using key performance indicators
(KPIs). This year the Group has
amended its KPI list to more
accurately reflect the development
of its business, the evolution of its
business systems and to align with
divisional management focus.
1 | Health, Safety
& Environment
2 | Human Capital
Strategic goal | Health and safety of employees is
a primary focus for EVRAZ. The Group’s strategic goal
is to have 100% safe work conditions, safe behaviour,
environmental compliance and to become the steel
industry leader in healthy lifestyle among employees.
Strategic goal | EVRAZ prioritises
the development of its people providing a
competitive salary for leading productivity with
a long-term target to involve 80% of the total
workforce in development programs.
Overview | HSE initiatives during year 2015
were focused on a LOTO (Lockout, Tryout) energy
isolation programme and safety trainings with
behaviour conversations.
Outlook | In 2016 EVRAZ will continue its efforts
in communicating safe behaviour and include
health topics in the training. The Group will also
improve internal audit processes to identify hazard
areas and establish standards of safe work.
Comments on KPI | Despite the Group’s efforts,
there were 13 fatalities (10 employees and
3 contractors) at its sites during the year, while the
LTIFR (excluding fatalities) reached 2.18x, compared
with 1.60x in 2014 due to more transparent reporting.
EVRAZ remains committed to the goal of reaching
zero fatalities at its sites and will continue efforts to
improve reporting transparency.
Overview | During 2015 EVRAZ key initiatives
were aimed at optimizing support and
maintenance personnel by outsourcing certain
functions and implementing a number of projects
on labor productivity increases.
Outlook | Looking into 2016 the Group’s focus
will be on creating a unified system of selection,
evaluation and training for site employees,
developing the principle of long-term labor cost
planning and further headcount optimisation.
Comments on KPI | The Group was able to
decrease its labor costs per tonne of steel
products in 2015 to US$42.8 per tonne down
by 22% from US$54.7 per tonne in 2014 due to
local currencies devaluation and its continuing
labor productivity improvements.
LTIFR (excluding fatalities) per million hours
Labour productivity, US$/t
2015
2014
2013
2.18
2015
1.60
2014
2.05
2013
42.8
54.7
57.9
www.evraz.comAnnual Report & Accounts 2015 15
3 | Customer Focus
Steel
Steel, North America
Coal
Strategic goal | EVRAZ aims to be the leader
in Russian infrastructure and construction steel
products, a global leader in rails and to increase
the share of high-value-added products in its
portfolio.
Strategic goal | EVRAZ North America aims to be
the largest producer of large-diameter pipes with
superior market position, product capabilities and
asset footprint; the largest producer of rails with
strong technical partnerships with customers.
Overview | Last year the Group’s major initiatives
targeted expansion of export capabilities by
receiving the necessary certifications and
reaching the new markets of Brazil, Malaysia
and other with its railway products, improving
the product portfolio of its 100-meter rails with
premium grades and the increase in production
of high-value micro-alloyed pipe grade slabs for
tubular customers that accounted for US$50
million EBITDA effect in 2015.
Outlook | In 2016 the Group will continue the
expansion of its product portfolio in construction,
railway and mining segments in Russia and CIS,
increase export presence of rails, beams and
rebar and work on the development of engineering
services for its clients.
Overview | During 2015 the Group increased
the share of its premium rails sales, upgraded
its OCTG product mix with high-value-added heat-
treated pipe and started two investment projects
at Regina mill aimed at production of thicker-wall
large-diameter pipes for the very strong oil & gas
midstream transmission market in United States
and Canada over the next 3-5 years.
Outlook | In 2016 the Group will work on LD
pipes projects, focus on sales sustainability at its
rail mill and increase plate sales to 3rd parties.
Strategic goal | The Group’s strategic goal is to
maximize market share in Russia and Ukraine,
while expanding export sales to prime customers
in Asian and Europe.
Overview | Last year the Group’s efforts helped
us to keep stable domestic market share and
increase export shipments to premium markets of
Japan and South Korea.
Outlook | During 2016 the Group will be focused
on the expansion of its coal grades presence in
the Ukrainian market, and improving its coking
coal quality stability.
Strategic report 16
4 | Asset development
Steel
Steel, North America
Coal
Strategic goal | EVRAZ aims to be a low-cost
vertically integrated producer of infrastructure
steel products both in domestic and international
markets.
Strategic goal | The Group’s strategic goal is to
be the lowest-cost producer of rails, LD, OCTG
pipes and plate products when delivered to
Western United States and Western Canada.
Overview | Last year the Group’s initiatives
were focused on slab supply management, G&A
reduction, stability of LD pipe production and
operational performance improvements at Group’s
OCTG mills. Also EVRAZ was were able to close
certain cash flow negative and non-core assets. In
total, these initiatives contributed US$58 million.
Outlook | 2016 year’s pipeline includes
conversion costs reduction, capacity utilisation
improvements, scrap purchase strategy and
further G&A costs reductions.
Overview | In 2015 the Group focused on
yield improvements at its rail mill, optimised
headcount and G&A expenses, realized projects
on slag recycling and energy efficiency and
deconsolidated EVRAZ Highveld Steel and
Vanadium that had an immediate effect on our
financials. All these initiatives improved EBITDA by
US$190 million last year.
Outlook | In 2016 the Group will develop a
long-term continuous cost reduction program
for each of the Group’s plants, create a capacity
optimisation strategy and focus on logistics, yield
improvement, energy consumption and G&A cost
reduction initiatives.
Comments on KPI | Cash costs of semi-finished
products was US$195 per tonne in 2015, lower
by 29% from US$275 per tonne in 2014 due to
operational improvement, volume stability and
currency devaluation.
Strategic goal | The Group’s strategic goal is to
be the safety, technology and productivity leader
in coking coal mining in Russia.
Overview | During 2015 EVRAZ were able
to increase mining volumes, reduce auxiliary
materials’ consumption, 3rd parties’ service costs
and G&A expenses due to operational synergies
at Raspadskaya and Yuzhkuzbassugol with a
financial contribution of US$72 million.
Outlook | In 2016 the Group’s main focus will
be on improvements in its mining operations
to increase volumes and improve yields in its
processing facilities.
Comments on KPI | Cash cost of the coal
segment was US$31 per tonne in 2015, lower by
33% from US$46 per tonne in 2014 due to
mines optimization, G&A reduction and currency
devaluation.
KPIs
KPIs
Сash cost of semi-finished products1, US$/t
Conversion costs, $/t
Cash cost of coking coal concentrate, US$/t
Cash cost of coking coal concentrate, $/t
2015
2014
2013
195
275
367
1Cash cost of slab and billets produced at Russian steel mills
2015
2014
2013
31
46
64
www.evraz.comAnnual Report & Accounts 2015
17
5 | EVRAZ Business
System
Strategic goal | EVRAZ Business system (EBS) is
the methodology applied by the Group’s people
to continually improve the effectiveness of its
business using lean principles. EVRAZ aims to
create a culture of continuous improvements
with 100% of employees involved. Developing
the methodology, providing necessary trainings
and creating the motivation for change allows
EVRAZ to be successful in lean implementation
throughout the whole organization from the top
management to workers at the shop floor. Each
division of EVRAZ has a pipeline of initiatives on
lean philosophy implementation that are targeted
on the improvement of its profitability.
Overview | During 2015 EVRAZ was able
to train 20% of the entire workforce on lean
practices, started to develop the EVRAZ inventory
management system and expanded its lean model
lines using more advanced tools.
Outlook | Next year’s initiatives will be aimed
at lean projects in equipment maintenance
procedures and the further development of
inventory management systems while enhancing
the Group’s lean training efforts.
KPIs
Results in 2015
Last year’s cost cutting initiatives resulted in a US$321 million EBITDA effect. Combined
with US$53 million of customer focus efforts EVRAZ total EBITDA improvements were
US$374 million for 2015.
Despite our strong initiatives market headwinds led to overall EBITDA of US$1,438
million, less by 38.9% than US$2,355 million in 2014.
Free cash flow was US$799 million in 2015, down by 21.0% from US$1,012 million
in 2014. The decrease is less than EBITDA due to changes in working capital, CAPEX
reduction and cash flows from asset disposals.
Number of lean model lines
EBITDA, US$ million
Free cash flow, US$ million
Free cash flow, US$ million
2015
2014
2013
33
22
15
2015
2014
2013
1,438
2015
2,355
2014
1,871
2013
799
1,012
452
Strategic report 18
MARKET OVERVIEW
Global picture
The global steel and bulk commodities industry experienced
another challenging year in 2015 due to structural overcapacity
and the ongoing restructuring in the Chinese economy. Weak
demand and excess supply in the steel, iron ore and coking
coal markets led to a negative global price environment during
the year.
China consumed 671 million tonnes of steel products in 2015, down 5.5% year-on-year,
while its steel production fell by just 2.7%. As such, its net exports rose to 104 million
tonnes in 2015, up by 25% from 83 million tonnes in 2014. Together with weak steel
demand in other regions, this put pressure on global steel prices, which declined by an
average of 28% year-on-year in 2015. Global steel capacity utilisation reached 65% by
the end of the year, down from the average of 73% for 2014 and the lowest rate since
the bottom of the 2008-09 credit crunch.
Global steel prices, US$/t
Billets, FOB Black Sea
Slab, CFR East Asia
700
560
420
280
140
0
2009 2010 2011 2012 2013 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Metal Expert
2015
Global raw material prices, US$/t
Hard coking coal, spot,
FOB Australia
Iron ore 62% Fe fines, spot,
CFR China
300
240
180
120
60
0
2009 2010 2011 2012 2013 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: CRU
2015
www.evraz.comAnnual Report & Accounts 2015 19
Iron ore prices were negatively affected by stagnant global demand for the commodity,
while 90 million tonnes of additional seaborne supply from Australia and Brazil came on-
stream during 2015. These low-cost projects pushed down the global cost curve and forced
uncompetitive producers out of the market, mostly domestic Chinese miners. Compared with
US$97 per tonne for 62% Fe CFR China in 2014, prices averaged US$56 per tonne in 2015, down
by 43%.
Coking coal followed the same path, driven by the dynamics of the steel market. Lower
steel production meant a decrease of 14 million tonnes of coking coal imports to China
in 2015. Global trade volumes decreased by 5% in the year, as exports from the US and
Canada fell and Australia gained market share. Prices fell by 21% year-on-year. Based on
spot FOB Australia contracts, the price of hard coking coal averaged US$90 per tonne in
2015, compared with US$114 per tonne in 2014.
While the market is not expected to recover in 2016, the Group believes that the situation
is unlikely to worsen substantially. As the global iron ore supply and Chinese steel exports
already peaked in 2015, the Group expects that commodity prices will face less negative
pressure next year. Given current steel prices, producers globally continue to face low
profitability, which will make certain future development unsustainable, leading to calls for
capacity optimisation and market rebalancing.
Long-term prospects:
Ongoing urbanisation is a long-term driver
for steel consumption growth. During the
global steel supercycle of the last 15 years,
the global urban population has increased
by 1.1 billion people. The United Nations
forecasts that by 2030, it will rise by
another 1.1 billion people, highlighting the
potential for a sustainable upside in global
steel use.
Global vanadium prices, US$/kg
Ferro-Vanadium 70-80%,
Europe
40
32
24
16
8
0
2009 2010 2011 2012 2013 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Metal Bulletin
2015
Global urban and rural populations, 1950-2050, million people
Rural
Urban
Over the next 15 years, the
urban population growth
rate is expected to remain
at the same level
Source: United Nations
7000
5600
4200
2800
1400
0
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
Strategic report
20
Steel segment
EVRAZ sales volumes
In 2015, EVRAZ Steel segment external steel product sales volumes fell by 2.7% year-on-year,
although different product groups exhibited different dynamics. Sales volumes of semi-finished
steel products to 3rd parties increased by 18.2% year-on-year mainly due to reduced internal
slab consumption of North American operations and lower demand for finished steel products.
Construction products sales volumes fell by 10.8% year-on-year due to weak demand in the
local Russian and Ukrainian markets. Sales volumes of railway products, including rails and
wheels, dropped by 24% overall. External sales volumes of flat-rolled products dropped by
51.5% in 2015, mostly following the deconsolidation of EVRAZ Vitkovice Steel and EVRAZ
Highveld Steel and Vanadium. Another factor was lower sales of third-party producers’ flat-rolled
goods by EVRAZ Metall Inprom, amid reduced demand.
EVRAZ sales volumes of key finished products in Russia declined in 2015. Russian rebar sales
fell by 20% year-on-year due to the slowdown in construction and lower mortgage issuance.
Beam sales dropped by 24% year-on-year and angles and channel sales by 18% due to lower
domestic infrastructure investment. The most significant decline was in wheel sales, which
slumped by 35% due to extremely low railcar production. While Russian Railways bought 3%
fewer rails from EVRAZ in 2015, volumes were in line with the contracts. At the same time, sales
of grinding balls rose by 17% amid new mining projects in Russia.
Sales volumes of Steel segment, kt
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
2015
12,227
5,600
4,583
1,007
383
654
560
12,787
18,074
4,082
13,992
4,421
1,388
3,033
2014
12,566
4,737
5,140
1,325
789
575
954
13,520
20,806
3,220
17,586
4,542
1,288
3,254
Change,%
(2.7)%
18.2%
(10.8)%
(24.0)%
(51.5)%
13.7%
(41.3)%
(5.4)%
(13.1%)
26.8%
(20.4)%
(2.7)%
7.8%
(6.8)%
www.evraz.comAnnual Report & Accounts 2015 21
Despite the slowdown of domestic shipments during 2015, EVRAZ was able to preserve its
leading positions in key high-value-added product segments. Its share of the domestic rebar
market was stable at 16%. Market shares for beams, structural shapes (channels and angles)
and wheels showed slight decline and were 64%, 48% and 28% respectively. Grinding balls
market share increased to 68%. EVRAZ remained the leader in rail production with 97% market
share for the year.
EVRAZ Caspian Steel ramped up production during the year reaching rebar sales of 0.3 million
tonnes in 2015. It sold these predominantly in Kazakhstan and neighbouring Central Asian
countries.
Despite the turbulence in the Ukrainian market, EVRAZ DMZ Petrovskogo kept steel products’
sales stable at 0.9 million tonnes and increased export shipments in 2015.
EVRAZ vanadium product sales volumes fell by 13.1%, from 20.8 thousand tonnes of pure
vanadium in 2014 to 18.1 thousand tonnes in 2015.
EVRAZ sold 1.4 million tonnes of iron ore pellets to 3rd parties in the year, up 7.8% from 2014,
due to an increase in domestic orders. Other iron ore product external volumes dropped by
6.8% year-on-year due to weak demand in Ukraine and deconsolidation of Highveld.
EVRAZ market share in Russia
by key products, volumes
EVRAZ
Others
84
84
88
89
Rebars
16
16
Beams
64
70
Wire rod
12
11
Structural shapes
48
50
Grinding balls
68
59
Rails
36
30
52
50
32
41
97
99
3
1
Railway wheels
28
29
72
71
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
In 2015, EVRAZ demonstrated flexibility in redirecting sales from the domestic to the export
market, thereby maintaining production and helping to increase profitability. Steel product sales
outside Russia and the CIS reached 5.8 million tonnes, up 13% year-on-year. EVRAZ significantly
enhanced its sales to Europe, which reached 1.6 million tonnes, maintained stable shipments
to Asia, which declined only by 5%, and increased sales to other global destinations by 15% to
1.2 million tonnes.
Source: Metal Expert
As part of EVRAZ commitment to its customers, the Group maintains a continuous focus on
enhancing the export of premium products. In 2015, outside Russia and the CIS, EVRAZ sold
31 thousand tonnes of rails and wheels (up 59% from 2014), 191 thousand tonnes of beams
(up 12%) and 170 thousand tonnes of rebar (up 277%).
Geographic breakdown of external steel product sales, kt
Russia
Asia
Europe
CIS
Africa, America and the rest of the world
TOTAL
2015
5,413
3,020
1,617
987
1,190
12,227
2014
6,428
3,182
956
965
1,035
12,566
Change, %
(15.8)%
(5.1)%
69.1%
2.3%
15.0%
(2.7)%
Strategic report 22
Trends in the Russian steel market
The Russian economy contracted by 3.7% in 2015, causing domestic steel consumption
to decrease. Russia consumed 37.5 million tonnes of steel products in 2015, down 9.4%
from 41.3 million tonnes in 2014. Demand fell by 14% for long steel, 6% for flat products
and remained unchanged for tubular products. At the same time, the rouble devaluation
decreased local steelmakers’ costs and made them more competitive in international
markets. This boosted export sales (28 million tonnes in 2015, up 6.6% from 2014) and
helped overall production to remain mostly unchanged year-on-year.
During 2015, steel prices in Russia were generally lower year-on-year. The rebar price
CPT Moscow averaged US$352 per tonne, down 33% from US$528 per tonne in 2014.
Channels averaged US$423 per tonne, down 27% from US$579 per tonne in 2014. Prices
of flat steel products were generally stronger than those of long products in 2015. Hot-
rolled coil averaged US$394 per tonne CPT Moscow, down 21% from US$499 per tonne in
2014. Plates averaged US$433 per tonne, down 16% from US$516 per tonne in 2014.
EVRAZ does not anticipate substantial steel demand improvements in Russia in 2016.
The situation will be driven by construction activity, fixed asset investment, oil prices
and mortgage market dynamics.
Russian steel consumption
by product type, mt
Long products
Δ 2015/2014 –14%
Tubular products
Δ 2015/2014 0%
Flat products
Δ 2015/2014 –6%
Metalware
Δ 2015/2014 –33%
2015
2014
2013
2012
2011
2010
2009
15.7
9.4
11.0
1.4
18.3
9.9
11.0
2.1
18.9
10.0
9.9
2.1
18.7
9.9
9.5 2.1
17.3
10.2
10.7
2
14.8
9.1
9.8 1.8
11.2
5.9
6.1 1.4
37.5
41.3
40.9
40.2
40.2
35.5
24.6
Source: Metal Expert
Russian steel: prices, USD/t
Russian steel: prices, US$/t
Rebars, Moscow, Russia
Plate, Moscow, Russia
HRC, Moscow, Russia
Channels, Moscow, Russia
800
640
480
320
160
0
2009 2010 2011 2012 2013 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: Metal Expert
2015
www.evraz.comAnnual Report & Accounts 2015 23
Trends in other steel segment markets
Long-term prospects:
In 2015, instability in Ukraine led to lower demand in that market. Internal
consumption declined by 19%, from 4.2 million tonnes in 2014 to 3.4 million tonnes.
In addition, overall crude steel production fell by 15.6%, from 27.1 million tonnes in
2014 to 22.9 million tonnes. Steel exports fell by 16% to 17.5 million tonnes.
Kazakh steel consumption was relatively stable in 2015 at 2.8 million tonnes of steel
products. Domestic companies produced 3.6 million tonnes of crude steel last year,
down only 3% from 2014. Exports of steel products were 2.5 million tonnes, down 1%
from 2014. Imports declined by 10% to 1.8 million tonnes.
As 90% of vanadium is consumed by the steel industry, slowing demand impacted
the global market for the metal in 2015. Total consumption decreased by 4%, from
83 thousand mtV in 2014 to 80 thousand mtV. The average LMB ferrovanadium price
was US$18.6 per kgV in 2015, 27% lower than US$25.5 per kgV in 2014.
Ɔ Russia currently has only 17 square
metres of living space per person,
compared with more than 30 square
metres in the US, UK, Japan and Germany.
This gap highlights the potential for
an increase in residential construction,
supporting domestic demand for long
steel.
Ɔ In non-residential construction, the
potential for greater steel demand relates
to the way buildings are constructed.
While more than 65% of buildings have
steel-frame constructions in developed
countries, the figure is only 13% in
Russia. Moving from concrete-based to
steel-based construction could boost the
market for structural and infrastructure
steel segments.
Infrastructure: floor space – square metres per capita
Share of buildings with steel frames,%
44
35
33
33
30
22
19
17
11
UK
USA
Sweden
Norway
Russia
68%
65%
65%
48%
13%
60
40
30
20
10
0
US
UK
Japan
Germany
Brazil
Chile
Turkey
Russia
India
Source: OECD, EIU
Source: Steel Construction Institute, Rosstat
Strategic report
24
Steel, North America segment
EVRAZ sales volumes
EVRAZ North America’s steel product sales volumes declined by 14.9% in 2015, from
2.6 million tonnes in 2014 to 2.2 million tonnes, due to market conditions and asset
optimisations. Sales volumes of construction products fell by 21.6% due to the disposal
of a structural tubing business and competition from imports of wire rods. Flat products
volumes declined 7.6% to 570 thousand tonnes in 2015 when compared to 2014 volumes
of 617 thousand tonnes. During the year EVRAZ successfully continued shifting the product
mix to premium grades.
EVRAZ sold 518 thousand tonnes of railway products in 2015, 3.5% less than
537 thousand tonnes in 2014, mainly due to operational issues and abnormally low
Q3 2015 orders from Class I railways. Tubular products sales decreased by 22.3% to
814 thousand tonnes in 2015, down from 1,048 thousand tonnes in 2014. This was
mainly due to falling sales of oil country tubular goods (OCTG) products, which declined
by 61%, from 393 thousand tonnes in 2014 to 151 thousand tonnes in 2015, amid a
rapid decline in drilling activity caused by low oil prices. Sales volumes of large-diameter
pipes (LDP) were strong, rising by 6% to 363 thousand tonnes, up from 344 thousand
tonnes in 2014, due to new pipeline projects by midstream infrastructure companies and
ongoing client focus initiatives.
During 2015 EVRAZ North America maintained its leadership in rail with c.40% market
share by volume and LDP pipe with 27% market share. During the year, demand for LDP
in North America approximately doubled when compared to 2014, ramping up production
at the Group’s LDP facilities enabled us to remain the largest North American LDP
producer. In comparison, the estimated combined market share from the other seven
domestic producers was 30% while imported LDP from a variety of sources achieved a
43% share. During the year, the Group announced projects at its Regina Steel Making
and LDP mills to continue elevating the bar on quality and growing EVRAZ leadership
position in LDP.
EVRAZ market share
in North America by key
products and volumes, %
EVRAZ
LDP
27
Rails
53
38
39
2015
2014
2015
2014
2015
2014
Others
73
47
62
61
Source: U.S. Census Bureau Imports Statistics,
2015
Public filings
2014
2015
2014
2015
2014
Sales volumes of Steel, North America segment, kt
Steel products
Construction products
Railway products
Flat-rolled products
Tubular products
TOTAL
2015
2014
Change, %
320
518
570
814
2,222
408
537
617
1,048
2,610
(21.6%)
(3.5%)
(7.6%)
(22.3%)
(14.9%)
www.evraz.comAnnual Report & Accounts 2015
25
Trends in North American steel market
Steel consumption in North America (the US and Canada) totalled 117 million tonnes
in 2015, down 10% from 130 million tonnes in 2014. Demand for long products fell
by 5%, flat products by 9% and tubular products by 29%. Despite the decline in overall
consumption, the fundamentals of the Group’s key products were strong.
Consumption of LDP nearly doubled in 2015, reaching 1.5 million tonnes, up
0.7 million tonnes from the year before. The demand can be classified into three product
categories: oil pipelines, pipelines to LNG terminals and natural gas pipelines. Current oil
production at the Canadian oil sands and US Bakken shale formation requires pipelines
to transport oil economically to major North American, European and Asian markets. The
natural gas price differential between North America and Asia provides attractive LNG
investment opportunities. On the natural gas side, recent changes in regional supply and
demand balances (for example, the construction of new gas-fired electricity plants) are
driving the need for new pipelines.
The North American rail market was fairly stable in 2015, consumption amounting to
1.4 million tonnes. Infrastructure spending was particularly high in the year due to the
urgent infrastructure needs of railway companies stemming from increased oil and gas-
related shipments.
US and Canada finished steel
consumption, mt
Long
products
Flat
products
Tubular
products
30.1
31.8
76.9
9.8
84.1
13.9
29.3
75.6
13.1
29.2
76.0
14.4
26.1
72.9
12.8
25.5
65.3
10.6
20.1
47.0
7.1
116.8
129.8
118.0
119.6
111.8
101.4
74.2
2015
2014
2013
2012
2011
2010
2009
Prices of flat products decreased by 30% to US$638 per tonne in 2015, while those of
OCTG fell by 19% and of rebar by 13%.
Source: Worldsteel, AISI
EVRAZ expects the LDP market conditions to remain favourable for the next three to
five years due to the need to develop pipeline infrastructure and the number of projects
announced. The rail business remains supported by high Class I railway CAPEX and the
Group’s attractive product portfolio. The OCTG product market slumped by 50% in 2015,
and EVRAZ believes that it may stay at that level for another year.
North America prices, US$/t
Plate, Domestic US
Rebar, Domestic US
OCTG Carbon
1400
1120
840
560
280
0
2009 2010 2011 2012 2013 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: CRU
2015
Strategic report 26
Coal segment
EVRAZ sales volumes
EVRAZ coking coal product sales totalled 15.2 million tonnes in 2015, compared with
16 million tonnes in 2014. The decline was mainly driven by the suspension of non-core
steam coal production.
Internal coking coal product sales were 5.7 million tonnes, an 8% decrease compared to
6.2 million tonnes year before, due to reduced coal consumption at EVRAZ ZSMK after
the shutdown of two coke batteries and the launch of the PCI plant. External coking coal
product sales rose by 5.7% year-on-year and reached 9.5 million tonnes from 9.0 million
tonnes in 2014 due to international exposure upside and better product mix offerings.
The Group’s coal products export shipments increased by 29% in 2015 with 4.3 million
tonnes, compared to 3.6 million tonnes year before. EVRAZ was able to increase sales
to more profitable markets of Ukraine, Europe, South Korea and Japan from 1.9 million
tonnes in 2014 to 2.7 million tonnes in 2015 and maintain stable sales to China at
1 million tonnes.
In 2015, the Group maintained its leading position in the domestic coking coal market,
with 43% market share in high-vol grades: Zh, GZh, GZhO.
EVRAZ share of Russia’s
high-vol coking coal grades
(Zh, GZh, GZhO), volumes, %
EVRAZ
Others
Сoking coal concentrate (Zh, GZh, GZhO)
57
56
43
44
2015
2014
2015
2014
Source: Metal Expert
2015
2014
2015
2014
2015
2014
2015
2014
Sales volumes of Coal segment, kt
External sales
Coal products
Coking coal
Coal concentrate and other products
Steam coal
Intersegment sales
Coal products
Coking coal
Coal concentrate
TOTAL, COAL PRODUCTS
2015
2014
Change,%
9,474
9,809
1,905
1,697
7,569
7,267
(3.4%)
12.3%
4.2%
–
845
(100.0%)
5,736
1,348
4,388
15,210
6,232
1,782
4,450
16,041
(8.0%)
(24.4%)
(1.4%)
(5.2)%
www.evraz.comAnnual Report & Accounts 2015
Trends in Russian coking coal market
During 2015, domestic coking coal consumption was stable at 39 million tonnes,
down 2% from 2014, due to sustainable steel and coke production volumes.
75 million tonnes of raw coking coal was mined in Russia this year, 2% higher
than in 2014. Export volumes declined by 13% to 18 million tonnes in 2015
from 21 million tonnes year before. Coking coal imports to Russia, mostly from
Kazakhstan, decreased by 45% during the year from 1.4 million tonnes to
0.8 million tonnes.
Premium coking coal (Zh grade) averaged US$84 per tonne FCA Kuzbass, down by
17% from US$101 per tonne in 2014. Semi-soft coking coal (GZh grade) decreased
in price slightly more, by 18%, from US$72 per tonne in 2014 to US$59 per tonne
in 2015.
In 2016, EVRAZ expects coking coal sales volumes and prices to remain at 2015
levels due to stable domestic steel production and the export contract pipeline.
However, local competition may increase in certain coal grades, as peers launch
new projects.
Domestic coking coal concentrate
consumption, mt
2015
2014
2013
2012
2011
2010
2009
Source: Metal Expert
27
38.8
39.6
41.4
42.6
43.4
42.6
39.7
Coal prices, US$/t
GZh
GZh+Zh
Zh (mono-concentrate)
Source: Metal Expert
250
200
150
100
50
0
2009 2010 2011 2012 2013 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015
Strategic report 28
PRINCIPAL RISKS
AND UNCERTAINTIES
Effective risk management is critical for fulfilling EVRAZ strategic priorities.
Risk Management System
(For more information, see the Risk Management and Internal Control section of the Corporate Governance Report, pages 115-117)
T O P - D OWN APPROACH
B o a r d of Directors
A u d i t Сommittee
e
2
oversight, identification,
assessment and management
of risks at corporate level
3
I
n
t
e
r
n
a
l
a
u
d
i
t
p Risk Сom m itte
1
u
o
r
G
EFFECTIVE RISK MANAGEMENT
Identification, assessment
and management of risks at
regional and site levels and
across functions
R
e
g
i
o
n
4
a
l
R
is
k С
o
m
Site leve l s
mittees or busin e s s u n i t m a
BOTTOM-UP AP P R O A C H
a g e m ent teams
n
Overall responsibility for Group risk management
and internal control
Approves strategic objectives and risk appetite
1
2
3
Identifies, assesses and monitors
Group-wide risks and mitigation actions
Supports the board in monitoring risk
exposure against risk appetite
Reviews the effectiveness of risk
management and internal control systems
Supports the Audit Committee in reviewing
the effectiveness of risk management and
internal control systems
Adopts regional risk appetite
Support the Group Risk Committee in reviewing
and monitoring effectiveness of risk management
Identification, assessment and management
of risks at the regional level
Monitoring of risk management process and
effectiveness of internal control
4
Identification, assessment and mitigation
of risks
Promoting risk awareness and safety
culture
Viability statement
As a global steel and mining group, EVRAZ is exposed to a range of
risks and inherent uncertainties that are explained more fully in this
section. The Group’s principal risks and its approach to managing them,
together with the latest financial forecasts and five year strategic plan,
have formed the basis for our assessment of longer term viability.
The assessment included consideration of the stress testing
detailed below, with particular attention paid to the forecast cash
position and compliance with financial maintenance covenants in
each scenario and the mitigation plan developed by management.
In accordance with provision C.2.2 of the UK Corporate Governance
Code 2014, the Board has assessed the prospects of the Group
over the period of the current strategic plan to December 2020 and
consider it possible to form a reasonable expectation of the Group’s
viability over this five year period.
The assessment was underpinned by scenarios that encompass a
wide spectrum of potential outcomes. These scenarios are designed
to explore the Group’s resilience to the significant risks set out on
pages 30-31 and combinations of correlated risks. The key scenarios
can be summarised as:
Č Base scenario: the key assumptions as disclosed in note 6 to the
financial statements under Impairment of assets on page 191;
future pricing of steel and raw materials is based upon the upper
end of the external analyst forecasts set out in Note 6; annual
steel volumes are assumed not to exceed the 2015 level over the
five year period to December 2020;
Č Global economic decline: steel and raw material prices and
exchange rates during 2016 are assumed to be lower than the
level of January 2016; demand during 2016 is assumed to remain
at the level of January 2016 with a gradual recovery in subsequent
periods; future pricing assumptions are at the lower end of the
external analyst forecast set out in Note 6;
www.evraz.comAnnual Report & Accounts 2015
29
RISK MANAGEMENT
Detailed risk assessments and risk
evaluations were conducted at the plant
and mine levels. The Risk Committee
last reviewed the Group’s risk profile
in September 2015 and finalised the
assessment in February 2016.
9
1
4
2
5
6
7
8
3
4
Maximum
5
Maximum
Severity
EVRAZ 2015 heat map
Probability
5
4
3
2
1
m
u
m
i
x
a
M
m
u
m
i
x
a
M
Minimum
1
2
3
Risk migration in 2015
1 Global economic factors, industry conditions
Successful implementation of skill development programmes has led to a re-assessment of the
HR risk as a non-principal risk.
Risks of increased competition and cost effectiveness are reported separately, as the Group
considers them as partly internal risks, as opposed to mostly external as in previous years.
Developments in 2015:
Č Introduction of viability analysis and related statement as response to new FRC requirements
Č Detailed analysis of cyber risk
Č Regular semi-annual reassessment of risks
2 Competition
3 Cost effectiveness
4 Treasury: availability of finance
5 Functional currency devaluation
6 HSE: environmental
7 HSE: health, safety
8 Potential action by governments
9 Business interruption
Č Increased conversion costs in the CIS;
Č Limited access to capital markets;
Č Appreciation of local operating currencies;
Č Business interruption: lost production and restoration costs; and
Č Combinations of correlated risks/scenarios.
The scenarios are designed to be severe but plausible. They
take full account of the potential actions available to mitigate the
occurrence and impact of the risk, and the likely effectiveness of such
action.The process makes certain assumptions about the normal level
of capital recycling likely to occur and considers whether additional
financing facilities will be required and available in each scenario.
EVRAZ considers that this stress-testing based assessment of its
prospects is reasonable given the risks and inherent uncertainties
facing the business.
The Directors confirm that their assessment of the principal risks
facing the Group is robust. Based upon this robust assessment and the
stress testing of Group prospects in a number of risk related scenarios,
the Directors have a reasonable expectation that EVRAZ will be able to
continue in operation and meets its liabilities as they fall due over the
five year period to December 2020.
In making this statement, the Directors have made the following
key assumptions:
Č the continued availability of funding or refinancing, by way of
capital market, bank debt and asset financing, of up to half the
current debt level in all the scenarios considered; and
Č financial maintenance covenants can continue to be managed if
and when necessary through repayment of certain borrowings,
financial covenant resets, a waiver
lenders and/or
refinancing of certain borrowings.
from
Č selling prices remain in line with prevailing market assumptions.
Strategic report 30
Principal risks
Risk
1
Global economic factors,
industry conditions
Description
Mitigating/risk management actions in 2015
Risk direction
EVRAZ’ operations are dependent on the global macroeconomic environment and economic and industry
conditions, e.g. the global supply and demand balance for steel and particularly for iron ore and coking
coal, which can affect both product prices and volumes across all markets.
As EVRAZ’ operations involve substantial fixed costs, global economic and industry conditions can impact
the Group’s operational performance.
Downscaling of inefficient assets and suspension of production in low-growth regions.
Focused investment policy aimed at reducing and managing the cost base with the objective of being among the sector’s
lowest-cost producers.
Expansion of product portfolio and sales geography to better serve current and future customers.
2
Competition
Excessive supply in global market and greater competition.
Increasing competition in the rail product segment from Mechel and a new rail producer
in Kazakhstan.
Expansion of product portfolio and penetration of new geographic and product markets.
Development and improvement of loyalty and customer focus programmes and initiatives.
Quality improvement initiatives.
3
Cost effectiveness
The majority of the Group’s steel production remains sensitive to costs and prices.
Maintaining a low-cost position is one of EVRAZ‘ key business objectives in steelmaking and the iron
ore and coking coal mining businesses.
Key steel and coking coal assets are in the first quartile of the cost curve, which helps to maintain
profitability even during market downturns.
4
Treasury:
availability of finance
5
Functional currency
devaluation
6
HSE: environmental
7
HSE: health, safety
Impact from the possible introduction of limitations on repatriation of foreign-currency export
revenues, as well as additional regulations or limitations on cross-border capital flows.
Potential government action, including economic sanctions impacting Russian entities, might increase
the Group’s capital market risk regarding additional funding.
Any significant fluctuation in subsidiaries’ functional currencies relative to the US dollar could have a
significant effect on the Group’s financial accounts, which might impact its ability to borrow.
EVRAZ works to reduce the amount of intergroup loans denominated in Russian roubles and Ukrainian hryvnias to limit the
possible devaluation effect on its consolidated net income.
Steel and mining production carry an inherent risk of environmental impact and incidents relating to issues
as diverse as water usage, quality of water discharged, air emissions, waste recycling, tailing management,
air emissions (including greenhouse gases), and community satisfaction.
Consequently, EVRAZ faces risks including regulatory fines, penalties, adverse impact on reputation and, in
the extreme, the withdrawal of plant environmental licences, which would curtail operations indefinitely.
Potential danger of fire, explosions and electrocution, as well as risks specific to individual mines:
methane levels, rock falls and other accidents could lead to outage or production delays, loss of
qualified personnel, loss of material, equipment or product, or extensive damage compensation.
Breach of any HSE laws, regulations and standards may result in fines, penalties, suspension of
production, or other sanctions.
Prolonged outages or production delays, especially in coal mining, could have a material adverse
effect on the Group’s operating performance.
8
Potential action
by governments
New laws, regulations or other requirements could limit the Group’s ability to obtain financing in
international markets, sell its products and purchase equipment.
Risk of capital controls that affect the Group in terms of free flow of capital.
EVRAZ may also be adversely affected by government sanctions against Russian business or
otherwise reducing its ability to conduct business with counterparties.
Risk of adverse geopolitical situation in countries of operation.
9
Business interruption
Prolonged outages or production delays, especially in coal mining, could have a material adverse
effect on the Group’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 Group’s reputation.
For both the mining and steelmaking operations, the Group executes cost reduction projects to increase the
competitiveness of assets.
Focused investment policy aimed at reducing and managing the cost base.
Further expansion and control of the Group’s Russian steel distribution network.
Development of high-value-added products.
Action to extend the debt maturity profile and diversify sources of funding.
Liquidity risk is managed by revisiting capital expenditure plans, cost optimisation programmes, asset portfolios and the
dividend policy.
Implementation of air emission and water use reduction programmes at plants.
Waste management improvement programmes.
The majority of EVRAZ’ operations are certified under ISO 14001 and the Group continues to work towards bringing the
remaining plants to ISO 14001 requirements. EVRAZ is currently compliant with REACH requirements.
Management KPIs place significant emphasis on safety performance and the standardisation of critical safety
programmes.
Implementation of energy isolation programme.
Introduction of a programme of behaviour safety observations drives a more proactive approach to preventing
injuries and incidents.
Introduction of contractual safety programme, reduction of number of contractors.
A series of health and safety initiatives related to underground mining.
Maintenance and repair modernisation programmes, downtime management system.
While these risks are mostly not within the Group’s control, EVRAZ and its executive teams are members of various
national industry bodies. As a result, they contribute to the development of such bodies and, when appropriate,
participate in relevant discussions with political and regulatory authorities.
The Group 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.
www.evraz.comAnnual Report & Accounts 2015
31
Principal risks
Risk
Treasury:
availability of finance
Functional currency
devaluation
1
2
3
4
5
6
7
8
9
Description
Mitigating/risk management actions in 2015
Risk direction
Global economic factors,
industry conditions
EVRAZ’ operations are dependent on the global macroeconomic environment and economic and industry
conditions, e.g. the global supply and demand balance for steel and particularly for iron ore and coking
coal, which can affect both product prices and volumes across all markets.
As EVRAZ’ operations involve substantial fixed costs, global economic and industry conditions can impact
the Group’s operational performance.
Downscaling of inefficient assets and suspension of production in low-growth regions.
Focused investment policy aimed at reducing and managing the cost base with the objective of being among the sector’s
lowest-cost producers.
Expansion of product portfolio and sales geography to better serve current and future customers.
Excessive supply in global market and greater competition.
Increasing competition in the rail product segment from Mechel and a new rail producer
Competition
in Kazakhstan.
Expansion of product portfolio and penetration of new geographic and product markets.
Development and improvement of loyalty and customer focus programmes and initiatives.
Quality improvement initiatives.
The majority of the Group’s steel production remains sensitive to costs and prices.
Maintaining a low-cost position is one of EVRAZ‘ key business objectives in steelmaking and the iron
Cost effectiveness
ore and coking coal mining businesses.
Key steel and coking coal assets are in the first quartile of the cost curve, which helps to maintain
profitability even during market downturns.
Impact from the possible introduction of limitations on repatriation of foreign-currency export
revenues, as well as additional regulations or limitations on cross-border capital flows.
Potential government action, including economic sanctions impacting Russian entities, might increase
the Group’s capital market risk regarding additional funding.
For both the mining and steelmaking operations, the Group executes cost reduction projects to increase the
competitiveness of assets.
Focused investment policy aimed at reducing and managing the cost base.
Further expansion and control of the Group’s Russian steel distribution network.
Development of high-value-added products.
Action to extend the debt maturity profile and diversify sources of funding.
Liquidity risk is managed by revisiting capital expenditure plans, cost optimisation programmes, asset portfolios and the
dividend policy.
Any significant fluctuation in subsidiaries’ functional currencies relative to the US dollar could have a
significant effect on the Group’s financial accounts, which might impact its ability to borrow.
EVRAZ works to reduce the amount of intergroup loans denominated in Russian roubles and Ukrainian hryvnias to limit the
possible devaluation effect on its consolidated net income.
Steel and mining production carry an inherent risk of environmental impact and incidents relating to issues
as diverse as water usage, quality of water discharged, air emissions, waste recycling, tailing management,
HSE: environmental
air emissions (including greenhouse gases), and community satisfaction.
Consequently, EVRAZ faces risks including regulatory fines, penalties, adverse impact on reputation and, in
the extreme, the withdrawal of plant environmental licences, which would curtail operations indefinitely.
HSE: health, safety
Potential danger of fire, explosions and electrocution, as well as risks specific to individual mines:
methane levels, rock falls and other accidents could lead to outage or production delays, loss of
qualified personnel, loss of material, equipment or product, or extensive damage compensation.
Breach of any HSE laws, regulations and standards may result in fines, penalties, suspension of
production, or other sanctions.
Prolonged outages or production delays, especially in coal mining, could have a material adverse
effect on the Group’s operating performance.
Potential action
by governments
New laws, regulations or other requirements could limit the Group’s ability to obtain financing in
international markets, sell its products and purchase equipment.
Risk of capital controls that affect the Group in terms of free flow of capital.
EVRAZ may also be adversely affected by government sanctions against Russian business or
otherwise reducing its ability to conduct business with counterparties.
Risk of adverse geopolitical situation in countries of operation.
Business interruption
Prolonged outages or production delays, especially in coal mining, could have a material adverse
effect on the Group’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 Group’s reputation.
Implementation of air emission and water use reduction programmes at plants.
Waste management improvement programmes.
The majority of EVRAZ’ operations are certified under ISO 14001 and the Group continues to work towards bringing the
remaining plants to ISO 14001 requirements. EVRAZ is currently compliant with REACH requirements.
Management KPIs place significant emphasis on safety performance and the standardisation of critical safety
programmes.
Implementation of energy isolation programme.
Introduction of a programme of behaviour safety observations drives a more proactive approach to preventing
injuries and incidents.
Introduction of contractual safety programme, reduction of number of contractors.
A series of health and safety initiatives related to underground mining.
Maintenance and repair modernisation programmes, downtime management system.
While these risks are mostly not within the Group’s control, EVRAZ and its executive teams are members of various
national industry bodies. As a result, they contribute to the development of such bodies and, when appropriate,
participate in relevant discussions with political and regulatory authorities.
The Group 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.
Strategic report
32
CORPORATE SOCIAL
RESPONSIBILITY
REVIEW
Health & safety
The Group stated “100% Safe behaviour” and
“100% Safe Work Conditions” as its strategic priority
at all its sites. Safety is one of five EVRAZ strategic
pillars.
EVRAZ objective in 2016 is to update its existing
system of compensation for working in highly
hazardous environments, based on the results
of special evaluation of workplace conditions
conducted in 2015, to ensure compliance with the
updated legal requirements and the actual working
environment
LTIFR (excluding fatalities) per million hours
Fatalities
2015
2014
2013
EVRAZ employee
Сontractors
10
3
2.18
2015
1.60
2014
2.05
2013
2012
2011
12
7
18
6
25
13
EVRAZ KGOK was awarded at XII national
7
competition “Most Socially Effective Metal
23
2010
and Mining Company”, “Health Protection
and Safe Working Conditions” nomination.
26
2009
In 2015, it launched a new programme,
13
19
24
6
31
20
23
26
“Health”, aimed at helping people who often fall
ill to recover. Also in 2015, the plant continued to
implement an alcohol testing system.
For further information please refer
to the CSR Report section (pages 84-86).
Annual Report & Accounts 2015www.evraz.com Our Approach
EVRAZ is a sociably responsible company, 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 the Group’s policies and
performance in 2015 in key areas of CSR, including human
rights, health and safety, the environment, human capital
management and community engagement, and an outline
of how the Group intends to improve its performance
in the years ahead. The Group considers these policies
appropriate and effective.
EVRAZ follows the OECD Guidelines for Multinational
Enterprises to ensure a uniform approach to business
standards across its global operations. The Group’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
United Nations’ Universal Declaration of Human Rights
and strives at all times to uphold them.
33
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 Group’s overall results,
and to realise his/her abilities and potential.
This aspiration is reflected in the Group’s internal codes and principles, including the Business Conduct Policy, “The EVRAZ Way”, available on the corporate
website at http://www.evraz.com/governance/documents/.
Environment
Our people
Community relations
In 2012, after determining the key challenges and
focus areas, EVRAZ voluntarily adopted five-year
environmental targets1 (over 2012–17) aimed at:
reducing air emissions2 by 5%; decreasing fresh
water consumption by 15%.
1 Environmental targets are based on 2011 performance levels.
In 2014, the HSE Committee of the Board of Directors reviewed
the 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.
2 Including nitrogen oxides (NOx), sulphur oxides (SOx), dust and
volatile organic compounds only
The goals and initiatives of EVRAZ HR strategy are
aimed at developing employee skills and improving
production safety levels through training and
performance management.
Diversity of employees, senior management
and directors, % (number of people)
Men
Board
Senior
management
Women
80 (8)
20 (2)
86 (31)
14 (5)
Employees
70 (59,127)
30 (25,340)
In every region where EVRAZ enterprises operate we
make efforts to build stable, long-term and mutually
beneficial partnerships with local governments,
noncommercial associations, business partners,
etc. EVRAZ develops a variety of charity projects,
aimed at improving the quality of life in cities and
towns, supporting infrastructure, sport, educational
and cultural programmes, helping children with
special needs and socially unprotected children.
EVRAZ fresh water consumption, million m3
Number of employees at December 31, people
2015
2014
2013
340.23
2015
332.13
2014
368.44
2013
84,467
94,823
105,128
EVRAZ organised city festivals in Nizhny
Tagil and Novokuznetsk, promoted sport
and a healthy lifestyle, and raised money for
charity in 2015. The Group also supported
the reconstruction of a football stadium
and renovation of the swimming pool in
Kachkanar.
EVRAZ NMTP has finished erecting
In 2015, 56 Russian, Ukrainian, US
EVRAZ charity project “EVRAZ: City of
additional screens to protect the port and
and Canadian engineers joined the
Friends – City of Ideas” received an award
the surrounding town from coal dust. In
sixth EVRAZ New Leaders Programme,
in the nomination “Best Project That Helps
doing this, it was the first enterprise to
hosted by the Skolkovo Moscow School
to Promote Initiatives of Non-commercial
use aerodynamic panels, which minimise the
of Management to design and implement
and Charity Organisations in the Regions Where
kinetic energy of the air, reducing air movement
initiatives to improve process performance. For
the Company Operates” a National contest
and preventing the dispersion of dust. The
the first time, EVRAZ experts and HiPo’s acted
“Leaders of Corporate Social Responsibility”.
panels represent one of the most effective dust
as team sponsors.
suppression technologies available today.
For further information please refer
to the CSR Report section (pages 87-92).
For further information please refer
to the CSR Report section (pages 95-99).
For further information please refer
to the CSR Report section (pages 99-101).
Strategic report
34
FINANCIAL REVIEW
PAVEL TATYANIN
Senior Vice President,
CFO
Statement of operations
The Group’s consolidated revenues decreased
by 32.9% to US$8,767 million compared to
US$13,061million in 2014 primarily as a result
of falling prices and depressed demand in 2015.
However, we managed to cushion the effect of
market challenging conditions by implementing the
cost-efficiency programme and market initiatives,
consequently EBITDA margin is just 1.6 percentage
points lower than in 2014 (16.4% in 2015
compared to 18.0% in 2014).
Consolidated EBITDA decreased by 38.9% to
US$1,438 million compared to US$2,355 million
in 2014.
In 2015, revenues from the Steel segment (including
inter-segment) decreased and amounted to 68.3% of
the Group total. The decrease was mainly attributable
to lower revenues from sales of steel products, which
declined by 36.8% year-on-year, largely due to a
drop in average selling prices (down 31.6%), in line
with global benchmarks. Revenues from the sales
of steel products was also impacted by changes
in the Group’s sales volumes which declined from
13.5 million tonnes in 2014 to 12.8 million tonnes
in 2015, due to deconsolidation of EVRAZ Highveld
Steel and Vanadium (less 0.4 million tonnes) and
worsening conditions in key markets.
Revenues from the Steel, North America segment fell
by 28.2% year-on-year. Revenues from the sales of
steel products dropped by 29.1%, driven by declining
prices (down 12.2%), lower sales volumes (down
14.8%) and changes in the product mix (down 2.1%).
The key drivers of these were, in turn, significant
reductions in EVRAZ North America’s seamless pipe
and oil country tubular goods (OCTG) sales, resulting
from the slump in oil prices, subdued demand for flat
products and price decrease for rod and bar products.
Revenues from the Coal segment fell due to lower
sales prices and volumes. In 2015, production
was impacted by both planned work (the
scheduled longwall moves at Yuzhkuzbassugol)
and unplanned events (such as the suspension of
operations at Raspadskaya’s MUK-96 mine due
to market conditions).
www.evraz.com 35
In 2015, the Steel segment’s EBITDA declined amid depressed demand in Russia and
generally negative steel price trends globally, partly offset by lower expenses in US dollar
terms due to rouble depreciation. Lower prices of iron ore, coking coal and scrap, the
deconsolidation of EVRAZ Highveld Steel and Vanadium and the disposal of EVRAZ Vitkovice
Steel all positively affected the segment’s results.
The Steel, North America segment’s EBITDA was impacted by lower sales volumes stemming
from a downturn in the OCTG and flat product markets.
The Coal segment’s EBITDA decreased slightly year-on-year, as Yuzhkuzbassugol implemented
an efficiency improvement programme and optimised assets and coal product sales prices
decreased, this was offset by the positive impact of rouble devaluation on сost base.
Eliminations line in the table below reflects the unrealised profits or losses which relate to the
inventories on the balance sheet of Steel, North America segment produced by Steel segment.
In the present
environment
free cash flow
generation
and further
deleveraging
remain key
priorities.
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 and the rest of the world
2015
5,987
2,270
1,068
433
(991)
8,767
2015
3,104
2,566
1,354
664
815
264
2014
9,519
3,160
1,318
648
(1,584)
13,061
2014
5,279
3,529
1,954
926
916
457
Change
Change, %
(3,532)
(890)
(250)
(215)
593
(4,294)
(37.1)%
(28.2)%
(19.0)%
(33.2)%
(37.4)%
(32.9)%
Change
Change, %
(2,175)
(963)
(600)
(262)
(101)
(193)
(41.2)%
(27.3)%
(30.7)%
(28.3)%
(11.0)%
(42.2)%
(32.9)%
TOTAL
8,767
13,061
(4,294)
EBITDA1, US$ million
Segment
Steel
Steel, North America
Coal
Other operations
Unallocated
Eliminations
TOTAL
2015
1,081
55
351
14
(130)
67
1,438
2014
1,933
280
376
37
(220)
(51)
2,355
Change
Change, %
(852)
(225)
(25)
(23)
90
118
(44.1)%
(80.4)%
(6.6)%
(62.2)%
(40.9)%
n/a
(917)
(38.9)%
1 In 2015, management changed the definition
of segment expense and EBITDA to make these
indicators more comparable with Russian steel
peers. Segment expense and EBITDA have now
been adjusted to not include social and social
infrastructure maintenance expenses. As a result,
the Group restated EBITDA for both financial
reporting and management accounts purposes for
the years ended 31 December 2014 and 2013.
Strategic report
36
Revenues, cost of sales and gross profit of segments, US$ million
2015
2014
Change, %
Steel segment
Revenues
Cost of sales
Gross profit
Steel, North America segment
Revenues
Cost of sales
Gross profit
Coal segment
Revenues
Cost of sales
Gross profit
Other operations – gross profit
Unallocated – gross profit
Eliminations – gross profit
TOTAL
5,987
(4,527)
1,460
2,270
(1,980)
290
1,068
(749)
319
111
5
(13)
2,172
9,519
(6,940)
2,579
3,160
(2,623)
537
1,318
(1,040)
278
129
7
(203)
3,327
The following table details the effect of the Group’s cost-cutting initiatives.
Effect of Group’s cost-cutting initiatives in 2015, US$ million
Cost-cutting initiatives and productivity improvements, including
Improving yields and raw material costs of steel assets
Improving yields and raw material costs of mining assets
Productivity improvement
Energy efficiency and optimisation of maintenance costs
Other cost optimisations
Optimisation of asset portfolio
Highveld deconsolidation
EVRAZ North America: shutdown of Claymont
EVRAZ ZSMK portfolio asset optimisation: shutdown of coke battery no. 2 and disposal of non-core assets
Production suspension and disposal of high-cost and inefficient assets at Raspadskaya and Evrazruda
Evrazruda: shutdown of high-cost and inefficient asset
Reduction of general and administrative (G&A) costs and non-G&A headcount
TOTAL
Selling and distribution expenses decreased by 21.2% in 2015 mostly due to the rouble
weakening and lower third party sales volumes. This was accompanied by the impact of
deconsolidation of Highveld Steel and Vanadium Limited following the loss of control.
General and administrative expenses declined by 36.2% in 2015. This reflected the reduced
staff costs following headcount optimisation at EVRAZ North America, the Russian steel mills
and coal companies, and the weakening of the rouble and hryvnia.
Impairment losses during the reporting period included the write-off of goodwill at subsidiaries
in the US and Canada totalling US$251 million, impairment of the cash-generating units of
EVRAZ Palini e Bertoli by US$37 million and EVRAZ Yuzhny Stan by US$30 million, and a
US$77 million loss relating to one of Raspadskaya’s coal fields that was damaged by fire.
(37.1)%
(34.8)%
(43.4)%
(28.2)%
(24.5)%
(46.0)%
(19.0)%
(28.0)%
14.7%
(14.0)%
(28.6)%
(93.6)%
(34.7)%
169
68
39
35
21
6
76
39
19
11
6
1
76
321
www.evraz.comAnnual Report & Accounts 2015 37
Foreign exchange losses arose as a result of the devaluation of the rouble, hryvnia, tenge
and Canadian dollar. The subsidiaries in respective countries have US dollar-denominated
debts, such as bonds and bank loans. In addition, there are some intra-group debts between
subsidiaries with different functional currencies and, consequently, gains/(losses) of one
subsidiary recognised in the Statement of Operations are not offset by the exchange differences
of another subsidiary with a different functional currency.
Interest expenses incurred by the Group decreased due to a reduction of gross debt. The
interest expense for bank loans, bonds and notes amounted to US$430 million in 2015 and
US$503 million in 2014. It was also impacted by a decrease in the interest expense of rouble
bonds due to the rouble weakening.
Gain on disposals classified as held for sale in 2015 amounted to US$21 million. The
amount includes US$20 million of a gain recognized in relation to disposal of assets of
Portland Structural Tubing. In 2014 gain on disposal classified as held for sale amounted
to US$136 million, including US$90 million in relation to disposal of EVRAZ Vitkovice Steel
and US$25 million from disposal of iron ore mine and heat and power plant located in the
Krasnoyarsk and Kemerovo regions of Russia.
Losses on financial assets and liabilities amounted to US$48 million and included,
among other things, US$459 million of realised losses and US$439 million of unrealised
gains on changes in the fair value of derivatives – cross-currency swaps for rouble-
denominated bonds. Also the losses include US$15 million of loss on extinguishment of
debts which predominantly is a premium of repurchase of US Dollar denominated bonds
and US$11 million of impairment relating to the decline in quotations of available-for-sale
financial assets (shares of Delong Holdings Limited, a flat steel producer headquartered in
Beijing, China).
Loss of control over EVRAZ Highveld Steel and Vanadium starting 14 April 2015 resulted in
recognition of a loss on disposal of a subsidiary in the amount of $167 million, including
$142 million of translation loss recycled to the statement of operations. Please, refer to the
Note 4 of Financial statements (page 187) for further details.
In the reporting period, the Group’s income tax expense fell to US$12 million compared to
US$194 million expense in 2014 as a result of the decline in operating results.
Gross profit, expenses and results, US$ million
Item
Gross profit
Selling and distribution costs
General and administrative expenses
Impairment of assets
Foreign exchange gains/(losses), net
Other operating income and expenses, net
Loss from operations
Interest expense, net
Gain/(loss) on financial assets and liabilities, net
Gain on disposals classified as held for sale, net
Loss of control over a subsidiary
Other non-operating gains/(losses), net
Loss before tax
Income tax benefit/(expense)
Net loss
2015
2,172
(795)
(474)
(441)
(367)
(119)
(24)
(466)
(48)
21
(167)
(23)
(707)
(12)
(719)
2014
3,327
(1,009)
(743)
(540)
(1,005)
(131)
(101)
(546)
(583)
136
-
10
(1,084)
(194)
(1,278)
Change
Change, %
(1,155)
214
269
99
638
12
77
80
535
(115)
(167)
(33)
377
182
559
(34.7)%
(21.2)%
(36.2)%
(18.3)%
(63.5)%
(9.2)%
(76.2)%
(14.7)%
(91.8)%
(84.6)%
n/a
n/a
(34.8)%
(93.8)%
(43.7)%
Strategic report 38
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 classified as held for sale, net of
transaction costs
Other investing activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Effect of foreign-exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
2015
1,293
329
1,622
4
(423)
–
44
16
(359)
(962)
(12)
289
Net cash flows from operating activities fell by 17% from US$1,957 in 2014 to US$1,622 in
2015, US$329 were attributed to the release in net working capital. Free cash flow for the
period was US$799 million.
Calculation of free cash flow, US$ million
Item
EBITDA
EBITDA excluding non-cash items
Changes in working capital
Income tax accrued
Social and social infrastructure maintenance expenses
Net cash flows from operating activities
Interest and similar payments
Capital expenditures, including recorded in financing activities
Purchases of subsidiaries (net of cash acquired) and interests in associates/joint
ventures
Proceeds from sale of disposal classified as held for sale, net of transaction costs
Other cash flows from investing activities
Equity transactions
FREE CASH FLOW
For the definition of free cash flow, please refer to page 254.
2014
1,976
(19)
1,957
8
(612)
(102)
311
6
(389)
(1,811)
(282)
(525)
2015
1,438
1,420
329
(99)
(28)
1,622
(452)
(428)
–
44
16
(3)
Change
Change, %
(683)
348
(335)
(4)
189
102
(267)
10
30
849
270
814
2014
2,355
2,363
(19)
(357)
(30)
1,957
(493)
(654)
(131)
311
35
(13)
(35)%
n/a
(17)%
(50)%
(31)%
n/a
(86)%
167%
(8)%
(47)%
(96)%
n/a
Change
(917)
(943)
348
258
2
(335)
41
226
131
(267)
(19)
10
(213)
799
1,012
www.evraz.comAnnual Report & Accounts 2015 39
CAPEX and key projects
In 2015, EVRAZ reduced its total capital expenditure to US$428 million, compared with
US$654 million in 2014, primarily due to currency fluctuations and the completion of capital-
intensive projects.
In Q4 2015, the Group launched the continuous casting machine at EVRAZ ZSMK and the plan is
to reach full capacity in H2 2016. The Mezhegey coal project is in the final stage of development
(launch of the mine is scheduled for 2016).
Two projects began at EVRAZ Regina in Canada with a total investment of over US$200 million.
These are at improving quality and widening the range of flat steel products and increasing the LDP
production capacity. EVRAZ NTMK has started a project to build a new grinding ball mill to make
sophisticated grades of that product, which are currently not manufactured in Russia.
Capital expenditure (including that recognised in financing activities) for 2015 in millions of US
dollars is summarised in the table below.
Capital expenditures in 2015, US$ million
Construction of a large-diameter pipe (LDP) mill
51
Construction of a new mill at EVRAZ Regina has been in progress since
Q2 2015 and is due to be completed in Q3 2016. Expected to add 150kt
of tubular product capacity.
Coal deposit development
27 Mezhegey (phase 1). To be launched in 2016. Capacity of 1.5 mtpa.
Continuous casting machine (ССМ) reconstruction
Steel mill upgrade
Iron ore capacity expansion
Grinding ball mill construction
Other development projects
Maintenance
TOTAL
24
18
8
1
42
257
428
Reconstruction of the CCM at EVRAZ ZSMK was launched in Q4 2015.
Capacity to increase to 2.2 mtpa.
Upgrade of EVRAZ Regina steel mill. In progress since Q2 2015. The aim
is to improve steel quality, increase capacity for casting by 110kt and
rolling by 250kt, and result in a crown yield saving from 0.75% to 1.1%.
The Sheregesh mine’s output is due to reach 4.8 mtpa of raw ore.
Construction of a new grinding ball mill at EVRAZ NTMK has been
in progress since Q2 2015 and is due to be completed in Q2 2018.
Expected to increase ball production to 300kt by 2018.
Strategic report 40
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 2015, EVRAZ had approximately US$4 billion net asset exposure in Russian
roubles (RUB (the functional currency of Russian subsidiaries)) and Ukrainian hryvnia (UAH
(the functional currency of the Ukrainian subsidiaries)). These net assets mostly represented
the historic cost of property, plant and equipment of the RUB and UAH functional currency
subsidiaries less related rouble and hryvnia nominated liabilities.
Rouble-denominated bonds are not a part of these net assets, as at the issuance they were
economically swapped into fixed rate US dollar borrowings.
During 2015, there was a 23% depreciation of the Russian rouble and a 34% depreciation of
the Ukrainian hryvnia against the US dollar. This depreciation led to a decline of approximately
c. US$1.0 billion 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.
Management believes that the market value of the respective property, plant and equipment
measured in US dollars is significantly higher than its carrying value. This is also the case for
their US dollar-measured cash-generating capacity, as determined by IAS 36 discounted cash
flows value-in-use methodology (VIU). The change in the value-in-use in 2015 was largely due to
the shift in the product mix, stemming from lower domestic demand caused by sanctions and
associated economic instability in the local markets of the assets involved. Other contributors
included a decrease in the weighted average cost of capital and adjustments to long-term
forecasts for global steel, iron ore and coal prices.
Even though IAS 16 allows the use of a fair value option for accounting for property, plant and
equipment, the fair value accounting is rarely used in metals and mining industries and it is
complicated for a capital extensive business. Moreover, the use of 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:
Country
Country
Carrying value1
of PP&E as of 31
December 2014
Value in use2 of
PP&E as of 31
December 2014
Carrying value1
of PP&E as of 31
December 2015
Value in use2 of
PP&E as of 31
December 2015
Hypothetical net of tax increase in
carrying value of equity as of 31
December 2015 if VIU were used
to value PP&E
NTMK
ZSMK
Raspadskaya
Yuzhkuzbassugol
KGOK
DMZ
Sukha Balka
TOTAL
Russia
Russia
Russia
Russia
Russia
Ukraine
Ukraine
632
824
1,316
704
175
115
145
3,023
3,127
1,588
965
348
157
179
470
633
883
502
148
73
91
3,911
9,387
2,800
1,333
1,336
1,511
1,637
1,337
113
96
7,363
690
562
502
908
951
32
4
3,649
1As reported in the Group’s consolidated financial statements under IFRS
2Calculated in accordance with IAS 36 for the impairment test at 31 December 2015. 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
www.evraz.comAnnual Report & Accounts 2015 41
Financing and liquidity
At the beginning of 2015, total debt was US$6,907 million.
In 2015, EVRAZ carried out numerous refinancing transactions aimed at improving the
Group’s debt profile and reaching a comfortable liquidity position for upcoming maturities.
In March 2015, the Group settled the 8.75% rouble notes due in 2015 in full and the related
liabilities under swap contracts. The total cash outflow amounted to US$123 million.
In April 2015, EVRAZ partly repurchased below-par 9.95% Rouble notes due in October 2015
with a principal of RUB4,150 million and terminated the respective swap contracts; the
total cash outflow amounted to US$141 million. In October 2015, EVRAZ fully settled 9.95%
rouble-denominated bonds due in 2015 with a principal amount of RUB15,000 million,
out of which bonds with a principal amount of RUB10,850 million (c.US$175 million at the
exchange rate as of the repayment date) were held by various investors, as the remainder
had been previously repurchased (pls, see Note 22 on p.211 for more detail).
In April 2015, the Group completed a share buyback via a tender offer of 108,458,508
ordinary shares for US$3.10 per share. The total cash used amounted to US$339 million.
In April 2015, EVRAZ signed a new €475 million loan agreement with Gazprombank and
simultaneously repaid an existing US$500 million loan due to mature in December 2016 from
the same bank. The new loan is repayable in two instalments: 30% of the principal in June
2018 and 70% in June 2019. In December 2015, this loan was partly converted into roubles,
and as of the year-end, it comprised a rouble part of RUB18 billion and a euro part of €240
million.
In July 2015, the Group issued a RUB15 billion (c.US$270 million at the exchange rate as of
the date of the transaction) bond with a four-year put/call option at a coupon rate of 12.95%
per annum payable semi-annually. Proceeds from the issue were used to refinance existing
indebtedness, thus not increasing total debt.
Later in July 2015, EVRAZ partly repurchased 8.40% rouble-denominated bonds due in 2016
with a principal of RUB4,792 million (US$84 million at the exchange rate as of the date
of the transaction) for a cash consideration of RUB4,696 million (US$82.5 million at the
exchange rate as of the date of the transaction). The Group has also terminated related cross-
currency swaps with a total notional amount of US$169 million for a cash consideration of
US$90 million.
In July 2015, EVRAZ NTMK borrowed a US$200 million term loan from Alfa Bank with a
guarantee from EVRAZ plc. The loan is repayable in a single bullet instalment on 12 July
2019. The proceeds were used for refinancing current indebtedness.
In August 2015, EVRAZ NTMK signed a five-year US$125 million term loan facility agreement
with UniCredit Bank, Moscow, with a guarantee from EVRAZ KGOK. The loan was fully drawn
on 24 September and will be amortising in quarterly instalments starting November 2017
and ending August 2020. The proceeds were used for refinancing current indebtedness.
In August 2015, EVRAZ NTMK signed a five-year US$100 million term loan facility agreement
with Nordea Bank, Moscow, guaranteed by EVRAZ plc. The loan was fully drawn on
20 October and will be amortising in quarterly instalments starting September 2017 and
ending August 2020. The proceeds were used for refinancing current indebtedness.
In September 2015, EVRAZ partly repurchased an additional portion of its 8.40% rouble
bonds due 2016 with a principal of RUB3,159 million (c.US$48 million) at par value and
terminated related cross-currency swaps with a total notional amount of US$111 million for
a cash consideration of US$66 million.
Strategic report Key recent
developments
The first quarter of 2016, the Group
repurchased through open market
operations and cancelled US$19 million
of aggregate principal amount of 7.40%
notes due in 2017 on the open market for
a cash consideration of US$20 million.
Following these transactions, the current
outstanding amount on the notes totals
US$267 million.
In the same period, EVRAZ Group S.A.,
a wholly owned subsidiary of EVRAZ plc,
has similarly repurchased US$78 million
of aggregate principal amount of the
7.75% loan participation notes due in
2017 issued by Raspadskaya for a cash
consideration of US$79 million. Following
these transactions, EVRAZ Group S.A.
has increased its holding in these notes
to US$292 million of aggregate principal
amount, with a remaining US$108 million
being owned by third-party investors.
In the first quarter of 2016, EVRAZ
NTMK and EVRAZ ZSMK have voluntary
prepaid several of their term loans from
international banks which totaled US$130
million as of 31 December 2015.
42
In October 2015, EVRAZ NTMK entered into a framework multicurrency facility agreement
with VTB Bank governing the general terms and conditions of loans of up to five years with
a total borrowing limit of RUB30 billion equivalent. Any and all debt outstanding under
the agreement is guaranteed by EVRAZ plc. In November 2015, EVRAZ NTMK borrowed
a US$200 million term loan under this framework facility. The loan will be amortising in
quarterly instalments starting November 2018 and ending October 2020. The proceeds were
used for general corporate purposes and refinancing of the current debt. In December 2015,
EVRAZ NTMK borrowed an additional US$145 million term loan under this framework facility.
The loan will be amortising in quarterly instalments starting December 2018 and ending
October 2020. The proceeds were used for refinancing current debt.
As a result of a tender offer and other transactions carried out in October and November
2015, EVRAZ Group S.A., a direct wholly owned subsidiary of EVRAZ plc, became the holder
of US$214 million of aggregate principal amount of the 7.75% loan participation notes due
2017 issued by Raspadskaya. As of the year-end, US$186 million of these notes remained
held by third parties.
In December 2015, EVRAZ prepaid the Mezhegey project finance facility totalling
US$144 million and terminated the facility agreement.
In December 2015, the Group issued 8.25% notes due 2021 totalling US$750 million. The
proceeds were used to finance the purchase of 7.40% notes due 2017, 9.50% notes due 2018
and 6.75% notes due 2018 at the tender offer settled on 18 December 2015 and to refinance
other current debt. As a result of this tender offer, EVRAZ has repurchased US$314 million of
aggregate principal amount of 7.40% notes due 2017, US$156 million of aggregate principal
amount of 9.50% notes due 2018 and US$54 million of aggregate principal amount of 6.75%
notes due 2018. The total cash consideration used for the tender amounted to US$556 million.
As a result of these actions, as well as scheduled drawings and repayments of bank loans,
total debt decreased by US$183 million to US$6,724 million as at 31 December 2015, while
net debt decreased by US$465 million to US$5,349 million, compared with US$5,814 million
as at 31 December 2014.
Due to the lower total debt and refinancing initiatives in 2015, interest expenses accrued
in respect of loans, bonds and notes were US$430 million in 2015, compared with
US$503 million in 2014.
Net debt to EBITDA stood at 3.7 times, compared with 2.5 times as at 31 December 2014.
As at 31 December 2015, debt with maintenance financial covenants tested at EVRAZ plc
level amounted to around US$1,938 million. Such debt comprised a €475 million facility from
Gazprombank signed in April 2015 which contains a restriction on the maximum ratio for the
consolidated net indebtedness to 12-month consolidated EBITDA and a syndicated facility
totalling US$500 million and various bilateral facilities totalling around US$929 million where
maintenance covenants include two key ratios: a maximum net leverage1 and a minimum
EBITDA interest cover. These two ratios are tested two times a year on a 12-month basis and
the strictest levels are 4.5x and 2.5x, respectively.
As at 31 December 2015, EVRAZ was in full compliance with its financial covenants.
As at 31 December 2015, cash amounted to US$1,375 million and short-term loans and the
current portion of long-term loans stood at US$762 million. They are mainly represented by
capital market instruments, particularly rouble-denominated notes adjusted for respective
hedging exposure.
Cash-on-hand and committed credit facilities are sufficient to cover all of the Group’s
refinancing needs in 2016.
1Net leverage means net debt / EBITDA
www.evraz.comAnnual Report & Accounts 2015 43
Review of operations by segment
Steel segment
Sales review | The Steel segment’s revenues fell, mainly due to lower revenues from sales of
steel products as well at to deconsolidation of EVRAZ Highveld Steel and Vanadium. The main
drivers were lower average selling prices (down 31.6%) lower sales volumes (down 5.2%).
Revenues from external sales of semi -finished products fell by 20.9% due to lower average
prices (down 39.1%), partly offset by greater sales volumes (up 18.2%). External sales of
billets, slabs and other steel products increased year-on-year, mainly due to demand for
certain finished products, particularly those used in construction, in the CIS. Export sales of
semi-finished products to non-CIS countries grew strongly as these markets replaced weak
domestic demand for finished steel goods due to the economic downturn.
Steel segment revenues by products
Steel products, external sales
Semi-finished products1
Construction products2
Railway products3
Flat-rolled products4
Other steel products5
Steel products, inter-segment sales
Including sales to Steel, North America
Iron ore products
Vanadium products
Other revenues
TOTAL
2015
2014
Change, %
US$ million
% of total
segment revenue
US$ million
% of total
segment revenue
4,852
1,867
1,999
550
179
257
238
232
167
305
425
81.0%
31.2%
33.4%
9.2%
3.0%
4.3%
4.0%
3.9%
2.8%
5.1%
7.1%
7,510
2,359
3,286
1,022
487
356
543
531
278
484
704
78.9%
24.8%
34.5%
10.7%
5.1%
3.7%
5.7%
5.6%
2.9%
5.1%
7.4%
5,987
100.0%
9,519
100.0%
1Includes billets, slabs, pig iron, pipe blanks and other semi-finished products
2Includes rebars, wire rods, wire, beams, channels and angles
3Includes rail, wheels, tyres and other railway products
4Includes commodity plate and other flat-rolled products
5Includes rounds, grinding balls, mine uprights and strips
Geographic breakdown of external steel product sales, US$ million
Russia
Asia
Europe
CIS
Africa, America and RoW
TOTAL
2015
2,342
1,047
578
437
448
2014
4,088
1,621
523
671
607
4,852
7,510
(35.4)%
(20.9)%
(39.2)%
(46.2)%
(63.2)%
(27.8)%
(56.2)%
(56.3)%
(39.9)%
(37.0)%
(39.6)%
(37.1)%
Change,%
(42.7)%
(35.4)%
10.5%
(34.9)%
(26.2)%
(35.4)%
Strategic report
44
Revenue from the sale of construction products to third parties dropped, mostly due to lower
average prices (down 28.4%) and weaker demand in Russia as well as deconsolidation of EVRAZ
Highveld Steel and Vanadium. Given the latter, domestic prices did not increase to reflect the
rouble’s steep fall in 2015.
Revenues from external sales of railway products decreased due to changes in average prices
(down 22.2%). Sales volumes of railway products in 2015 also fell due to lower demand in the
CIS, caused by a decline in new railway infrastructure construction and maintenance projects
and a slump in demand from railcar producers and repair shops. Sales to Russian Railways,
however, remained flat year-on-year reaching 632 thousand tonnes.
External revenues from flat-rolled products dropped. This was mostly due to lower sales
volumes (down 51.5%) and average prices (down 11.7%) following the deconsolidation of
EVRAZ Vitkovice Steel and EVRAZ Highveld Steel and Vanadium as well as lower sales of third-
party producers’ flat-rolled goods by EVRAZ Metall Inprom amid reduced demand.
Revenues from external sales of steel products to Russia decreased by 42.7% year-on-year,
mainly due to lower prices, while sales volumes fell by 15.8%. The share of Russia in external
sales of steel products also declined, from 54.4% in 2014 to 48.3% in 2015, as shifting sales
from the domestic to export markets helped to stabilise production volumes and increased
profitability amid the weaker rouble.
Steel segment revenues from sales of iron ore products fell by 39.9%. This was due to lower iron ore
prices (down 37.2%) and sales volumes (down 2.7%) resulting from the deconsolidation of EVRAZ
Highveld Steel and Vanadium. Prices for iron ore products generally declined in 2015, in line with
global benchmarks.
Steel segment revenues from sales of vanadium products declined by 37.0% due to lower sales
prices (down 19.2%) and sales volumes (down 13.1%). This stemmed from the deconsolidation
of EVRAZ Highveld Steel and Vanadium, while average selling prices mirrored the downward
trends in the global steel market.
Steel segment cost of revenue | The Steel segment’s cost of revenue decreased by 34.8% year-
on-year in 2015. The main reasons for the decline were as follows:
Č The cost of raw materials fell by 32.3% mainly due to decline in prices, lower iron ore and
scrap consumption as a result of changes in the mix of raw material consumption, steel
production decreases and a reduction in volumes of iron ore purchased from third parties,
as own production volumes increased.
Č The decline in raw material costs is also attributable to deconsolidation of EVRAZ Highveld
Steel and Vanadium, and cost-cutting initiatives, which reduced consumption.
Č Auxiliary material costs decreased by 26.3%, primarily due to the rouble’s weakness and
deconsolidation of EVRAZ Highveld Steel and Vanadium (down US$45 million), partly offset
by higher prices in local currencies and an increase in consumption of refractories, mainly
for repairs at EVRAZ NTMK.
Č Lower service costs were driven by the weakness of the rouble and hryvnia, as well as the
deconsolidation of EVRAZ Highveld Steel and Vanadium (down US$105 million).
Č Transportation costs decreased by 17.9%, primary due to the rouble’s weakness.
www.evraz.comAnnual Report & Accounts 2015 45
Č Staff costs fell by 39.7%, largely due to the rouble and hryvnia weakness and headcount
optimisation. Additional contributor was the deconsolidation of EVRAZ Highveld Steel and
Vanadium partly offset by wage inflation at Russian sites.
Č Depreciation and depletion costs dropped, driven mainly by local currency depreciation and
the deconsolidation of EVRAZ Highveld Steel and Vanadium (down US$13 million).
Č Lower energy costs were driven by the rouble and hryvnia devaluation; reduced consumption of
electricity and natural gas due to asset optimisations and lower production volumes at Russian
steelmaking sites; the use of pulverised coal injection (PCI) technology at ZSMK, which was
commissioned in Q2 2014; an increase in own generation at ZabSib Heat and Power plant.
Lower energy costs were partially offset by an increase in tariffs in local currencies.
Č Other costs decreased, primarily due to changes in goods for resale costs (down
US$227 million) and lower consumption of semi-finished products mainly due to disposal of
EVRAZ Vitkovice Steel (down US$51 million).
Steel segment gross profit | The Steel segment’s gross profit decreased by 43.4% year-on-year,
driven primarily by lower revenues from sales of steel products.
Steel segment cost of revenue
2015
2014
Change, %
US$ million
% of total segment revenue
US$ million
% of total segment revenue
Cost of revenue
Raw materials
Iron ore
Coking coal
Scrap
Other raw materials
Auxiliary materials
Services
Transportation
Staff costs
Depreciation
Energy
Other1
1Includes goods for resale, taxes in cost of revenue.
4,527
1,783
349
749
295
390
342
278
384
573
229
454
484
75.6%
29.8%
5.8%
12.5%
4.9%
6.6%
5.7%
4.6%
6.4%
9.6%
3.8%
7.6%
8.1%
6,940
2,633
702
892
495
544
464
500
468
950
337
823
765
72.9%
27.7%
7.4%
9.4%
5.2%
5.7%
4.9%
5.3%
4.9%
10.0%
3.5%
8.6%
8.0%
(34.8)%
(32.3)%
(50.3)%
(16.0)%
(40.4)%
(28.3)%
(26.3)%
(44.4)%
(17.9)%
(39.7)%
(32.0)%
(44.8)%
(36.7)%
Strategic report 46
Steel, North America segment
Revenue from steel product sales decreased due to lower sales prices (down 14.2%) and the
impact of changes in sales volumes (down 14.9%).
Revenues from tubular product sales decreased by 32.2%, primarily due to lower sales
volumes (down 22.3%) and price change (down 9.9%). The drop in sales volumes was driven
by weaker demand for OCTG and small-diameter line pipe, caused by a slowdown in drilling
activities due to the slump in oil prices. Sales of large-diameter pipes (LDP) remained strong
due to demand from midstream infrastructure companies.
Railway product revenues declined by 15.2%, driven by a 11.9% drop in average prices, in line
with the general price trend in the US steel market. The lower volume related to operational
issues in Q3 2015, while demand from railway customers was stable.
Revenues from sales of construction products decreased by 35.9%, primarily due to lower
sales volumes (down 21.6%), sales price (down 14.3%). The fall in sales volumes was
attributable to the disposal of a structural tubing facility in Portland in March 2015. Prices for
construction products were under pressure from high import volumes in North America.
Revenues from flat-rolled products fell, mainly due to lower prices (down 21.6%) and sales
volumes (down 7.6%) caused by higher imports.
Steel, North America segment revenues by product
2015
2014
Change, %
US$ million
% of total segment revenue
US$ million
% of total segment revenue
Steel products
Construction products1
Railway products2
Flat-rolled products3
Tubular products4
Other revenues5
TOTAL
2,106
216
435
438
1,016
165
2,270
92.7%
9.5%
19.2%
19.3%
44.7%
7.3%
100.0%
2,968
337
513
619
1,499
192
3,160
93.9%
10.7%
16.2%
19.6%
47.4%
6.1%
100.0%
(29.1)%
(35.9)%
(15.2)%
(29.2)%
(32.2)%
(14.1)%
(28.2)%
1Includes beams, rebars and structural tubing
2Includes rails and wheels
3Includes commodity plate, specialty plate and other flat-rolled products
4Includes large-diameter line pipes, ERW pipes and casing, seamless pipes, casing and tubing.
5Includes scrap and services
www.evraz.comAnnual Report & Accounts 2015 47
Steel, North America segment cost of revenue | Cost of revenue decreased by 24.5% year-on-
year in 2015. The main drivers were as follows:
Č Raw material costs decreased by 32.2%, primarily due to lower consumption of raw materials
(scrap, coke, ferroalloys and other). The main reasons for this were lower volumes of crude steel
and finished products, such as OCTG, flat and wire rod, cost-cutting initiatives that reduced
consumption, and declining raw material prices.
Č Costs of semi-finished products fell by 39.9%, amid prices for slab purchased and lower
production volumes of tubular products.
Č Auxiliary materials dropped by 19.8%, as a cost-cutting plan was implemented and production
volumes of crude steel and finished products dropped compared with 2014.
Č Service costs declined by 5.3%, as production volumes in 2015 fell year-on-year.
Č Energy costs fell, driven by decreased production volumes, a decline in energy consumption, and
lower tariffs for energy and natural gas.
Steel, North America segment gross profit | Gross profit totalled US$290 million in 2015, down
from US$537 million in 2014. The decline was due to lower sales revenues amid the downturn
on the OCTG and flat product markets.
Steel, North America segment cost of revenue
Cost of revenue
Raw materials
Semi-finished products
Auxiliary materials
Services
Staff costs
Depreciation
Energy
Other6
2015
2014
Change, %
US$ million
% of total
segment revenue
US$ million
% of total
segment revenue
1,980
643
354
162
160
265
107
106
183
87.2%
28.3%
15.6%
7.1%
7.0%
11.7%
4.7%
4.7%
8.1%
2,623
962
589
202
169
301
114
154
132
83.0%
30.4%
18.6%
6.4%
5.3%
9.5%
3.6%
4.9%
4.3%
(24.5)%
(33.2)%
(39.9)%
(19.8)%
(5.3)%
(12.0)%
(6.1)%
(31.2)%
(38.6)%
6Includes primarily goods for resale, certain taxes and allowances for inventories, transportation
Strategic report 48
Coal segment
Overall revenues decreased amid a reduction in sales prices, reflecting decreased
global demand and greater output in other coal-exporting countries. Sales volumes
also decreased, as the Group mined less raw coal in accordance with the annual
schedule of longwall moves. Non-core steam coal production was suspended in 2014.
Decommissioning of the only remaining steam coal mine among EVRAZ’s Russian coal
assets started.
In 2015, prices in rouble terms increased year-on-year due to higher prices in Russia and
a shift in shipments in favour of more expensive grades. However, due to the sharp rouble
depreciation, when re-calculated in US dollars, prices in 2015 were lower than those in 2014.
Revenues from internal sales of coal products decreased due to lower average sales prices
(down 12.7%) and sales volumes (down 8.0%). The decrease in coal consumption in 2015
compared with 2014 resulted from reduced coal consumption at EVRAZ ZSMK after the
shutdown of two coke batteries and launch of the PCI plant.
Revenues from external sales of coal products decreased, mainly due to lower prices (down
16.3%) and sales volumes (down 3.4%).
In 2015, Coal segment sales to the Steel segment amounted to US$419 million and 39.2%
of sales, compared with US$528 million and 40.1% in 2014.
During the reporting period, c.53% of EVRAZ’s coking coal consumption in steelmaking
came from the Group’s own operations, compared with 54% in 2014.
The decline in Russian sales of coking coal products from 6.2mt in 2014 to 5.2mt in 2015
is mainly attributable to the decreased demand for coking coal from Russian steelmaking
companies who have started to use more of their own captive coal supply. The decreased
demand from Russian steelmakers is also driven by the decline in steel production volumes
in Russia and introduction of PCI.
Coal segment revenues by product
External sales
Coal products
Coking coal
Coal concentrate
Steam coal
Inter-segment sales
Coal products
Coking coal
Coal concentrate
Other revenues
TOTAL
2015
2014
Change, %
US$ million
% of total
segment revenue
US$ million
% of total
segment revenue
601
58
543
–
391
47
344
76
1,068
56.2%
5.4%
50.8%
–
36.6%
4.4%
32.2%
7.2%
100%
722
78
605
39
493
85
408
103
1,318
54.8%
5.9%
45.9%
3.0%
37.4%
6.4%
31.0%
7.8%
100%
(16.8)%
(25.6)%
(10.2)%
(100.0)%
(20.7)%
(44.7)%
(15.7)%
(26.2)%
(19.0)%
www.evraz.comAnnual Report & Accounts 2015 49
Coal segment cost of revenue | The main factors affecting the decrease in the segment’s cost
of revenues compared with 2014 were as follows:
Č The cost of auxiliary materials and services decreased in 2015, primarily due to the rouble
weakness (down US$10 million and US$25 million respectively), as well as the effect of asset
optimisations and cost-cutting initiatives.
Č Transportation costs declined due to lower sales volumes and transportation costs from
Russian entities as a result of the rouble devaluation.
Č Staff costs decreased due to the rouble weakness (down US$114 million).
Č Depreciation and depletion costs decreased, mostly due to lower depreciation and depletion
expenses at Yuzhkuzbassugol caused by the revision and detailing of future mining plans and
lower depletion of mineral deposits (down US$17 million). This was also accompanied by a fall
in depreciation in US dollar terms due to the rouble weakness (down US$89 million).
Č Energy costs fell due to the effect of currency movements (down US$21 million), partly offset
by higher electricity prices in local currencies (up US$8 million).
Č Other costs increased, primarily due to changes in taxes, work-in-progress and stocks of
finished goods and the effect of the rouble weakness.
Coal segment gross profit | The Coal segment’s gross profit amounted to US$319 million in
2015, up from US$278 million in 2014. The gross profit margin rose, primarily due to the
rouble depreciation’s influence on costs, lower depreciation and depletion, and cost-cutting
initiative.
Coal segment cost of revenue
Cost of revenue
Auxiliary materials
Services
Transportation
Staff costs
Depreciation/Depletion
Energy
Other1
2015
2014
Change, %
US$ million
% of total
segment revenue
US$ million
% of total
segment revenue
749
106
74
146
194
156
38
35
70.1%
9.9%
6.9%
13.7%
18.2%
14.6%
3.5%
3.3%
1,040
152
103
154
305
259
51
16
78.9%
11.5%
7.8%
11.7%
23.1%
19.7%
3.9%
1.2%
(28.0)%
(30.3)%
(28.2)%
(5.2)%
(36.4)%
(39.8)%
(25.5)%
118.8%
1Includes primarily goods for resale and certain taxes, allowance for inventory and raw materials
Strategic report 50
BUSINESS CULTURE:
EVRAZ BUSINESS SYSTEM
Creating a culture of continuous improvement
The EVRAZ Business System (EBS) is the practical expression of EVRAZ’s vision of
reducing costs, improving quality and safety and eliminating waste. It is the methodology
applied by employees to continually improve the effectiveness of the business.
EBS incorporates the business principles and tools of the ‘lean’ management philosophy
to manage change and create a culture of continuous improvement within the Group. It
consists of a set of principles defining the way that EVRAZ operates and its people think
and act. EBS applies in every part of the business and every process in the organisation.
EVRAZ maintenance system | The EVRAZ maintenance system consists of 30 stages that
cross multiple functions, including operations, maintenance, inventory and procurement.
Since 2012, EVRAZ has been developing and implementing a step-by-step approach to
improving machine availability. This includes total preventive maintenance, standard work,
visual management, creation of manufacturing cells, cross-functional work groups, improved
preparation through maintenance planning systems, and failure evaluation through problem-
solving analysis that includes failure mode effects analysis and simple pareto charting.
This strategic approach aligns the responsibilities of all functions with the needs of a
particular asset. The real benefit of this is maximising machine capabilities while reducing
maintenance cost.
Results | In 2015, EVRAZ continued to implement the maintenance system at its
main assets. As part of this, maintenance administrative cells (‘admin cells’) were
introduced to produce more detailed information about the cost of one hour of each
period of downtime. In addition, a new inventory management system was introduced,
while the crossfunctional problem-solving team approach reduced the inventory of
auxiliary materials. Over the year, the inventory management system methodology was
communicated in a new format of quarterly sessions. All site problem-solving teams were
brought together as a ‘community’ for better professional communication and quicker
changes due to best-practice sharing, as well as to standardise processes and procedures
at different sites and avoid repetitive mistakes. The improvement of stock management
and warehousing techniques was a significant achievement in 2015.
In addition, deep analysis of the production processes with the highest energy
consumption rates and the creation of ‘admin cells’, which bring together key people to
problem-solve and manage energy cost reduction on a daily basis led to a reduction of
energy costs in 2015.
Number of people trained for EBS programs1
EBS objectives:
Č Develop leaders who thoroughly understand
the work, live the philosophy, and teach it to
others.
Č Develop exceptional people and teams who
follow the Group’s philosophy.
Č Respect the extended network of partners
and suppliers by challenging them and
helping them to improve.
Č EVRAZ understands customer value and
focuses its key processes to continuously
increase it. The ultimate goal is to provide
perfect value to customers through a perfect
value creation process that has zero waste.
Highlights in 2015:
Č Almost 18,000 people trained.
Č 4,500 rapid improvement events.
Č 15 model lines where EBS has been deeply
implemented.
Č 50% of critical assets covered by
the maintenance system.
Č Cross-functional collaboration with
the development of ‘admin cells’.
Number of claims
Number of claims
2015
2014
2013
1,094
1,769
2,902
EBS Level 2 Trained People
Amount of RIE
2012
2013
2014
2015
4,312
9,559
18,024
618
1,343
1,608
4,500
Amount of Model Lines Where EBS is implemented
Share of critical assets covered by maintenance system, %
10
15
20
22
20
33
50
1The information has been collected since 2012
The number of claims was
decreased by
38%
www.evraz.comAnnual Report & Accounts 2015
51
At EVRAZ Pueblo, the ‘lean’ model line has been used to partner with Union Pacific and
has been critical in transforming the enterprise’s competitive position with a key customer.
Union Pacific ranks critical suppliers annually based on performance in the following
categories: cost, delivery, quality and customer service. EVRAZ Pueblo has been ranked
number one among its critical suppliers.
Claims | In recent years, EVRAZ has been working on improving its customer claim
process. This has resulted in a fuller understanding of the reasons for client claims and
how the Group uses this information to improve its overall process to deliver true value to
customers.
Quality management
EVRAZ strives to meet the highest standards of product quality and ensure maximum
customer satisfaction. To do so, it has adopted a tailored approach to quality management,
based on customer surveys and regulatory requirements that reflect any regional specifics.
At its enterprises, the Group has introduced a quality management system based on the
international ISO 9001 standard and regional standards.
TWO MANAGEMENT SYSTEM
AUDITS ARE CONDUCTED AT EVRAZ NTMK
Two management system audits have been
conducted at EVRAZ NTMK in accordance with
the international ISO 9001 (quality management
system) benchmark and IRIS (business
management system) rail industry standards.
Bureau Veritas, which carried out the inspections,
noted the business management system’s high
level of readiness, which had risen to 73% in
2015 (in accordance with IRIS methodology), and
full compliance under ISO 9001. As a result, the
enterprise has received new certification for the
next three years.
EVRAZ Quality management
Quality audit and internal control
Extraction of
raw materials
Production
Finished
products
Logistics
Customers
Sources
and materials
Technologies
Products
Products
Customers
EVRAZ Strategic Report, as set out on pages 5 to 51 inclusive, has been
reviewed and approved by the Board of Directors on 14 March 2016.
By the order of the Board
ALEXANDER FROLOV
Chief Executive Officer
EVRAZ plc
14 March 2016
Strategic report 52
2–3
Meet EVRAZ
4–51
Strategic report
52–79
Business review
54 Steel segment
66 Steel, North America
segment
74 Coal segment
80–101
CSR report
102–149
Governance
150–249
Financial statements
250–262
Additional information
Annual Report & Accounts 2015www.evraz.com 53
BUSINESS
REVIEW
13.1 mt
Steel products output
Δ 2015/2014 –6.4%
20.5 mt
Iron ore products output
Δ 2015/2014 0%
20.9 m
Raw coking coal production
Δ 2015/2014 –2.7%
Business review 54
STEEL SEGMENT
INPUT
PRODUCTION CHAIN
RESOURCES
MINING
STEELMAKING & PROCESSING
Russia
Iron ore
KGOK
Evrazruda
Third parties
Coal
Coal segment
Third parties
Scrap
Third parties
Ukraine
P&P reserves
8,226.7
mt of iron ore
Iron ore
86%
self-coverage
Coal
190%
self-coverage
Vanadium slag
Iron ore
products
Pig iron
Crude steel
NTMK
BLAST FURNACE
BASIC OXYGEN
FURNACE
Pig iron
Crude steel
Coking coal
products
ZSMK
BLAST FURNACE
BASIC OXYGEN
FURNACE
Scrap
Crude steel
ELECTRIC ARC FURNACE
Iron ore
Sukha Balka
Iron ore
products
Pig iron
DMZ
BLAST FURNACE
BASIC OXYGEN
FURNACE
Employees
60,547
employees
Coal
Bagleykoks
Coal segment
Third parties
Coking coal
products
EVRAZ assets
Third parties
Annual Report & Accounts 2015www.evraz.com
STEELMAKING & PROCESSING
LOGISTICS
& SALES
CUSTOMERS
KEY PRODUCTS
OUTPUT
55
Semi-finished
552 kt
Pig iron (saleable)
2,745 kt
Slabs
2,485 kt
Billets
Construction
1,911 kt
Rebar
446 kt
Angles
806 kt
U-channel
708 kt
Beams
Railway
818 kt
Rails
Industrial
253 kt
Balls
VANADIUM
PROCESSING
ASSETS
ROLLING/
PROCESSING
Crude steel
ROLLING/
PROCESSING
Crude steel
ROLLING/
PROCESSING
Kazakhstan
EVRAZ
Caspian
Steel
ROLLING/
PROCESSING
Vanadium
products
Finished
products
Semi-finished
products
Finished
products
Semi-finished
products
Finished
products
Semi-finished
products
Semi-finished
products
Finished
products
OWN SALES
NETWORK
INDEPENDENT
DISTRIBUTORS
OWN SALES
NETWORK
INDEPENDENT
DISTRIBUTORS
OWN SALES
NETWORK
INDEPENDENT
DISTRIBUTORS
OWN SALES
NETWORK
INDEPENDENT
DISTRIBUTORS
Domestic
and
Export
Domestic
and
Export
Domestic
and
Export
Domestic
and
Export
Business review
56
Steelmaking & Processing
Facility
EVRAZ ZSMK
(Russia)
Production facilities | EVRAZ ZSMK has five coke
oven batteries and three blast furnaces in operation.
For steelmaking, it has two oxygen converter mills,
which consist of five basic oxygen furnaces, and two
electric arc furnaces. EVRAZ ZSMK operates one eight-
strand continuous casting machine, which produces
square billets, a two-strand continuous slab casting
machine, and one four-strand continuous casting
machine, which makes semi-finished products for the
rail mill. Rolling facilities include a blooming mill, one
medium-section 450 mill, two small-section 250 mills,
one rail and structural steel mill, one sectional mill and
two ball-rolling mills.
The EVRAZ ZSMK steel mill has its own coal washing
plant for coking coal. It can also produce customised
coking coal blends if necessary.
Ownership: 100%
Employees: 20,104 people
Capacity
Construction products:
3.6 mt per year
Rails: 0.95 mt per year
Output by key products, kt
Pig Iron (saleable)
150
U-channels
Slabs
Billets
Rebar
Angles
1,412
1,516
Beams
Rails
1,636
Railway products
355
Balls
249
28
667
2
94
EVRAZ DMZ
(Ukraine)
Production facilities | EVRAZ DMZ’ production
facilities include coke and chemicals plants, two
blast furnaces, steelmaking facilities (three oxygen
converters) and two rolling mills.
Ownership: 96,94%
Employees: 5,147 people
Capacity
EVRAZ
Bagleykoks
(Ukraine)
Production facilities | EVRAZ Bagleykoks has three
coke batteries.
Construction products: 0.6 mt per year
Output by key products, kt
Pig iron (saleable)
74.0
Mining uprights
U channels
313.0
Billets
Angles
Rails
Rims
Round billets
Rounds
16.9
13.0
6.7
10.4
473.0
4.8
17.3
Ownership: 94.96%
Employees: 1,307 people
Capacity
Coke (in dry weight) : 0.71 mt per year
Output by key products, kt
Coke (in dry weight)
565
www.evraz.comAnnual Report & Accounts 2015 Facility
EVRAZ NTMK
(Russia)
Production facilities | EVRAZ NTMK has coke and
chemical production facilities, two blast furnaces,
steelmaking facilities (one oxygen converter shop
consisting of four LD converters), four continuous
casters, seven rolling mills and a power and heat
generation plant.
EVRAZ
Caspian Steel
(Kazakhstan)
Production facilities | EVRAZ Caspian Steel has a
light-section rolling mill.
EVRAZ Palini
e Bertoli (Italy)
Production facilities | EVRAZ Palini e Bertoli’s
production facilities consist of a four-high mill for steel
plates and a two-high mill, built in 2005 to accelerate
operations and complement the four-high mill’s rolling
process.
57
Key developments
Ownership: 100%
Employees: 14,921 people
Capacity
Construction products: 1 mt per year
Wheels: 0.15 mt per year
Output by key products, kt
Pig iron (saleable)
338
Beams
Slabs
Billets
Angles
1,333 Rails
774 Wheels
74 Other railway products
U-channels
244
Balls
680
138
73
119
159
Ownership: 65%
Employees: 202 people
Capacity
Rebar: 0.45 mt per year
Output by key products, kt
Rebar
275
Ownership: 100%
Employees: 106 people
Capacity
Plate: 0.45 mt per year
Output by key products, kt
Plate
0
Business review
58
Steelmaking & Processing
EVRAZ METALL INPROM WINS
NATIONAL INDUSTRY AWARDS FOR 2015
EVRAZ Metall Inprom has confirmed its status as Russia’s most reliable metals trader for
the third time in a row. It won numerous awards at the “Russian Metal Market” conference,
organised by the Russian Union of Metal Suppliers and the Metal Supply and Sales magazine,
on November 9. Its offices in Krasnodar, Perm and St Petersburg won nominations in the “Best
Metal Service Centres in Russia” competition, while those in Taganrog, Bryansk, Yekaterinburg,
Krasnoyarsk and Vladivostok scored highly in the “Best Metal Dealer in Russia” category.
EVRAZ ZSMK’S REBAR IS USED
IN MAJOR INFRASTRUCTURE PROJECTS IN RUSSIA
EVRAZ has been supplying its At800 rebar for projects to make airfield slabs for airports in
Eastern and Western Siberia and for the project to rebuild slabs of auxiliary traces at the
Severny cosmodrome. At800 is thermally strengthened rolled steel that is spiral or crescent-
shaped, and it is used to build reinforced or complex structures that constantly carry dynamic
loads. The high-tensile metal helps to reinforce concrete structures, extending their useful life.
At800 is in high demand on the market, and EVRAZ ZSMK produces more than 100 thousand
tonnes a year.
KEY DEVELOPMENTS
EVRAZ ZSMK
The facility reached the target of being
able to process 100% of slag, saving on
consumption of scrap and iron ore products.
Railway products
Č Rails were certified to international
standards (60E1/E2, 54E1, Re115).
Č EVRAZ ZSMK entered the markets of Brazil
and Malaysia.
Č Wheels were exported to the US and UK.
Construction products
Č H-beams were sold to the UAE, UK and US.
Č EVRAZ ZSMK entered rebar markets in
Hong Kong and Eastern Europe.
EVRAZ NTMK
Č EVRAZ NTMK boosted its output of high-
value micro-alloyed pipe-grade slabs by
78 thousand tonnes in 2015.
EVRAZ DMZ
Č Export sales of rolled products increased
by 43.1%, from 144 thousand tonnes to
206 thousand tonnes.
Č Pig iron production totalled 1 million
tonnes, its highest since 2009.
Č The use of raw flux in furnace stock was
discontinued to reduce coke consumption
(use of sinter).
EVRAZ Caspian Steel
In 2015, production reached design capacity
of 450 thousand tonnes of rebar per year,
while the facility expanded its product range
to all types of rebar (10-40 mm diameter).
EVRAZ Bagleykoks
In 2015 EVRAZ Bagleykoks reached 80%
capacity.
www.evraz.comAnnual Report & Accounts 2015 Steelmaking & Processing
Business review
59
NPD REVIEW
KEY PROJECTS
EVRAZ ZSMK
New product development:
Č Rebars and sections for domestic market:
• Rebars of class A600 (12-22 mm,32-40 m)
• Rebars of class AT1000 (14,16 mm)
• New sizes of sections (channel bar 12U,
angles 70*70, 110*110)
Č Rebars for international market:
• Rebars certified to ASTM A616 (NAFTA)
• Rebars certified to CS2:2012 (Singapore)
Č Rails for high-speed and heavy haul R65
DT350 SS (domestic market)
EVRAZ NTMK
New product development:
Č Wheels for Europe and Turkey: (BA002,
BA004, BA005, BA314, А-43 and 409)
Č Bandages from H-grade steel;
Č Solid-rolled wheel centers for locomotives.
EVRAZ DMZ
New product development:
Č Rims 254-020-010
Č Rims and rim locks 400G
Č Three new types of rims for goods vehicles
EVRAZ Bagleykoks
In the absence of a market for coking nut,
0-40 mm coke was certified and shipped
to the beneficiation plant.
OUTLOOK
EVRAZ intends to keep the production level
stable year on year with up to 100% capacity
utilisation at all steelmaking assets in Russia
and Ukraine. EVRAZ intends to continue shift
from semi-finished products to high-margin
rolled and rail products. New high-margin
products are going to be launched: such
us nine types of wheels, 18 types of rolled
construction and rail products.
RECONSTRUCTION OF CONTINUOUS
CASTING MACHINE (EVRAZ ZSMK):
Č Increase production capacity,
Č reduce billet cost
Status
Completed. Production was launched
on October 2015
CAPEX
US$44 million
IRR
33%
BALL MILL CONSTRUCTION
(EVRAZ NTMK):
Construction of new ball mill
at EVRAZ NTMK rail site to support
EVRAZ strategic position in this
market
Status
Underway
CAPEX
US$22 million
IRR
27%
4 MW TURBO GENERATOR (EVRAZ
DMZ):
Generate 14.4 thousand MW per
year
Status
Equipment has been evaluated and
a general designer chosen
CAPEX
US$1.6 million
IRR
70%
Business review 60
Mining
Facility
EVRAZ KGOK
(Russia)
EVRAZ KGOK is located in the Sverdlovsk region,
around 140 kilometres from EVRAZ NTMK, its primary
consumer. EVRAZ KGOK develops the Gusevogorskoye
deposit of titanium magnetite ores, which contain
vanadium, allowing production of high-tensile alloyed
steel products. EVRAZ KGOK produces sinter and
pellets rich in vanadium oxide, which are shipped by
rail to end consumers.
Evrazruda
(Russia)
Evrazruda comprises numerous ore mining and
enrichment enterprises in the Kemerovo region
(the Tashtagolsky, Kazsky, Sheregeshsky iron ore
mines, the Gurevsky limestone ore mine, and the
Abagurskaya sinter and enrichment plant).
EVRAZ
Sukha Balka
(Ukraine)
EVRAZ Sukha Balka is an iron ore mining and
processing complex. It operates two underground
iron ore mines, Yubileynaya and Frunze, both of
which have crushing and sorting facilities.
Ownership: 100%
Employees: 6,794 people
Capacity
Run of mine: 59.3 mt per year
P&P reserves: : 8,078 mt
Output by key products, kt
Sinter
Pellets
Concentrate
3,529
6,510
157
Ownership: 100%
Employees: 4,618 people
Capacity
Run of mine: 7.9 mt per year
P&P reserves: : 77.2 mt
Output by key products, kt
Concentrate1
3,730
1 Supplied to EVRAZ ZSMK’s beneficiation plant for further
processing into sinter
Ownership: 99.42%
Employees: 3,785 people
Capacity
Run of mine: >3 mt per year
P&P reserves: : 71.5 mt
Output by key products, kt
Lumpy ore
2,809
www.evraz.comAnnual Report & Accounts 2015 Mining
Business review
61
KEY DEVELOPMENTS
KEY PROJECTS
EVRAZ KGOK
Produced more than 59 million tonnes
of iron ore in 2015. A decision was
made to postpone the start of new dump
construction until 2022.
Evrazruda
In the project to reconstruct the Sheregesh
mine, scheduled target production volume
was achieved (4.2 million tonnes in 2015
compared with 2.2 million tonnes in 2014).
It was decided to continue operation without
additional CAPEX at the Abagure’s ore
stockpile. Options to extend operation of
Tashtagol mine until 2025 were considered.
EVRAZ Sukha Balka
Production was launched of ore with an iron
content of more than 60% (114 thousand
tonnes) for EVRAZ DMZ Petrovskogo.
Timir
License extension has been granted.
Feasibility study continued.
OUTLOOK
EVRAZ intends to maintain production
level and high capacity utilisation as well
as continue implementation of the key
investment projects according to the plan.
RECONSTRUCTION OF THE
SHEREGESH MINE (EVRAZRUDA) :
Expansion of production of up to
4.8 mtpa in 2018.
Status Commissioning of
the horizon +115 m with a new
production technology.
CAPEX
US$75.2 million
IRR
33%
NORTHERN QUARRY (EVRAZ KGOK):
Expansion of production of up to
30 mtpa in 2018.
Status Stage one completed.
CAPEX
US$19.9 million
IRR
>100%
EXPANSION OF PROCESSING OF
MAGNETITE ORE FROM THE FRUNZE
MINE (EVRAZ SUKHA BALKA):
Produce ore with an iron content of
more than 60% (does not require
agglomeration)
Status Ore mining has begun and
a quality improvement programme is
under way
CAPEX
US$0.5 million
IRR
>100%
Business review 62
Vanadium
Facility
EVRAZ Vanady
Tula (Russia)
EVRAZ Nikom
(Czech Republic)
EVRAZ Stratcor
(US)
EVRAZ Vanady Tula is the largest
Russian producer of ferrovanadium.
Its production facilities are in Tula, in
the Tula region.
Key consumers: EVRAZ Nikom,
EVRAZ Vametco, EVRAZ Stratcor,
Steel producers.
EVRAZ Nikom is a ferrovanadium
producer in the Czech Republic. It
has one processing facility, which it
uses to process vanadium pentoxide
received from EVRAZ Vanady Tula
and China and also vanadium
trioxide from EVRAZ Vametco into
ferrovanadium.
Key consumers: Steel producers.
EVRAZ Stratcor is a producer of high-
purity vanadium alloys and chemicals
and a major supplier of vanadium to
the chemical and titanium industries.
It is headquartered in Hot Springs,
Arkansas, the US, and it owns plants
in the US and South Aftrica.
Key consumers: Catalysts producers,
VAL/titanium industry, specialty
chemical producers.
Ownership: 100%
Employees: 587 people
Ownership: 100%
Employees: 58 people
Ownership: 100%
Employees: 90 people
Capacity
Capacity
Capacity
Vanadium pentoxide: 7,500 mtV
Ferrovanadium: 5,000 mtV
Output by key products, mtV
Vanadium pentoxide
Ferrovanadium (FeV)
Oxide vanadium product
4,035
2,559
2,066
Ferrovanadium: 4,940 mtV
Vanadium oxides: 2,750 mtV
Output by key products, mtV
Output by key products, mtV
Ferrovanadium (FeV)
4,939
Oxides
VAL
Chemicals
879
474
198
KEY DEVELOPMENTS
OUTLOOK
EVRAZ Vanady Tula
Commission of new filtration site (black filters).
EVRAZ intends to maintain production
volumes at the level of 2015.
EVRAZ Nikom
Installment of packaging machine and slag crushing equipment.
EVRAZ Stratcor
Production capacity improvement for vanadium oxides products.
Commissioning of extraction system for improvement of technological
process. (SX system).
www.evraz.comAnnual Report & Accounts 2015
Marketing, sales, services and logistics
63
Operations and facilities
Trading Company EvrazHolding | Trading Company EvrazHolding is the largest Russian
supplier of rolled steel and sells EVRAZ products in Russia and the CIS. In 2015, its sales
totalled 5.8 million tonnes of steel products. It focuses on long and rolled products for
use in construction and engineering, rolled products for the transportation segment (rails,
wheels and specialist products) and products for the mining (balls and pitprops) and pipe-
making (slabs and tubes) sectors.
EVRAZ East Metals | EVRAZ East Metals is a Swiss-based EVRAZ trading company that
exports steel products supplied from EVRAZ steel mills in Russia (EVRAZ ZSMK, EVRAZ
NTMK) and Ukraine (EVRAZ DMZ), as well as iron ore mines (EVRAZ KGOK in Russia and
EVRAZ Sukha Balka in Ukraine). EVRAZ East Metals also sells ferrovanadium internationally
on behalf of EVRAZ. A wide network of agency and representative offices (including in China,
Hong Kong, Indonesia, Japan, Philippines, South Korea, Taiwan, Thailand, Turkey and the
UAE) ensures proximity to clients in key markets. In 2015, EVRAZ East Metals sold 4.8 million
tonnes of steel products, primarily slabs and billets (84% of the total).
EVRAZ Metall Inprom | EVRAZ Metall Inprom is one of the largest steel trading
companies in Russia, with sales of 1.6 million tonnes in 2015. It distributes steel products
from EVRAZ and some third parties from a network of regional warehouses. Its main
customers are in the construction, steel structures and engineering segments. In 2015,
for the third year in a row, EVRAZ Metall Inprom won an award for having the best national
sales network from the Russian Union of Metal Product Suppliers.
Business review
64
Marketing, sales, services and logistics
Customer focus strategy
Customer focus initiatives, 2015 results | By concentrating on the customer focus
strategy, maintaining client loyalty and working closely with key buyers in Russia and
abroad, EVRAZ succeeded in sustaining demand for many of its products, despite intensive
market competititon.
As part of its export strategy, the Group began selling rails on new overseas markets,
including countries in the Middle East, South East Asia and Latin America. Overall, it
exported around 24 thousand tonnes (excluding CIS) of rails in the year. Notably, EVRAZ
signed a contract to deliver 15 thousand tonnes of rails for a high-speed rail link in
Uzbekistan and remains the main supplier to Russian Railways.
Working closely with overseas clients, EVRAZ launched new types of rail wheels and
certified them for use in Europe and South America. As a result, the Group boosted its
export sales several times, to around 20 thousand tonnes.
Through a programme to develop special types of steel for the pipe industry, EVRAZ
increased domestic sales of high-quality premium slabs to 80 thousand tonnes. The Group
also expanded its international client base to include buyers of specialist slabs for use in
LDP and, in the longer term, engineering.
Working with clients’ engineers, EVRAZ developed and launched new special types of steel
for engineering (spring steel) and shipbuilding, sales of which totalled 50 thousand tonnes
in 2015.
By launching new steel sections profiles (including the 40 channel, the largest in Russia),
EVRAZ retained its share on the domestic market for rolled products, despite greater
competition. In addition, by launching new beams and streamlining the production process,
the Group boosted beam export sales by 30% year-on-year.
Through securing long-term contracts with key buyers of grinding balls, EVRAZ increased its
share of that market to 68%, a record for recent years, and maintained maximum output
for that product.
CUSTOMER FOCUS
TARGETS/OUTLOOK
In 2016, Trading Company EvrazHolding
plans to roll out a “My Account” area for
clients in its CRM system and begin
integrating its ERP system with those
of key clients, which will make placing
orders more efficient. In addition, together
with specialists from NTMK, it intends to
continue the construction of a new ball-
rolling mill, designed to meet the highest
standards on the market.
In 2016, EVRAZ East Metals intends to
develop sales of high-value-added billets at
NTMK, which will open more value-added
segments and improve profitability of billet
sales. Another initiative is the development
of new rebar standards and certifications
(DIN, BS, ASTM, SI). This will create access
to new markets and customers, thus
generating better margins than from billets.
In 2016, EVRAZ Metall Inprom plans to
introduce online services for clients,
including a “My Account” area, a
centralised call centre and a CRM block in
the 1C ERP system.
www.evraz.comAnnual Report & Accounts 2015 Marketing, sales, services and logistics
65
EVRAZ increased its share of grinding
balls market to
68%
KEY DEVELOPMENTS
Trading Company EvrazHolding
Č Introduced an electronic signature with EVRAZ NTMK and ZSMK and began
switching to the system with clients.
Č Reduced the number of orders fulfilled behind schedule by 50%.
EVRAZ East Metals
Č Launched a strategy to increase export sales of beams and high-grade slabs.
Č Implementing a programme to reduce freight costs.
EVRAZ Metall Inprom
Č Completed a project to implement the 1C ERP programme throughout its
divisions.
MARKETING STRATEGY
EVRAZ marketing strategy for 2016 has numerous priorities. The Group intends to
retain its leadership position in the transport, construction and mining segments in
Russia and the CIS by implementing its new product development programme (beams,
rolled products and rails) and further improving customer service (by integrating clients’
ERP systems and reducing order processing times). EVRAZ plans to launch a project
to increase the use of metal products in residential buildings. There are objectives for
export sales of rails (double the 2015 figure), rebar (enter the European market) and
beams (up 50% year-on-year). The Group also intends to boost its share of the high-
grade semi-finished product market both in Russia and overseas.
Business review 66
STEEL, NORTH AMERICA
SEGMENT
INPUT
PRODUCTION CHAIN
RESOURCES
INPUT
STEELMAKING & ROLLING
Own scrap collecting
facilities
759
kt
Long
Own scrap collecting
facilities
Third parties scrap
Third parties billets
Crude
steel
Billets
EVRAZ
Pueblo
ELECTRIC ARC
FURNACE
CONTINUOUS
CASTING
HOT ROLLING
HOT ROLLING
Crude
steel
Slabs
EVRAZ
Regina
ELECTRIC ARC
FURNACE
CONTINUOUS
CASTING
HOT ROLLING
Slabs
EVRAZ
Portland
HOT ROLLING
Steel segment slabs
480
kt
Tubular
Tubular
Own scrap collecting
Own scrap
facilities
collecting
facilities
Third parties scrap
Third parties slabs
Third parties scrap
Third parties HRC
Employees
3,849
employees
Flat
Steel segment slabs
Third parties slabs
EVRAZ
Third parties
Annual Report & Accounts 2015www.evraz.com STEELMAKING & ROLLING
67
OUTPUT
CUSTOMERS
KEY PRODUCTS
Domestic
and
Export
Long
514 kt
Rails
35 kt
Seamless OCTG
238 kt
Wire rod
Tubular
635 kt
LD & SD Line Pipe
140 kt
ERW OCTG
Rail
Seamless
Wire rod
Wire rod
EVRAZ
Regina,
Portland
COLD ROLLING
Helical
(HSAW)
LD
pipe
Coiled Plate
Plate
EVRAZ
Camrose,
Red Deer,
Calgary
ERW
COLD ROLLING
SD line
pipe
ERW
OCTG
Domestic
and
Export
Flat
556 kt
Discrete Plate
950 kt
Coiled Plate
EVRAZ
Camrose
COLD ROLLING
Straight
(LSAW)
LD pipe
Plate
Coiled Plate
Domestic
and
Export
Business review
68
Steelmaking & Rolling
Facility
EVRAZ Pueblo
(USA)
Production facilities | The Pueblo, Colorado, site
comprises three rolling mills: a rail mill; a seamless
pipe mill that produces OCTG products for use in
oil and gas exploration; and a wire rod and coiled
reinforcing bar mill. EVRAZ also operates one EAF
and a billet caster that supplies round billets to the
hot rolling mills. The site also owns and operates
the C&W railway, a short-line route that serves the
Group’s mills and connects the site to both the
Burlington Northern Santa Fe and the Union Pacific
railway lines, which results in minimal delivery costs
to these customers.
Ownership: 100%
Employees: 1,077 people
Finished products: 1,034 kt per year
Output by key products, kt
Construction products
Wire rod and rebar
Railway products
Rails
Tubular products
Seamless pipe
EVRAZ Regina
(Canada)
Production facilities | The Regina, Saskatchewan,
site is the largest steelmaking operation in Western
Canada, comprises two electric arc furnaces (EAFs),
a ladle furnace, a continuous variable-width slab
caster, and a Steckel mill capable of rolling coil and
plate up to 72” wide. The Regina site produces carbon
steel slabs, flat-rolled discrete plate and coil, SDP and
LDP. This pipe mill operations comprise a 24” rolling
ERW mill, a 2” ERW mill, and four LDP HSAW mills.
The Regina tubular mills are important suppliers to
the energy markets in both Canada and the US.
Ownership: 100%
Employees: 1,007 people
Finished products: 998 kt per year
Output by key products, kt
Flat-rolled products
Coil
Plate
Tubular products
HSAW large-diameter line pipe
ERW small-diameter line pipe
EVRAZ Portland
(USA)
Production facilities | The Portland site comprises
a Steckel rolling mill, a plate quench and tempering
facility, a structural tubing mill, and two helical
submerged arc-welded (HSAW) mills for large-diameter
pipe (LDP). The Portland rolling mill is the only plate mill
on the West Coast. Its location near the confluence of
the Willamette and Columbia rivers gives deep-water
access to the Pacific Ocean and access to Class I
railways and trucking routes serving the whole of North
America. The Portland rolling mill produces a wide
range of products, including armour and heat-treated
plate.
Ownership: 100%
Employees: 620 people
Capacity
Finished products: 0.8 mt per year
Output by key products, kt
Tubular products
Large-diameter line pipe
Hollow structural shapes
Flat products
Plate
Coil
238
514
35
808
58
218
144
84
11
499
141
www.evraz.comAnnual Report & Accounts 2015 69
Key developments
Facility
EVRAZ Red Deer
(Canada)
Production facilities | The Red Deer, Alberta, site
comprises an ERW pipe mill producing OCTG and
small-diameter pipe (SDP) and threading facilities
for both API and premium connections.
Ownership: 100%
Employees: 152 people
Capacity
EVRAZ Calgary
(Canada)
Production facilities | The Calgary site comprises an
electric resistance welding (ERW) pipe mill specialising
in oil country tubular goods (OCTG), including heat-
treated casing. At this site, EVRAZ also operates tubing
finishing facilities comprising upsetting, testing and
threading, as well as small-diameter casing testing and
threading.
EVRAZ Camrose
(Canada)
Production facilities | EVRAZ operates two pipe mills in
Camrose, an ERW mill and a LSAW LDP mill. The ERW
mill converts coils into line pipe up to 16” in outside
diameter, primarily used in transportation of oil and
gas from the well head to larger transmission lines.
The LSAW mill converts plate into LDP used for energy
transmission.
Finished products: 0.15 mt of pipe
Output by key products, kt
Tubular products
ERW casing
ERW line pipe
Ownership: 100%
Employees: 180 people
Capacity
Finished products: 0.25 mt of pipe
Output by key products, kt of pipe
Tubular products
ERW casing and tubing
Ownership: 100%
Employees: 319 people
Capacity
(LSAW) LDP: 0.22 mt per year
ERW small-diameter line:
1.45 mt mt per year
Output by key products, kt
Tubular products
Large-diameter LSAW line pipe
ERW line pipe
53
31
87
60
98
Business review
70
Steelmaking & Rolling
KEY DEVELOPMENTS
NPD REVIEW
EVRAZ Pueblo
Č Achieved the second highest annual level of rail production on record.
EVRAZ Regina
Č Commenced installation of a new LDP mill.
Č Entered into a joint venture with WASCO Coatings Limited to build and operate a
new LDP coating facility at the Regina site.
Č Commenced installation of a new LDP coating facility.
Č De-bottlenecked the double jointer area and increased finishing line productivity.
EVRAZ Portland
Č Re-lined re-heat furnace.
Č Sold the structural tubing mill generating proceeds of c.US$50 million in cash.
Ramped up the LDP mill to full utilisation.
EVRAZ Red Deer
Č Extended premium and semi-premium connections product lines.
EVRAZ Calgary
Č Completed upgrading the existing heat treat line and achieved an increase of
c.50 thousand tpa in capacity.
EVRAZ Camrose
Č Implemented automated barcoding of line pipe to enhance identification and
traceability.
Other
Č Tony Engel succeeded Glenda Minor as CFO.
Č Sold all remaining property of EVRAZ Claymont.
EVRAZ Pueblo
Č Commenced in-track testing of the Apex G2
next generation rail.
Č Finalised laboratory level testing of rail
welding technology to minimise heat-
affected zone.
EVRAZ Portland
Č Completed laboratory testing of alloying,
rolling, and quenching processing
parameters of ASTM 533 high-nickel plate.
Č Finalised development of API plate for
offshore applications.
EVRAZ Red Deer
Č Launched 9 5/8” OD premium connections
for thermal applications.
Č Launched heavy-wall premium and semi-
premium connections to supply shale
applications.
EVRAZ Calgary
Č Qualified EVRAZ alloy casing grades to
supply ‘Region 1’ sour service conditions.
INTRODUCING APEX™ G2
HEAD-HARDENED RAIL
In 2015, EVRAZ Pueblo launched a next-generation rail, Apex™
G2 head-hardened rail. Its design enhances track safety and
performance, increases rail life and decreases lifecycle cost, all
critical factors for class I and heavy-haul railway customers. Full
production is expected in 2016.
Apex™ G2’s superior performance is due to the combination of
a patent-pending alloy design and heat treatment. Its increased
strength and durability result in improved wear resistance. A 20%
improvement in ductility (the ability to deform under stress) over
conventional rail is unique and exceptional. While improved fracture
toughness is usually sacrificed with greater strength, this is not the
case with Apex™ G2. In addition, its weldability ensures ease of
implementation and utilisation without the need for modified welding
programmes.
www.evraz.comAnnual Report & Accounts 2015 Steelmaking & Rolling
Business review
71
OUTLOOK
KEY PROJECTS
As we enter 2016, EVRAZ outlook for the North
American market remains cautiously optimistic in
terms of overall demand.
EVRAZ expects end demand to remain robust for
rails, LDP and plate, and continued weakness for
OCTG and wire rod.
Rail
The Group expects demand to remain robust,
with flat to marginally lower volumes compared
with 2015, and continued improvement in
premium rail penetration.
LDP
EVRAZ outlook for this market remains positive
for the next few years (c.1.5 million tpa) with
some downside risk due to low utilisation of
competitors both in North America and offshore
and the inherent uncertainties in the timing of
regulatory approvals.
OCTG
The Group expects demand to remain subdued,
as drilling activity is likely to remain well below
that in 2014. Distributor inventory overhang
could be largely eliminated by H2 2016.
Plate market
Prices are at historic lows. Non-residential
construction and machinery sectors partly offset
subdued agricultural equipment and orders for
yellow goods. Access to imported slabs maintains
attractive spreads and will likely provide a cost
advantage over domestic EAF-based producers.
REGINA STEEL UPGRADES:
Install a vacuum degasser, upgrade
rolling mill, down coiler, and cooling bed
in Regina
Current state: Proceeding on-schedule
Č Engineering complete
Č Equipment foundations, roofing and wall
cladding proceeding as scheduled
Č Equipment acquired from USP has been
shipped to Regina
CAPEX
US$149 million
IRR
>35%
NEW LDP MILL IN REGINA:
Install a two-step LDP in Regina
Current state: Proceeding on-schedule
Č New building’s structure complete
Equipment foundations, roofing and wall
cladding proceeding as scheduled
Č Equipment acquired from USP has been
shipped to Regina
CAPEX
US$73 million
IRR
30%
Business review 72
Marketing, sales, services and logistics
Customer focus strategy
Customer focus initiatives, 2015 results | During 2015, EVRAZ North America
maintained a tight focus across three main activities:
In railway products, EVRAZ North America secured agreements to test the Apex G2
premium rail and welding technology and expanding its presence in the Brazilian rail
market.
In tubular products, EVRAZ North America successfully expanded its portfolio of
premium and semi-premium connections for shale and thermal applications of
OCTG. Additionally, it established joint research programmes with LDP customers
to optimise alloy designs, further enhance the field-weldability of pipe and offer
expanded quality assurance and technical services to major customers.
In the flat division, EVRAZ North America started shifting the plate product portfolio
towards higher-added-value products and succeeded in securing agreements
with major end customers for trial batches of high-nickel plate (ASTM 533). It also
obtained certifications from Lloyd and DNV for naval plate, and established sales
channels for armour plate in Mexico, Dubai, Eastern Europe and Asia.
CUSTOMER FOCUS TARGETS/OUTLOOK
KEY DEVELOPMENTS
Continue shifting plate portfolio towards higher-added-value products
Č Obtain qualification by major users for high-nickel plate for LNG tanks applications.
Č Achieve full certification of API plate for offshore applications and secure initial
orders.
Č Leverage new armour sales channels to grow export volumes.
Fully utilise EVRAZ Red Deer premium threading capacity and expand the
portfolio of premium and semi-premium connections for OCTG
Č Grow share of premium connections, semi-premium connections, and heat-treated
pipe connections in Western Canada.
Begin in-track testing of next-generation premium rails and of new welding
technology and maintain full production levels in the Pueblo rail mill
Č Conclude in-track testing and begin commercialisation of next-generation rail.
Build pro-active end customer technical relationships
Č Achieve qualification of internal and external coatings for pipe line.
Č Expand LDP product range to include thicker wall pipe.
Long products
Č Commenced in-track testing of the next
generation of premium rails and of enhanced
rail welding technology.
Č Secured second allotment of trial rail wheels
from North American Class I railways.
Č Obtained qualification for supplying
locomotive wheels.
Č Expanded rail sales in Brazil.
Tubular products
Č Together with a major LDP customers,
launched a research initiative to develop
the next generation of steel alloys for energy
pipelines.
Flat products
Č Established sales channels and distribution
for armour products in Mexico, Dubai, and
Eastern Europe and obtained approvals for
use of plate in shipping applications.
www.evraz.comAnnual Report & Accounts 2015 Marketing, sales, services and logistics
73
MARKETING STRATEGY
EVRAZ North America intends to expand further in its main markets, continue
enhancing its portfolio of engineered products, and continuously improve safety, quality
and cost. In the short term, it aims to:
Commercialise its sixth generation of premium rails, which offer superior wear
resistance and fracture toughness, along with rail welding technology that minimises
the effect of the heat affected zone.
Optimise the capacity utilisation of its pipe-making assets to meet market demand,
while investing in further improving quality across its steel value chain. At the Regina
site, the Group has announced investments in a new large-diameter pipe (LDP) mill
and new LDP coating joint venture, and upgrades to its steelmaking facility to further
improve its ability to meet customers’ quality and volume requirements.
Continue gaining market share in the oil country tubular goods (OCTG) segments
in Western Canada by exploiting its geographical advantage and heat treatment
capabilities, and boosting production of premium connectors.
Continue expanding its portfolio of engineered products across all lines and harnessing
its technology centres to broaden technical relationships with customers and develop
cost-effective products that meet their high requirements.
Business review 74
COAL SEGMENT
INPUT
PRODUCTION CHAIN
RESOURCES
MINING & COAL WASHING
P&P reserves
1,746.5
mt
(excluding Mezhegeyugol)
Life of mines
19
years
Coal
Yesaulskaya
Ossinikovskaya
Yerunakovskaya VIII
Uskovskaya
Alardinskaya
Coal
Raspadskaya mine
Razrez Raspadsky
Raspadskaya-
Koksovaya mine
Raw coking coal
Raw coking coal
Coal
Employees
Mezhegeugol
Raw coking coal
16,170
employees
Abashevskaya
Kuznetskaya
Raspadskaya
EVRAZ ZSMK
coal washing
plant
Yuzhkuzbassugol
Raspadskaya
Greenfield project
Coal segment
Steel segment
Annual Report & Accounts 2015www.evraz.com
MINING & COAL WASHING
LOGISTICS & SALES
CUSTOMERS
PRODUCTS
75
OUTPUT
Raw coking coal
Coking coal
concentrate
Coking coal
concentrate
Coking coal
concentrate
Raw coking coal
20.9
mt
Domestic
Coking
coal concentrate
13.6
mt
Railway routes
EVRAZ Nahodka
Trade Sea port
(Far East)
OWN SALES
NETWORK
Black Sea ports
Export
Baltic Sea ports
Railway routes
Railway routes
Domestic
and
Export
STEEL
SEGMENT
Business review 76
Mining & Coal Washing
Facility
Yuzhkuzbassugol
(Russia)
Production facilities | Yuzhkuzbassugol has five coking
coal mines in Novokuznetsk, in the Kemerevo region
of Russia. They produce hard and semi-hard coking
coal (Zh, GZh and KS grades), which is processed into
high-quality concentrate (classified as HCC grade
internationally). Most of this is produced in the new
Yerunakovskaya-8 mine.
Yuzhkuzbassugol has two coal washing plants, which
produce customised coking coal blends and pulverised
coal injection (PCI) coal. The Kuznetskaya washing
plant produces high-quality HCC concentrate for the
domestic market. The Abashevskaya washing plant
produces a wide variety of products whose quality
matches specific customers’ needs.
Ownership: 100%
Employees: 7,594 people
Capacity
Mine: 10.2 mt per year
P&P reserves: 413.7 mt
Output by mines in 2015, mt
Yesaulskaya
Ossinikovskaya
Underground
Underground
Yerunakovskaya-8
Underground
Uskovskaya
Alardinskaya
Total
Underground
Underground
Zh
Zh
GZh
GZh
KS
1.54
1.29
2.23
2.29
2.91
10.23
Raspadskaya
(Russia)
Production facilities | Raspadskaya has three operational
underground coking coal mines and one open-pit mine
in Mezhdurechensk, in the Kemerevo region of Russia.
This complex includes the Raspadskaya mine, Russia’s
largest. The operations produce hard coking coal (K
grade), semi-hard coking coal (GZh grade) and semi-soft
coking coal (GZhO grade). The coal from Raspadskaya
is exported to premium markets, as is the coal from the
Raspadsky open pit, whose output is flexible and can be
easily adjusted according to market conditions.
Raspadskaya’s coal washing plant is one of the most
modern in Russia. Maintainance costs are low and it
can process high volumes with low human resources.
If necessary, the plant can increase the volume of coal
washed easily. In began third-party washing in 2014.
Ownership: 81.95%
Employees: 6,596 people
Capacity
Mine: 10.4 mt per year
P&P reserves: 1,332.8 mt
Output by mines in 2015, mt
Raspadskaya
Underground
GZh 5.50
Razrez Raspadsky
Open pit GZh/GZhO 3.50
MUK-96 (Put on care &
maintenance in 2015) Underground
Raspadskaya-
Koksovaya
Underground
Total
GZhO 0.35
K 1.00
10.35
Mezhegey
(Russia)
Production facilities | Mezhegey is a greenfield
project in the Tyva region of Russia. The surface
infrastructure was commissioned in December 2015.
Mezhegey will have one underground mine, which will
start production in 2016.
Ownership: 60.02%
Employees: 413 people
Capacity
Mine: 2.0 mt per year (planned)
Output by mines in 2015, kt
Mezhegeugol
Underground
Zh
242
www.evraz.comAnnual Report & Accounts 2015
Mining & Coal Washing
Business review
77
KEY DEVELOPMENTS 2015
KEY PROJECTS
Yuzhkuzbassugol
Mining
Č Mining of Zh-grade increased by 0.4 million tonnes year-on-year in 2015
Č Mining of GZh-grade decreased by 1 million tonnes year-on-year in 2015 due to
delays in the schedule of longwall movements, but is expected to rise in 2016
Č Mining of KS-grade was up 0.2 million tonnes year-on-year in 2015
Č Output at all other mines rose due to productivity improvements
Production efficiency improvements
Č Output per face grew by 3% year-on-year
Č Longwall move times accelerated by 5%, reducing downtime
Č Development work accelerated by 5%
Raspadskaya
Mining
Č The Raspadskaya mine produced 5 million tonnes in 2015
Č The Raspadskaya-Koksovaya mine began production of K-grade coal
Production efficiency improvements
Č The Raspadsky open pit produced up to 380 thousand tonnes per month in the
fourth quarter
Č Development work accelerated by 60% by transferring high-performance
development teams from mine-recovery and repair arching work
Mezhegey
Č Preparations to launch the mine are 90% complete
Č The mine has used highly productive modern equipment to deliver the best
development rate in the Group, achieving a maximum of 22 metres per day and
350 metres per month
R&D REVIEW
Based on its experience at the new Mezhegey mine, the Group intends to
introduce modern tunneling equipment and increase the rate of development
work at the Raspadskaya and Yerunakovskaya mines.
OUTLOOK
EVRAZ expects to produce up to 20.6 million tonnes of raw coking coal in 2016.
It will also work on reducing the ash content of its coal.
CONSTRUCTION OF THE NEW
MEZHEGEYUGOL MINE
EVRAZ has been developing the Ulug-Khemsoye coal deposit since 2012. As part of this,
it is building a new state-of-the-art mine, Mezhegeyugol, located far from any developed
infrastructure or towns. This mine have few interesting features: it has an indoor distribution unit
and is capable of handling up to 16 MW and a ventilation shaft, part of which runs at an angle to
the mine entrance shaft of up 50 degrees. Due to be commissioned in 2016.
MEZHEGEY
Construction completed, start of longwall
mining
Status: In process
CAPEX
US$176 million
IRR
14%
RASPADSKAYA-KOKSOVAYA (K-GRADE)
Launch of production of K-grade
Status: In process
CAPEX
US$28 million
IRR
62%
PROGRAMME OF WATER PROTECTION
MEASURES1
Minimising the risks of penalties for
discharge of pollutants above the
norm (settlement agreement with
Rosprirodnadzor)
Status: Completed
CAPEX
US$15.2 million
IRR
n/a
1At the Uskovskaya and Raspadskaya-Koksovaya mines and
also the Abashevskaya, Alardinskaya and Osinnikovskaya
mines and the Abashevskaya washing plant.
Business review 78
Marketing, sales, services and logistics
Operations and facilities
Raspadskaya Coal Company | Raspadskaya Coal Company is based in Russia. It sells
coal in Russia and Ukraine, and is the largest supplier of coking coal on the domestic
market.
EVRAZ East Metals | EMAG East Metals is a trading company based in Switzerland.
It exports coal mined by EVRAZ to Southeast Asia and European countries. The bulk of
the exported coal is transported through the EVRAZ NMTP sea port to Japan, Korea and
China.
EVRAZ NMTP | EVRAZ NMTP is one of the largest stevedoring companies in Russia’s
Far East. The port is located in the eastern part of Peter the Great Bay, in Nakhodka
Bay. It is capable of processing 500 railcars with various loads a day and has more than
300 thousand square metres of warehouse space. Its turnover in 2015 was 9.2 million
tonnes, including 6.2 million tonnes of coal and 3.0 million tonnes of metals.
Customer focus strategy
Customer focus initiatives, 2015 results | In 2015 EVRAZ maintained its leading
position on the Russian coal market and achieved its ambitious export goals. It did so
by focusing on its customers, developing partnerships and earning customers’ loyalty,
and working closely with major buyers in Russia and abroad.
Russia is EVRAZ main market, and the Group works closely with the largest Russian
metals companies. It offers a wide range of products, including Zh, GZh and K grades
(hard coking coal and semi-hard coking coal), and KS and GZhO grades (semi-soft
coking coal). Around 65% of its coal was sold to Russian consumers.
The Group has a stable client base built on long-term partnerships. In 2015, most of its
domestic sales were under long-term contracts, for two years or more.
EVRAZ clients receive individual product offerings, competitive prices and flexible
financial terms. The Group works closely with technologists at metals companies to
provide comprehensive solutions that include recommendations for optimising coal
blends.
EVRAZ supplies metals companies with high-quality Zh / Zh+GZh coal grades (hard
coking coal). Both Russian and foreign customers appreciate EVRAZ high-quality
GZh / GJ+GZhO grades (semi-hard coking coal).
In 2015, exports accounted for c.35% of EVRAZ sales and went mainly to Ukraine,
Japan and Korea. Some volumes were also sold in China and Vietnam under spot
contracts.
In 2015, the Nakhodka Commercial Sea
Port handled a record amount of
>6 million
tonnes of coal
www.evraz.com Marketing, sales, services and logistics
79
KEY DEVELOPMENTS
MARKETING STRATEGY
In 2016, EVRAZ plans to maintain its leadership in the Russian
coal market, based on its high and stable coal quality and
excellent customer service. In addition, it aims to strengthen
its presence in the Ukrainian, Japanese and Korean markets.
Raspadskaya Coal Company
Č Maintained its leading position on the Russian coal
market.
Č Concluded long-term contracts for supplying coal to
major customers.
EVRAZ East Metals
Č Increased export sales by 20%.
EVRAZ NMTP
Č Improved the quality of coal cleaning.
Č Completed a project to increase warehouse space to 26
thousand square metres.
Business review 80
80
2–3
Meet EVRAZ
4–51
Strategic report
52–79
Business review
80–101
CSR report
82 Our Approach
83 Health, safety and
environment
93 Energy-saving measures
95 Social policy
102–149
Governance
150–249
Financial statements
250–262
Additional information
Annual Report & Accounts 2015www.evraz.com CSR REPORT
81
81
2.18X
LTIFR
(excluding fatalities)
Recycling rate, %
2015
2014
2013
126.3
110.0
105.7
100
103.9
2012
1 Excluding waste products of mining industry and including
materials from old dumps Goal 100%
2011
109.6
2010
EVRAZ fresh water consumption
2009
2015
2014
2013
340.23
332.13
368.44
CSR Report 82
OUR APPROACH
EVRAZ is a sociably responsible company, 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 the Group’s policies and
performance in 2015 in key areas of CSR, including human rights, health
and safety, the environment, human capital management and community
engagement, and an outline of how the Group intends to improve its
performance in the years ahead.
EVRAZ follows the OECD Guidelines for Multinational Enterprises to ensure a uniform approach
to business standards across its global operations. The Group’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
United Nations’ Universal Declaration of Human Rights and strives at all times to uphold them.
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 Group’s
overall results, and to realise his/her abilities and potential.
In 2013, 2014 and 2015 the EVRAZ focused its efforts on increasing safety with contractors.
The Group implemented a unified standard for all contractors that clearly requires every potential
contractor to obtain a certain level of safety qualification prior to start of the works. Where it
concerns safety the Group treats its contractors as if they are their own employees and apply
EVRAZ rules and standards to all of them across all locations. Partly due to these efforts the
Group experienced only 3 fatalities in 2015 among its contractors versus 7 fatal cases in 2014.
This aspiration is reflected in the Group’s
internal codes and principles, including the
Business Conduct Policy, “The EVRAZ Way”,
available on the corporate website at
www.evraz.com/governance/documents/.
www.evraz.comAnnual Report & Accounts 2015 83
HSE corporate management structure
HSE
Committee
of Board
of Directors
EVRAZ plc
Board of Directors
EVRAZ CEO
Vice President on HSE
Health and Safety Direc-
torate
Industrial Safety
Directorate
Enviromental
Management Directorate
HEALTH, SAFETY
AND ENVIRONMENT
Governance and approach
EVRAZ is committed to enhancing occupational and industrial safety, and care for
the environment across its operations. It is dedicated to continuously improving HSE
management across the Group, which enables the establishment of technologically improved
production processes, with a clear system and hierarchy of management and control.
At EVRAZ, health, safety and environment (HSE) are managed at all levels, from the adoption
of strategy to issues of operational management. In 2010, the management formed a HSE
Committee, which reports to the Board of Directors, to oversee strategy, policy, initiatives
and activities in the area. In March 2011, EVRAZ established a new Health, Safety and
Environment Policy.
At the executive level, HSE issues are handled by the Management Committee, and a vice-
president of HSE has been appointed to coordinate all activities in the area. At individual
enterprises, such issues are considered by the sites’ HSE services, which report to the sites’
management and the vice-president of HSE. Every plant manager is responsible for HSE
compliance.
EVRAZ actively participates in the work of the Environmental Policy (EPCO); Technology Policy
(TPCO) and Safety and Health (SHCO) Committees of the World Steel Association, as well as
the HSE Committees of Russian Steel, a Russia-based non-commercial partnership, and the
Russian Union of Industrialists and Entrepreneurs.
HSE system
All EVRAZ key steel mills are certified with ISO 14001 and OHSAS 18001.
The main functions of the system are to determine the sources of environmental impact
and risks to the health and safety of people at all stages of the production cycle, from
the purchase of raw materials to the sale of finished products, planning, distribution of
resources, and the collection, analysis and submission of information, reflecting emerging
trends in indicators.
HSE management is a continuous cyclical process, which includes:
Č forecasting and assessment of the main types of HSE risks;
Č development and implementation of necessary measures;
Č monitoring, review, and investigation of incidents;
Č performance analysis, adjustment and establishment of new objectives for HSE strategy.
EVRAZ establishes, measures and assesses key HSE indicators, which are part of KPIs.
Monitoring, prompt analysis and adjustment are some of the key elements in continuously
improving the system.
CSR Report 84
HSE reporting system
EVRAZ has developed a HSE reporting system to improve the collection and sharing of
appropriate data across the Group. To ensure constant monitoring, subsidiaries submit HSE
performance information to the corporate HSE directorates monthly, quarterly and annually.
Number of incidents1
Fatalities
LTI (severe)
LTI (minor)
Internal audits are performed periodically to review compliance with the Group’s procedural
requirements. External control is exercised by respective government agencies. Any
recommendations issued based on the results of inspections are subject to detailed
analysis and the appropriate remedial actions are then made.
EVRAZ set of rules regarding accident reporting are universal and applied across the entire
organisation. All accidents involving lost time and/or any fatality are recorded and a ‘flash
report’ is immediately circulated among all relevant managers. Further investigations are
conducted in standard ‘lean’ format and lessons learnt are then distributed to relevant
parties. Every fatality or serious accident is then reviewed by the Management Committee,
which also monitors the completion of all corrective actions.
Each month, the HSE function issues a special report on incidents and accidents that
occurred during the previous month. It includes related HSE key performance indicators
like lost-time injury frequency rate, fatalities and violations of cardinal rules. The reports are
made available to all EVRAZ employees.
10 34
289
12 43
227
18 46
299
25 59
379
13 74
238
23 102
278
2015
2014
2013
2012
2011
2010
2009
1Without contractors
333
282
363
463
325
403
Health and Safety
2015 results | As for all steelmakers, EVRAZ products are made in an environment that
may possess health hazards for some employees and contractors. Risks include excessive
temperature (heat), high noise levels, high levels of particulate matter (dust), confined space and
ergonomic stress.
The health and safety of employees is of paramount importance for the Group. The industry
has inherent risks that need to be managed effectively to ensure a safe working environment.
EVRAZ constantly strives to improve its performance by avoiding or mitigating these risks.
It is committed to improving HSE performance through the implementation of enhanced
production processes, as well as with new management and control systems. The Group
strives to create a safe workplace at all enterprises and continues to develop relevant
projects, provide employees with personal protective equipment and install cutting-edge safety
equipment. EVRAZ also works hard to change employees’ mentality and instil a ‘safety-first’
culture. Regular safety conversations are aimed at increasing safety awareness among miners
with regard to themselves and their colleagues.
LTIFR (excluding fatalities) per 1 million hours
3.0
2.5
2.0
1.5
1.0
0
2.69
2.40
2.47
1.86
2.05
2.18
1.60
2009 2010 2011 2012 2013 2014 2015
www.evraz.comAnnual Report & Accounts 2015 85
The Group’s LTIFR (excluding fatalities) rose to 2.18 in 2015, up 36% year-on-year, due to a
spike in reported lost-time incidents involving minor injuries. While there is a clear downward
trend in the number of incidents involving severe injuries (serious lost-time injuries totalled
34 in 2015, compared with 43 in 2014), the increase in recorded incidents demonstrates the
overall improvement of reporting transparency.
All treatment of occupational diseases is covered by obligatory social insurance of work-
related accidents and occupational diseases. The Group is legally bound to pay insurance
premiums. If an occupational disease is diagnosed, the employee affected receives benefits
for temporary disability and is compensated for treatment costs. In certain cases, the Group
provides financial assistance to the employee affected: for instance, as compensation
for moral harm, if the individual has to undergo long-term treatment depending on the
circumstances and medical condition. The funds, however, are not intended for independent
organisation of medical treatment by the employee. The conditions are provided in bargaining
agreements.
In 2015, EVRAZ started to report the number of days missed due to occupational diseases,
recording 1,357 for the year.
Fatalities
EVRAZ employee
Contractors
10
3
12
7
18
6
25
6
13
7
23
26
2015
2014
2013
2012
2011
2010
2009
13
19
24
31
20
23
26
In 2012, after determining the key challenges and areas of focus, EVRAZ set five-year
sustainability performance targets (through to 2017).
In 2015, following a change in legislation, all Group enterprises in Russia were subject to a
special evaluation of working conditions, conducted as part of a project overseen by the head
offices (vice-presidents of HR and HSE). A project manager was assigned and monthly video-
conferences were held involving reports by the representatives of the enterprises.
Quarterly status updates were sent to the CEO. To date, working conditions at all workplaces
were scored based on actual situation and in accordance with the new method approved by
the government.
EVRAZ objective in 2016 is to update its existing system of compensation for working in highly
hazardous environments, which is based on lists and results of workplace safety assessments
(the old evaluation method), to ensure compliance with the updated legal requirements and
the actual working environment.
Sustainability
target performance in 2015
Targets
Reduce lost-time injury
frequency rate LTIFR (excluding
fatalities) consistently
Progress to date
In 2015: LTIFR of
2.18 (2014: 1.60)
Eliminate fatal incidents across
the Group
13 fatalities in 2015
(2014: 19)
Safety awards in 2015
Business Unit
Award
Awarding organisation
Comments
EVRAZ KGOK
XII national competition “Most Socially Effective
Metal and Mining Company”, “Health Protection
and Safe Working Conditions” nomination
Russian Mining and Metallurgical Trade Union,
Association of Russian Industrialists and
Entrepreneurs, Russian Ministry of Industry
and Trade
EVRAZ ZSMK
The best enterprise of Novokuznetsk in terms
of HSE (in 2014, but the award ceremony took
place in 2015)
Novokuznetsk city administration
EVRAZ KGOK focuses closely on HSE initiatives.
Its annual spending in the area exceeds RUB200
million. In 2015, it launched a new programme,
“Health”, aimed at helping people who often fall
ill to get better. Also in 2015, the plant continued
to implement an alcohol testing system.
EVRAZ ZSMK spent more than RUB180 million
rubles on its HSE programme in 2015.
CSR Report 86
Projects
When selecting safety initiatives to implement across the Group, EVRAZ has focused on
those that would have a long-lasting effect on its safety performance. Above all, in the long
term, it is vital that all employees receive training in relevant safety issues and demonstrate
compliance not only in the classroom, but also by behaving with the utmost care and
attention in the workplace. To this end, the Group launched corporate HSE training to
supplement obligatory training, and introduced awareness-raising safety conversations
to ensure that managers observe and discuss employees’ actions on the shop floor. In
addition, the risk mitigation system should be designed in a way that is difficult to bypass,
deliberately or accidentally. The LOTO system is aimed at preventing machinery from
releasing hazardous energy by physically locking the controls.
LOTO | In 2013 and 2014, the Group suffered serious fatalities that were due to failure to
observe energy isolation initiatives. As a result, it decided to focus on improving procedures
and standard work regarding energy isolation. EVRAZ took the strict energy isolation
procedures and equipment used in North America and applied the same procedures using
similar LOTO equipment at other locations.
HSE Training | In 2013, the management realised that to improve safety on the shop floor,
the Group needed to invest in training employees in safety well beyond the obligatory level.
Each site then devised a comprehensive HSE training programme designed to give every
employee on the shop floor extra 10 hours of safety-related training a year.
Safety Conversations | Best practice in occupational safety prescribes that regular safety
conversations take place on shop floors among employees and managers. Recognising that
such conversations are an essential part of encouraging safety, EVRAZ introduced a system
of scheduling them regularly across its sites. Every manager, from a first line supervisor to
the CEO, has a personal target to conduct a certain number of such conversations.
Alcohol Testing | In 2012-13, EVRAZ registered several incidents that involved employees
or contractors being in a state of alcohol or drug intoxication on-site, in clear violation of
one of the Group’s cardinal rules. As a result, the management decided to equip all sites
with alcohol and drug testing equipment to ensure strict enforcement of EVRAZ zero-
tolerance policy. At present, those entering underground mines undergo alcohol and drug
tests, and the Group is working to implement similar practice at its steelmaking facilities.
Based on analysis of lost-time indicators for 2014, EVRAZ focus in 2015 was on mobile
equipment, railway operations and operational hazards in underground mining. In 2016,
the Group will continue to focus on those areas, while further implementing energy
isolation principles (LOTO) and behaviour-based conversations. The zero-tolerance policy
regarding alcohol and drug intoxication remains in place.
Regarding coal mining, in 2015, EVRAZ implemented an e-mail and SMS notification
system to report on excess amounts of dust and carbon monoxide and falling volumes of
air in mines. This builds on the SMS and e-mail emergency notification system on excess
methane levels that was installed back in 2010.
In 2016, EVRAZ will continue to improve the quality of its safety training. Every employee on
the shop floor will continue to receive an extra hours of targeted safety training. In addition,
EVRAZ plans to complete the implementation of employee positioning systems at all of its
Russian iron ore mines.
EVRAZ NTMK LAUNCHES MODERN
AIR PURIFICATION SYSTEM ROLLING MILL
EVRAZ NTMK has launched a state-of-the-art air
purification system in its rolling mill. The equipment
has been installed in the fixed mounts section of the
rolling shop. Previously, workers used face masks to
protect themselves from graphite and metal dust.
Now, the system removes the dust from the air, and
employees have noted considerable improvements.
The Group spent c.RUB8 million on the project.
EVRAZ NTMK is implementing various initiatives to
enhance health and safety at its enterprises, which
is one of its top priorities .
www.evraz.comAnnual Report & Accounts 2015 87
The Group has committed to various
environmental protection programmes
for the period from 2016 to 2022. As of
31 January 2015, the cost of implementing
these programmes was estimated at
US$110 million.
In 2015, EVRAZ spent c.US$29 million
on measures to ensure environmental
compliance and US$10 million on projects to
improve its environmental performance.
By the end of the year, the Group had met
the targets set for water consumption, which
was reduced by 15%, and recycling, with
126% of waste being recycled (exceeding
the 100% target by recycling waste from
prior periods).
At the end of 2015, EVRAZ was yet to
fulfil the target for air emissions, having
registered a 19% increase since 2011.
Environment
Environmental strategy
EVRAZ steel mills and mining operations use substantial amounts of energy and water and
involve environmental consequences, such as waste generation, wastewater discharge, air
emissions and land contamination.
These operations are strictly regulated by environmental laws and thus make the Group
dependent on having environmental permits and licences. The continued validity and
extension of these are conditional on EVRAZ compliance with their terms, which generally
include obligations to implement certain environmental commitments, recruit qualified
personnel, maintain necessary equipment and environmental monitoring systems and
periodically submit information to environmental regulators. Failure to comply with any of
these conditions could result in the suspension, amendment, termination or non-renewal of
environmental permits and licences or could mean the Group incurring substantial costs to
eliminate or remedy violations.
EVRAZ is committed to further strengthening its environmental management systems,
particularly by continuing its ISO 14001 audit programme. Although the Group has no legal
obligation to obtain international certification, it currently has nine ISO 14001-certified
sites, including its largest facilities, such as EVRAZ NTMK, EVRAZ ZSMK and EVRAZ DMZ.
The certificate of EVRAZ Palini e Bertoli has been temporarily suspended due to production
stoppage.
EVRAZ is undertaking the environmental reviews of its new business activities (projects)
on the basis of the Environmental and Social Impact Assessment (ESIA). This process
involves consultations with local and regional authorities, local businesses and community
members. The study provides an evaluation of both the direct and indirect impacts of the
new operation on the local community and on the wider environment. The key tasks are to
develop mitigation plans to minimise and manage the possible impacts. It also provides a
process to ensure that local communities are consulted in decisions we make throughout
the life of the project.
EVRAZ supports the health and environmental goals of Regulation (EC) No. 1907/2006 of
the European Parliament and of the Council, a European Union regulation concerning the
registration, evaluation, authorisation and restriction of chemicals (“REACH1”). The Group’s
goal is to ensure continued compliance with REACH requirements.
EVRAZ environmental strategy is to seek to minimise the negative impact of its operations
and to use natural resources efficiently, while seeking optimal solutions for industrial waste
management. Compliance with environmental standards is a major long-term target.
In 2012, after determining the key challenges and focus areas, EVRAZ voluntarily adopted
five-year environmental targets2 (over 2012-17) aimed at:
Č reducing air emissions3 by 5%;
Č decreasing fresh water consumption by 15%;
Č recycling 100% of non-mining waste4.
The Group’s non-compliance-related environmental levies and fines decreased by 20% from
US$2.5 million in 2014 to US$2.0 million in 2015. No significant environmental permits
or licences were missing or revoked in 2015, and there were no significant environmental
incidents at EVRAZ assets.
1 REACH – Regulation (EC) № 1907/2006 of the European Parliament and of the Council according to which as of 1 June 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.
2 Environmental targets are based on 2011 performance levels. In 2015, the HSE Committee of the Board of Directors reviewed the 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.
3 Including nitrogen oxides (NOx), sulphur oxides (SOx), dust and volatile organic compounds only.
4 The rate of the amount of waste recycled or used versus annual waste generation, not including mining waste. It can exceed 100% due to recycling of waste from prior periods.
CSR Report 88
Environmental awards in 2015
Business Unit
Award
Awarding organisation
Comments
EVRAZ ZSMK
Kemerovo region contest “Environmentally
Responsible Company”, first place in the nomination
“The best organisation with an innovative
approach to environmental protection and nature
management issues”
EVRAZ ZSMK
National contest “100 Best Russian companies:
Environment and Environmental Management”
Government of Kemerovo region, Mineral Resources
Committee of Kemerovo region
The plant was awarded for permanent ecological
initiatives. Since 2006, EVRAZ ZSMK reduced air
emissions by 20%, water emissions – by 60% and
increased usage of recycled production wastes by
17%.
International Academy of Quality and Marketing,
Council of the Federation Committee on Science,
Education, Culture and the Environment
EVRAZ ZSMK has received the award seven times. It
has planned measures running through to 2017 and
expects to spend more than RUB2 billion.
EVRAZ key air emissions, kt
2015
2014
2013
2012
2011
2010
2009
134.17
124.24
119.12
122.11
124.56
146.33
The above graph illustrates the dynamics in the total
amount of key air emissions – nitrogen oxides (NOx),
sulphur oxides (SOx), dust and volatile organic
compounds – rebased to 2011.
Air emissions
Key air emissions | Reducing air emissions is one of EVRAZ main environmental objectives.
The key air emissions primarily consist of nitrogen oxides (NOx), sulphur oxides (SOx), dust
and volatile organic compounds.
Even before 2011, the Group had made significant progress in reducing air emissions.
Today, its air emissions reduction strategy includes plans to modernise gas treatment
systems, implement modern technologies and withdraw obsolete equipment.
Nevertheless, in 2015, key air emissions increased by 9.9 thousand tonnes (or 8%) compared
with 2014. The main drivers of the rise are an increase in sulphur content in the coal and ore
used at EVRAZ ZSMK’s power and sinter plants, which has resulted in higher SOx emissions, and
higher NOx emissions at EVRAZ KGOK due to increase of production.
Taking into account the management’s decision to re-base the target by excluding data
related to divested assets (EVRAZ VGOK, EVRAZ Vitkovice Steel, Evrazruda’s Krasnoyarsk
mines, ZSMK’s central power plant, EVRAZ Highveld and EVRAZ NTMK’s Nizhnesaldinsky
metal mill), key air emissions have increased by 19.2% since 2011.
Greenhouse gas emissions
EVRAZ operations are also associated with emissions of carbon dioxide and other
greenhouse gases.
The Group recognises the importance of seeking to prevent climate change and supports the
global effort to reduce greenhouse gas (“GHG”) emissions into the atmosphere. In accordance
with the requirements of the Companies Act 2006 (Strategic and Directors’ Report) Regulations
2013, EVRAZ has undertaken to assess full GHG emissions from facilities under its control. Since
2011, it participates in the CDP Climate Change Programme.
The assessment covered direct (Scope 1) emissions of all seven “Kyoto” GHGs1 and indirect
(Scope 2) emissions from the use of electricity and heat. The inventory approach2 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 Group provides
data in tonnes of carbon dioxide (CO2) equivalent (tCO2e), calculated using IPCC 2006 global
warming potentials.
1 These are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons and perfluorocarbons (HFC+PFC), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3)
2 The inventory of emissions includes all entities that the Group controls. Entities that were disposed of during the year were included for the period in which they were part of the
Group. Only entities 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 was 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.
www.evraz.comAnnual Report & Accounts 2015 89
EVRAZ GHG emissions in 2015, MtCO2e
Direct emissions
(Scope 1)
Indirect energy emissions
(Scope 2)
36.87
6.17
28.01
4.64
EVRAZ
Total
Steel
segment
Steel,
NA segment
Coal
segment
0.7
0.61
8.15
0.93
0.01
0
Other
GHG emissions per net revenue,
kg CO2e/US$
2014
2015
EVRAZ
Steel segment
Steel, NA segment
Coal segment
Other
4.9
3.6
5.5
3.8
0.6
0.4
8.5
7.2
0
0.2
GHG emissions data was collected for 2015 and compared with the 2014 and also 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 93%
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.
In 2015, the Group’s overall greenhouse gas (GHG) emissions decreased by 8.4% year-on-
year. Emissions of CO2 fell by 6%, due to low operational activity at EVRAZ Highveld Steel and
Vanadium and a reduction of coking coal consumption at EVRAZ ZSMK amid greater use of
pulverised coal injection technology. In the coal segment, CH4 emissions dropped by 3% due to
a lower methane content in the coal mined and a decrease in coal production at some mines.
Overall, these factors enabled EVRAZ to reduce its Scope 1 emissions by 6%. The Group’s
Scope 2 emissions decreased by c.22%, due to EVRAZ Highveld Steel and Vanadium’s low
activity (which accounted for c. 15%) and lower volumes of energy purchased by EVRAZ
NTMK and EVRAZ ZSMK in 2015.
EVRAZ reports an intensity ratio relating its annual GHG emissions to its activities: total
Scope 1 and 2 emissions per consolidated revenue for the Group overall and each operating
segment (see graphs) according to the divisional structure. In addition, specific emissions
in the Steel segment per tonne of steel products for 2013-15 are compared with average
specific emissions of World Steel Association members for 2014. Higher specific GHG
emissions in the Steel segment may be due to the key role that integrated iron and steel
works (which inherently emit more GHGs than rolling mills) play in EVRAZ steel production.
EVRAZ NMTP INTRODUCES NEW DUST
SYSTEM IN AGGLOMERATE COOLING
PROTECTION TECHNOLOGY
SECTION OF ITS SINTER PLANT
EVRAZ ZSMK REPLACES DUST COLLECTION
EVRAZ NMTP has finished erecting additional
screens to protect the port and the surrounding
town from coal dust. In doing this, it was the first
enterprise to use aerodynamic panels, which
minimise the kinetic energy of the air, reducing air
movement and preventing the dispersion of dust.
The panels represent one of the most effective dust
suppression technologies available today. The port
took the idea for the screens from Japan, where
outdoor coal transhipment is standard practice. The
aerodynamic panels prevent coal dust from leaving
the loading area.
EVRAZ ZSMK installed new dust collection system in
the agglomerate cooling section of its sinter plant, as
part of a dedicated project to upgrade gas and dust
removal equipment. The old equipment has been
removed and the base for its replacement is already
in place. The new equipment will reduce pollution
emissions from the unit by up to 80%.
CSR Report 90
EVRAZ GHG emissions, MtCO2e
Direct (Scope 1)
Consisting of:
CO2
CH4
N2O
PFC+HFC
SF6
NF3
Indirect (Scope 2)
Total GHG emissions
20131
42.92
33.78
9.06
0.08
0.0002
—
—
8.05
50.97
20141
39.05
31.08
7.89
0.08
0.0002
—
—
7.96
47.00
Specific Scope 1 and 2 GHG emissions
from the Steel segment,
t CO2e per t of steel products
EVRAZ Steel segment (incl. NA)
Worldsteel average in 2014
2.15
2.24
2.17
1.9
2015
36.87
29.13
7.67
0.07
2015
0.0002
2014
2013
—
—
6.17
43.04
Water consumption and water discharge
The Group’s objective is to use water resources efficiently and prevent any negative impacts on
water quality through environmental incidents.
EVRAZ fresh water consumption, million m3
In 2015, almost 84% of EVRAZ total water intake was from surface sources, including rivers,
lakes and reservoirs, versus 76% in 2014.
In 2015, EVRAZ enterprises continued to implement programmes to improve water management
performance. The environmental benefit of these is expected to be seen after 2016.
In 2015, fresh water consumption increased by 8.1 million cubic metres (2.4%) compared with
2014. The main driver of the rise in 2015 was EVRAZ ZSMK’s Heat and Power Plant, which
increased its water intake due to greater energy production (+60.4 million kW) and the need for
more cooling water. Given the HSE Committee’s decision to re-base the target by excluding data
related to disposed assets, fresh water consumption decreased by 67.2 million cubic metres
(14.9%) compared with the 2011 adjusted baseline. Water discharge decreased by 77.2 million
cubic metres over 2012–15.
Water pumped from mines (dewatering) is not included in the fresh water consumption target,
although pumped water is partly used for technological needs. In 2015, 20.5 million cubic
metres of mine water were pumped out and used, compared with 44.7 million cubic metres in
2014.
2015
2014
2013
2012
2011
2010
2009
340.23
332.13
368.44
422.26
451.59
1 The results for 2014 and 2013 were recalculated due to a change in the global warming potential (GWP) values for methane (CH4) and nitrous oxide (N2O), improvements in data quality
and several identified inaccuracies. In accordance with recommendations by the UK Department for Environment Food and Rural Affairs (DEFRA), GWP values were changed to the given
in the fourth assessment report of IPCC - AR4 (values 25 and 298 accordingly), instead of values from the second assessment report of IPCC - SAR for a 100-year time horizon (21 and
310 accordingly), used previously. The total effect of these changes for Scope 1 emissions amounted to +1.45 MtCO2e for 2013 and +1.26 MtCO2e for 2014. Identified improvements in
data quality and inaccuracies regarding material flows resulted in adjustments to Scope 1 emissions of +0.48 MtCO2e for 2013 and of +0.21 MtCO2e for 2014.
www.evraz.comAnnual Report & Accounts 2015 91
126.3
110.0
105.7
103.9
109.6
100
Recycling rate 2, %
2015
2014
2013
2012
2011
2010
2Excluding waste products of mining industry and
including materials from old dumps Goal 100%
2009
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 that it produces, re-use natural resources where possible and dispose of
waste in a manner that minimises the environmental impact while maximising operational and
financial efficiency.
In line with the Group’s strategy to reduce waste storage volumes and enhance waste disposal,
EVRAZ enterprises regularly review opportunities for waste recycling and reuse.
In 2015, EVRAZ steel mills generated 10.4 million tonnes of metallurgical waste (slag, sludge,
scale, etc.), while 13.3 million tonnes were recycled and reused. Overall, in 2015, EVRAZ recycled
or reused 126% of non-mining waste and by-products, compared with 110% in 2014.
EVRAZ’s strategy for 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 2015, 17% or 24.6 million tonnes of such waste material
were reused compared to 11% or 15.4 million tonnes in 2014.
All non-recyclable waste is stored in facilities which are designed to prevent any harmful
substances contained in the waste escaping into the environment.
Safety at such facilities is monitored extremely closely, and steps have been taken to
mitigate as far as possible any danger to third parties in an emergency. For example, EVRAZ
ZSMK relocated residents of Mokrousovo who were in potential dangerous proximity to a
waterworks. Altogether, 172 people from 107 apartment blocks were rehoused.
WATER-SAVING MEASURES AT EVRAZ BAGLEYKOKS
1
2
3
An environmental project is under way to eliminate
An overflow indicator has been installed on the ash
The wastewater processing section of the heat and
the discharge of wastewater from EVRAZ Bagleykoks
sluicing system of EVRAZ Bagleykoks’ heat and power
power plant has met its targets. The section was
into the Sukhaya Sura river. In the northern part of the
plant. The system processes wastewater from the
commissioned together with a water desalination
enterprise’s territory, a wastewater pool has been dug,
boilers, coolant from the air and oil-cooled generators,
facility in 2014 and enables water from the plant to be
and polluted rain and melted snow from the plant and
and liquid from sampling points. Water pumped
recycled and re-used in production, preventing it from
internal roads will run naturally into it. This will stop
through the system is treated and then re-used in
going into the local river basin.
the discharge of wastewater into the river basin. Water
production. The idea for the overflow indicator came
processed by the drainage system will be recycled and
from an employee at the heat and power plant.
re-used in production in 2016.
CSR Report 92
Waste management strategy
MINIMISATION AT THE SOURCE
Improve technological processes to enhance product quality
Secure by-products without generating waste.
e
c
n
e
r
e
f
e
r
p
f
o
r
e
d
r
O
REPEAT USE
RECYCLING
BURNING AS A FUEL /
GENERATING HEAT
STORING
BURNING
Re-use the main types of waste from metals production: slag, clinker and
tailings, including from old dumps
Develop new products that feature various types of waste.
Use inert waste to reshape land plots and build dams or roads.
Generate heat from hot slag. Use waste for heating (local boilers).
Store waste that cannot be used today safely, retaining the option of using the
locations as industrial sites in the future
It is forbidden to: “burn production and consumption waste without special
facilities or dump it outside designated areas”. (EVRAZ Fundamental
Environmental Requirements)
EVRAZ INSTALLS NEW WATER
TREATMENT EQUIPMENT
AT THREE MINES
RASPADSKAYA PLANTS MORE THAN
WASTE RECYCLING PROJECT HELPS
100 TREES IN PARKS AND SQUARES IN
TO REDUCE EVRAZ NTMK’S ENVIRONMENTAL
MEDZHURECHENSK
FOOTPRINT
In 2015, a new cutting-edge wastewater-
In September 2015, around 120 trees from the
EVRAZ NTMK is working to reduce its environmental
processing station was opened at the Uskovskaya
territory of Raspadskaya have been re-planted in
footprint by conducting a project to utilise iron
mine and modular wastewater processing units
parks, squares and roads of Mezhdurechensk by
ore dust and tailings in flux feedstock. The
were commissioned at the Alardinskaya and
environmental specialists from the enterprise. The
enterprise has identified ways of using mixer and
Osinnikovskaya mines.
initiative was part of the “Second Life of a Tree”
desulphuration dust from its converters and tailings
The facility at Uskovskaya features pressure flotation
a new home on the territories of kindergartens,
Instead of storing them, they are recycled in flux
technology and additional treatment using disk
retirement homes and administrative blocks of
feedstock, in the smelting process. Analysis shows
filters and ultraviolet decontamination. The resulting
companies.s enterprises, which is one of its top
that using them has improved feedstock quality. In
project. The acacia, ash and fir trees were given
from the casting machines in the blast furnaces.
water meets the various regulatory requirements
priorities .
regarding pollution levels. The unit at the
Alardinskaya mine has technical, chemical and other
equipment that processes water using the flotation
method, and the decontaminated water goes into
the municipal wastewater system. The unit at the
Osinnikovskaya mine features similar technology.
addition, the additional volumes of the raw materials
reduce the need for costly vanadium pellets.
Above all, the project reduces waste that otherwise
requires specialist storage.
www.evraz.comAnnual Report & Accounts 2015
ENERGY-SAVING
MEASURES
In 2015, the Group conducted work at its enterprises aimed at increasing
energy efficiency, generating more own electricity and reducing the share of
energy resources bought. Initiatives to optimise the use of light, heat, fuel,
compressed gas and it’s separation products products generate significant
savings.
Steel segment
Steelmaking
EVRAZ ZSMK | In 2015, EVRAZ ZSMK installed an energy management system and took
measures to reduce fuel and energy costs.
Over the year, through efforts to increase generation at the ZSMK Heat and Power Plant and
decrease electricity consumption, EVRAZ ZSMK reduced its electricity purchases by 17%
and energy consumption on saleable products by 4.3%. In addition, it boosted the volume of
own electricity generated by 5%.
EVRAZ NTMK | In 2015, EVRAZ NTMK has modernised its lighting system and introduced
measures to increase own power generation, including by optimising the use of associated
metallurgical gases from blast furnaces and coking facilities, and to upgrade the water
supply system.
One priority project in 2015 was the launch of two new air separation units to supply
oxygen, nitrogen and argon to the enterprise’s blast furnaces and coking facilities. The units
are 35% more efficient than their predecessors. A US company Praxair is operating them.
In 2015, EVRAZ NTMK’s heat and power plant set a new record for electricity generated of
158 MWh, up 12% year-on-year. In addition, a project to modernise the coke dry quenching
unit continues and the second phase is under way. As part of this, equipment will be
installed to collect surplus gas and generate power from it.
EVRAZ DMZ | In 2015, EVRAZ DMZ undertook numerous initiatives to reduce spending
on energy purchases and maximise its consumption of associated gases (from blast
furnaces and coking facilities).
During repairs to a coke gas pipeline, EVRAZ DMZ reversed gas transmissions from its
coke production site through the blast furnace gas pipeline, saving 5 million cubic metres
of natural gas consumption in steelmaking.The enterprise also worked to decrease its
electricity consumption by installing frequency changers and energy-efficient lighting,
reducing its electricity purchases by 0.3 million kWh in 2015. In addition, over the year, it
increased own electricity generation by 0.7 million kWh.
EVRAZ Bagleykoks | In 2015, EVRAZ Bagleykoks upgraded its gas pumping equipment,
pumps and heat-exchange units and replaced old aggregators with more modern, efficient
ones. As a result, it reduced its consumption of steam and electricity and made its
production process more stable.
93
ENERGY-SAVING PROGRAMME AT EVRAZ
ZSMK SAVES RUB229 MILLION IN 2015
Over 2015, EVRAZ ZSMK installed an energy
management system and introduced measures
to reduce fuel and energy spending. As a result, it
became more energy-efficient, reducing the volume
of energy consumed on saleable products by
4.3% year-on-year. The improvements followed the
introduction of automated systems for measuring
energy use. They allow electricity use to be
controlled at various stages of production, optimise
the work of high-power equipment and reduce per-
unit spending on energy resources.
Overall, in 2015, EVRAZ ZSMK reduced its
purchases of electricity from third parties by almost
17% by increasing generation at the ZSMK Heat and
Power Plant and decreasing electricity consumption.
CSR Report 94
Mining
KGOK | In 2015, EVRAZ KGOK implemented three energy-saving measures. It reduced
the size of the ore lumps used as feedstock and increased the yields from dense media
separation tails. It installed commercial flow meters to measure natural gas consumption
in its pellet plant and added extra thermal insulation to reduce energy consumption. It also
switched electricity tariff to reduce spending on power.
Evrazruda | In 2015, Evrazruda installed energy-saving devices (fluorescence excitation
illumination systems) and commercial heat-measuring gauges; fitted frequency changers
to the lifting machinery at the Sheregesh mine to reduce electricity consumption; and
switched to a more optimal electricity tariff.
EVRAZ Sukha Balka | In 2015, EVRAZ Sukha Balka completed the switch to a three-zone
approach to recording its electricity use, reducing its purchases of power. In addition, it
optimised the schedule for tunnelling and drilling work, saving around 10 million kWh of
electricity.
Steel, North America Segment
EVRAZ North America
EVRAZ North America’s enterprises also continued to implement energy-saving measures
in 2015. By upgrading to LED lighting, they saved c. 1.5 million kWh of electrical energy
compared with 2014. For 2015, the business unit’s EINA electrical and natural gas
consumption are both estimated to have fallen year-on-year (from 1,683 GWh to 1,623 GWh
and from 9,129 TJ to 9,120 TJ, respectively).
Coal segment
Energy production/consumption ratio1, %
2013
2014
2015
Electrical energy
40.71
37.65
41.32
Hot water for heating
204.76
201.96
210.10
Steam
102.72
112.65
113.89
1 Taking into account performance of Steel segment and
Coal segment operations.
Energy consumption of Steel segment2,
GJ per tonne
2015
2014
2013
29
30
32
Yuzhkuzbassugol | In 2015, Yuzhkuzbassugol fitted frequency changers to the lifting
machinery at the Osinnikovskaya mine, reducing electricity consumption by 20%.
2 Taking into account performance of EVRAZ ZSMK,
EVRAZ NTMK, EVRAZ DMZ
Raspadskaya | In 2015, Raspadskaya implemented a range of major energy-saving
measures. In particular, it decommissioned energy-inefficient equipment, began to focus
more on optimising equipment work schedules, upgraded the water supply system and
modernised its lighting equipment.
www.evraz.comAnnual Report & Accounts 2015 95
84.5
94.8
105.1
110.9
111.7
Number of employees
at December 31, thousand people
2015
2014
2013
2012
2011
2010
Diversity of employees, senior
2009
management and directors,
% (number of people)
Men
Board
Senior
management
Women
80 (8)
20 (2)
86 (31)
14 (5)
Employees
70 (59,127)
30 (25,340)
SOCIAL POLICY
Our people
EVRAZ recognises the importance of working with people and for people. The Group invests
great efforts in ensuring that it is a sustainable concern that can support its growth strategy
through human resource (HR) management. The goals and initiatives of EVRAZ HR strategy are
aimed at developing employee skills and improving production safety levels through training and
performance management.
Personnel profile
Headcount | In 2015, EVRAZ employed 84,467 people, down 10% from 94,823 in 2014.
This reduction was mainly due to personnel optimisation (c.5,000 employees), outsourcing
of support functions and the exclusion of EVRAZ Highveld Steel and Vanadium from
consolidation (c.2,500 employees).
In 2016, EVRAZ will employ c.81,500 people, down 5% year-on-year. The fall will stem mainly
from further personnel optimisation (c.2,500 employees), the closure of uneconomic mines at
Raspadskaya (c.700 employees) and outsourcing of support functions (c.800 employees).
Diversity | EVRAZ believes that diversity plays an important role in a successful business. It
remains committed to providing equal rights to employees regardless of their race, nationality,
gender or sexual orientation, and the Group recognises the importance of diversity when
recruiting employees. Full consideration is given to applications from people with disabilities,
taking into account their particular aptitude and abilities.
2015 results
Productivity is defined as labour costs exclusive of tax divided by production volumes of
respective products.
In general, the 2015 targets for work productivity were achieved, apart from those for raw coal
due to differences between the forecast and actual US$ exchange rate and the closure of
Raspadskaya mines.
The main focus in 2015 was on:
Č reducing staff in production, including maintenance
Č reducing headcount by outsourcing support functions
Č implementing projects aimed at increasing work productivity
Productivity (steel products), US$/t
Productivity (iron ore products), US$/t
Productivity (coal products), US$/t
Actual
2016
Target
40.8
Actual
2016
Target
2015
2014
2013
42.8
2015
54.7
2014
57.9
2013
6.3
6.9
12.2
16.9
Actual
2016
Target
2015
2014
2013
7.1
7.0
12.0
21.0
43.9
7.1
7.7
CSR Report 96
Key corporate HR initiatives for 2016 include:
Keep staff costs in 2017 equal to the 2016 level. The goal is to start
work on the 2017 budget in good time to ensure that staff costs will not
exceed those in 2016.
Č Extend the system of selection, evaluation and training for MD-1-4
Č Transform HR: introduce advanced HR processes and centralise
operations. The main goal of this initiative is to build a new HR
operational model and increase the effectiveness of the function. The
project plan includes to implement a HR shared services centre and
develop HR processes with added value. The overall aim is to enhance
process quality and reduce HR costs.
MANAGING
DIRECTOR (MD)
MD-1 HEADS
OF FUNCTIONS
MD-2 SHOP-FLOOR MANAGERS
MD-3 AREA MANAGERS
MD-4 FOREMEN
Employee engagement awards in 2015
Business Unit
Award
Awarding organisation
Comments
EVRAZ NTMK
Main employer of Nizhny Tagil
Nizhny Tagil city administration
EVRAZ NTMK
XII national competition “Most Socially Effective Metal
and Mining Company”, “Socioeconomic Efficiency of
Collective Labour Agreement” nomination
Russian Mining and Metallurgical Trade Union,
Association of Russian Industrialists and
Entrepreneurs, Russian Ministry of Industry and Trade
EVRAZ NTMK’s collective labour agreement
includes 20 social programmes for employees,
on which the plant has spent c.RUB900 million
Internal social policy
Financial motivation | EVRAZ seeks to motivate employees by offering a salary that is higher
than the average salary in the corresponding region.
Ratio of average salary to average
salary in the region
Russia
Ukraine
Kemerovo region
Sverdlovsk region
Tula region
Primorsky kray
Dnepropetrovsk region
1
1.37
1.43
1.51
1.64
1.72
Employee engagement | EVRAZ pays great attention to its internal communications
processes and constantly seeks to build an efficient system, designed not only for keeping
information flowing, but also for increasing employee loyalty and motivation. The Group
searches for, evaluates and implements best communications practices, such as corporate
intranet, bulletins and internal advertising campaigns. Its goals are to provide up-to-date, full
and transparent information regarding its business and strategies, progress and bottlenecks;
to support its development by involving employees in its initiatives; and to build a strong
international team of people, committed to the Group, its customers and the industry.
One key way in which the Group seeks feedback from employees is the EVRAZ Compliance
Hot Line. The rules and regulations concerning it are adopted in special guidelines, signed by
the CEO. The document specifies the way in which the Hot Line works, the responsibilities of
the sides involved and other general questions. Employees can ask questions or report any
suspected violations by email or phone, anonymously or otherwise. Administrators take calls
from 9 am to 6 pm Moscow time from Monday to Friday. Outside these hours, an answering
machine is in operation.
Respective department strives to address every report within 12 days, and employees receive
a response via e-mail or phone call. In 2015, the Hot Line received c.1,000 requests and
all were examined. The most popular enquiries concerned labour management relations
(including c.200 regarding contract details), followed by salaries, social services (transportation,
conditions in non-production premises, nutrition, conditions at sites) and PPE (periods,
volumes, content of supplements, lifecycle, rules of use and washing), which accounted for
c.100 requests each.
www.evraz.comAnnual Report & Accounts 2015 Work with trade unions | EVRAZ respects employees’ rights and aims to build a
constructive and positive relationship with the labour unions that represent them. The Group
has generally high levels of unionisation at its enterprises (c.73%), although this can vary
significantly across operations and countries.
The backbone of the relationship between EVRAZ and trade unions is social partnership.
Regular discussions and formal and informal meetings of the management and unions are
conducted at all EVRAZ facilities in Russia and worldwide.
All EVRAZ production sites operate through the collective bargaining agreement model.
Bargaining agreements are drafted on the basis of industry agreements and cover
employment, working hours, payment, occupational safety, benefits and welfare, and
they guarantee the rights of trade union bodies. Apart from government-guaranteed
benefits, bargaining agreements provide for additional privileges and social programmes
to support employees and their families, as well as retired employees and veterans
(voluntary health insurance for employees, workplace accident insurance, assistance
in housing improvement, various kinds of financial support, subsidised recreation and
holiday vouchers, holiday gifts, etc). Social programmes are region and industry-specific to
ensure improved value and relevance for employees. Sporting and cultural events are held
together with trade unions.
The section of a bargaining agreement relating to employee health and safety details
the employer’s committments to ensure a healthy and safe environment for employees.
These obligations include to provide them with personal protection equipment (including
beyond the government requirement), hold medical examinations and provide medical
services to employees in workplaces, provide public amenities, training and knowledge
tests in health and safety, and more.
The key health and safety focus areas are formalised in industry-wide agreements with
trade unions.
Development of employees
Employee development strategy | In 2015, EVRAZ continued its “Foreman to Become
an MD-1” programme, a corporate selection, assessment and development procedure.
It aims to improve the managerial skills of shop-floor supervisors and to clearly define
the responsibility and authority of every management level, from foreman to shop-floor
manager. In 2015, the Group focused on foremen, the first level of manager on the shop
floor (and the largest managerial group, with more than 5,000 people). EVRAZ developed
the requirements for the position and a quarterly assessment system covering three
areas: health and safety, people management and process management.
In 2016, the Group plans to cover area managers and shop-floor managers.
Staff recruitment policy | EVRAZ seeks to promote candidates from within the
organisation. In 2015, more than 80% of management-level positions were filled by
internal candidates, including vice-president and head of the Ukraine division and the
managing director for KGOK and NMTP.
Where necessary, EVRAZ competes for the best people in the metals and mining sector
and other industries.
97
Breakdown of Hot Line enquiries
in 2015, %
Labor relations
PPE (excluding quality enquiries)
Household services
Information
Compensation
for labour
31%
18%
18%
17%
16%
EVRAZ NTMK HOLDS YOUNG EMPLOYEE
AND MENTOR COMPETITION
Over the second half of 2015, EVRAZ NTMK held a
competition for young employees and their mentors.
Around 2,000 people, nominated by colleagues,
took part, and a special working group chose the
winners. Alexei Kushnarev, managing director of
the enterprise, and Vladimir Radayev, chairman of
the trade union Committee, handed awards to the
40 winners at a special ceremony.
Criteria for selecting the winners included
performance, contribution to innovative measures
to increase product quality and save energy,
acquisition of new equipment skills, adherence to
health and safety rules, and participation in EVRAZ
NTMK’s social life.
CSR Report
98
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 Group. Business tasks and development targets of the performance
management process include key performance indicators (KPIs) of certain business units
aligned with EVRAZ 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.
Training and development | EVRAZ capitalises on technical employees’ expertise by
involving them in the development of educational materials and training courses. As such, it
ensures that experts and trainees are prepared for handling business issues.
The “Retaining and Development of Engineering Competency” programme started in 2012.
The purpose was to build a pool of key technology experts with unique knowledge, establish a
system to maintain the knowledge, and transfer it to successors.
The programme established new formats of corporate EVRAZ science and technology youth
conferences and local enterprise engineering conferences. Engineering management of
the enterprises includes engineering solutions developed by young engineers into “rapid
improvement experience” schedules and carefully tracks their implementation. Two young
engineers’ clubs were organised at the initiative of engineers: the “Safety First” club at
Raspadskaya and the “Engineering” club at EVRAZ ZSMK.
In 2015, for the second year in a row, young talent from EVRAZ took part in the national high-
tech industry trade WorldSkills championship. Nine EVRAZ employees participated, and two
of them won silver medals in the Electrical Assembly and Process Control categories.
EVRAZ places an emphasis on selecting, developing and promoting employees with vast
potential, as set out in its five-year target.
In 2015, 56 Russian, Ukrainian, US and Canadian engineers joined the sixth EVRAZ New
Leaders Programme, hosted by the Skolkovo Moscow School of Management to design and
implement initiatives to improve process performance. For the first time, EVRAZ experts and
HiPo’s acted as team sponsors.
One area of focus in 2015 was to improve the quality of health and safety training. EVRAZ
has revised training programmes, implemented a programmes to improve the qualifications
of methodologists and trainers at its corporate training centres, and trainers are now rated
quarterly.
Assessment of training programme efficiency | In 2012, 360 people were selected under
the programme “Retaining and Development of Engineering Competency”. By the end of 2015,
that number had more than doubled to 777 people. Over this period, 56 master schools were
held with more than 650 successors to embrace the knowledge of experts from enterprises. As
a result, more than 100 successors were promoted to “expert” status following the completion of
their personal development plans.
EVRAZ engineers have been studying the “Theory of Inventive Problem Solving” (TRIZ) to solve
local issues of individual processes since 2013. In 2015, 11 TRIZ hands-on training sessions
were held at the discretion of engineering managers of enterprises. Following the results of
monitoring, 40% of solutions suggested in 2014 were implemented. Of the solutions suggested
in 2015, 17% have already been implemented and 60% are in progress. In 2015, at the initiative
of managing directors and engineering directors, the Ukrainian facilities of EVRAZ joined the
programme. Two TRIZ trainings were held, a master school is under way, and young engineers are
participating in a corporate science and technology youth conference.
777 people
were selected under the
programme “Retaining and
Development of Engineering
Competency” by the end of 2015
www.evraz.comAnnual Report & Accounts 2015 Clearly, the programme has become significant for the professional community and is
stimulating the development of production on top of employee training and education.
An initiative to hold engineering forums was introduced in 2012. The first forums informed
EVRAZ engineers about best practices, and since 2014, the forums have been driven
by enterprise engineering directors and provide detailed analysis and development of
engineering strategy for each site in a certain area. Four engineering forums involving
international and Russian industry experts were held at the request of technology directors.
For instance, in November 2015, a forum dedicated to waste recycling was held in EVRAZ
ZSMK and resulting in an updated environmental programme. Three months before
the forum, the plant’s engineers carefully revised the current situation regarding waste
processing, identifying opportunities and waste recycling strategies applicable to the mill,
selecting partners and suppliers, and involving research centres. During the forum, they
discussed methods and approved a consolidated solution, next steps and a schedule.
Сommunity relations
Governance and approach
EVRAZ seeks an ongoing dialogue with the communities in which it operates. The Group
is a responsible taxpayer and employer. All of its enterprises operate in accordance with
federal and local legislation. Managing directors and regional vice-presidents are responsible
for communication with local governments. HSE directors are responsible for ensuring
that plants’ activities are line with the applicable rules and regulations. The regional
corporate communications centres are responsible for communicating with non-commercial
organisations on charity, environmental, social, educational and sport projects.
Relations with local communities
99
EVRAZ DONATES RUB300,000
TO CHILDREN’S PHOTO STUDIO
IN NIZHNY TAGIL
In 2015, EVRAZ donated RUB300,000 to buy
professional equipment for a children’s photo
studio, which organises photo-therapy sessions for
children with disabilities. The funds were used to
buy light reflectors, timers, filters, a projector and
new decorations for the interior. The equipment
has already been tested at sessions. EVRAZ earlier
pledged funds for equipping the studio, and five
professional cameras, flashes and various interior
items were bought.
Photo-therapy can help children to socially adjust,
develop their creative talents and feel positive. The
initiative is part of the EVRAZ-Children charitable
EVRAZ contributes to local economies in many ways it can, supporting communities in which
it operates.
project.
The Group focuses on stable partnerships with local communities and strives to improve
quality of life in its regions of presence. It develops socially responsible programmes that
support children with special needs, veterans and old people, children’s homes, as well
as cultural, educational and sport projects, city infrastructure, and projects to reduce
environmental impact. EVRAZ takes its role as a taxpayer and employer seriously, offering
employees development, training programmes, social protection and regionally competitive
salaries. EVRAZ is a committed partner with local governments: it helps to solve challenging
regional issues1.
Relations with local communities awards in 2015
Business Unit
Award
Awarding organisation
Comments
EVRAZ NTMK
“Best Philanthropists of Nizhny Tagil”
Nizhny Tagil city government
EVRAZ
National contest “Leaders of Corporate Social
Responsibility”. EVRAZ charity project received an
award in the nomination “Best Project That Helps to
Promote Initiatives of Non-commercial and Charity
Organisations in the Regions Where the Company
Operates”.
Non-commercial organisation “The Donors’ Forum”,
Vedomosti
and PwC
1in 2015 Financial statements EBITDA calculations exclude social and social infrastructure maintenance expenses.
EVRAZ NTMK was awarded as one of the best
philanthropists of the city.
The project “EVRAZ: City of Friends – City of Ideas”
won an award for the second time. Social projects
of non-commercial organisations in Kachkanar city
take part in the contest to receive financing for their
projects.
CSR Report 100
2015 Projects for Local Communities Development
Name
Description
Results in 2015
“EVRAZ: City of Friends – City of
Ideas”
The main goal is to improve the quality of life in Kachkanar:
develop culture, sport, education, and help old people and
children with special needs.
In 2015, the jury chose 13 winners who received money grants for their projects.
During 7 years more than 60 social projects were implemented in Kachkanar.
EVRAZ for Kids
EVRAZ for Cities
Non-commercial organisations present their social projects.
The jury selects 10–15 winners, who receive up to RUB100
thousand to implement their projects.
The main goal is to support children who have special needs
and/or are socially vulnerable.
EVRAZ organises special treatment and voluntary support
for children with cerebral palsy and their families in the Urals
and Siberia, and supports socially vulnerable children.
Every year more than 500 kids with special needs get special medical treatment
sponsored by EVRAZ. The Group supports cutting edge treatment techniques
– photo therapy, art therapy, aqua therapy, hippo therapy, adaptive sports,
massage courses for kids and training programs for their parents. Every year
EVRAZ provides more than 3 thousand New year presents in Russia, organizes
annual voluntary campaigns to provide books, office stationery, sport equipment
and clothes for the start of school year.
EVRAZ supports local infrastructure in the cities where it
operates.
EVRAZ donates funds for reconstructing roads, parks and
theatres, and for equipping schools, colleges and medical
centres.
In 2015, EVRAZ supported the renovation of the Garden of Steelworkers in
Novokuznetsk. Every year, the Group organises a competition for the best
projects for residential courtyards. The winners receive playgrounds for their
yards, and nine were installed in 2015.
In 2015, EVRAZ supported the reconstruction of the road on the Kuznetsky
bridge in Novokuznetsk.
EVRAZ for Sport
EVRAZ supports amateur and professional sports teams
and sportspeople, both children and adults.
EVRAZ provides sport equipment and donates money
towards preparing for and participating in different
tournaments. In 2015, the Group also organized charity 5-km
marathons in Novokuznetsk and Nizhny Tagil for employees,
citizens and their children. Some 2 thousand people took
part in the race, and about 6 thousand attended a city
festival. The funds raised were donated to charity.
EVRAZ helps to develop culture in the regions where it
operates.
EVRAZ supported the road tour of Siberian theatres.
Big Siberian Road Tour
Reading Sparks® programme
The EVRAZ Reading Sparks® programme promotes
children’s literacy in North America.
Scholarship Fund for Canadian
Aboriginals
The fund assists students attending the Universities of
Alberta and Regina, Notre Dame College, Northern Alberta
Institute of Technology and Saskatchewan Polytechnic.
Hosting a recreational area
adjacent to EVRAZ Regina facility
EVRAZ continues to host a recreational area adjacent to
its Regina facility for members of the community. The long
established and recently refreshed EVRAZ Park, open from
May to September, features a swimming pool, playground,
picnic facilities and prairie animals and is enjoyed by
schools as a favourite field trip destination and by many
Regina families throughout the community.
EVRAZ organised city festivals in Nizhny Tagil and Novokuznetsk, promoted sport
and a healthy lifestyle, and raised money for charity. The Group also supported
the reconstruction of a football stadium and renovation of the swimming pool in
Kachkanar.
In summer, Siberian theatre companies put on shows in Novokuznetsk theatres.
EVRAZ North America has provided, furnished and stocked numerous libraries
and reading areas at elementary schools. In addition, it is in its third year of
sponsoring the “Battle of the Books” in the 39 Regina, Saskatchewan, school
system in Canada. Also in Regina, EVRAZ has provided books for United Way’s
Classroom Libraries programme, funded the purchase of dual-language books
for 15 Regina elementary schools in English and 58 other languages, and is a
gold-level sponsor of the Saskatchewan Young Readers Association. In addition,
EVRAZ continue its multi-year support for an extensive reading and writing
programme for Colorado’s Pueblo City Schools. EVRAZ Reading Sparks volunteers
helped to organise and distribute more than 400,000 new books to agencies,
organisations and schools serving low-income children in collaboration with
Executives Partnering to Invest in Children (EPIC). In Portland, Oregon, EVRAZ
funded the purchase of 500 books for a local elementary school.
EVRAZ North America sponsored the fund in 2015.
EVRAZ supported the project in 2015.
Sponsorship of the Enbridge®
Alberta Ride to Conquer Cancer®
EVRAZ is the presenting sponsor of the Enbridge
Alberta Ride to Conquer Cancer, benefiting the Alberta
Cancer Foundation.
In August, a two-day, 200-km bicycle ride through the Canadian Rockies raised
US$7.8 million for cancer research, clinical trials, enhanced care and the discovery
of new cancer therapies at 16 cancer centers across Alberta, Canada.
Sponsorship of First Growth
Children and Family Charities
EVRAZ supports this annual Portland, Oregon fundraiser
benefiting local charities.
In 2015, more than $3.2 million was raised for First Growth Children and Family
Charities such as the YWCA of Clark County, Randall Children’s Hospital, New
Avenues for Youth, Metropolitan Family Services and Friends of the Children.
www.evraz.comAnnual Report & Accounts 2015 EVRAZ for Cities
EVRAZ supports
local infrastructure
in the cities where it
operates.
EVRAZ for Kids
EVRAZ organises
special treatment and
voluntary support for
children with cerebral
palsy and their families
in the Urals and
Siberia, and supports
socially vulnerable
children.
EVRAZ for Sport
EVRAZ supports
amateur
and professional
sports teams
and sportspeople, both
children and adults.
101
Participation in public organisations and initiatives
Non-commercial
partnership
“Rail commission”
Non-commercial
partnership
“Russian Steel”
The participants include rail producers,
Russian Railways, research institutes and
certification centres.
The commission is aimed at sharing the best
practices in rail production, solving challenging
issues, implementing new technologies and
products, and developing the industry.
EVRAZ has been participating in the
organisation since 2007.
An association of Russian iron and steel
producers. Its main goal is to represent of
interests of Russian iron and steel producers.
Members of Russian Steel account for the
majority of national iron and steel production:
Č 98% of pig iron,
Č 90% of crude steel, rolled products and
substantial share of steel raw materials.
EVRAZ has been participating in the
organisation since 2001.
Steel
Construction
Development
Association
The association is aimed at promoting the
usage of steel constructions in civil buildings,
mainly to substitute cement. The association
unites steelmakers, mills producing steel
constructions, research institutes, design
engineers and developers.
EVRAZ has been participating in the
organisation since 2014.
The union
of rail
equipmen
producers
The union unites manufacturers of railway
products, railway transport firms and Russian
Railways. It aims to develop technical
regulation and rail transport.
EVRAZ has been participating in the
organisation since 2007. Sergey Palkin,
director for technical regulation of railway
products is vice-president and a member of the
supervisory board.
“Association
of Russian
Steelworkers”
employers union
National
Association of
Mineral Resources
Examination
The association aims to:
Č Represent and protect of the rights and
legitimate interests of its members in their
relations with government bodies, trade
unions, and other associations, institutions
and organisations;
Č Coordinate activities regarding social and
labour and related economic issues.
The association comprises 10 key Russian
metallurgical companies.
EVRAZ has been participating in the
organisation since 2008. EVRAZ vice-president
for Personnel, Natalia Ionova, is a member of
the board.
The association unites industrial enterprises,
design and expert organisations. It aims to
promote the creation of a highly efficient,
innovation-oriented, internationally integrated
system of geological study of mineral resources
and the development of mineral resources
in Russia by consolidating the efforts of
professional participants.
EVRAZ has been participating in the
organisation since 2004. Vladimir Sheglov,
technical director for iron ore assets represents
EVRAZ at the Association.
CSR Report 102
2–3
Meet EVRAZ
4–51
Strategic report
52–79
Business review
80–101
CSR report
102–149
Governance
104 Board of Directors
108 Management
110 Corporate governance
report
130 Remuneration Report
142 Directors’ Report
148 Directors’ responsibility
statements
150–249
Financial statements
250–262
Additional information
Annual Report & Accounts 2015www.evraz.com GOVERNANCE
103
12 meetings
of the Board of Directors
Boardroom diversity, %
Independent non-executive
directors
Non-executive directors
Chairman
non-executive
Eõecutive
director
(CEO)
50%
30%
10%
10%
Governance
104
BOARD OF DIRECTORS
Alexander Abramov
Alexander Frolov
Olga Pokrovskaya
Non-Executive Chairman
(born 1959)
Chief Executive Officer
(born 1964)
Non-Executive Director
(born 1969)
Appointment | Board member since April
2005. Chairman of the Board of Directors
of Evraz Group S.A. from May 2006 until
December 2008 and was appointed CEO
with effect from January 2007. Appointed
CEO of EVRAZ plc on 14 October 2011.
Committee membership | Member
of the Health, Safety and Environment
Committee.
Skills and experience | Alexander Frolov
graduated from the Moscow Institute of
Physics and Technology with a first-class
honours degree. Prior to working in EVRAZ,
Mr. Frolov worked as a research fellow at the
I.V. Kurchatov Institute of Atomic Energy.
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.
Appointment | 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.
Committee membership | Member
of the Audit Committee and of the Health,
Safety and Environment Committee.
Skills and experience | Ms. Pokrovskaya
is 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.
Appointment | Mr Abramov has been
a Board member since April 2005. CEO
of EVRAZ Group SA until 1 January 2006,
Chairman of EVRAZ Group SA Board until
1 May 2006. Mr. Abramov served as non-
executive director from May 2006 until his
re-appointment as Chairman of the Board
on 1 December 2008. Appointed Chairman
of EVRAZ plc on 14 October 2011.
Committee membership | Member of
the Nominations Committee.
Skills and experience | Mr. Abramov
graduated from the Moscow Institute of
Physics and Technology with a first-class
honours degree in 1982, and he holds
a Ph.D. in Physics and Mathematics.
Founded EvrazMetall in 1992. Mr. Abramov
is a member of the Bureau of the Board
of Directors and a member of the
Board of Directors of the Russian Union
of Industrialists and Entrepreneurs
(an independent non-governmental
organization), 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.
www.evraz.comAnnual Report & Accounts 2015 105
Eugene Shvidler
Eugene Tenenbaum
Non-Executive Director
(born 1964)
Non-Executive Director
(born 1964)
Appointment | 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 | Nominations
Committee.
Skills and experience | 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.
Appointment | 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 | None.
Skills and experience | Mr. Tenenbaum
is currently Managing Director of MHC
(Services) Ltd. and serves on the Board
of Chelsea FC Plc. He served as Head of
Corporate Finance for Sibneft in Moscow
from 1998 through 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.
Governance 106
Board of Directors
Duncan Baxter
Karl Gruber
Deborah Gudgeon
Independent Non-Executive
Director
(born 1952)
Independent Non-Executive
Director
(born 1952)
Independent Non-executive
Director
(born 1960)
Appointment | 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.
Appointment | 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.
Committee membership | Chairman
of the Remuneration Committee and a
member of the Audit Committee.
Skills and experience | Duncan Baxter,
resident in Jersey, 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.
Committee membership | Chairman
of the Health, Safety and Environment
Committee and a member of the
Remuneration Committee and of the
Nominations Committee.
Skills and experience | Mr. Gruber
has over 35 years’ experience in the
international metallurgical mill business.
He 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.
Appointment | Member of the Board of
Directors of EVRAZ plc since May 2015.
Committee membership | Chairman of
the Audit Committee.
Skills and experience | Ms. Gudgeon
started her career in 1983 as an accountant
with Coopers and Lybrand and in 1987
became a senior accountant for Salomon
Brothers International. From 1987 to 1995
Ms. Gudgeon served as a Finance executive
at Lonrho PLC and was appointed a member
of the Finance Committee in March 1993.
From 1995 to 1998 Ms. Gudgeon served as
a director for Halstead Services Limited and
from 1998 to 2003 she served as a director
of Deloitte, specialising in corporate finance.
From 2003 to 2009 Ms. Gudgeon served as
a founder director of the Special Situations
Advisory team for BDO LLP, providing
integrated advice on corporate finance,
restructuring, debt and performance
improvement. Since 2011, Ms. Gudgeon
has served as managing director of Gazelle
Corporate Finance Limited.
www.evraz.comAnnual Report & Accounts 2015 107
Sir Michael Peat
Alexander Izosimov
Senior Independent
Non-Executive Director
(born 1949)
Independent Non-executive
Director
(born 1964)
Appointment | Appointed to the Board of
EVRAZ plc on 14 October 2011.
Appointment | Appointed to the Board of
EVRAZ plc on 28 February 2012.
Committee membership | Chairman of
the Nominations Committee.
Skills and experience | 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.
Committee membership | Member
of the Remuneration Committee, the
Nominations Committee and the Audit
Committee.
Skills and experience | 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.
Governance 108
MANAGEMENT
I am positive that the updated organisational structure opens up new
opportunities and will enable EVRAZ to most efficiently tackle current
challenges, including further reduction of costs, improving the quality of
products and services to strengthen the Company’s leading position in
the market, ensuring a higher efficiency of investments.
Alexander Frolov
CEO
Pavel Tatyanin
Senior Vice President, CFO
Leonid Kachur
Senior Vice President, Business
Support and Interregional Relations
Aleksey Ivanov
Senior Vice President,
Commerce and Business
development
Scott Baus
Vice President,
EVRAZ Business System
Natalia Ionova
Vice President, Human Resources
Alexander Kuznetsov
Vice President, Strategic
Development and Operational
Planning
Artem Natrusov
Vice President, Information
Technologies
Vsevolod Sementsov
Vice President, Corporate
Communications
Ilya Shirokobrod
Vice President, Sales
Michael Shuble
Vice President, Health, Safety and
Environment
Sergey Stepanov
Vice President, Head of the Coal
Division
www.evraz.comAnnual Report & Accounts 2015 109
Born in 1972.
Alexey Soldatenkov was appointed Vice
President, Head of the Siberia Division in
December 2015. Prior to joining EVRAZ Alexey
worked at Severstal, holding positions of
Business Development Director of Severstal
Russian Steel and Chief Technical Officer
of PAO “Severstal”. Prior to this Alexey held
managerial positions at Magna Technoplast,
participated in the commissioning of Ford,
General Motors, Renault, Volkswagen facilities
in Russia.
Born in 1973.
Mr. Yegorov was appointed Vice-President
for Legal, EVRAZ, in April, 2015. Prior
to joining EVRAZ, Mr. Yegorov held the
position of Director for Legal, Corporate and
International Affairs at Russian Post. Prior
to that, he was in charge of legal support at
RUSAL in Russia and CIS and held various
managerial positions with IFK Alemar and
MDM Bank.
Alexey Soldatenkov
Vice President, Head of the
Siberia Division
Anton Yegorov
Vice President, Legal
New appointments
Maksim Andriasov
Vice President,
Head of the Urals Division
Denis Novozhenov
Vice President, Head of the
Ukraine Division
Sergey Vasiliev
Vice President, Compliance
with Business Procedures and
Asset Protection
Born in 1974.
Mr Andriasov joined EVRAZ in November
2015. Prior to his appointment as Vice
President, Head of the Urals Division, he
had held various managerial positions
in OJSC Tyumen Oil Company, OJSC
Sidanko, and TNK-BP. Starting from
2012, Mr Andriasov worked in PJSC ANK
Bashneft, as Head of regional sales and
later as first Vice President, processing
and sales.
Born in 1974.
Denis Novozhenov has been with
EVRAZ since 1996. He started
as economist at EVRAZ NTMK,
subsequently holding a number of
managerial positions at EVRAZ VGOK,
Evrazruda and Yuzhkuzbassugol. In
2011, he was appointed General
Director of the Steel Mill in Smolensk
region.
Born in 1967.
Mr. Vasiliev was appointed Vice
President for Compliance with Business
Procedures and Asset Protection
in July 2015.Lieutenant-General of
Police, Sergey Vasiliev held a number
of managerial positions in the Internal
Affairs of the Russian Federation from
1988 to 2015.
Governance 110
CORPORATE
GOVERNANCE REPORT
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 2014)
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.
During the year to 31 December 2015 EVRAZ complied with all the principles and
provisions of the 2014 UK Corporate Governance Code (the Governance Code which is
available at www.frc.org. uk) with the following exceptions:
Č New Provision D.11 of the Governance Code requires that performance related remuneration
schemes should include malus and clawback provisions. An explanation for this non-
compliance is set out in the Remuneration Report on page 132.
Č 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. The Audit
Committee includes three non-executive directors, all independent, which we believe mitigates
any potential risks.
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.
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 EVRAZ Board is responsible
for the following key aspects of
governance and performance:
Č Financial and operational performance;
Č Strategic direction;
Č Major acquisitions and disposals;
Č Overall risk management;
Č Capital expenditure and operational
budgeting;
Č Business planning;
Č Approval of internal regulations and
policies.
During the year ended
31 December 2015, the Board
considered a wide range of matters,
including:
Č the Company’s strategy and key priorities;
Č the performance of key businesses;
Č consolidated budget and budgets of
individual business units;
Č the interim and full year results and 2014
Annual Report;
Č HSE updates;
Č the appointment of Deborah Gudgeon as
an Independent Non-Executive Director
following Terry Robinson’s decision to
not seek re-election as a director of the
Company at the 2015 Annual General
Meeting;
Č a review of investment projects;
Č changes to the composition of the various
Board Committees;
Č the return of capital to shareholders by
way of a tender offer;
Č corporate governance matters including a
review of the Board and Committees; and
Č amendments to the Board Committees’
terms of reference.
www.evraz.comAnnual Report & Accounts 2015 111
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.
Membership of the executive team is
set out on pages 108-109.
The CEO is supported by the executive team.
Meetings of the Board, Board composition and AGM | EVRAZ plc held 10 scheduled Board
meetings and 2 ad-hoc meetings held in the form of conference calls during 2015. In 2016,
up to the date of this report’s publication, 12 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 2015:
Total meetings
Alexander Abramov
Duncan Baxter
Alexander Frolov
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Sir Michael Peat
Olga Pokrovskaya
Terry Robinson
Eugene Shvidler
Eugene Tenenbaum
Board
Remuneration
HSE Committee
Audit Committee
Committee
Nominations
Committee
AGM
12
12/12
12/12
12/12
11/12
9/91
12/12
12/12
12/12
4/41
10/12
12/12
5
–
4/5
–
5/5
–
5/5
–
–
–
–
–
2
–
–
2/2
2/2
–
–
–
2/2
1/11
–
–
10
–
8/10
–
–
6/62
5/52
5/52
10/ 10
5/51
–
–
3
3/3
–
–
2/22
–
3/3
3/3
–
1/11
3/3
–
1
1
1
1
1
1
1
1
1
1
0
1
1 Deborah Gudgeon was appointed as an Independent Non-Executive Director and as a member of the Audit Committee on 31st March 2015 with an effective date of 1st May 2015.
Terry Robinson stepped down from the Board (and from the Audit, HSE and Nominations Committees) at the 2015 AGM on 18th June 2015.
2 On the 16 June 2015 the following changes were made to the composition of the Board’s Committees, (with an effective date 19 June 2015): Deborah Gudgeon was appointed
Chairman of the Audit Committee (succeeding Terry Robinson), Alexander Izosimov joined the Audit Committee, Karl Gruber joined the Nominations Committee and Sir Michael Peat
stepped down from the Audit Committee.
Governance 112
Board composition and independence
as at 31 December 2015
Date of appointment
Years of tenure3 as at 31
Boardroom diversity, %
December 2015
Non-Executive Independent Directors (5)
Duncan Baxter
Karl Gruber
Alexander Izosimov
14 October 2011
14 October 2011
28 February 2012
Sir Michael Peat
Senior Independent Director
14 October 2011
Deborah Gudgeon
Non-Executive Directors (4)
Alexander Abramov
Olga Pokrovskaya
Eugene Shvidler
Eugene Tenenbaum
Executive Director (1)
Alexander Frolov
Total Board size (10)
31 March 2015
Chairman
14 October 2011
14 October 2011
14 October 2011
14 October 2011
CEO
14 October 2011
Independent non-executive
directors
Non-executive directors
Chairman
non-executive
Executive
director
(CEO)
50%
30%
10%
10%
4
4
3
4
0
4
4
4
4
4
3At EVRAZ plc, does not include tenure at Evraz Group S.A.
As at 31 December 2015, the Board comprised the Chairman, one executive director, and
eight non-executive directors, including a senior independent director. Terry Robinson retired
as a director of the Company on 18th June 2015. He has been retained as an adviser to the
Board and certain Board committees subsequent to that date. On 14 March 2016, the Board
agreed that Duncan Baxter and Olga Pokrovskaya will leave the Board with immediate effect.
This change was agreed following a review of the composition of the Board. Given the current
economic climate and the fact that the company is now well-established in the UK-listed
company environment, a smaller board will enable financial savings to be achieved without
compromising the quality of the Group’s governance.
As a result, a number of changes will be made to the Board Committees: Alexander Izosimov
will assume the Chairmanship of the Remuneration Committee (in succession to Duncan
Baxter), Deborah Gudgeon and Sir Michael Peat will join the Remuneration Committee, and
Karl Gruber will step down from the Remuneration Committee. In addition, Karl Gruber will
join the Audit Committee.
The Board considers that five non-executive directors (Duncan Baxter, Karl Gruber, Alexander
Izosimov, Sir Michael Peat and Deborah Gudgeon) 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.
www.evraz.comAnnual Report & Accounts 2015
113
See the Nomination Committee’s report
on pages 126-127.
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.
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 chairman 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. Deborah Gudgeon was appointed as an Independent Non-Executive
Director on 31st March 2015 with an effective date of 1st May 2015.
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.
Full details of the skills and experience
of the Board members are provided in
the Board of Directors section above on
pages 104-107.
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.
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.
During the year, Deborah Gudgeon was appointed to the Board and her induction included
visits to the Company office in Moscow and one-to-one meetings with the CEO, CFO, Group
Accountant, Internal audit, the Heads of the Legal Team and of Investor Relations, among
Governance 114
others. A meeting was also arranged with the External Auditor. Follow-up meetings were also
arranged as appropriate and visits to the Company’s operations in the Russian Federation are
also planned.
See also the Nominations’ Committee
report on pages 126-127.
Performance evaluation
An internally facilitated Board evaluation was conducted in December 2015. The review
was carried out with the initiative and participation of the Nominations Committee of the
Company. Questionnaires were distributed to all Board directors for their response and
comment. The results were discussed at three levels: (i) between the members of the
Nominations Committee, (ii) between Sir Michael Peat (as chairman of the Nominations
Committee) and Alexander Abramov (as the chairman of the Board) and (iii) between the
Board as a whole. Board performance was deemed to be satisfactory and in overall terms
the review was encouraging and useful. The Company undertakes regular performance
evaluations of the Board in line with the requirements of the UK Corporate Governance Code.
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
Selection and nomination of
Board members
Nominations Committee
Remuneration of Board
members and top
management
Remuneration Committee
All 4 members are non-
executive directors, of
which 3 are independent
All 5 members are non-
executive directors, 3 are
independent
All 3 members are
independent directors
See pages 118-125
See pages 126-127
See pages 130-141
HSE issues
HSE Committee
2 of 3 members are
See pages 128-129
non-executive directors, of
which 1 is 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 please see on pages 118-141.
www.evraz.comAnnual Report & Accounts 2015 Risk management
and internal control
EVRAZ maintains a comprehensive financial reporting procedures (FRP) manual
detailing the Group’s internal control and risk management systems and activity.
The manual was last updated in December 2015. In line with the Financial
Reporting Council (FRC) Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting issued in September 2014, the aim of the
risk management process is to identify, evaluate and manage potential and actual
threats to the Group achieving its objectives.
EVRAZ Enterprise Risk Management (ERM) process is designed to identify, quantify,
respond to and monitor the consequences of these threats. A risk register that
encompasses both internal and external critical threats has been agreed with the
Risk Committee. In 2015, regarding principal risks and uncertainties, this process
was consistent with the UK Corporate Governance Code, the Guidance on the
Strategic Report issued in June 2014 and the Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting issued in September
2014.
An important part of the risk management process is to determine the appropriate
risk appetite at the EVRAZ management level, thereby identifying particular risks
and uncertainties that require specific Board oversight. The Risk Committee last
reviewed the Group’s risk profile in September 2015 and finalised the assessment in
February 2016.
The executive management is responsible for introducing the agreed internal
controls and mitigating actions related to risk management throughout EVRAZ
business and operations and at all levels of management and supervision. This
serves to encourage a risk-conscious business culture.
EVRAZ applies the following core principles to the identification, monitoring and
management of risk throughout the organisation:
Č Risks are identified, documented, assessed and monitored and their profile is
communicated to the relevant levels of the management team regularly. The
business management team is primarily responsible for ERM and accountable for
all risks assumed in the operations.
Č 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. In addition, the board oversees risks above the Group’s defined risk
appetite and internal control weaknesses measured in excess of the risk appetite.
Č A reporting process involving regional risk Committees, business unit
management teams and other relevant bodies at major enterprises has been
established. Its aim is to identify, evaluate and establish management actions
for risk mitigation at a regional level and at EVRAZ major steel and mining
operations. The regional Committees are accountable to the Group’s Risk
Committee by way of membership of the latter (vice presidents of business units
and functions).
Č All acquired businesses are brought within the Group’s system of internal control
as soon as practicable.
115
In 2015, 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 the plant
and mine levels, resulting in an update of
the Group’s risk register.
For additional information about
principal risks and uncertainties see
Strategic report on pages 28-31.
Internal control
BOARD OF DIRECTORS
Ensuring Group’s ongoing
internal control process is
adequate and effective
AUDIT COMMITTEE
Primary oversight
of internal control regime
Supports the Audit
Committee in reviewing
internal controls
INTERNAL AUDIT
Supervise and review
of reports
EVRAZ ASSURANCE FRAMEWORK
Reviews of reports
and effectiveness
EXECUTIVE RISK COMMITTEE
Reviews of reports
and effectiveness
Regional Risk Committees
or Business Units management teams
Reviews of reports
and effectiveness
Site level managers
(annual management self-assessments)
INTERNAL CONTROL FRAMEWORK
Governance 116
Components of the internal control system
Component
Basis for assurance
Action in 2015
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
Č Self-assessment by management at all
Č In 2015, the internal audit function
major operations
Č Review of the self-assessment by the
certified and reviewed the internal control
system
internal audit function
Investment project management
Č Monitored by established management
Committee and sub-Committees
Č Reviewed by internal audit
Operating policies and procedures
Č Implemented, updated and monitored by
management
Č Reviewed by internal audit function
Operating budgets
Č Monitored by controlling unit
Č Reviewed by the internal audit function
Č Approved by the board of directors
Č Procedures were strengthened in regard
to quality and reporting control and other
elements of the project oversight process
during the year
Č Operating policies and procedures were
updated as per the internal initiatives by
operational management and in response
to recommendations from the internal
audit function
Č Operating budgets were prepared and
approved by the board of directors
Accounting policies and procedures as per
the corporate accounting manual
Č Developed and updated by reporting
department
Č Reviewed by the internal audit function
Č Accounting policies and procedures were
updated as part of the standard annual
review process
The board has delegated primary oversight of the Group’s internal control process to the Audit
Committee. The Committee has tabled for the consideration of the directors the major internal
control findings in the areas where the Board’s risk appetite has been exceeded.
To ensure that control is exercised effectively across operations, the Group has adopted annual
management self-assessments of the internal control system using the EVRAZ Assurance
Framework. The management rates and certifies the individual components of the framework. In
2015, all major production sites were certified as having effective internal control.
A department headed by Senior Vice President Leonid Kachur has specific responsibility
for preventing and detecting business fraud and abuse, including fraudulent behaviour by
employees, customers and suppliers that may cause a direct economic loss to the business.
Solid internal controls help to minimise the risk, and EVRAZ Business Security department
ensures that appropriate processes are in place to protect the Group’s interests.
www.evraz.comAnnual Report & Accounts 2015 117
Internal audit
Internal audit is an independent appraisal function established by the board to evaluate the
adequacy and effectiveness of controls, systems and procedures at EVRAZ to reduce business
risks to an acceptable level and in a cost-effective manner.
The board approved the latest version of the internal audit charter on 5 March 2015.
The internal audit function’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 on assisting management in controlling risks,
monitoring compliance, and improving the efficiency and effectiveness of internal control
systems and governance processes. Twice a year, the function provides an opinion of the overall
effectiveness of the Group’s internal controls.
In 2015, EVRAZ’s head of internal audit, as secretary of the Audit Committee, attended all the
Committee’s meetings and addressed any reported deficiencies in internal control as required
by the Committee. The 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; includes the formal risk
assessment process and the identification of management concerns based on the results of
previous audits; and ends with an internal audit plan, which the Audit Committee then approves.
Audit resources are predominantly allocated to areas of higher risk and, to the extent considered
necessary, to financial and business controls and processes, with appropriate resource
reservation for ad hoc and follow-up assignments.
In 2015, internal audit projects covered the following Group risks:
Č Cost effectiveness
Č Business interruption and equipment downtime management
Č Health, safety and environment
Č Capital projects and expenditure
Č Treasury and working capital management
Č Human resources
Č Compliance
EVRAZ internal audit function is structured on a regional basis, reflecting the geographic
diversity of the Group’s operations. As a result, the Group’s internal audit function is working
to align common internal audit practices throughout the Group through quality assurance and
improvement programmes.
Further information regarding EVRAZ internal control and risk management processes can be
found at www.evraz.com/governance/control.
Governance 118
Audit Committee report
Role and Responsibilities of the Audit Committee
The role and responsibilities of the Audit Committee are delegated
by the Board and set out in the written terms of reference as follows:
1 To monitor the integrity of the financial statements of the Company including the
annual and interim results and other financial announcements, reviewing significant
financial reporting issues and judgements, and to report to the Board whether the
Audit Committee considers the Annual Report, as a whole, to be fair, balanced and
understandable;
2 To review the appropriateness of accounting policies, key judgements and
3 To assess and monitor the scope and effectiveness of and compliance with internal
management estimates;
controls and systems, and to report to the Board on the overall standing of the
Group’s internal controls;
4 To review and challenge the Company’s assessment of the financial and non-financial
risks of the business and to present the principal risks and uncertainties and Group’s
Risk Register to the Board;
and regulatory non-compliance;
5 To consider the Group’s risk appetite and propose the appropriate level to the Board;
6 To review procedures for detecting, monitoring and managing the risk of fraud, bribery
7 To monitor the effectiveness of the internal audit function and review its’ material
8 To oversee the relationship and effectiveness of the external auditor and to make
findings and recommendations; and
recommendations to the Board regarding the appointment of the external auditor.
The Audit Committee minutes are tabled at the Board meeting for consideration, and the
Chairman reports verbally on the committee proceedings, making recommendations on
areas covered by its terms of reference if appropriate.
During the year, the Committee members undertook a self-assessment process to consider
the performance and composition of the Committee, its duties and responsibilities, and
access to management. The results of this assessment were judged satisfactory.
Committee Members and Attendance
The majority of Audit Committee members are Independent Non-Executive Directors.
As disclosed in the Governance section on pages 104-107, Olga Pokrovskaya, a non-
Independent Non-Executive Director, continues to be a member of the Audit Committee
providing additional technical expertise and valuable regional expertise.
In June 2015, Terry Robinson stood down as Chairman of the Audit Committee and retired
from the Board at the AGM. He has been replaced as Chairman by Deborah Gudgeon who
joined the Board in May 2015. Terry Robinson continued to be an adviser to the Committee
and attended meetings until March 2016. Sir Michael Peat also stood down from the Audit
Deborah Gudgeon
Independent non-executive Director,
Chairman of Audit Committee.
Chairman’s Statement
Dear Shareholders,
I am pleased to present the Audit
Committee Report for the financial
year ended 31st December 2015.
I was appointed Chairman on my
appointment to the Board in June
2015; at this time, Terry Robinson
stood down as Chairman and as a
member of the Committee. On behalf
of the Audit Committee, I would like
to thank Terry for his significant
contribution in the establishment of
the Committee and over the period
of his Chairmanship. I would also
like to thank Sir Michael Peat for his
contributions as a member of the
Committee.
I would also like to extend the
thanks of the Committee to the
executive and financial management
of the Company, the internal audit
department and EY, EVRAZ external
auditor, for their continuing diligence
and valued contributions to the work
of the Committee.
Deborah Gudgeon
www.evraz.comAnnual Report & Accounts 2015 119
Committee in June 2015 and was replaced by Alexander Izosimov. Duncan Baxter and
Olga Pokrovskaya are standing down from the Board on 14th March 2016 and they will be
replaced on the Audit Committee from that date by Karl Gruber.
Senior members of the Group’s finance function, the head of Group Internal Audit (who
acts as secretary to the Audit and the Risk Committees), and the external auditors also
attend Committee meetings. Key members of the management team were also invited to
attend Committee meetings; in 2015, these included the VP’s of Strategy, Steel, Coal, IT,
Security, Legal, Compliance and Personnel, and the Director of Investor Relations. Other
members of the EVRAZ management team and the Internal Audit Function were also
invited to attend Committee meetings as appropriate
The Audit Committee met 10 times during 2015 and 3 times in early 2016 before the
publication of this Annual Report.
The Group confirms that it complied with the provisions of the Competition and Markets
Authority’s Order for the financial year under review.
Activities and Work of the Committee during 2015
During 2015, the Audit Committee focused on the integrity of the Group’s financial
reporting, the related internal control framework and risk management, including finance,
operations, regulatory compliance and fraud. These areas were comprehensively reviewed
on an ongoing basis and the Committee received regular updates from the Company’s
financial and operational management, Internal Audit, the Compliance Officer and legal
team, as well as the external auditors.
The Committee reviewed and updated its own terms of reference, the internal audit
charter and the Group Financial Reporting Procedures Manual (“FRP”). The effectiveness
and status of the anti-corruption policy and sanctions risk compliance controls were
reviewed throughout the course of the year, together with progress to meet the
governance requirements of the FRC’s Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting.
At the request of the Board, the Audit Committee also considered the proforma Viability
Statement and supporting analysis produced by management and reviewed by the Risk
Committee.
Significant Financial Reporting Issues considered by the Audit Committee in 2015
The primary objective of the Audit Committee is to support the Board in ensuring the
integrity of the Company’s financial statements and Annual Report including review of:
Č compliance with financial reporting standards and governance requirements;
Č the material financial areas in which significant accounting judgements have been made;
Č the critical accounting policies and substance, consistency and fairness of management
estimates;
Č the clarity of disclosures; and
Č whether the annual report, taken as a whole, is fair, balanced and understandable,
and provides the information necessary for shareholders to assess the Company’s
performance, business model, strategy, principal risks and uncertainties.
Governance 120
Financial reporting standards and governance requirements | The Audit Committee
considered a number of financial reporting issues in relation to the Interim Results for
H1 2015 and the financial statements for 2015. These included the appropriateness of
accounting policies adopted, disclosures and of management’s estimates and judgements.
The Committee considered papers produced by management on the key financial reporting
judgements and reviewed reports by the external auditor on the full year and half year results
which highlight any issues with respect to the audit work.
The full financial statements can be
found on pages 161-249.
EVRAZ is exposed to a range of risks
and inherent uncertainties as set out
on pages 30-31.
The financial statements continue to be materially impacted by the devaluation of the key
functional currencies of the business (primarily the Russian rouble and, to a lesser extent,
the Ukrainian hryvnia) against the US dollar, the presentation currency of the financial
statements, as set out in Note 2. As a result, challenging the consistency and comparability of
balances in the financial statements remains difficult but management separated out where
appropriate the forex impact on areas of significant judgements and estimates.
The following financial reporting issues are considered significant.
Going concern (Note 2) and the viability statement | Many of these are outside the control
of the Company. During 2015, global steel and coal prices deteriorated dramatically as a result
of weak demand in key markets and continuing structural overcapacity in both raw material
and steel supply, and the Russian economy continued to contract. The Audit Committee
carefully considered management’s going concern analysis which included both a base case
and a flexed downside scenario. Given the uncertainties of the current global supply/demand
environment and the sensitivity of the going concern analysis to the forward market prices
of steel products and coal concentrate in Russia, the Committee focused on the pessimistic
downside case. This is based upon forward pricing close to the low end of the range of
current investment analyst forecasts, as set out in note 6, together with a further correlated
devaluation of the Group’s functional currencies and reduction to the level of budgeted
capex.
The Committee carefully considered the projected Use and Sources of Funds for the period
to June 2017 which included scheduled loan repayments, new committed funding and free
cash flow after capital expenditure. The implications of the pessimistic downside scenario on
free cash flow and compliance with financial covenants were carefully considered, along with
the proactive measures management had taken to address a potential breach of financial
covenants. These include a covenant waiver from key funders through to the end of 2017
and an extension to the Group’s committed standby facilities. Management’s track record
of successfully resolving similar matters and the continued availability of credit from both
Russian and Western banks were also considered by the Committee.
Following these considerations, the Audit Committee resolved to recommend the going concern
basis of preparation for the Financial Statements as at 31st December 2015 to the Board.
The Committee reviewed the scenarios and analysis supporting the viability statement
over the course of 2015 and early 2016 before these were considered by the Board. The
scenarios and assumptions were challenged and tested over the course of six months in light
of the deteriorating price and demand environment, to reflect the mitigation plan developed
by management and the measures put in place to support the going concern statement. The
Committee also considered the proposed disclosures in the viability statement and the key
assumptions underpinning the scenarios and analysis.
www.evraz.comAnnual Report & Accounts 2015 121
Areas of significant accounting judgement and management estimates
1 Impairment of goodwill and assets (Notes 5 and 6): the Committee considered
management’s impairment recommendations in the context of the current trading
environment and future uncertainties detailed above. As a result of the continued
decline of the rouble, the carrying values of Russian cash generating units have
declined materially in US dollar terms and are largely not challenged by the value in
use comparisons used to determine impairment, even in the current negative pricing
environment. Of the $441 million impairment charge in 2015, US$251 million relates
to the goodwill impairment of operations in North America which have been particularly
affected by the impact of declining oil prices on key OCTG demand, reduced margin
spreads and contract delays. The balance ($190 million) relates to specific impairment
of PPE at the cash generating units including charges in respect of the closure of a mine
field at Raspadskaya Koksovaya 1 and further charges in respect of the idled EVRAZ
Palini e Bertoli and Yuzhny Stan.
2 PraxAir contract (Note 2): the Committee reviewed the accounting treatment of the
Group’s 20 year non-exclusive agreement with PraxAir for the supply of oxygen and other
industrial gases from a new air separation plant constructed by them. Supply under
this agreement commenced during 2015 and the PraxAir contract was renegotiated
to increase the volume of nitrogen supplied, extend the contract term to 25 years and
reduce the level of fixed payment over the life of the contract. The Committee considered
management’s judgement that the commitments under the supply agreement did not
constitute a lease and concurred with the treatment. This judgement was based upon
the non-exclusive nature of the supply agreement, the current and forecast level of
third party sales and the importance of these third party sales to the profitability of the
PraxAir plant. Details of the contractual commitment under the agreement are included
in note 30 to the financial statements.
Other matters | In preparing the 2015 financial results, management identified an
undisclosed related party transaction in respect of the prior year. Although the transaction
itself was not material, management have initiated a review of the process for capturing,
monitoring and approving related party transactions to ensure the timeliness, accuracy and
completeness of future disclosure. This review will be considered by the Audit Committee in
2016.
A further error in the disclosure of the Cost of Inventories recognised as expense in note 7 to
the 2014 IFRS financial statements of EVRAZ plc was also identified. Although the disclosure
error is not considered material, the error and its correction is set out in Note 7 to these
financial statements.
Social and charitable expenditure has been excluded from the definition of EBITDA in the
segmental reporting as management believe such expenditure to be largely discretionary
in nature and to more closely align the EBITDA treatment of such costs to the Company’s
Russian peers. The Committee reviewed the implications of the change and the adequacy of
the disclosure and were satisfied. The implications of the change in definition are set out in
Note 3.
Governance 122
Matters specifically considered in respect of the Interim Results
Deconsolidation of EVRAZ Highveld Steel and Vanadium Limited (EHSV) (Note 4) | As a result
of continuing trading difficulties and local economic conditions in South Africa, the Board of
EHSV resolved to place the company under voluntary business rescue procedures to protect
shareholders and creditors on 14th April 2015. Business rescue practitioners were appointed
on that day to pursue the refinancing and restructuring of EHSV and, in the event that this
could not be achieved, to supervise an orderly liquidation. Based upon the financial and
market position of EHSV, management did not anticipate any material return to the Group as
a result of the business rescue procedures and concluded that the Group had lost control
of EHSV and was unlikely to regain control in the future, and EHSV was deconsolidated from
14th April 2015. The Committee considered the legal process of business rescue procedures
in South Africa and the specific facts relating to EHSV and concurred with the treatment
proposed by management. The deconsolidation resulted in a loss in the statement of
operations of $167 million in the Interim Results representing the net assets of EHSV at the
date of deconsolidation, the 75% write down of an intercompany loan and the reclassification
of historic exchange losses. As a result of the ongoing difficulties of the business rescue
procedure, the outstanding 25% balance of the intercompany loan was written off during the
third quarter.
Fair, balanced and understandable
In considering whether the Annual Report is fair, balanced and understandable, the
Committee reviewed the information it had received, discussions throughout the year and the
preparation process adopted. Management agreed the key overall messages of the Annual
Report at an early stage to ensure a consistent message in both the narrative and financial
reporting. Regular meetings were held to review the draft Annual Report and for management
and Committee members to provide comments, and detailed review of the appropriate draft
sections were undertaken by the relevant Directors. The Committee particularly considered
whether the description of the business, principal risks and uncertainties, strategy and
objectives were consistent with the understanding of the Board, and whether the controls
over the consistency and accuracy of the information presented in the Annual Report are
robust.
Taking into account the disclosure implications of the issues discussed in this report, the
Committee recommended to the Board that, taken as a whole, it considers the Annual
Report to be fair, balanced and understandable and provides the information necessary for
shareholders to assess the Company`s performance, business model and strategy. The Audit
Committee recommended approval of the Group’s 2015 Consolidated Financial Statements
by the Board.
Other Matters
UK Bribery Act (“UKBA”) | The Committee continued to monitor the status of the
procedures, controls and data collection of the Group’s anti-corruption policy and Code
of Conduct, including the regulation of interaction with state authorities introduced by the
Company in November 2014 and progress in respect of the areas for improvement and
implementation by the external audit in 2014. During 2015, the Internal Audit department
www.evraz.comAnnual Report & Accounts 2015 123
This should be read in conjunction with
Risk Management and Internal Control
section on pages 115-117.
tested the effectiveness of the UKBA compliance system and concluded that the risk
had been significantly reduced as a result of the implementation of the majority of the
recommendations from the audit. A list of outstanding measures has been finalised together
with a timeline for their implementation in the first half of 2016 and a programme of
extended and ongoing training of personnel.
The Committee monitored the development of the framework for recording and approving all
interactions with state officials, and the implementation and associated training across the
Group, to comply with the Reports on Payments to Governments of the 2013 EU Accounting
Directive.
Sanctions Compliance Controls | Following the legal advice and risk assessment undertaken
2014, the Audit Committee reviewed and monitored the progress on implementation of the
recommended control processes, procedures and reporting to minimise the risk of breaching any
sanction. The controls and processes established for monitoring compliance are being regularly
updated to incorporate the latest guidance from the Group’s external legal advisers and there is
a process of continuing education of compliance personnel and executive management.
Risk Management and Internal Control
EVRAZ has an integrated approach to risk management to ensure that the review and
consideration of risks inform the internal audit process, design of internal controls and
management of the business.
The Group’s financial reporting procedures, internal controls, risk management systems
and activities are documented in a comprehensive Financial Reporting Procedures Manual
(FRP). The manual was updated in December 2015 and reviewed by the Audit Committee in
February 2016.
The Audit Committee reviews the recommendations of the Risk Committee, including the
Group’s Risk Register and level of Risk Appetite, and the draft Statement of Principal Risks
and Uncertainties to be included in the Interim Statement and Annual Report, prior to the
Board’s consideration.
Internal Audit findings on control issues that exceed the Group’s risk appetite are reported to
the Board by the Audit Committee, followed up by the Group’s Management Committee and
the progress on resolution is monitored.
The Audit Committee continues to receive quarterly updates on whistleblowing reports
together with a security report on the progress of follow-up investigations and resulting
actions in relation of fraud and theft. Any significant whistleblowing report is reported to the
Committee on an ad hoc basis when it arises.
Assessment of the Group’s risk profile and control environment | Internal Audit reviews
the Group’s risk and control environment bi-annually and this is considered by the Risk
Committee and the Audit Committee. The Chairman of the Audit Committee tables the
Internal Audit report judgement on the risk and control environment to the Board.
During 2015, the Group continued to assess its risk in relation to IT security by way of an external
assessment. A Group risk mitigation strategy was approved in October 2015 and is in the process
of being implemented. An external risk reassessment will be undertaken during 2016.
Governance 124
The level and economic terms of external insurance cover was considered by the Risk
Committee and the Audit Committee during 2015 and agreed by the Board. The Risk Register
was amended to acknowledge the level of self-insurance by the Group.
Internal Audit
The Audit Committee reviewed the internal audit plans for 2016 and recommended a number
of revisions in view of the challenging macroeconomic environment, risk profile of the
business and further retrenchment in personnel. The plan was revised to reflect the updated
risk analysis, prioritise key business cycles and controls from a risk perspective and eliminate
certain duplications with the HSE team. The Committee considers the current Internal
Audit resource to be adequate for the internal control and risk management assurance
requirements.
The Audit Committee reviewed and updated the Internal Audit Charter during 2015. An
annual assessment of the effectiveness, independence and quality of the Internal Audit
function was undertaken by way of a questionnaire to Committee members, management
and the external auditors and was again found to be very satisfactory. An external
assessment was undertaken during 2015 and confirmed that the Internal Audit function in
the Russian Federation, CIS and Europe conformed to the International Standards for the
Professional Practice of Internal Auditing, Code of Ethics and Definition of Internal Audit of the
Institute of Internal Auditors.
The Head of Internal Audit Committee is secretary to the Audit and Risk Committee and
prepares the minutes of both committees.
External Audit
The Audit Committee is responsible for monitoring the ongoing effectiveness and
independence of the external auditor, and making recommendations to the Board as to the
re-appointment of the auditor.
Effectiveness and Independence | The Audit Committee has an established framework
through which it monitors the effectiveness, independence, objectivity and compliance with
ethical, professional and regulatory requirements. These include:
Č review and approval of the external audit programme for the interim review and year-end audit,
including consideration of the audit scope, key audit risks and audit materiality measures, and
compliance with best practice;
Č review and approval of the external auditor’s engagement letter;
Č review of the FRC’s Quality Inspection Report (May 2015) and EY’s response;
Č consideration of the external auditors report on the Interim Review and Annual Report and
Representation Letters; and
Č reviewing the external auditors management letter on the 2014 audit with management,
considering management’s response and proposed actions, and requesting that Internal Audit
undertake a follow-up audit of key areas.
http://www.frc.org.uk/Our-work/Publications/
Audit-Quality-Review/Audit-Quality-Inspection-
Annual-Report-2015-15.pdf
www.evraz.comAnnual Report & Accounts 2015 125
During 2015, the Committee gave particular consideration to the implications of the 2015
financial reporting timetable on the external audit process and the resulting early hard close,
acceleration of substantive procedures and year-end roll forward procedures.
Following completion of the 2014 audit, management and members of the Audit Committee
completed a questionnaire to assess the effectiveness and independence of the external
audit process.
The Audit Committee holds regular meetings with the external auditor at which management
are not present to consider the appropriateness of the Company’s accounting policies and
audit process. During 2015, the external auditor confirmed that these policies and processes
were appropriate. The Committee Chairman also meets the Senior Statutory Auditor regularly
outside of Audit Committee meetings.
Engagement of the external auditor for non-audit services is managed in accordance with
the Group’s policy which can be found on the Company’s website: www.evraz.com. This policy
identifies a range of non-audit services which are prohibited on the basis that they might
compromise the independence of the external auditor, establishes threshold limits for the
level of non-audit fees relative to audit fees and authorisation processes for the approval
of all audit and non-audit fees. During 2015, non-audit fees totalled $268,000 and were
primarily in relation to capital market transactions. Non- audit fees were 5.7% of the 2015
audit fee of $4.7 million. Irrespective of prior approval of the CFO and Audit Committee
Chairman, all fees are reported to the Audit Committee for noting and comment.
Re-appointment of the external auditor
The Audit Committee considered the UK Governance Code guidance on re-appointment of the
external auditor as well as the EU legislation on audit regulation, and reviewed the continuing
engagement of Ernst & Young LLP (“EY”). EY were auditor to the predecessor group of
companies from which Evraz was formed and the audit was last tendered in 2009. Mr Ken
Williamson was appointed Senior Statutory Auditor in 2011 and will rotate off following this
annual report, with Mr Steve Dobson fulfilling the role for the 2016 Interim Review and Annual
Report.
The Audit Committee continues to consider EY to be effective and independent in their role as
auditor and has provided the Board with its recommendation to the shareholders that EY be
re-appointed as external auditor for the year ended 31st December 2016. However, in view of
the regulatory guidance, the Audit Committee has resolved that an audit tender process will
be undertaken in due course to allow for an appointment for the year ended 31st December
2017.
Governance 126
Nominations Committee Report
Matters considered by the Committee during the year
At its meeting on 18 June 2015,
the Committee considered the following issues:
1 A review of the appointment of Deborah Gudgeon as an independent non-executive
director. After much consideration and research during 2014 and early 2015, 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, excluding
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. Following a
decision by the Committee that Miss Gudgeon’s appointment as an independent non-
executive director should be discussed by the board, a formal recommendation by the
Committee to appoint Miss Gudgeon was put to the board on 31 March 2015. This was
approved by the board and Miss Gudgeon was appointed, with effect from 1 May 2015,
as an independent non-executive director.
2 A detailed assessment of the results of the externally facilitated Nominations Committee
review as undertaken by Lintstock in 2014. This was the first time that the Board and
Committees had undertaken an externally facilitated review and both the Committee
and the Board as a whole concluded that it had been a helpful and encouraging
exercise, with the results confirming that the Committee was working well, but also
including some helpful suggestions for improvement.
3 The composition of the Board Committees. 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 had previously indicated that he would not seek re-election as
a director of the Group at the 2015 annual general meeting, which was scheduled to
take place later that day. As a result, Mr Robinson stepped down from the Committee
at this meeting. Mr Robinson’s contribution to the Group has been considerable and he
is a great loss to the Committee and to the board. As a result of this, the Nominations
Committee made recommendations to the board: to appoint Deborah Gudgeon as
chairman of the Audit Committee; for Sir Michael Peat to step down from the Audit
Committee; to appoint Karl Gruber as a member of the Nominations Committee;
and to appoint Alexander Izosimov as a member of the Audit Committee. These
recommendations were put to and approved by the board later that day and became
effective from 19 June 2015.
4 Performance of the senior management team, succession planning and organisational
structure. Senior management succession planning was discussed, as is the case at
most of the Committee’s meetings.
Sir Michael Peat
Senior Independent Non-Executive
Director, Chairman of Nominations
Committee.
Committee members
and attendance
The members of the Nominations Committee
at 31 December 2015 were Sir Michael
Peat (Chairman), Alexander Izosimov, Karl
Gruber, Alexander Abramov, and Eugene
Shvidler. Terry Robinson was a member of
the Nominations Committee until 18 June
2015, while Karl Gruber also joined the
Nominations Committee on the same date.
Sir Michael Peat served as the chairman of
the Nominations Committee throughout the
year.
Three of the five members of the Committee
were independent non-executives.
The Committee met on three occasions
during 2015, on 18 June, 17 November and
15 December.
See the directors’ attendance
on page 111.
The CEO was in attendance at all meetings
and the company secretary acted as the
Committee’s secretary.
www.evraz.comAnnual Report & Accounts 2015
127
At its meetings on 17 November 2015 and 15 December 2015,
the Committee considered the following issues:
1 The composition of the board and the age, diversity and length of time in office of its
members. The Committee agreed that the board represented a good mix of skills and
experience, and that the Group had benefited from having a stable board and a group of
people who interact well.
2 Independence of non-executive directors. The Committee undertook a review of the
independent status of the non-executive directors based on the provisions in the UK
Corporate Governance Code and confirmed the appropriateness of the independent
status of each of the independent non-executive directors.
3 Organisational structure within the Group. The Committee discussed the reorganisation
of the business divisions on a regional basis and the various candidates that had been
identified to lead the newly created divisions.
4 Best practices for Nominations Committee. The Committee undertook a detailed review
of the ‘Women on Boards Davies Review: Five Year Summary’ and also considered the
FRC discussion paper ‘UK Board Succession Planning’.
5 Board effectiveness review. The Committee also considered the progress and results
of the board and ‘Board Committees Effectiveness’ review questionnaires. These
were detailed questionnaires, replies to which were submitted by all Board and Board
Committee members, without attribution, directly to the company secretary. The
evaluation considered, inter alia, the balance of skills and experience on the board,
independence, knowledge of the Group, the content and effectiveness of meetings and
diversity (including gender).
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 15 December
2015. It was concluded, as previously, that the chairman continues to make an important
contribution to the Group, including his knowledge and experience of, and contacts in, the
industry. Prior to the Nominations Committee meeting on 15 December 2015, the chairman
of the Group and the chairman of the Nominations Committee discussed the performance of
the individual directors, including time available to devote to the Group’s business.
Diversity policy
The board’s diversity policy is to have board membership that reflects the international nature
of the Group’s operations and at least two women as board members. The objective has
been achieved. The board notes the publication of the ‘Women on Boards Davies Review: Five
Year Summary’, and as a result will be updating its diversity policy with a view to achieving
33% representation of women on the Group’s board by 2020.
2016 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.
Governance 128
Health, Safety and Environment
Committee Report
Role of the HSE Committee
The HSE Committee leads the Board’s thinking on health and safety issues and
maintains responsibility for environmental and local community matters.
The responsibilities of the HSE Committee are:
Č Assessing the performance of EVRAZ with regard to the impact of health, safety,
environmental and community relations decisions and actions on employees,
communities and other third parties and on the Group’s reputation;
Č 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;
Č 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;
Č Making whatever recommendations it deems appropriate to the Board on any area
within its remit where action or improvement is needed.
The Committee met twice during 2015, on 6 February 2015 and on 22 September 2015
in EVRAZ head offices in Moscow. Members of the Committee visited two production
sites: EVRAZ KGOK and EVRAZ NTMK.
In accordance with the 2015 plan, members of the Committee took part in a HSE
strategic conference with EVRAZ top management on 22 April 2015. The conference
resulted in defining core elements of HSE strategy for 2016 and beyond. In addition,
Committee members underwent planned HSE training in February 2015.
In addition to the scheduled meetings, the Committee members receive a monthly HSE
summary report, and a quarterly HSE report is provided to the Board of Directors.
The following sections summarise how the Committee fulfilled its duties in 2015.
HSE performance assessment of the Group
Health and safety performance
Health and safety performance is measured by the following metrics:
Č Fatal incidents
Č Lost-time injuries (LTI)
Č Lost-time injury frequency rate (LTIFR), calculated as the number of injuries resulting in
lost time per 1 million hours worked
Č Cardinal safety rules enforcement
The HSE Committee continued to review the causes of all fatalities and serious property
damage incidents within the Group and the follow-up actions taken by the management.
On the suggestion of the HSE Committee, each fatality case was animated with a detailed
description of the incident scene, sequence of events, root-cause analysis and corrective
actions taken. This practice will continue further if any fatality occurs.
Karl Gruber
Independent Non-Executive Director,
Chairman of HSE Committee.
Committee members
and attendance
As of 31 December 2015, the members of
the Health, Safety and Environment (HSE)
Committee were Karl Gruber (Chairman),
Alexander Frolov and Olga Pokrovskaya.
www.evraz.comAnnual Report & Accounts 2015 129
The Committee reviewed the progress of a 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. It was acknowledged that every EVRAZ
production facility successfully completed a pilot project on LOTO and has clear plans of
expanding LOTO initiatives to other production areas.
The Committee reviewed the cardinal safety rules and approved adding one more cardinal
safety rule regarding working at heights.
In 2015, the Committee requested and reviewed current health-related metrics to
establish a benchmark for future health-related initiatives. Health-related metrics were also
benchmarked against World Steel Association data.
Environmental performance
In 2016, the Committee conducted two reviews of EVRAZ environmental performance,
including progress in achieving environmental targets set in 2012:
Č Air emissions (nitrogen oxides, sulphur oxides, dust and volatile organic compounds);
Č Non-mining waste and by-product generation, recycling and re-use;
Č Fresh water intake and water management aspects.
The Committee has focused on the management of air, water and waste issues, and related
projects designed to minimise environmental risks (such as air emission reduction, water
usage, waste water return into production, and metallurgical waste recycling) and concluded
that in most areas the initiatives undertaken need further implementing.
The Committee reviewed the risks and opportunities related to the introduction of new
Russian environmental regulations that set the new environmental performance targets for
2020, i.e. national goals for greenhouse gas reduction and transition to the ‘best available
techniques’.
In addition, the extent of the Group’s environmental compliance has been analysed using
compliance metrics:
Č Non-compliance related environmental levies (taxes) and penalties;
Č EVRAZ environmental commitments and liabilities;
Č Major cases of environmental litigation and claims;
Č Coverage of assets by environmental permits/licences;
Č Cases of public complaints;
Č Potential environmental incidents and prevention actions.
To improve environmental compliance management, the Committee discussed a new
approach for assessing environmental risks, including issues related to significant potential
losses and risks associated with obtaining environmental permits, managed within the scope
of daily operations. This may lead to a better understanding of the situation and help to
identify the best approaches and measures for improving environmental performance.
Details of HSE performance can be found in the Corporate Social Responsibility section
on pages 84-92.
HSE audit
result review
EVRAZ operations are subject to HSE
compliance inspections undertaken by
supervisory governmental agencies.
Violation of HSE regulations might lead
to regulatory fines, penalties or, in the
worst case, withdrawal of mining or plant
environmental licences, thus curtailing
operations.
The Committee members reviewed:
Č Findings of industrial safety audits
performed by the Internal Industrial Safety
department
Č Findings of audits of the HSE function
performed by the Internal Audit department
Č Status of external environmental inspection
carried out by environmental authorities
and the implementation of corrective
actions
Governance 130
REMUNERATION
REPORT
Annual statement by the chairman of the Remuneration Committee
In the current competitive environment, the Group aims to ensure that its remuneration
policy is aligned with its business objectives and retains and motivates qualified senior
executives in order to deliver sustainable, long-term returns to shareholders.
It is a great pleasure for me to congratulate the management of the Company, and the
HR team in particular, on receiving the Best Use of a Share Plan in an Emerging Market
2015 award by the Global Equity Organization. It is a clear sign of a global recognition of
their efforts in long-term incentives area.
Directors’ Remuneration Policy | EVRAZ believes that the Remuneration Policy
approved by shareholders at the 2014 AGM remains appropriate, and as such, it is not
proposing to make any changes this year. Included in this Remuneration Report for ease
of reference is a copy of the Directors’ Remuneration Policy Report, as approved by
shareholders. There will be no separate vote on this part of the report at the 2016 AGM.
Annual Remuneration Report | The second part of the report, the Annual Remuneration
Report, sets out details of remuneration paid in 2015 and how the Group intends to
apply its policy in 2016. This section will be put to an advisory shareholder vote at the
forthcoming AGM.
Key decisions taken during the year
1 The Committee reviewed the CEO’s salary and determined that his salary for
2016 will remain frozen at the same level as in 2015. This reflects the continuing
challenging market conditions and low level of wage increases to employees across
the Group in general.
2 Based on performance against the pre-determined KPIs and targets, the CEO’s
annual bonus payout for 2015 was 13.33% of the maximum.
In line with its commitment to good corporate governance, EVRAZ will continue
to monitor investors’ views, best-practice developments and market trends on
executive remuneration. These will be taken into account when deciding on executive
remuneration at EVRAZ, to ensure that its 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, the policy is reproduced below. The date of the executive
Directors’ service contract has been updated to reflect the date of the current contract.
No other changes have been made.
Duncan Baxter
Independent Non-Executive Director,
Chairman of Remuneration Committee.
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 2014).
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.
www.evraz.comAnnual Report & Accounts 2015
131
Remuneration policy
Element
Purpose and link to
strategy
Operation
EXECUTIVE DIRECTOR
Maximum potential value
Performance metrics
Base
salary
Provides a level
Normally reviewed annually, taking
Generally, the maximum increase
None
of base pay to
into account individual and market
per year will be in line with general
reflect individual
conditions, including:
level of increases within the Group.
experience and role
Č size and nature of the role,
However, there is no overall
to attract and retain
Č relevant market pay levels,
maximum opportunity as increases
high-calibre talent.
Č individual experience and pay
may be made above this level
Č increases for employees across the
at the Committee’s discretion,
Group.
to take account of individual
For the current CEO, base salary
circumstances such as increase
incorporates a Directors’ fee (paid to all
in scope and responsibility
directors for participation in the work of
and to reflect the individual’s
the Board Committees – see the section
development and performance in
on non-executive director remuneration
the role.
policy below).
Benefits
To provide market
Benefits currently include:
The cost of benefits will generally
None
level of benefits,
Č private healthcare
be in line with that for the senior
as appropriate
Č meal allowances
management team. However, the
for individual
Other benefits (including pension
cost of insurance benefits may
circumstances.
benefits) may be provided if the
vary from year to year depending
Committee considers it appropriate. The
on the individual’s circumstances.
current CEO does not participate in any
The overall benefit value will be set
pension scheme at present.
at a level the Committee considers
In the event that an executive director
proportionate and appropriate to
is required by the Group to relocate,
reflect individual circumstances.
benefits may include but are not limited
There is no total maximum
to relocation allowance and housing
opportunity.
allowance.
Annual
Aligns executive
The Group operates an annual bonus
200% of base salary per financial
The bonus is based on achievement of the Group’s key quantitative
bonus
remuneration to
arrangement under which awards are
year
financial, operational and strategic measures in the year to ensure
Group strategy
generally delivered in cash.
through rewarding
Targets are reviewed annually and
focus is spread across the key aspects of Group performance and
strategy.
the achievement of
linked to corporate performance based
The exact measures and associated weighting will be determined
annual financial and
on predetermined targets.
strategic business
targets.
on an annual basis, according to the Group’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 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 Group.
NON-EXECUTIVE DIRECTORS
Chairman
To provide
Director fees are paid in cash, but with the flexibility to forgo all or part of such fees (after deduction of applicable income tax and social taxes)
and
remuneration that
to acquire shares in the Group should the non-executive director so wish. Non-executive director fees are reviewed from time to time.
director
is sufficient to
Non-executive directors receive an annual fee for membership of the Board.
fees
attract and retain
Additional fees are payable for other Board responsibilities taken on by the non-executive directors (for example membership and chairmanship of
high calibre non-
the Board Committees).
executive talent.
The chairman of the Board receives an all-inclusive annual fee.
Expenses incurred in the performance of non-executive duties for the Group may be reimbursed or paid for directly by the Group, including any tax due
on the expenses. This may include travel expenses, professional fees incurred in the Directors’ duties and the provision of training and development.
In addition, the Group contributes an annual amount towards the secretarial and administrative expenses of non-executive directors.
Non-executive directors may not participate in the Group’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.
Governance 132
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 Group and, in the opinion of the Committee, the
payment was not in consideration of the individual becoming a director of the Group.
The Committee does not operate “clawback” arrangements on directors’ remuneration on
the basis that such arrangements would not be enforceable under the Russian Labour Code.
This means that the Group is unable to comply with the new Provision D.11 of the 2014 UK
Corporate Governance Code requiring the inclusion of malus and clawback provisions, as noted
in the Сorporate governance report on page 110.
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 directors 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.
Remuneration arrangements throughout the Group | This remuneration approach and
philosophy is applied consistently at all levels, up to and including the executive director. This
ensures that there is alignment with business strategy throughout the Group. Remuneration
arrangements below Board level reflect the seniority of the role and local market practice,
and therefore the components and remuneration levels 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 the
Group’s strategy) and the provision of benefits, senior managers are also entitled to participate
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 Group and therefore does not participate in this plan.
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 Group to recruit the best possible candidates who will be able
to contribute to EVRAZ performance and will help it reach its goals.
1 So far as practicable and appropriate, the Committee will seek to structure the pay and
2 Notwithstanding this, the Committee recognises that the executive director
benefits of any new executive directors in line with the current remuneration policy.
remuneration policy set out above is tailored towards the only current executive director,
the CEO, who has a significant shareholding in the Group. Any new executive director
is likely to have a different fact-pattern to the current CEO, and thus the Committee
believes that it is important to retain the flexibility to offer other elements, namely
market competitive, share-based incentive programmes. These would be linked to the
Group’s performance and designed to align the executive Directors’ interests to the
delivery of growth in shareholder value.
www.evraz.comAnnual Report & Accounts 2015
133
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.
Base pay
Annual bonus
Minimum
100
In line with expectations
50
50
Maximum
33
67
2,519
5,019
7,519
Minimum
In line with
expectations
Maximum
Base
pay
Annual
bonus
Base salary + value of annual benefits provided
in 2015
0%
of salary
100%
of salary
(target
opportunity)
200%
of salary
(maximum
opportunity)
3 The maximum level of variable remuneration that may be granted at the time of
recruitment (excluding any buyouts) will not exceed the on-going policy of more
than 200% of base salary, as described in the policy table above. This additional
headroom has been capped at a level comparable with maximum award levels seen in
conventional long-term incentive plans used in the wider UK listed market.
4 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.
5 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).
6 To facilitate recruitment, the Committee may need to compensate for loss of
remuneration arrangements on joining the Group. 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 timeframe 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.
7 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 Directors’ service contract and loss of office policy | The CEO has a service
contract with a subsidiary of EVRAZ plc.
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 Group’s initiative,
the entitlement to pay in lieu of notice is currently limited to three 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 include a notice period of no more than 12
months, and any compensation provisions for termination without notice will be capped at
12 months’ base salary and contractual benefits.
Governance 134
There is no automatic entitlement to annual bonus, and executive directors would not
normally receive a bonus in respect of the financial year in which they leave the Group.
However, where an executive director leaves due to 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.
The terms of the CEO’s service
contract are summarised below:
Executive
director
Alexander Frolov
Date of contract
31 December
2014
Notice period
(months)
N/A
The key terms of the non-executive
directors’ appointment letters
are summarised below:
Non-executive
directors
Date of contract
Alexander Abramov
14 October 2011
Duncan Baxter
14 October 2011
Karl Gruber
14 October 2011
Alexander Izosimov
28 February 2012
Sir Michael Peat
14 October 2011
Olga Pokrovskaya
14 October 2011
Deborah Gudgeon
31 March 2015
Eugene Shvidler
14 October 2011
Eugene Tenenbaum
14 October 2011
Notice
period
Three
months
Three
months
Three
months
Three
months
Three
months
Three
months
Three
months
Three
months
Three
months
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 16 June 2016.
Copies of the directors’ letters of appointment or, in the case of the CEO, the service
contract, are available for inspection by shareholders at the Group’s registered office.
Consideration of conditions elsewhere in the Group | Management prepares details of
all employee pay and conditions, and the Committee considers them on an annual basis.
The Committee takes this into account 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 Group 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 investor body guidelines and shareholder views.
Annual Remuneration Report
This section summarises remuneration paid out to directors for the 2015 financial year,
and details of how the remuneration policy will be implemented in the following financial
year.
Executive Directors’ remuneration | In 2015, the CEO, Alexander Frolov, was entitled to
a base salary, a performance-related bonus and provision of benefits. As a member of
the Board, he is also entitled to a Directors’ fee (US$150,000) and any applicable fees
for participation in the work of the Board Committees as laid out in the section below on
non-executive director remuneration. However, the Committee considers these fees to be
incorporated in his base salary. Alexander Frolov’s current shareholding (10.88% of issued
share capital as of 15 March 2016) provides alignment with the delivery of long-term
growth in shareholder value. As such, the Committee does not consider it necessary for
the CEO to participate in any long-term incentive plans or to impose formal shareholding
guidelines. However, the Committee will continue to review this on an ongoing basis.
www.evraz.comAnnual Report & Accounts 2015 135
Single figure of remuneration (audited)
Key elements of the CEO’s remuneration package received
in relation to 2015 (compared with the prior year) are set out below.
Alexander Frolov
Salary and director fees1
Benefits
Bonus
Total
2015 (US$)
2,500,000
19,935
666,650
3,186,585
2014 (US$)
1,954,113
14,895
3,839,744
5,808,752
1 At the start of 2015, the Remuneration Committee agreed a new exchange rate, which applied to all rouble-
denominated salary payments throughout the year. Fluctuations in the exchange rate meant that the total rouble
amount paid to the CEO in the year equalled less than US$2,500,000. As such, at the last Committee meeting,
it was decided that in future situations where the rouble amount paid is below US$2,500,000, a one-off payment
would be made to the CEO after the year-end.
Base salary | The current CEO salary was approved by the Remuneration Committee on 23
May 2008 at US$2,500,000 (which includes, for the avoidance of doubt, the Directors’ fee,
fees paid for Committee membership and any salary from a EVRAZ plc subsidiary).
For 2016, the CEO’s salary will remain unchanged at US$2,500,000.
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 for a performance-related bonus, subject to the
agreement of the Remuneration Committee and approval by the Board of Directors and paid
in cash. The bonus is linked to achieving 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 2015 (audited) | The bonus is linked to the Group’s main quantitative
financial, operational and strategic measures during the year to ensure alignment with the
key aspects of Group performance and strategy. For 2015, the following five indicators, each
with an equal weighting 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.
The Committee reviews the resulting bonus payout to ensure that the payout is appropriate in
light of the Group’s overall performance.
The year 2015 was a challenging year for the Group. As the table below shows, EVRAZ’s
performance was weaker than the targets and KPIs set, resulting in an annual bonus payout of
13.33% of the maximum. Notably, EBITDA was impacted by a steep fall in both the domestic and
export markets, particularly in the segments where EVRAZ had the largest share (long products
in Russia and the CIS and OCTG and flat products in North America). The ruble devaluation
added to this effect, as the actual average exchange rate was lower than budgeted, while
the fall in prices was much greater (not fully compensated by devaluation).Both were partly
compensated by the management’s efforts to drive the efficiency improvement programme
towards its goal. Free cash flow, although lower than the target, was comparatively strong,
due to significantly lower than budgeted CAPEX (thanks to the optimisation drive and better
management of investments) and tighter control over working capital.
Governance 136
The table below sets out details of the targets set for each KPI,
the actual achievement in the year and total bonus payout for 2015
KPIs
LTIFR
EBITDA1
FCF
Cash cost index
Board assessment of
overall performance
against strategic
objectives
Total
Target 2015
Upper level
1.44
US$2,368m
US$873m
100%
80%
120%
US$1,050m
90%
Result measurement
Planned level
(% of target)
100%
100%
US$873m
100%
120%
80%
US$700m
110%
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.
Lower level
Actual 2015
Bonus payout
(% of max)
151%
61%
US$799m
102%
See comment
below
0%
0%
29%
38%
0%
13.33%
1In 2015, management changed the definition of segment expense and EBITDA to make these indicators more comparable with Russian steel peers. Segment expense and EBITDA
have now been adjusted to not include social and social infrastructure maintenance expenses. As a result, the Group restated EBITDA for both financial reporting and management
accounts purposes for the years ended 31 December 2014 and 2013.
Board assessment of overall performance | In 2015 the Group faced continuing challenges
and turbulence in the external environment. The Committee assessed overall Group
performance and the contribution of the CEO by assessing a wide range of metrics, including:
Č Operational performance.
Č Financial performance.
Č Shareholder value creation.
Č Key projects.
Č Stakeholder relationship management.
Whilst the substantial contribution of the CEO and after assessment of these metrics,
but with no reflection on the CEO’s performance, it was felt by the Committee that as cost
savings were being pursued throughout the Group, a zero result for the discretionary element
was appropriate.
Annual bonus for 2016 | For 2016, the bonus framework will be in line with 2015. Forward
targets are considered by the Board to be commercially sensitive; however, they will generally
be disclosed in the subsequent year. In line with previous years, a malus arrangement
will apply under which bonus payouts may be adjusted downwards to reflect the overall
performance of the Group.
www.evraz.comAnnual Report & Accounts 2015 137
Non-executive directors’ remuneration
Non-executive remuneration payable in respect of 2015 and 2014 is given below (audited
information):
Single figure of remuneration (audited)
Non-executive director
Total fees1
Admin2
2015 US$ thousand
Alexander Abramov
Alexander Izosimov
Eugene Shvidler
Eugene Tenenbaum
Karl Gruber
Duncan Baxter
Olga Pokrovskaya
Sir Michael Peat
Terry Robinson3
Deborah Gudgeon4
750
212.2
174
150
238
224
198
216.2
190
154
30
30
30
30
30
30
30
30
15
20
Total
780
242.2
204
180
268
254
228
246.2
205
174
2014 US$ thousand
Total fees1
Admin2
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
406.1
–
1Total fees include annual fees and fees for Committee membership or chairmanship (pro rata working days).
2 The Group contributes an annual amount of US$30 thousand towards secretarial and administrative expenses of Non-executive directors. In addition to the amounts disclosed
above, directors’ travel and accommodation expenses incurred in the discharge of their duties are reimbursed by the Group.
3 Resigned on 18 June 2015, while remaining a paid adviser to the Board and Audit Committee. Also includes US$41 thousand paid in remuneration for the chairmanship of
Raspadskaya Coal, in which EVRAZ has a controlling stake.
4Appointed on 1 May 2015.
As of 31 December 2015, the
directors’ interests in EVRAZ’ shares
were as follows
Number of
shares
Total holding,
ordinary shares,
%
Directors
Alexander
Abramov
306,774,676
Alexander Frolov
153,186,953
Eugene Shvidler
43,805,030
21.79%
10.88%
3.11%
A non-executive Directors’ remuneration consists of an annual fee of US$150 thousand and
a fee for Committee membership (US$24 thousand) or chairmanship (US$100 thousand for
chairmanship of the Audit Committee and US$50 thousand for other Committees). For reference,
the fees payable for the chairmanship of a Committee include the membership fee, and any
director elected as chairman of more than one Committee is generally entitled to receive fees
in respect of one chairmanship only. The fee for the chairman of the Board amounts to US$750
thousand from 1 March 2012 (this fee includes, for the avoidance of doubt, directors’ fees and
fees paid for Committee membership).
Fees will remain unchanged for 2016.
Aggregate directors’ remuneration
The aggregate amount of directors’ remuneration payable in respect of qualifying services for
the year ended 31 December 2015 was US$5,968 thousand (2014: US$8,597 thousand).
Share ownership by the Board of Directors (audited)
As set out earlier in this report, there are no formal minimum shareholding requirements
currently in place, reflecting the CEO’s current shareholding in EVRAZ.
There have been no changes in the directors’ interests since 31 December 2015 until 14
March 2016.
Governance 138
All shares held by Directors are held outright, with no performance or other conditions
attached to them, other than those applicable to all shares of the same class.
Relative performance of spend on pay,
US$ million
2015
2014
EBITDA
Dividends
Total employee pay
1,438
2,325
90
1,454
2,210
Other Directors do not currently hold any shares in the Company.
Relative importance of spend on pay
The graph on the right shows the total cost of remuneration paid to all employees in
the current and previous years, and financial metrics in US$ millions.
Minimum
The 34% fall in the US Dollar value of employee pay has been significantly influenced by the
Russian rouble devaluation.
In line with expectations
Performance graph
Maximum
The graph below shows the Group’s performance measured by total shareholder return
compared with the performance of the FTSE 350 mining Index since EVRAZ plc’s admission
to the premium listing segment of the London Stock Exchange on 7 November 2011. The
FTSE 350 mining Index has been selected as an appropriate benchmark, as it is a broad-
based index of which the Group is a constituent member.
Total shareholder return perfomance
EVRAZ FTSE 350 mining
200
140
160
130
120
100
80
60
40
20
0
07.11.2011
07.05.2012
07.11.2012
07.05.2013
07.11.2013
07.05.2014
07.11.2014
07.05.2015
07.11.2015
The table below shows as a single figure the CEO’s total remuneration over the past five
years, along with a comparison of variable payments as a percentage of the maximum
bonus available.
CEO’s total remuneration paid in 2011-2015
CEO single figure
of total remuneration, US$
Annual variable element award rates against
maximum opportunity
2015
2014
2013
2012
2011
3,186,585
5,808,752
4,894,286
2,141,000
1,667,000
13.33%
77%
50%
0%
11.3%
www.evraz.comAnnual Report & Accounts 2015 139
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 Russia-based administrative personnel. This group of employees has
been selected as an appropriate comparator, as they are based in the same geographic
market as the CEO, so are subject to similar external environment/pressures.
Percentage change in the elements of remuneration for the director undertaking
the role of CEO compared with average figures for Russia-based
administrative personnel
Salary
Benefits
Annual bonus
CEO
0%
34%
-83%
Russian administrative personnel1
–39%
–41%
–43%
1 The Russian rouble remained weak during 2015, which significantly impacted the US$ value of the salaries of people
hired locally. For reference, the relevant percentages calculated on a Russian rouble basis would be 0%, -4% and -7%
for salary, benefits and annual bonus respectively.
Remuneration Committee
This section gives 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 2015:
Č Duncan Baxter (Committee Chairman);
Č Karl Gruber;
Č Alexander Izosimov
No directors are involved in deciding their own remuneration. The Committee may invite
other individuals to attend Committee meetings, in particular the CEO, 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 Group’s website.
Governance 140
The main responsibilities of the Remuneration Committee are:
1 to set and implement the remuneration policy covering the chairman of the Board, the
CEO, the company secretary and other executive directors, and to recommend and
monitor the level and structure of remuneration for key senior management;
2 to take into account all factors that it deems necessary to determine, such as
framework or policy, including all relevant legal and regulatory requirements, the
provisions and recommendations of the UK Corporate Governance Code and associated
guidance;
remuneration policy for directors;
3 to review and take into account remuneration trends across the Group when setting the
4 to review regularly the appropriateness and relevance of the remuneration policy;
5 to determine the total individual remuneration package of the chairman of the
Board, the company secretary and other executive directors, including pension rights,
bonuses, benefits in kind, incentive payments and share options or other share based
remuneration within the terms of the agreed policy;
6 to approve awards for participants where existing share incentive plans are in place;
7 to review and approve any compensation payable to executive directors and key senior
executives in connection with any dismissal, loss of office or termination (whether
for misconduct or otherwise) to ensure that such compensation is determined in
accordance with the relevant contractual terms and remuneration policy and that such
compensation is otherwise fair and not excessive for the Group;
8 to oversee any major changes in employee benefits structures throughout the Group.
During 2015, the Remuneration Committee met three times. The purpose of the meetings
was to consider and 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 2014 results; and to approve the 2015 long-term incentive plan (LTIP) awards and the list
of participants and changes in the Group’s organisational structure.
Advisers | The Committee received advice during the year from Deloitte LLP, which it
selected to provide independent remuneration consultancy services to the Group. During the
year, Deloitte advised the Committee on developments in the regulatory environment and
investor views and on the development and disclosure of the Group’s incentive arrangements.
The total fee for advice provided to the Committee during the year was GBP6,500. No other
services were provided to the Group by the adviser during the financial year.
Deloitte is a founding member of the Remuneration Consultants Group and, as such,
voluntarily operates under the code of conduct in relation to executive remuneration
consulting in the UK.
www.evraz.comAnnual Report & Accounts 2015 141
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.
The Committee is 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 | EVRAZ remains committed to ongoing shareholder dialogue
and takes an active interest in feedback received from its shareholders and from voting
outcomes.
Where there are substantial votes against resolutions in relation to directors’ remuneration,
the Group 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,
in respect of the previous Remuneration Report and Remuneration Policy
Number of votes
For
Against
Withheld
Total votes as % of issued
share capital
To approve the Annual Remuneration Report section
of the directors’ Remuneration Report for the year
ended 31 December 2014
That the Directors’ Remuneration Policy contained
in the Directors’ Remuneration Report for the year
ended 31 December 2013 be approved
1Percentage of votes cast.
997,715,786 (98.14%)1
18,920,641 (1.86%)
974,876
67.48%
1,024,608,770 (99.32%)
6,996,299 (0.68%)
10,265,194
68.48%
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
14 March 2016
Governance 142
DIRECTORS’ REPORT
Introduction
In accordance with section 415 of the Companies Act 2006, the Directors of EVRAZ plc
present their report to shareholders for the financial year ending 31 December 2015,
which they are required to produce by applicable UK company law. The Directors’ Report
comprises pages 142 to 147 of this report, together with the sections of the Annual
Report incorporated by reference. As permitted by legislation, some of the matters
normally included in the Directors’ Report have instead been included in other sections
of the Annual Report, as indicated below.
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.
Dividends
Share capital
Authority to purchase own shares and purchase during
the year
Directors
Directors’ appointment and re-election
The Company’s current dividend policy was adopted on 8 April 2014 and allows payment of regular dividends only when
the net leverage (net debt/EBITDA) target of below 3.0x is achieved and the Company records a net profit. No dividends
were paid in 2015. No dividend is recommended for the year-ended 31 December 2015.
Details of the Company’s share capital are set out in Note 20 to the Consolidated Financial Statements on page 208,
including details on the movements in the Company’s issued share capital during the year.
As of 31 December 2015, the Company’s issued share capital has consisted of 1,506,527,294 ordinary shares of
which 98,383,582 ordinary shares are held in treasury. Therefore, the total number of voting rights in the Company is
1,408,143,712.
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.
Details of transactions with treasury shares are provided in Note 20 of the Consolidated Financial Statements on page 208.
Details of the Company’s authority to purchase its own shares, which will be sought at the forthcoming annual general
meeting of the Company, will be set out in the notice of meeting for that AGM.
As part of a share buyback by way of a tender offer, announced on Monday 20 April 2015, the Company agreed to repurchase
108,458,508 ordinary shares of US$1.00 each in the capital of the Company, for consideration of US$3.10 per share.
Initially, following the share buyback, all 108,458,508 ordinary shares were held in treasury. At the time of the buyback, this
represented 7.12% of the Company’s issued share capital. On 28 May 2015, the Company transferred 10,074,926 ordinary
shares out of treasury to the Company’s Employee Share Trust. This represented 0.67% of the Company’s issued share
capital, and details are set out in Note 20 to the Consolidated Financial Statements on page 208. The Board considered this
an appropriate means of returning capital to shareholders in a way that is earnings enhancing.
Biographical details of the directors who served on the Board during the year are set out in the Corporate Governance
section on pages 104 to 107. In addition, Terry Robinson served as a director until his resignation on 18 June 2015.
Deborah Gudgeon was appointed to the Board on 31 March 2015. Duncan Baxter and Olga Pokrovskaya stood down as
directors on 14 March 2016.
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 AGM and then be eligible for election. In accordance with the UK Corporate Governance Code, the directors
are subject to annual re-election by shareholders. Please see additional information about Directors’ appointment and
resignation in Corporate governance report, page 112.
All of the continuing directors will stand for re-election at the 2016 AGM to be held on 16 June 2016.
Directors’ interests
Detailed information on share ownership by directors can be found in the Remuneration Report on page 137.
Members of EVRAZ plc Board do not receive share-based compensation.
Directors’ indemnities and directors and officers liability
insurance
Powers of directors
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
Act. In addition, directors and officers of the Company and its subsidiaries have been and continue to be covered by
directors and officer liability insurance.
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.
Major interests in shares
Notifiable major share interests of which the Company has been made aware are set out on page 144 of the Directors’
Report.
www.evraz.comAnnual Report & Accounts 2015 143
Research and development
Sustainable development
Political donations
Greenhouse gas emissions
Employees
Overseas branches
Financial risk management
Financial instruments
Going concern
Auditor
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 remains competitive in the global and local markets. For examples of Company’s efforts in R&D
in different operations please refer to pages 53-79.
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 81-101.
No political contributions were made in 2015.
In 2015, in accordance with 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 88-90.
Information regarding the Company’s employees can be found on pages 95-99.
EVRAZ does not have any branches. A full list of the Group’s controlled subsidiaries is disclosed in Note 34 of the
Consolidated Financial Statements.
Details of the Company’s policies on financial risk management are outlined in the Audit Committee Report on pages 118-125.
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 29 to the Consolidated Financial Statements, the
Corporate Governance section of this report on pages 110-129 and in the Financial Review on pages 34-49.
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 34-49.
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 2017. In doing so, the Directors recognise that the Group’s
activities in all of its operating segments continue to be affected by the uncertainty and instability of the current
economic environment. In the event that the financial results of the Group deteriorate and are below the management’s
current forecasts, the Group may not be in compliance with financial covenants under certain bank loans (up to a
maximum of US$750 million), which, if not resolved, may trigger a cross default under other debt instruments. Such
an event would permit the Group’s lenders to demand immediate payment of the outstanding borrowings under the
relevant debt instruments.
The Directors and management have put in place a viable set of actions to proactively address this situation, including,
but not limited to, an agreed back stop facility in the amount of US$300 million with one of the major banks. If the
Group faces potential non-compliance with its financial covenants its actions will include, if and when necessary, a
repayment of certain borrowings, a financial covenant reset, a waiver from its lenders and a refinancing of certain
borrowings. The Group may incur additional costs related to these alternatives.
Taking the above factors into account, the Board is satisfied that the Group has adequate resources available to ensure,
that the Group will continue in operation for the foreseeable future and meet its liabilities as they fall due. For this
reason, as disclosed in Note 2 to the consolidated financial statements, the Group continues to adopt the going concern
basis in preparing its financial statements.
The Company’s auditor, Ernst & Young LLP, have indicated their willingness to continue in office and a resolution seeking to
re-appoint them will be proposed at the forthcoming AGM.
Future developments
Information on the Group and its subsidiaries’ future developments is provided in the Strategic Report.
Events since the reporting date
The major events after 31 December 2015 are disclosed in Note 33 to the Consolidated Financial Statements on page 233.
Annual general meeting (AGM)
Electronic communications
Corporate Governance Statement
An AGM 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.
The 2016 AGM will be held on 16 June 2016 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.
A copy of the 2015 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.
The Disclosure and Transparency Rules (DTR 7.2) require certain information to be included in a corporate governance
statement set out in a company`s Directors’ Report. In common with many companies, EVRAZ has an existing practice
of issuing, within its Annual Report, a Corporate Governance Report that is separate from its Directors’ Report. The
information that fulfils the requirement of DTR 7.2 is located in EVRAZ Corporate Governance Report on pages 110 to 129
(and is incorporated into this Directors’ Report by reference), with the exception of the information referred to in DTR 7.2.6,
which is located in this Directors’ Report.
Governance 144
Major shareholdings | The Company’s issued share capital as of 31 December 2015 and
14 March 2016 was 1,506,527,294 ordinary shares of which 98,383,582 ordinary shares are
held in treasury, thus the total voting rights are 1,408,143,712 ordinary shares.
As of 31 December 2015 and 14 March 2016, 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.1
Lanebrook Ltd. Affiliates
Kadre Enterprises Ltd.2
Verocchio Enterprises Ltd.3
Number of ordinary shares
% of issued ordinary shares
905,487,416
38,807,306
83,751,827
82,887,014
64.30
2.76
5.95
5.89
1 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.
2Includes shares held by Gennady Kozovoy, Kadre’s shareholder, both indirectly through Kadre and directly.
3Verocchio Ltd. is owned by Alexander Vagin.
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 2015 and 14 March 2016.
Ultimate beneficial owner
Number of ordinary shares
% of issued share capital
Roman Abramovich
Alexander Abramov
Alexander Frolov
Gennady Kozovoy
Alexander Vagin
Eugene Shvidler
440,528,063
306,774,676
153,186,953
83,751,827
82,887,014
43,805,030
31.28
21.79
10.88
5.95
5.89
3.11
Listing rule disclosures | For the purposes of LR 9.8.4CR, the information required to be
disclosed by LR 9.8.4R can be found in the following locations:
Item
Interest capitalised
Publication of unaudited financial information
Detail of long-term incentive schemes
Waiver of emoluments by a director
Waiver of future emoluments by a director
Non pre-emptive issues of equity for cash
Non pre-emptive issues of equity for cash in relation to major subsidiary undertakings
Parent participation in a placing by a listed subsidiary
Contract of significance in which a director is interested
Contracts of significance with a controlling shareholder
Provision of services by a controlling shareholder
Shareholder waiver of dividends
Shareholder waiver of future dividends
Agreements with controlling shareholder
Location
Note 9 to the Consolidated Financial Statements
Not applicable
Note 21 to the Consolidated Financial Statements, Remuneration Report
None
None
None
None
None
None
See section on the Relationship Agreement on page 145
None
None
None
See section on the Relationship Agreement on page 145
www.evraz.comAnnual Report & Accounts 2015 145
Significant contractual arrangements
Relationship agreement | 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 December 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:
Č the Major Shareholder has the right to appoint the maximum number of Non-Executive
Directors that may be appointed while 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’’;
Č 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;
Č 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;
Č 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 basis, unless otherwise agreed by a Committee comprising the Non-Executive
Directors of the Company whom the Board considers to be independent in accordance with
paragraph B.1.1 of the UK Corporate Governance Code (the ‘‘Independent Committee’’);
Č 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;
Č 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’’);
Č 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, subject to specified exceptions,
take any action (or omit to take any action) to prejudice the Company’s status as a listed
company or its suitability for listing or its on-going compliance with the Listing Rules and
Disclosure and Transparency Rules;
Č 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;
Governance 146
Č 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 the
Independent Committee or in writing by a majority of the Independent Committee;
Č 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 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.
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.
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. In
accordance with LR 9.8.4R (14) it is confirmed that :
Č the Company has complied with the independence provisions of the relationship
agreement;
Č so far as the Company is aware, the controlling shareholder has complied with the
independence provisions of the relationship agreement; and
Č so far as the Company is aware, the controlling shareholder has complied with the
procurement obligations in the relationship agreement.
Other agreements | 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 2015, the principal amount of these notes amounted to
US$353 million.
The change of control provisions contained in the US$500 million syndicated loan agreement
dated 12 August 2014 specify that if a 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 a 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.
Articles of association | The Company’s Articles of Association were 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
www.evraz.comAnnual Report & Accounts 2015 147
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 2016 notice of AGM.
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 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.
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.
Audit information | Each of the Directors who were Members of the Board at the date of the
approval of this report confirms that:
Č So far as he or she is aware, there is no relevant audit information of which the Company’s
auditors are unaware.
Č He/she has taken all the reasonable steps that he/she ought to have taken as a Director
to make himself/herself aware of any relevant audit information and to establish that the
Company’s auditors are aware of the information.
The confirmation is given and should be interpreted in accordance with the provisions of
section 418 of the Companies Act 2006.
The EVRAZ Directors’ Report as set out on pages 142 to 147 inclusive has been prepared in
accordance with applicable UK company law and was approved by the Board on 14 March 2016.
By the order of the Board
ALEXANDER FROLOV
Chief Executive Officer
EVRAZ plc
14 March 2016
Governance 148
DIRECTORS’
RESPONSIBILITY
STATEMENTS
Responsibility Statement under the Disclosure and Transparency Rules
Each of the directors whose names and functions are listed on pages 104 to 107 confirm that
to the best of their knowledge:
Č 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’);
Č 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.
Statement Under the UK Corporate Governance Code
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 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:
Č Present fairly the financial position, financial performance and cash flows of the Group and
parent company;
Č Select suitable accounting policies in accordance with IAS8:Accounting Policies, Changes
in Accounting Estimates and Errors and then apply them consistently;
Č Present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information;
Č Make judgements and estimates that are reasonable;
www.evraz.comAnnual Report & Accounts 2015 149
Č 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
Č 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.
The directors are also responsible for preparing the Directors’ 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 the order of the Board
ALEXANDER FROLOV
Chief Executive Officer
EVRAZ plc
14 March 2016
Governance 150
2–3
Meet EVRAZ
4–51
Strategic report
52–79
Business review
80–101
CSR report
102–149
Governance
150–249
Financial statements
152 Consolidated financial
statements
240 Separate financial
statements
250–262
Additional information
Annual Report & Accounts 2015www.evraz.com 151
151
FINANCIAL
STATEMENTS
Consolidated Financial Statements
152–239
152 Independent Auditors Report
161 Consolidated Statement of Operations
162 Consolidated Statement of Comprehensive Income
163 Consolidated Statement of Financial Position
164 Consolidated Statement of Cash Flows
166 Consolidated Statement of Changes in Equity
169 Notes to the Consolidated Financial Statements
Separate Financial Statements
240–249
240 Separate Statement of Comprehensive Income
241 Separate Statement of Financial Position
242 Separate Statement of Cash Flows
243 Separate Statement of Changes in Equity
244 Notes to the Separate Financial Statements
Financial Statements 152
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 161 to 239 and the Company Primary statements and related notes set out on pages 240 to 249.
Opinion on the Financial Statements
In our opinion EVRAZ plc’s financial statements (the “Financial Statements”):
Č give a true and fair view of the state of the Group and of the Parent Company’s affairs as at 31 December 2015 and of the Group’s loss and
Parent Company’s profit for the year then ended;
Č have been properly prepared in accordance with IFRSs as adopted by the European Union; and
Č 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.
What we have audited
We have audited the Primary Statements and related notes of EVRAZ plc for the year ended 31 December 2015 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 Consolidated Statement of Cash Flows;
the Separate Statement of Financial Position;
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 34.
the related notes 1 to 8.
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.
Overview
Materiality
Č Overall Group materiality of $37.8 million which represents approximately 2.7% of adjusted EBITDA1.
Audit scope
Č 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.
Č The 15 reporting components where we performed audit procedures accounted for 77% of the Group’s adjusted EBITDA and 92% of the Group’s
revenue (of which 60% and 74% of these metrics were covered by full scope components).
Č For the remaining 45 reporting components in the Group we have performed other procedures appropriate to respond to the risk of material misstatement.
Č 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
Č Goodwill and non-current asset impairment
Č Going concern
Č Completeness of related party transactions
Č Accounting treatment of Praxair contract
What has
Č Changes in our scope since the 2014 audit included removal of Highveld Steel & Vanadium from the audit scope due to the loss of control by the
changed
Group over the entity in April 2015.
Č The focus on the impact of foreign exchange movements, segmental reporting and risks associated with political disturbances reduced this year and
have therefore not been included in our opinion.
Č The accounting treatment of a contract with Praxair is a new area of focus for the current year.
Č We increased our focus on completeness of related party transactions due to an omission relating to the prior year identified in the current year.
1 Management’s EBITDA in the annual report does not include social and social infrastructure maintenance expenses. These expenses have been included in
adjusted EBITDA used for our calculation of materiality as they are incurred every year.
www.evraz.comAnnual Report & Accounts 2015 153
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. In addressing these risks, we have
performed the procedures below which were designed in the context of the financial statements as a whole and, consequently, we do not
express any opinion on these individual areas.
Details of why we identified these issues as areas of focus and our audit response are set out in the table on pages 153 to 155. 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 2014.
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 2014 audit we have made the following changes to our areas of focus:
Č During the year ended 31 December 2015 foreign exchange fluctuations were less than during the prior year. This has therefore been less
of a focus area of our audit.
Č We have also excluded segmental reporting as a key focus area as there were no changes in reportable segments in the current year.
Č The current economic and geopolitical situation continues to be relevant to our audit approach but the issue is no longer new and therefore does
not require a new audit testing strategy to be formulated. This has led us to a decreased focus on this area.
Č The accounting treatment of a Praxair contract is a new area of focus for the current year in response to the potential impact on the Group’s
Financial Statements.
Č We have also included completeness of related party transactions as a new focus area in response to an omitted transaction in the prior period
identified by management, the risk that this might not be an isolated incident and investor focus on this area.
Area of focus
Our audit approach
Goodwill and non-current asset impairment
What we reported to
the Audit Committee
Risk direction:
Refer to the Group Audit Committee report on page 121, the estimates and judgments on page 172 and the disclosures of impairment in note 6 of the Consolidated
Financial Statements
At 31 December 2015 the carrying value of goodwill was
US$1,176 million (2014: US$1,541 million). The Group
recognised impairment charges in respect of goodwill, other
intangible assets and items of PP&E during the year of US$441
million (2014: US$539 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.
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.
Our audit procedures included the verification 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:
Č Decreases in steel prices;
Č Increases in production costs and
Č Discount rates.
We corroborated 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, 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 tested the appropriateness of the related disclosures provided in the
Group Financial Statements. In particular we tested 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 charges.
We consider
the accuracy of
management’s
estimates to have
been reasonable
for the current year
with assumptions
within an acceptable
range. Management
have also reflected
known changes in the
circumstances of each
CGU in their forecasts
for forthcoming periods.
We concluded that the
related disclosures
provided in the Group
Financial Statements
are appropriate.
Financial Statements
154
Our assessment of focus areas (continued)
Area of focus
Our audit approach
Going concern
What we reported to
the Audit Committee
Risk direction:
Refer to the Group Audit Committee report on page 120, the Directors’ report on page 143 and within significant accounting policies on page 170 of the Consolidated
Financial Statements
The Group is highly geared (net debt at 31 December 2015
US$5,349 million, 2014 US$5,814 million), has regular debt
repayments and a number of restrictive 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 verify that the Group can operate as a
going concern for at least 12 months from the date the financial
statements are approved.
We consider the level of risk in relation to Going Concern to
have increased due to the increased risk of non-compliance
with restrictive covenants relating to EBITDA.
We discussed the detailed cash flow forecasts prepared by management in
their model. The main procedures performed on the model and areas where
we challenged management were as follows:
Č We have tested the quality of management forecasting by comparing
cash flow forecasts for prior periods to actual outcomes;
Č We verified the consistency of forecasts used in the going concern
assessment with those used for impairment calculations;
Č We tested 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;
Č We tested the arithmetic integrity of the calculations including those
related to management’s sensitivities.
Č We also performed our own sensitivity calculations to test the adequacy
of the available headroom and, in particular, covenant compliance.
Č We agreed the sources of liquidity and uses of funds to supporting
documentation.
Č We tested 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
it is appropriate to
prepare the financial
statements on a going
concern basis and that
the related disclosures
are appropriate.
Accounting treatment of a contract with Praxair
Risk direction:
Refer to the Group Audit Committee report on page 121 and the estimates and judgements on page 171 of the Consolidated Financial Statements
As part of our procedures to determine whether the arrangement represents
an embedded lease in accordance with IFRIC 4 we have focused on the
significance of the percentage of output from the air separation unit
supplied to third parties and the potential for future changes in this
percentage over the life of the equipment.
We received confirmation directly from Praxair on the quantity of gas
supplied to third parties in 2015 (approximately 8-9% in the last quarter of
2015) and their intention to increase supplies to third parties in 2016 and
beyond.
Based on our
procedures we
conclude that the
accounting treatment
and related disclosures
provided in the Group
Financial Statements to
be appropriate.
We recalculated the amount of gas available for supply to third parties
based on Praxair’s energy usage data.
We examined the disclosure in the annual Consolidated Financial
Statements for its appropriateness and completeness.
In December 2010 EVRAZ Nizhny Tagil Metallurgical Plant
(NTMK) signed an agreement with Praxair Rus under which
Praxair will construct, operate, own and maintain an air
separation unit. Once the construction is completed, NTMK
will purchase agreed quantities of oxygen and other gases
for its production requirements for a period of 25 years. The
committed expenditure over the life of the contract is US$515
million. The contract was commenced following the completion
of construction of the unit in June 2015.
In June 2015 the terms of the contract were finalised and
management analysed the revised terms and concluded that this
contract does not contain an embedded lease within the scope of
IFRIC 4 ‘Determining whether an arrangement contains a lease’.
In reaching this conclusion on the accounting treatment of the
contract management considered the capacity of the plant and
that amounts of the oxygen and other gases Praxair would sell to
third parties would be more than insignificant.
We focused on this area because of the potential financial
impact on the Consolidated Financial Statements and the
potential impact on covenant compliance – in particular certain
financial ratios (Net debt/EBITDA, Total debt/EBITDA).
www.evraz.comAnnual Report & Accounts 2015
155
What we reported to
the Audit Committee
Risk direction:
Based on our
procedures performed
we consider the related
party disclosure
provided in the Group
Financial Statements to
be appropriate.
Our assessment of focus areas (continued)
Area of focus
Our audit approach
Completeness of related party transactions
Refer to the Group Audit Committee report on page 121 and note 16 of the Consolidated Financial Statements
At the end of 2015, management discovered historic
transactions with a company controlled by a key management
person had been erroneously omitted from the prior year’s
disclosures of related party transactions in the annual financial
statements.
Although the error itself was not material we considered,
given regulatory and investor interest in this area coupled
with the risk that this might not be an isolated incident, our
audit risk had increased. We therefore reassessed the risk of
completeness of related party transactions as significant.
We consider the increased risk to be limited to the Russian
entities within the Group where external business interests,
especially in relation to local product suppliers, are more
common amongst members of key management.
At both a component team and group level, we have understood and tested
management’s process for identifying related parties and recording related
party transactions. We have tested management’s controls in relation to the
assessment and approval of related party transactions.
We verified transactions with the previously undisclosed related party
identified by management to determine if transactions with this entity
were complete. At the component at which the undisclosed transactions
had been identified by management we performed a search of other
counterparties and suppliers for any further companies that might be
related to the undisclosed entities. We investigated those entities with
similar names to the undisclosed company or those that appeared to have a
tax code linkage.
We assessed management’s evaluation that the transactions are on an
arm’s length basis by reviewing a sample of agreements and comparing the
related party transaction price to those quoted by comparable companies.
Previously undisclosed related parties have been included in this sample.
Across the rest of the Russian components we paid special attention to
unusual or high value transactions with unknown counterparties.
We randomly selected a sample of key management personnel and ran
a search for any companies controlled by those individuals (the search
was performed via an independent register of all companies based in
the CIS and their directors or shareholders). We compared the results of
the research made with the list of entities included in related party listing
provided to us by management and investigated the differences between
the listings.
Financial Statements 156
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
$37.8 million
Performance materiality
$18.9 million
Reporting threshold $1.9
million
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. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be $37.8 million (2014: $62.8 million), which is set at approximately 2.7% (2014: 2.7%) of
adjusted EBITDA. Adjusted EBITDA used for our materiality calculation was consistent with the definition of EBITDA used last year and did
not have social and charitable expenditure removed. These expenses have been included in our calculation for materiality purposes because
these are costs that are incurred every year. Our materiality amount provides a basis for determining the nature and extent of 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.
How we determined materiality:
Starting basis
EBITDA of US$1,438 million (as included in the Annual report)
Inclusion of social and social infrastructure maintenance expenses of US$28 milllion
(as included in the Consolidated Statement of Operations) to determine adjusted EBITDA
Adjustment
Materiality
Take 2.7% of the adjusted EBITDA
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, adjusted for social and social infrastructure
maintenance expenses, 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.
www.evraz.comAnnual Report & Accounts 2015
157
Our application of materiality (continued)
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 given
the number and monetary amounts of individual misstatements (corrected and uncorrected) identified in prior periods as well as the nature
of the misstatements, overall performance materiality for the Group should be 50% (2014: 50%) of materiality, namely $18.9 million (2014:
$31.4 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 $3.8 million to $10.5 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 $1.9million (2014: $3.1 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 in forming our opinion.
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 and the parent company’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 analyse 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 team 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 60 reporting components of the Group we selected 15 components covering entities within Russia, Ukraine,
Switzerland, Canada 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 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. For those specific accounts selected, as part of our
Specific scope components, the extent of our audit work on those accounts was the same as that for a Full scope audit.
Financial Statements 158
Scope of the audit of the Financial Statements (continued)
Tailoring the scope (continued)
The 15 reporting components where we performed audit procedures accounted for 77% (2014: 87%) of the Group adjusted EBITDA, 92%
(2014: 90%) of the Group’s revenue and 86% (2014: 87%) of the Group’s total assets. For the current year, the full scope components
contributed 60% (2014: 71%) of the Group adjusted EBITDA, 74% (2014: 66%) of the Group’s revenue and 57% (2014: 55%) of the Group’s
Total assets. The specific scope components contributed 17% (2014: 16%) of the Group adjusted EBITDA, 18% (2014: 24%) of the Group’s
revenue and 29% (2014: 32%) of the Group’s Total assets. The audit scope of these components may not have included testing of all
significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group. A further
breakdown of the size of these components compared to key metrics of the Group is provided below.
Adjusted EBITDA*, %
Revenue, %
Total assets, %
Full
Specific
Other
60%
17%
23%
Full
Specific
Other
74%
18%
8%
Full
Specific
Other
57%
29%
14%
* The percentage of the Group’s adjusted EBITDA attributable to full and specific scope entities is lower than the revenue metric because some of the full and specific scope entities
contribute to the Group’s revenue but individually have a negative adjusted EBITDA.
For the remaining 45 components, we performed other procedures, including analytical review, review of internal audit reports, 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.
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 2014 in terms of overall coverage of the Group and the number of full and
specific scope entities except for adjusted EBITDA as some of the full scope entities have decreased or negative adjusted EBITDA in 2015. We
have made some changes in the identity of components subject to full and specific scope audit procedures. Changes in our scope since the 2014
audit included removal of Highveld Steel & Vanadium from the audit scope due to loss of control by the Group over the entity in April 2015.
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 many operations reside in Russia, the Group audit team includes members from both the UK and
Russia. The senior statutory auditor visited Russia five 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. Ken Williamson 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.
www.evraz.comAnnual Report & Accounts 2015
159
Scope of the audit of the Financial Statements (continued)
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 five full scope components, audit procedures were performed on all of these by the component audit team. 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. These visits involved
discussing the audit approach with the component team and any issues arising from their work. The Group audit team participated in key
discussions, via conference calls with all full and specific scope locations. 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.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on pages 148-149, 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.
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:
Č the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
Č 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;
Č 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.
Financial Statements 160
Matters on which we are required to report by exception
ISAs (UK and
We are required to report to you if, in our opinion, financial and non-financial information in the annual report is:
Ireland) reporting
Č materially inconsistent with the information in the audited Group financial statements; or
We have no
exceptions to
Č apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the
report.
course of performing our audit; or
Č otherwise misleading.
In particular, we are required to report whether we have identified any inconsistencies between our knowledge acquired in the
course of performing the audit and the directors’ statement (included on page 148 of the Annual Report) that they consider the
annual report and accounts taken as a whole is fair, balanced and understandable and provides the information necessary for
shareholders to assess the entity’s performance, business model and strategy; and whether the annual report appropriately
addresses those matters that we communicated to the audit committee that we consider should have been disclosed.
Companies Act
We are required to report to you if, in our opinion:
We have no
2006 reporting
Č adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
exceptions to
received from branches not visited by us; or
report.
Č 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
Č certain disclosures of directors’ remuneration specified by law are not made; or
Č we have not received all the information and explanations we require for our audit.
Listing
Rules review
requirements
We are required to review:
Č the directors’ statement in relation to going concern, set out on page 143, and longer-term viability, set out on
pages 28 to 29; and
We have no
exceptions to
report.
Č the part of the Corporate Governance Statement relating to the company’s compliance with the provisions of the UK
Corporate Governance Code specified for our review
Statement on the Directors’ Assessment of the Principal Risks that Would Threaten the Solvency or Liquidity of the Entity
ISAs (UK and
We are required to give a statement as to whether we have anything material to add or to draw attention to in relation to:
We have nothing
Ireland) reporting
Č the directors’ confirmation in the annual report that they have carried out a robust assessment of the principal risks facing
material to add or
the entity, including those that would threaten its business model, future performance, solvency or liquidity;
to draw attention
Č the disclosures in the annual report that describe those risks and explain how they are being managed or mitigated;
to.
Č the directors’ statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability
to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and
Č the directors’ explanation in the annual report as to how they have assessed the prospects of the entity, over what period they
have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable
expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their
assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
KEN WILLIAMSON
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
14 March 2016
Notes:
1. The maintenance and integrity of the EVRAZ plc web site is the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since
they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
www.evraz.com
Consolidated Statement of Operations
(in millions of US dollars, except for per share information)
161
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
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
Loss of control over a subsidiary
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:
Year ended 31 December
Notes
2015
2014
2013
3
3
7
7
7
6
7
7
7
11
4
7
12
4
8
$ 8,552
215
8,767
(6,595)
2,172
(795)
(474)
(28)
(41)
(441)
(367)
28
(78)
(24)
9
(475)
(20)
–
(48)
21
(167)
(3)
(707)
(12)
$ (719)
$ (644)
(75)
$ (719)
$ 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)
$ (1,278)
$ (1,175)
(103)
$ (1,278)
$ 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, basic and diluted, US dollars
20
$ (0.45)
$ (0.78)
$ (0.34)
The accompanying notes form an integral part of these consolidated financial statements.
Financial Statements 162
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
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
Notes
4, 12
13
11
23
8
9
8
Total other comprehensive loss
Total comprehensive loss, net of tax
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Year ended 31 December
2015
$(719)
2014
$(1,278)
2013
$(551)
(820)
142
–
(678)
(27)
(27)
1
(5)
(4)
(1)
–
(1)
(710)
$(1,429)
$(1,340)
(89)
$(1,429)
(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)
The accompanying notes form an integral part of these consolidated financial statements.
www.evraz.comAnnual Report & Accounts 2015 Consolidated Statement of Financial Position
(in millions of US dollars)
The financial statements of EVRAZ plc (registered number 7784342) on pages 161-239 were approved by the Board of Directors on 14 March 2016
and signed on its behalf by Alexander Frolov, Chief Executive Officer.
Notes
2015
2014
2013
31 December
163
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
$4,302
324
1,176
74
119
79
56
6,130
899
447
50
5
6
44
127
35
1,375
2,988
1
2,989
$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
$9,119
$11,630
$17,685
$1,507
(305)
2,501
124
–
–
644
(4,335)
136
133
269
5,850
352
301
146
116
6,765
1,070
228
497
143
17
107
23
–
2,085
–
2,085
$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
Total equity and liabilities
$9,119
$11,630
$17,685
The accompanying notes form an integral part of these consolidated financial statements.
Financial Statements 164
Consolidated Statement of Cash Flows
(in millions of US dollars)
Cash flows from operating activities
Net 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
Loss of control over a subsidiary
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
Net cash flows from operating activities
Cash flows from investing activities
Issuance of loans receivable to related parties
Issuance of loans receivable
Proceeds from repayment of loans receivable, including interest
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
Continued on the next page
Year ended 31 December
2015
2014
2013
$(719)
$(1,278)
$(551)
(87)
585
41
441
367
(9)
475
20
–
48
(21)
167
3
18
(56)
20
–
1,293
204
55
9
66
(34)
(3)
3
100
(72)
1
1,622
(2)
(2)
7
–
–
(3)
4
(423)
10
44
–
6
(359)
(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)
1,957
(4)
–
3
(102)
(29)
1
8
(612)
14
311
2
19
(389)
(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)
1,900
(2)
(2)
3
31
(61)
(2)
677
(902)
7
1
1
(15)
(264)
www.evraz.comAnnual Report & Accounts 2015 Consolidated Statement of Cash Flows (continued)
(in millions of US dollars)
165
Cash flows from financing activities
Purchase of treasury shares (Note 20)
Proceeds from issue of shares by a subsidiary to non-controlling shareholders
Proceeds from loans provided by related parties
Repayment of loans provided by related parties
Dividends paid by the parent entity to its shareholders (Note 20)
Dividends paid by the Group’s subsidiaries to non-controlling shareholders
Sale of non-controlling interests (Note 4)
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
Gain/(loss) on derivatives not designated as hedging instruments (Note 25)
Gain/(loss) on hedging instruments (Note 25)
Collateral under swap contracts (Note 18)
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/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Add back: decrease/(increase) in cash of disposal groups classified as assets held for sale (Note 12)
Year ended 31 December
2015
2014
2013
$(339)
6
–
–
–
–
1
3,801
(3,961)
(9)
(5)
(464)
5
7
(1)
(3)
(962)
(12)
289
1,086
–
$(13)
–
267
(251)
(90)
(3)
–
2,579
(3,223)
(942)
(42)
(94)
–
14
(1)
(12)
(1,811)
(282)
(525)
1,604
7
$(6)
–
–
–
–
(1)
–
1,976
(3,978)
621
–
51
–
(21)
(8)
(1)
(1,367)
(48)
221
1,382
1
Cash and cash equivalents at the end of the year
$1,375
$1,086
$1,604
Supplementary cash flow information:
Cash flows during the year:
Interest paid
Interest received
Income taxes paid by the Group
The accompanying notes form an integral part of these consolidated financial statements.
$(443)
4
(204)
$(517)
10
(263)
$(586)
23
(249)
Financial Statements 166
Consolidated Statement of Changes in Equity
(in millions of US dollars)
Attributable to equity holders of the parent entity
Issued
Treasury
Additional
Revaluation
Other
Unrealised
Accumulated
Translation
Total
capital
shares
paid-in
capital
surplus
reserves
gains and
profits
difference
losses
Non-
Total
controlling
equity
interests
At 31 December 2014
$1,507
$–
$2,481
$155
$–
$–
$1,299
$(3,644)
$1,798
$218
$2,016
Net loss
Other comprehensive
income/(loss)
Reclassification of
revaluation surplus 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
Derecognition of non-
controlling interests in
connection with the loss of
control over a subsidiary
(Note 4)
Non-controlling interests
arising on sale of ownership
interests in subsidiaries
(Note 4)
Contribution of a non-
controlling shareholder to
share capital of the Group’s
subsidiary
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)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(336)
31
–
–
–
–
(1)
–
(28)
–
–
–
–
–
–
–
20
(2)
(31)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(644)
–
(644)
(75)
(719)
(4)
(691)
(696)
(14)
(710)
28
–
–
–
–
2
–
–
–
–
(618)
(691)
(1,340)
(89)
(1,429)
–
(3)
–
(3)
(31)
–
–
–
–
–
–
–
–
(4)
(4)
(3)
–
(339)
–
20
2
6
–
–
–
(1)
6
(339)
–
20
At 31 December 2015
$1,507
$(305)
$2,501
$124
$–
$–
$644
$(4,335)
$136
$133
$269
The accompanying notes form an integral part of these consolidated financial statements.
www.evraz.comAnnual Report & Accounts 2015 Consolidated Statement of Changes in Equity
(continued) (in millions of US dollars)
167
Issued
Treasury
Additional
Revaluation
Other
Unrealised
Accumulated
Translation
Total
Attributable to equity holders of the parent entity
surplus
reserves
gains and
profits
difference
Non-
Total
controlling
equity
interests
capital
shares
paid-in
capital
At 31 December 2013
$1,473
$(1)
$2,326
$162
$156
–
–
–
–
(156)
–
–
–
–
–
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 (Note 4)
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)
–
–
–
–
34
–
–
–
–
–
–
At 31 December 2014
$1,507
–
–
–
–
–
–
(13)
14
–
–
–
$–
–
–
–
–
122
3
–
–
30
–
–
–
–
(7)
(7)
–
–
–
–
–
–
–
$2,481
$155
The accompanying notes form an integral part of these consolidated financial statements.
losses
$12
$2,589
$(1,685)
$5,032
$431
$5,463
–
(1,175)
–
(1,175)
(103)
(1,278)
(12)
(18)
(1,959)
(1,989)
(104)
(2,093)
–
7
–
–
–
–
(12)
(1,186)
(1,959)
(3,164)
(207)
(3,371)
–
–
–
–
–
–
–
–
–
(14)
–
(90)
–
–
–
–
–
–
–
–
3
–
(3)
–
–
(13)
–
(13)
–
30
(90)
–
–
–
–
30
(90)
–
(3)
(3)
$1,299
$(3,644)
$1,798
$218
$2,016
–
$–
–
$–
Financial Statements 168
Consolidated Statement of Changes in Equity
(continued) (in millions of US dollars)
Attributable to equity holders of the parent entity
Issued
Treasury
Additional
Revaluation
Other
Unrealised
Accumulated
Translation
Total
capital
shares
paid-in
capital
surplus
reserves
gains and
profits
difference
losses
Non-
Total
controlling
equity
interests
At 31 December 2012
$1,340
$(1)
$1,820
$173
$–
$5
$3,009
$(1,424)
$4,922
$200
$5,122
–
–
–
–
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)
133
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)
–
–
–
–
–
–
–
–
–
–
–
–
–
(6)
6
–
–
–
–
2
–
2
478
1
–
–
–
–
25
–
–
(7)
–
–
–
–
(4)
(11)
–
–
–
–
–
–
–
–
–
–
156
–
–
–
–
–
–
–
–
7
–
–
7
–
–
–
–
–
–
–
–
(504)
–
(504)
(47)
(551)
88
(261)
(173)
(34)
(207)
(2)
–
–
–
–
4
–
–
–
–
(414)
(261)
(677)
(81)
(758)
–
–
–
–
–
(6)
–
–
–
–
–
–
–
–
–
–
767
–
767
1
–
–
(6)
–
25
(3)
(2)
314
314
2
–
–
–
2
(6)
–
25
–
(1)
(1)
At 31 December 2013
$1,473
$(1)
$2,326
$162
$156
$12
$2,589
$(1,685)
$5,032
$431
$5,463
The accompanying notes form an integral part of these consolidated financial statements.
www.evraz.comAnnual Report & Accounts 2015 169
Notes to the Consolidated Financial Statements
Year ended 31 December 2015
1. Corporate Information
These consolidated financial statements were authorised for issue by the Board of Directors of EVRAZ plc on 14 March 2016.
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
Yuzhkuzbassugol
EVRAZ Kachkanarsky Mining-and-Processing Integrated
Works
Evrazruda
EVRAZ Sukha Balka
Effective ownership interest, %
2015
100.00
100.00
–
–
96.94
100.00
100.00
81.95
100.00
100.00
100.00
99.42
2014
100.00
100.00
–
85.11
96.90
100.00
100.00
81.95
100.00
100.00
2013
100.00
100.00
100.00
85.11
96.78
100.00
100.00
81.95
100.00
100.00
100.00
100.00
99.42
99.42
Business activity
Steel production
Steel production
Location
Russia
Russia
Steel production
Czech Republic
Steel production
South Africa
Steel production
Steel production
Steel production
Coal mining
Coal mining
Ore mining and
processing
Ore mining
Ore mining
Ukraine
USA
Canada
Russia
Russia
Russia
Russia
Ukraine
The full list of the Group’s subsidiaries and other significant holdings as of 31 December 2015 is presented in Note 34.
Financial Statements 170
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 2015, 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, continues to reduce the level of debt
and proactively manages its debt covenants compliance.
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. For further considerations see the Directors Report on page 143.
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 2015.
New/Revised Standards and Interpretations Adopted in 2015:
Č Annual Improvements to IFRSs 2011-2013 Cycle
These improvements were effective for annual periods beginning on or after 1 July 2014 and the Group has applied these amendments for the first
time in these consolidated financial statements. The amendments relate to IFRS 3 “Business Combinations”, IFRS 13 “Fair Value Measurement” and
IAS 40 “Investment Property” and did not have an 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.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 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 2015
Effective for annual periods beginning on or after
171
Č Amendments to IAS 19 – Defined Benefit Plans: Employee Contributions
Č Annual Improvements to IFRSs 2010-2012 Cycle
Č Amendments to IAS 1 – Disclosure Initiative
Č Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint Operations
Č Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation
Č Amendments to IAS 16 and IAS 41 – Bearer Plants
Č Amendments to IAS 27 – Equity Method in Separate Financial Statements
Č Annual Improvements to IFRSs 2012-2014 Cycle
Č IFRS 14 “Regulatory Deferral Accounts”
Č Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment Entities: Applying the Consolidation Exemption
Č Amendments to IAS 7 – Disclosure Initiative
Č Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses
Č IFRS 9 “Financial Instruments”
Č IFRS 15 “Revenue from Contracts with Customers”
Č IFRS 16 “Leases”
*Subject to EU endorsement
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 2017*
1 January 2017*
1 January 2018*
1 January 2018*
1 January 2019*
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:
Č 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”.
Č In 2015, the Group lost control over Highveld Steel and Vanadium Limited and it is not expected that it will re-obtain control in the future. As a result, the
Group ceased to consolidate this entity starting 14 April 2015 (Note 4).
Č The Group determined based on the criteria in IFRIC 4 “Determining whether an Arrangement Contains a Lease” that the supply contract with PraxAir does
not contain a lease. This contract, concluded in 2010, with subsequent ammendments in 2015, included the construction of an air separation plant by
PraxAir to be owned and operated by PraxAir and the supply of oxygen and other industrial gases produced by PraxAir to EVRAZ Nizhny Tagil Metallurgical
Plant for a period of 25 years on a take or pay basis. In 2015, the air separation plant was put into operation and the Group started to purchase gases
from PraxAir. Management believes that this arrangement does not convey a right to the Group to use the asset as the Group does not have an ability
to operate the asset or to direct other parties to operate the asset; it does not control physical access to the asset; and it is expected that more than an
insignificant amount of the asset’s output will be sold to the parties unrelated to the Group. The commitment under this contract is disclosed in Note 30.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 172
2. Significant Accounting Policies (continued)
Significant Accounting Judgements and Estimates (continued)
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 2015, 2014 and 2013, the Group recognised a net impairment loss of $190 million, $192 million and $307 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.
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 2015, 2014 and 2013 was $1,176 million, $1,541 million and $1,988 million, respectively.
In 2015, 2014 and 2013, the Group recognised an impairment loss in respect of goodwill in the amount of $251 million, $330 million and
$168 million, 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.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 173
2. Significant Accounting Policies (continued)
Significant Accounting Judgements and Estimates (continued)
Estimation Uncertainty (continued)
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 2015, 2014 and 2013, allowances for doubtful accounts in respect of trade and other
receivables have been made in the amount of $48 million, $57 million and $60 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.
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.
Financial StatementsNotes to the Consolidated Financial Statements (continued)
174
2. Significant Accounting Policies (continued)
Foreign Currency Transactions (continued)
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
2015
31 December
72.8827
79.6972
1.0887
1.3840
15.5742
17.0078
24.0007
3.0367
average
60.9579
67.7767
1.1095
1.2788
12.7550
14.1552
21.8290
2.8299
2014
31 December
56.2584
68.3427
1.2141
1.1601
11.5719
14.0668
15.7686
0.2803
average
38.4217
50.8150
1.3285
1.1048
10.8488
14.4054
11.9064
0.3050
2013
31 December
32.7292
44.9699
1.3791
1.0636
10.4675
14.4210
7.9930
0.2450
average
31.8480
42.3129
1.3281
1.0301
9.6508
12.8249
7.9930
0.2512
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 and over which the Group has
control, 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.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 175
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.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 176
2. Significant Accounting Policies (continued)
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.
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
20
10
7
5
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.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 177
2. Significant Accounting Policies (continued)
Leases (continued)
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 associte 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.
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
10
8
7
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 StatementsNotes to the Consolidated Financial Statements (continued) 178
2. Significant Accounting Policies (continued)
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.
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.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 179
2. Significant Accounting Policies (continued)
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.
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.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 180
2. Significant Accounting Policies (continued)
Employee Benefits
Social and Pension Contributions
Defined contributions are made by the Group to the Russian and Ukrainian 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. 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.
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.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 181
2. Significant Accounting Policies (continued)
Share-based Payments (continued)
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.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 182
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 the Group has four reportable operating segments:
Č 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.
Č Steel, North America is a segment, which includes production of steel and related products in the USA and Canada.
Č 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.
Č 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 (see below). 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 and repair expenses which are adjusted to
approximate the amount under IFRS.
In 2015, management changed the definition of segment expense and EBITDA to make these indicators more comparable with Russian steel
peers. Segment expense and EBITDA have now been adjusted to not include social and social infrastructure maintenance expenses. As a result,
the Group restated EBITDA for both financial reporting and management accounts purposes for the years ended 31 December 2014 and 2013.
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 expense does not include social and social infrastructure maintenance expenses.
Segment result is segment revenue less segment expense that is equal to earnings before interest, tax, depreciation and amortisation
(“EBITDA”) for that segment.
Segment EBITDA is determined as a segment’s profit/(loss) from operations adjusted for social and social infrastructure maintenance
expenses, 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.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 183
3. Segment Information (continued)
The following tables present measures of segment profit or loss based on management accounts.
Year ended 31 December 2015
US$ million
Revenue
Sales to external customerst
Inter-segment sales
Total revenue
Segment result – EBITDA
Year ended 31 December 2014
Steel
Steel, North America
Coal
Other operations
Eliminations
Total
$6,018
242
6,260
$1,033
$2,253
10
2,263
$51
$380
572
952
$348
$89
304
393
$16
$–
(1,128)
(1,128)
$110
$8,740
–
8,740
$1,558
US$ million
Steel
Steel, North America
Coal
Other operations
Eliminations
Total
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA (restated)
Year ended 31 December 2013
$9,135
570
9,705
$1,777
$3,159
–
3,159
$283
$540
676
1,216
$314
$128
446
574
$31
$–
(1,692)
(1,692)
$2
$12,962
–
12,962
$2,407
US$ million
Steel
Steel, North America
Coal
Other operations
Eliminations
Total
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA (restated)
$10,849
370
11,219
$1,386
$3,056
–
3,056
$140
$728
706
1,434
$147
$142
468
610
$34
$–
(1,544)
(1,544)
$142
$14,775
–
14,775
$1,849
The following table shows a reconciliation of revenue and EBITDA used by management for decision making and revenue and profit or loss
before tax per the consolidated financial statements prepared under IFRS.
Year ended 31 December 2015
US$ million
Revenue
Reclassifications and other adjustments
Revenue per IFRS financial statements
EBITDA
Unrealised profits adjustment
Reclassifications and other adjustments
EBITDA based on IFRS financial statements
Unallocated subsidiaries
Social and social infrastructure maintenance expenses
Depreciation, depletion and amortisation expense
Impairment of assets
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
Loss of control over a subsidiary
Other non-operating (gains)/losses, net
Profit/(loss) before tax
Steel
Steel, North
Coal
Other
Eliminations
Total
$6,260
(273)
$5,987
$1,033
62
(14)
48
$1,081
(24)
(260)
(81)
(8)
(270)
$438
America
$2,263
7
$2,270
$51
2
2
4
$55
–
(153)
(258)
(10)
(89)
$(455)
$952
116
$1,068
operations
$393
40
$433
$(1,128)
137
$(991)
$348
–
3
3
$351
(1)
(165)
(102)
(23)
(153)
$(93)
$16
–
(2)
(2)
$14
–
(3)
–
–
4
$15
$110
(43)
–
(43)
$67
–
–
–
–
–
$67
$8,740
27
$8,767
$1,558
21
(11)
10
$1,568
(130)
$1,438
(25)
(581)
(441)
(41)
(508)
$(158)
134
$(24)
$(466)
(20)
(48)
21
(167)
(3)
$(707)
Financial StatementsNotes to the Consolidated Financial Statements (continued) 184
3. Segment Information (continued)
Year ended 31 December 2014
US$ million
Revenue
Reclassifications and other adjustments
Revenue per IFRS financial statements
EBITDA (restated)
Exclusion of management services from segment result
Unrealised profits adjustment
Reclassifications and other adjustments
EBITDA based on IFRS financial statements (restated)
Unallocated subsidiaries
Social and social infrastructure maintenance expenses
Depreciation, depletion and amortisation expense
Impairment of assets
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
Year ended 31 December 2013
US$ million
Revenue
Reclassifications and other adjustments
Revenue per IFRS financial statements
EBITDA (restated)
Exclusion of management services from segment result
Unrealised profits adjustment
Reclassifications and other adjustments
EBITDA based on IFRS financial statements (restated)
Unallocated subsidiaries
Social and social infrastructure maintenance expenses
Depreciation, depletion and amortisation expense
Impairment of assets
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
Steel
Steel, North
Coal
Other
Eliminations
Total
$9,705
(186)
$9,519
$1,777
128
9
19
156
$1,933
(21)
(389)
(196)
(20)
84
$1,391
America
$3,159
1
$3,160
$283
–
(1)
(2)
(3)
$280
(1)
(165)
(261)
(1)
(21)
$(169)
$1,216
102
$1,318
$314
10
1
51
62
$376
(3)
(267)
(81)
(27)
(333)
$(335)
operations
$574
74
$648
$(1,692)
108
$(1,584)
$12,962
99
$13,061
$31
1
–
5
6
$37
–
(4)
(2)
–
4
$35
$2
–
(53)
–
(53)
$(51)
–
–
–
–
–
$(51)
$2,407
139
(44)
73
168
$2,575
(220)
$2,355
(25)
(825)
(540)
(48)
(266)
$651
(752)
$(101)
$(546)
10
(583)
136
$(1,084)
Steel
Steel, North
Coal
Other
Eliminations
Total
$11,219
(427)
$10,792
$1,386
186
(30)
148
304
$1,690
(34)
(551)
(92)
(25)
(29)
$959
America
$3,056
(20)
$3,036
$140
–
2
17
19
$159
(1)
(200)
(350)
(2)
(4)
$(398)
$1,434
52
$1,486
$147
10
(1)
76
85
$232
(6)
(348)
(110)
(20)
(35)
$(287)
operations
$610
120
$730
$(1,544)
(89)
$(1,633)
$14,775
(364)
$14,411
$34
1
–
2
3
$37
–
(9)
(11)
–
–
$17
$142
–
(172)
–
(172)
$(30)
–
–
–
–
–
$(30)
$1,849
197
(201)
243
239
$2,088
(217)
$1,871
(41)
(1,108)
(563)
(47)
(68)
$44
(205)
$(161)
$(676)
8
89
(43)
131
15
$(637)
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 3. Segment Information (continued)
The revenues from external customers for each group of similar products and services are presented in the following table:
185
US$ 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
2015
2014
2013
$1,999
179
550
1,867
257
366
167
19
285
30
5,719
216
438
435
1,016
–
153
12
2,270
601
4
44
649
$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
$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
129
129
$8,767
181
181
$13,061
194
194
$14,411
Financial StatementsNotes to the Consolidated Financial Statements (continued) 186
3. Segment Information (continued)
Distribution of the Group’s revenues by geographical area based on the location of customers for the years ended 31 December was as follows:
US$ million
CIS
Russia
Kazakhstan
Ukraine
Others
America
USA
Canada
Others
Asia
Taiwan
Indonesia
China
Korea
Thailand
Japan
Philippines
Jordan
United Arab Emirates
Vietnam
Mongolia
Others
Europe
Turkey
Italy
Austria
Germany
Slovakia
Czech Republic
Poland
Other members of the European Union
Others
Africa
South Africa
Others
Other countries
2015
2014
2013
$3,104
237
242
185
3,768
1,566
779
221
2,566
323
197
131
123
121
97
85
81
40
28
11
117
1,354
392
114
50
45
38
28
27
97
24
815
100
158
258
$5,279
384
333
209
6,205
1,727
1,589
213
3,529
485
429
103
254
285
120
51
88
43
8
26
62
1,954
242
114
139
74
60
58
37
143
49
916
363
84
447
$6,136
456
494
225
7,311
1,940
1,233
69
3,242
549
272
280
135
332
62
99
57
64
13
43
156
2,062
314
157
173
163
123
151
100
183
21
1,385
361
43
404
6
$8,767
10
$13,06 1
7
$14,411
None of the Group’s customers amounts to 10% or more of the consolidated revenues.
Non-current assets other than financial instruments, deferred tax assets and post-employment benefit assets were located in the following
countries at 31 December:
US$ million
Russia
Canada
USA
Ukraine
Republic of South Africa
Italy
Kazakhstan
Czech Republic
Other countries
2015
$3,105
1,162
1,347
195
15
5
60
32
11
$5,932
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
$12,319
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 187
4. Changes in Composition of the Group
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.
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
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
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.
16 January 2013
$2,607
9
94
134
144
2,988
283
649
123
1,055
311
$1,622
$1,622
$144
(101)
$43
Financial StatementsNotes to the Consolidated Financial Statements (continued)
188
4. Changes in Composition of the Group (continued)
Acquisitions of Controlling Interests (continued)
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 the acquisition of Corber 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.
Disposal of Non-controlling Interests in Subsidiaries
In 2015, the Group sold 10% in Vametco to a third party and received $1 million of consideration. The disposed non-controlling interest
amounted to $2 million. The Group also recognised a liability of $3 million for guaranteed dividends, which are to be declared and paid before
March 2020, with a corresponding debit to accumulated profits.
Deconsolidation of Subsidiaries
Highveld Steel and Vanadium Limited
On 13 April 2015, as a result of severe economic difficulties due to the current and persistent unfavourable economic environment in South
Africa, the Board of Highveld Steel and Vanadium Limited (“Highveld”) decided to place the entity under the business rescue procedures to
avoid its liquidation and to avoid giving Highveld’s creditors the opportunity to apply for its liquidation in court.
The rescue procedures will result either in (1) Highveld being re-financed or financially restructured or, if that is not possible, (2) Highveld’s
orderly winding down under the supervision of a business rescue practitioner to maximise the return to creditors and other affected parties.
Following the placement of Highveld under the business rescue procedures, control and management of Highveld was transferred to a
“business rescue practitioner”. Until Highveld is successfully re-financed/restructured, Highveld’s Board and the Group are no longer able to
control Highveld or exercise significant influence over it. The business rescue practitioner can consult with the Highveld’s Board or its directors,
but he would not be bound by any requests or advice from Highveld’s Board or the directors.
The Group’s management believe that due to the current market conditions the option to invest additional cash in Highveld to pay to the
creditors and to stop business rescue procedures would create no economic value for the Group. Therefore, in the opinion of management,
the potential voting rights that the Group has in Highveld have no economic substance.
Based on the management’s current assessment, the business rescue procedures most likely will result in Highveld being sold to one or more
third parties at a significant discount or being mandatorily liquidated. As a consequence, management believes that on 14 April 2015 (the
date of the placement of Highveld under the business rescue procedures) the Group lost control over Highveld and it is not expected that it will
re-obtain control in the future.
As a result, the Group ceased to consolidate Highveld starting 14 April 2015 and recognised a loss on disposal of a subsidiary in the amount
of $167 million, including $142 million of translation loss recycled to the statement of operations. In addition, non-controlling interests of $4
million were derecognised. Management analysed the classification of Highveld to determine whether its disposal constitutes a discontinued
operation under IFRS 5 and concluded that this is not the case.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 4. Changes in Composition of the Group (continued)
Deconsolidation of Subsidiaries (continued)
Highveld Steel and Vanadium Limited (continued)
The table below demonstrates the carrying values of assets and liabilities of Highveld, which were included in the steel segment of the Group’s
operations, at the date of derecognition.
189
US$ million
Property, plant and equipment
Other non-current assets
Inventories
Accounts receivable
Cash and cash equivalents
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Non-controlling interests
Net assets
13 April 2015
$77
23
74
59
1
234
61
144
205
4
$25
Financial StatementsNotes to the Consolidated Financial Statements (continued) 190
5. Goodwill
The table below presents movements in the carrying amount of goodwill.
US$ million
Gross
Impairment
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
Impairment
OSM Tubular – Camrose Mills
Oregon Steel Portland Mill
Red Deer
Adjustment to contingent consideration
Translation difference
At 31 December 2015
amount
$3,042
18
–
–
–
–
(4)
(14)
(61)
$2,981
–
–
–
–
(7)
(3)
(343)
$2,628
–
–
–
–
(3)
(216)
$2,409
losses
$(839)
–
(168)
(135)
(19)
(14)
–
14
–
$(993)
(330)
(171)
(90)
(69)
–
–
236
$(1,087)
(251)
(157)
(53)
(41)
–
105
$(1,233)
Carrying
amount
$2,203
18
(168)
(135)
(19)
(14)
(4)
–
(61)
$1,988
(330)
(171)
(90)
(69)
(7)
(3)
(107)
$1,541
(251)
(157)
(53)
(41)
(3)
(111)
$1,176
Goodwill relates to the assembled workforce and synergy from integration of the acquired subsidiaries into the Group. The carrying amount of
goodwill was allocated among cash-generating units as follows at 31 December:
US$ million
EVRAZ Inc. NA
Oregon Steel Portland Mill
Rocky Mountain Steel Mills
OSM Tubular – Camrose Mills
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.
Others
2015
$615
188
410
–
16
1
494
92
–
288
98
16
–
28
6
30
3
$1,176
2014
$825
241
410
157
16
1
634
109
48
340
118
19
–
36
9
33
4
$1,541
2013
$996
412
410
157
16
1
791
217
52
373
128
21
79
62
16
37
7
$1,988
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 191
6. Impairment of Assets
The summary of impairment losses recognition and reversals is presented below.
Year ended 31 December 2015
US$ million
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya
EVRAZ Palini e Bertoli
Yuzhny Stan
Evrazruda
Others, net
Recognised in profit or loss
Recognised in other comprehensive income/(loss)
Year ended 31 December 2014
Goodwill and
Property, plant and
Inventory
Taxes receivable
intangible assets
equipment
$(210)
(41)
–
–
–
–
–
$(251)
(251)
–
$–
(7)
(91)
(37)
(30)
(19)
(6)
$(190)
(189)
(1)
$–
–
–
–
–
–
–
$–
–
–
$–
–
–
–
–
–
(1)
$(1)
(1)
–
Total
$(210)
(48)
(91)
(37)
(30)
(19)
(7)
$(442)
(441)
(1)
US$ million
Goodwill and
Property, plant and
Inventory
Taxes receivable
Total
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
intangible assets
equipment
$(17)
(171)
(90)
(69)
–
–
–
$(347)
(347)
$(41)
–
–
(43)
(9)
(71)
(28)
$(192)
(192)
$–
–
–
–
–
–
–
$–
–
$–
–
–
–
(1)
–
–
$(1)
(1)
US$ million
Goodwill and
Property, plant and
Inventory
Taxes receivable
intangible assets
equipment
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/(loss)
$–
(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)
–
$(58)
(171)
(90)
(112)
(10)
(71)
(28)
$(540)
(540)
Total
$32
(326)
(117)
28
(25)
(8)
(20)
(14)
(11)
(105)
(6)
$(572)
(563)
(9)
The Group recognised the impairment losses as a result of the impairment testing at the level of cash-generating units. In addition, the Group
made a write-off of certain functionally obsolete items of property, plant and equipment and recorded an impairment relating to VAT with a
long-term recovery.
For the purpose of the impairment testing as of 31 December 2015 the Group assessed the recoverable amount of each cash-generating unit
to which the goodwill was allocated or where indicators of impairment were identified.
The recoverable amounts have been determined based on calculation of either value-in-use or fair value less costs to sell. Both valuation
techniques used cash flow projections based on the actual operating results and business plans approved by management and appropriate
discount rates reflecting time value of money and risks associated with respective cash-generating units. For the periods not covered by
management business plans, cash flow projections have been estimated by extrapolating the results of the respective business plans using a
zero real growth rate. In determination of fair value less costs to sell the asset’s value additionally includes the cashflows of future projects not
started yet and the associated capital expenditure costs.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 192
6. Impairment of Assets (continued)
The major drivers that led to impairment were the changes in expectations of long-term prices for iron ore and steel products, the increase in
forecasted costs and changes in forecasted production volumes.
The key assumptions used by management in the value-in-use calculations with respect to the cash-generating units to which the goodwill was
allocated are presented in the table below.
Period
Pre-tax discount
Commodity
Average price of
Recoverable
Carrying amount of CGU
of forecast,
years
rate, %
commodity per
amount of CGU,
before impairment, US$
tonne in 2016
US$ million
EVRAZ Inc. NA (all CGU)
including
Oregon Steel Portland Mill
Camrose mill
EVRAZ Inc. NA Canada (all CGU)
including
Red Deer
EVRAZ Vanady-Tula
EVRAZ Vametco Holdings
EVRAZ Nikom, a.s.
5
5
5
5
5
5
5
5
10.60-18.22
steel products
10.92
10.60
8.68-11.32
steel products
steel products
steel products
steel products
8.68
14.82
vanadium products
13.39 ferrovanadium products
12.09 ferrovanadium products
$762
$693
$1,122
$847
$949
$10,564
$14,949
$13,093
1,696
512
18
1,681
55
284
37
49
million
1,500
565
175
1,140
96
50
15
32
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 Bagleykoks
EVRAZ Stratcor Inc.
Yuzhkuzbassugol
Raspadskaya
Mezhegeyugol
EVRAZ Kachkanarsky Mining-and-Processing Integrated Works
EVRAZ Sukha Balka
Evrazruda - Gurevsky mine
Evrazruda - Sheregesh mine
EVRAZ Nakhodka Trade Seaport
Period of forecast,
Pre-tax discount
Commodity
Average price of commodity
years
rate, %
per tonne in 2016
5
5
5
5
5
5
14
19
26
24
18
28
18
5
23.13
steel products
14.37
steel products
14.82
steel products
13.30
steel products
coke
22.78
12.45 ferrovanadium products
coal
14.86
coal
13.84
coal
13.90
ore
14.77
ore
22.92
limestone
14.89
14.77
ore
port services
14.82
$300
$320
$285
$295
$152
$36,503
$58
$40
$39
$41
$20
$5
$38
$9
The value in use of the cash-generating units for which an impairment loss was recognised or reversed in the reporting year was as follows at
31 December.
US$ million
Oregon Steel Portland Mill
Camrose mill
Red Deer
Evrazruda - Gurevsky mine
2015
$512
18
55
2
2014
$579
427
211
10
As management expects to recover investments in EVRAZ Palini e Bertoli and EVRAZ Yuzhny Stan principally through sale, the recoverable
amounts of these cash-generating units were measured at $5 million and $14 million, respectively, as fair value less costs of disposal, which
was determined based on non-binding offers at 31 December 2015 (Level 3 in the fair value hierarchy).
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 193
6. Impairment of Assets (continued)
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 Gurievsky mine, EVRAZ Sukha Balka, EVRAZ Stratcor Inc., 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 $118 million.
Sales Prices
The price assumptions for the products sold by the Group were estimated based on industry research using analysts’ views published by
Citi, Credit Suisse, Deutsche Bank, HSBC, Moody’s, RBC, Société Générale, UBS during the period from October 2015 to February 2016. The
Group expects that the nominal prices will fluctuate with a compound annual growth rate of (6.4)%-8.3% in 2016 – 2020, 2.5%in 2021 and
thereafter. Reasonably possible changes in sales prices could lead to an additional impairment at Gurevsky mine, EVRAZ Sukha Balka, EVRAZ
Dnepropetrovsk Iron and Steel Works, EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units. If the prices assumed for 2016 and
2017 in the impairment test were 10% lower, this would lead to an additional impairment of $75 million.
Sales Volumes
Management assumed that the sales volumes of steel products in 2016 will be at the level of 2015 and future dynamics will be driven by a gradual
market recovery and changes in assets’ capacities. Reasonably possible changes in sales volumes could lead to an additional impairment at
Gurievsky mine, EVRAZ Stratcor Inc., EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units. If the sales volumes were 10% lower than
those assumed for 2016 and 2017 in the impairment test, this would lead to an additional impairment of $17 million.
In relation to the Calgary, Red Deer and Pueblo Seamless cash-generating units, management’s forecast assumed an 18% average annual
increase in volumes from 2016 to 2020. If the average growth rate were 13% instead of 18% for those years, then an additional impairment of
$191 million would arise.
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 Gurievsky mine, EVRAZ Dnepropetrovsk Iron and Steel Works, EVRAZ Sukha
Balka, EVRAZ Stratcor Inc., EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units. If the actual costs were 10% higher than those
assumed for 2016 and 2017 in the impairment test, this would lead to an additional impairment of $142 million.
Sensitivity Analysis
The unit’s recoverable amount would become equal to its carrying amount if the assumptions used to measure the recoverable amount
changed by the following percentages:
EVRAZ Stratcor Inc.
EVRAZ Sukha Balka
EVRAZ Dnepropetrovsk Iron and Steel Works
EVRAZ Inc. NA Canada
Calgary
General Scrap Partnership
Discount rates
Sales prices
Sales volumes
Cost control measures
7.6%
6.7%
–
4.4%
9.1%
–
(4.6)%
(6.2)%
–
–
(9.1)%
–
–
–
–
7.0%
1.3%
7.3%
7.7%
4.6%
Financial StatementsNotes to the Consolidated Financial Statements (continued) 194
7. Income and Expenses
Cost of revenues, selling and distribution costs, general and administrative expenses include the following for the years ended 31 December:
US$ million
Cost of inventories recognised as expense
Staff costs, including social security taxes
Depreciation, depletion and amortisation
2015
$(3,295)
(1,454)
(585)
2014
$(5,162)*
(2,210)
(833)
2013
$(5,673)
(2,617)
(1,114)
* The amount does not agree to the previously issued consolidated financial statements by US$2,686 million as it has been restated for the correction of an error relating to the
elimination of certain intra-group purchases.
In 2015, 2014 and 2013, the Group recognised (expense)/income on allowance or net reversal of the allowance for net realisable value in the
amount of $(1) million, $(4) million and $33 million, respectively.
Staff costs include the following:
US$ million
Wages and salaries
Social security costs
Net 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
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)
Gain/(loss) on hedging instruments (Note 25)
Other
2015
$1,025
254
45
20
110
$1,454
2015
63,126
3,847
18,042
1,312
2,901
89,228
2015
$(54)
(2)
(22)
$(78)
2015
$(88)
(342)
–
(24)
(13)
(3)
(5)
$(475)
2015
$4
3
2
$9
2015
$(11)
(15)
(25)
5
(2)
$(48)
2014
$1,611
398
31
30
140
$2,210
2014
69,404
3,936
20,460
1,465
3,270
98,535
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
$1,922
488
74
25
108
$2,617
2013
80,160
4,300
23,727
1,856
3,624
113,667
2013
$(73)
(18)
(25)
$(116)
2013
$(104)
(513)
(1)
(39)
(20)
(13)
(9)
$(699)
2013
$15
5
3
$ 23
2013
$–
–
(55)
–
12
$(43)
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 8. Income Taxes
The Group’s income was subject to tax at the following tax rates:
US$ million
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
195
2015
20.00%
25.89%
12.50%
19.00%
31.40%
28.00%
9.72%
18.00%
37.41%
2015
$(100)
1
87
$(12)
2014
20.00%
25.61%
12.50%
19.00%
31.40%
28.00%
9.65%
18.00%
37.78%
2014
$(356)
(1)
163
$(194)
2013
20.00%
25.54%
12.50%
19.00%
31.40%
28.00%
9.87%
19.00%
38.90%
2013
$(243)
(6)
335
$86
The major part of income taxes is paid in the Russian Federation. A reconciliation of income tax expense applicable to profit before income tax
using the Russian statutory tax rate to income tax expense as reported in the Group’s consolidated financial statements for the years ended
31 December is as follows:
US$ 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
Share of profits in joint ventures and associates
Income tax (expense)/benefit reported in the consolidated statement of operations
2015
$(707)
141
1
2
(64)
(176)
88
(4)
$(12)
2014
$(1,084)
217
(1)
(4)
(73)
(505)
170
2
$(194)
2013
$(637)
127
(6)
4
38
(184)
107
–
$86
In 2014, the increase in the amount of non-deductible expenses and unrecognised temporary differences was mostly caused by the
significant forex exchange losses and losses on derivatives (Note 25), which either cannot be utilised or cannot be deductible for tax purposes
in certain subsidiaries.
Deferred income tax assets and liabilities and their movements for the years ended 31 December were as follows:
Year ended 31 December 2015
US$ million
2015
Change
Change
Change due
Change due
Transfer to
Translation
2014
recognised in
recognised in
to business
to disposal of
disposal groups
difference
statement of
other comprehen
combinations
subsidiaries
classified as held
operations
sive income
for sale
Deferred income tax liabilities:
Valuation and depreciation of
property, plant and equipment
$563
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
Net deferred income tax liability
89
48
700
208
127
9
123
467
119
$352
(55)
(4)
3
(56)
19
(12)
2
22
31
53
(34)
–
–
–
–
–
(5)
–
–
(5)
(1)
4
–
–
–
–
–
–
–
–
–
–
–
(8)
(5)
–
(13)
(1)
(17)
(3)
6
(15)
(2)
–
–
–
–
–
–
–
–
–
–
–
–
(115)
$741
(14)
112
(14)
(143)
(57)
(16)
(3)
(6)
(82)
(28)
(89)
59
912
247
177
13
101
538
97
$471
Financial StatementsNotes to the Consolidated Financial Statements (continued) 196
8. Income Taxes (continued)
Year ended 31 December 2014
US$ million
2014
Change
Change
Change due
Change due
Transfer to
Translation
2013
recognised in
recognised in
to business
to disposal of
disposal groups
difference
statement of
other comprehen
combinations
subsidiaries
classified as held
operations
sive income
for sale
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
Net deferred income tax liability
$741
112
59
912
247
177
13
101
538
97
$471
Year ended 31 December 2013
(40)
(21)
13
(48)
101
29
4
(19)
115
46
(117)
–
–
–
–
–
15
–
–
15
3
(12)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5)
–
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(339)
$1,120
(12)
145
(22)
(373)
(128)
(35)
(7)
–
(170)
(38)
(241)
68
1,333
274
173
16
115
578
86
$841
US$ million
2013
Change
Change
Change due to
Change due
Transfer to
Translation
2012
recognised in
recognised in
business combi-
to disposal of
disposal groups
difference
statement of
other comprehen
nations
subsidiaries
classified as held
operations
sive income
for sale
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
Net deferred income tax liability
$1,120
145
68
1,333
274
173
16
115
578
86
$841
(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
–
(77)
$959
(13)
(7)
(97)
(16)
(9)
(3)
(1)
(29)
(6)
(74)
192
73
1,224
102
202
32
30
366
70
$928
As of 31 December 2015, 2014 and 2013, 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 15%. 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 and tax consolidation can be applied. As of 31 December 2015, the unused tax losses carry forward approximated $7,658 million (2014:
$8,060 million, 2013: $7,509 million). The Group recognised deferred tax assets of $208 million (2014: $247 million, 2013: $274 million) in
respect of unused tax losses. Deferred tax assets in the amount of $1,895 million (2014: $1,771 million, 2013: $1,549 million) have 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 $6,642
million (2014: $6,767 million, 2013: $6,084 million) for which deferred tax assets were not recognised arose in companies registered in Canada,
Cyprus, Italy, Luxembourg, Russia, Ukraine, the United Kingdom and the USA. Losses in the amount of $6,410 million (2014: $6,513 million,
2013: $5,602 million) are available indefinitely for offset against future taxable profits of the companies in which the losses arose and $232
million will expire during 2019–2025 (2014: $254 million, 2013: $482 million).
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 9. Property, Plant and Equipment
Property, plant and equipment consisted of the following as of 31 December:
US$ 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
197
2013
$157
2,860
6,861
395
4,312
77
992
15,654
(1,205)
(3,080)
(207)
(1,622)
(50)
(6,164)
$ 9,490
2015
$97
1,512
3,961
193
2,100
37
302
8,202
(690)
(2,163)
(114)
(908)
(25)
(3,900)
$4,302
2014
$124
1,908
5,094
249
2,572
60
428
10,435
(790)
(2,633)
(147)
(1,024)
(45)
(4,639)
$ 5,796
The movement in property, plant and equipment for the year ended 31 December 2015 was as follows:
US$ million
Land
Buildings and
Machinery and
Transport and
Mining assets
Other assets
Assets under
Total
constructions
equipment
motor vehicles
construction
At 31 December 2014, 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
Impairment losses recognised in other
comprehensive income
Loss of control over a subsidiary
Transfer to assets held for sale
Change in site restoration and
decommissioning provision
Translation difference
At 31 December 2015, cost, net of
accumulated depreciation
$124
$1,118
$2,461
$102
$1,548
$15
$428
$5,796
–
–
(2)
–
(4)
–
–
(1)
(7)
–
(13)
$97
–
40
(7)
(77)
(16)
2
(1)
(2)
(13)
6
4
234
(29)
(343)
(44)
2
–
(65)
(4)
–
(228)
$822
(418)
$1,798
–
28
(4)
(24)
–
–
–
(1)
–
–
(22)
$79
1
176
(7)
(88)
(109)
3
–
(2)
–
45
(375)
$1,192
1
3
–
(5)
–
–
–
(1)
–
–
(1)
480
(481)
(22)
–
(36)
13
–
(5)
–
–
486
–
(71)
(537)
(209)
20
(1)
(77)
(24)
51
(75)
(1,132)
$12
$302
$4,302
Financial StatementsNotes to the Consolidated Financial Statements (continued) 198
9. Property, Plant and Equipment (continued)
The movement in property, plant and equipment for the year ended 31 December 2014 was as follows:
US$ million
2013
Change
Change
Change due
Change due
Transfer to
Translation
2012
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
recognised in
recognised in
to business
to disposal of
disposal groups
difference
statement of
other comprehen
combinations
subsidiaries
classified as held
operations
sive income
for sale
$157
$1,655
$3,781
$188
$2,690
$27
$992
$9,490
–
–
(2)
–
(4)
–
–
–
1
198
(7)
(112)
(20)
5
(4)
6
8
450
(41)
(470)
(85)
10
(3)
(4)
(27)
$124
(604)
$1,118
(1,185)
$2,461
1
22
(3)
(38)
–
–
–
–
(68)
$102
–
172
(10)
(150)
(79)
–
–
61
(1,136)
$1,548
–
5
–
(5)
–
–
–
–
(12)
$15
609
(847)
(5)
–
619
–
(68)
(775)
(21)
(209)
2
–
4
17
(7)
67
(306)
(3,338)
$428
$5,796
The movement in property, plant and equipment for the year ended 31 December 2013 was as follows:
US$ million
2013
Change
Change
Change due
Change due
Transfer to
Translation
2012
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
recognised in
recognised in
to business
to disposal of
disposal groups
difference
statement of
other comprehen
combinations
subsidiaries
classified as held
operations
sive income
for sale
$183
$1,615
$3,415
$181
$1,462
$21
$1,187
$8,064
–
3
–
–
–
(27)
1
–
(11)
15
(7)
$157
203
1
147
(12)
(155)
(49)
21
(4)
(6)
4
539
4
861
(35)
(583)
(184)
31
(1)
(23)
7
(110)
$1,655
(250)
$3,781
61
3
34
(3)
(47)
(14)
–
–
(15)
–
(12)
$188
1,527
4
191
(2)
(196)
(86)
56
(2)
(57)
(6)
(201)
$2,690
8
–
8
–
(6)
(1)
–
–
–
–
275
2,613
907
(1,241)
(2)
–
(49)
922
–
(54)
(987)
(410)
3
112
(2)
(1)
–
(9)
(113)
20
(3)
$27
(85)
(668)
$992
$9,490
Assets under construction include prepayments to constructors and suppliers of property, plant and equipment in the amount of $24 million,
$22 million and $29 million as of 31 December 2015, 2014 and 2013, 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 2015 was $16 million (2014: $18 million, 2013: $11 million).
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 10. Intangible Assets Other Than Goodwill
Intangible assets consisted of the following as of 31 December:
US$ million
Cost:
Customer relationships
Water rights and environmental permits
Contract terms
Other
Accumulated amortisation:
Customer relationships
Water rights and environmental permits
Contract terms
Other
199
2015
$651
57
20
83
811
(419)
–
(4)
(64)
(487)
$324
2014
2013
$981
57
26
65
1,129
(642)
–
(3)
(43)
(688)
$441
$1,054
57
45
90
1,246
(606)
–
(1)
(51)
(658)
$588
As of 31 December 2015, 2014 and 2013, water rights and environmental permits with a carrying value of $57 million had an indefinite
useful life.
The movement in intangible assets for the year ended 31 December 2015 was as follows:
US$ million
Customer relation-ships
Water rights and environ-mental permits
Contract terms
At 31 December 2014, cost, net of
accumulated amortisation
Additions
Amortisation charge
Loss of control over a subsidiary
Translation difference
At 31 December 2015, cost, net of
accumulated amortisation
$339
–
(43)
(20)
(44)
$232
$57
–
–
–
–
$57
$23
–
(2)
–
(5)
$16
Other
$22
6
(5)
–
(4)
$19
The movement in intangible assets for the year ended 31 December 2014 was as follows:
US$ million
Customer relation-ships
Water rights and environ-mental permits
Contract terms
Other
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
$448
–
(60)
(16)
(1)
(32)
$339
$57
–
–
–
–
–
$57
$44
–
(4)
–
–
(17)
$23
The movement in intangible assets for the year ended 31 December 2013 was as follows:
US$ million
Customer relation-ships
Water rights and environ-mental permits
Contract terms
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
$654
–
–
(86)
(68)
(52)
$448
$57
–
–
–
–
–
$–
–
47
(1)
–
(2)
$57
$44
$39
$588
Total
$441
6
(50)
(20)
(53)
$324
Total
$588
4
(72)
(16)
(1)
(62)
$441
Total
$735
19
52
(94)
(69)
(55)
$39
4
(8)
–
–
(13)
$22
Other
$24
19
5
(7)
(1)
(1)
Financial StatementsNotes to the Consolidated Financial Statements (continued)
200
11. Investments in Joint Ventures and Associates
The Group accounted for investments in joint ventures and associates under the equity method.
The movement in investments in joint ventures and associates was as follows:
US$ million
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
Share of profit/(loss)
Impairment of investments
Translation difference
Investment at 31 December 2015
Corber
Timir
Streamcore
Other
associates
$497
–
–
–
(496)
(1)
$–
–
–
–
$–
–
–
–
$–
$–
149
(1)
–
–
(7)
$141
–
–
(59)
$82
(1)
(23)
(18)
$40
$36
–
7
–
–
(3)
$40
8
–
(19)
$29
4
–
(7)
$26
$18
–
2
(1)
(9)
–
$10
2
(1)
(1)
$10
–
–
(2)
$8
Share of profit/(loss) of joint ventures and associates which is reported in the statement of operations comprised the following:
US$ 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
2015
$3
(23)
$(20)
2014
$10
–
$10
Total
$551
149
8
(1)
(505)
(11)
$191
10
(1)
(79)
$121
3
(23)
(27)
$74
2013
$8
–
$8
Corber Enterprises Limited
Corber Enterprises Limited (“Corber”) was a joint venture established in 2004 for the purpose of exercising joint control over economic
activities of Raspadskaya Mining Group. Since March 2014 Corber is registered in Luxembourg. The Group had a 50% share in the joint
venture, i.e. at 31 December 2012 it effectively owned approximately 41% in JSC Raspadskaya. On 16 January 2013, the Group acquired a
contolling interest in Corber (Note 4) and the joint venture accounting and disclosures ceased to apply from that date.
The table below sets forth Corber’s income and expenses:
US$ million
Revenue
Cost of revenue
Other expenses, including income taxes
Net profit/(loss)
Timir Iron Ore Project
Period from 1 to 16 January 2013
$32
(26)
(6)
-
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.
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 amendement 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.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 201
11. Investments in Joint Ventures and Associates (continued)
Timir Iron Ore Project (continued)
In July 2015, the parties amended the payment schedule and postponed the payments until January 2016, 2017, 2018 and 2019 by the
amounts of 500 million roubles in 2016-2018 and 480 million roubles in 2019. From the date of the amendment the Group incurred interest
charges on the unpaid liability at a rate of 11.5% per annum. In 2015, the Group paid $2 million of interest charges in respect of this liability.
At 31 December 2015 and 2014, trade and other accounts payable included liabilities relating to this acquisition in the amount of $28 million
and $36 million, respectively.
The Group accounted for its interest in Timir under the equity method (Note 2 - Accounting Judgements).
The table below sets forth the fair values of Timir’s consolidated identifiable assets and liabilities at the date of acquisition:
US$ 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
2015
$101
–
101
5
–
17
22
79
$40
2014
$202
1
203
21
–
21
42
161
$82
3 April 2013
$358
2
2
362
37
7
25
69
293
149
$149
2013
$343
1
344
36
7
25
68
276
$141
In 2015, 2014 and 2013, Timir’s income and expenses comprised $2 million, $Nil and $1 million, respectively, of other expenses.
Due to the postponement of the major project activities, the Group assessed the recoverability of its investment in Timir at 31 December 2015
and 2014. 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
period of the forecast was 25 years. The discount rates were 12.70% and 14.46% in 2015 and 2014, respectively. As a result, in 2015, the
Group partially impaired its investment in Timir. The major drivers that led to impairment were the decrease in the expected long-term prices
for iron ore, the increase in the amount of the required capital expenditures to maintain the production at the budgeted capacities and the
postponement of the start of production for 1 year.
In the value-in-use calculation management assumed that the railway tariffs for the iron ore transportation in the Yakutia region, which are
established by the local railway companies, will be reduced to the general level of the tariffs in Russia. These tariffs have not been agreed
yet by the parties. If the assumption were not valid, this would lead to an additional impairment of $58 million which would give a $24 million
effect on the share of profits/(losses) of joint ventures and associates recognised in the consolidated statement of operations.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 202
11. Investments in Joint Ventures and Associates (continued)
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.
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 $14
million goodwill, which arose on this acquisition. In August 2013, Kazankovskaya was sold (Note 12).
Streamcore
The Group owns a 50% interest in Streamcore (Cyprus), a joint venture established for the purpose of exercising joint control over facilities for
scrap procurement and processing in Siberia, Russia.
The table below sets forth Streamcore’s assets and liabilities as of 31 December:
US$ million
Property, plant and equipment
Inventories
Accounts receivable
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Net assets
Net assets attributable to 50% ownership interest
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
2015
2014
2013
$19
3
51
73
1
–
20
21
$52
$26
2015
$278
(263)
(7)
$8
$4
$27
5
51
83
1
–
24
25
$58
$29
2014
$478
(450)
(12)
$16
$8
$49
8
131
188
2
31
75
108
$80
$40
2013
$477
(440)
(23)
$14
$7
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 12. Disposal Groups Held for Sale
The major classes of assets and liabilities of the disposal groups measured at the lower of carrying amount and fair value less costs
to sell were as follows as of 31 December:
203
US$ 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
2015
2014
$1
–
–
–
–
1
–
–
–
–
–
$1
$3
–
1
–
–
4
–
13
–
13
–
$(9)
The net assets of disposal groups classified as held for sale at 31 December related to the following reportable segments:
US$ 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
2015
2014
$1
–
1
–
–
–
–
–
$4
1
3
–
13
–
13
–
2013
$172
14
61
48
7
302
–
2
110
112
–
$190
2013
$302
289
–
13
112
112
–
–
At 31 December 2013, 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 $78 million was recognised as a loss on disposal groups classified as held for sale and in 2013 it was fully
reversed due to the change in the amount of consideration.
The table below demonstrates the carrying values of assets and liabilities, at the dates of disposal, of the subsidiaries and other
business units disposed of during 2013–2015.
US$ 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 2013–2015 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
Steel, North America
Coal
Other operations
Non-controlling interests
Steel production
2015
$25
–
13
–
–
38
–
17
–
17
–
$21
2015
$38
6
31
1
–
17
4
13
–
–
–
–
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
$218
128
13
39
38
205
100
–
70
35
–
–
Financial StatementsNotes to the Consolidated Financial Statements (continued) 204
12. Disposal Groups Held for Sale
Cash flows on disposal of subsidiaries and other business units were as follows:
US$ million
Net cash disposed of with subsidiaries
Cash received
Net cash inflow
The disposal groups sold during 2013–2015 are described below.
2015
$(13)
57
$44
2014
$(20)
331
$311
2013
$(23)
24
$1
EVRAZ Portland Structural Tubing
In 2015, the Group sold assets of Portland Structural Tubing for a cash consideration of $51 million. The Group recognised $20 million as a
gain on disposal groups classified as held for sale.
EVRAZ Vitkovice Steel
In 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. In 2015, this amount was fully settled through an offset with receivables from the former subsidiary.
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 $1 million cumulative
exchange gains reclassified from other comprehensive income to the consolidated statement of operations.
Other Disposal Groups Held for Sale
Other disposal groups held for sale included a few small subsidiaries involved in non-core activities (construction business, trading activity and
recreational services) and other non-current assets.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 13. Other Non-current Assets
Other non-current assets consisted of the following as of 31 December:
Non-current Financial Assets
US$ million
Available-for-sale financial assets
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
205
2015
2014
$5
5
1
23
5
40
$79
2015
$18
6
32
$56
$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
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 ($5 million, $16 million and $28 million at 31 December 2015,
2014 and 2013, respectively). The change in the fair value of these shares is initially recorded in other comprehensive income.
In 2013, the Group recognised a gain of $7 million on the increase in market quotations in other comprehensive income. In 2015 and 2014,
impairment losses relating to the decline in quotations of Delong shares in the amount of $Nil and $12 million, respectively, were recorded
through other comprehensive income and $11 million and $1 million, respectively, were recognised in the statement of operations.
14. Inventories
Inventories consisted of the following as of 31 December:
US$ million
Raw materials and spare parts
Work-in-progress
Finished goods
2015
$402
188
309
$899
2014
$588
307
477
$1,372
2013
$797
343
604
$1,744
As of 31 December 2015, 2014 and 2013, the net realisable value allowance was $35 million, $47 million and $58 million, respectively.
As of 31 December 2015, 2014 and 2013, certain items of inventory with an approximate carrying amount of $383 million, $607 million and
$510 million, respectively, were pledged to banks as collateral against loans provided to the Group (Note 22).
15. Trade and Other Receivables
Trade and other receivables consisted of the following as of 31 December:
US$ million
Trade accounts receivable
Other receivables
Allowance for doubtful accounts
Ageing analysis and movement in allowance for doubtful accounts are provided in Note 28.
2015
$472
23
495
(48)
$447
2014
$684
25
709
(55)
$654
2013
$909
63
972
(57)
$915
Financial StatementsNotes to the Consolidated Financial Statements (continued) 206
16. Related Party Disclosures
Related parties of the Group include associates and joint venture partners, key management personnel and other entities that are under
the control or significant influence of the key management personnel, the Group’s ultimate parent or its shareholders. In considering each
possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.
Amounts owed by/to related parties at 31 December were as follows:
US$ million
Vtorresource-Pererabotka
Yuzhny GOK
Liability to management of Raspadskaya for the acquisition of
Corber (Note 4)
Other entities
Less: allowance for doubtful accounts
Amounts due from related parties
Amounts due to related parties
2015
$1
–
–
5
6
–
$6
2014
$11
37
–
7
55
(2)
$53
2013
$4
5
–
7
16
(3)
$13
2015
$10
129
–
4
143
–
$143
2014
$5
96
–
7
108
–
$108
2013
$13
336
102
7
458
–
$458
In 2014 and 2013, the Group did not recognise any expense or income in relation to bad and doubtful debts of related parties. In 2015, a $2
million reversal of bad and doubtful debts allowance was recognised in the consolidated statement of operations.
Transactions with related parties were as follows for the years ended 31 December:
US$ million
Genalta Recycling Inc.
Interlock Security Services
Vtorresource-Pererabotka
Yuzhny GOK
Other entities
Sales to related parties
Purchases from related parties
2015
$–
–
8
29
–
$37
2014
$–
1
17
42
3
$63
2013
$–
1
16
62
7
$86
2015
$14
24
274
70
12
$394
2014
$24
39
465
125
24
$677
2013
$22
51
462
150
43
$728
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.
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 2016.
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 2015, 2014 and 2013, the purchases of scrap metal from Vtorresource-Pererabotka
amounted to $219 million (1,339,101 tonnes), $383 million (1,601,041 tonnes), $370 million (1,420,990 tonnes), respectively.
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 2015, 2014 and 2013, the volume of purchases was 1,517,580 tonnes, 1,486,415 tonnes and
1,549,958 tonnes, respectively. In 2015 and 2014, the Ukrainian hryvnia depreciated against the US dollar by 34% and 49%, respectively.
As a result, the Group recognised $19 million and $88 million, respectively, of foreign exchange loss on the balances and transactions with
Yuzhny GOK.
On 1 April 2014, a Ukrainian subsidiary of the Group received a non-interest bearing loan of 2,935 million Ukrainian hryvnias ($267 million
at the exchange rate as of the date of disbursement) from Standart IP, an entity under control of one of the major shareholders. The proceeds
were used for the purposes of short-term liquidity management for the subsidiary. The loan was fully repaid in several instalments by 10 April
2014 using the loans provided by the other Group’s subsidiary.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 207
16. Related Party Disclosures (continued)
The transactions with related parties were based on prevailing market terms.
Compensation to Key Management Personnel
Key management personnel include the following positions within the Group:
Č directors of the Company,
Č vice presidents,
Č top managers of major subsidiaries.
In 2015, 2014 and 2013, key management personnel totalled 46, 51 and 57 people, respectively. Total compensation to key management
personnel were included in general and administrative expenses in the consolidated statement of operations and consisted of the following:
US$ million
Salary
Performance bonuses
Social security taxes
Share-based payments (Note 21)
Termination benefits
Other benefits
2015
2014
2013
$16
9
4
10
–
–
$39
$20
29
4
14
1
1
$69
$24
13
3
11
–
1
$52
Other disclosures on directors’ remuneration required by the Companies Act 2006 and those specified for audit by the Directors’
Remuneration Report Regulations 2002 are included in the Directors’ Remuneration Report.
17. Other Taxes Recoverable
Taxes recoverable consisted of the following as of 31 December:
US$ million
Input VAT
Other taxes
2015
$61
66
$127
2014
$71
87
$158
2013
$209
74
$283
Input VAT, representing amounts payable or paid to suppliers, is recoverable from the tax authorities via offset against VAT payable to the tax
authorities on the Group’s revenue or direct cash receipts from the tax authorities. Management periodically reviews the recoverability of the
balance of input value added tax and believes it is fully recoverable within one year.
18. Other Current Financial Assets
Other current assets included the following as of 31 December:
US$ million
Investments in Yuzhny GOK (Note 16)
Restricted deposits at banks
Collateral under swap agreements (Note 25)
2015
$32
3
–
$35
2014
$32
1
7
$40
2013
$38
12
21
$71
Financial StatementsNotes to the Consolidated Financial Statements (continued)
208
19. Cash and Cash Equivalents
Cash and cash equivalents, mainly consisting of cash at banks,were denominated in the following currencies as of 31 December:
US$ million
US dollar
Russian rouble
Canadian dollar
Euro
South African rand
Ukrainian hryvnia
Other
2015
$1,196
121
29
4
3
20
2
$1,375
2014
$943
108
6
6
10
3
10
$1,086
2013
$1,300
195
50
9
32
17
1
$1,604
At 31 December 2015, 2014 and 2013, the assets of disposal groups classified as held for sale included cash amounting to $Nil,
$Nil and $7 million, respectively.
20. Equity
Share Capital
Number of shares
Ordinary shares of $1 each, issued and fully paid
31 December
2015
2014
2013
1,506,527,294
1,506,527,294
1,472,582,366
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
31 December
2015
98,481,249
2014
–
2013
302,717
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 April 2015, EVRAZ plc repurchased 108,458,508 of its own shares ($336 million). The Company incurred
$3 million of transaction costs, which were charged to accumulated profits.
Subsequently, 9,977,259 shares were transferred to the participants of Incentive Plans. The cost of treasury shares transferred to the
participants of Incentive Plans, amounted to $31 million.
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. The cost of treasury shares gifted under Incentive Plans, amounting to $6 million, was charged to accumulated profits.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 209
20. Equity (continued)
Earnings per Share
Earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted average number of ordinary
shares in issue during the period. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity
holders by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary
shares that would be issued on the conversion of all the potential dilutive ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Weighted average number of ordinary shares for basic and diluted earnings per share
Profit/(loss) for the year attributable to equity holders of the parent, US$ million
Earnings/(losses) per share, basic and diluted
2015
2014
2013
1,437,134,241
$(644)
$(0.45)
1,505,833,080
$(1,175)
$(0.78)
1,499,457,909
$(504)
$(0.34)
In 2013-2015, share-based awards (Note 21) were antidilutive as the Group reported net losses.
The warrants issued in connection with the acquisition of a controlling interest in Corber (2013 Share Issue above) are included in the
calculation of basic earnings per share starting from the date of their issue.
Dividends
Dividends declared by the parent company during 2013–2015 were as follows:
Special for 2014
08/04/2014
06/06/2014
90
Date of declaration
To holders registered at
Dividends declared, US$ million
US$ per share
0.06
The Board of directors decided not to declare a final dividend for 2013 and this decision was 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 $Nil,
$3 million and $1 million in 2015, 2014 and 2013, respectively.
Other Movements in Equity
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.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 210
21. Share-based Payments
On 13 October 2011, 6 September 2012, 24 September 2013, 8 August 2014 and 26 October 2015, 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 2015 are presented below:
Number of Shares of EVRAZ plc
Total
Incentive Plan 2015
Incentive Plan 2014
Incentive Plan 2013
Incentive Plan 2012
March 2016
March 2017
March 2018
March 2019
12,279,149
13,955,215
11,349,891
6,183,298
43,767,553
4,122,090
4,122,090
6,183,133
6,183,298
20,610,611
3,444,498
5,166,741
5,166,758
–
13,777,997
4,693,944
4,666,384
–
–
9,360,328
18,617
–
–
–
18,617
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 2013–2015.
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 2015, 2014 and 2013 was $1.12, $1.51 and $1.89 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 of Incentive plans, which were effective during 2013-2015:
Dividend yield (%)
Expected life (years)
Market prices of the shares of EVRAZ plc
(2011: Evraz Group S.A.) at the grant dates
Incentive Plan 2015
Incentive Plan 2014
Incentive Plan 2013
Incentive Plan 2012
Incentive Plan 2011
7.3 – 9.1
0.6 – 3.6
$1.36
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
2015
36,608,052
20,610,611
(3,473,851)
(9,977,259)
43,767,553
–
2014
27,692,062
20,220,620
(3,064,281)
(8,240,349)
36,608,052
–
2013
12,069,571
20,832,297
(1,221,683)
(3,988,123)
27,692,062
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 $2.59, $1.72 and $1.52 in 2015, 2014 and 2013, respectively.
The weighted average remaining contractual life of the share-based awards outstanding as of 31 December 2015, 2014 and 2013 was 1.5,
1.6 and 1.7 years, respectively.
In the years ended 31 December 2015, 2014 and 2013, expense arising from the equity-settled share-based compensations was as follows:
US$ million
Expense arising from equity-settled share-based payment transactions
2015
$20
2014
$30
2013
$25
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 22. Loans and Borrowings
As of 31 December 2015, 2014 and 2013, total interest-bearing loans and borrowings consisted of short-term loans and borrowings in the
amount of $154 million, $164 million and $1,069 million, respectively, and long-term loans and borrowings in the amount of $6,174 million,
$6,030 million and $6,739 million, respectively, including the current portion of long-term liabilities of $289 million, $532 million and $660
million, respectively.
Short-term and long-term loans and borrowings were as follows as of 31 December:
211
US$ million
Bank loans
US dollar-denominated
8.25% notes due 2015
7.40% notes due 2017
7.75% bonds due 2017
9.5% notes due 2018
6.75% notes due 2018
7.5% senior secured notes due 2019
6.50% notes due 2020
8.25% notes due 2021
Rouble-denominated
13.5% rouble bonds due 2014
8.75% rouble bonds due 2015
9.95% rouble bonds due 2015
8.40% rouble bonds due 2016
12.95% rouble bonds due 2019
Other liabilities
Fair value adjustment to liabilities assumed in business combination
Unamortised debt issue costs
Interest payable
2015
$2,236
–
286
186
353
796
350
1,000
750
–
–
–
165
206
–
7
(54)
66
$6,347
2014
$1,662
138
600
392
509
850
350
1,000
–
–
69
267
356
–
1
20
(57)
74
$6,231
2013
$2,065
577
600
400
509
850
–
1,000
–
611
119
458
611
–
8
27
(68)
90
$7,857
At 31 December 2015, 2014 and 2013, the borowings relating to the subsidiaries classified as held for sale (Note 12) amounted to $Nil, $Nil
and $76 million of short-term loans. In the statement of financial position they were included in liabilities directly associated with the assets
held for disposal.
The average effective annual interest rates were as follows at 31 December:
Long-term borrowings
Short-term borrowings
US dollar
Russian rouble
Euro
Canadian dollar
South African rand
2015
6.87%
11.84%
5.57%
–
–
2014
6.78%
9.00%
3.55%
–
–
2013
7.33%
10.49%
3.60%
3.30%
–
The liabilities are denominated in the following currencies at 31 December:
US$ million
US dollar
Russian rouble
Euro
Canadian dollar
South African rand
Unamortised debt issue costs
2015
2.86%
–
–
–
–
2015
$5,412
621
368
–
–
(54)
$6,347
2014
2.72%
–
–
–
9.98%
2014
$5,387
700
193
–
8
(57)
$6,231
2013
1.56%
7.21%
3.75%
–
–
2013
$5,808
1,837
268
10
2
(68)
$7,857
Financial StatementsNotes to the Consolidated Financial Statements (continued) 212
22. Loans and Borrowings (continued)
Pledged Assets
The Group pledged its rights under selected 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 2015 and 2014, a 100% ownership interest in EVRAZ Inc NA and 51% in EVRAZ Inc NA Canada were pledged against a
$350 million liability under 7.5% senior secured notes due 2019. The subsidiaries represent approximately 34% of the consolidated assets at
31 December 2015 and generated almost 26% of the consolidated revenues in 2015. In addition, property, plant and equipment and inventory
of these subsidiaries amounting to $1,052 million and $382 million, respectively, at 31 December 2015 (2014: $1,140 million and $607
million, respectively) were pledged as collateral under the notes.
At 31 December 2015, 2014 and 2013, 100% of shares of EVRAZ Caspian Steel were pledged as collateral under a bank loan with a carrying
value of $107 million at the end of 2015. The subsidiary represented 0.9% of the consolidated assets at 31 December 2015 and generated
1.1% of the consolidated revenues in 2015. In addition, property, plant and equipment of EVRAZ Caspian Steel amounting to $55 million at 31
December 2015 (2014: $108 million, 2013: $108 million) were pledged as collateral under the same loan.
The Group’s pledged assets at carrying value included the following at 31 December:
US$ million
Property, plant and equipment
Inventory
2015
$1,107
383
2014
$1,263
607
2013
$120
510
Issue of Notes and Bonds
In December 2015, the Group issued 8.25% notes due 2021 in the amount of $750 million. The proceeds from the issue of the notes were
used to finance the purchase of 7.40% notes due 2017, 9.50% notes due 2018 and 6.75% notes due 2018 at the tender offer settled on 18
December 2015 and to refinance other current indebtedness of the Group.
In July 2015, the Group completed a placement of bonds in the total amount of 15,000 million Russian roubles ($206 million at 31 December 2015),
which bear interest of 12.95% per annum and have the next put date on 26 June 2019. The currency risk exposure of these bonds was hedged (Note 25).
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.
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 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 transaction date). 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.
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).
Repurchase of Rouble-Denominated Bonds
In March 2015, the Group fully settled the 8.75% bonds due 2015 with the nominal value of 3,885 million roubles ($65 million) at par. There
was no gain or loss on this transaction.
In April 2015, the Group partially repurchased 9.95% bonds due 2015 for a cash consideration of $80 million. The nominal value of the
repurchased notes was 4,150 million roubles ($81 million). As a result, the Group recognised a $1 million gain within gain/(loss) on financial
assets and liabilities caption of the consolidated statement of operations. In October 2015, the Group settled the remaining 10,850 million
roubles ($175 million) at par. There was no gain or loss on this transaction.
In July 2015, the Group partially repurchased 8.40% bonds due 2016 with the principal of 4,792 million roubles ($84 million at the exchange
rate as of the date of the transaction) for a cash consideration of 4,696 million roubles ($82.5 million at the exchange rate as of the date of the
transaction). In September 2015, the Group repurchased additional 3,159 million roubles ($48 million) at par. There was no gain or loss on this
transaction. At 31 December 2015, the amount of outstanding bonds was 12,049 million roubles ($165 million).
In April 2014, the Group repurchased 13.5% bonds due 2014 for a nominal amount totalling 2,258 million roubles ($64 million). In October
2014, the Group settled the remaining 17,742 million roubles ($440 million). There was no gain or loss on these transactions.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 213
22. Loans and Borrowings (continued)
Repurchase of US Dollar-Denominated Note
In December 2015, the Group partially repurchased 7.40% notes due 2017 ($314 million), 9.50% notes due 2018 ($156 million) and 6.75%
notes due 2018 ($54 million). The premium over carrying value on the repurchase in the amount of $14 million, $11 million and $1 million,
respectively, was charged the Gain/(loss) on financial assets and liabilities caption of the consolidated statement of operations.
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 in the consolidated statement of operations. During 2015 the Group repurchased the remaining $138 million. There was
no gain or loss on these transactions.
In 2014, the Group partially repurchased 7.75% bonds due 2017 (issued by Raspadskaya) 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 October and November 2015,
the Group repurchased through a tender offer and market transactions an additional $206 million at par. The difference between the carrying
value of these bonds and the purchase consideration amounting to $7 million was credited to the Gain/(loss) on financial assets and liabilities
caption of the consolidated statement of operations.
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. EBITDA used for covenants compliance calculations is determined based on the definitions of the respective loan agreements and
may differ from that used by management for evaluation of performance.
The €475 million facility from Gazprombank signed in April 2015 contained a restriction on the maximum ratio for the consolidated net
indebtedness to 12-month consolidated EBITDA. As a result of an amendment signed in December 2015, this restriction was reset to a higher
level, while a portion of the facility amounting to €235 million was converted into roubles.
The $500 million pre-export credit facility received in 2014 from a syndicate of banks and other credit facilities totalling $929 million contain
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 terms of certain facilities also set certain limitations on dividend payments by EVRAZ plc, acquisitions and disposals.
Notes due in 2017, 2018, 2020 and 2021 totalling $3,185 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 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 2015 the Group had a loan of $90 million, which is subject to
financial maintenance covenants based on the consolidated figures of Evraz Group S.A. Under these covenants Evraz Group S.A. is required
to maintain a ratio of consolidated net indebtedness to 12-month consolidated EBITDA within certain limits. A breach of the ratio 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 plc and its subsidiaries.
The $400 million 7.75% notes due 2017 issued by Raspadskaya in 2012, out of which $214 million are held by Evraz Group S.A. at 31
December 2015, 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 $350 million notes due 2019 issued by Evraz Inc NA Canada in November 2014 have certain covenants, that contain restrictions on
the incurrence of new debt by EVRAZ North America plc, the parent company of Evraz Inc NA and Evraz Inc NA Canada, and its subsidiaries
(together, “Evraz North America”) and restrictions on certain types of payments, including dividends, from Evraz North America.
During 2015 the Group was in compliance with all financial and non-financial covenants.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 214
22. Loans and Borrowings (continued)
Unamortised Debt Issue Costs
Unamortised debt issue costs represent agent commission and transaction costs paid by the Group in relation to the arrangement and reset
of loans and notes.
Unutilised Borrowing Facilities
The Group had the following unutilised borrowing facilities as of 31 December:
US$ million
Committed
Uncommitted
Total unutilised borrowing facilities
2015
$317
663
$980
2014
$439
1,225
$1,664
2013
$437
811
$1,248
www.evraz.comNotes to the Consolidated Financial Statements (continued)23. Employee Benefits Russian PlansCertain 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 PlansThe Ukrainian subsidiaries make regular contributions to the State Pension Fund thereby compensating 100% of 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 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.In 2015, new conditions were introduced in the pension legislation: the period of working experience required for the preferential pension assignment will be gradually increased by 5 years during the next 10 years. The Group reduced the employee benefits liability by $2 million through past service cost in connection with these changes.US and Canadian PlansThe 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. The subsidiaries also have U.S. and Canadian supplemental retirement plans (“SERP’s”), which are unqualified plans designed to maintain benefits for eligible employees at the plan formula level. The subsidiaries provide other unfunded postretirement medical and life insurance plans (“OPEB’s”) for certain of its eligible employees upon retirement after completion of a specified number of years of service. For the pension plans, SERP’s and OPEB’s, the subsidiaries use a measurement date for plan assets and obligations of 31 December.Certain employees that were hired after specified dates are no longer eligible to participate in the defined benefit pension plans. Those employees are instead enrolled in defined contribution plans and receive a contribution funded by the Group’s subsidiaries equal to 3–7% of annual wages, including applicable bonuses. The defined contribution plans are funded annually, and participants’ benefits vest after three years of service. In addition, the subsidiaries have 401(k) defined contribution plans available for eligible U.S. and Canadian-based employees which the subsidiaries match a percentage of the participants’ contributions.Annual Report & Accounts 2015 215
23. Employee Benefits (continued)
US and Canadian Plans (continued)
In the third quarter of 2015, the Group’s U.S. subsidiary made lump-sum settlement offers to former employees vested in one of its three U.S.-based
pension plans. Eligible participants were provided with a one-time opportunity to choose either a lump-sum settlement immediately, or to begin
receiving their annuity payments in December 2015, irrespective of the former employee’s age or retirement status. Approximately 749 employees, or
61% of those eligible, elected to take the lump-sum settlement, triggering settlement accounting for two of the U.S. subsidiary’s plans.
Other Plans
Defined benefit pension plans and defined contribution plans are maintained by the subsidiaries located in the Republic of South Africa and Italy.
Defined Contribution Plans
The Group’s expenses under defined contribution plans were as follows:
US$ million
Expense under defined contribution plans
Defined Benefit Plans
2015
$254
2014
$398
2013
$488
The Russian, Ukrainian and other defined benefit plans are mostly unfunded and the US and Canadian plans are partially funded.
Except as disclosed above, in 2015 there were no significant plan amendments, curtailments or settlements.
The Group’s defined benefit plans are exposed to the risks of unexpected growth in benefit payments as a result of increases in life
expectancy, inflation, and salaries. As the plan assets include significant investments in quoted and unquoted equity shares, corporate and
government bonds and notes, the Group is also exposed to equity market risk.
The components of net benefit expense recognised in the consolidated statement of operations for the years ended 31 December 2015,
2014 and 2013 and amounts recognised in the consolidated statement of financial position as of 31 December 2015, 2014 and 2013 for the
defined benefit plans were as follows:
Net benefit expense (recognised in the statement of operations within cost of sales and selling, general and administrative expenses and
interest expense)
Year ended 31 December 2015
US$ million
Russian plans
Ukrainian plans
US & Canadian plans
Other plans
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term
employee benefits obligation
Past service cost
Curtailment/settlement gain
Net benefit expense
Year ended 31 December 2014
$(4)
(11)
–
7
2
$(6)
$ (2)
(6)
–
2
–
$ (6)
$(23)
(7)
–
(3)
1
$(32)
$–
–
(1)
–
–
$(1)
US$ million
Russian plans
Ukrainian plans
US & Canadian plans
Other plans
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
$(7)
(15)
22
6
$6
$(3)
(7)
–
–
$(10)
$(19)
(6)
–
–
$(25)
$–
(2)
–
–
$(2)
US$ million
Russian plans
Ukrainian plans
US & Canadian plans
Other plans
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
$(12)
(20)
7
(7)
2
$(30)
$ (4)
(9)
–
–
–
$ (13)
$(23)
(9)
–
–
2
$(30)
$(1)
(1)
1
–
–
$(1)
Total
$(29)
(24)
(1)
6
3
$(45)
Total
$(29)
(30)
22
6
$(31)
Total
$(40)
(39)
8
(7)
4
$(74)
Financial StatementsNotes to the Consolidated Financial Statements (continued) 216
23. Employee Benefits (continued)
Gains/(losses) recognised in other comprehensive income
Year ended 31 December 2015
US$ 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 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
Actual return on plan assets was as follows:
US$ million
Actual return on plan assets
including:
US & Canadian plans
Russian plans
Net defined benefit liability
31 December 2015
US$ million
Benefit obligation
Plan assets
31 December 2014
US$ million
Benefit obligation
Plan assets
31 December 2013
US$ million
Benefit obligation
Plan assets
Russian
Ukrainian
US & Canadian
Other plans
Total
plans
$–
(8)
$(8)
plans
$–
(5)
$(5)
plans
$(10)
24
$14
$–
–
$–
$(10)
11
$1
Russian
Ukrainian
US & Canadian
Other plans
Total
plans
$–
15
–
$15
plans
$–
(17)
–
$(17)
plans
$46
(78)
2
$(30)
$–
(1)
–
$(1)
$46
(81)
2
$(33)
Russian
Ukrainian
US & Canadian
Other plans
Total
plans
$(1)
52
$51
plans
$–
(11)
$(11)
plans
$30
48
$78
2015
$13
13
–
$–
1
$1
2014
$73
73
–
$29
90
$119
2013
$51
52
(1)
Russian
Ukrainian
US & Canadian
Other plans
Total
plans
$90
(1)
89
plans
$45
–
45
plans
$691
(526)
165
$2
–
2
$828
(527)
301
Russian
Ukrainian
US & Canadian
Other plans
Total
plans
$110
–
110
plans
$58
–
58
plans
$790
(608)
182
$14
–
14
$972
(608)
364
Russian
Ukrainian
US & Canadian
Other plans
Total
plans
$232
(1)
231
plans
$83
83
plans
$728
(564)
164
$14
–
14
$1,057
(565)
492
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 217
23. Employee Benefits (continued)
Movements in net defined benefit liability/(asset)
US$ million
Russian
Ukrainian
US & Canadian
Other plans
Total
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
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 2015
Movements in benefit obligation
plans
$250
58
30
(25)
(51)
(10)
(21)
231
(6)
(13)
(15)
(1)
(86)
110
6
(9)
8
(1)
(25)
$89
plans
$68
–
13
(9)
11
–
–
83
10
(6)
17
–
(46)
58
6
(3)
5
–
(21)
$45
plans
$256
–
30
(40)
(78)
–
(4)
164
25
(34)
30
–
(3)
182
32
(30)
(14)
–
(5)
$165
$19
–
1
(1)
(1)
–
(4)
14
2
(2)
1
–
(1)
14
1
(1)
–
(11)
(1)
$2
$593
58
74
(75)
(119)
(10)
(29)
492
31
(55)
33
(1)
(136)
364
45
(43)
(1)
(12)
(52)
$301
US$ million
Russian
Ukrainian
US & Canadian
Other plans
Total
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
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/settlement gain
Reclassification to liabilities directly associated with disposal groups classified as held for sale
Settlement of lump-sum payments
Translation difference
At 31 December 2015
plans
$251
58
20
12
7
(24)
25
(81)
(3)
(2)
(10)
(21)
232
15
7
(14)
–
(21)
(16)
(6)
(1)
(86)
110
11
4
(7)
(8)
(1)
14
(5)
(2)
(1)
–
(25)
$90
plans
$68
–
9
4
–
(9)
–
11
–
–
–
–
83
7
3
(6)
1
13
3
–
–
(46)
58
6
2
(2)
(3)
–
2
3
–
–
–
(21)
$45
plans
$793
–
31
23
–
(43)
23
(71)
–
(2)
–
(26)
728
33
19
(37)
17
71
(10)
–
–
(31)
790
30
23
3
(35)
(8)
(17)
1
(1)
–
(31)
(64)
$691
$19
–
1
1
–
(1)
–
(2)
–
–
–
(4)
14
2
–
(2)
–
1
–
–
–
(1)
14
–
–
–
(1)
–
1
–
–
(11)
–
(1)
$2
$1,131
58
61
40
7
(77)
48
(143)
(3)
(4)
(10)
(51)
1,057
57
29
(59)
18
64
(23)
(6)
(1)
(164)
972
47
29
(6)
(47)
(9)
–
(1)
(3)
(12)
(31)
(111)
$828
Financial StatementsNotes to the Consolidated Financial Statements (continued) 218
23. Employee Benefits (continued)
Movements in benefit obligation (continued)
The weighted average duration of the defined benefit obligation was as follows:
Years
Russian plans
Ukrainian plans
US & Canadian plans
Other plans
Changes in the fair value of plan assets
US$ million
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
Interest income on plan assets
Return on plan assets (excluding amounts included in net interest expense)
Contributions of employer
Benefits paid
Settlement of lump-sum payments
Translation difference
At 31 December 2015
2015
10.93
8.76
14.35
9.66
2014
9.8
10.4
14.6
20.3
2013
10.0
10.0
14.4
10.0
Russian
Ukrainian
US&
plans
plans
Canadian plans
Other plans
Total
$1
–
(1)
25
(24)
–
1
–
–
13
(14)
–
–
–
–
–
9
(8)
–
–
$1
$–
–
–
9
(9)
–
–
–
–
6
(6)
–
–
–
–
–
3
(3)
–
–
$–
$537
22
30
40
(43)
(22)
564
27
46
34
(37)
2
(28)
608
23
(10)
30
(35)
(31)
(59)
$526
$–
–
–
1
(1)
–
–
–
–
2
(2)
–
–
–
–
–
1
(1)
–
–
$–
$538
22
29
75
(77)
(22)
565
27
46
55
(59)
2
(28)
608
23
(10)
43
(47)
(31)
(59)
$527
The amount of contributions expected to be paid to the defined benefit plans during 2016 approximates $39 million.
The major categories of plan assets as a percentage of total plan assets were as follows at 31 December:
US & Canadian plans:
Equity funds and investment trusts
Corporate bonds and notes
Property
Cash
2015
2014
2013
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
50%
13%
–
2%
65%
34%
1%
–
–
35%
31%
13%
–
6%
50%
49%
1%
–
–
50%
42%
15%
–
–
57%
38%
1%
2%
2%
43%
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 219
Other
plans
3-9.5%
3%
–
Discount rate
Future benefits increases
Future salary increase
Average life expectation,
male, years
Average life expectation,
female, years
23. Employee Benefits (continued)
Changes in the fair value of plan assets (continued)
The principal assumptions used in determining pension obligations for the Group’s plans are shown below:
2015
2014
2013
Russian
Ukrainian
US &
Other
Russian
Ukrainian
US &
Other
Russian
Ukrainian
US &
plans
plans
Canadian
plans
plans
plans
Canadian
plans
Plans
plans
Canadian
9.6%
8%
8%
68.5
plans
3.9-4.5%
–
3–3.3%
13.0%
8%
8%
2.8-9%
3%
–
65.5 86.3-87.5 78.1-79
11%
8%
8%
68.0
plans
15.0%
10%
10%
3.6-4.9% 2.8-8.8%
3%
–
–
3-3.3%
8%
6%
6%
14.0%
6%
7%
plans
4.3-4.9%
–
3.1-4%
65.2
86.4-87.8
74.9-79
67.5
64.2 82.5-85.2 73.9-81
78.9
75.5
89-89.3 75.2-85
78.5
75.3 88.9-89.8 73.4-85
78.3
74.7
86.7-87.7 73.0-87
Healthcare costs increase rate
–
–
5.4-7%
8.8%
–
–
5.5-7% 7.5-7.7%
–
–
6.1-7% 7.8-7.9%
The following table demonstrates the sensitivity analysis of reasonable changes in the significant assumptions used for the measurement of
the defined benefit obligations, with all other variables held constant.
Impact on the defined benefit obligation at 31
Impact on the defined benefit obligation at 31
Impact on the defined benefit obligation at 31
December 2015, US$ million
December 2014, US$ million
December 2013, US$ million
Reasonable
Russian
Ukrainian
US &
Other
Russian
Ukrainian
US &
Other
Russian
Ukrainian
US &
change in
plans
plans
Canadian
plans
plans
plans
Canadian
plans
plans
plans
Canadian
assumption
10%
(10%)
10%
(10%)
10%
(10%)
1
(1)
1
(1)
10%
(10%)
Discount rate
Future benefits
increases
Future salary
increase
Average life
expectation,
male, years
Average life
expectation,
female, years
Healthcare
costs ncrease
rate
$(8)
10
7
(6)
1
(1)
1
(1)
1
(1)
–
–
plans
$(35)
37
–
–
2
(2)
14
(14)
4
(4)
–
–
$(5)
6
1
(1)
2
(2)
–
–
–
–
–
–
$–
–
$(11)
14
–
–
–
–
–
–
–
–
–
–
9
(8)
1
(1)
1
(1)
1
(1)
–
–
plans
$(53)
58
–
–
3
(2)
15
(15)
4
(4)
–
–
$(6)
7
2
(2)
3
(2)
–
–
–
–
–
–
$(6)
6
–
–
–
–
–
–
–
–
3
–
$(16)
19
12
(11)
2
(2)
2
(2)
2
(2)
–
–
plans
$(45)
52
–
–
2
(2)
14
(15)
4
(5)
1
(1)
$(8)
10
2
(2)
2
(2)
1
(1)
–
–
–
–
Other
plans
$(4)
5
–
–
–
–
–
–
–
–
2
(2)
Financial StatementsNotes to the Consolidated Financial Statements (continued) 220
24. Provisions
At 31 December the provisions were as follows:
US$ million
Site restoration and decommissioning costs
Legal claims
Other provisions
2015
2014
2013
Non-current
Current
Non-current
Current
Non-current
Current
$145
–
1
$146
$20
2
1
$23
$171
–
2
$173
$34
3
4
$41
$251
–
3
$254
$29
9
7
$45
In the years ended 31 December 2015, 2014 and 2013, the movement in provisions was as follows:
US$ million
decom-missioning costs
Site restoration and
Legal claims
Other provisions
Total
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
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
Loss of control over a subsidiary (Note 4)
Reclassification to liabilities directly associated with disposal groups classified as held for sale
Translation difference
AT 31 DECEMBER 2015
$348
49
20
(33)
3
(11)
(7)
16
(72)
(33)
280
56
15
(40)
72
(39)
(2)
(41)
(96)
205
13
13
35
19
(20)
(4)
(54)
(4)
(38)
$165
$13
6
–
–
(2)
(3)
(5)
–
–
–
9
4
–
–
–
(2)
(6)
–
(2)
3
3
–
–
–
(1)
(2)
–
–
(1)
$2
$11
24
–
–
–
(20)
(5)
1
–
(1)
10
19
–
–
–
(16)
(6)
–
(1)
6
4
–
–
–
(6)
(2)
–
–
–
$2
$372
79
20
(33)
1
(34)
(17)
17
(72)
(34)
299
79
15
(40)
72
(57)
(14)
(41)
(99)
214
20
13
35
19
(27)
(8)
(54)
(4)
(39)
$169
Site Restoration Costs
Under the legislation, mining companies and steel mills have obligations to restore mining sites and contaminated land. The respective liabilities
were measured based on estimates of restoration costs which are expected to be incurred in the future discounted at the annual rate ranging
from 1.5% to 12.8% in 2015 (2014: from 1.5% to 22.6%, 2013: from 1.1% to 14%). The majority of costs are expected to be paid after 2061.
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 25. Other Long-Term Liabilities
Other long-term liabilities consisted of the following as of 31 December:
US$ million
Derivatives not designated as hedging instruments
Hedging instruments
Contingent consideration payable for the acquisition of Stratcor
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)
221
2015
$274
59
–
16
2
5
5
1
43
405
(289)
$116
2014
$713
–
2
15
6
5
4
1
48
794
(352)
$442
2013
$219
–
8
14
5
9
6
2
51
314
(84)
$230
Derivatives Not Designated as Hedging Instruments
To manage the currency exposure on the rouble-denominated bonds, the Group partially economically hedged these transactions: in 2010-
2013, the Group concluded currency and interest rate swap contracts under which it agreed to deliver US dollar-denominated interest payments
at the rates ranging from 3.06% to 8.90% per annum plus the US dollar notional amount, in exchange for rouble-denominated interest
payments plus the rouble notional amount. The exchange is exercised on approximately the same dates as the payments under the bonds.
The swap contracts, which were effective at 31 December 2015-2013, are summarised in the table below.
13.5 per cent bonds due 2014
9.95 per cent bonds due 2015
8.40 per cent bonds due 2016
8.75 per cent bonds due 2015
Year of issue
Bonds principal,
Hedged amount,
Swap amount, US$
Interest rates on the
millions of roubles
millions of roubles
2009
2010
2011
2013
20,000
15,000
20,000
3,885
14,019
14,997
19,996
3,735
million
475
491
711
121
swap amount
7.50% - 8.90%
5.65% - 5.88%
4.45% - 4.60%
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
2015
$165
165
430
2014
$692
688
1,323
2013
$1,799
1,612
1,798
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 2015, 2014 and 2013, the change in fair value of the derivatives of $439 million, $(494) million and $(106) million, respectively, together
with a realised gain/(loss) on the swap transactions, amounting to $(464) million, $(94) million and $51 million, respectively, was recognised
within gain/(loss) on financial assets and liabilities in the consolidated statement of operations (Note 7).
In 2015 and 2014, upon repayment of the 9.95%, 8.75% and 13.5% bonds, the related swap contracts matured.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 222
25. Other Long-Term Liabilities (continued)
Hedging Instruments
In July 2015, the Group completed a placement of bonds in the total amount of 15,000 million Russian roubles ($206 million at 31 December
2015), which bear interest of 12.95% per annum and have the next put date on 26 June 2019. The Group used an intercompany loan to
transfer the proceeds from the bonds within the Group. To manage the currency exposure, the Group entered into a series of cross currency
swap contracts with several banks under which it agreed to deliver US-dollar denominated interest payments at rates ranging from 5.90% to
6.55% per annum plus the notional amount, totaling approximately $265 million, in exchange for rouble-denominated interest payments at
the rate of 12.95% per annum plus notional, totaling 14,948 million roubles ($205 million at 31 December 2015).
12.95 per cent bonds due 2019
2015
15,000
14,948
millions of roubles
millions of roubles
million
265
swap amount
5.90% - 6.55%
Year of issue
Bonds principal,
Hedged amount,
Swap amount, US$
Interest rates on the
The Group accounted for these swap contracts as cash flow hedges. In 2015, the change in fair value of these derivatives amounted to
$(59) million. The realised gain on the swap transactions amounting to $5 million was related to the interest portion of the change in fair
value of the swap. Under IFRS the lesser of the cumulative gain or loss on the hedging instrument from inception of the hedge and the
cumulative change in present value of the expected future cash flows on the hedged item from inception of the hedge is recognised in other
comprehensive income and the remaining loss on the hedging instrument is recorded through the statement of operations. In 2015, the
Group did not recognise any amounts in other comprehensive income. All the swaps were assessed as effective. The amount of $(59) million
was recorded in the Foreign exchange gains/(losses) caption in the consolidated statement of operations.
Contingent Consideration Payable
Contingent consideration represents additional payments for the acquisition of Stratcor in 2006. This consideration could be paid each year
up to 2019. The payments depend on the deviation of the average prices for vanadium pentoxide from certain levels and the amounts payable
for each year are limited to maximum amounts. In 2015–2013, the Group was not required to pay this consideration due to the movements in
the vanadium pentoxide market relative to the levels set in the agreement.
26. Trade and Other Payables
Trade and other payables consisted of the following as of 31 December:
US$ 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
2015
2014
2013
$621
122
289
38
$1,070
$1,054
196
352
57
$1,379
$1,054
233
84
117
$1,488
2015
$51
30
10
4
7
5
$107
2014
$78
40
15
4
7
7
$151
2013
$88
64
15
10
14
12
$203
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 223
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 2015, the major customers were Russian Railways and Enbridge Inc. (3.7% and 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)
2015
$8
40
37
452
28
7
1,375
$1,947
2014
$8
55
49
658
45
43
1,086
$1,944
2013
$22
90
68
937
31
13
1,604
$2,765
Receivables from related parties in the table above do not include prepayments in the amount of $Nil, $11 million and $3 million
as of 31 December 2015, 2014 and 2013, respectively.
The ageing analysis of trade and other receivables, loans receivable and receivables from related parties at 31 December is presented
in the table below.
US$ million
Not past due
Past due
less than six months
between six months and one year
over one year
2015
2014
2013
Gross amount
Impairment
Gross amount
Impairment
Gross amount
Impairment
$385
150
95
9
46
$535
$–
(48)
(8)
(2)
(38)
$(48)
$537
266
178
46
42
$803
$–
(57)
(13)
(8)
(36)
$(57)
$642
399
328
21
50
$1,041
In the years ended 31 December 2015, 2014 and 2013, the movement in allowance for doubtful accounts was as follows:
US$ million
At 1 January
Charge for the year
Utilised
Disposal of subsidiaries
Translation difference
At 31 December
2015
$(57)
(18)
5
8
14
$(48)
2014
$(60)
(40)
14
1
28
$(57)
$(1)
(59)
(4)
(8)
(47)
$(60)
2013
$(101)
(8)
36
7
6
$(60)
Financial StatementsNotes to the Consolidated Financial Statements (continued) 224
28. Financial Risk Management Objectives and Policies (continued)
Liquidity Risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing
liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group manages liquidity risk by maintaining adequate cash reserves and borrowing facilities, by continuously monitoring forecast and
actual cash flows and matching the maturity profiles of financial assets and liabilities.
The Group prepares a rolling 12-month financial plan which ensures that the Group has sufficient cash on demand to meet expected operational
expenses, financial obligations and investing activities as they arise. The Group exercises a daily monitoring of cash proceeds and payments. The
Group maintains credit lines and overdraft facilities that can be drawn down to meet short-term financing needs. If necessary, the Group refinances
its short-term debt by long-term borrowings. The Group also uses forecasts to monitor potential and actual financial covenants compliance issues
(Note 22). Where compliance is at risk, the Group considers options including debt repayment, refinancing or covenant reset. The Group has
developed standard payment periods in respect of trade accounts payable and monitors the timeliness of payments to its suppliers and contractors.
The following tables summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments, including
interest payments.
Year ended 31 December 2015
US$ 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 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
On demand
Less than 3 months
3 to 12 months
1 to 2 years
2 to 5 years
After 5 years
Total
$–
–
–
–
–
85
–
–
85
3
152
133
288
$373
$4
8
–
9
21
80
26
–
106
–
502
9
511
$188
301
–
278
767
86
73
1
160
–
5
–
5
$498
309
–
11
818
197
93
1
291
2
–
–
2
$3,012
517
1
124
3,654
1,353
133
–
1,486
1
–
–
1
$780
35
5
17
837
45
1
–
46
1
–
142
1
$4,482
1,170
6
439
6,097
1,846
326
2
2,174
7
659
808
$638
$932
$1,111
$5,141
$884
$9,079
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
$9,483
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 225
28. Financial Risk Management Objectives and Policies (continued)
Liquidity Risk (continued)
Year ended 31 December 2013
US$ 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
$–
–
–
–
–
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
Payables to related parties in the tables above do not include advances received in the amount of $1 million, $Nil and $1 million
as of 31 December 2015, 2014 and 2013, respectively.
$648
$1,985
$1,347
$1,731
$4,564
$1,263
$11,538
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.
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.
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.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 226
28. Financial Risk Management Objectives and Policies (continued)
Market Risk (continued)
Interest Rate Risk (continued)
Cash Flow Sensitivity Analysis for Variable Rate Instruments (continued)
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
Liabilities denominated in roubles
Decrease in Bank of Russia key rate
Increase in Bank of Russia key rate
Currency Risk
2015
2014
2013
Basis points
Effect on PBT
Basis points
Effect on PBT
Basis points
Effect on PBT
US$ millions
US$ millions
US$ millions
(12)
50
(25)
25
(525)
550
$2
(8)
–
$–
13
$(14)
(2)
2
(7)
7
–
–
$–
–
–
$–
–
$–
(2)
2
(5)
5
–
–
$–
–
–
$–
–
$–
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in currencies other than the functional currencies of
the respective Group’s subsidiaries. The currencies in which these transactions are denominated are primarily US dollars, Canadian dollars and euro.
The Group does not have formal arrangements to mitigate currency risks of the Group’s operations. However, management believes that the Group is
partly secured from currency risks as foreign currency denominated sales are used to cover repayment of foreign currency denominated borrowings.
The Group’s exposure to currency risk determined as the net monetary position in the respective currencies was as follows at 31 December:
US$ 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
2015
$304
(399)
312
119
(499)
(1)
6
(5)
–
(113)
1
(157)
2014
$(439)
(220)
372
109
(469)
(1)
1
(34)
10
(248)
2
(150)
2013
$(2,686)
(337)
774
108
(209)
(18)
(155)
(32)
26
(48)
15
(131)
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 227
28. Financial Risk Management Objectives and Policies (continued)
Market Risk (continued)
Currency Risk (continued)
Sensitivity Analysis
The following table demonstrates the sensitivity to reasonably possible changes in the respective currencies, with all other variables held
constant, of the Group’s profit before tax. In estimating reasonably possible changes the Group assessed the volatility of foreign exchange
rates during the reporting periods.
2015
2014
2013
Change in exchange rate
Effect on PBT
Change in exchange rate
Effect on PBT
Change in exchange rate
Effect on PBT
%
US$ millions
%
US$ millions
%
US$ millions
USD/RUB
EUR/RUB
CAD/RUB
EUR/USD
USD/CAD
EUR/CZK
USD/CZK
USD/ZAR
EUR/ZAR
USD/UAH
RUB/UAH
USD/KZT
(13.00)
40.00
(15.00)
43.00
(14.00)
35.00
(12.50)
12.50
(6.00)
14.50
(3.50)
3.50
(12.50)
12.50
(8.00)
38.00
(10.00)
43.00
(18.00)
67.00
(33.50)
50.00
(20.00)
60.00
(60)
3
60
(172)
(44)
109
(16)
14
30
(72)
–
–
(1)
1
–
(1)
–
–
20
(76)
–
–
31
(94)
(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)
In addition to the effects of changes in the exchange rates disclosed above, the Group is exposed to currency risk on derivatives (Note 25).
The impact of currency risk on the fair value of these derivatives is disclosed below.
USD/RUB
2015
2014
2013
Change in exchange rate
Effect on PBT
Change in exchange rate
Effect on PBT
Change in exchange rate
Effect on PBT
%
(13)
40
US$ millions
%
US$ millions
%
US$ millions
55
(104)
(28.74)
28.74
228
(126)
(10.10)
15.00
183
(213)
Financial StatementsNotes to the Consolidated Financial Statements (continued) 228
28. Financial Risk Management Objectives and Policies (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:
Č Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
Č 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
Č 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
2015
2014
2013
Assets measured at fair value
Available-for-sale financial assets (Note 13)
Liabilities measured at fair value
Derivatives not designated as hedging instruments (Note 25)
Hedging instruments (Note 25)
Contingent consideration payable for the acquisition of Stratcor (Note 25)
5
–
–
–
–
274
59
–
–
–
–
–
17
–
–
–
–
713
–
–
–
–
–
2
30
–
–
–
–
219
–
–
–
–
–
8
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
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.
US$ million
2015
2014
2013
Carrying
Fair value
Carrying
Fair value
Carrying
Fair value
Long-term fixed-rate bank loans
Long-term variable-rate bank loans
USD-denominated
8.25% notes due 2015
7.40% notes due 2017
7.75% bonds due 2017
9.50% notes due 2018
6.75% notes due 2018
7.50% bonds due 2019
6.50% notes due 2020
8.25% notes due 2021
Rouble-denominated
13.50% rouble bonds due 2014
8.75% rouble bonds due 2015
9.95% rouble bonds due 2015
8.40% rouble bonds due 2016
12.95% rouble bonds due 2019
amount
$397
1,680
–
290
195
354
802
347
1,009
746
–
–
–
167
205
$6,192
$385
1,588
–
299
190
379
804
328
955
747
–
–
–
165
208
$6,048
amount
$254
1,235
139
606
417
507
856
345
1,008
–
71
271
358
–
$6,067
$251
1,059
140
531
278
471
730
345
801
–
70
250
299
–
$5,225
amount
$209
776
569
605
431
505
855
–
1,007
627
122
466
614
–
$6,786
$249
814
621
634
417
568
858
–
951
645
121
464
592
–
$6,934
The fair value of the non-convertible bonds and notes was determined based on market quotations (Level 1). The fair value of long-term bank
loans was calculated based on the present value of future principal and interest cash flows, discounted at the Group’s market rates of interest
at the reporting dates (Level 3). The discount rates used for valuation of financial instruments were as follows:
Currency in which financial instruments are denominated
USD
EUR
RUB
2015
2014
2013
4.1 – 9.8%
1.8 – 6.2%
12.77%
8.9 – 14.7%
1.9%
–
4.5 – 8.2%
2.7%
10.4%
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 229
28. Financial Risk Management Objectives and Policies (continued)
Capital Management
Capital includes equity attributable to the equity holders of the parent entity. Revaluation surplus which is included in capital is not subject to
capital management because of its nature.
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order
to support its business and maximise the return to shareholders. The Board of Directors reviews the Group’s performance and establishes key
performance indicators. There were no changes in the objectives, policies and processes during 2015.
The Group manages its capital structure and makes adjustments to it by the issue of new shares, dividend payments to shareholders, and the
purchase of treasury shares. In addition, the Group monitors distributable profits on a regular basis and determines the amounts and timing of
dividend payments taking into account cashflow and other constraints.
29. Non-cash Transactions
Transactions that did not require the use of cash or cash equivalents,not disclosed in the notes above, were as follows
in the years ended 31 December:
US$ million
Liabilities for purchases of property, plant and equipment
Loan issued to a partner of the Mezhegey coal field project
2015
$63
–
2014
$45
–
2013
$148
2
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 USA and Canada. Russia and Ukraine 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 negatively impacted the Russian economy.
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 $86 million.
Financial StatementsNotes to the Consolidated Financial Statements (continued) 230
30. Commitments and Contingencies (continued)
Contractual Commitments
At 31 December 2015, the Group had contractual commitments for the purchase of production equipment and construction works for an
approximate amount of $156 million.
In 2010, the Group concluded a contract for the construction of an air separation plant and for the supply of oxygen and other gases produced
by a third party at this plant for a period of 20 years. Due to a change in plans of the third party provider and in management’s assessment of
the extent of sales of gases to third parties the Group no longer considers this supply contract to fall within the scope of IFRIC 4 “Determining
whether an Arrangement Contains a Lease” (Note 2 Accounting Judgements). At 31 December 2015, the Group has a committed expenditure
of $518 million over the life of the contract, which is $76 million higher than the reported amount at 30 June 2015.This change was caused
by the extension of the term of the contract to 25 years.
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 $42 million under these programmes in 2016.
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 2015 amounted to $12 million. Preliminary estimates available of the
incremental costs indicate that such costs could be up to $263 million. The Group has insurance agreements, which are expected to provide
reimbursement of the costs to be 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 2016 to 2022, under which
the Group will perform works aimed at reductions in environmental pollution and contamination. As of 31 December 2015, the costs of
implementing these programmes are estimated at $110 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. As of 31 December 2015, possible legal risks approximate $9 million.
31. Auditor’s Remuneration
The remuneration of the Group’s auditor in respect of the services provided to the Group was as follows.
US$ 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
2015
2014
2013
$2
3
5
–
–
–
$5
$2
5
7
2
–
2
$9
$2
5
7
–
1
1
$8
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 231
32. Material Partly-Owned Subsidiaries
Financial information of subsidiaries that have material non-controlling interests is provided below.
Country of incorporation
Non-controlling interests
Name
Raspadskaya
EVRAZ Highveld Steel and Vanadium Limited
New CF&I (subsidiary of EVRAZ Inc NA)
Russia
Republic of South Africa
USA
US$ 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
2015
18.05%
–
10.00%
2015
$56
–
101
(24)
133
(32)
1
3
(47)
$(75)
2014
18.05%
14.89%
10.00%
2014
$108
4
98
8
218
(58)
(19)
9
(35)
$(103)
2013
18.05%
14.89%
10.00%
2013
$262
24
90
55
431
(30)
(18)
9
(8)
$(47)
The summarised financial information of these 3 subsidiaries is provided below. This information is based on amounts before inter-company
eliminations.
Summarised statement of profit or loss
Raspadskaya
US$ 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
2015
$420
(334)
86
(79)
(91)
(114)
(198)
(24)
(222)
44
$(178)
(152)
(330)
(51)
–
From 1 January to 14 April 2015
$145
(138)
7
(21)
–
(2)
(16)
20
4
–
$4
(1)
3
–
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)
–
2013
$519
(481)
38
(159)
–
(30)
(151)
(39)
(190)
33
$(157)
(126)
(283)
(49)
–
2013
$538
(510)
28
(90)
(99)
–
(161)
(7)
(168)
46
$(122)
(45)
(167)
(24)
–
Financial StatementsNotes to the Consolidated Financial Statements (continued) 232
32. Material Partly-Owned Subsidiaries (continued)
Summarised statement of profit or loss (continued)
New CF&I
US$ 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
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
2015
$635
(565)
70
(52)
–
–
18
20
38
(12)
$26
4
30
3
–
2015
$883
51
279
1,213
54
507
247
808
405
348
57
2014
$922
(768)
154
(49)
–
–
105
18
123
(37)
$86
(10)
76
8
–
2014
$1,316
32
117
1,465
93
530
107
730
735
627
108
2015
2014
$–
–
–
–
–
–
–
–
–
–
–
$80
30
149
259
–
64
169
233
26
22
4
2013
$858
(738)
120
(42)
–
–
78
48
126
(40)
$86
(15)
71
7
–
2013
$2,350
12
180
2,542
213
570
107
890
1,652
1,390
262
2013
$137
66
178
381
15
73
129
217
164
140
24
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 32. Material Partly-Owned Subsidiaries (continued)
Summarised statement of financial position as at 31 December (continued)
New CF&I
US$ 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
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
33. Subsequent Events
There were no significant events after the reporting date.
2015
$214
967
125
1,306
42
81
173
296
1,010
909
101
2015
$107
(32)
(49)
From 1 January to 14 April 2015
$–
(5)
(2)
2015
$101
(101)
–
233
2013
$235
812
183
1,230
90
72
164
326
904
814
90
2013
$25
(73)
(89)
2013
$(30)
(19)
16
2013
$140
(145)
5
2014
$237
929
186
1,352
85
86
201
372
980
882
98
2014
$120
(61)
(41)
2014
$(15)
(15)
7
2014
$154
(154)
–
Financial StatementsNotes to the Consolidated Financial Statements (continued) 234
34. List of Subsidiaries and Other Significant Holdings
Country of incorporation
Name
Relationship
Effective ownership in 2015, %
Austria
Austria
Belgium
Hochvanadium Handels GmbH
Hochvanadium Holdings AG
Dufin Caster Project S.A.
British Virgin Islands
Cassar World Investments Corporation
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
China
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Camrose Pipe Corporation
Canadian National Steel Corporation
Evraz Inc NA Canada
EVRAZ Materials Recycling Inc.
Evraz Wasco Pipe Protection Corporation
Genalta Recycling Inc.
General Scrap Partnership
Genlandco Inc.
Kar-basher Manitoba Ltd
Kar-basher of Alberta Ltd
King Crusher Inc.
New Gensubco Inc.
Sametco Auto Inc.
Delong Holdings Limited
Actionfield Limited
Crownwing Limited
East Metals Limited
Laybridge Limited
Malvero
Mastercroft Finance Limited
Mastercroft Mining Limited
RVK Invest Limited
Sinano Limited
Steeltrade Limited
Streamcore Limited
Tuva Railway Limited
Unicroft Limited
Vanston Limited
Velcast Limited
Czech Republic
Nikom, a.s.
Italy
Kazakhstan
Kazakhstan
Evraz Palini e Bertoli S.r.l
Evraz Caspian Steel
EvrazMetall Kazakhstan
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
joint venture
indirect subsidiary
indirect subsidiary
joint venture
indirect subsidiary
joint venture
indirect subsidiary
indirect subsidiary
investment
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
associate
indirect subsidiary
indirect subsidiary
joint venture
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
85.11%
85.11%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
51.00%
50.00%
100.00%
100.00%
50.00%
100.00%
50.00%
100.00%
100.00%
15.04%
60.02%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
42.61%
100.00%
100.00%
50.00%
60.02%
100.00%
100.00%
100.00%
100.00%
100.00%
65.00%
100.00%
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 34. List of Subsidiaries and Other Significant Holdings (continued)
Country of incorporation
Name
Relationship
Effective ownership in 2015, %
235
indirect subsidiary
direct subsidiary
direct subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
Luxembourg
Luxembourg
Luxembourg
Luxemburg
Malta
Malta
Malta
Netherlands
Netherlands
Panama
Corber Enterprises S.à r.l
Evraz Greenfield Development S.A.
Evraz Group S.A.
Mastercroft S.à r.l
Aino Dake Maritime Limited
Kita Dake Maritime Limited
Mae Dake Maritime Limited
ECS Holdings Europe B.V.
Palmrose B.V.
Korten Corporation
Republic of South Africa
Evraz Highveld Steel and Vanadium Limited
Republic of South Africa
Evraz Vametco Alloys (PTY) Ltd
Republic of South Africa
Evraz Vametco Holdings (PTY) Ltd
Republic of South Africa
Evraz Vametco Properties (PTY) Ltd
Republic of South Africa
Mapochs Mine (Proprietary) Limited
Republic of South Africa
Mapochs Mine Community Trust
Aktiv-Media
ATP Evrazruda
ATP NTMK
ATP Yuzhkuzbassugol
ATP ZSMK
AVT-Ural
Beltrans
Blagotvoritelniy fond Evraza - Sibir
Blagotvoritelniy fond Evraza - Ural
Blagotvoritelniy fond Veteran Evraz Sibir
Briyanskmetallresursy
Centr kultury i iskusstva NTMK
Centr podgotovki personala Evraz-Ural
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Centralnaya Obogatitelnaya Fabrika Abashevskaya
indirect subsidiary
Centralnaya Obogatitelnaya Fabrika Kuznetskaya
indirect subsidiary
Consortium Tuvinskie dorogi
DakService
DaksSoft
Elekrosvyaz YKU
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
Evraz Consolidated West-Siberian metallurgical Plant
indirect subsidiary
EVRAZ Kachkanarsky Ore Mining and Processing Plant
indirect subsidiary
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
65.00%
100.00%
100.00%
85.11%
59.07%
59.07%
59.07%
62.98%
0.00%
100.00%
100.00%
100.00%
100.00%
100.00%
51.00%
100.00%
-
-
-
99.96%
-
-
92.10%
100.00%
60.02%
100.00%
100.00%
87.20%
100.00%
100.00%
Financial StatementsNotes to the Consolidated Financial Statements (continued) 236
34. List of Subsidiaries and Other Significant Holdings (continued)
Country of incorporation
Name
Relationship
Effective ownership in 2015, %
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Evraz Nakhodka Trade Sea Port
Evraz Nizhny Tagil Metallurgical Plant
EVRAZ Vanady-Tula
EvrazEK
Evrazenergotrans
EvrazHolding LLC
EvrazHolding-Finance
EvrazMetall Centr
EvrazMetall Chernozemie
EvrazMetall Dalniy Vostok
EvrazMetall Severo-Zapad
EvrazMetall Sibir
EvrazMetall Ural
EvrazMetall Volga
EvrazMetall Yug
EvrazMetallService
Evrazruda
Evraz-Service
Evraztekhnika
Football Club Metallurg-Kuzbass
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
Industrialnaya Vostochno-Evropeiskaya company
indirect subsidiary
Information systems
INPROM
Issledovatelsky centr
indirect subsidiary
indirect subsidiary
associate
Kachkanarskaya teplosnabzhauschaya company
indirect subsidiary
Kalugametalltorg
Kulturno-sportivniy centr metallurgov
Kuznetskpogruztrans
Kuznetskteplosbyt
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
Management Company EVRAZ Mezhdurechensk
indirect subsidiary
Medsanchast Vanady
Mekona
Metallenergofinance
Metalloservisnie centry
Metallurg-Forum
Metpromstroy
Mezhegeyugol Coal Company
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
-
100.00%
100.00%
100.00%
20.00%
100.00%
90.94%
-
94.50%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
75.00%
100.00%
60.02%
www.evraz.comNotes to the Consolidated Financial Statements (continued)Annual Report & Accounts 2015 34. List of Subsidiaries and Other Significant Holdings (continued)
Country of incorporation
Name
Relationship
Effective ownership in 2015, %
237
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Mezhegeyugol LLC
Mining Metallurgical Compnay “Timir”
Montajnik Raspadskoy
Mordovmetallotorg
MUK-96
Novokuznetskmetallopttorg
NT TK Telecon
Obogatitelnaya Fabrika Raspadskaya
Ohothichie hozyaistvo
indirect subsidiary
joint venture
indirect subsidiary
indirect subsidiary
indirect subsidiary
associate
indirect subsidiary
indirect subsidiary
indirect subsidiary
Olzherasskoye shakhtoprokhodcheskoye upravlenie
indirect subsidiary
Osinnikovsky remontno-mekhanichesky zavod
Penzametalltorg
Promuglepoject
Publishing House IKaR
Raspadskaya
Raspadskaya logisticheskaya company
Raspadskaya ugolnaya company
Raspadskaya-Energo
Raspadskaya-Koksovaya
Raspadskiy Ugol
Razrez Raspadskiy
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
Regionalniy Centr podgotovki personala Evraz-Sibir
indirect subsidiary
Rembytcomplect
Remontno-mekhanicheskiy zavod
Remontno-stroitelny complex
Salda Energo
Samarskiy mekhanicheskiy zavod
Sanatoriy-porfilactory Lenevka
Shakhta Abashevskaya
Shakhta Alardinskaya
Shakhta Esaulskaya
Shakhta Kureinskaya
Shakhta Kusheyakovskaya
Shakhta Osinnikovskaya
Shakhta Uskovskaya
Sibirskaya registratsionnaya company
Sibir-VK
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
investment
joint venture
60.02%
51.00%
81.95%
99.90%
81.95%
48.51%
100.00%
81.95%
-
81.95%
84.43%
100.00%
100.00%
100.00%
81.95%
81.95%
81.95%
81.95%
81.95%
81.95%
81.95%
-
100.00%
100.00%
100.00%
100.00%
100.00%
-
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
10.06%
50.00%
Financial StatementsNotes to the Consolidated Financial Statements (continued) 238
Notes to the Consolidated Financial Statements (continued)
34. List of Subsidiaries and Other Significant Holdings (continued)
Country of incorporation
Name
Relationship
Effective ownership in 2015, %
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Sibmetinvest
indirect subsidiary
Specializirovannoye Shakhtomontazhno-naladochnoye upravlenie
indirect subsidiary
Sportivniy complex Uralets
Tagil Telecom
Tagilteplosbyt
indirect subsidiary
associate
indirect subsidiary
Tomusinskoye pogruzochno-transportnoye upravlenie
indirect subsidiary
TORFAGREGAT
Trade Company EvrazHolding
Trade House EvrazHolding
TULAMETALLOPTTORG
TV-Most
TVN
Uliyanovskmetall
United accounting systems
United Coal Company Yuzhkuzbassugol
Upravlenie po montazhu, demontazhu i remontu gornoshakhtnogo
oborudovaniya
Vanady-remont
Vanadyservice
Vanady-transport
Vladimirmetallopttorg
Vtorresurspererabotka
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
joint venture
Yuzhno-Kuzbasskoye geologorazvedochnoye upravlenie
indirect subsidiary
Yuzhny Stan
ZAO Irkutskvtorchermet
ZAO Vtorchermet
Zapsibzhilstroy
Zavod metallurgicheskih reagentov
Switzerland
Switzerland
East Metals A.G.
East Metals Shipping A.G.
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Bon Life
Evraz Bagkeykoks
Evraz Dnepropetrovsky Steel Works
Evraz Sukha Balka
Evraz Ukraine
Evraztrans-Ukraine
Krivorozhshahtostroy
LK Adzhalyk
indirect subsidiary
associate
associate
indirect subsidiary
associate
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
100.00%
79.14%
–
25.50%
100.00%
48.01%
100.00%
100.00%
100.00%
99.71%
100.00%
100.00%
99.37%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
95.63%
50.00%
100.00%
100.00%
42.61%
42.61%
100.00%
50.00%
100.00%
100.00%
96.94%
94.96%
96.94%
99.42%
100.00%
100.00%
99.42%
100.00%
www.evraz.comAnnual Report & Accounts 2015 34. List of Subsidiaries and Other Significant Holdings (continued)
Country of incorporation
Name
Relationship
Effective ownership in 2015, %
239
Ukraine
Ukraine
Trade House Evraz Ukraine
United accounting systems Ukraine
United Kingdom
Evraz North America plc
United Kingdom
Viscaria 2 Limited
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
CF&I Steel LP
Colorado and Wyoming Railway Company
East Metals Services Inc.
Evraz Claymont Steel, Inc.
Evraz Inc. NA
Evraz Stratcor, Inc.
Evraz Trade NA LLC
Fremont County Irrigating Ditch Co.
General Scrap Inc.
New CF&I Inc.
Oregon Ferroalloy Partners
Oregon Steel Mills Processing Inc.
OSM Distribution Inc.
Strategic Minerals Corporation
Union Ditch and Water Co.
US Tungsten
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
investment
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
99.42%
100.00%
100.00%
100.00%
90.00%
90.00%
100.00%
100.00%
100.00%
100.00%
100.00%
13.80%
100.00%
90.00%
60.00%
100.00%
100.00%
78.76%
57.59%
78.76%
Financial StatementsNotes to the Consolidated Financial Statements (continued) 240
Separate Statement of Comprehensive Income
(In millions of US dollars)
General and administrative expenses
Impairment of investments
Foreign exchange gains
Gain on sale of financial assets
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
4
3
8
7
31 December
2015
$(8)
(145)
9
2
(3)
350
6
211
$211
2014
$(11)
(470)
29
–
(5)
150
1
(306)
$(306)
www.evraz.comAnnual Report & Accounts 2015 Separate Statement of Financial Position
(In millions of US dollars)
241
ASSETS
Non–current assets
Investments in subsidiaries
Investments in joint ventures
Financial assets
Receivables from related parties
Current assets
Receivables from related parties
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
Capital and reserves
Issued capital
Treasury shares
Reorganisation reserve
Merger 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
31 December
Notes
2015
2014
3
3
4
7
7, 8
5
5
3, 5
5
6
3
7
3
7
7
$2,880
40
–
24
2,944
12
16
28
2,972
1,507
(305)
(584)
127
101
2,067
2,913
20
21
41
$2,925
92
6
6
3,029
4
34
38
3,067
1,507
–
(584)
57
81
1,960
3,021
18
6
24
8
–
10
18
59
$2,972
18
1
3
22
46
$3,067
The Financial Statements on pages 240 to 249 were approved by the Board of Directors on 14 March 2016 and signed on its behalf by
Alexander Frolov, Chief Executive Officer.
The accompanying notes form an integral part of these separate financial statements.
Financial Statements 242
Separate 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:
Impairment of investments
Foreign exchange gains
Gain on sale of financial assets
Interest expense
Dividend income
Other income
Changes in working capital:
Receivables from related parties
Taxes receivable
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
Receipts from sale of financial assets
Loans issued to related parties
Proceeds from repayment of loans issued to related parties
Dividends received
Return of funds by subsidiaries
Net cash flow from investing activities
Cash flows from financing activities
Purchase of treasury shares
Dividends paid to shareholders
Other financing activities
Net cash flow used in financing activities
Net (decrease)/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.
Notes
2015
2014
$211
$(306)
3
3
4
3, 7, 9
8
7
7
3
3
3
4
4
7
7
8
3
5
5
3
145
(9)
(2)
3
(350)
(6)
(8)
1
–
(7)
(88)
–
–
8
(16)
16
350
60
330
(339)
–
(2)
(341)
(18)
34
$16
470
(29)
–
5
(150)
(1)
(11)
–
15
4
(102)
(29)
(6)
–
–
–
263
–
126
(6)
(90)
–
(96)
34
–
$34
www.evraz.comAnnual Report & Accounts 2015 243
Separate Statement of Changes in Equity
(In millions of US dollars)
At 31 December 2013
Total comprehensive
income/(loss) for the year
Exercise of warrants
Impairment of the
investment in Corber
Share-based payments
Purchase of treasury
shares
Transfer of treasury
shares to participants of
the Incentive Plans
Dividends declared
At 31 December 2014
Total comprehensive
income/(loss) for the year
Reversal of impairment of
the investment in Corber
Share-based payments
Purchase of treasury
shares
Transfer of treasury
shares to participants of
the Incentive Plans
At 31 December 2015
Notes
Issued
capital
$1,473
Treasury
Reorganisation
shares
$–
reserve
$(584)
–
34
–
–
–
–
–
$1,507
–
–
–
–
–
5
3
6
6
6
5
3
6
5
5
–
–
–
–
(6)
6
–
$–
–
–
–
(336)
31
–
–
–
–
–
–
–
$(584)
–
–
–
–
–
Merger
reserve
$478
–
122
(543)
–
–
–
–
$57
–
70
–
–
–
Warrants
Share-based
Accumulated
reserve
$156
payments
$51
profits
$1,819
Total
$3,393
–
(156)
–
–
–
–
–
$–
–
–
–
–
–
–
–
–
30
–
–
(306)
(306)
–
543
–
–
(6)
–
–
30
(6)
–
–
$81
(90)
$1,960
(90)
$3,021
–
–
20
–
–
211
(70)
–
(3)
(31)
211
–
20
(339)
–
$1,507
$(305)
$(584)
$127
$–
$101
$2,067
$2,913
The accompanying notes form an integral part of these separate financial statements.
Financial Statements 244
Notes to the Separate Financial Statements
For the year ended 31 December 2015
1. Corporate Information
These separate financial statements of EVRAZ plc were authorised for issue in accordance with a resolution of the directors on 14 March 2016.
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 2015, 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 dollars
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 initial 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.
www.evraz.comAnnual Report & Accounts 2015 Notes to the Separate Financial Statements (continued)
245
2. Significant Accounting Policies (continued)
Investments (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.
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.
Financial Guarantee Liabilities
Financial guarantee liabilities issued by the Company 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 between the Company and banks providing loans to the Company’s subsidiaries are recognised initially as a liability
at fair value, being equal to the estimated future cash inflows receivable from the subsidiaries under the guarantee agreements, with a
corresponding recognition of the same amount as receivables from related parties. Subsequently, the liability is amortised over the lives of the
guarantees through the statement of comprehensive income, unless it is considered probable that a guarantee will be called, in which case it
is measured at the value of the guaranteed amount payable, if higher.
3. Investments in Subsidiaries and Joint Ventures
Investments in subsidiaries and joint ventures consisted of the following as of 31 December:
Subsidiaries
Evraz Group S.A.
EVRAZ Greenfield Development S.A.
Corber Enterprises S.à r.l.
Joint Ventures
OJSC Mining and Metallurgical Company Timir
Ownership interest
Cost, net of impairment
US$ million
2015
2014
2015
2014
100%
100%
0%
100%
100%
50%
51.00001%
51.00001%
2,849
31
–
2,880
40
2,250
254
421
2,925
92
Financial Statements 246
Notes to the Separate Financial Statements (continued)
3. Investments in Subsidiaries and Joint Ventures (continued)
The movement in investments was as follows:
$US million
Evraz Group S.A.
EVRAZ Greenfield
Corber
Timir
Total
31 December 2013
Share-based compensations
Impairment loss (recognition)/reversal
31 December 2014
Additional investments
Reduction of investments
Share-based compensations
Impairment loss (recognition)/reversal
Sale of Corber investment
31 December 2015
Development S.A.
$2,220
30
–
$2,250
88
–
20
–
491
$2,849
$134
–
120
$254
–
(60)
–
(163)
–
$31
$964
–
(543)
$421
–
–
–
70
(491)
$–
$139
–
(47)
$92
–
–
–
(52)
–
$40
$3,457
30
(470)
$3,017
88
(60)
20
(145)
–
$2,920
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. 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 the share exchange.
In 2015, the Company made a contribution to the share capital of Evraz Group S.A. for a total amount of $579 million, including $88 million in
cash and $491 million in the form of the ownership interest in Corber.
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 2015 and 2014, share-based compensations amounted to $20 million and $30 million.
EVRAZ Greenfield Development S.A.
In 2012-2013, the Company made cash contributions to EVRAZ Greenfield Development S.A. (“EGD”) in the amount of $305 million. EGD
owns a 60.016% share in the Mezhegey coal field project, which is at the development stage.
In 2015, EGD decreased the share capital and returned $60 million to the Company in cash.
At 31 December 2015 and 2014, 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 13.90% and 18.36% in 2015 and
2014, respectively.
As a result, in 2015, the Company recognised an impairment loss of $163 million. The major driver that led to impairment was the change in
expectations of long-term prices for coal.
In 2014, the Company reversed $120 million of impairment losses previously recognised 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 that originally estimated.
Corber Enterprises S.à r.l.
In 2013, EVRAZ plc acquired a 50% ownership interest in Corber Enterprises S.à r.l. (“Corber”), the parent of a coal mining company
Raspadskaya, for $964 million.
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, 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 rate was 16.10%. 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.
www.evraz.comAnnual Report & Accounts 2015 Notes to the Separate Financial Statements (continued)
247
3. Investments in Subsidiaries and Joint Ventures (continued)
Corber Enterprises S.à r.l. (continued)
In 2015, the Company made a contribution in kind to the share capital of Evraz Group S.A. with its share in Corber for a total amount of $491
million. The value of the share in Corber was assessed based on the value-in-use calculation using a discount rate of 13.95%. As a result, the
Company recognised a reversal of impairment amounting to $70 million.
OJSC Mining and Metallurgical Company Timir
Since 2013 the Company owns a 51% ownership interest in the joint venture with Alrosa for the development of iron ore deposits in the
Yakutia region in Russia. The Company’s consideration for this stake of 4,950 million roubles was recognised in the amount of $149 million
being the present value of the expected cash outflows at the exchange rate as of the date of the transaction.
The payment schedule was subsequently amended and in 2015 and 2014 the Company recognised $3 million and $5 million, respectively,
within interest expense representing the unwinding of the discount on this liability and interest charges on the postponed instalments.
In 2014, the Company paid 990 million roubles ($28 million) of purchase consideration and $1 million of interest charges. In 2015, only
interest charges were paid.
In 2015 and 2014, the Company recognised $9 million and $28 million of foreign exchange gains on liabilities for Timir shares due to
depreciation of the Russian rouble.
At 31 December 2015 and 2014, trade and other accounts payable included liabilities relating to this acquisition in the amount of $28 million
and $36 million, respectively.
At 31 December 2015 and 2014, 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 12.70% and 14.46% in 2015 and
2014, respectively. As a result, in 2015 and 2014, the Company recognised impairment losses of $52 million and $47 million, respectively.
The major drivers that led to impairment were the decrease in the expected long-term prices for iron ore, the increase in the amount of the
required capital expenditures to maintain the production at the budgeted capacities and the postponement of the start of production for 1
year.
Additional information regarding Timir is provided in Note 11 of the consolidated financial statements.
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.
Indirect Subsidiaries and Other Significant Holdings
The full list of indirect subsidiaries and other significant holdings of EVRAZ plc is presented in Note 34 of the consolidated financial
statements.
4. Financial Assets
In 2014, the Company purchased certain bonds of Raspadskaya, an indirect subsidiary, on the market. The Company paid $6 million for the
7.74% bonds due 2017 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).
In 2015, the Company sold these bonds to Evraz Group S.A. at a price close to the market value and received $8 million in cash. The gain of
$2 million was recognised in the statement of comprehensive income.
Financial Statements 248
5. Equity
Share Capital
Number of shares
Ordinary shares of $1 each, issued and fully paid
EVRAZ plc does not have an authorised limit on its share capital.
31 December
2015
2014
1,506,527,294
1,506,527,294
Buy-back of 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. In April 2015, EVRAZ plc repurchased 108,458,508 of its own shares ($336 million). The Company
incurred $3 million of transaction costs, which were charged to accumulated profits. 9,977,259 of ordinary shares were transferred to the
participants of Incentive Plans (Note 6).
At 31 December 2015 and 2014, the Company held 98,481,249 and Nil of its own shares, respectively.
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.
Merger Reserve
The merger reserve arose in 2013 in connection with the purchase of 50% in Corber. Impairments of the carrying value of this investment
were transferred to the merger reserve.
The disposal of the investment in Corber to Evraz Group S.A., the Company’s subsidiary, in 2015 (Note 3) was made for non-cash
consideration which does not meet the criteria for qualifying consideration. The balance of the merger reserve will be presented as a separate
component of equity in the Company’s statement of financial position until such time as Evraz Group S.A. is sold for qualifying consideration,
and the merger reserve will be re-allocated to accumulated profits and become distributable.
Warrants Reserve
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 ($34 million) was credited to the merger reserve.
Dividends
In 2014-2015, the Company declared dividends as follows:
Special for 2014
08/04/2014
06/06/2014
90
Date of declaration
To holders registered at
Dividends declared, US$ million
US$ per share
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.
Distributable Reserves
$US million
Accumulated profits
Reorganisation reserve
31 December
2015
2,067
(584)
1,483
2014
1,960
(584)
1,376
www.evraz.comNotes to the Separate Financial Statements (continued)Annual Report & Accounts 2015 249
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. The cost of treasury shares gifted under Incentive Plans, amounting to $6 million, was charged to accumulated profits.
In 2015 and 2014, the Company recognised a $20 million and $30 million share-based compensation expense as a cost of investment in
Evraz Group S.A. with a corresponding increase in equity.
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.
In 2015, OOO Evrazholding, an indirect subsidiary of the Company, rendered consulting services in the amount of $1 million (2014: $2
million). At 31 December 2014, the balances with related parties included accounts payable to OOO Evrazholding in the amount of $1
million.
In 2014 and 2015, the Company issued guarantees to several banks in respect of the liabilities of EVRAZ NTMK and EVRAZ ZSMK, indirect
subsidiaries of the Company, under certain loans totalling $1,781 million at 31 December 2015. The loans are due for repayment during
the period from 2016 to 2023. 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. The Company earns guarantee fees in respect of these guarantees and in 2015 it accrued $6
million of such income (2014: $1 million). In 2015, the Company recognised a financial guarantee liability of $25 million (2014: $9 million).
In 2015, the Company issued a loan to Raspadskiy Ugol, an indirect subsidiary of the Company. The loan bore interest of 7% per annum with
the maturity date on 30 April 2018. The amount of $16 million was fully settled by Raspdskiy Ugol by the end of 2015.
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.
7. Dividend Income
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 including $113 million of dividends declared by Evraz group S.A. in 2013.
In 2015, Evraz Group S.A. declared and paid dividends to the Company in the amount of $350 million.
8. Subsequent Events
There were no significant events after the reporting date.
Financial StatementsNotes to the Separate Financial Statements (continued) 250
2–3
Meet EVRAZ
4–51
Strategic report
52–79
Business review
80–101
CSR report
102–149
Governance
150–249
Financial statements
250–262
Additional information
252 Stock performance
indicators and
shareholder information
254 Definitions of selected
financial indicators
256 Data on mineral resources
258 Terms and Abbreviations
Annual Report & Accounts 2015www.evraz.com 251
ADDITIONAL
INFORMATION
Additional information 252
STOCK PERFORMANCE
INDICATORS
AND SHAREHOLDER
INFORMATION
Information about shares of EVRAZ plc
The issued share capital of EVRAZ plc is 1,506,527,294 ordinary
shares with a nominal value of US$1 each.
As at 31 December 2015 , the current number of shares outstanding is 1,408,143,712. The
Company holds 98,383,582 ordinary shares in treasury. The total number of voting rights
attaching to the ordinary shares of the Company is therefore 1,408,143,712.
The figure of 1,408,143,712 ordinary shares may be used by shareholders as the
denominator for the calculations by which they will determine if they are required to notify
their interest in, or a change to their interest in, the Company’s ordinary shares under the
FCA’s Disclosure and Transparency Rules.
The shares of EVRAZ plc trades on the Main market of London Stock Exchange:
Ticker (Bloomberg)
Trading service
EVR LN
SETS
Market
MAINMARKET
Listing category
Premium Equity Commercial Companies
FTSE index
FTSE All-Share,FTSE 350 Low Yield,FTSE 250,FTSE All-Share
(ex IT),FTSE 350 (ex IT),FTSE MID 250 (ex IT),FTSE 350
FTSE sector
Industrial Metals & Mining
FTSE sub-sector
Iron & Steel
Country of share register
GB
Segment
STMM
MiFID Status
Regulated Market
SEDOL
B71N6K8
ISIN number
GB00B71N6K86
Ultimate beneficial owners,
% of voting rights1
Roman Abramovich2
Alexander Abramov2
Alexander Frolov2
Gennady Kozovoy3
Alexander Vagin3
Eugene Shvidler2
Other
31.28%
21.79%
10.88%
5.95%
5.89%
3.11%
21.10%
1The company is aware of the following ultimate beneficial
owners who have an interest in three percent or more
of EVRAZ plc’s share capital (in each case, except for
Gennady Kozovoy, held indirectly).
2As per TR-1 Form: Notification of major interest in shares
dated 7 October 2015. Includes pro-rata shareholding held
via Lanebrook and additional shares held outside Lanebrook.
3 As per TR-1 Form: Notification of major interest in shares
dated 6 February 2013. For Mr Kozovoy, includes shares
held directly.
www.evraz.comAnnual Report & Accounts 2015
253
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:
Č Make sure you get the correct name of the person and organisation.
Č 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.
Č Report the matter to the FSA either by calling 0845 606 1234 or visiting www.fsa.gov.uk/
scams.
Č 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.
Share price, Relative share price dynamics, 52w
EVRAZ - share price
∆ Jan 2015/Dec 2015 –55%
FTSE250 Index
FTSE350 mining Index
160
140
120
100
80
60
40
20
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
2016
2015
Additional information 254
DEFINITIONS OF SELECTED
FINANCIAL INDICATORS
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
disposals 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 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.
EBITDA
EBITDA is determined as a segment’s profit/(loss) from operations adjusted for social and
social infrastructure maintenance expenses, 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.
In 2015, management changed the definition of segment expense and EBITDA to make
these indicators more comparable with the Russian steel peers. Starting from the 2015
consolidated financial statements segment expense does not include social and social
infrastructure maintenance expenses and profit/(loss) from operations is adjusted for these
expenses in arriving at EBITDA. As a result, the Group restated EBITDA based on both IFRS
and management accounts for the years ended 31 December 2014 and 2013.
See note 3 of the consolidated financial statement on page 182 for additional information.
Cash and short-term bank deposits
Cash and short-term bank deposits is not a measure under IFRS and should not be
considered as an alternative to other measures of financial position. EVRAZ’ calculation
of cash and short-term bank deposits may be different from the calculation used by other
companies and therefore comparability may be limited.
Calculation of cash and short-term bank deposits, US$ million
Cash and cash equivalents
Cash of disposals classified as held for sale
Collateral under swaps
Cash and short-term bank deposits
31 December 2015
31 December 2014
1,375
–
–
1,375
1,086
–
7
1,093
www.evraz.comAnnual Report & Accounts 2015 255
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, and the nominal effect of
cross-currency swaps on principal of rouble-denominated notes. Total debt is not a measure
under IFRS and should not be considered as an alternative to other measures of financial
position. EVRAZ’ calculation of total debt may be different from the calculation used by other
companies and therefore comparability may be limited. The current calculation is different
from that used for covenant compliance calculations.
Calculation of total debt, 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
Finance lease liabilities, including current portion
TOTAL DEBT
Net debt
31 December 2015
31 December 2014
5,850
497
47
325
5
6,724
5,470
761
37
635
4
6,907
Net debt represents total debt less cash and liquid short-term financial assets, including
those related to disposals classified as held for sale. Net debt is not a measure under IFRS
and should not be considered as an alternative to other measures of financial position.
EVRAZ’ calculation of net debt may be different from the calculation used by other companies
and therefore comparability may be limited. The current calculation is different from that
used for covenant compliance calculations.
Calculation of net debt, 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 2015
31 December 2014
6,724
-
(1,375)
-
-
5,349
6,907
-
(1,086)
-
(7)
5,814
Additional information 256
DATA ON MINERAL
RESOURCES
Coal
Yuzhkuzbassugol JORC Equivalent Coal Reserves as at 31 December 2015
Mine
Alardinskaya
Yesaulskaya
Osinnikovskaya
Uskovskaya
Yerunakovskaya VIII
TOTAL
Reserves and Resources are in-situ or ROM (Run of Mine) tonnes
Raspadskaya JORC Equivalent Coal Reserves as at 31 December 2015
Mine
Raspadskaya
MUK-96
Raspadskaya Koksovaya
Razrez Raspadsky
TOTAL
Reserves are in-situ or ROM (Run of Mine) tonnes
Proved and Probable, kt
91,994
3,520
62,695
129,615
125,826
413,650
Proved and Probable, kt
882,205
131,876
179,968
138,784
1,332,833
www.evraz.comAnnual Report & Accounts 2015 257
S %
1
0.9
0.9
0.8
S %
0.14
0.16
0.12
0.16
0.14
0.14
Proved and Probable, kt
71,476
Iron ore
Evrazruda JORC Equivalent Iron Ore Reserves as at 31 December 2015
Mine
Tashtagol
Sheregesh
Kaz
TOTAL
Proved and probable, kt
4,057
65,884
7,274
77,215
Reserves are in-situ or ROM (Run of Mine) tonnes
Kachkanarsky GOK (EVRAZ KGOK) JORC Equivalent Iron Ore
Reserves as at 31 December 2015
Mine
Proved and probable, kt
Gusevogorskoye Deposit
Main pit
Southern pit
Northern pit
Western pit
Kachkanar Proper
(Sobstvenno-
Kachkanarskoye) Deposit
TOTAL
Reserves are in-situ or ROM tonnes
417,022
40,485
570,784
145,266
6,904,420
8,077,977
EVRAZ Sukha Balka JORC Equivalent Iron Ore Reserves as at 31 December 2015
TOTAL
Reserves are in-situ or ROM tonnes.
Fe %
38
29.8
32.9
28.0
Fe %
16.1
16.6
15.6
16.1
16.5
16.4
Additional information 258
TERMS AND ABBREVIATIONS
Basic oxygen furnace
Basic oxygen furnace is a frunace used in a method of primary steelmaking in which carbon-rich molten pig iron
is made into steel. Blowing oxygen through molten pig iron lowers the carbon content of the alloy and changes
it into low-carbon steel. The process is known as basic because fluxes of burnt lime or dolomite, which are
chemical bases, are added to promote the removal of impurities and protect the lining of the converter.
Beam
Billet
Blast furnace
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
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
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
Cash cost of coking coal
concentrate
Cash cost of coking coal concentrate is defined as the production cost less depreciation , incl. SG&A and
Maintenance CAPEX., the result is divided by production volumes. This measure is used to monitor segment
competitiveness improvement.
Capex
CFR
Channel
Coal washing
Coke
Coke battery
Coking coal
Concentrate
Capital expenditure
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
U-shaped section for construction
The process of removing mineral matter from coal usually through density separation, for coarser coal and
using surface chemistry for finer particles.
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
A group of coke ovens operating as a unit and connected by common walls
Highly volatile coal used to manufacture coke
A product resulting from iron ore / coal enrichment, with a high grade of extracted mineral
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
Conversion costs
Conversion costs is defined as production costs without raw materials and depreciation, incl. SG&A and
Maintenance CAPEX. This measure is used to monitor segment competitiveness improvement.
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
Debottlenecking
Steel in its solidified state directly after casting. This is then further processed by rolling or other treatments,
which can change its properties
Increasing capacity of a supply or production chain through the modification of existing equipment or
infrastructure to improve efficiency
www.evraz.comAnnual Report & Accounts 2015 259
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
HiPo
Iron ore
High potential employee
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
Labour productivity
Labour productivity is defined as labour costs exclusive of tax divided by production volumes of steel products.
The measurement of performance enables the Company to monitor labour efficiency.
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
Long products
Include bars, rods and structural products that are ‘long’ rather than ‘flat’ and are produced from blooms or
billets
Longwall
LTIFR
Lumpy ore
Model line
Mt
Mtpa
An underground mining process in which the coal face is dug out by a shearer and transported above ground by
conveyors.
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
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
Model line is as a value stream within a single facility or operation, provides a focused and controlled
playground for implementing lean. Serve as internal benchmark for the Company. The measurement of
performance enables the Company to monitor lean implementation.
Million tonnes
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
Additional information 260
Pellet
Pig iron
Pipe blank
Plate
An enriched form of iron ore shaped into small balls or pellets. Pellets are used as raw material in the steel
making process
The solidified iron produced from a blast furnace used for steel production. In liquid form, pig iron is known as
hot metal
A flat sheet of metal, a semi-finished product, sold to pipemakers to manufacture pipes
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
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
Rolled steel products
Products finished in a rolling mill; these include bars, rods, plate, beams etc
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
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
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
Slab
Slag
Steam coal
Tailings
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
A common type of semi-finished steel product which can be further rolled into sheet and plate products
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
All other types of hard coal not classified as coking coal. Coal of this type is also commonly referred to as
thermal coal
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
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
www.evraz.comAnnual Report & Accounts 2015 QR CODES TO ADDITIONAL
INFORMATION
261
EVRAZ plc subsidiaries list
History of Evraz
Corporate governance documents
Annual reports
Information for investors
Additional information 262
CONTACTS
Registered Name and Number
EVRAZ plc (Company No. 07784342)
Registered Office
5th Floor, 6 St. Andrew Street, London EC4A 3AE
Directors
Alexander Abramov
Alexander Frolov
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Sir Michael Peat
Eugene Shvidler
Eugene Tenenbaum
Secretary
Prism Cosec 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
www.evraz.comAnnual Report & Accounts 2015