ANNUAL REPORT
& ACCOUNTS 2016
Making
the World
Stronger
Meet EVRAZ
• ONE OF THE WORLD’S LARGEST vertically integrated
steel and mining companies
• AMONG THE WORLD’S TOP steel producers based on
crude steel production of 13.5 mt in 2016
• RUSSIA’S LEADER in construction and railway product
markets
• NORTH AMERICA’S No1 PRODUCER of rails and large
diameter pipes
• RUSSIA’S LARGEST coking coal producer
Production
13.5 mt
crude steel
output in 2016
22.3 mt
raw coking
coal output in 2016
19.7 mt
iron ore products
output in 2016
Global presence
Coal
• Russia
Steel, North
America
• USA
• Canada
Steel
• Russia
• Kazakhstan
• Ukraine
• Switzerland
• Czech Republic
• Italy
• South Africa
Headquarters
• London
Our customers
Product type
Customer type
Semi-finished steel products
Construction products
Railway products
Industrial products
Coking coal concentrate
Raw coking coal
Tubular products
> Steel rolling facilities
> Wholesale companies, traders
> Railways, rail carriers
>
Industrial companies
> Steelmaking facilities
> Steelmaking facilities
>
Energy transmission operators
About the report
This annual report (“the Report”) presents
the results for EVRAZ plc and its subsidiaries
for 2016, divided into segments: Steel; Steel,
North America; and Coal. It details the Group’s
operational and financial results and corporate
social responsibility activities in 2016.
The Report has been prepared in accordance
with the information disclosure requirements
of the United Kingdom and the Financial
Conduct Authority: the Companies Act
2006, the Listing Rules, the Disclosure and
Transparency Rules, Competition and Market
Authority Order. The Report has also been
prepared taking into account the International
Integrated Reporting Framework, the GRI
G4 Sustainability Reporting Guidelines and
ESMA Guidelines on Alternative Performance
Measures. It has been approved by the Board
of Directors.
The main theme of the Report is EVRAZ’
strategic priorities, as detailed in the Strategic
report section.
EVRAZ
IN FIGURES
02
CHAIRMAN’S
INTRODUCTION
04
1
STRATEGIC
REPORT
Chief executive officer’s letter .......................08
EVRAZ’ business model .................................10
Success factors and KPIs ..............................14
Strategic priorities .........................................18
Market overview.............................................22
Financial review .............................................24
CSR review .....................................................30
Principal risks and uncertainties ..................32
EVRAZ business system .....................................37
DEVELOPMENT
of product
portfolio and
customer base
RETENTION
of low-cost
position
18
19
PRUDENT
CAPEX strategy
DEBT
reduction
20
21
BUSINESS
REVIEW
Steel segment .............................................. 40
Coal segment ................................................ 54
Steel, North America segment .................... 64
EVRAZ is a leader
in infrastructure
steel products
globally and in the
Russian coking coal
market.
s
t
n
e
t
n
o
C
CSR
REPORT
Our approach ....................................................74
Health, safety and environment ..................... 75
Energy-saving measures ................................. 84
Social policy ..................................................... 86
Anti-corruption ................................................. 94
CORPORATE
GOVERNANCE
Board of Directors ........................................... 98
Management .................................................. 102
Corporate governance report ........................ 104
Remuneration report ..................................... 120
Directors’ report ............................................. 130
Directors’ responsibility statements ............. 135
FINANCIAL
STATEMENTS
Independent Auditor’s report to members
of EVRAZ Plc ................................................... 138
Consolidated financial statements
with notes ....................................................... 146
Separate financial statements
with notes ....................................................... 246
ADDITIONAL
INFORMATION
Stock performance indicators
and shareholder information ...................... 258
Definitions of selected alternative
performance measures ................................ 260
Data on mineral reserves ............................ 262
Terms and abbreviations ............................. 263
QR codes to additional information ............ 266
Contact details ............................................. 266
Online version
of the Annual Report 2016
56342 EVRAZ in figures
OPERATING HIGHLIGHTS
Crude steel output,
kt
Steel products output1,
kt
Iron ore products output,
kt
Raw coking coal
production in Russia, kt
15,515
14,351
13,527
14,012
2
13,160
12,352
20,467
20,445
19,701
21,461
20,889
22,257
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
2016
1 Net of re-rolled volumes
2 Change to the previously reported figures due
to corrections of re-rolled volumes data
FINANCIAL HIGHLIGHTS
Consolidated revenues by segment,
US$ million
2016
–933
5,497
1,464
1,322 363
7,713
2015
–991
2014
–1,584
5,987
2,270
1,068
433
8,767
9,519
3,160
1,318
648
13,061
Steel
Steel, NA
Coal
Other operations
Eliminations
Consolidated EBITDA3 by segment,
US$ million
2016
–151
1,004
28
644
17
2015
–63
2014
–271
1,081
55
351
14
1,542
1,438
1,933
280
376
37
2,355
Steel
Steel, NA
Coal
Other operations
Eliminations
2
Net debt
US$4,802 million
10% yoy
CAPEX4
US$428million
0% yoy
Net loss
US$188million
74% yoy
3 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 atnd management accounts purposes for
the year ended 31 December 2014.
4 Including payments on deferred terms recognised
in financing activities and non-cash transactions.
CSR HIGHLIGHTS
SHAREHOLDER STRUCTURE
LTIFR (excluding fatalities),
per million hours
EVRAZ GHG emissions,
MtCO2e
Ultimate beneficial owners,
% of voting rights1
2.36
2.18
1.60
47.00
43.04
40.98
8.3%
yoy
4.8%
yoy
2014
2015
2016
2014
2015
2016
Key air emissions,
kt
134.17
130.68
124.24
Fresh water consumption,
million m3
332.13
340.23
327.60
2.6%
yoy
3.7%
yoy
2014
2015
2016
2014
2015
2016
Employees by region in 2016,
%
Diversity of employees, senior
management and directors,
% (number of people)
77.8
thousand
people
Russia & CIS
North America
Africa
Europe
%
95.2
3.9
0.5
0.4
Board
88 (7)
12 (1)
Senior management
95 (21)
5 (1)
Employees
71 (55,268)
29 (22,574)
Men
Women
Roman Abramovich2
Alexander Abramov3
Alexander Frolov3
Gennady Kozovoy4
Alexander Vagin4
Eugene Shvidler2
Other
%
31.03
21.38
10.68
5.90
5.84
3.09
22.08
1 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
Gennady Kozovoy, held indirectly).
2 The number of shares as per TR-1 Form: Notification of
major interest in shares dated 7 June 2016. Includes
pro-rata shareholding held via Lanebrook and additional
shares held outside Lanebrook.
3 The number of shares as per Notification on PDMRs
dealing dated 30 December 2016.
4 The number of shares is as per TR-1 Form: Notification
of major interest in shares dated 6 February 2013. For
Mr Kozovoy, includes shares held directly.
Institutional shares by geography,
%
United Kingdom
Europe (excl. United Kingdom, Russia)
Russia
North America
Rest of the World
See Additional information
on page 258 for more details.
%
35
26
22
16
1
3
Annual Report & Accounts 2016www.evraz.com
Chairman’s introduction
Dear shareholder,
I am pleased to introduce EVRAZ’ annual report for 2016,
a year in which the Group delivered a solid performance and
continued to make significant progress in enhancing the
overall efficiency of its operations.
Market sentiment was shaped by several factors in 2016,
including positive global price trends in steel and bulk
commodities, driven by developments in China. At the
same time, Russian and North American steel consumption
declined amid unfavourable economic conditions, lower
Russian GDP and falling oil prices.
While the outlook for metal prices remains uncertain, the
increase in prices in 2016 was naturally beneficial for EVRAZ,
and we hope that it marks the start of a sustained recovery.
4
Safety
In 2016, despite a substantial reduction in
fatal incidents, and ongoing declining trends
in the total number of Lost Time injuries, six
people lost their lives. I would like to express
my heartfelt condolences to the families and
friends of the deceased. Safe working conditions
remain a constant focus and an absolute priority
for the Group and our executive management.
We continue to strive to reduce the number of
fatalities and injuries to zero and ensure that
every one of our employees goes home safe
every day. See pages 76-77
Governance
The Board continues to enhance its oversight
of the Group’s corporate governance and
compliance with regulations and guidelines.
Over 2016, the Board focused on the execution
of EVRAZ’ strategy, its own effectiveness and
the management of risks, including those
arising from currency volatility, geopolitical
instability and lower economic activity.
In the second half of the year, an evaluation
of the Board’s effectiveness was conducted.
The results underline that the Board is well
balanced and diverse, with the right mix of
international business skills, experience and
independence. See page 106
Board developments
The composition of the Board is reviewed
regularly.
As disclosed in the 2015 annual report, Olga
Pokrovskaya and Duncan Baxter stepped down
from the Board in March 2016, following the
strategic decision to streamline the Board in
response to challenging market conditions.
While this reduced the number of members
from 10 to 8, the Board and I feel that we
currently have the right balance of skills,
experience and backgrounds to support and
challenge the management team.
I would like to take this opportunity to thank my
fellow directors for their support and the vision
and intellect that they bring to the Board.
Our people
Our people are our greatest asset. EVRAZ’
strength derives from the hard work and
productivity of all of those at the Group. On
behalf of the Board, I would like to thank
everyone at EVRAZ for their hard work and
contribution to delivering another set of
positive results in 2016.
Outlook
Since 2014, the global metals and mining
sector has experienced extremely challenging
conditions. However, commodity prices
appear to be stabilising and even showing
modest signs of recovery. In the near term, the
prospect of a better balance between demand
and supply for most commodities should
underpin this.
Nevertheless, the overall operating
environment remains complex and volatile.
The Board and management continue to
scrutinise all realistically conceivable scenarios
for the next five years, identifying potential
opportunities, obstacles and risks and
incorporating them into the Group’s planning.
EVRAZ will celebrate its 25th anniversary of
operation in 2017, and I look forward to the
year with optimism.
We believe that we have the right assets
focusing on the right commodities, as well as
the capability and culture to build even more
momentum and prosper in 2017 and beyond.
Alexander Abramov
Chairman of the Board EVRAZ plc
5
Annual Report & Accounts 2016www.evraz.com Contents
Chief executive officer’s letter .......................08
EVRAZ’ business model .................................10
Success factors and KPIs ..............................14
Strategic priorities .........................................18
Market overview.............................................22
Financial review .............................................24
CSR review .....................................................30
Principal risks and uncertainties ..................32
EVRAZ business system .....................................37
I
C
G
E
T
A
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S
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P
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6
Annual Report & Accounts 2016
Our vision
EVRAZ is a leader in infrastructure steel
products globally and in the Russian
coking coal market.
DEVELOPMENT
of product portfolio
and customer base
RETENTION
of low-cost position
See p. 18
See p. 19
PRUDENT
CAPEX strategy
DEBT
reduction
See p. 20
See p. 21
SUCCESS FACTORS
See p. 14
www.evraz.com
Health,
safety &
environment
Human
capital
Customer
focus
Asset
development
EVRAZ
business
system
7
Chief executive officer’s letter
Dear shareholder,
Last year was one of considerable
volatility, beginning with steel and
raw material prices falling to multi-
year lows and ending with a four-fold
increase in coking coal prices and an
80% increase in steel prices compared
with the beginning of the year.
Many of the market movements were driven
by Chinese government measures, such
as investment stimulus, limitations on coal
production and ongoing steelmaking capacity
optimisation.
In this light, in 2016, EVRAZ’ strategy remained
the same: to focus on business sustainability,
develop the product portfolio, retain a low-cost
position, make prudent CAPEX investments and
reduce debt.
While the market did not anticipate these
developments, we tend to see China’s efforts
as positive for the global metals and mining
industry. Ultimately, they should lead to more
effective capacity utilisation and healthier
margins worldwide. The results of 2016 support
this view: on average, the dynamics of steel, coal
and iron ore prices improved year-on-year.
Given the volatile nature of the industry, we
believe that our efforts should remain focused
on our long-term vision and be less dependent
on short-term market fluctuations. EVRAZ
creates value by serving infrastructure clients,
mainly in the CIS and North America, and
delivering coking coal to customers in Russia,
Ukraine and Asia. As such, each year, the
Group strives to reinforce its leading positions
in these markets through higher quality, better
service and greater efficiency.
EVRAZ considers safety to be the number-one
priority. In 2016, we continued to improve injury
reporting transparency and implement standard
safe work procedures across our operations.
EVRAZ also continued to focus on developing
its steel product portfolio and premium coking
coal sales at home and abroad, which had a
total financial effect of US$169 million. Our
cost position regarding steel and coking coal
products remains one of the lowest in the
world; in 2016, our cost-cutting programme
brought an overall effect of US$316 million.
In addition, by maintaining a strategic approach
to implementing investment projects and
prudent financial discipline, we maintained
CAPEX at US$428 million in 2016, the same
level as a year before. We reduced net debt
by US$547 million, from US$5,349 million
on 31 December 2015 to US$4,802 million on
31 December 2016.
Overall, thanks to numerous improvement
initiatives based on our long-term vision
and more favourable market conditions, we
delivered fairly strong financial results. EBITDA
reached US$1,542 million, up 7.2% from
US$1,438 million in 2015, driving the EBITDA
margin from 16.4% to 20.0%, while free cash
flow totalled US$659 million.
Steel segment
EVRAZ remains the largest producer of long steel
products in Russia, with its market share in 2016
ranging from 14% for rebar to 72% for rails.
In 2016, Russian Railways, one major domestic
customer, substantially increased its rail
purchases due to its rail track maintenance cycle,
a modernisation drive and underinvestment over
the last couple of years. We continue to develop
a joint technical partnership and customer focus
initiatives with this important client.
8
As a market leader in construction steel, the
Group supplied products for a number of
infrastructure initiatives in Russia, including
football stadiums for the 2018 World Cup, the
Yamal-SPG natural gas project, the Zvezda
shipyard in the Far East and the Zaryadye
landscape park in Moscow.
increased by 42% to 2.0 million tonnes, while
sales to premium Asian markets totalled
2.6 million tonnes. Moreover, a customer-
focused initiative to switch to formula-based
contracts with domestic clients enabled EVRAZ
to benefit from the surge in global coking prices
during the year.
coal industries led to the decline of railway
shipments and consequently Class-I railways
CAPEX. As a result, rail demand in North
America was weaker than in 2015 and output
of the segment’s railway products decreased to
328 thousand tonnes. The segment’s EBITDA
totalled US$28 million.
EVRAZ exported 75 thousand tonnes of rails
from its Russian mills in 2016, up 2.8 times
from 27 thousand tonnes in 2015. In the
reporting year, the Group also certified its rails
for use in Europe, India and the Middle East
and wheels for Europe, Latin America and
Kazakhstan. Through a continuous focus on
developing new products, EVRAZ became the
first Russian company to master the production
of 100-metre rails in accordance with European
standards.
To maintain the competitiveness of our
assets, in 2016, EVRAZ further decreased
its semi-finished steel cash costs by 4.7% to
US$185 per tonne through production yield
improvements, labour optimisation and energy
efficiency initiatives.
In addition, the Group launched a new project
to build blast furnace 7 at EVRAZ NTMK. This
will allow EVRAZ to shut down blast furnace 6
instead of performing category-1 repairs and
maintain stable pig iron output.
Crude steel production volumes at the Group’s
mills in Russia and Ukraine remained primarily
unchanged in 2016, totalling 12.2 million
tonnes. Output of railway products increased to
1,166 thousand tonnes, up 16.5% year-on-year,
as a result of operational improvements at
EVRAZ ZSMK rolling mill and more favourable
demand. The Group also resumed rolling
operations at Palini e Bertoli due to good
plate market fundamentals in Europe. For the
year, the Steel segment’s EBITDA amounted
to US$1,004 million, down 7.1% from
US$1,081 million in 2015.
Coal segment
In 2016, EVRAZ secured its leading position in
the domestic coal market, with market shares
for high-volatile hard and semi-hard coking
coal grades of 33% and 51% respectively, and
enhanced its presence in premium coal export
markets. The Group’s coal sales to Ukraine
In 2016, investment activity focused primarily
on maintaining current production volumes
and ramping up the Mezhegey project. EVRAZ’
coking coal cash cost position remained
mostly unchanged as a result of productivity
improvements and labour optimisation.
In addition, by effectively optimising mining
process, the Group boosted raw coking coal
production to 22.3 million tonnes, up 6.6%
year-on-year. Driven by a surge in coking
coal prices towards the year-end, and the
implementation of customer-focused and cost-
cutting initiatives, the Coal segment’s EBITDA
increased by 83.5% to US$644 million.
Steel, North America
segment
Despite unfavourable demand dynamics in key
product segments in North America, EVRAZ
secured its position as the largest producer
of large-diameter pipes (LDP) and rails, with
respective domestic market shares of 27%
and 28%. In 2016, the Group continued to
focus on developing its product portfolio
in key segments. EVRAZ completed major
construction works for investment projects at
the new LDP mill and a steelmaking upgrade
in Regina, Canada, as well as created a tube
coating joint venture. At present, the Group is
qualifying new LDP grades and wall thicknesses
with key customers. In addition to that, the
research and development team launched
three new tubular premium and semi-premium
connections for OCTG products.
In 2016, the segment’s crude steel output
decreased by 23.7% to 1.4 million tonnes,
while LDP production fell to 296 thousand
tonnes amid demand issues relating to delays
in approval for key pipelines. However, late in
the year, the Canadian government approved
the Kinder Morgan Trans Mountain Expansion
Project and the Enbridge Line 3 Replacement
Program, which will support demand for EVRAZ
products in 2017. Low activity in the oil and
Management
In 2016, Pavel Tatyanin, the CFO of EVRAZ,
submitted his resignation to pursue other
interests. I would like to thank Pavel for his
leadership and valued contribution to EVRAZ
over the last 15 years.
Replacing Pavel is Nikolay Ivanov, who joined
the management team in November. I would
like to welcome him and believe that his broad
experience will help EVRAZ to successfully
implement its financial strategy and take the
support processes to the next level.
Outlook for 2017
As we progress into 2017, while market
sentiment is positive, the outlook should
remain cautious. Key risks include the pace of
steel capacity optimisation in China and the
general health of the country’s economy.
In any market development scenario, EVRAZ
will continue to act in accordance with the
strategic priorities that will support its position
as a leader in infrastructure steel products
globally and in the Russian coking coal market.
Alexander Frolov
Chief Executive Officer
9
Annual Report & Accounts 2016www.evraz.comStrategic report EVRAZ’ business model
Our vision
Global market trends
EVRAZ is a leader
in infrastructure steel
products globally and
in the Russian coking
coal market.
In 2016, the global steel and bulk commodities industry
experienced several price surges driven mostly by
developments in the Chinese market. The price recovery was
also supported by the supply side – we saw steel capacity
closures in China, the beginning of global consolidation
activities, and iron ore and coking coal mine closures across
North America, China and other counties. See p. 22
SUCCESS FACTORS
STRATEGIC PRIORITIES
As part of its leadership
drive, EVRAZ is implementing
its strategy based on five key
success factors.
EVRAZ’ strategic priorities reflect current focus areas
that are driven by market conditions and business
fundamentals.
Health, safety
& environment
Human
capital
Customer
focus
Asset
development
DEVELOPMENT
of product portfolio
and customer base
RETENTION
of low-cost position
See p. 18
PRUDENT
CAPEX strategy
See p. 19
DEBT
reduction
EVRAZ business
system
See p. 20
See p. 21
10
EVRAZ will continue to act in accordance with its
strategic priorities to make its business model more robust
and explore options to maximise value for our shareholders
and all our stakeholders.
Alexander Frolov
Chief Executive Officer
BUSINESS SEGMENTS
COMPETITIVE ADVANTAGES
THE VALUE WE CREATE
See our operational model on next page
Steel
EVRAZ’ Steel segment is mainly focused on
steel production in the CIS from raw materials
located close by to serve the domestic
infrastructure and construction market while
maintaining export flexibility. See p. 40
Coal
EVRAZ’ Coal segment not only supplies the
Group’s steel mills with the necessary raw
material, but also provides coking coal to major
Russian coke and steel producers and serves
export markets with its own sea port. See p. 54
Steel,NA
The Steel, North America segment’s business
model serves the premium markets of the
Western United States and Western Canada with
high-value-added steel products for infrastructure,
rails and LD/OCTG pipes. See p. 64
EVRAZ’ competitive
advantages provide
lasting, group-wide
benefits which are critical
to our ability to generate,
sustain and capture value
over the long-term.
1Leader in infrastructure
steel products
Premium portfolio of railway, construction
and tubular products with firm footprint in
Russian, North American and global markets
2
3
Strong position
in coking coal market
Largest coking coal producer in Russia
with attractive portfolio of hard and semi-
hard coking coal grades
Vertically integrated
low-cost operations
Sound base of steel and coal assets in the
first quartile of the global cost curve
Shareholders. EVRAZ’ experienced
management team and corporate
governance best practices provide the
assurance that EVRAZ acts in the very
best interest of its shareholders.
Employees. Development programmes
and industry-leading working conditions
make EVRAZ one of the most attractive
employers in the regions of its
operations.
Customers. An increasing focus on the
development of value-added products,
improvements of shipping terms and
tailored client services provides additional
value to our customers around the world.
Suppliers and business partners.
As the key buyer of auxiliary materials
and services with above-board and
transparent tendering processes, EVRAZ
supports industries’ growth and continual
improvement.
Local communities. EVRAZ sees that
business sustainability is ultimately
connected with the prosperity of the
regions of our operations and the
satisfaction of the local communities,
which we support through social and
improvement programmes.
State bodies. EVRAZ contributes value to
the government by providing construction
and railway products for the development
of infrastructure, and is also one of the
largest taxpayers and employers in Russia.
11
Annual Report & Accounts 2016www.evraz.comStrategic report Operational model
P&P reserves
Self-coverage
8.2 bln t of iron ore
1.8 bln t of coking coal
81% of iron ore
195% of coking coal
Number of employees
(as of 31.12.2016)
55,725 in Steel segment
14,974 in Coal segment
3,005 in Steel, NA segment
Operations
Steel segment
Raw materials
Steelmaking
Rolling & processing
Iron ore products consumption
1
, kt
3rd parties scrap purchases, kt
Coking coal products consumption
2
, kt
18,956
1,758
9,030
Outputs
Pig iron production, kt
Crude steel production, kt
Vanadium slag output, mtV
11,314
12,157
16,886
Outputs
11,182
Steel products output, kt
Vanadium products (saleable) output, mtV 12,861
1 Internal consumption (13,728 kt) and 3rd parties’ iron ore products purchases (5,228 kt).
2 EVRAZ’ Steel segment receives the coking coal products from the Coal segment (concentrate and raw coal) and from 3rd parties (2,770 kt of concentrate and 1,144 kt of raw coal in 2016).
All raw coal is processed at EVRAZ ZSMK washing plant (1,808 kt of concentrate produced in 2016).
Coal segment
EVRAZ’ unique combination of reserves,
operations, product quality and clients make its
Coal segment the crucial pillar of its business
model. The synergy between the steelmaking
and coal operations, combined with a broad
export client base, provides the opportunity for
further development of the coal business.
Coal mining
Coal washing
Outputs
Total raw coking coal mined, kt
Sales to Steel segment, kt
22,257
1,249
Outputs
Total coking coal concentrate sales, kt 12,750
Sales to Steel segment, kt
4,452
Steel, North America segment
Raw materials
Steelmaking
Rolling
3rd parties scrap puchases, kt
990
12
Outputs
Crude steel production, kt
1,370
485
Slab purchases
3 Including 466 kt from Steel segment and 19 kt from 3rd parties.
, kt
3
Outputs
Steel products output, kt
1,650
Interactive business model
and operational model are
available in the online version
of the Annual Report 2016.
Sales to 3rd parties
EBITDA
Steel
products
11,792
kt
Semi-finished products
Construction products
Railway products
Flat-rolled products
Tubular products
Other steel products
kt
5,601
4,135
1,134
351
53
518
4,218 kt
Iron ore products
Vanadium products (saleable) 11,394 mtV
Coking
coal products
9,867
kt
Coking coal concentrate, kt
Raw coal, kt
Steel
products
1,672
kt
Flat-rolled products
Tubular products
Railway products
Construction products
kt
8,298
1,569
kt
536
534
321
281
US$1,004 million
7.1% yoy
The Steel segment’s EBITDA fell amid negative
steel price trends and a reduction in sales
volumes. This was partly offset by lower expenses
in US dollar terms due to rouble depreciation,
as well as the effects of cost-cutting initiatives
implemented in 2016 as part of the ongoing
productivity improvement programme.
US$644 million
83.5% yoy
The Coal segment’s EBITDA increased year-
on-year on the back of higher sales prices and
volumes, accompanied by the effects of cost-
cutting initiatives and rouble depreciation, which
was favourable for costs.
US$ 28 million
49.1% yoy
The Steel, North America segment’s EBITDA was
impacted by lower sales volumes and prices,
stemming from a downturn in the OCTG and rail
markets.
13
Annual Report & Accounts 2016www.evraz.comStrategic report Success factors and KPIs
Health, safety
& environment
Human capital
Strategic goal. EVRAZ’ top priority is the health
and safety of its employees. The Group’s
strategic goal is to achieve and preserve LTIFR
below a level of one by 2021.
Overview. Behaviour safety conversations, and
developing and implementing standard safe
work procedures are the two initiatives that
have been consistently implemented across
EVRAZ in 2016. Additionally, in 2016, EVRAZ
assets started to implement their key risk
localisation programmes, which will continue
in 2017-2018.
Outlook. In 2017, EVRAZ will put extra
focus on the quality of behaviour safety
conversations, making sure issues raised
during such conversations are duly addressed
and changes are made to conditions and
processes. EVRAZ will also continue its efforts
to standardise all processes from both a safety
and efficiency perspective. The 2017 annual
target is to achieve LTIFR below 2.0x.
Strategic goal. Involved, motivated, loyal and
competent employees are the key pillar of the
Group’s business. EVRAZ aims to reach total
standardisation of human resources processes
organisation-wide.
Overview. During 2016, EVRAZ’ efforts focused
mainly on the “From Foreman to Managing
Director” programme, which aims to evaluate
and develop operations management to
create a management candidate pool at
plants. In response to market conditions
in the beginning of the year, the Group has
undertaken a headcount reduction programme
and streamlined administrative functions. The
total number of employees has decreased
by 6,625 people.
Outlook. Looking into 2017, the Group’s focus
will be on employee engagement management,
staff assessment and development
programmes, as well as continuing ongoing
initiatives to centralise HR functions and
improve process quality.
LTIFR (excluding fatalities)1,
per 1 million hours
Labour productivity steel1,
US$/t
2.05
2.18
1.60
2.36
xxx
KPI
55.9
xxx
KPI
41.6
36.5
Alexander Kuznetsov
Vice President, Corporate Strategy and
Performance management
We base our
annual KPI targets and
initiatives on EVRAZ’
vision of being a leader
in infrastructure steel
products worldwide
and the Russian coking
coal market.
2.47
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Despite the Group’s efforts, there
were 6 fatalities (6 employees and
0 contractors) at its sites during the year, and
the lost-time injury frequency rate (LTIFR)
reached 2.36, compared with 2.18 in 2015.
One of the reasons for the increase in these
statistics is the improved reporting through
the implementation of an incident reporting
system that the Group developed in-house
and implemented in 2015. EVRAZ remains
committed to the goal of reaching zero
fatalities at its sites and will continue efforts
to improve reporting transparency.
Labour costs per tonne of steel
products decreased once again
in 2016, down by 12.4% to US$36.5
per tonne compared with US$41.6 per
tonne in 2015, due to the ongoing labour
productivity improvement project pipeline.
1 Please see page 261 for details.
14
Human capital
Customer focus
Steel
Coal
Steel, North America
Strategic goal. The Group’s strategic goal is to
maximise market share in Russia and Ukraine,
while moving its export price formula closer to
hard coking coal benchmarks.
Overview. Last year, EVRAZ’ efforts helped to
secure its position on the Russian market and
to further expand its customer base in Ukraine,
Europe and Asia. Formula-based contracts with
domestic clients helped the Group to benefit
from the international coking coal price surge
(see page 62). Altogether, sales and marketing
improvements added US$3 million to EBITDA
last year.
Outlook. During 2017, EVRAZ plans to increase
sales of premium mid-vol coal grades, optimise
logistics to export destinations, and increase the
premium for semi-hard coking coal.
Strategic goal. Evraz North America aims to be
the leading North American producer of large-
diameter pipe with superior product capabilities
and technical expertise, as well as the leading
producer of rails with a strong portfolio of
premium rail and technical relationships with
customers.
Overview. During 2016, EVRAZ completed major
construction on the investment projects in Regina
to upgrade steelmaking capabilities, install a new
large diameter pipe mill, and a new coating
facility (see page 69). Additionally, the heat-treat
expansion project in Calgary ramped up, allowing
the Group to compete more effectively for ERW
OCTG pipe demand in Western Canada.
Outlook. In 2017, the Group will benefit from the
approval of pipelines and a recovery in oil and gas
exploration activity. In addition, favorable results
on trade cases in tubular and flat products should
result in a more favorable pricing environment.
Strategic goal. EVRAZ aims to increase the
share of value-added products in its sales
portfolio, secure its domestic market shares in
railway and construction steel products, and to
expand rail export shipments.
Overview. Last year, the Group’s efforts on the
domestic market supported demand for key
products. In railway products, EVRAZ collaborated
with its major client, Russian Railways, on
shipment terms and services and benefited
from the increase in its investment programme
(see pages 42, 50). In structural products, EVRAZ
targeted the substitution of welded plates and
tubes with beams by offering better terms for the
latter. In overseas destinations, EVRAZ increased
the sales of railway products (up 43 kt), as well
as premium slabs and billets (up 810 kt). The
combined EBITDA effect from these initiatives
was $US170 million.
Outlook. In 2017, the Group will continue
expanding domestic and overseas sales of
railway products by debottlenecking operations,
developing new products, and optimising
logistics. It will also analyse a number of
product portfolio development options. EVRAZ
also aims to increase domestic consumption of
beams by offering engineering solutions for the
civil construction industry.
See page 18
for KPIs and detailed tracking
KPI
15
Annual Report & Accounts 2016www.evraz.comStrategic report
Success factors and KPIs
Asset development
Steel
Coal
Steel, North America
Strategic goal. EVRAZ has an annual strategic
target to generate cost-reduction initiatives
in the amount of 2-3% of the cost base at every
business unit across the Steel segment.
Strategic goal. The Group’s strategic goal
in the coking coal business is to reduce costs
by 3-7% of the cost base every year and remain
in the first quartile of the global cost curve.
Overview. During 2016, the Group focused its
cost-cutting efforts on production yields and
auxiliary supply consumption improvements
across its steel mills, labour optimisations and
energy efficiency initiatives. These initiatives
resulted in an EBITDA effect of US$134 million
last year.
Outlook. In 2017, EVRAZ steel mills are
going to implement a pig iron cost reduction
programme, as well as continue to work
on energy efficiency and procurement
optimisations. The Group will also conduct
most of the construction works for a new blast
furnace project at the EVRAZ NTMK steel mill.
Overview. During 2016, the Group’s efforts
to increase labour productivity, shorten mining
equipment relocation periods and improve
other operational efficiency measures had
an EBITDA effect of US$94 million.
Outlook. In 2017, EVRAZ will continue to focus
on improving mining and development
productivity, as well as major equipment
modernisation. The Group will also support
current mining volumes by developing new
seams at current mines and implementing
a proactive degassing programme.
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 the Western United States and Western
Canada.
Overview. Last year, the Group implemented
cost-cutting programmes at the Portland
and Regina rolling mills, and also achieved
a US$30 million reduction in G&A expenses
across all production facilities and
headquarters. Efficiency improvements
and negotiations with suppliers resulted
in the optimisation of scrap and ferroalloys
purchases. Altogether, the EBITDA effect was
US$89 million.
Outlook. The primary focus for 2017 will be
on the successful finalisation of the Regina
steelmaking upgrade project, which will
reduce alloying costs and increase capacity.
The Group also plans to execute power cost
reduction projects and decrease expenses
on maintenance.
See page 19
for KPIs and detailed tracking
KPI
16
EVRAZ business system
Strategic goal. The EVRAZ Business
System (EBS) is a combined approach to
the Group’s operations. The key elements
are target-setting, people development,
processes improvements, management
system support, culture principles and
necessary implementation infrastructure.
The Group aims to implement 100% EBS-
transformation organisation-wide, from the
top management down to every worker on
the shop floor.
Overview. In 2016, the Group’s primary
focus was on transitioning from a ‘lean tools
approach’ to full EVRAZ Business System
deployment through EBS-transformations.
The 2016 targets were met in employee
basic EBS tool trainings, rapid improvement
events and the implementation of
operational excellence projects.
Outlook. The key focus for 2017 will be
on combining the efforts of vital corporate
functions (including HR and HSE) to develop
a sustainable process improvement system
through EBS-transformation projects.
Results in 2016
Last year’s cost-cutting initiatives delivered the EBITDA
effect of US$316 million. Combined with a US$169 million
gain from customer-focus efforts, EVRAZ’ total EBITDA
effect from initiatives was US$485 million in 2016.
EVRAZ’ EBITDA reached US$1,542 million in 2016, up by
7.2% from US$1,438 million in 2015.
Free cash flow was US$659 million in 2016, down by
18% from US$799 million in 2015. The decrease can be
explained by the reduction in net working capital release.
2.47
2.05
2.18
2.36
2.47
KPI
2.05
Number of EBS
1.60
transformations
implemented in 20161
EBITDA1,
US$ million
2.18
2.36
2.47
KPI
2.05
2,355
1.60
1,438
1,542
Free cash flow1,
US$ million
1,012
1.60
2.18
799
2.36
659
KPI
2012
2013
2 transformations
2015
2016
2014
2012
2013
2014
2014
2015
2015
2016
2016
2012
2013
2014
2014
2015
2015
2016
2016
1 Please see pages 260-261 for details.
17
Annual Report & Accounts 2016www.evraz.comStrategic report
Strategic priorities
DEVELOPMENT
of product portfolio and customer base
Premium infrastructure steel products, a wide range of coking
coal grades, and modernised large-scale production sites make
EVRAZ the leader in the markets where it operates.
Russian and North American
rails production in 2016, mt
Russian long steel
1
production in 2016
, mt
Russian raw coking coal
production in 2016, mt
North American LDP
production in 2016, mt
Russia
EVRAZ
Peer 1
0.3
North America
EVRAZ
0.3
Peer 1
0.24
Peer 2
0.15
0.9
EVRAZ
3.9
Peer 1
Peer 2
Peer 3
Peer 4
2.5
2.2
1.8
1.7
1 Excluding railway products.
No1
No1
EVRAZ
Peer 1
Peer 2
8.5
Peer 3
6.6
Peer 4
6.2
22.3
EVRAZ
0.3
15.6
Avg. peer
0.1
No1
No1
Customer focus programme1, US$ million
KPI
Breakdown of customer focus programme effect in 2016
169
1-2%
of revenues
In 2015, we started
tracking our customer
focus programme, which
in 2016 has brought an
annual EBITDA effect of
US$169 million.
0
2014
53
2015
2016
3-5 year
target
Most customer
focus efforts were
aimed at expanding
rail sales, support
domestic steel
demand, optimise
logistics and develop
a new customer base.
US$169
million
Rails
Logistics
Spread
Value-added
semis
NPD
Other
%
33
28
23
7
7
2
Key drivers
Rails sales volumes in Russia,
kt
766
702
747
70%
of domestic
market
Rails export sales volumes (excl. CIS),
kt
Value-added semi-finished products
sales volumes, mt
250
2.0
2.0
75
15
27
1.0
1.2
2014
2015
2016
3-5 year
target
2014
2015
2016
3-5 year
target
2014
2015
2016
3-5 year
target
Rails sales on the Russian market remain
stable through the cycle. With its key client,
Russian Railways, EVRAZ targets securing
a leading market share despite the increase
in domestic competition.
EVRAZ’ efforts to increase its presence on
overseas rail markets boosted volumes to 75 kt
in 2016. We target to reach c. 250 kt of rail
exports.
In 2016, EVRAZ substantially increased its
value-added slabs and billets sales to the
domestic and export markets with an average
premium of US$10-12 per tonne to the base
grade margin.
1 Please see page 261 for details.
18
RETENTION
of low-cost position
EVRAZ’ assets are in the first quartile of global
cost curves in semi-finished steel products and
coking coal concentrate.
North American LDP
production in 2016, mt
Global steel slab cost
curve, FOB in 2016, US$/t
Global coking coal cost
curve, FOB in 2016, US$/t
US$/t
500
400
300
200
100
0
0
EVRAZ
200
400
600
800
mt
US$/t
160
120
80
40
0
0
EVRAZ
100
200
mt
300
Cost-cutting programme1, US$ million
420
321
316
KPI
2-3%
of COGS
Average annual EBITDA
effect from cost-cutting
initiatives totalled
US$316 million. Plan to
keep the current pace of
improvement with annual
cost-cutting programme
at the level of at least 2-3%
from cost base.
Key drivers
2014
2015
2016
3-5 year
target
Breakdown of cost-cutting programme effect in 2016
Cost savings in
2016 were focused
on operational
improvements,
materials and services
usage optimisation,
as well as headcount
reduction to improve
productivity.
US$316
million
US$ million
North American
and Ukrainian assets
optimisation programme
Cost reduction at iron
ore assets
Operational efficiency
on Russian steel assets
Productivity
improvement at coal
assets
Vanadium operations
improvement
Asset optimisation
G&A costs & non-G&A
headcount
50
28
44
56
6
13
119
Cash cost of semi-finished products1,
US$/t
Coking coal concentrate cash cost1,
US$/t
G&A expenses,
US$ million
275
KPI
46
KPI
822
195
185
31
30
553
469
Further
G&A
decrease
2014
2015
2016
2014
2015
2016
Cash costs of semi-finished products totalled
US$185 per tonne in 2016, down by 4.7% from
US$195 per tonne in 2015 due to operational
improvements, volume stability and product
mix optimisation.
The Coal segment’s cash cost was US$30
per tonne in 2016, down by 2.5% from
US$31 per tonne in 2015 due to increased
volumes, mine optimisations, and G&A
synergies.
1 Please see page 261 for details.
2014
2015
2016
3-5 year
target
G&A expenses have been reduced by c. 50%
during the last three years, mainly due to the
introduction of a new business unit management
structure, the unification of administrative
functions, office facility optimisations, general
personnel reduction, and local currency
devaluations. Further administrative cost reduction
and simplification of the management structure
are in the pipeline for the next couple of years.
19
Annual Report & Accounts 2016www.evraz.comStrategic report
Strategic priorities
PRUDENT
CAPEX strategy
The Group’s investment projects are aimed at further developing
its competitive advantages, while maintenance investments are focused
on supporting the sustainability of EVRAZ’ operations.
Annual CAPEX breakdown by maintenance and development,
US$ million
654
211
443
550
428
428
171
257
164
264
2014
2015
2016
2017-18 outlook
Maintenance
Development
Ongoing investment projects
Project
Effect
Construction of blast
furnace 7 at EVRAZ NTMK
Regina steel and rolling
upgrade
Construction of an LDP
mill at Regina
Grinding ball mill construction
at EVRAZ NTMK
Maintain the production of pig iron at EVRAZ
NTMK at 5 million tonnes per year
Improve steel quality, increase capacity for
casting by 110 kt and rolling by 250 kt, and result
in a crown yield saving from 0.75% to 1.1%
Expected to add 150 kt of tubular product
capacity
Allow to increase ball production to 300 kt by
2018, supporting our position on this market
Total CAPEX,
US$ million
Launch
year1
191
2018
147
2017
73
17
2017
2018
▪ Current investment
projects are focused on
efficiency improvement and
selective product portfolio
development.
▪ Over the medium term,
maintenance CAPEX
may increase to support
current capacities, like the
construction of a new blast
furnace at EVRAZ NTMK and
higher CAPEX to maintain
coking coal mining volumes.
Investment projects implemented in 2014-2016
Project
Effect
Total CAPEX,
US$ million
Launch
year1
▪
Construction of
Yerunakovskaya VIII coal mine
Mezhegey project
Evraz Caspian Steel (Vostochny
rolling mill, Kazakhstan)
Sheregesh iron ore mine
expansion
Reconstruction of continuous
casting machines (CCM)
at EVRAZ ZSMK
Production of 3 million tonnes of raw coking coal
276
2014
Additional capacity of 1.5 mtpa of hard coking
coal (grade Zh under Russian classification)
Help improve EVRAZ’ strategic position
on the CIS construction steel market
Decrease costs at Sheregesh mine by c. 50% and
increase iron ore self-sufficiency at EVRAZ ZSMK
Increase production of existing billet caster by
80% to partially replace blooming mill volumes
and improve efficiency
148
2015
122
2014
76
2015
43
2015
Investment projects have
been implemented with
an aim to support EVRAZ’
leadership on the Russian
coking coal market and
to increase our presence
on the CIS infrastructure
steel market.
1 Launch year means that facilities were built and started to operate, however stated capacity could not have been achieved that year
20
DEBT
reduction
Debt repayment remains a priority over dividends and excessive
CAPEX. EVRAZ was able to reduce net debt by US$0.5 billion in 2016,
in addition to the US$0.5 billion reduction in 2015.
Net debt,
US$ million
5,814
5,349
4,802
Optimal
net debt
2014
2015
2016
3-5 year target
Net debt/EBITDA
Debt currency composition,
as of 31.12.2016, %
▪ Despite reducing the net
debt level, net leverage level
remains high.
▪ EVRAZ continues to target
to reach a long-term ratio
of 2.0x.
3.7x
3.1x
2.5x
2.0x
2014
2015
2016
3-5 year
target
EVRAZ debt
instruments
are denominated
predominantly in US
dollars. Fluctuations
of Russian rouble
and Euro affect
approximately 13%
of debt.
US$
RUB
EUR
%
87
9
4
Weighted average debt maturity, years
Interest paid, US$ million
Over the last couple
of years, EVRAZ was able
to increase average debt
maturity from 2.9 years
to 3.3 years thorough
a series of refinancing
actions for bonds as well
as loan facilities.
3.1
3.3
2.9
517
443
413
2014
2015
2016
Interest payments have been
reduced by more than US$100
million over the last three years
due to the reduction of the total
debt level.
2014
2015
2016
21
Annual Report & Accounts 2016www.evraz.comStrategic report
Market overview
Global picture
During 2016, we saw positive global price trends in steel
and bulk commodities with several spikes primarily driven
by developments in China.
Steel prices, based on HRC (hot-rolled coil)
FOB China contracts, surged by 53% from the
beginning of the year to peak at US$430 per
tonne in April, then falling back to the bottom
of US$349 per tonne in June before gradually
recovering to US$501 per tonne in December.
The price recovery was driven by Chinese
government investment stimulus, healthy
domestic demand and rising raw materials prices.
It was also supported by Chinese steel capacity
cuts of 45 million tonnes per year, as well as
global steel industry consolidation trends.
Chinese steel demand recovered slightly with
705 million tonnes consumed during 2016,
up by 1% year-on-year thanks to improvements
in the real estate and infrastructure sectors.
Chinese steel export volumes remained
high at 96 million tonne, however down by
4% y-o-y, putting pressure on European and
North American domestic steel producers.
This led Western governments to start trade
investigations and introduce protective
measures against several countries in HRC,
rebar, plate and tubular products.
The iron ore market was driven by the changing
sentiment in global steel markets with prices
averaging US$58 per tonne for 62% Fe CFR
China in 2016, up by 3% compared with US$56
per tonne in 2015. Local price peaks in April
and October 2016 were explained by the supply
rationalisation, announced project delays
and trading activity. Chinese iron ore imports
increased by 8% to 1,032 million tonnes in 2016
from 953 million tonnes in 2015 due to stable
steel production and domestic capacity closures.
Coking coal prices surged, driven primarily by
bankruptcies and mine closures in the US, a
276-day working limit at Chinese mines, and
unfavourable weather conditions in China
and Australia. Based on spot FOB Australia
contracts, the hard coking coal price peaked at
US$310 per tonne in November. In 2016, the
price of hard coking coal averaged US$140 per
tonne, compared with US$90 per tonne in 2015.
Coking coal imports to China increased to 65
million tonnes in 2016, up by 12% year-on-year
due to the deficit of domestic shipments.
Global demand for vanadium was 79.7
thousand tonnes in 2016, down 0.2% from
79.8 thousand tonnes in 2015. Demand from
steel producers remained largely flat, while
supply underwent some structural changes:
lower prices caused shutdowns and measures
to optimise vanadium feedstock allocation,
which in turn prompted a recovery in prices
from Q4 2016 onwards. The LMB FeV price
averaged US$18.5 per kgV in 2016, down 0.6%
from US$18.6 per kgV in 2015.
Global steel prices,
US$/t
800
600
400
200
0
2010 2011 2012 2013 2014 2015 2016/01 2016/12
Slab, CFR East Asia
HRC, FOB China
Coal price,
US$/t
400
300
200
100
0
2010 2011 2012 2013 2014 2015 2016/01 2016/12
Iron ore price,
US$/t
200
150
100
50
0
2010 2011 2012 2013 2014 2015 2016/01 2016/12
Trends on EVRAZ’ core markets
Russian steel consumption declined for
the third year in a row due to the combined
headwinds of a general economic recession,
an 0.2% reduction in GDP, and low oil prices.
While demand for long products went down,
railway products performed more favourably,
with Russian Railways increasing its orders
by 50% last year. Key steel product prices were
also positive based on global benchmarks
(see page 42).
US steel demand fell by 4% to 91.2 million
tonnes in 2016. Despite relatively strong LDP
market fundamentals, consumption decreased
due to pipeline project delays. North American
rails market was negatively influenced by
low activity in energy E&P activity and in coal
extraction, as well as the moderate CAPEX
outlays from Class-I railroads. Steel imports were
down as a result of favorable rulings on trade
cases and pending trade cases against certain
producers. However, prices across major steel
products were a mixed bag (see page 65).
Russian coking coal concentrate consumption
remained mostly unchanged year-on-year
in 2016. Export shipments rose by 15% due
to a favourable price environment and highly
competitive position on the global cost curve.
The uptick in local coking coal prices during
the year was influenced by global benchmark
trends (see page 55).
22
Long-term prospects
Industrialisation
and urbanisation
in developing countries,
as well as continued
development of
advanced economies,
continues to be the
largest demand driver
for steel and other
commodities.
The upgrade of and
significant investments
into the US and
Canadian infrastructure
will support the demand
for steel products in the
region.
Russian long steel
consumption primarily
depends on the real
estate sector, as the
residential construction
industry consumes
c. 80% of rebars
produced in Russia.
Global urbanisation
According to United Nations data, an estimated
54.5% of the world’s population lived in urban
settlements in 2016. By 2030, urban areas
are projected to house 60% of people globally.
This rise will require significant investments
in housing and infrastructure construction,
which will lead to an increase in steel demand.
As a clear example, increasing urbanisation
in China over the last 15 years has led to an
increase in steel consumption per capita from
c. 100 kg per capita in the beginning of 2000,
to a peak of c. 540 kg per capita in 2013.
North America
The American Society of Civil Engineers says
that the US needs massive investments in
all essential infrastructure, from bridges and
airports to dams and railways. According to
the society’s most recent infrastructure report
card, the US earns a D+ for its infrastructure.
The government’s current investment
programme views America’s infrastructure
as an opportunity for accelerated economic
growth, targeting spending US$1 trillion on
new investments by private institutions over
10 years. That programme will build the
transportation, water, telecommunications and
energy infrastructure needed to enable new
economic development in the US.
Russian construction sector increase
Russian long steel consumption primarily
depends on the real estate sector, as the
residential construction industry consumes
c. 80% of rebars produced in Russia.
Russia’s construction industry has tremendous
potential due to the current low level of
residential property per capita and the extremely
low mortgage activity when compared with
developed countries. Russia has only 20-25 m2
of housing per capita compared with 44 m2 per
capita in the UK and 70 m2 per capita in the US.
The current average level of apparent steel use
per capita in developed countries (ex. Germany,
US and Japan) is around 430 kg per capita.
In contrast, in India, which in recent years
has delivered steady economic growth, steel
consumption per capita in 2015 was only
c. 60 kg per capita. As a result, in coming
years, ongoing development of India and
key South-East Asian countries may drive
substantial steel demand growth.
In Canada, the government has announced
the launch of a highly anticipated new
infrastructure bank that provides project
finance, support with evidence-based
project prioritisation, and acts as a centre
of excellence on project delivery, aiming
to support US$186 billion in infrastructure
spending over 11 years.
Infrastructure construction is very steel-
intensive, which should support the demand for
major steel products for several years, especially
in structural steel, rails, tubes and plates.
Russia’s residential loans to GDP ratio is just
4%, compared with 41% in Japan and 68%
in the UK. A forecast economic recovery should
drive increased investments in housing, support
the mortgage industry, and elevate the demand
for rebars, beams and structural steel products.
An analysis of the last ten years reveals a strong
relationship between rebar consumption growth
and GDP growth. This analysis has shown
that a 1% increase in GDP leads to a 4% rise
in Russian rebar consumption.
23
Annual Report & Accounts 2016www.evraz.comStrategic report Financial review
In 2016, we delivered healthy
financial results, driven by efficiency
initiatives and improved market
conditions. EBITDA reached
US$1,542 million, up 7.2% from
US$1,438 million in 2015, boosting
the EBITDA margin from 16.4% to
20.0%, while free cash flow totalled
US$659 million.
Nikolay Ivanov
Chief Financial Officer
Statement of operations
Revenues, US$ million
The Group’s consolidated revenues decreased
by 12.0% to US$7,713 million compared to
US$8,767 million in 2015 primarily as a result
of falling prices and decreased demand in Q1
2016, starting from Q2 2016 the situation on
EVRAZ’ main markets started to improve.
In 2016, the Steel segment’s revenues
(including inter-segment) decreased by 8.2%
year-on-year to US$5,497 million or 63.6% of the
Group’s total before elimination. The reduction
was mainly attributable to lower revenues from
sales of steel products, which fell by 8.6% year-
on-year, primarily due to a drop in prices (down
4.9%) in line with global benchmarks. Revenues
from sales of steel products were also impacted
by changes in the Group’s sales volumes (down
3.7%), which decreased from 12.8 million
tonnes in 2015 to 12.3 million tonnes in 2016
on the back of worsening conditions on key
markets, lower output at EVRAZ ZSMK due to
planned capital repairs of blast furnaces, and
the deconsolidation of Evraz Highveld Steel and
Vanadium in April 2015.
24
Segment
Steel
Steel, North America
Coal
Other operations
Eliminations
Total
2016
5,497
1,464
1,322
363
(933)
7,713
2015
5,987
2,270
1,068
433
(991)
8,767
Change
Change, %
(490)
(806)
254
(70)
58
(1,054)
(8.2)
(35.5)
23.8
(16.2)
(5.9)
(12.0)
The Steel, North America segment’s revenues fell
by 35.5% year-on-year. The segment’s revenues
from sales of steel products dropped by 35.9%,
driven by lower sales volumes (down 24.8%) and
prices (down 11.1%). The key drivers of these, in
turn, were significant reductions in Evraz North
America’s oil country tubular goods (OCTG) sales,
resulting from a market slump amid low oil prices,
weak tubular and rail markets in North America,
and delays in pipeline projects.
The Coal segment’s revenues rose by 23.8%
year-on-year, supported by higher sales
prices (up 21.4%) and volumes (up 2.4%).
The increase in volumes was the result of
the completion of longwall moves, as well as
more favourable geological conditions at the
Erunakovskaya-8 mine, improved productivity
at the Uskovskaya and Osinnikovskaya mines,
and the launch of room-and-pillar mining
operations at Mezhegeyugol.
Total
7,713
8,767
(1,054)
In 2016, the Steel segment’s EBITDA fell amid
negative steel price trends and a reduction in
sales volumes. This was partly offset by lower
expenses in US dollar terms due to rouble
depreciation, as well as the effects of cost-cutting
initiatives implemented in 2016 as part of the
ongoing productivity improvement programme.
Revenues by region, US$ million
Region
Russia
Americas
Asia
Higher prices for coking coal and scrap in local
currencies also contributed to the decrease
in the Steel segment’s EBITDA, which was
partially countered by lower prices for iron ore
and ferroalloys on the Russian market.
CIS (excl. Russia)
Europe
Africa and rest of the world
2016
3,080
1,722
1,372
630
640
269
2015
3,104
2,566
1,354
664
815
264
The Steel, North America segment’s EBITDA
was impacted by lower sales volumes and
prices, stemming from a downturn in the OCTG
and rail markets.
The Coal segment’s EBITDA increased year-
on-year on the back of higher sales prices
and volumes, accompanied by the effects of
cost-cutting initiatives and rouble depreciation,
which was favourable for costs.
Eliminations mostly reflect unrealised profits
or losses that relate to the inventories produced
by the Steel segment on the Steel, North
America segment’s balance sheet, and coal
inventories produced by the Coal segment on
the Steel segment’s balance sheet.
The following table details the effect of the
Group’s cost-cutting initiatives.
EBITDA, US$ million
Segment
Steel
Steel, North America
Coal
Other operations
Unallocated
Eliminations
Total
2016
1,004
28
644
17
(109)
(42)
1,542
2015
1,081
55
351
14
(130)
67
1,438
(24)
(844)
18
(34)
(175)
5
(77)
(27)
293
3
21
(109)
104
Change
Change, %
Change
Change, %
Effect of Group’s cost-cutting initiatives in 2016, US$ million
Effect
Cost-cutting initiatives and productivity improvements, including
Broad optimisation program (incl. services, yields, auxiliary materials’ structure) across North American and Ukrainian assets
Increased productivity and cost reduction at iron ore assets
Yields, raw materials' structure and services optimisation at Russian steel assets
Productivity improvement and cost reduction at coal assets
Vanadium operations improvement
Optimisation of asset portfolio
Reduction of general and administrative (G&A) costs and non-G&A headcount
Total
(0.8)
(32.9)
1.3
(5.1)
(21.5)
1.9
(12.0)
(7.1)
(49.1)
83.5
21.4
(16.2)
n/a
7.2
2016
184
50
28
44
56
6
13
119
316
25
Annual Report & Accounts 2016www.evraz.comStrategic report Revenues, cost of revenue and gross profit by segment, US$ million
2016
2015
Change, %
Steel segment
Revenues
Cost of revenue
Gross profit
Steel, North America segment
Revenues
Cost of revenue
Gross profit
Coal segment
Revenues
Cost of revenue
Gross profit
Other operations – gross profit
Unallocated – gross profit
Eliminations – gross profit
Total
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
Profit/(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
26
5,497
5,987
(4,068)
(4,431)
1,429
1,556
(8.2)
(8.2)
(8.2)
(35.5)
(37.1)
(24.6)
23.8
(7.5)
100.3
(23.4)
16.7
96.3
0.4
2,270
(1,977)
293
1,068
(758)
310
111
(6)
(80)
2,184
Change
Change, %
8
105
84
(24)
319
(5)
487
(5)
39
(21)
167
(52)
615
(84)
531
0.4
(14.4)
(15.2)
5.4
(86.9)
4.2
n/a
1.1
81.3
n/a
n/a
n/a
(87.0)
n/a
(73.9)
1,464
(1,243)
221
1,322
(701)
621
85
(7)
(157)
2,192
2015
2,184
(728)
(553)
(441)
(367)
(119)
(24)
(466)
(48)
21
(167)
(23)
(707)
(12)
(719)
2016
2,192
(623)
(469)
(465)
(48)
(124)
463
(471)
(9)
–
–
(75)
(92)
(96)
(188)
Selling and distribution expenses decreased by
14.4% in 2016 due to rouble weakening and
lower sales volumes to third parties.
General and administrative expenses fell by
15.2% in 2016. This was caused by lower staff
costs, mainly due to headcount optimisations
at Evraz North America and the Russian steel
and coal plants, as well as to rouble and
hryvnia weakening.
Impairment losses during the reporting period
mainly include the write-off of goodwill and of
certain functionally obsolete items of property,
plant and equipment at subsidiaries in the
US and Canada totalling US$430 million. 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 forecast costs and changes in forecast
production volumes.
Foreign exchange losses arose as a result
of the depreciation of the Russian rouble,
Ukrainian hryvnia, Kazakh tenge and Canadian
dollar. The subsidiaries in these 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.
of derivatives not designated as hedging
instruments, accompanied by a realised gain
amounting to US$14 million related to the
interest portion of the change in fair value of
the swaps-hedging instruments for rouble-
denominated bonds. This effect was offset by
a US$50 million loss on repaying debt, which is
primarily a premium on repurchasing US dollar-
denominated bonds.
In the reporting period, the Group had
an income tax expense of US$96 million,
compared with US$12 million in 2015. The
change reflects the Group’s better operating
results.
Interest expenses incurred by the Group
increased despite achieved debt reduction
mainly due to growth of US dollar base rates
that affects debt bearing variable interest rate
and the larger portion of rouble-denominated
debt, that bears higher nominal rates than
debt denominated in US dollars. The interest
expense for bank loans, bonds and notes
amounted to US$439 million in 2016 and
US$430 million in 2015.
Losses on financial assets and liabilities
amounted to US$9 million and included,
among other things, US$273 million of
unrealised gains and US$250 million of
realised losses on changes in the fair value
Cash flow, US$ 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
Proceeds from sale of disposal classified as held for sale,
net of transaction costs
Other investing activities
Net cash flows from / (used in) investing activities
Net cash flows from financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
2016
1,343
160
1,503
4
(382)
27
11
(340)
(1,369)
(10)
(216)
2015
1,293
329
1,622
4
(423)
44
16
(359)
(962)
(12)
289
Net cash flows from operating activities decreased by 7.3% compared with 2015 and
US$160 million was attributed to the release in net working capital. Free cash flow for the
period was US$659 million.
Change
Change, %
50
(169)
(119)
–
41
(17)
(5)
19
(407)
2
(505)
3.9
(51.4)
(7.3)
–
9.7
(38.6)
(31.3)
(5.3)
42.3
(16.7)
n/a
27
Annual Report & Accounts 2016www.evraz.comStrategic report Calculation of free cash flow, US$ million
Item
EBITDA
EBITDA excluding non-cash items
Changes in working capital
Income tax accrued
Social and social infrastructure maintenance expenses
2016
1,542
1,549
160
(183)
(23)
2015
1,438
1,420
329
(99)
(28)
104
129
(169)
(84)
5
Net cash flows from operating activities
1,503
1,622
(119)
Change
Change, %
Interest and similar payments
Capital expenditures, including recorded in financing activities
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs
(454)
(428)
27
11
–
(452)
(428)
44
16
(3)
(2)
–
(17)
(5)
3
7.2
9.1
(51.4)
84.9
(17.9)
(7.4)
0.4
–
(38.6)
(31.3)
(100.0)
Other cash flows from investing activities
Equity transactions
Free cash flow
For the definition of free cash flow,
please refer to page 260
CAPEX
and key projects
In 2016, EVRAZ maintained a low level
of capital expenditures of US$428
million. Two projects at EVRAZ Regina
in Canada made good progress with
the launch scheduled in Q1 2017. The
Mezhegey coal mine project launched
in Q2 2016 and is now ramping up
production volumes. EVRAZ NTMK
continued implementing its grinding ball
mill construction project (in 2016 the
engineering work was finished) and also
started implementing the blast furnace
7 project (first iron is scheduled at the
end of 2017).
Capital expenditures (including those
recognised in financing activities) for
2016 in millions of US dollars can be
summarised as follows.
28
659
799
(140)
(17.5)
Capital expenditures in 2016, US$ million
Steel mill upgrade
Upgrade of EVRAZ Regina steel mill. In progress since Q2 2015. The aim is to improve
steel quality, increase capacity for casting by 110 kt and rolling by 250 kt, and result
in a crown yield saving from 0.75% to 1.1%.
Construction of an LDP mill
Construction of a new mill at EVRAZ Regina has been in progress since Q2 2015
and is due to be completed in Q1 2017. Expected to add 150 kt of tubular product capacity.
Blast furnace 7
Construction of blast furnace 7 at EVRAZ NTMK has been in progress since Q3 2016.
It is an alternative to the halt of blast furnace 6 for category-1 repairs.
Iron ore capacity expansion
The Sheregesh mine’s output is due to reach 4.8 mtpa of raw ore.
Coal deposit development
Mezhegey (phase 1) was launched in Q2 2016. Capacity of 1.5 mtpa.
Grinding ball mill construction
Construction of a new grinding ball mill at EVRAZ NTMK has been in progress since Q2
2015 and is due to be completed in Q3 2018. Expected to increase ball production to 300
kt by 2018.
Other development projects
Maintenance
Total
82
24
10
5
4
2
37
264
428
DEBT
reduction
Financing and liquidity
At the beginning of 2016, total debt was
US$6,724 million. The Group continued
to focus its efforts on reducing debt and
extending the maturity profile.
In March, EvrazHolding-Finance LLC issued
RUB15 billion (around US$221 million at the
exchange rate on the transaction date) in five-
year exchange-traded bonds due in 2021 with
a 12.60% coupon payable semi-annually.
In April, EVRAZ entered into a multi-currency
facility agreement with VTB Bank governing
the general terms and conditions of loans of
up to seven years with a total borrowing limit
of US$300 million equivalent. During 2016,
two tranches amounting to US$150 million
and US$99 million were utilised under the
facility in the form of loans repayable in 12
equal quarterly instalments starting April and
September 2020, respectively.
In June, Evraz Group S.A. issued a US$500
million Eurobond due in 2022 with a 6.75%
coupon payable semi-annually.
In October, EVRAZ utilised an additional
US$85 million under its Framework agreement
with Alfa-Bank repayable in 10 equal quarterly
instalments starting in October 2020.
Proceeds from these new borrowings from
banks and capital markets were used to
refinance EVRAZ’ existing maturities, primarily
those coming due in 2017 and 2018, thus
not increasing overall debt and extending the
repayment schedule.
principal of its US$125 million facility with
Unicredit, US$87 million of its US$100 million
facility with Nordea Bank, and the loan from
Development Bank of Kazakhstan with a
principal amount of US$90 million together
with capitalised interest of US$23 million.
In April, EVRAZ prepaid €60 million of the
outstanding principal under its credit facility
with Gazprombank, and later in August
2016, the Group signed new loans with
Gazprombank with amounts of approximately
RUB18 billion and €180 million. During the
following several months after signing, EVRAZ
refinanced its existing credit facility with this
bank: upon completion of the refinancing
process, the maturity of this facility split into
tranches of 30% and 70% of the principal was
moved to 2021 and 2022, respectively.
During 2016, EVRAZ partly repurchased
during two tender offers (in April and June),
as well as from the open market, US$496
million of the outstanding principal of its 2018
Eurobonds, US$160 million of Raspadskaya’s
Eurobonds, and US$109 million of its 2017
Eurobonds. The remaining US$177 million
principal of its 2017 Eurobonds was called in
full and settled in August.
As a result of these actions, as well as
scheduled drawings and repayments of bank
loans, total debt fell by US$763 million to
US$5,961 million as at 31 December 2016,
while net debt dropped by US$547 million to
US$4,802 million, compared with US$5,349
million as at 31 December 2015.
During 2016, in order to reduce total debt
and interest expense, as well as to extend
the maturity profile, EVRAZ prepaid several
bank facilities, namely US$120 million of
its US$500 million syndicated pre-export
financing facility, US$81 million of the total
Due to the larger portion of rouble-
denominated debt and growth of US dollar
base rates during 2016, interest expenses
accrued in respect of loans, bonds and notes
were US$439 million in 2016, compared with
US$430 million in 2015.
Net debt to EBITDA stood at 3.1 times, compared
with 3.7 times as at 31 December 2015.
As at 31 December 2016, debt with financial
maintenance covenants comprised a
syndicated pre-export financing facility
and various bilateral facilities with a total
outstanding principal of around US$1,829
million. The maintenance covenants
under these facilities include the two key
ratios calculated on the basis of EVRAZ
plc’s consolidated financials: a maximum
net leverage and a minimum EBITDA
interest cover. In H1 2016, EVRAZ signed
amendments to these facilities, whereby the
testing of financial ratios was suspended for
three semi-annual testing periods starting 30
June 2016, subject to compliance with certain
additional restrictions on indebtedness and
dividends. As a result, currently only one of
the outstanding facilities has the minimum
EBITDA interest cover ratio tested against a
comfortable level of 1.5x.
As at 31 December 2016, EVRAZ was in full
compliance with its financial covenants. Cash
amounted to US$1,157 million and short-term
loans and the current portion of long-term loans
stood at US$392 million. Cash-on-hand and
committed credit facilities are sufficient to cover
all of EVRAZ’ debt principal maturing in 2017
and 2018.
Key recent developments
In January 2017, EVRAZ made a partial
prepayment of its US$500 million
syndicated pre-export financing facility,
settling another US$110 million of principal.
The remaining outstanding under this facility
is US$270 million.
29
Annual Report & Accounts 2016www.evraz.comStrategic report CSR review
Our approach
EVRAZ is a socially responsible company,
addressing and monitoring all aspects of
corporate social responsibility (CSR) that are
relevant to the business. The CSR section of
the Annual report on pages 74-94 provides
321
an overview of the Group’s policies and
performance in 2016 in key areas of CSR,
including human rights, health and safety, the
environment, human capital management
and community engagement, as well as an
outline of how the Group intends to improve
its performance in the years ahead. The
Group considers these policies appropriate
and effective.
333
282
333
321
363
282
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.
363
463
463
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
www.evraz.com/governance/documents/
30
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 believes that the safety
initiatives implemented across the Group are helping it support the development of its safety
culture and will therefore have a lasting effect on saving its employees’ lives, protecting their
health, and maintaining the integrity of its operations. The two key initiatives in 2016 were
targeted at reducing the number of unsafe actions through safety conversations on the shop
floor, and unifying processes with the help of standard safe work procedures.
2016
6
0
6
2015
Fatalities
10
3
2016
2014
6
0
12
6
10
18
3
13
7
13
12
25
7
2015
2013
2014
2012
2013
19
6
19
18
EVRAZ employee
Contractors
6
2012
25
For more information,
see page 75
EVRAZ employee
Contractors
Environment
24
24
6
6
31
31
LTIFR
(excluding fatalities)
2.36
8.3% yoy
per 1 million
hours
EVRAZ’ LTIFR started to grow
in 2015 as a result of the Group’s
systemic effort to ensure full
transparency in reporting.
In 2012, after determining the key challenges
and focus areas, EVRAZ voluntarily adopted
five-year environmental targets
aimed at: reducing air emissions
decreasing fresh water consumption by 15%.
by 5%;
(over 2012–17)
1
2
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
EVRAZ fresh water consumption,
million m3
422.26
368.44
332.13
340.23
327.60
2012
2013
2014
2015
2016
For more information,
see page 78
Our people
EVRAZ continues to focus on working both
with and for people. The Group’s management
recognises that reaching their business targets
depends on carefully selecting new hires,
providing quality training and ensuring that
staff are properly motivated.
Diversity of employees, senior management
and directors, % (number of people)
Board
88 (7)
12 (1)
Senior management
95 (21)
5 (1)
Employees
71 (55,268)
29 (22,574)
Men
Women
For more information,
see page 86
Community relations
EVRAZ strives to maintain an open dialogue
with the communities surrounding its areas
of operation. The Group pays its taxes responsibly
and cares for the wellbeing of its employees.
Organisation-wide, operations are conducted
in accordance with federal and local legislation.
Managing directors and regional vice presidents
take responsibility for communicating with local
governments. HSE directors’ duties include
ensuring that plant operations meet all applicable
rules and regulations. The regional corporate
communications centres collaborate with non-
profit organisations on charity, environmental,
social, educational and sport projects.
For more information,
see page 90
Annual Report & Accounts 2016
Number of employees
31 December 2016
77.8
thousand
people
7.8% yoy
Reduction is mainly due to labour
productivity improvements,
outsourcing support functions,
and asset optimisations.
CANADA
USA
UKRAINE
RUSSIA
EVRAZ for Cities
EVRAZ: City of Friends –
City of Ideas
EVRAZ for Kids
EVRAZ for Sport
www.evraz.com
31
Strategic report
Principal risks and uncertainties
Risk management system
The risk management process aims to identify,
evaluate and manage potential and actual threats
to the Group achieving its objectives.
For more information, see the risk
management and internal control
section of the corporate governance
report on pages 107-109
CEO
CEO
TOP-DOWN APPROACH
BOARD OF DIRECTORS
BOARD OF DIRECTORS
▪ Has ultimate responsibility for risk
management, ensuring that it is in
place and effectively functioning
▪ Has an oversight role
▪ Ensures that risk management processes are in place, adequate, effective
▪ Approves a risk appetite in accordance with the risk management
methodology adopted by EVRAZ
Risk Management Group
Audit Committee
Internal audit
▪
Identifies, assesses and monitors
Group-wide risks and mitigation actions
▪ Supports the board in monitoring risk
▪ Supports the Audit Committee in
exposure against risk appetite
▪ Reviews the effectiveness of risk
management and internal control systems
reviewing the effectiveness of risk
management and internal control
systems
Oversight, identification,
assessment and management
of risks at corporate level
EFFECTIVE RISK MANAGEMENT
Identification,
assessment and management
of risks at regional and site levels and across functions
Site levels
Identification, assessment and mitigation of risks
▪
▪ Promoting risk awareness and safety culture
REGIONAL BUSINESS UNIT MANAGEMENT TEAMS
▪ Adopts regional risk appetite
▪ Support the Risk Management Group 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
32
BOTTOM-UP APPROACH
Risk migration in 2016 and robust assessment
In 2016, the management carried out a robust
assessment of the principal risks facing the
Group. The Audit Committee has carefully
reviewed the assessment on behalf of the Board.
The assessment focused on the risks that
could adversely affect the Group’s strategies,
evaluation of risks identified at the plant level
to consider their relevance and significance
for the Group, and detailed assessment of
some specific areas where new risks have
been identified or the risk profile has changed
significantly. As a result, the principal risks have
been confirmed.
Whilst the composition of the Group’s principal
risks has not changed compared with the
previous year, a detailed analysis of their impact
and probability of negative consequences for the
Group has led to a recalibration in assessment
of some of the risks.
The Group has also considered and assessed
some risks not emphasised previously, eg IT
security and IT infrastructure failure, HR
succession planning, taxation, and other
risks. Whilst the impact and probability
analysis suggests that such risks could affect
the Group’s operations to some extent, the
management does not consider those risks
as being capable of seriously affecting the
Group’s performance, future prospects or
reputation.
Additionally, the Group has considered how
the UK referendum in favour of leaving the
EU might impact its operations. The Group
believes that the UK referendum results will not
significantly affect its business.
Key developments in 2016
To enhance the transparency of risk reporting,
the Group’s Risk Committee was transformed
into the Risk Management Group.
Like the Risk Committee, the new Risk
Management Group is composed of the vice
presidents under the leadership of the CEO.
The Risk Management Group’s role is to
support the CEO in the day-to-day supervision
and management of risk, as well as to provide
assurance and advice to the Audit Committee
members, on the effectiveness of the
Company’s risk management and internal
control systems.
Maximum
Principal risks
and uncertainties
heat map in 2016
Please see description
of the mitigating actions
on the next page.
Risk appetite level
Risk migration, yoy
1
Global economic factors,
industry conditions
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
y
t
i
l
i
b
a
b
o
r
P
5
4
3
2
1
1
9
5
6
2
7
4
8
3
1
2
3
4
5
Minimum
Severity
33
Annual Report & Accounts 2016www.evraz.comStrategic report
Principal risks
Success Factors
Strategic priorities
Health, safety & environment
Human capital
Customer focus
Asset development
Development of product portfolio
and customer base
Prudent CAPEX strategy
Retention of low-cost position
EVRAZ business system
Debt reduction
# Risk
Description
Mitigating/risk management actions in 2016
Direction/
Reason for change
1 Global
economic
factors, industry
conditions,
industry
cyclicality
Related with:
EVRAZ’ operations are dependent on the global
macroeconomic environment, as well as economic
and industry conditions, eg the global supply and
demand balance for steel, iron ore and coking coal,
which affect both product prices and volumes across
all markets.
The Group’s operations involve substantial fixed costs,
and global economic and industry conditions can
impact the Group’s operational performance.
This is an external risk that is mostly outside the
Company’s control; however, it is partly mitigated
by exploring new market opportunities, focusing
on expanding the share of value-added products,
further downscaling inefficient assets, suspending
production in low-growth regions, and further
reducing and managing the cost base with the
objective of being amongst the sector’s lowest-cost
producers.
2 Product
competition
Excessive supply on the global market and greater
competition.
Expand product portfolio and penetrate new
geographic and product markets.
Related with:
Low demand for construction products and increasing
competition in this segment.
Develop and improve loyalty and customer focus
programmes and initiatives.
Increasing competition in the rail product segment.
Quality improvement initiatives.
Excessive supply of slabs on the global market and
intensified competition.
Focus on expanding the share of value-added products.
3 Cost
effectiveness
Most of the Group’s steel production remains sensitive
to costs and prices.
Related with:
Given the substantial product share of commodity
semi-finished, which requires less customer service
and is more cost driven, maintaining a low-cost
position is one of EVRAZ‘ key business objectives in
steelmaking, as well as in the iron ore and coking coal
mining businesses.
For both the mining and steelmaking operations,
the Group is implementing 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.
Intensified competition,
mostly in the steel products
market, mainly as a result
of competitors’ activity
and introduction of new
facilities.
4 Treasury:
finance
availability
Related with:
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.
Action to extend the debt maturity profile and diversify
sources of funding, as well as proactively manage the
remaining portion of debt subject to maintenance
covenants.
Extension of debt maturity
profile on more favorable
terms.
Potential government action, including economic
sanctions impacting Russian entities, might increase
the Group’s capital market risk regarding additional
funding.
EVRAZ is subject to counterparty risk via receivables
from commercial customers.
The Group’s current debt facilities include certain
covenants in relation to net debt and interest expense.
A breach of these covenants could result in certain of
the Group’s borrowing facilities becoming repayable
immediately.
Liquidity risk is managed by revisiting capital
expenditure plans, cost optimisation programmes, and
continued asset portfolio rationalisation.
Counterparty risk with commercial customers is
managed through a combination of letters of credit
and, where creditworthiness is uncertain, by
prepayments.
34
5 Functional
currency
devaluation
Related with:
6 HSE:
environmental
Related with:
# Risk
Description
Mitigating/risk management actions in 2016
Direction/
Reason for change
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.
Decrease in volatility of
national currency in Russia.
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.
Environmental risks matrix is monitored on a regular
basis. Respective mitigation activity is developed and
performed in response to the risks.
Implementation of air emissions and water use
reduction programmes at plants. Waste management
improvement programmes.
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.
7 HSE: health,
safety
Related with:
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 and adverse reputational
impacts and, in the extreme, the withdrawal of mining
operational licenses, thereby curtailing operations for
an indefinite period.
Most 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.
Participation in development of GHG emissions
regulation in Russia. Reduction in GHG emissions as
a positive side-effect of energy efficiency projects.
Management KPIs place significant emphasis on safety
performance and the standardisation of critical safety
programmes.
Implementing an energy isolation programme.
Introducing a programme of behaviour safety
observations drives a more proactive approach to
preventing injuries and incidents.
Introducing a contractual safety programme.
A series of health and safety initiatives related
to underground mining.
Maintenance and repair modernisation programmes,
downtime management system.
8 Potential
government
action
New laws, regulations or other requirements could limit
the Group’s ability to obtain financing on international
markets, sell its products and purchase equipment.
Whilst these risks are mostly outside the Group’s
control, EVRAZ and its executive teams are members of
various national industry bodies.
Related with:
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 businesses or otherwise
reducing its ability to conduct business with counterparties.
Risk of adverse geopolitical situation in countries of
operation.
9 Business
interruption
Related with:
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.
As a result, they contribute to the development of such
bodies and, when appropriate, participate in relevant
discussions with political and regulatory authorities.
Procedures have been implemented to ensure that
sanction requirements are complied with across the
Company’s operations.
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, and employee safety training.
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.
Implementation
of mitigating/risk
management actions
focused on reduction
of risks of environmental
exposures.
Introduction of improved
compliance monitoring
procedures, development
of compliance controls.
35
Annual Report & Accounts 2016www.evraz.comStrategic report
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 of this long-term
viability assessment.
In accordance with provision C.2.2 of the
UK Corporate Governance Code published
in April 2016, the Board has assessed the
Group’s prospects over the period of the
current strategic plan to December 2021 and
considers it possible to form a reasonable
expectation of the Group’s viability over this
five-year period. 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, as well as the mitigation plan
developed by the management.
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 34-35, as well as
combinations of correlated risks. The key
scenarios can be summarised as:
▪ Base scenario:
– the key assumptions as disclosed in
Note 6 to the financial statements under
Impairment of assets on pages 183-186;
– future pricing of steel and raw materials
is within the range of the external analyst
forecasts set out in Note 6;
Increased conversion costs in the CIS;
▪
▪ Limited access to capital markets;
▪ Appreciation of local operating currencies;
▪ Business interruption:
– lost production and restoration costs; and
▪ 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 across
several risk-related scenarios, the directors
have a reasonable expectation that EVRAZ
will be able to remain in operation and meet
its liabilities as they fall due over the five-year
period to December 2021.
In making this statement, the directors have
made the following key assumptions:
▪
the continued availability of funding or
refinancing, by way of capital markets, bank
debt, and asset financing, of up to one-third
of the current debt level in all the scenarios
considered; and
– annual steel volumes are assumed to
▪ selling prices remain in line with prevailing
market assumptions.
vary from -9.0% to 5.0% compared with
the 2016 level over the five-year period to
December 2021;
▪ Global economic decline:
– steel and raw material prices and
exchange rates during 2017 and future
periods are at the lower end of the
external analyst forecast set out in Note 6;
– sales volumes are assumed to remain at
the level of the base scenario;
36
EVRAZ business system
Our approach
EBS objectives
The EVRAZ Business System (EBS) is the
methodology that EVRAZ applies to reduce
costs, improve quality and safety, and eliminate
waste, with an aim toward generating continuous
improvements in business effectiveness.
The Group leverages EBS for change
management and fostering a culture of
constant improvement. The principles
embodied in the management philosophy
define how EVRAZ operates and inform how
staff think and act. EBS has been embedded
throughout the business and is applied in every
one of the organisation’s processes.
▪ Achieving the annual production cost
reduction target of 3%.
▪ Fostering outstanding teams whose
members embrace the Group’s philosophy.
▪ Encouraging the extended partner and
supplier network to improve through mutual
respect and exacting standards.
▪ Striving to eliminate waste in EVRAZ’ value-
creation process by better understanding
customers’ needs and focusing business
processes on continuous improvement.
Key developments
EBS transformation
In 2016, the targeted KPIs were achieved
for training staff on the basic EBS tools and
amount of RIEs
.
1
In 2017, the Group plans to begin the next phase
of EBS with a focus on uniting all the corporate
functions in a drive to reduce production costs.
Whereas previously an instrumental approach
was used, the EBS Transformation will introduce
a new project-based methodology. The initiative
is expected to be implemented throughout the
Group’s main operations by 2019.
In 2016, additional measures were also
undertaken to introduce the following new EBS
KPIs next year:
▪ Reducing annual production costs by 3%;
▪ Assessing employee engagement in
implementing continuous production
improvement ideas (“Idea Factory” work
assessments, “Problem Solving Boards” etc).
9 projects
aimed at increasing
revenues or reducing
production costs were
implemented using
the EBS methodology
in 2016.
Objectives for 2017
In 2017, the primary focus for EBS will be:
▪ Achieving the 2017 production cost
reduction target of 3%
▪ Meeting milestones to implement the
EBS Transformation project throughout
the Group’s main operations by 2019
▪ Developing the employee engagement
assessment methodology and
beginning KPI monitoring
The cross-functional project methodology
is currently being implemented in the
following ways:
▪
Introducing the EVRAZ principles (safety,
respect, customer orientation, accountability
and teamwork) in the management system
to update the leadership behaviour model
Iterating the EBS Transformation
methodology for further application at the
Group’s business units
▪
▪ Revising the EBS organisational structure to
support the project approach implementation
▪ Developing a system of accounting KPIs
EVRAZ business system KPIs
People trained to EBS Level 2
Amount of RIE
1
Amount of model lines where
EBS was implemented
Share of critical assets covered
by maintenance system
2012
2013
4,312
2014
2015
2016
9,559
18,024
21,454
618
1,343
1,608
4,500
6,786
15
20
22
20
33
50
33
2
50
10
1 Rapid improvement event
2 This indicator did not change year-on-year because the initiative ended in 2016.
EVRAZ’ Strategic Report, as set out on pages 8-37 inclusive, has been reviewed
and was approved by the Board of Directors on 28 February 2017.
By the order of the Board
Alexander Frolov
Chief Executive Officer, EVRAZ plc
28 February 2017
37
Annual Report & Accounts 2016www.evraz.comStrategic report Contents
Steel segment ................................................. 40
Coal segment .................................................. 54
Steel, North America segment ....................... 64
S
S
E
N
I
S
U
B
W
E
I
V
E
R
38
Annual Report & Accounts 2016
EVRAZ is a leader in infrastructure steel
products globally and in the Russian
coking coal market.
Ensuring the safety
of people and equipment
is EVRAZ’ top priority
in underground mining.
See about EVRAZ’ coal
mining methods on page 59
www.evraz.com
39
Steel segment
Introduction and highlights
RUSSIA
EVRAZ Vanady-Tula
CZECH
REPUBLIC
EVRAZ
Nikom
UKRAINE
Evraz Yuzhkoks
Evraz Sukha Balka
EVRAZ DMZ
Iron ore
Iron ore products
Coking coal products
Slabs, billets
Construction products
Railway products
Vanadium products
40
OUR VISION:
▪ Be a world leader in rail production
▪ Be a leader on the Russian
construction steel market
▪ Be an efficient producer of premium
products for infrastructure projects
EVRAZ is No 1 among rail
suppliers and the leader in the
construction steel market in
Russia. The Steel segment’s
primary focus is producing
steel in the CIS from closely
located raw materials to serve
the domestic infrastructure
and construction market while
maintaining export flexibility.
EVRAZ NTMK
EVRAZ KGOK
FINANCIAL HIGHLIGHTS
Revenues
US$ 5,497 million
EBITDA
US$1,004 million
EBITDA margin
18.3%
CAPEX
US$ 163 million
PRODUCTION HIGHLIGHTS
Crude steel
12,157 kt
Steel products
11,182 kt
Iron ore products
19,701 kt
Vanadium products (saleable)
12,861 mtV
8.2% yoy
7.1% yoy
0.2pp yoy
10.9% yoy
2.0% yoy
0.9% yoy
3.6% yoy
12.4% yoy
Evraz
Caspian Steel
KAZAKHSTAN
EVRAZ ZSMK
Evrazruda
SALES HIGHLIGHTS (SALES TO 3RD PARTIES ONLY)
Semi-finished products
5,601 kt
Finished products
6,191 kt
Iron ore products
4,218 kt
Vanadium products (saleable)
11,394 mtV
0.02% yoy
6.6% yoy
4.6% yoy
18% yoy
41
Annual Report & Accounts 2016www.evraz.comBusiness review Market review
Russian steel market
trends
Russia’s economy contracted by a further
0.2% in 2016, driving steel consumption
down by 4% to 34.6 million tonnes, compared
with 36.0 million tonnes in 2015. Demand
decreased by 3% for long steel and 11% for
tubular products, but increased by 3% for
flat products. Demand also weakened by
12% for rebar, angles and channels, while
consumption of beams strengthened by 10%.
The Russian rail market delivered the highest
segmental growth, consumption surging by
52% to 1,050 thousand tonnes, compared with
690 thousand tonnes in 2015.
Russian steel consumption
by product type, mt
2016
2015
2014
2013
2012
15.2
9.4
10.0
15.7
9.1
11.2
18.3
9.8
11.1
19.1
10.0
9.9
18.8
9.9
9.4
34.6
36.0
39.2
39.1
38.1
Long Products
Flat products
Tubular products
Russian export volumes increased by 4%
to 29.7 million tonnes for the year despite the
flagging consumption figures, largely thanks
to high export prices and a weaker Russian
rouble year-on-year. The combination of these
negative and positive effects left overall Russian
steel product output mostly unchanged.
During 2016, Russian steel prices were
influenced by positive global steel market
trends. The rebar price CPT Moscow averaged
US$386 per tonne, up 10% from US$352 per
tonne in 2015. The price for channels
remained mostly unchanged, averaging
US$417 per tonne. Hot-rolled coil averaged
US$430 per tonne CPT Moscow, up 9%
from US$394 per tonne in 2015. Plates
averaged US$422 per tonne, down 2% from
US$433 per tonne in 2015.
Other Steel segment
market trends
In Ukraine, domestic steel consumption rose
by 26% to 3.7 million tonnes in 2016, up
from 2.9 million tonnes in 2015, on the back
of a nascent economic recovery following
the political instability of 2014-2015. Export
volumes edged up by 2% to 17.9 million tonnes.
Kazakh steel consumption dropped by 20%
to 2.2 million tonnes in 2016, compared with
2.7 million tonnes in 2015, due to economic
headwinds. Steel product exports climbed
by 30% to 2.6 million tonnes on the back of
favourable export conditions, including a surge
in prices and local currency devaluation.
Russian steel prices,
US$/t
800
600
400
200
0
2010 2011 2012 2013 2014 2015 2016/01
2016/12
Rebars
Channels
HRC
Plate
42
Business review
Annual Report & Accounts 2016
Steel segment rails sales in 2016
Europe
7kt
CIS
91 kt
Americas
21 kt
Africa
19 kt
Russia
747kt
Asia
28kt
72%
domestic market
share in 2016
913 kt
total Steel segment
rail sales in 2016
75 kt
Rails export sales
volumes in 2016
(excl. CIS)
676 kt
sales to Russian
Railways in 2016
7% yoy
EVRAZ
IS RUSSIA’S
LARGEST RAIL
PRODUCER
See about production
of 100-metre
rails on next page
www.evraz.com
43
EVRAZ ZSMK produces 100-metre rails
EVRAZ uses state-of-the-
art technology in Russia
to produce world-class rails
Steel billets fully comply with
customer requirements, as
well as the standards set by
the International Union of
Railways, the American Railway
Engineering and Maintenance-
of-Way Association (AREMA),
and Russia’s GOST system
Application
of identification mark
Each rail’s electronic
passport is stored
in a database
Water descaling
Water pressure
exceeds
200 atmospheres
Reheat furnace
Universal mill
373 m etres in length
Rails that are rolled on EVRAZ
ZSMK’s mill have the following
characteristics:
improved mechanical properties
▪ accuracy
▪
▪ fine-grain structure
▪
improved surface quality
E
l
e
c
tric-a
r
c f
u
r
n
a
c
e
C
o
n
ti
n
u
o
u
s c
a
s
ti
n
g
Please see the
video about EVRAZ’
railway products.
44
Three minutes of compressed-air quenching gives the rails
the following properties:
3 min
110 °C
350 kph
increased strength
and wear resistance
without loss of ductility
resistance to
temperature differential
of more than 110 °С
applicability
in high-speed lines
(up to 350 kph)
At this point, the rail
is straightened out
both horizontally and
vertically
3rd
installation
of this type
in the world
Non-destructive testing line
5 stations
Roller straightening m achine
Head-hardening
Cooling
196 fans
In the course of 2 hours,
the rolling temperature falls
to a maximum of 60°C
before going into the Roller
straightening machine
Finishing and ship m ent
A specially
designed
mounting system
comprising
seven platforms
allows the rails
to be transported
without being
damaged or bent
Control room
Information is verified
by specialists and stored
in a database
Section gauge
Elekon device
Inspect straightness
over the length of the
rail
Inspect the geometry
of the section
Ultrasonic inspection
station
Inspect for internal
defects along the
length of the rail
Eddy Current unit
Inspect the surface
of the entire rail
length
45
Annual Report & Accounts 2016www.evraz.comBusiness review Strategic priorities
DEVELOPMENT
of product portfolio and customer base
Construction product
portfolio development
Key developments 2016
▪ Rebars for the markets of the US, Germany,
Poland, the Netherlands, Israel, the UK,
and South Asia were certified at EVRAZ
ZSMK.
▪ Welded rebar with vanadium alloying for
the Russian market was developed at
EVRAZ ZSMK.
▪ EVRAZ DMZ developed 9 new section
profiles for the domestic and export
markets.
▪ Evraz Caspian Steel developed 8 mm rebar
production, expanding the commodity
market exposure and increasing market
share in construction steel.
▪ Production restarted in 2016 at Evraz
Palini e Bertoli (Italy) thanks to an improved
market environment.
Outlook for 2017
▪ Maintain leading positions on the
Russian and CIS construction segment by
developing new profiles and supporting
loyal clients.
▪ Expand the share of premium products
in the export portfolio by improving rebar
export sales.
▪ Develop and certify А500B rebars for the
Malaysian market at EVRAZ ZSMK.
▪ Develop 4 types of rebar meeting the new
standard for Russia and the CIS at EVRAZ
ZSMK.
▪ Develop 4 new large channel profiles at
EVRAZ NTMK.
▪ Develop 5 planned European profiles at
EVRAZ DMZ, fully filling out the European
profile offering by the end of 2017.
Further rails portfolio
development
H-beam consumption
development
Key developments 2016
▪ Rails for European, Indian and Middle
Key developments 2016
▪ EVRAZ continued to implement its large
Eastern markets were certified at EVRAZ
ZSMK.
▪ Wheels for European, Latin American,
Kazakhstan and Bangladesh markets were
certified at EVRAZ NTMK.
▪ EVRAZ NTMK resumed rail production
early in the year to meet rising domestic
demand.
Outlook for 2017
▪ Maintain leading positions in the Russian
and CIS transport segment by developing
new profiles and supporting loyal clients.
Increase the premium product share in the
export portfolio by boosting rail export sales.
▪
▪ Develop new European standard rail
profiles for Deutsche Bahn (60Е2, 54Е4,
49Е5) at EVRAZ ZSMK.
▪ Develop 4 new types of freight wheels for
Europe, passenger wheels for Deutsche
Bahn, and locomotive wheels for General
Electric (US) at EVRAZ NTMK.
▪ Expand rail export sales geography
(Thailand, Vietnam, Mozambique,
Poland etc).
beam demand improvement strategy using
targeted pricing and working closely with
developers and designers. This helped
increase beam sales by 5% compared
with 2015 despite a 10-15% decline in the
construction market.
▪ EVRAZ NTMK developed 58 new profiles
of beams meeting Russia’s new GOST
standard, as well as non-standard length
beams to meet domestic customer needs.
▪ Beams for the US and Hong Kong markets
were certified at EVRAZ NTMK.
Outlook for 2017
▪
Increase beam sales volumes by further
implementing the beam promotion
programme in residential construction and
replacement of substitutes.
▪ Boost the share of premium products in the
export portfolio by expanding beam export
sales.
▪ Develop 13 beam profiles meeting the new
GOST standard for Russia and the CIS, as
well as 4 profiles meeting the ASTM (US)
standard at EVRAZ NTMK.
▪ Maintain leading positions on the Russian
and CIS construction segment by developing
new profiles and supporting loyal clients.
46
Quality increase
Key developments 2016
▪ Work has begun at EVRAZ ZSMK’s rail
rolling line to implement a new business
management system that meets the IRIS
international railway industry management
system standard, and an audit review of the
work has been conducted.
▪ Deutsche Bahn AG’s specialists have
performed a quality control audit of
EVRAZ ZSMK’s rails, which was passed
successfully.
▪ The guarantee on head-hardened rails
manufactured at EVRAZ ZSMK has been
increased by 1.5 times to 700 million
tonnes gross. The new guarantee is double
any other in the world. This will reduce
infrastructure servicing costs for buyers.
▪ Steel production defects have fallen
from 1% to 0.5% at EVRAZ DMZ, helping
eliminate customer complaints.
▪ EVRAZ DMZ’ rolling mills successfully
passed an audit of the quality and
environmental protection management
systems. TÜV SÜD audited the quality
management system for compliance with
the ISO 9001:2008 standard and the
environmental protection management
system for compliance with the ISO
14001:2004 standard.
Outlook for 2017
▪
Implement the new IRIS business
management system at EVRAZ ZSMK.
▪ Agree with Deutsche Bahn on the
procedures for ultrasound and eddy-current
testing of production at EVRAZ ZSMK.
▪ Continue the steel defect reduction
programme at EVRAZ DMZ.
Customer base
development for
value-added semis
Key developments 2016
▪ Expanding the client base (auto
manufacturing and pipe makers) by
increasing marketing activity.
Outlook for 2017
▪ Planned expansion of value-added semi
offering by using more complex steel grades.
Customer focus and
marketing
Key developments 2016
▪
Implementing a customer loyalty programme
increased Siberian market share for several
construction products. Average market share
growth was 3-15%.
▪ Consumer focus, reliability and timely
deliveries helped sign long-term contracts
for grinding balls, which was one of the key
factors behind EVRAZ’ market share in this
segment rising from 64% to 70%, despite
the appearance of two competitors.
▪ By signing a contract with a key customer,
EVRAZ restored its market share in
Kazakhstan’s construction steel segment to
74% (up ~23 percentage points since 2015).
▪ The first phase of a new online account for
wholesale clients was launched, and the first
stage of a unified call-centre for retail clients
was completed.
Outlook for 2017
▪ Launch the second phase of the online
account with enhanced capabilities for
wholesale clients, launch online accounts,
and implement stages two and three of the
call-centre for retail clients.
▪ Several marketing initiatives are aimed at
expanding sales volumes of steel products
for the rail industry (wheels, railcar
sections).
47
Annual Report & Accounts 2016www.evraz.comBusiness review RETENTION
of low-cost position
Continuous focus on efficiency improvement
The implementation of an efficiency improvement programme in the Steel segment continued in
2016. More efficient use of raw and basic materials saved US$41 million. Payroll expenses were
also cut by US$40 million. Productivity growth generated an additional US$26 million. Reduction
of G&A costs saved US$7 million. A reduction in auxiliary material consumption and the use
of industrial services helped lower costs by US$4 million. Repair work optimisations led to an
additional cost savings of US$0.4 million. Asset optimisation lowered expenses by US$0.4 million.
Additionally, a series of measures
were undertaken to reduce
energy costs by US$16 million.
See pages 84-85
The main cost-reduction programmes
Reduce pig iron production costs by 5%
(combined initiative at EVRAZ NTMK
and EVRAZ KGOK)
Reduce pig iron production costs by 5%
(combined initiative at EVRAZ ZSMK
and Evrazruda)
Continuous casting machine (ССМ)
reconstruction at EVRAZ ZSMK
Actions in 2016:
Fe content in the sinter were increased
and the coal charge was optimised.
Actions in 2016:
Increased concentrate output at the
processing plant, coal charge optimisation,
involvement of slag in the production line.
Actions in 2016:
Construction completed.
Competitive iron ore
production cash cost
A key event in 2016 was the increase in
iron ore production volumes at Evrazruda’s
Sheregesh mine following the implementation
of an investment project. Primary concentrate
production totalled 2.8 million tonnes for the
year, which is a new record for the mine.
48
PRUDENT
CAPEX strategy
Key investment projects
Steelmaking
Construction of blast furnace 7 at
EVRAZ NTMK. The project is aimed at
supporting production during the overhauls
of blast furnaces 5 and 6.
Grinding ball mill construction
at EVRAZ NTMK. Construction of a new ball
mill at EVRAZ NTMK targeting an increase
in ball production and sales volumes.
Status:
The foundations have been laid for the blast
furnace itself, as well as the air heaters. The
foundations are being laid for the casting
yards. The belts are being installed for the
blast-furnace jackets and air heaters.
Status:
General contractor has been selected, project
documentation has been completed, the
basic and detailed engineering designs have
been prepared, and the working documents
are being finalised.
CAPEX US$191 million IRR
–
CAPEX
US$17 million IRR
26.5%
Key maintenance
projects
EVRAZ ZSMK
In May, EVRAZ ZSMK conducted
upgrade work on blast furnace
1 ahead of the beginning of the
construction season in Russia.
The work was completed ahead of
schedule and was planned for May
due to the cold winter in the region
where the plant is located. The
repair work helped stabilise the blast
furnace’s operations and reduce
specific fuel consumption by 2%.
EVRAZ NTMK
▪ The annual category-3 overhaul
of blast furnace 6 took place
in August.
▪ The annual category-3 overhaul
of blast furnace 5 took place in
October.
Mining
Sheregesh iron ore mine development.
The project is aimed at increasing Evrazruda’s
ore production volumes to 4.8 million tonnes per
year. Production will be carried out using new
sublevel caving technology and self-propelled
equipment.
Status:
Raw ore production is 4.6 million tonnes per year.
Primary concentrate production is 2.8 million
tonnes per year. Share of raw ore produced using
self-propelled equipment increased to 60% of
overall production volumes.
CAPEX
US$76 million IRR
13%
Developing a central tailings storage
facility at EVRAZ KGOK. Several measures
are being implemented to maintain the
operational capabilities of the current tailings
storage facility.
Status:
The tender procedures have been completed,
some of the project work is done.
Transferring EVRAZ KGOK’s northern
quarry to a combined production mode.
Maintaining production volumes at the
Gusevogorskoye deposit.
Status:
Eight 130-tonne dump trucks have been
purchased. Rail lines and contact systems
have been built.
CAPEX
US$24 million IRR
–
CAPEX
US$31 million IRR
>100%
49
Annual Report & Accounts 2016www.evraz.comBusiness review Sales volumes review
External steel product sales volumes at EVRAZ’
Steel segment fell by 3.6% in 2016. The
reduction explained mainly by sales volumes
of construction products decrease by 9.8%
year-on-year amid continued weak demand
on the Russian market. Sales volumes of
semi-finished steel products to third parties
remained mostly unchanged in 2016. Railway
products sales volumes rose 12.6% due to an
uptick in purchases by Russian Railways and
increased export shipments.
EVRAZ sales volumes of key finished products
in Russia decreased in 2016. Russian rebar
sales fell by 18% year-on-year, and angle
and channel sales were down by 7% due to
the ongoing construction industry slowdown.
However, beam sales in Russia increased
by 4% year-on-year thanks to portfolio
development. Wheel sales in Russia rose by
3% due to increased new railcar production.
Meanwhile, despite a competitor ramping
up a mill in 2016, Russian rail sales climbed
Geographic breakdown of external steel product sales, kt
Russia
Asia
Europe
CIS
Africa, America and rest of the world
Total
Steel segment sales volumes, kt
Semi-finished products
Construction products
Railway products
Flat-rolled products
Other steel products
Steel products, inter-segment sales
Total steel products
Vanadium products (tonnes of pure vanadium)
Vanadium in slag
Vanadium in alloys and chemicals
Iron ore products
Pellets
Iron ore concentrate
Other iron ore products
50
(7.7)
8.8
(19.5)
(10.5)
11.2
(3.6)
(3.6)
0.0
(9.8)
12.6
(8.4)
(12.7)
(7.0)
(3.7)
(7.9)
28.9
2015
Change, %
2016
4,998
3,285
1,302
883
1,323
5,413
3,020
1,617
987
1,190
11,792
12,227
5,601
4,135
1,134
351
571
521
5,600
4,583
1,007
383
654
560
12,313
12,787
16,655
18,074
5,261
4,082
11,394
13,992
(18.6)
4,218
1,672
36
4,421
1,388
14
(4.6)
20.5
n/a
2,510
3,019
(16.9)
Steel products, external sales
11,792
12,227
2016
2015
Change, %
by 6% on the back of greater demand from
Russian Railways, which bought 7% more
rails from EVRAZ than in 2015. Sales of
grinding balls increased by 3% due to stable
demand.
Despite slower domestic shipments during the
year, the Group sustained its strong positions
in key high-value-added product segments. Its
share of the domestic beam market held stable
at 63%.
The market shares for rebars, structural
shapes (channels and angles) and wheels
dipped slightly by a respective 14%, 43% and
27%. The grinding ball market share expanded
to 70%. EVRAZ remained the leader in rail
production with a 72% market share in 2016,
albeit down from 97% in 2015 due to the
entrance of a new player.
Evraz Caspian Steel rebar sales decreased by
30% to 180 thousand tonnes in 2016 due to low
demand amid Kazakhstan’s economic crisis.
Sales at EVRAZ DMZ increased by 5% to 975
thousand tonnes due to the improved local
market situation and stable export sales
volumes.
EVRAZ market share in Russia by key
products, %
Railway wheels
27
27
Rails
97
72
70
68
The Group’s vanadium product sales volumes
decreased by 7.5%, from 18,074 thousand
tonnes of pure vanadium in 2015 to 16.722
thousand tonnes in 2016.
Grinding balls
Structural shapes
EVRAZ sold 1.7 million tonnes of iron ore
pellets to third parties in the year, up by
20.5% from 2015, due to an increased
demand in Russian market. Other external
iron ore product volumes dropped by 15.9%.
43
47
63
64
Beams
Rebar
14
16
2016
2015
Financial performance
Sales review
The Steel segment’s revenues fell, mainly due
to lower revenues from sales of steel products.
The main drivers were lower prices (down 4.9%,
mainly on semi-finished products) and sales
volumes (down 3.7%, primarily of construction
products).
Revenues from external sales of semi-finished
products dropped by 9.3% due to lower average
prices (down 9.3%). External sales of billets
rose, while volumes of slabs and pig iron
decreased compared with 2015, as billets had
a higher profit margin. Lower slab volumes,
mainly to the Russian and European markets,
were partially offset by increased billet
shipments to Africa.
Revenues from sales of construction products
to third parties dropped, mostly due to reduced
volumes (down 9.8%) as a result of weaker
demand in the CIS (including Russia) and lower
average prices (down 1.0%).
Geographic breakdown of external steel product sales, US$ million
Russia
Asia
Europe
CIS
Africa, America and rest of the world
Total
2015
Change, %
2016
2,222
1,001
438
384
424
2,342
1,047
578
437
448
4,469
4,852
(5.1)
(4.4)
(24.2)
(12.1)
(5.4)
(7.9)
51
Annual Report & Accounts 2016www.evraz.comBusiness review
Revenues from external sales of railway products
increased due to higher sales volumes (up 12.6%),
partially offset by lower average prices (down 6.4%).
The increase of railway products sales volumes in
2016 was attributable to operational improvements
at EVRAZ ZSMK’s rolling mill, an improved product
mix, higher demand for rails from Russian Railways
and export customers, as well as higher demand
for railcar sections.
External revenues from flat rolled products
dropped. This was mostly due to lower sales
volumes (down 8.4%) and average prices (down
1.1%) following the deconsolidation of EVRAZ
Highveld Steel and Vanadium, as well as to
reduced demand.
Revenues from external sales of steel products
in Russia decreased by 5.1% year-on-year,
mainly due to reduced sales volumes (down
7.7%). However, the share of Russia in external
sales of steel products increased from 48.3%
in 2015 to 49.7% in 2016, mainly due to
shifting sales from Europe and the CIS to the
domestic market.
The Steel segment’s revenues from sales
of iron ore products fell by 7.2%. This was
due to a decrease in sales volumes (down
4.5%) following the deconsolidation of EVRAZ
Highveld Steel and Vanadium, as well as to
lower iron ore prices (down 2.7%). Prices for
iron ore products generally subsided in 2016,
moving in line with global benchmarks.
The Steel segment’s revenues from sales of
vanadium products slipped by 0.7% due to
a decrease in sales volumes (down 7.5%),
which stemmed from the deconsolidation of
EVRAZ Highveld Steel and Vanadium. This was
partially offset by higher sales prices (up 6.8%),
in line with market trends.
Steel segment cost
of revenues
The Steel segment’s cost of revenues fell by
8.2% year-on-year in 2016. The main reasons
for the decline were:
▪ The cost of raw materials decreased by 3.5%
due to several changes:
– Iron ore consumption declined by 17.2%,
amid lower pig iron production at EVRAZ
ZSMK and a decrease in iron ore prices in
local currencies on the Russian market,
accompanied by rouble and hryvnia
weakening in 2016. The reduction
was partially offset by an increase in
consumption of iron ore at EVRAZ DMZ
due to higher pig iron output and an
increase in prices in local currencies on
the Ukrainian market.
– Coking coal consumption surged by 10.3%,
driven by higher global benchmark prices.
Steel segment revenues by products
US$ million % of total segment revenues
US$ million % of total segment revenues
Change, %
2016
2015
Steel products, external sales
Semi-finished products
1
Construction products
2
Railway products
3
Flat-rolled products
4
Other steel products
5
Steel products, inter-segment sales
Including sales to Steel, North America
Iron ore products
Vanadium products
Other revenues
Total
4,469
1,694
1,783
584
162
246
184
176
155
301
388
81.3
30.8
32.4
10.6
2.9
4.6
3.3
3.2
2.8
5.5
7.1
4,852
1,867
1,999
550
179
257
238
232
167
304
426
81.0
31.2
33.4
9.2
3.0
4.3
4.0
3.9
2.8
5.1
7.1
5,497
100.0
5,987
100.0
(7.9)
(9.3)
(10.8)
6.2
(9.5)
(4.3)
(22.7)
(24.1)
(7.2)
(0.9)
(8.9)
(8.2)
1 Includes billets, slabs, pig iron, pipe blanks and other semi-finished products
2 Includes rebar, wire rods, wire, beams, channels and angles
3 Includes rail, wheels, tyres and other railway products
4 Includes commodity plate and other flat-rolled products
5 Includes rounds, grinding balls, mine uprights and strips
52
▪ Lower service costs were driven by the
▪ Other costs decreased, primarily due to
changes in goods for resale, intragroup URP,
and the rouble and hryvnia weakening.
Steel segment
gross profit
The Steel segment’s gross profit decreased
by 8.2% year-on-year, driven primarily by lower
revenues from sales of steel products.
rouble and hryvnia weakening, as well as the
deconsolidation of EVRAZ Highveld Steel and
Vanadium.
▪ Transportation costs decreased by 9.6%,
primarily due to the rouble’s weakening.
▪ Staff costs fell by 14.3%, largely due to
the rouble and hryvnia weakening and
headcount optimisation, accompanied by
the effect of EVRAZ Highveld Steel and
Vanadium’s deconsolidation. This was partly
offset by wage inflation at Russian sites.
▪ Depreciation and depletion costs dropped
by 7.0%, driven mainly by local currency
depreciation.
▪ Lower energy costs were driven by the rouble
and hryvnia weakening, accompanied by
the effect of the deconsolidation of EVRAZ
Highveld Steel and Vanadium. Lower energy
costs were partly offset by an increase in
tariffs in local currencies.
This was partially offset by rouble and hryvnia
weakening, as well as the deconsolidation of
EVRAZ Highveld Steel and Vanadium.
– Scrap consumption dropped by 7.1%,
largely due to the rouble and hryvnia
weakening, albeit partially offset by higher
scrap prices in local currencies.
– Other raw materials fell primarily due to the
rouble’s weakening, the deconsolidation of
EVRAZ Highveld Steel and Vanadium, and a
decrease in prices for vanadium materials
and ferroalloys in 2016.
– The decline in raw material costs is also
attributable to cost-cutting initiatives,
which reduced consumption.
▪ Auxiliary material costs were down by 8.2%,
primarily due to the rouble’s weakening and
the deconsolidation of EVRAZ Highveld Steel
and Vanadium. This was partly offset by
higher prices in local currencies (mainly for
refractories).
Steel segment cost of revenues
US$ million % of total segment revenuese
US$ million % of total segment revenues
Change, %
2016
2015
Cost of revenues
Raw materials
Iron ore
Coking coal
Scrap
Other raw materials
Auxiliary materials
Services
Transportation
Staff costs
Depreciation
Energy
1
Other
4,068
1,720
289
826
274
331
314
221
347
456
213
393
404
74.0
31.3
5.3
15.0
5.0
6.0
5.7
4.0
6.3
8.3
3.9
7.1
7.4
4,431
1,782
349
749
295
389
342
276
384
532
229
448
438
1 Includes goods for resale, taxes in cost of revenues, semi-finished products and inter-segment unrealised profit.
74.0
29.8
5.8
12.5
4.9
6.6
5.7
4.6
6.4
8.9
3.8
7.5
7.3
(8.2)
(3.5)
(17.2)
10.3
(7.1)
(14.9)
(8.2)
(19.9)
(9.6)
(14.3)
(7.0)
(12.3)
(7.8)
53
Annual Report & Accounts 2016www.evraz.comBusiness review Coal segment
Introduction and highlights
OUR VISION:
Leader in Russian coking coal market
PRODUCT PORTFOLIO:
The product portfolio includes a wide
range of coking coal blends, including
hard, semi-hard, and semi-soft.
FINANCIAL HIGHLIGHTS
Revenues
US$1,322 million
EBITDA
US$ 644 million
EBITDA margin
48.7%
CAPEX
US$ 93 million
PRODUCTION HIGHLIGHTS
Raw coking coal
22,257 kt
Coking coal concentrate
12,492 kt
23.8% yoy
83.5% yoy
15.8pp yoy
8.3% yoy
6.6% yoy
4.9% yoy
SALES HIGHLIGHTS (SALES TO 3RD PARTIES ONLY)
Raw coal
1,569 kt
Coking coal concentrate
8,298 kt
54
17.6% yoy
9.6% yoy
EVRAZ ranks first among
Russian coking coal producers.
The Group offers integrated
solutions for optimising the coal
blend to a global clientele, and
prides itself on being a reliable
supplier. Coal and concentrate
products are used by EVRAZ’
steelmaking divisions, as well
as by third-party domestic
customers and export clients
in Ukraine, Japan, South Korea,
Vietnam and China.
Coking coal
Coking coal products
RUSSIA
Yuzhkuzbassugol
Raspadskaya
Mezhegeyugol
Market review
Russian coking
coal market trends
Russian coking coal concentrate consumption
edged down by 1% to 38.3 million tonnes
in 2016, compared with 38.8 million tonnes
in 2015, due to the planned blast furnace
overhauls at some steel plants. Export
shipments rose by 15% to 20.8 million tonnes
in 2016, up from 18.1 million tonnes in 2015,
due to increased demand from Ukraine, Japan
and South Korea.
Local coking coal prices improved in 2016,
driven by global benchmark trends. Premium
coking coal (Zh grade) averaged US$91 per
tonne FCA Kuzbass, up by 9% from US$84
per tonne in 2015. Semi-soft coking coal (GZh
grade) averaged US$69 per tonne, up by 18%
year-on-year.
Coal prices,
US$/t
Domestic coking coal concentrate
consumption, mt
2016
2015
2014
2013
2012
38.3
38.8
39.6
41.4
42.6
250
200
150
100
50
0
2010 2011 2012 2013 2014 2015 2016/01
2016/12
GZh
GZh+Zh
Zh (mono-concentrate)
55
Annual Report & Accounts 2016www.evraz.comBusiness review
Strategic priorities
DEVELOPMENT
of product portfolio and customer base
Increase sales
to Ukrainian market
Key developments 2016
▪ EVRAZ has substantially increased
shipments to the Ukrainian market,
reaching a market share of 12% in 2016.
Mid-term outlook
▪ To reach 3 mt of annual sales to Ukraine
and gain a c. 20% market share.
Expand export portfolio
Key developments 2016
EVRAZ reached its ambitious 2016 export
sales targets thanks to:
▪ Ensuring geographical sales flexibility:
– Main export destinations: Ukraine,
Japan, South Korea, and Vietnam;
– Some volumes were exported to China
on spot contracts;
▪ Conducting site visits for new clients
and regular audits at the request of key
customers.
Outlook for 2017
▪
Improve sales structure by diversifying
geographically and maintaining balance
between long-term contracts and spot
deliveries;
▪ Key overseas export sales are aimed at
South Korea and Japan;
▪ To reach 3 mt of annual sales to overseas
markets.
Secure position
as a major high-volatile
HCC and SHCC supplier
in Russia
Key developments 2016
In 2016, EVRAZ maintained leading
positions on the Russian coking
coal market thanks to the following
developments:
▪ A new integrated solution for coal blend
optimisation to meet clients’ needs;
▪ More effective customer feedback
mechanisms, including:
– Improved client sessions to discuss
their new product needs;
– Conducting follow-up sessions with
plant management to inform them of
clients’ new product needs;
– Maintaining a constant dialogue at key
industry conferences and exhibitions;
▪ Adopting international pricing
benchmarks to improve transparency at
clients’ requests;
▪ Conducting site visits for new clients
▪
and regular audits at the request of loyal
customers;
Improving product quality by investing in
equipment at processing plants reduced
delivery rejections due to quality issues
by 20%;
▪ Plant managers’ motivation system
has been changed to increase focus on
product quality.
Outlook for 2017
▪ Maintain leading positions on Russian
market by keeping product quality
consistent;
Improve reliability of deliveries;
Increase mid-vol HCC production volumes;
Increase production, as well as investments
in expanding and overhauling production
facilities.
▪
▪
▪
56
RETENTION
of low-cost position
Increase efficiency along the value chain
The Coal segment continues to implement a long-term efficiency improvement programme.
In 2016, productivity growth generated an additional US$36 million. Payroll optimisations
totalled US$23 million. Improving auxiliary material usage, industrial services and G&A saved
another US$21 million. Asset optimisation lowered expenses by US$12 million.
Additionally, energy efficiency
measures have reduced costs
by US$2 million. For more
information see page 85
The main projects for 2016
Optimisation of tunnel works and mine
preparation
Improving
degassing efficiency
Actions in 2016:
▪
Installing high-efficiency equipment for drilling
degassing and relief holes.
▪ Mines equipped: Yerunakovskaya,
Osinnikovskaya and Raspadskaya Koksovaya.
2017 plan:
▪ Begin degassing seams using long directional
holes at Yerunakovskaya-VIII mine.
▪ Study best practise in Russia for degassing
coal seams using directional holes from the
surface.
▪ Continue experimenting with degassing
seams using plasma impulse excitation.
Improve
face productivity
Increase concentrate output at coal
washing plants
Increase
tunnelling rates
Increase operating time
on clearing faces
Upgrade plant
production chain
Actions in 2016:
Tunnelling rates grew c. 30% year-on-year in
2016 after adding high-efficiency tunnelling
equipment:
▪ Four bolter miners were added. In November,
a bolter miner at Yerunakovskaya-8 reached
a stable rate of 450 metres per month.
▪ New tunnelling equipment is being put into
operation at the Raspadskaya mine that has
reached 300 metres per month.
▪ Fletcher roof bolters were put into operation at
the Raspadskaya Koksovaya mine in October.
2017 plan:
▪ Tunnelling growth target for 2017 has been
set at 25% year-on-year.
▪ Use new mining technology.
▪ Continue adding high-efficiency tunnelling
equipment.
Actions in 2016:
▪ Average daily operating time has increased by
reducing accident and operational delays, as
well as repair shift work.
▪ Average daily production is 8-20% above
▪
target year-on-year.
Increase in load at Raspadskaya (up 43%
year-on-year) and Uskovskaya (up 15% year-
on-year) mines.
2017 plan:
▪
Introduce production time accounting and
analysis systems to improve productivity at
tunnelling faces by 25% year-on-year in 2017.
Actions in 2016:
▪
Installed new equipment for additional
production processes (hydrocyclones, high-
frequency screening machines, chamber
filter presses).
2017 plan:
▪ Launch flotation at the coal-preparation plant.
Optimise plant
production process
Actions in 2016:
▪ Production processes have been
automated, optimal equipment operations
have been chosen.
2017 plan:
▪ Continue optimising equipment operations.
57
Annual Report & Accounts 2016www.evraz.comBusiness review PRUDENT
CAPEX strategy
Key investment project
The coal division’s main investments have gone towards ensuring stable production
by increasing efficiency: replacing and repairing worn-out equipment, and upgrading
production processes by using more modern equipment (eg increasing tunnelling rates,
degassing volumes, and concentrate output), as well as preparing new blocks and seams
as future mining reserves.
Mezhegey project
Additional capacity of 1.5 mtpa of hard coking
coal (grade Zh under Russian classification)
Status:
Construction completed, start of room-and-
pillar mining.
CAPEX
US$148 million IRR
12%
The Group plans to
begin implementing
investment projects
aimed at maintaining
current output levels
in 2017.
58
Business review
Annual Report & Accounts 2016
Coal products sales in 2016
4.8mt
Russia
0.9mt
CIS
1.1mt
5.0mt
Asia
3.4mt
Europe
0.3mt
Sales to 3rd parties
Sales to EVRAZ
▪ Market share of Russia’s high-vol coking
coal grades by volumes
51%
semi-hard coking coal
33%
hard coking coal
▪ High-quality product portfolio with >80%
of hard coking coal and semi-hard coking coal
▪ Diversified client portfolio
EVRAZ IS
RUSSIA’S No1
COKING COAL
PRODUCER
See about EVRAZ’
coal mining methods
on next page
www.evraz.com
59
EVRAZ key mining methods
How EVRAZ mines its coal –
safety and efficiency are
the top priorities
Underground mining
EVRAZ uses two mining methods
in the following mines:
No2
Room-and-pillar method:
▪ Mezhegeyugol
▪ Raspadskaya
Koksovaya mine
No1
Longwall method:
▪ Yesaulskaya
▪ Osinnikovskaya
▪ Uskovskaya
▪ Alardinskaya
▪ Yerunakovskaya VIII
▪ Raspadskaya mine
▪ MUK-96
1
1 Put on care
and maintenance
in 2015
L O N G W ALL M ININ G M ETH O D
D
ir
e
c
tio
n o
f
m
inin
g
Longwall shearer
cuts coal face.
It is a sophisticated
machine with
a rotating drum that
moves mechanically
back and forth across
a wide coal seam.
COAL
Fire
sprayline
Hanging
diesel-hydraulic
locomotive
Conveyor
belt
Safety measures:
▪ Ensuring adequate air supplies to reduce methane to safe levels
▪ Ensuring that coal faces are degassed prior to beginning work
▪ Preventing self-combustion of coal seams
▪
Implementing measures to reduce injuries from tight working spaces and risk of collapse
EVRAZ has the following programmes to improve mining efficiency:
▪
▪
Increasing working time at the coal face
Increasing tunnelling rates, introducing modern tunnelling and roof-bolting equipment
60
Hydraulic roof
supports make
possible high levels
of production
and safety.
O
P
E
N
-
P
I
T
M
I
N
I
N
G
R O O M-A N D-PILLA R M ININ G M ETH O D
Open-pit mining
Razrez Raspadsky is currently
EVRAZ’ only open-pit coal
mining operation.
L O N G W ALL M ININ G M ETH O D
As the longwall mining
equipment moves forward,
overlying rock that is no longer
supported by coal is allowed
to fall behind the operation
in a controlled manner.
Advantages:
▪ Much safer than underground mining
▪ Flexible volumes depending on coal market demand
EVRAZ is implementing the following modern
technology and programmes to improve
efficiency:
▪ 3D geological modelling creates optimal mining plans
▪ Automated dispatching system reduces empty runs
and increases equipment utilisation rates
▪ Equipment repair and replacement programme
improves technical readiness rate
O
P
E
N
-
P
I
T
M
I
N
I
N
G
The simultaneous
operation of a set of
equipment allows for
an optimal workload
and high productivity.
R O O M-A N D-PILLA R M ININ G M ETH O D
Roof bolter
Scoop
The room-and-pillar
method is used where
the coal face has been
damaged and additional
equipment is needed
to work the coal face.
Continuous
miner
COAL
Coal
pillar
Coal
pillar
D
ir
e
c
tio
n o
f
m
inin
g
www.evraz.com
Feeder
breaker
Belt
system
61
Annual Report & Accounts 2016www.evraz.comBusiness review
Sales volumes review
EVRAZ’ coking coal product sales climbed by
2% to 15.6 million tonnes in 2016, compared
with 15.2 million tonnes in 2015, due to
stable local and export demand, as well as
higher production volumes at the Group’s
Mezhegeyugol facility following the launch of
room-and-pillar mining operations in 2016.
Intersegment coking coal product sales
remained mostly unchanged at 5.7 million
tonnes. Total external coking coal product sales
rose by 4% year-on-year 9.9 million tonnes,
compared with 9.5 million tonnes in 2015,
thanks to the expanded customer base and
stable coal quality.
Coal segment sales volumes, kt
External sales
Coal products
Coking coal
Coal concentrate
Inter-segment sales
Coal products
Coking coal
Coal concentrate
Total, coal products
Coking coal product sales on Russia’s domestic
market remained mostly unchanged 9.8 million
tonnes, with around 49% consumed by EVRAZ’
steelmaking facilities.
The Group’s coal products export shipments
increased by 8% in 2016 to 5.8 million tonnes,
compared with 5.3 million tonnes the year
before. EVRAZ was able to increase sales to the
more profitable markets of Ukraine, Europe,
South Korea and Japan by 32%, from 3.6 million
tonnes in 2015 to 4.8 million tonnes in 2016.
In 2016 EVRAZ maintained its leading position
in domestic market with 33% market share in
high-volatile hard-coking coal grades and 51%
in high-volatile semi-hard grades.
EVRAZ market share of Russia’s
high-vol coking coal grades, %
Hard coking coal high-volatile
2016
2015
33
30
Semi-hard coking coal high-volatile
2016
2015
51
56
EVRAZ
Others
67
70
49
44
2016
2015
Change, %
9,867
1,569
8,298
5,701
1,249
4,452
9,474
1,905
7,569
5,736
1,348
4,388
15,568
15,210
4.1
(17.6)
9.6
(0.6)
(7.3)
1.5
2.4
Financial performance
Sales review
The segment’s overall revenues increased amid
growth of sales prices due to the recovery of
global demand. Additional support came from
a temporary domestic supply deficit following
the accident at Vorkutaugol’s Severnaya mine.
Sales volumes rose due to higher annual output
at the Erunakovskaya-8 mine in 2016, following
longwall moves and unfavourable geological
conditions in 2015. In addition, productivity
at the Uskovskaya and Osinnikovskaya mines
improved, and annual output at Mezhegeyugol
rose following the launch of room-and-pillar
mining operations in 2016.
Revenues from internal sales of coal products
increased due to higher prices (up 15.9%),
partially offset by lower sales volumes (down
0.6%). Revenues from external sales of coal
products also rose due to higher prices (up
21.7%) and sales volumes (up 4.1%).
In 2016, the Coal segment’s sales to the Steel
segment amounted to US$483 million (36.5%
of sales), compared with US$419 million
(39.2%) in 2015.
During the reporting period, roughly 48%
of EVRAZ’ coking coal consumption in
steelmaking came from the Group’s own
operations, compared with 51% in 2015.
62
Coal segment revenues by product
External sales
Coal products
Coking coal
Coal concentrate
Inter-segment sales
Coal products
Coking coal
Coal concentrate
Other revenues
Total
US$ million % of total segment revenues
US$ million % of total segment revenues
Change, %
2016
2015
756
66
690
451
42
409
115
57.2
5.0
52.2
34.1
3.2
30.9
8.7
601
58
543
391
47
344
76
56.2
5.4
50.8
36.6
4.4
32.2
7.2
1,322
100.0
1,068
100.0
25.8
13.8
27.1
15.3
(10.6)
18.9
51.3
23.8
Coal segment cost
of revenues
The main factors behind the decrease in the
segment’s cost of revenues compared with
2015 were:
▪ The cost of auxiliary materials decreased in
2016, primarily due to rouble weakening, as
well as to the effect of cost-cutting initiatives.
▪ The increase in services costs was due to
higher production volumes, though this was
partially offset by rouble depreciation.
▪ Transportation costs declined as a result of
the rouble weakening, which was partially
offset by an increase in costs due to higher
sales volumes in 2016.
▪ Staff costs were down due to rouble
weakening and asset optimisation initiatives.
▪ Depreciation and depletion costs fell
mostly due to rouble weakening and asset
optimisation initiatives, including the
suspension of operations at Raspadskaya’s
MUK-96 mine and the closure of a mine
field 1 at Raspadskaya Koksovaya.
▪ Energy costs fell due the effect of currency
movements, albeit partly offset by higher
electricity prices in local currencies.
▪ Other costs increased, primarily due to
changes in goods for resale and raw material
costs, partially offset by the effect of the
rouble weakening.
Coal segment gross profit
The Coal segment’s gross profit amounted
to US$621 million in 2016, up from US$310
million in 2015. The gross profit margin rose,
primarily due to the increase in sales prices
and volumes, cost-cutting initiatives and rouble
depreciation’s influence on costs.
Coal segment cost of revenues
US$ million % of total segment revenues
US$ million % of total segment revenues
Change, %
2016
2015
Cost of revenues
Auxiliary materials
Services
Transportation
Staff costs
Depreciation/Depletion
Energy
1
Other
701
113
85
126
163
135
37
42
53.0
8.5
6.4
9.5
12.3
10.2
2.8
3.3
758
106
74
146
194
156
38
44
1 Includes primarily goods for resale and certain taxes, allowance for inventory, raw materials and inter-segment unrealised profit.
71.0
9.9
6.9
13.7
18.2
14.6
3.6
4.1
(7.5)
(6.6)
14.9
(13.7)
(16.0)
(13.5)
(2.6)
(4.5)
63
Annual Report & Accounts 2016www.evraz.comBusiness review Steel, North America segment
Introduction and highlights
THE LONG DIVISION is the US’ largest
domestic producer of premium rail and
the only rail producer in Western North
America.
THE TUBULAR DIVISION is the largest
North American producer of LDP, which
is used for oil and gas pipelines, and the
only supplier of fully “Made in Canada”
LDP. It is also the largest OCTG producer
in Western Canada.
THE FLAT DIVISION operates the only
plate mill on the US West Coast.
EVRAZ is the largest producer
by volume in the North
American rail and large-
diameter pipe (LDP) markets
and holds leading positions in
Western Canada’s oil country
tubular goods (OCTG) and
small-diameter pipe (SDP)
markets, as well as in the US
West Coast plate market.
FINANCIAL HIGHLIGHTS
Revenues
US$1,464 million
EBITDA
US$ 28 million
EBITDA margin
2%
CAPEX
US$165 million
PRODUCTION HIGHLIGHTS
Crude steel
1,370 kt
Steel products
1,650 kt
35.5% yoy
49.1% yoy
0.4pp yoy
20.4% yoy
23.7% yoy
26.2% yoy
SALES HIGHLIGHTS (SALES TO 3RD PARTIES ONLY)
Steel products
1,672 kt
64
24.8% yoy
Construction products
Railway products
Tubular products
Flat-rolled products
CANADA
EVRAZ Red Deer
EVRAZ Camrose
EVRAZ Calgary
EVRAZ Regina
EVRAZ Portland
USA
EVRAZ Pueblo
US and Canada finished steel
consumption, mt
2016
30.0
2015
30.7
2014
31.8
2013
29.3
2012
29.2
73.2
6.8
110.0
74.4
9.8
114.9
84.1
13.9
129.8
75.6
13.1
76.0
14.4
118.0
119.6
Long Products
Flat products
Tubular products
Market review
North American
steel market trends
US steel product consumption decreased
by 4.2% to 91.2 million tonnes in 2016, down
from 95.1 million tonnes in 2015. Demand
fell by 2.4% for long products, 1.6% for flat
products and 30.2% for tubular products.
Despite fairly strong large-diameter pipe
(LDP) market fundamentals during the
reporting period, demand fell to 1.1 million
tonnes from 1.5 million tonnes in 2015
due to pipeline project delays. Amid low oil
prices, the oil country tubular goods (OCTG)
market bottomed out in 2016 with Canadian
consumption estimated at 0.5 million
tonnes. North America consumed 1.1 million
tonnes of rails in 2016, a 24% decline from
2015 levels, amid reduced CAPEX spending
at Class-I railroads due to weak energy E&P
activity and lower coal shipments. Demand for
wire rod and plate was stable.
Finished steel product imports, which
significantly influenced the US steel industry
in 2015, dropped by 16% year-on-year
to 23 million tonnes in 2016 amid anti-dumping
duties and pending trade cases against certain
producers.
Despite efforts to promote healthy competition
and eliminate import dumping activity, weak
North American demand undermined local
steel prices. Prices dropped in 2016 by 2%
to US$599 per tonne for flat products, by 9%
to US$586 per tonne for rebar, and by 22%
to US$881 per tonne for OCTG.
North America prices,
US$/t
1500
1200
900
600
300
0
2010 2011 2012 2013 2014 2015 2016/01
2016/12
Plate, Domestic US
Rebar, Domestic US
OCTG Carbon
65
Annual Report & Accounts 2016www.evraz.comBusiness review
Strategic priorities
DEVELOPMENT
of product portfolio and customer base
Marketing and customer focus
Tubular division
Long division
Key developments 2016
▪ Reached key milestones in the Regina
upgrade project and expanded capabilities
to supply thick-wall LDP, as well as state-of-
the-art internal and external coatings.
▪ The combination of location and vertical
integration are enabling EVRAZ to provide
rapid turn-around of orders for OCTG
distributors, enabling market share gains.
▪ Ramped up capacity in the Calgary OCTG
heat treat line, effectively shifting the
product mix towards higher-value products.
▪ EVRAZ obtained a favourable ruling in the
trade case it brought in Canada against
imports of LDP from China and Japan.
▪ Hot-rolled coil producers in the US obtained
a favourable ruling that in turn reduced
the supply of dumped and subsidised raw
material.
Key developments 2016
▪ Secured the first orders of APEX G2 rail
from Class-1 railroads for in-track testing.
▪ During 2016, we doubled the duration of
our contract with one of our major Class-1
customers and secured a 33% increase
in share of wallet. In the period, we also
secured contracts that allow us to retain
the highest share of wallet for a domestic
producer with the Western Class-1 railroads.
▪ Across the year, we expanded our capabilities
to manage continuous welded rail, a key
emerging trend with our Class-1 customers.
▪ During the year, we built upon findings
from trials of our rail-welding technology
to enhance the industrialisation and
robustness of the process ahead of larger-
scale customer in-track testing.
▪ The Canadian government issued final
approvals for two large pipeline projects.
Outlook for 2017
▪ EVRAZ expects to continue increasing
Flat division
Key developments 2016
▪ Secured new annual contract with major
wind tower producer.
▪ Successfully renewed a 3-year contract with
commercial sales of APEX G2 for customer
in-track testing.
a major West Coast OEM customer.
Increased armour plate exports by 200%.
▪
▪ EVRAZ also expects to resume in-track testing
of our rail-welding technology with Class-1
railroads and proceed to commercialisation
upon obtaining qualification.
▪ During 2017, EVRAZ will leverage our
continuous welded rail capabilities to
increase share with Eastern railroads. We
expect to renew our contracts with key
Eastern Class-1 railways during the year.
Outlook for 2017
▪ Continue expanding long-term contracted
OEM sales within the rail car and power
transmission segments.
▪ Expand full qualification of our armour
products with two more armoured car
manufacturers.
▪ Re-enter the tool-steel plate market.
Outlook for 2017
▪ EVRAZ expects to fully leverage the Regina
upgrade project during the year to achieve
improved economics and build upon the
successful outcomes on trade cases in
Canada (LDP) and in the US (hot-rolled
coil) to expand our share of wallet with LDP
customers.
▪ EVRAZ will leverage our strategic position
and the favourable trends in the OCTG
market to increase market share in Canada
to 50%.
▪ EVRAZ will continue developing or licensing
premium OCTG connections and seamless
pipe offerings to fill gaps in our product
portfolio and continue shifting our mix
towards higher-value engineered solutions.
66
New product developments and quality increase
Tubular division
Long division
Flat division
Key developments 2016
▪ Extended our size range for premium
Key developments 2016
▪ EVRAZ continued conducting customer
Key developments 2016
▪ Commenced rolling of high-technology
connections to 11 ¾” OD in unconventional
thermal wells.
testing of the APEX G2 next generation of
premium rail with four Class-1 railroads.
near-zero thermal expansion alloys for the
aerospace industry.
▪ Launched EVRlock heavy wall premium
▪ EVRAZ has accumulated the required
▪ Obtained full qualification of our ultra-high
▪
connection which extends the use of our
QB1 and QB2 technology to the heavy-wall
pipe used in fracking wells.
Introduced EVRlock QB which targets the
thermal completions connection segment
and provides best in-class resilience to
galling even after sustained thermal use.
mileage to complete the first step required
by the AAR to gain unconditional approval
for rail wheels and expect to complete the
second step in 2017.
▪ Substantially completed the development
of 3 new AAR locomotive wheels that have
broad market appeal in North America.
Outlook for 2017
▪ Qualify heavy-wall LDP (up to 1” thickness)
Outlook for 2017
▪ Expand in-track customer testing for
with customers.
▪ Develop and launch sour-service line-pipe
the APEX G2 next-generation rail to two
additional Class-1 railroads in North America.
hardness 650 armour grades.
▪ Obtained full qualification of API 2 W
grades for offshore applications.
Outlook for 2017
▪ Obtain qualification for structural fully
restricted grades for use in seismic
protection of structures.
▪ Develop an enhanced plate surface
compatible with high-speed laser cutting
processes.
▪ Obtain full qualification on additional
product line.
▪ Finalise qualification with one Class-1
domestic slab sources for armour grades.
▪ Continue expanding premium connections
offerings to achieve a full portfolio. We
will be launching the EVRlock EB, an
API-compatible semi-premium connection
for the US shale markets; developing
high-burst, restricted-yield premium
connections; and completing qualification
of the EVRlock heavy wall premium
connection we launched in 2016.
railroad.
▪ Extend the Apex G2 technology to our
intermediate head hardened product line
to achieve better fracture toughness and
ductility.
▪ Launch research into achieving hardness at
deeper levels in our rail products.
▪ Start the final step of the AAR process
required to achieve unconditional
qualification of rail wheels, a process that
will likely extend into 2018.
67
Annual Report & Accounts 2016www.evraz.comBusiness review RETENTION
of low-cost position
Key projects in 2016
During the year, our operations focused on
adjusting controllable costs to bring them in-line
with reduced volumes. Reduction of G&A costs
saved US$42 million. A reduction in auxiliary
material consumption and the use of industrial
services helped lower costs by US$22 million.
Repair work optimisations led to an additional
cost savings of US$16 million. More efficient use
of raw and basic materials saved US$5 million.
Payroll expenses were also cut by US$4 million.
Optimisation of G&A, fixed cost, and Industrial
Services
Optimisation of consumption of raw materials
and basic materials
Optimisation of repair work
Workforce rationalisation and efficiency
programme
Raw and auxiliary
materials
Actions in 2016:
▪ During 2017, an aggressive cost-reduction
programme in the Portland and Regina
rolling mills sites effectively reduced costs
in-line with volumes, maintaining cost per ton
unchanged from prior year.
▪ The long division restructured the rail
finishing area to reduce labour thanks to
sustained improvements in operations.
2017 plan:
▪ Continue streamlining incidental and non-
Actions in 2016:
▪ Ferroalloys and other auxiliary materials
declined faster than volumes thanks to a
focused effort on realising efficiencies and
achieving better pricing.
▪ When comparing full year 2015 and 2016,
raw material expenditures declined (41)%
while auxiliary materials declined (30)%.
2017 plan:
▪ Leverage Regina upgrade project to reduce
alloying cost.
value adding processes.
▪ Flux and power reduction project in Regina
steelmaking.
Reduction in maintenance CAPEX
vs. prior year
Actions in 2016:
▪ Despite carrying out significant
maintenance activities in the Pueblo and
Portland sites, maintenance CAPEX and
OPEX decreased 30% and 22% respectively
compared to 2015.
2017 plan:
▪ Continue rationalisation on maintenance
CAPEX in the long and tubular divisions to
align to production volumes.
68
PRUDENT
CAPEX strategy
Key investment projects
Key maintenance projects
Regina steel mills upgrades. Install
a vacuum degasser, upgrade rolling mill,
Construction of an LDP mill at Regina.
Install a two-step LDP mill in Regina.
During 2016, the Group’s operations
completed important maintenance projects:
down coiler, and cooling bed in Regina.
Status:
▪ Completed upgrades to the continuous
Status:
▪ The new LDP mill is in ramp-up mode and
▪ At EVRAZ Portland, the re-heat furnace was
completely relined.
caster and to the rolling stands.
producing saleable pipe for customer orders.
▪ At EVRAZ Pueblo, the team completed a
▪ Pending vacuum degassing and down
coiler upgrades in 2017.
▪ The new coating mill is in operation and
producing pipe for customer orders.
CAPEX US$147 million IRR
>35%
CAPEX
US$73 million IRR
30%
large project that replaced key mechanical
components of the electric arc furnace
hood and executed upgrades to the
electrical drives in the wire rod mill.
▪ At EVRAZ Regina, EVRAZ carried out
upgrades to steel making and the rolling
mill related to the upgrade project which
was previously announced.
69
Annual Report & Accounts 2016www.evraz.comBusiness review
Sales volumes review
Evraz North America’s steel product sales
volumes fell by 24.8% from 2.2 million
tonnes in 2015 to 1.7 million tonnes in 2016
due to market headwinds. Construction
product sales volumes decreased by 12.2%
to 281 thousand tonnes. EVRAZ sold 321
thousand tonnes of railway products in 2016,
down by 38% from 518 thousand tonnes
in 2015, amid lower demand from major
customers. Flat product volumes slipped by 6%
to 536 thousand tonnes in 2016, compared
with 2015 volumes of 570 thousand tonnes.
Tubular products sales slid by 34.4% to
534 thousand tonnes in 2016, down from
814 thousand tonnes in 2015, primarily due
to a 42% decline in OCTG products sales as
a result of subdued oil and gas exploration and
production activity in North America. LDP sales
volumes declined 16% to 305 thousand tonnes
due to approval delays on key pipelines.
Evraz North America maintained its leadership
in rails and LDP during 2016 with market
shares of roughly 28% by volume and 27%,
respectively. In 2016, the Group almost
completed the construction of an LDP mill at
Regina, which should underpin its leadership
position in LDP in 2017.
EVRAZ market share in North America
by key products, %
LDP
2016
2015
27
27
Rails
2016
28
2015
36
EVRAZ
Others
73
73
72
64
Steel, North America segment sales volumes, kt
Steel products
Construction products
Railway products
Flat-rolled products
Tubular products
Total
Financial performance
Sales review
2016
2015
Change, %
281
321
536
534
320
518
570
814
1,672
2,222
(12.2)
(38.0)
(6.0)
(34.4)
(24.8)
The segment’s revenues from steel product
sales decreased due to lower sales volumes
(down 24.8%) and the impact of lower sales
prices (down 11.1%). Output declined mainly
due to weak tubular and rail markets, along
with extended planned outages in 2016.
Revenues from sales of construction
products fell by 26.9%, primarily due to lower
sales prices (down 14.7%) and sales volumes
(down 12.2%). The fall in sales volumes
was attributable to reduced demand for rod
and bar products, as well as to the disposal
of a structural tubing facility in Portland
in March 2015.
Railway product revenues declined by 46.7%,
driven by a 38.0% drop in volumes and a
8.7% reduction in average prices, in line
with the general price trend in the US steel
market. The rail market fundamentals were
less positive, given moderate CAPEX of the
Class-1 railroads due to lower traffic and a
surplus inventory of rails.
Revenues from flat -rolled products fell, mainly
due to lower prices (down 9.1%) and sales
volumes (down 6.0%), which was caused by
deteriorating conditions in the segment.
Revenues from tubular product sales
decreased by 42.1%, primarily due to lower
sales volumes (down 34.4%) and sales prices
(down 7.7%). The drop in sales volumes was
driven by weaker demand for OCTG, which
in turn was caused by a slowdown in drilling
activities due to the slump in oil prices.
70
Steel, North America segment revenues by product
Steel products
Construction products
1
Railway products
2
Flat-rolled products
3
Tubular products
4
Other revenues
5
Total
US$ million % of total segment revenues
US$ million % of total segment revenues
2016
2015
1,350
158
232
372
588
114
1,464
92.2
10.8
15.8
25.4
40.2
7.8
100.0
2,105
216
435
438
1,016
165
2,270
92.7
9.5
19.2
19.3
44.7
7.3
100.0
Change, %
(35.9)
(26.9)
(46.7)
(15.1)
(42.1)
(30.9)
(35.5)
1 Includes beams, rebar and structural tubing
2 Includes rails and wheels
3 Includes commodity plate, specialty plate and other flat-rolled products
4 Includes large-diameter line pipes, ERW pipes and casing, seamless pipes, casing and tubing, and other tubular products
5 Includes scrap and services
Steel, North America
segment cost of revenues
The Steel, North America segment’s cost of
revenues fell by 37.1% year-on-year in 2016.
The main drivers were:
▪ Raw material costs dropped by 39.3%,
primarily due to lower consumption of scrap,
ferroalloys and other raw materials. The main
reasons for this were lower volumes of crude
steel and finished products (primarily tubular
products and rails), as well as cost-cutting
initiatives, which reduced consumption.
tubular products and a decline in prices for
purchased slab.
▪ Auxiliary material costs decreased by
37.0%, as production volumes of crude steel
and finished products dropped compared
with 2015 and a cost-cutting plan was
implemented.
▪ Service costs were down by 33.8%, as
production volumes in 2016 fell year-on-year.
▪ Energy costs fell, due to a reduction in
energy consumption resulting from a drop
in production volumes and lower tariffs for
energy and natural gas.
▪ Costs of semi-finished products fell by
▪ Other costs decreased primarily due to
44.6%, amid lower production volumes of
changes in allowances for inventories on the
back of lower inventory write-offs and slow-
moving adjustments as a result of reduced
inventory volumes, accompanied by the
decline in transportation costs and changes
in goods for resale.
Steel, North America
segment gross profit
The Steel, North America segment’s gross
profit totalled US$221 million in 2016, down
from US$293 million in 2015. The decline was
primarily due to lower sales volumes amid the
downturn on the OCTG and rail markets.
Steel, North America segment cost of revenues
US$ million % of total segment revenues
US$ million % of total segment revenues
Change, %
2016
2015
Cost of revenues
Raw materials
Semi-finished products
Auxiliary materials
Services
Staff costs
Depreciation
Energy
6
Other
1,243
390
196
102
106
196
100
85
68
84.9
26.6
13.4
7.0
7.2
13.4
6.8
5.8
4.7
1,977
643
354
162
160
254
107
106
191
6 Includes primarily allowances for inventories, goods for resale, certain taxes, transportation and inter-segment unrealised profit.
87.1
28.3
15.6
7.1
7.0
11.2
4.7
4.7
8.5
(37.1)
(39.3)
(44.6)
(37.0)
(33.8)
(22.8)
(6.5)
(19.8)
(64.4)
71
Annual Report & Accounts 2016www.evraz.comBusiness review Contents
Our approach ....................................................74
Health, safety and environment ..................... 75
Energy-saving measures ................................. 84
Social policy ..................................................... 86
Anti-corruption ................................................. 94
T
R
O
P
E
R
R
S
C
72
Annual Report & Accounts 2016
EVRAZ is a socially responsible
company, addressing and monitoring all
aspects of corporate social responsibility
that are relevant to the business.
EVRAZ pays special
attention to environmental
protection.
See more about EVRAZ actions
on minimising the impact on the
air and water on page 79
www.evraz.com
73
Our approach
EVRAZ is a socially 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 2016 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.
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/
74
Health, safety and environment
Governance and
approach
EVRAZ is devoted to improving occupational
and industrial safety, as well as to protecting
the environment wherever it operates. The
Group aims to never stop improving HSE
management at its assets by implementing
technological improvements to its production
processes, with a clear management and
control system and hierarchy.
EVRAZ manages health, safety and
environment (HSE) at every level of its
business, from adopting strategy to responding
to operational management issues. In 2010,
the management created a HSE Committee
that reports to the Board of Directors and is
responsible for monitoring all HSE strategies,
policies, initiatives and activities. In March
2011, EVRAZ introduced its Health, Safety and
Environment Policy. In March 2016, EVRAZ
revised its Health, Safety and Environment
Policy and added a fourth cardinal rule to the
all-Company safety rule list.
The HSE Committee deals with HSE issues at
the executive level, and has appointed a vice-
president of HSE to coordinate all activities in
the area. Each individual enterprise has an HSE
team to consider such issues that reports to
the sites’ management with a dotted line to the
vice president of HSE. HSE compliance is the
responsibility of each and every plant manager.
EVRAZ plays an active role in the World Steel
Association’s Environmental Policy (EPCO),
Technology Policy (TPCO) and Safety and
Health (SHCO) committees, 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
HSE corporate management structure
HSE COMMITTEE
OF BOARD OF DIRECTORS
EVRAZ PLC BOARD
OF DIRECTORS
EVRAZ CEO
VICE PRESIDENT ON HSE
Health and Safety
Directorate
Industrial Safety
Directorate
Enviromental
Management
Directorate
product sales, as well as planning, distributing
resources, collecting, analysing and submitting
information, and reflecting emerging trends in
indicators.
The HSE management process operates
in a continuous cycle that includes:
▪
▪ developing and implementing required
forecasting and assessing primary HSE risks;
measures;
▪ monitoring, reviewing, and investigating
incidents;
▪ analysing performance, adjusting and
establishing new HSE strategy objectives.
EVRAZ establishes, measures and assesses
the primary indicators for HSE KPIs. The
system is continuously improved by monitoring,
promptly analysing and adjusting where
needed.
Periodic internal audits are undertaken to
assess the Group’s HSE policy compliance.
Government agencies also perform external
control functions. Any recommendations that
follow from the inspections are analysed in
detail to allow the necessary remedial actions
to be taken.
EVRAZ’ incident reporting rules are applied
universally organisation-wide. All injuries
involving any lost time and/or fatalities are
recorded and a ‘flash report’ is immediately
distributed to all affected managers. Standard
‘lean’ format investigations are then conducted
and lessons learnt are subsequently
disseminated to concerned parties. Every
fatality, severy injury or serious incident is
then reviewed by the HSE Committee, which
also monitors the completion of all respective
corrective actions.
EVRAZ has achieved certification in its main
steel mills under the ISO 14001 and OHSAS
18001 standards.
The HSE system’s primary functions are
to identify potential sources of environmental
harm, as well as health and safety risks to
personnel throughout the production cycle,
from raw material purchases to finished
HSE reporting system
EVRAZ’ HSE reporting system is tasked
with improving the collection and sharing of
appropriate data organisation-wide. Constant
monitoring is ensured by subsidiaries
submitting monthly, quarterly and annual
HSE performance data to the corporate HSE
functions.
HSE releases a monthly special report
regarding the past month’s injuries and
incidents that includes relevant HSE KPIs like
the lost-time injury frequency rate, fatalities
and cardinal rule violations. The reports are
distributed to all EVRAZ employees.
75
Annual Report & Accounts 2016www.evraz.comCSR report Health & safety
Our approach
Results in 2016
As for all steelmakers, EVRAZ’ employees and
contractors work in an environment that has
inherent health risks. Among these risks
are moving machinery, excessive heat, high
noise levels, high levels of dust and gas
concentration, confined space and ergonomic
stress. EVRAZ’ underground operations have
additional specific risks, including rock collapse.
The health and safety of employees is the
Group’s highest priority. Therefore, the Group
takes every effort to manage and effectively
mitigate the risks typical of the sectors
EVRAZ is operating in. This is done 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. More
importantly, EVRAZ pays increasing attention to
employees’ behaviour, thus developing a safety
culture to reinforce this effort. Regular safety
conversations are aimed at increasing safety
awareness among steelworkers and miners
with regard to themselves and their colleagues.
Apart from increasing the safety of its own
employees, the Group also works rigorously with
contractors to improve their safety programmes.
EVRAZ aims to reduce the number of
contractors at all EVRAZ operations and gives
preference to more established companies
with clear safety-management practices. The
addition of prequalification procedures, regular
audits and post-assignment assessments
helped this approach cut the number of LTIs
among contractors in half compared with 2015
and drove the number of fatalities involving
contractor employees down to zero.
The Group’s LTIFR, which excludes fatalities,
rose to 2.36 in 2016, up 8% year-on-year,
after EVRAZ started to enforce transparency
in reporting in 2015. While the total number
of fatalities and severe injuries taken together
has been decreasing over the recent years, the
relative increase in recorded minor incidents
is an indicator of an overall improvement in
reporting transparency.
LTIFR. EVRAZ’ LTIFR started to grow in Q2
2015 as a result of the Group’s systemic
effort to ensure full transparency in reporting.
Since then, several LTIs that were not duly
reported have led to serious consequences
for the managers involved, which sent a clear
message to both blue-collar employees and
managers at all levels that the practice would
no longer be tolerated.
The Group believes that it is much more
important for the management team to
have the full picture of the injury rates to be
able to step in with corrective actions rather
than to prop up statistics, and will therefore
persist in driving any falsifications out of its
facilities as inappropriate at any level. There
is a clear temporal correlation between
disciplinary action taken for falsifying facts
or circumstances regarding an occupational
injury and subsequent increase in the number
of injuries reported.
The other factor that has influenced the
increase is the gradual reduction of total man-
hours worked, which is mainly achieved through
staff reductions in the administrative personnel
that operates in a lower-risk environment and
are therefore less prone to LTIs.
Fatalities. Although the number of fatalities
is gradually going down, EVRAZ has faced six
fatal incidents in 2016. Three of the above
fatalities resulted from unsafe operations on
moving machinery, one employee was fatally
injured by a falling object, and another was
killed by electric shock after unsafe actions on
an electrical substation. The final one involved
a rock collapse in a coal mine, the employee
died in the hospital several days after the
incident due to multiple fatal injuries.
321
333
282
363
463
LTIFR (excluding fatalities),
per 1 million hours
2.47
2.05
2.18
2.36
1.60
2012
2013
2014
2015
2016
Number of injuries1
2016
6 42
2015
10 34
2014
12 43
2013
18 46
2012
25 59
273
289
227
321
333
282
299
363
379
463
Fatalities
LTI (severe)
LTI (minor)
1 Without contractors
Fatalities
2016
6
0
6
2015
2014
2013
2012
10
3
13
12
7
18
25
EVRAZ employee
Contractors
19
6
24
6
31
76
Treatment of occupational diseases.
All occupational diseases are treated under
the Group’s mandatory work-related accident
and occupational disease insurance. EVRAZ
is required by law to pay the premiums for
this programme. Employees diagnosed with
occupational diseases receive temporary
disability benefits and their treatment costs
are covered. The Group also provides financial
assistance to such employees, depending on
their circumstances and medical condition:
for example, if they require lengthy medical
treatment, they may receive compensation
for moral harm. However, employees may not
use these funds to arrange their own medical
treatment.
Number of registered
occupational diseases.
In 2016, there was a gradual decrease in the
number of occupational diseases registered
at EVRAZ’ facilities worldwide: the 354 cases
reported in 2016 makes for an 4% reduction
compared with 2015 (when there were 368
cases), and an even more significant reduction
compared with earlier years (for instance, 452
cases in 2013). Partially driven by a general
reduction of man-hours, this is also a result
of a closer look at working conditions and
a corporate effort to eliminate highest-risk
workplaces in terms of employee health.
Safety awards received in 2016
Awarding organisation: INTERCOMM 2016
Corporate Communications
Lifestyle Nomination Winner. With its
“Safety Week” campaign, EVRAZ was the
best among projects targeting healthy
lifestyle and family values
Awarding organisation: “Safety and Security”
Section of the “Coal of Russia and Mining
2016” Expo
Design and implementation of the “Daily
Feedback” IT Solution to ensure visual
training material demonstration and
express knowledge testing of employees
before each shift.
Implementation of the Lock out - Try out
system in coal mines.
Key projects
EVRAZ believes that the safety initiatives
implemented across the Group are helping it
support the development of its safety culture
and will therefore have a lasting effect on its
safety performance. The two key initiatives in
2016 were targeted at reducing the number of
unsafe actions through safety conversations on
the shop floor and unifying processes with the
help of standard safe work procedures.
Safety conversations. Regular safety
conversations taking place among employees
and managers on shop floors are indispensable
for building a positive safety culture. Recognising
that such conversations are an essential part
of promoting safe behaviour, EVRAZ introduced
a system of scheduling such conversations
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. This is in essence similar to the
concept of behaviour safety audits, but EVRAZ
chose to focus the attention of managers on
the conversation aspect to make sure that they
talk to their reports about safety right at the
workplace.
In 2016, EVRAZ managers completed over
500,000 safety conversations with the Group’s
employees, many of them having at least one
suggestion to improve safety at work. All these
suggestions are analysed by the relevant
supervisors and the key ones are tracked
through completion.
Standard safe work procedures. One of the
key principles of safe work is making sure that
the respective process is initially designed in
a safe way and all employees are trained to
follow the procedure. To support this approach,
EVRAZ decided that each structural unit should
design 10 standard safe work procedures
and implement them in accordance with the
corporate requirements. These requirements
imply employees’ participation in developing
these procedures, as well as proper training and
verification on the part of the management team.
EVRAZ has designed and implemented over
2,000 standard safe work procedures in 2016.
Key risk localisation programmes. To make
safety initiatives more industry specific and more
tailor-made to the needs of respective facilities,
EVRAZ suggested that business divisions design
key risk localisation programmes. These consist
of activities targeted at the areas that are of
greatest concern from a safety perspective.
Some divisions are investing extra efforts in gas
safety, some are breakthroughs in working at
height etc. This ongoing initiative was launched
in 2016, but most of the activities are planned
for 2017 and on.
Objectives for 2017
In 2017, in addition to continuing the key risk
localisation programmes, EVRAZ plans to continue
implementing the key initiatives targeted at
developing safe employee behaviour – safety
conversations and standard safe work procedures.
The two initiatives’ methodologies are described
in the section above. The key change in the
safety conversations methodology is adding
extra focus to the quality of such conversations,
which will be monitored in two ways.
On the one hand, safety teams will be observing
whether managers follow the safety conversations
methodology when running such conversations.
On the other hand, operations managers will be
auditing the conversations run by their reports
by checking whether they in fact took place,
whether the non-conformities found by the
audited manager reflect the real situation in his
unit, and whether corrective actions suggested
by employees were actually implemented and
tracked though completion. Checklists have been
designed to ensure consistency in both areas.
EVRAZ also plans to continue LOTO projects
aimed at preventing machinery from releasing
hazardous energy by physically locking the
controls, as well as rolling out alcohol testing at
the gate to ensure strict enforcement of EVRAZ’
zero-tolerance policy.
EVRAZ believes that these programmes and
initiatives will help the Group reduce its LTIFR
down to 2.0 or lower, which is its overall target
approved for 2017.
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Annual Report & Accounts 2016www.evraz.comCSR report
Environment
Environmental strategy
EVRAZ’ steel and mining operations have
significant energy and water requirements and
can potentially impact the environment through
waste generation, wastewater discharge, air
emissions and land contamination.
Environmental legislation strictly regulates
these operations and requires the Group to
obtain environmental permits and licences.
EVRAZ must maintain compliance with
their terms for them to remain valid and be
extended. This generally requires implementing
certain environmental commitments, recruiting
qualified personnel, maintaining necessary
equipment and environmental monitoring
systems, and periodically submitting
information to environmental regulators.
Noncompliance on any of these fronts carries
the potential for the environmental permits
and licences to be suspended, amended,
terminated or not renewed, or could entail
significant costs for the Group to eliminate or
remedy any such violations.
EVRAZ strives to continuously improve its
environmental management systems, including
via its ongoing ISO 14001 audit programme.
While international certification is not a legal
requirement, nine of the Group’s sites are
currently certified to the ISO 14001 standard,
including such key operations as EVRAZ NTMK,
EVRAZ ZSMK and EVRAZ DMZ.
EVRAZ conducts an Environmental and Social
Impact Assessment (ESIA) of all new operations
and projects, during which it consults with
local and regional governments, businesses
and community members in the affected area.
The ESIAs evaluate any potential direct and
indirect impacts that the new operation may
have on the local community and surrounding
environment. The ESIA process entails creating
mitigation plans to minimise and manage any
potential impact, as well as consulting with
local communities regarding any decisions that
may be made throughout the project’s life.
EVRAZ supports the European Union’s health
and environmental goals as established
in Regulation (EC) No. 1907/2006 of the
European Parliament and of the Council,
which governs the registration, evaluation,
authorisation and restriction of chemicals
(“REACH”
). The Group strives to maintain
REACH compliance.
1
The Group’s environmental strategy aims to
minimise any negative impacts caused by its
operations, as well as to make efficient use of
natural resources and find optimal industrial
waste management solutions. Environmental
compliance is a top long-term priority.
In 2012, after determining the key challenges
and focus areas, EVRAZ voluntarily adopted
five-year environmental targets (over 2012-17)
aimed at:
▪
▪ decreasing fresh water consumption by 15%;
▪
recycling 100% of non-mining waste
reducing air emissions
by 5%;
.
2
3
The Group’s non-compliance-related
environmental levies and fines increased
by 7 % to US$2.1 million in 2016 from
US$2.0 million as it was in 2015.
No significant environmental permits or
licences were missing or revoked in 2016,
although the Russian government has
tightened the requirements for obtaining
environmental permits and licences. This was
the reason for the delay in issuing some of
the new permits, which led to non-compliance
levies of US$ 0.5 million. EVRAZ’ assets had
no significant environmental incidents or
material environmental claims during the
reporting period.
The Group has committed to various
environmental protection programmes
for the period from 2016 to 2022.
As of 31 December 2016, the cost of
implementing these programmes was
estimated at
US$119 million
In 2016, EVRAZ spent
US$ 24 million
on measures to ensure environmental
compliance
US$12 million
on projects to improve its environmental
performance
By the end of the year, the Group
had met the targets set for water
consumption and recycling
17.3% water consumption
120% of waste being recycled
(exceeding the 100% target by recycling
waste from prior periods)
At the end of 2016, EVRAZ was yet
to fulfil the target for air emissions,
having registered
18.8% since 2011
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 Including nitrogen oxides (NOx), sulphur oxides (SOx), dust and volatile organic compounds only.
3 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.
78
Air emissions
EVRAZ’ top environmental priorities include
decreasing air emissions. The primary air
emissions comprise nitrogen oxides (NOx),
sulphur oxides (SOx), dust and volatile
organic compounds.
In 2011, before adopting its five-year
environmental targets , the Group had already
substantially reduced its air emissions. The
current strategy for reducing air emissions
envisages upgrading gas treatment systems,
introducing modern technologies and
eliminating obsolete equipment.
In 2016, key air emissions were down by
3.5 thousand tonnes (or 2.6%) compared
with 2015.
The management has also decided to
conduct a like-for-like analysis that re-
bases the target by excluding data related
to divested assets (EVRAZ VGOK, EVRAZ
Vitkovice Steel, Evrazruda’s Krasnoyarsk
mines, EVRAZ ZSMK’s central power
plant, EVRAZ Highveld and EVRAZ NTMK’s
Nizhnesaldinsky metal mill), which shows
that key air emissions at current assets have
risen by 18.8% since 2011. This has been
driven primarily by 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.
However, EVRAZ’ emission reduction
initiatives are expected to decrease key air
emissions over the coming years.
EVRAZ key air emissions,
kt
122.11
119.12
124.24
134.17
130.68
2012
2013
2014
2015
2016
EVRAZ pays special attention to environmental
protection
The Group strives to minimise its impact on
the air and water by implementing modern
technology, upgrading equipment, reusing
and recycling production by-products,
monitoring buffer zones, refurbishing slag
storage facilities, and constantly monitoring
air and water quality.
EVRAZ employees in Russia and Ukraine
regularly take part in environmental
campaigns, including: joining nationwide
volunteer drives to clean up waterways,
public squares and parks; and planting
trees, hanging birdhouses, releasing young
fish into rivers to restore their biodiversity,
and recycling paper and batteries.
In 2016, EVRAZ employees participated in
the following environmental campaigns: “Big
Green Games – Make 2016!”, “Kuzbass
Forest”, “Russian Water”, and “Country of
My Dreams”, while employees of Ukrainian
subsidiaries joined the “Clean Ukraine Up
Together” campaign.
Staff at Evrazruda in Siberia planted more
than 100 trees as part of the “Kuzbass Forest”
campaign. They also released more than
170,000 tonnes of young fish. Raspadskaya
employees cleaned up the shore of the
Olzheras river in Mezhdurechensk, recycled
300 tonnes of batteries and 200 tonnes of
paper, hung birdhouses, and planted 50
saplings in Mezhdurechensk. EVRAZ ZSMK
staff cleaned up the shore of the Aba river and
planted more than 100 pine trees.
In the Urals, EVRAZ NTMK employees
created a new pedestrian avenue and
planted several dozen trees; cleaned up
an industrial architectural monument, the
Kuibyshev Factory Museum, and planted
a grove of more than 200 birches. EVRAZ
KGOK staff cleaned up the city pond and
decorated the city’s central pedestrian
avenue with flowering bushes.
In Ukraine, employees regularly take part in
volunteer campaigns. As part of the “Clean
Ukraine Up Together” campaign, EVRAZ
DMZ staff planted 50 maples and cleaned
up the Dievsky forest park. Evraz Sukha
Balka and Evraz Yuzhkoks cleaned up city
streets, parks and waterways. EVRAZ DMZ
also launched a separate waste collection
and recycling programme in 2016.
79
Annual Report & Accounts 2016www.evraz.comCSR report
Greenhouse gas emissions
EVRAZ’ operations also generate carbon
dioxide and other greenhouse gas (GHG)
emissions.
The Group understands the urgency of climate
change prevention and supports the global
effort to reduce the emission of GHGs into the
atmosphere. In compliance with the Companies
Act 2006 (Strategic and Directors’ Report)
Regulations 2013, EVRAZ measures the full GHG
emissions its facilities and has taken part in the
CDP Climate Change Programme since 2011.
2
1
and
The Group measures direct (Scope 1)
emissions of all seven “Kyoto” GHGs
indirect (Scope 2) emissions from the use of
electricity and heat. The inventory approach
was based on the 2006 IPCC Guidelines for
National Greenhouse Gas Inventories (IPCC
2006) and the WRI/WBCSD GHG Protocol
Corporate Accounting and Reporting Standard.
EVRAZ reports data in tonnes of carbon dioxide
(CO2) equivalent (tCO2e), calculated using the
IPCC Fourth assessment report (2007) global
warming potentials.
Data on GHG emissions were collected for
2016 and compared with 2013-2015 levels.
The Steel segment continues to generate more
than half of gross GHG emissions from Group
operations. Nearly 92% of the Coal segment’s
full emissions come from fugitive methane
(CH4) leakage, which is caused by methane
ventilation from underground mines and post-
mining emissions from coal.
Overall GHG emissions from EVRAZ’
operations fell by about 5% year-on-year in
2016. Emissions of CO2 remain at the 2015
level due to the cumulative effect of a minor
increase at the Steel segment (up around 0.4
million tCO2e) and the cease in operations at
EVRAZ Highveld Steel and Vanadium in 2016.
In the Coal segment, CH4 emissions dropped
by 10% due to a lower methane content in the
coal mined as well as lower coal extraction at
some mines.
All told, EVRAZ brought down its Scope 1
emissions by 2% and its Scope 2 emissions by
roughly 19%, due to the cease in operations at
EVRAZ Highveld Steel and Vanadium in 2016
(which accounted for some 6%) and lower
volumes of energy purchased by EVRAZ NTMK
and EVRAZ ZSMK in 2016.
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). In addition,
specific emissions in the Steel segment per
tonne of steel cast for 2013-16 are compared
with average specific emissions of World Steel
Association members for 2015. Higher specific
GHG emissions in the Steel segment may
be due to the key role played by integrated
iron and steel works (which inherently emit
more GHGs than rolling mills) in EVRAZ’ steel
production.
EVRAZ GHG emissions in 2016,
MtCO2e
EVRAZ Total
35.95
5.02
Steel segment
27.89
3.63
Steel, North America segment
0.53 0.49
Coal segment
7.54
0.91
Direct emissions
(Scope 1)
Indirect energy emissions
(Scope 2)
GHG emissions per net revenue,
kg CO2e/US$
8.5
6.4
5.7
5.5
5.3
4.9
0.6
0.7
EVRAZ
Steel
segment
Steel, North
America
segment
Coal
segment
2015
2016
1 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 the Group controls. Entities that were disposed of during the year
were included for the period they were part of the Group. Only entities that were deemed immaterial for consolidated
emissions based on their operational indicators were omitted.
Direct CO2 emissions from operations were calculated using the carbon balance method for carbon flows within
production facilities, including fuel use. Emissions of other GHGs were calculated based on measured volumes,
inventory changes or IPCC 2006 factors and models (including that for post-mining coal methane emissions) where
direct measurement data were not available. Indirect emissions were estimated using emission factors specifically
developed for the country or region.
80
Specific Scope 1 and 2 GHG emissions
from the Steel segment (incl. NA),
t CO2e per t of steel cast
2.15
2.18
2.09
2.12
Worldsteel
average 2015
1.9
2013
2014
2015
2016
EVRAZ GHG emissions, MtCO2e
Direct (Scope 1)
CO2
CH4
N2O
2013
42.92
33.78
9.06
0.08
2014
39.05
31.08
7.89
0.08
2015
36.87
29.13
7.67
0.07
2016
35.95
28.95
6.94
0.07
PFC+HFC
0.0002
0.0002
0.0002
0.0001
SF6
NF3
Indirect (Scope 2)
Total GHG emissions
–
–
8.05
50.97
–
–
7.96
47.00
–
–
6.17
43.04
–
–
5.02
40.98
Water consumption and water discharge
EVRAZ strives to make efficient use of water
resources and prevent any negative water
quality impacts through environmental
incidents.
In 2016, almost 84% of EVRAZ total water
intake for production needs was from surface
sources, including rivers, lakes and reservoirs –
the same result as in 2015.
In 2016, the ongoing water management
performance improvement programmes at
EVRAZ’ operations began to show their first
environmental benefits, evidenced by the
3.3% year-on-year reduction in fresh water
consumption (down by 11.3 million cubic
metres compared to 2015). Given the HSE
Committee’s decision to re-base the target
by excluding data related to disposed assets,
fresh water consumption was down by 78.2
million cubic metres (17.3%) compared with the
2011 adjusted baseline. Water discharge was
reduced by 45.15 million cubic metres over
2012-2016.
Water pumped from mines (dewatering) is
not included in the fresh water consumption
target, although pumped water is partly used
for technological needs. In 2016, 20.3 million
cubic metres of mine water were pumped out
and used, compared with 20.5 million cubic
metres in 2015.
EVRAZ fresh water consumption,
million m3
422.26
368.44
332.13
340.23
327.60
2012
2013
2014
2015
2016
Portland Riverbank Cap
EVRAZ Portland (Oregon Steel) operates
a steel mill that has been situated on the
eastern bank of Portland Harbor since
1968. Prior to and during the early years
of the mill’s operation, the riverbank was
filled with dredge fill/soil and slag that
were identified as a potential source
of contamination to the river. The mill
is part of the 10-mile-long Portland
Harbor Superfund site and has entered
a voluntary agreement with the Oregon
Department of Environmental Quality
(DEQ) to address potential sources of
contamination from its property.
During 2015-2016, EVRAZ Portland
implemented the “Riverbank Cap” project.
The EVRAZ project team successfully
met regulatory agreements, design
objectives, and steel mill needs to achieve
a common goal, and constructed the
project under a strict time frame due
to fish migration. This project provides
environmental benefits by removing,
capping, and stabilising the riverbank to
prevent releases of contaminants into
the Willamette River, and by enhancing
shoreline riparian habitat. The shoreline
was capped, stabilised, and enhanced
with native vegetation. More than
18,000 cubic yards of contaminated soil
was removed and replaced with clean
material, and 10,000 native trees and
shrubs were planted and are now thriving.
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Annual Report & Accounts 2016www.evraz.comCSR report
The main reason for the lower waste recycling
rate is that EVRAZ ZSMK sold its slag
processing plant and slag disposal facility
to an external recycling company.
Recycling rate,
%
103.9
105.7
110.0
126.3
120.1
100
2012
2013
2014
2015
2016
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 2016, EVRAZ steel mills generated
9.65 million tonnes of metallurgical waste
(slag, sludge, scale etc) and recycled or reused
11.59 million tonnes. Overall, the Group
recycled or reused 120.1% of non-mining
waste and by-products in 2016, compared with
126% in 2015.
EVRAZ’ 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 2016,
18.2% or 28.7 million tonnes of such waste
material were reused, compared with 17% or
24.6 million tonnes in 2015.
All non-recyclable waste is stored in facilities
that are designed to prevent any harmful
substances contained in the waste from
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.
Waste management strategy
MINIMISE AT THE SOURCE
Improve technological processes to enhance product quality.
Secure by-products without generating waste.
RE-USE
RECYCLE
BURN AS A FUEL /
GENERATE HEAT
e
c
n
e
r
e
f
e
r
p
f
o
r
e
d
r
O
STORE
BURN
82
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)
evaporate due to the interaction of molten
metal splash or streams of metal with
atmospheric oxygen.
EVRAZ’ experts have studied several types
of equipment designed to reduce dust
emissions. They selected a method of
suppressing red smoke by using an inert
gas when tapping hot metal into ladles.
When filling the ladle with cast iron, nitrogen
gas is injected to the metal stream through
special nozzles. This forms a gas curtain
over the surface that does not allow the
metal to oxidise or red smoke to form; the
curtain also covers the tap holes.
The dust-suppression system installed
on the casthouse of blast furnace 3
has already proven its effectiveness:
atmospheric dust emissions from BF-3 have
fallen by 70%, or by 482.6 tonnes per year.
BF-2 is now slated to be similarly equipped
in 2017.
Environmental awards in 2016
Awarding organisation: Vernadsky
Nongovernmental Ecological Fund
EVRAZ ZSMK
Winner in the Urban Ecology category
at the XIII Vernadsky National
Ecological Awards for the project
titled “Modernising EVRAZ ZSMK”.
Awarding organisation: Russian Ministry
of Industry and Trade
EVRAZ NTMK
Winner in the Environmental and
Resource Protection category at the
High Social Efficiency Metal & Mining
Company awards.
Awarding organisation: Associated Oregon
Industries and Northwest Environmental
Business Council
EVRAZ Portland
Oregon Industries Environmental
Excellence Award for Portland
Riverbank Cap project.
In addition, EVRAZ has received six
regional awards in Russia’s
Kemerovo region.
EVRAZ DMZ reduces
red smoke from blast
furnaces
Emissions from the blast furnace
casthouse have a significant
environmental impact. The casting process
generates red smoke, which rises into the
air and forms a dust plume. Red smoke
is generated when iron or its oxides
EVRAZ signs agreement with Russian Ministry
of Natural Resources and Environment
Russia’s Ministry of Natural Resources
and Environment, Federal Service for the
Supervision of Natural Resources, and the
administrations of Kemerovo and Sverdlovsk
regions have signed an environmental
cooperation agreement with EVRAZ. The
agreement covers a list of environmental
actions that EVRAZ will implement in 2017,
which has been declared the Year of the
Environment in Russia.
As part of the agreement, EVRAZ NTMK
will be retrofitting its coke dry quenching
plant. The upgrade will allow natural
gas to be replaced with coke in the blast
furnace process and to significantly
reduce the mill’s emissions by 2017.
EVRAZ ZSMK will be modernising
the dedusting systems in the sinter
cooler of its sinter plant. It will also
be implementing a water protection
programme that envisages gradual
transition to return water cycle and
minimising the waste water discharge.
The head of Russia’s Ministry of Natural
Resources and Environment, Sergey
Donskoy, said that the agreement is
proof that EVRAZ is environmentally
responsible, and that he expects
an increasing number of Russian
companies to contribute to environmental
conservation in the future.
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Annual Report & Accounts 2016www.evraz.comCSR report
Energy-saving measures
The Group worked to increase energy efficiency at its
operations in 2016 by generating more electricity in-house
and reducing the share of energy resources that it purchased.
Initiatives to optimise the use of light, heat, fuel, compressed
gas and separation products generated significant savings.
Steel segment
Steelmaking
EVRAZ NTMK reduction
in energy purchases for 2016
66% yoy
EVRAZ ZSMK (Russia)
EVRAZ ZSMK’s energy efficiency programme
continued in 2016, including measures aimed
at reducing the amount of electricity used to
compress air at the Prokatnaya compressor
station, shutting off natural gas supplies to
some equipment at oxygen convertor shop 1
during operational downtime, and using less
steam in the rail yard.
Natural gas consumption totalled 611.4 million
cubic metres in the reporting period, a decrease
of 40 million cubic metres year-on-year, due
to fuel balance optimisation. Overall electricity
usage amounted to 4,132 million kWh, which is
36 million kWh less than in 2015, thanks to the
measures mentioned above.
EVRAZ NTMK (Russia)
EVRAZ NTMK implemented several projects as
part of its energy efficiency programme, leading
to a 66% reduction in electricity purchases, of
which a 42% reduction came from outsourcing
oxygen production, 12% was the result of
increasing on-site electricity generation, and
another 12% was due to lower consumption.
A total of 446 million kWh was purchased
from external producers during the reporting
period, which is 461 million kWh less than in
2015 as a result of these measures.
Natural gas consumption totalled 1,178
million cubic metres in 2016, up by 69 million
cubic metres year-on-year as a result of
increased gas usage by the blast furnaces,
which was required to maintain the optimal
balance of energy costs.
EVRAZ DMZ (Ukraine)
In 2016, EVRAZ DMZ undertook numerous
initiatives to reduce spending on energy
purchases and maximise its consumption of
associated gases (from blast furnaces and
coking facilities).
84
The power plant’s energy structure was
optimised by increasing the usage of
associated gases from the blast furnaces
and coking facilities. This reduced natural
gas consumption to 16.8 million cubic
metres. Further measures were undertaken
to improve the accounting of energy sources
(natural gas, electricity, and drinking water) in
order to better monitor resource usage.
Overall, 37.9 million cubic metres of natural
gas were used in 2016, which is 6.5 million
cubic metres less than in 2015. Electricity
consumption totalled 312.3 million kWh,
down by 9.4 million kWh year-on-year.
Evraz Yuzhkoks (Ukraine)
Evraz Yuzhkoks’ energy efficiency
programme included: shutting down under-
utilised power stations, replacing inefficient
equipment, and installing frequency
convertors on pumps in a number of
production units.
These measures reduced electricity
consumption by roughly 995 thousand kWh
in 2016, to a total of 51.6 million kWh, of
which 11.5 million kWh were purchased and
40.1 million kWh were generated on-site.
Total consumption for the year was up by 3
million kWh compared with 2015. The increase
was due to the need to use equipment with
high energy consumption during major repairs
that were conducted in 2016: gas and air
blowers, as well as gas pipelines. Without the
programme, overall consumption would have
been 52.5 million kWh.
Mining
Reduction in energy
consumption for 2016
14.2% yoy
in Coal segment
34.8% yoy
in Steel, North America
segment
Evrazruda (Russia)
Coal segment
Evrazruda’s energy efficiency programme
for 2016 included reducing electricity
consumption by replacing incandescent
light bulbs with LEDs in the underground
tunnels of the Tashtagolskaya and Kazkaya
mines, as well as changing the bearing
material in the ball mills at the Abagursky
branch.
Total electricity consumption was
434 million kWh, which was 12 million
kWh less than in 2015 as a result of the
programme.
Evraz Sukha Balka (Ukraine)
Installing energy saving lighting in the
main haulageways as part of the energy
efficiency programme reduced electricity
consumption by 0.65 million kWh to
139.76 million kWh.
The main efforts of the Coal segment’s ongoing energy efficiency programme in 2016 were
aimed at reducing heat energy and electricity consumption:
▪ switching to less energy-intensive equipment (shutting down excess capacity)
▪ using equipment more efficiently
▪ shutting down the enrichment plant’s drying machines during the summer
The result was a 49 million kWh overall reduction in energy consumption to 295 million kWh.
Steel, North America segment
Evraz North America’s operations continued implementing energy-saving measures in 2016.
During the rebuild of the slab reheat furnace in Portland, our technical team upgraded the
refractory material to a high-tech product that provides significantly higher insulation coefficients
than other technologies. As a result, we expect energy savings of approximately four therms per
short ton, or ca. 371 TJ in energy savings annually at full utilisation.
For 2016, electricity and natural gas consumption declined year-on-year in-line with production
volumes from 1,623 GWh to 1,059 GWh and from 9,120 TJ to 6,357 TJ, respectively.
85
Annual Report & Accounts 2016www.evraz.comCSR report Social policy
Our people
Our approach
EVRAZ continues to focus on working both with and for people. The Group’s management
recognises that reaching their business targets depends on carefully selecting new hires,
providing quality training and ensuring that staff are properly motivated.
Personnel profile
Staff recruitment policy
Staff development
The Group’s in-house HR function meets 99%
of its recruiting needs, regardless of the type
of position being filled (corporate or technical,
specialist or management).
With a view toward attracting talented graduates
and providing professional development for
staff, EVRAZ has launched several initiatives in
cooperation with leading universities:
▪
improving educational programmes for
targeted training or retraining
▪ upgrading technical and scientific equipment
▪ supporting talented students through grants
and scholarships
▪ offering internships
The Group prefers to promote from within, but
when necessary goes outside the organisation to
find the top experts in their fields.
Candidate assessments follow EVRAZ
principles of safety, respect for people,
customer orientation, accountability and
teamwork, as well as the world-renowned Korn
Ferry Learning AgilityTM model.
MANAGING
DIRECTOR (MD)
MD-1 HEADS
OF FUNCTIONS
MD-2 SHOP-FLOOR
MANAGERS
MD-3 AREA MANAGERS
MD-4 FOREMEN
86
Staff development strategy. In 2016, EVRAZ
continued its “From Foreman to Managing
Director” program. This corporate selection,
assessment and development procedure
aims to improve the managerial skills of
shop-floor supervisors, as well as to clearly
define the responsibility and authority of every
management level, from foreman to shop-floor
manager.
In 2016, the Group launched a project focused on
foremen, the first-line managers on the shop floor.
The project’s scope has been expanded to also
include area managers. EVRAZ has developed
the requirements for the area manager position,
as well as a quarterly assessment system
covering three areas: health and safety, people
management, and process management.
Performance management. To encourage
outstanding performance and ensure that
corporate and individual goals are clearly linked,
the Group has implemented performance
management systems throughout its operations.
The performance management process’
business tasks and development targets include
key performance indicators (KPIs) of certain
business units aligned with EVRAZ’ strategic
principles and personal development plans. The
performance management plans are used to
create further initiatives to motivate staff and
ensure career growth.
Training and development. EVRAZ places
an emphasis on selecting, developing and
promoting high-potential employees, as set out
in its five-year goals.
EVRAZ draws on the technical expertise of its
staff by obtaining their input when developing
in-house educational materials and training
courses to ensure that all employees are ready
to tackle even the toughest issues that may
arise in the course of doing business.
Corporate scientific
and technical youth
conference
Each year, teams compete to solve
technical problems faced by real
business units.
In 2016, 40 young engineers from eight
of the Group’s enterprises participated
in the competition. They were
familiarised with the production process
(EVRAZ NTMK’s converter unit), taught
to use one of the “Theory of Inventive
Problem Solving” (Russian abbreviation:
TRIZ) tools, and developed solutions
to five problems facing the business
unit (two teams were assigned to each
problem). The best solutions have been
approved for implementation at EVRAZ
NTMK in 2017.
We have competed in the WorldSkills Hi-Tech
championship for several years now, and our results keep
getting better with each passing year. It makes me happy to
see how the EVRAZ team spirit is already showing itself at
international competitions. I would like to see more of our
employees take part and win in future years.
Alexei Yuryev
Managing director of EVRAZ ZSMK
In 2016, Russian, Ukrainian, US and Canadian
engineers graduated the sixth EVRAZ New
Leaders Programme, which is hosted by the
Skolkovo Moscow School of Management to
design and implement initiatives to improve
process performance.
Assessment of training programme
efficiency. As part of the “Retaining and
Developing Engineering Competency”
programme that was established in 2012, the
Group gathered its top 360 experts to take part
in training programs and technical forums, as
well as to set tasks for and supervise projects
involving young professionals.
From 2012 to 2016, a total of 63 sessions of
the Chief Specialist School have been held.
The Chief Specialist School is an engineering
expertise development and improvement project
programme for Group’s employees.
For example, four of the programs developed
and curated by the Group’s experts as part
of EVRAZ ZSMK’s Chief Specialist School
have already saved more than RUB10 million,
according to preliminarily estimates.
Dmitry Fitz and Maxim Nutrikhin
at III WorldSkills Hi-Tech Championship
Four silver medals,
two teams
among top five
at international
WorldSkills Hi-Tech
2016 championship
The III WorldSkills Russia National
Competition 2016 took place from
30 October to 3 November in
Ekaterinburg, Russia. A total of 300
young professionals from 100 leading
global companies competed. A panel
of 420 experts, including international
specialists from 20 different countries,
judged the young professionals’ work
in 27 hi-tech industry competencies.
EVRAZ’ team included 11 employees
of EVRAZ ZSMK, EVRAZ NTMK,
EVRAZ KGOK and Evrazruda. Four of
them took home silver medals in the
following competencies: electrical
installation, mechatronics (technology
combining electronics and mechanical
engineering), and welding technology.
87
The Group launched its “Retaining and
Developing Engineering Competency”
programme in 2012 to establish a pool of
subject matter experts with unique knowledge
and empower them to maintain and transfer
their expertise to their successors.
In 2016, youth technical conferences were
held at all EVRAZ business units to brainstorm
loss-reduction solutions. Technical directors
and experts judged the solutions and the best
of them are being implemented. At an HSE
conference that was held at Raspadskaya,
attendees came up with technical solutions and
content to help improve safety.
Young specialists who attended the Group’s
scientific and technical conference helped solve
problems that EVRAZ NTMK’s oxygen plant
has been facing using the “Theory of Inventive
Problem Solving” (Russian abbreviation: TRIZ)
method. Two young engineers’ clubs also meet
at EVRAZ ZSMK and Raspadskaya. The Group
estimates that nearly 40% of the solutions
developed using the TRIZ method have been
implemented in production.
In 2016, EVRAZ held its first corporate
WorldSkills championship and took part for
the third time in the Russian Federation’s
WorldSkills hi-tech national championship.
EVRAZ staff took silver prizes in three of the
five skills competitions in which they took part.
In 2016, at production units in Ukraine, the first
three sessions of the “Chief Engineer School”
were held, as well as a technical forum dedicated
to improving efficiency of mining operations.
The solutions that EVRAZ’ experts and young
professionals have come up with have been
structured, collected into an engineering materials
library, and posted on the corporate intranet.
Annual Report & Accounts 2016www.evraz.comCSR report The Group honours its experts, which already
number 693 across the Russian and Ukrainian
assets.
In 2016, a scientific and technical advisory
board was also created under the guidance
of the Group’s CEO so that experts could
benchmark the progress of technology and
development of technological solutions.
Technical forums have become excellent venues
for the Group’s specialists to discuss and
analyse technical issues, seek outside opinions,
and develop implementation and action plans.
In 2016, three engineering forums involving
international and Russian industry experts
were held at the request of technical directors.
The Group’s specialists devised plans to reduce
pig iron production costs, improve mining
efficiency, and cut the amount of time that is
spent on treatment and tunnelling faces.
Assessment of personnel
Each year, talent committees meet to approve
the talent pool. In 2016, this process was
automated using SAP’s Success Factors system,
which gathered all necessary information into
one system, making it more intuitive, complete
and accessible for the talent committees.
Various assessment methods are applied
depending on the goals and category of personnel:
▪ Korn Ferry’s Learning AgilityTM model is used
to select and assess the talent pool, select
training programme participants, and make
promotion decisions
▪ The “From Foreman to Managing Director”
performance assessment project is used to
assess shop-floor supervisors
▪ SHL testing and questionnaires are used to
assess the reliability of staff working in high-
risk environments
▪ At management request, 360° feedback
sessions are conducted
Personal development plans are created and
included in the corporate training programme
based on the assessments.
Headcount
Diversity
EVRAZ sees diversity as a crucial business
driver and strives to ensure that all employees’
rights receive equal protection, regardless of
race, nationality, gender or sexual orientation.
The Group also strongly values diversity in its
recruitment efforts. People with disabilities are
given full consideration to ensure that their unique
aptitudes and abilities are taken into account.
Employee engagement
Number of employees at December 31,
thousand people
110.9
105.1
94.8
84.5
77.8
2012
2013
2014
2015
2016
EVRAZ pays great attention to its internal
communications processes and constantly
seeks to build an efficient system, designed
not only to keep information flowing, but also to
increase employee loyalty and motivation.
Diversity of employees, senior
management and directors,
% (number of people)
Board
88 (7)
12 (1)
Work with trade unions
Senior management
95 (21)
5 (1)
Employees
71 (55,268)
29 (22,574)
Men
Women
Breakdown of Hot Line enquiries in 2016,
%
In 2016, the hotline received about
840 requests, all of which were
investigated. The most popular
issue with more than 460 calls concerned
labour relations. Inside this topic the first
place belongs to housekeeping services
(114) and the second, to salaries (94). The
number of questions regarding personal
protective equipment was 29.
EVRAZ strives to maintain constructive and
positive relations with the labour unions that
represent its employee’s rights. Overall, there
is a relatively high level of unionisation at
the Group’s enterprises (c. 73%), albeit with
significant variations across operations and
countries.
Foremen’s councils have also been established
at such enterprises as EVRAZ KGOK and
Raspadskaya, as well as a master’s council
at EVRAZ NTMK, which are not intended to
replace labour unions but rather to offer
recommendations for improving labour
conditions and other issues.
EVRAZ’ relationship with labour unions is
founded on the principle of social partnership.
Members of the management regularly meet
with union representatives for both formal and
informal discussions at every EVRAZ facility,
both in Russia and around the world.
The labour unions at EVRAZ’ enterprises
are part of nationwide industrial unions (in
Russia, this includes the Russian Mining
and Metallurgical Union and the Russian
Coal Industry Workers Union), and are
also members of the Russian Federation
of Independent Unions and international
industrial union associations.
In 2016, EVRAZ had 77,842 employees, a
reduction of 8% from 84,467 in 2015. This
was mainly due to staff optimisation including
the outsourcing of support functions and the
closure of a poorly performing mine in the Coal
segment (630 employees).
At the industry level, EVRAZ cooperates with
labour unions through industry employer
associations. The Group is a member of the
Russian Coal Mining Industry Employers
Association and the Russian Metallurgists
Labor relations
Health and safety
Security related matters
General information requests
Others
%
55
21
12
11
1
88
Association. It is also part of the negotiations
on agreements with employee associations at
the industry level (coal and steel mining).
Collective bargaining agreements are in force
at most EVRAZ operations. They are based on
industry agreements and cover employment,
working hours, salaries, HSE, benefits and
welfare. They also guarantee labour unions’
rights. In addition to state-guaranteed benefits,
bargaining agreements offer supplemental
privileges and social programmes for
employees and their families, as well as
retirees and veterans (voluntary health
insurance for employees, workplace accident
insurance, housing improvement assistance,
various kinds of financial support, subsidised
recreation and holiday vouchers, holiday
gifts etc). Social programmes are region and
industry-specific to provide maximum value
and relevance for employees. Sporting and
cultural events are held together with trade
unions. Labour unions also help distribute
benefits to employees, including vacation
packages for stays at health resorts.
The bargaining agreements include sections on
HSE that outline the employer’s responsibility
for providing employees a healthy and safe
work environment. This includes providing
personal protection equipment that exceeds
the minimum government requirements, as well
as offering medical check-ups and healthcare
services at the employees’ workplaces,
providing public amenities, conducting HSE
training and examinations, and more.
Industry-wide agreements with labour unions
contain dedicated HSE sections.
Tracking employee engagement
Managing employee engagement is an
important and significant tool for the Group
to influence employee work efficiency and
motivation.
At the end of Q3 2016, phase one of the
“Tracking Employee Engagement” project
began. An employee engagement index has
been measured based on AON Hewitt’s model.
A large pilot survey was conducted as a part
of the project at four business units in the
Urals and Siberia. The project seeks to paint
an accurate picture of the level of employee
engagement and find ways to increase
employee engagement. Future surveys are
planned for additional EVRAZ business units.
Financial motivation
Ratio of average salary
to average salary in the
region
Primorsky kray
Kemerovo region
Dnepropetrovsk region
Sverdlovsk region
Tula region
1
EVRAZ strives to motivate
its employees by offering
above-average salaries for
the regions where they work.
Russia
Ukraine
1.66
1.63
1.49
1.45
1.44
Employee engagement awards in 2016
Objectives for 2017
Awarding organisations: Russian Mining and
Metallurgical Trade Union, Association of
Russian Industrialists and Entrepreneurs,
Russian Ministry of Industry and Trade.
The primary goal is conforming with best HR
practises, maintaining high process quality
and ensuring that the Group has engaged,
motivated, loyal and competent staff.
EVRAZ NTMK
Winner of the “Environment and natural
resource protection” award in the XIII
national competition “Most Socially
Effective Metal and Mining Company”
Evrazruda
Winner of the “Work with Youth”
award in the XIII national competition
“Most Socially Effective Metal and
Mining Company”
Key projects
Recruitment. The main focus in recruitment is
to build on what has already been achieved and
to improve university outreach.
Development and assessment of personnel.
▪ Extend the system of selection, evaluation
and training for personnel of MD-1-4 level
▪ “From Foreman to Managing Director”: the
Group plans to cover shop-floor supervisors.
Engagement with employees. In 2017,
EVRAZ aims to improve employee engagement
organisation-wide.
The staff costs in the 2017 budget have been
kept at the level of the costs for 2016, in line
with the target. Optimisation measures have
been implemented at enterprises to ensure
wage rises, including indexation stipulated in
labour agreements.
Financial motivation. Projects are underway to
improve the payroll system, including analysing
and revising incentive tools organisation-wide to
ensure that they are properly motivating employees
while remaining aligned with business goals and
simultaneously simplifying payroll procedures.
Transform HR: the HR Service Solutions Centre
(SSC) project has been launched with a goal of
fully standardising and automating all core HR
functions, and transferring the full HR workflow
into SSC. The project aims to improve workflow
quality and transparency, and to reduce related
costs. To date, three Group enterprises have
been transferred to SSC.
Transform HR. The HR SSC project has been
launched and will be expanded to business
units in the Urals.
Headcount. In 2017, the key focus will be on
combining the efforts of HR and other vital
corporate functions to develop a sustainable
process improvement system through EBS-
transformation projects.
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Annual Report & Accounts 2016www.evraz.comCSR report
Community relations
Our approach
EVRAZ strives to maintain an open dialogue with the communities surrounding its areas
of operation. The Group pays its taxes responsibly and cares for the wellbeing of its employees.
Organisation-wide, operations are conducted in accordance with federal and local legislation.
Managing directors and regional vice presidents take responsibility for communicating with local
governments. HSE directors’ duties include ensuring that plant operations meet all applicable
rules and regulations. The regional corporate communications centres collaborate with non-profit
organisations on charity, environmental, social, educational and sport projects.
Relations with local communities
EVRAZ’ numerous contributions to local
economies benefit the communities where its
operations are based.
The Group fosters lasting partnerships with
these local communities and aims to improve
the quality of life in the many regions where
it conducts business. It has implemented
socially responsible programmes benefitting
special needs children, veterans and the
elderly, and children’s homes, as well
as cultural, educational and sport projects,
city infrastructure, and environmental impact
reduction programmes. EVRAZ honours its
responsibilities as a taxpayer and employer,
providing development, training programmes,
social protection and regionally competitive
salaries to its employees. EVRAZ values its
partnership with local governments and is
committed to solving the issues facing the
regions where it operates.
Community relations awards in 2016
Alexey Kushnarev, managing director
of EVRAZ NTMK, has received a letter
of gratitude for his contribution towards
improving children’s health. Every year,
about 1,200 children of NTMK employees
attend a health-focused youth camp.
Nizhny Tagil city government
EVRAZ NTMK: “Best Philanthropists
of Sverdlovsk region”. EVRAZ NTMK was
awarded as best philanthropist of the
Sverdlovsk region among the companies
from ferrous metallurgy.
Mining and smelting trade union of Russia
Evrazruda: “Mining and steel enterprise
of high social effectiveness”. Evrazruda
was awarded first place in the nomination
“Work with young people”
EVRAZ for Kids
EVRAZ for Cities
EVRAZ: City of Friends –
City of Ideas
EVRAZ for Sport
90
EVRAZ for Kids
This programme’s 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,
EVRAZ sponsors specialised medical treatment for more than 500 children with special needs.
The company has implemented cutting-edge treatment techniques, including phototherapy, art therapy,
aquatic therapy, hippotherapy, and adaptive sports programmes, as well as massage courses for the
children and training programmes for their parents, volunteers and teachers.
Each year, EVRAZ provides holiday presents for children in Russia. It also organises annual volunteer
drives that provide books, office stationery, sport equipment and clothes for the start of the school year.
Activities in 2016:
▪ Kachkanar, Russia – EVRAZ sponsored a new diagnostic and preventative care centre to treat diseases
affecting the vision of children with disabilities
▪ Kachkanar, Russia – EVRAZ purchased sports equipment for a specialised kindergarten and school, swimming
pool, and hospital to successfully develop adaptive sports activities and improve the physical and psychological
rehabilitation of children with disabilities
▪ Mezhdurechensk, Siberia, Russia – EVRAZ sponsored hippotherapy for 80 children
▪ Urals, Russia – EVRAZ sponsored 800 individual art therapy lessons, 20 group phototherapy sessions and 600
individual hippotherapy lessons
▪ Siberia, Russia – EVRAZ bought comfortable new buses for two orphanages
▪ Urals, Russia – EVRAZ sponsored 6 training workshops for teachers and volunteers, and organised nearly
20 exhibitions of photos and pictures from EVRAZ for Kids participants
▪ Portland, Oregon, USA – EVRAZ sponsored First Growth Children and Family Charities, benefitting the YWCA of Clark
County, Randall Children’s Hospital, New Avenues for Youth, Metropolitan Family Services and Friends of the Children
In 2016, EVRAZ sponsored the Russia-
wide “Dream ski” charity programme,
which is aimed at promoting downhill skiing
as part of a rehabilitation programme for
children with cerebral palsy. In 2016, as
part of this programme, EVRAZ helped
launch a new project in Kemerovo region
by providing specialised equipment that is
used when conducting lessons with children.
The first group of children have already
completed their course of rehabilitation
lessons. In December 2016, the “Dream
ski” project opened a new course in the city
of Mezhdurechensk, Russia.
EVRAZ: City of Friends – City of Ideas
This programme’s main goal is to improve the quality of life in Kachkanar, Russia, by developing
culture, sport, and education, as well as by helping the elderly and children with special needs.
Non-profit organisations present social projects to a jury, which then selects 10-15 winners who
receive up to RUB100,000 to implement their projects.
Activities in 2016:
▪
In Kachkanar, 45 projects were presented as part of the EVRAZ: City of Friends – City of Ideas initiative and
13 of them received monetary grants
▪ A total of 70 people took part in the competition
▪ The winners included the Adapted Physical Education project to provide new sport equipment to promote
physical education lessons for children with disabilities, and the Kitchen at Home project to equip a kitchen
and hold cooking lessons for children from orphanages
Devoted to man’s best friend –
in summer 2016, Kachkanar got a new
statue of a dog nicknamed Druzhok (Russian
for buddy or friend). It is both a monument
and a collections box for donations to help
homeless animals. The project was initiated
by ninth-grade student Slava Shashkin.
91
Annual Report & Accounts 2016www.evraz.comCSR report EVRAZ for Cities
EVRAZ supports the local infrastructure in the cities where it operates by donating funds to
reconstruct roads, parks and theatres, as well as to equip schools, colleges and medical centres.
Activities in 2016:
▪ Nizhny Tagil and Kachkanar, Russia – EVRAZ provided sand and road material for municipal
infrastructure
▪ Urals, Russia – EVRAZ helped equip and renovate educational facilities, including schools, technical
schools and institutes
▪ Siberia, Russia – EVRAZ continued the renovation of Steelworkers’ Park, opening an exercise facility
and installing a sculpture of a mother bear with her cubs (bears are the symbol of Siberia)
▪ Novokuznetsk, Russia – EVRAZ sponsored road repairs and helped put up iron fences along the city’s
central streets
▪ Novokuznetsk, Russia – EVRAZ’ six-year partnership with the local drama theatre continued, allowing
it to bring plays for children and adults to Mezhdurechensk, Russia free of charge
▪ Novokuznetsk, Russia – EVRAZ’ neighbourhood courtyard improvement programme has been ongoing
2007, during which time around 300 of the city’s neighbourhood courtyards have been renovated
▪ Mezhdurechensk, Russia – EVRAZ helped provide a playground in the town’s main square
▪ Urals, Russia – EVRAZ sponsored a contest to award MBA grants to students with the most innovative
ideas
▪ Krivoy Rog, Ukraine – Evraz Sukha Balka sponsored the completion of a section of Nevskaya Street
In 2016, EVRAZ sponsored the
construction of a new three-storey
house in Russia’s Tula Region for the
people who lived in the old stately home
of steelworker Mosolov. The building, an
eighteenth century architectural monument,
was in critical condition. With EVRAZ’ help, the
families were able to move into safe new flats.
EVRAZ for Sport
EVRAZ supports amateur and professional sports teams, as well as individual youth and adult
athletes, by providing sport equipment and donating money to help them prepare for and
participate in tournaments.
Activities in 2016:
▪ Nizhny Tagil and Kachkanar, Russia – EVRAZ bought sport equipment, organised tournaments and
sponsored athletes’ participation in sports tournaments for athletics, taekwondo, sambo, hockey, football,
kettlebell lifting, and shooting
▪ Kachkanar, Russia – EVRAZ sponsored the Olymp youth football team to participate in an international
tournament in Sochi and they won first place
▪ Nizhny Tagil, Russia – EVRAZ helped promote ‘steel workout’ by buying special sport equipment and
organising the first ever contest in the city
▪ Nizhny Tagil, Russia – EVRAZ sponsored BREAK DOWN T 2016, the first Russia-wide contemporary dance
festival, which saw some 200 dancers compete
▪ Siberia, Russia – EVRAZ supported popular sport events, including skiing, running and orienteering
competitions
▪ Alberta, Canada – EVRAZ sponsored the Enbridge® Alberta Ride to Conquer Cancer®, a two-day, 200-km
bicycle ride through the Canadian Rockies that raised US$7.8 million for cancer research, clinical trials,
enhanced care and the discovery of new cancer therapies at 16 cancer centres across Alberta
In 2016, EVRAZ organised a series
of city festivals and 5km races
called Take Five! in Nizhny Tagil and
Novokuznetsk. The goal was to promote
sport and a healthy lifestyle, as well as to
raise money for charitable needs. Some
2,000 people took part in the races, and
nearly 6,000 attended the city festivals. All
funds raised were donated to help develop
adaptive sports programmes in Russia’s
regional cities.
92
Participation in public organisations and initiatives
• Non-profit
partnership
1
Russian Steel
• National Association
of Mineral Resources
Examination
• Rail Equipment
Producers Union
• Steel Construction
Development
Association
• Non-profit partnership
Rail Commission
2001
2004
2007
2014
Production associations and partnerships
Labour unions
1 In 2016, Russian Steel celebrated
its 15th anniversary
2008
2012
Management associations
2016
• Managers’ Association
• Russian
Steelworkers
Association
• The All-Russian union
of employees of coal
industry
EVRAZ continued the
promotion of steel
structure usage
as a substitute for
concrete in order
to increase beams sales
In 2016, the Steel Construction Development Association (SCDA) continued to improve steel
design codes and promote the use of steel structures in multi-storey civil buildings. Over the year,
around 200,000 square metres of residential and parking space featuring steel structures was
designed, and the work was begun. This created additional demand for around 8,000 tonnes of
EVRAZ beams.
In addition, the SCDA published numerous manuals to simplify the design of fire-engineering and
steel structures, as well as brochures to raise awareness about constructing multi-storey car parks
and middle-rise residential buildings. The SCDA also held a contest for students, Steel2Real, which
involved more than 130 participants from 23 universities. The winners received the chance to visit
the Steel Construction Institute in London to gain new experience and ideas.
The SCDA was created to promote the
use of steel structures as a substitute
for concrete and other non-steel
materials in construction in Russia.
It unites steelmakers, steel fabricators
and erectors, research institutes, design
engineers and architects.
93
Annual Report & Accounts 2016www.evraz.comCSR report Anti-corruption
Our approach
EVRAZ is committed to strict compliance with
the Law of the Russian Federation #273 “On
Preventing Corruption,” the UK Bribery Act, the US
Foreign Corrupt Practices Act and other relevant
local legal equivalents. EVRAZ has implemented
internal policies on these matters to comply with
both the letter and the spirit of these laws. The
compliance team provides internal monitoring
and control over areas generally perceived as
holding risks of corruption at all EVRAZ assets.
The compliance manager routinely reports to
the senior vice president for business support
and interregional relations and delivers regular
updates on the status of anti-corruption efforts
to the Audit Committee.
Policies and regulations
EVRAZ subsidiaries in the Russian Federation,
Ukraine, the US and Canada enforce a Code of
Conduct and Anti-corruption policy, which are
the key documents defining norms of ethical
and responsible behaviour of employees in all
circumstances.
All policies are available on the corporate
intranet and employees are required to adhere
to them by taking personal responsibility for
compliant behaviour. Employees are encouraged
to approach compliance managers whenever
they have questions about expected course of
actions in difficult situations or when they want
to voice concerns about known policy violations.
Key developments in 2016
All elements of EVRAZ’ compliance system
have been implemented across its Russian and
Ukrainian sites, which were considered priority
targets for anti-corruption compliance efforts
in 2016. This is explained by the admittedly
higher risk of corruption in these countries as
reported by Transparency International.
In March 2016, the esteemed organization
assessed emerging market multinationals and
published their research paper “Transparency in
Corporate Reporting”. The document mentioned
the high results achieved by EVRAZ in building
up its anti-corruption program. EVRAZ achieved
a score of 85%, which compares favourably
with the average of 74% for the technology
sector or the average of 48% for all companies
considered in the assessment.
94
Code of Conduct
The Code of Conduct is the key document that all employees are requested to adhere to and
act in full accordance with. Every new employee is trained on the Code of Conduct on their first
day of work. The document is available on the intranet and stresses the ultimate importance of
ethical behaviour in all circumstances. Anti-corruption training and the tone set from the top of the
organization emphasise the role of the Code of Conduct in the company’s daily life.
ANTI-CORRUPTION POLICY
EVRAZ’ Anti-corruption policy sets and explains key principles that have been adopted
at all assets to prevent corruption. The policy is easily accessible on the corporate
intranet for employees, interested parties and partners, who are all expected to be
compliant with relevant anti-corruption legislation and principles upheld by EVRAZ.
Anti-corruption
training policy
Sponsorship
and charity policy
Gifts and business
entertainment policy
Consistent efforts in the area
of anti-corruption education
are an integral element of a
well-thought-out compliance
system. The policy adopted
in December 2015 defines
what positions and levels
of authority are to undergo
training in anti-corruption
awareness. Specifically, all
managers and specialists from
compliance, legal, controlling,
asset protection, investor and
government relations, and
HR are to receive training and
pass a corresponding test.
The same refers to all decision
making and/or client managers
from procurement and sales.
Compliance managers are
assigned discreet authority to
analyse risk areas and decide
who else needs to be trained.
All aspects of EVRAZ’
sponsorship and charity efforts
are regulated as necessary by
this policy. Under it, the Group
may consider supporting low-
income or physically challenged
individuals, and those suffering
from conflicts or natural
disasters. EVRAZ may choose
to support certain projects in
education, sport, health care,
culture, and environment
protection. All petitions are
carefully considered in terms
of legitimacy and transparency
of purpose, the amount
sought, and the reputation of
the petitioner. The decisions
are then taken by the Group
CEO. When support is
granted, sponsorship being its
preferred form, such instances
are followed up by experts
under the vice president for
corporate communications
and compliance managers.
This ensures full accountability
and strict adherence of those
supported to EVRAZ policy
requirements.
EVRAZ believes that business
gifts and hospitality are
accepted ways to demonstrate
and further develop good
relationships. At the same time,
adequate consistent control
over such expenses is very
important and is among the
key areas for anti-corruption
compliance to watch. The
policy defines rules and strict
approval procedures to be
followed when extending or
receiving gifts and hospitality.
In particular, all amounts above
US$100 for a personal gift
(received or given) and US$500
for hospitality (received or
extended to a person) must be
approved by the responsible
compliance manager. To this
end, an electronic notification
system has been developed.
The Internal Audit function
conducts regular checks of the
completeness and accuracy
of records, either planned or
requested by a compliance
manager, and compliance
specialists act on any
recommendations promptly.
HOTLINE POLICY AND WHISTLE-BLOWING PROCEDURES
EVRAZ encourages employees to raise concerns to their line managers if they believe
the company’s policies or cardinal principles are somehow violated. If employees,
clients, or contractors feel unable to do so via other means and procedures,
a confidential hotline is available 24/7.
RULES ON SECURITIES DEALINGS
In 2016, the Group developed a set of measures to ensure compliance with the EU Market
Abuse Regulation (the “MAR”) which came into force in July 2016, including development of new
Rules on securities dealings. All procedures relating to share dealings have been communicated
to Persons Discharging Managerial Responsibility (PDMRs) and their Closely Associated Persons
(CAPs). All PDMRs and permanent insiders have completed online training modules dedicated
to MAR and Rules on securities dealings and passed relevant assessment.
Candidates' background
and criminal record check
Conflict of interest
policy
Contractors/suppliers
due diligence check
EVRAZ consistently performs
thorough background and
criminal record checks on all
potential employees. Among
other requirements and norms,
the policy specifies that all
necessary effort is invested only
after the candidate gives written
permission to work with his/her
personal data. The company is
committed to protecting each
individual’s privacy and works
in full compliance with relevant
laws on personal data.
To guard against unscrupulous,
unreliable, or suspicious
would-be agents and
partners, the company runs
comprehensive due diligence
checks on a business or person
prior to signing a contract.
EVRAZ fervently upholds a
know-your-partner/client
policy and in doing so is fully
compliant with the applicable
anti-corruption laws. The
investigation includes but is not
limited to checking business
reputation and solvency of
the company, as well as the
profile and reputation of its top
management.
A conflict of interest is a set
of circumstances in which
employees have financial or
other personal considerations
that may compromise or
influence their professional
judgment or integrity in carrying
out their work responsibilities.
The policy specifies how
situations with signs of such
conflicts are to be identified,
considered, and duly taken care
of. HR together with compliance
managers routinely check if
there are conflicts of interests
in the company, whereas
employees and particularly
their managers are expected
to provide information about
any potentially risky situations.
Special commissions consider
cases that are reported and
found to come up with the
best possible solutions to each
individual situation.
All business processes bearing high corruption
risk are now duly covered by corresponding
corporate regulations and policies, either updated
or developed anew. The areas of concern include
procurement of goods, works and services,
government relations, archiving of tendering
documentation, recruitment, sponsorship and
charity payments, selling of goods, works and
services. The effectiveness of these policies is
closely monitored by the compliance and asset
protection, internal audit and legal departments.
All EVRAZ sites have Anti-Corruption Compliance
units. They routinely run checks on candidates,
tenders, clients and potential conflicts of interest;
conduct investigations into possible non-compliance
with policies; monitor charity payments and
hospitality spending; and act on whistleblower
allegations of possible fraud, bribery or corruption.
Compliance Managers submit findings and any
recommendations to local Managing Directors.
Each month, the managers report all results to the
Group’s Compliance Officer and specialists under
the Senior Vice President for Business Support.
They review and analyse them and liaise with
senior management as necessary.
Once a year, all Compliance Managers conduct
comprehensive anti-corruption and fraud risk analyses
in their respective areas. The findings are presented
to local managers, who undertake corrective
measures if necessary. The Group Compliance Officer
then presents a consolidated analysis to the Audit
Committee. The 2016 analysis, which found no major
violations of anti-corruption statutes or cases of non-
compliance with Group policies, was presented to the
Committee in early February 2017.
Additional compliance control over payments to
non-resident companies (specifically off-shore) is
now also in place at Russian and Ukrainian assets.
The Group has developed electronic means for
compliance managers to approve such payments.
Gifts and hospitality to be provided or accepted
are also approved in the same fashion.
At Evraz North America, the Risk Committee
approved a Conflict of Interest questionnaire that
employees will be required to complete annually.
Anti-corruption training is progressing steadily. In
2016 alone, some 4,200 managers and specialists
in Russia and Ukraine completed an online course
developed by Thomson Reuters. Overall, the
number of employees who have received training
to date is close to 6,000. The programme is due to
be developed further in 2017.
95
Annual Report & Accounts 2016www.evraz.comCSR report Contents
Board of Directors ........................................... 98
Management .................................................. 102
Corporate governance report ........................ 104
Remuneration report ..................................... 120
Directors’ report ............................................. 130
Directors’ responsibility statements ............. 135
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Annual Report & Accounts 2016
www.evraz.com
97
Board of Directors
Introduction
Alexander
Abramov
Non-Executive
Chairman
Alexander
Frolov
Chief Executive
Officer
Eugene
Shvidler
Non-Executive
Director
Eugene
Tenenbaum
Non-Executive
Director
98
Karl
Gruber
Independent
Non-Executive
Director
Deborah
Gudgeon
Independent
Non-Executive
Director
Alexander
Izosimov
Independent
Non-Executive
Director
Sir Michael
Peat
Senior Independent
Non-Executive
Director
99
Annual Report & Accounts 2016Сorporate governance Biographies of the members of the Board of Directors
Appointment: Alexander Abramov has been a Board member since April 2005. He was CEO and chairman of Evraz Group S.A.
until 1 January 2006, and continued to serve as chairman until 1 May 2006. Mr Abramov was a non-executive director from
May 2006 until his re-appointment as chairman of the Board on 1 December 2008. He was appointed chairman of EVRAZ plc
on 14 October 2011.
Committee membership: Mr Abramov is a 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 PhD in Physics and Mathematics. He founded EvrazMetall in 1992. Mr Abramov is a Bureau
member of the Russian Union of Industrialists and Entrepreneurs (an independent non-governmental organisation), 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.
Appointment: Alexander Frolov has been a Board member since April 2005. He was chairman of the Board of Evraz Group
S.A. from May 2006 until December 2008, and was appointed CEO with effect from January 2007. Mr Frolov was appointed CEO
of EVRAZ plc on 14 October 2011.
Committee membership: Mr Frolov is a member of the Health, Safety and Environment Committee.
Skills and experience: Mr Frolov graduated from the Moscow Institute of Physics and Technology with a first-class honours degree
in 1987 and received a PhD in Physics and Mathematics in 1991.Prior to joining EVRAZ, he worked as a research fellow at the
I.V. Kurchatov Institute of Atomic Energy. He joined EvrazMetall in 1994 and served as its chief financial officer from 2002
to 2004, then as senior executive vice president of Evraz Group S.A. from 2004 to April 2006.
Appointment: Eugene Shvidler has been a Board member of Evraz Group S.A. since August 2006. He was appointed to the Board
of EVRAZ plc on 14 October 2011.
Committee membership: Mr Shvidler is a member of the Nominations Committee.
Skills and experience: Mr Shvidler currently serves as chairman of Millhouse LLC and Highland Gold Mining Ltd. He is also
on the Board of AFC Energy plc. Mr Shvidler served as president of Sibneft from 1998 to 2005 having previously been senior vice
president from 1995. He holds an MSc and an MBA.
Appointment: Eugene Tenenbaum has been a Board member of Evraz Group S.A. since August 2006. He was 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. He is a chartered accountant.
Alexander
Abramov
Non-Executive
Chairman
Alexander
Frolov
Chief Executive
Officer
Eugene
Shvidler
Non-Executive
Director
Eugene
Tenenbaum
Non-Executive
Director
100
Appointment: Karl Gruber has been a Board member of Evraz Group S.A. since May 2010. He was appointed to the Board
of EVRAZ plc on 14 October 2011.
Committee membership: Mr Gruber serves as chairman of the Health, Safety and Environment Committee. He is also a member
of the Audit Committee and Nominations Committee.
Skills and experience: Mr Gruber has extensive experience in the international metallurgical mill business and holds a diploma
in mechanical engineering. He has held various management positions, including eight years as a member of the Managing Board
of VOEST-Alpine Industrieanlagenbau (VAI), first as executive vice president of VAI and then as vice chairman of the Managing
Board of Siemens VAI. He also served as chairman on the Boards of Metals Technologies (MT) Germany and MT Italy. Further,
he has executed various consultancy projects for the steel industry and served as CEO and chairman of the Management Board
of LISEC Group.
Appointment: Deborah Gudgeon has been a Board member of EVRAZ plc since May 2015.
Committee membership: Ms Gudgeon serves as chairman of the Audit Committee and is a member of the Remuneration
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. She is a chartered accountant. 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.
Appointment: Alexander Izosimov was appointed to the Board of EVRAZ plc on 28 February 2012.
Committee membership: Mr Izosimov is chairman of the Remuneration Committee. He is also a member of the Nominations
Committee and the Audit Committee.
Skills and experience: Mr 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 the transportation, mining, manufacturing and oil businesses. Until recently, Mr Izosimov served on the boards of MTG
AB, Dynasty Foundation, LM Ericsson AB and Transcom SA. He also previously served as director and chairman of the GSMA (global
association of mobile operators) board of directors, and was a director of Baltika Breweries, confectionery company Sladko, and IT
company Teleopti AB. He holds an MBA from INSEAD.
Karl Gruber
Independent Non-
Executive Director
Deborah
Gudgeon
Independent Non-
Executive Director
Alexander
Izosimov
Independent Non-
Executive Director
Appointment: Sir Michael Peat was appointed to the Board of EVRAZ plc on 14 October 2011.
Committee membership: Sir Michael Peat serves as chairman of the Nominations Committee and is a member of the
Remuneration 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 and then Treasurer to The Queen and Keeper of the Privy Purse. 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 and a partner in CQS (UK)
LLP, chairman of GEMS MENASA Holdings Limited, a non-executive director of Arbuthnot Latham Limited,a non-executive director
of M&C Saatchi plc, a director of Architekton Limited, chairman of the Regeneration Group Limited and chairman of the Advisory
Board of BellAziz Holdings Limited. He holds an MA and MBA, and is a fellow of the Institute of Chartered Accountants in England
and Wales.
Sir Michael
Peat
Senior Independent
Non-Executive Director
101
Annual Report & Accounts 2016www.evraz.comСorporate governance Management
Our organisational structure enables 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
Chief Executive Officer
Leonid
Kachur
Senior Vice President,
Business Support
and Interregional
Relations
Aleksey
Ivanov
Senior Vice President,
Commerce
and Business
Development
Nikolay
Ivanov
Chief Financial
Officer
New appointment
Mr Ivanov joined EVRAZ in November 2016. Since 2013 he served as executive vice president,
CFO at VimpelCom. Previously he held various positions at TNK-BP including the first deputy executive vice
president for exploration and production, having spent over 10 years with the company.
Mr Ivanov graduated from the Financial Academy of the Government of the Russian Federation with a degree
in finance and credit, as well as Northeastern University, Missouri, USA, and the Truman University, USA,
with a degree in accounting.
102
Alexander
Kuznetsov
Vice President,
Corporate Strategy
and Performance
Management
Sergey
Stepanov
Vice President, Head
of the Coal Division
Denis
Novozhenov
Vice President,
Head of the Ukraine
Division
Sergey
Vasiliev
Vice President,
Compliance with
Business Procedures
and Asset Protection
Ilya
Shirokobrod
Vice President, Sales
Natalia
Ionova
Vice President,
Human Resources
Alexey
Soldatenkov
Vice President,
Head of the Siberia
Division
Michael
Shuble
Vice President,
Health, Safety and
Environment
Vsevolod
Sementsov
Vice President,
Corporate
Communications
Maksim
Andriasov
Vice President,
Head of the Urals
Division
Anton
Yegorov
Vice President,
Legal
Artem
Natrusov
Vice President,
Information
Technologies
103
Annual Report & Accounts 2016www.evraz.comСorporate governance Corporate governance report
Introduction
EVRAZ is a public company limited by shares incorporated in the United Kingdom. It is a premium-
listed company on the Main Market of the London Stock Exchange and is a member of the FTSE 250
Index. EVRAZ 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’ approach to corporate governance
is primarily based on the UK Corporate
Governance Code published by the Financial
Reporting Council (FRC) in April 2016 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 2016, EVRAZ complied
with all the principles and provisions of the 2016
UK Corporate Governance Code (the Governance
Code is available at www.frc.org.uk) with the
following exceptions:
▪ Provision D.1.1 of the Governance Code
requires that performance-related
remuneration schemes should include malus
and clawback provisions. The Company
does not operate clawback arrangements
and an explanation for this non-compliance
is set out in the Remuneration Report
on pages 120-129.
▪ Contrary to provision C.3.1 of the UK
Corporate Governance Code, Olga
Pokrovskaya was a member of the Audit
Committee until her cessation as a Board
member on 14 March 2016, but did 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, continues
to be of value to the Committee. Accordingly,
she is invited to attend Board meetings in
an advisory capacity and to attend Audit
Committee meetings as an observer. Since
14 March 2016, the Audit Committee has
consisted of three non-executive directors,
all independent, which complies with the
Code, and the Board considers that, as a
whole, the Committee has competence
relevant to the industry sector in which the
Group operates.
Board responsibilities and performance
The Board and management of EVRAZ aim
to pursue objectives in the best interests
of EVRAZ, its shareholders and other
stakeholders, and particularly to create
long-term value for shareholders. The EVRAZ
Board is responsible for the following key
aspects of governance and performance:
▪ Financial and operational performance
▪ Strategic direction
▪ Major acquisitions and disposals
▪ Overall risk management
▪ Capital expenditure and operational
budgeting
▪ Business planning
▪ Approval of internal regulations and
policies
104
During the year ended 31 December 2016,
the Board considered a wide range of
matters, including:
▪
the critical success factors for strategic
development of the Company’s competitive
advantages
the performance of key businesses,
including commercial initiatives to improve
operational performances and revenues,
with particular emphasis on North America
▪
▪ consolidated group budget and budgets
▪
▪
▪
of individual business units
the interim and full-year results, and the
2015 Annual Report
the appropriateness of the going concern
basis of financial reporting
the assumptions, stress-test scenarios and
mitigating actions used in preparing the
Company’s viability statement
▪ HSE updates
investment project reviews
▪
▪ changes to the composition of various
▪
▪
Board committees
implementation throughout the group over
the next five years of the EVRAZ Business
System to promote an operational culture
of values and behaviours that support
the drive for continuous improvement and
business change
linking succession planning to corporate
strategy execution, and the need to look
deeper into the group for future leaders
▪ compliance with the Market Abuse
Regulation in relation to managing inside
information, share dealing by insiders and
online training of all insiders
▪ a review of the findings of the internally
facilitated Board evaluation exercises and
action plans resulting therefrom.
Chairman and chief
executive
The Board determines the division
of responsibilities between the chairman and
the chief executive officer (CEO).
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 CEO is responsible for leading the Group’s
operating performance, as well as day-to-day
management of the Company and its subsidiaries.
The Company’s CEO is Alexander Frolov.
The CEO is supported by the executive team.
Board meetings,
composition and AGM
EVRAZ plc held 10 scheduled Board meetings
and two ad-hoc meetings held in the form of
conference calls during 2016. In 2017, up to
the date of this report’s publication, two Board
meetings were held.
The chief financial officer and the senior
vice president (commerce and business
development) attended all Board meetings,
with other members of senior management
attending meetings by invitation to deliver
presentations on the status of projects and
performance of business units.
The table below sets out the attendance of
each current director at scheduled EVRAZ plc
Board and Board Committee meetings in 2016.
As at 31 December 2016, the Board comprised
the chairman, one executive director, and six
non-executive directors, including a senior
independent director. On 14 March 2016,
Duncan Baxter and Olga Pokrovskaya stood down
as directors, and Terry Robinson (who retired
as a director on 18 June 2015) ceased to be an
adviser to the Board. This change was agreed
following a review of the composition of the
Board, to enable financial savings to be achieved
without compromising the quality of the Group’s
governance. Olga Pokrovskaya is invited to attend
Board meetings in an advisory capacity and to
attend Audit Committee meetings as an observer.
As a result, a number of changes were
made to Board Committees: Alexander
Izosimov assumed the chairmanship of the
Remuneration Committee, Deborah Gudgeon
and Sir Michael Peat joined the Remuneration
Committee, and Karl Gruber stepped down
from the Remuneration Committee. In addition,
Karl Gruber joined the Audit Committee.
The Board considers that four non-executive
directors (Karl Gruber, Alexander Izosimov,
Sir Michael Peat and Deborah Gudgeon) are
independent in character and judgement, and
free from any business or other relationship
that could materially interfere with the exercise
of their independent judgement, in compliance
with the UK Corporate Governance Code.
The independent non-executive directors comprise
the majority on and chair all Board Committees.
The Board has also satisfied itself that there
is no compromise to the independence of,
or existence of conflicts of interest for, those
directors who serve together as directors on the
boards of outside entities.
Boardroom diversity
Independent Non-Executive Directors
Non-Executive Directors
Chairman, Non-Executive
Executive Director
%
50
25
12.5
12.5
Board and AGM attendance by each director1
Total Number
of Meetings
Alexander Abramov
Alexander Frolov
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Sir Michael Peat
Eugene Shvidler
Eugene Tenenbaum
Board
Remco
HSECo
Auditco
Nomco
AGM
10
9/10
10/10
10/10
10/10
10/10
10/10
10/10
10/10
3
-
-
1/1
2/2
3/3
2/2
-
-
2
-
2/2
2/2
-
-
-
-
-
9
-
-
6/6
9/9
8/9
-
-
-
2
2/2
-
2/2
-
2/2
2/2
2/2
-
1
1
1
1
1
1
1
1
1
1 In addition to the ten scheduled Board meetings held in
2016, two meetings were held by conference call to consider
specific financing proposals. Mr Abramov and Mr Izosimov
were each unable to attend one Board or Committee
meeting due to a prior commitment or illness.
The following changes were made to the composition of the
Board and its Committees with effect from 14 March 2016:
▪ Olga Pokrovskaya stepped down from the Board and the
Audit Committee but continued as a non-executive member
of the Health, Safety and Environment Committee. Her
meetings attendance during the year was Board 3/3, Audit
Committee 3/3, and HSE Committee 2/2.
▪ Duncan Baxter stepped down from the Board, the
Remuneration Committee and the Audit Committee. His
meetings attendance during the year was Board 3/3,
Remuneration Committee 1/1, and Audit Committee
3/3. Alexander Izosimov was appointed chairman of the
Remuneration Committee (succeeding Duncan Baxter),
Sir Michael Peat and Deborah Gudgeon joined the
Remuneration Committee, and Karl Gruber stepped down
from the Remuneration Committee and joined the Audit
Committee.
105
Annual Report & Accounts 2016www.evraz.comСorporate governance
Boardroom diversity
Board expertise
Performance evaluation
EVRAZ recognises the importance of diversity
both at the Board level and throughout the
whole organisation. The Company remains
committed to increasing diversity across
its global operations and takes diversity
into account during each recruitment and
appointment process, working to attract
outstanding candidates with diverse
backgrounds, skills, ideas and culture. For
more detailed information, see the Nominations
Committee report on pages 116-117 and CSR
report on pages 72-95.
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. Biographies of the Board
members are provided in the Board of Directors
section.
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. For more detailed information,
see the Nominations Committee report.
An internally facilitated annual Board
evaluation was conducted in December
2016. As in the previous year, the review was
carried out with the initiative and participation
of the Company’s Nominations Committee.
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 chairman of
the Board) and (iii) between the Board as a
whole. Board performance was deemed to be
satisfactory, notwithstanding the reduction in
Board membership from 10 to 8 in 2016, 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 and an externally facilitated
review is planned for 2017.
Board composition as of 31 December 2016
Name
Executive Director
Alexander Frolov
Non-Executive Directors
Alexander Abramov
Eugene Shvidler
Eugene Tenenbaum
Non-Executive Independent Directors
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Sir Michael Peat
Position
Committee membership
Years of tenure
CEO
HSEC - member
Chairman
Director
Director
Director
Director
Director
Senior Independent
Director
NC - member
NC - member
None
HSEC - сhairman
AC - member
NC - member
AC - chairman
RC - member
RC - chairman
NC - member
AC - member
NC - chairman
RC - member
5
5
5
5
5
1
4
5
NC - Nominations Committee, HSEC - Health, Safety and Environment Committee, AC - Audit Committee, RC - Remuneration Committee
106
Board committees
The role and composition of each committee
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.
Each committee has written terms of reference,
approved by the Board, summarising its role
and responsibilities.
Committee
name
Audit
Committee
Function
Composition
Audit, financial reporting, risk
management and controls
All 3 members are independent
non-executive directors See pages 110-115
Nominations
Committee
Selection and nomination
of Board members
All 5 members are non-executive directors,
of which 3 are independent See pages 116-117
Remuneration
Committee
Remuneration of Board
members and top management
All 3 members are independent
non-executive directors See pages 120-129
HSE
Committee
HSE issues
1
are non-executive with
2 of the 3 members
an independent chairman who is also
a non-executive director of the Company.
See pages 118-119
The terms of reference for each
Committee are available on the
Company’s website: www.evraz.com.
1 The members of the Health, Safety and Environment Committee at 31 December 2016 were Karl Gruber (chairman), Alexander Frolov
and Olga Pokrovskaya who has continued as a non-executive member of the HSE Committee following her cessation as a Board
member of the Company on 14 March 2016. With more than 50% of EVRAZ operations based in the Russian Federation, the Committee
continues to value the contribution she brings in terms of her technical and regional experience.
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 2016.
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. The management maintains
a risk register that encompasses both
internal and external critical threats. The
level of risk appetite approved by the Board
is used to identify particular risks and
uncertainties that require specific Board
oversight. In 2016, regarding principal
risks and uncertainties, this process was
consistent with the UK Corporate Governance
Code, the FRC Guidance on the Strategic
Report issued in June 2014, and the FRC
Guidance on Risk Management, Internal
Control and Related Financial and Business
Reporting issued in September 2014.
The executive management is responsible
for introducing the agreed internal controls
and mitigating actions related to risk
management throughout EVRAZ’ business
and operations, as well as at all levels of
management and supervision. This serves to
encourage a risk-conscious business culture.
EVRAZ applies the following core principles
to identifying, monitoring and managing risk
throughout the organisation:
▪ 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.
▪ 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.
▪ A reporting process involving 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, as well as at
EVRAZ’ major steel and mining operations.
The Risk Management Group maintains
a corporate risk register representing a
summary of this information. Business unit
management teams and other relevant
bodies are accountable to the Risk
Management Group by way of membership
of the latter (vice presidents of business
units and functions).
▪ All acquired businesses are brought within
the Group’s system of internal control as
soon as practicable.
For additional information
about principal risks and
uncertainties see Strategic
report on pages 32-36
107
Annual Report & Accounts 2016www.evraz.comСorporate governance Internal control
BOARD OF DIRECTORS
INTERNAL CONTROL FRAMEWORK
Ensuring Group’s ongoing
internal control process
is adequate and effective
AUDIT COMMITTEE
INTERNAL AUDIT
Primary
oversight
of internal
control regime
Reviewing
effectiveness of
internal control
Supervise
and review
of reports
Risk Management Group
Regional Risk Committees
or Business Units management teams
Reviews of
reports and
effectiveness
Site level managers
EVRAZ ASSURANCE FRAMEWORK
(annual management self-assessments)
Components of the internal control system
Component
Basis for assurance
Action in 2016
Assurance framework – principal entity-level
controls to prevent and detect error or material
fraud, ensure effectiveness of operations and
compliance with principal external and internal
regulations
Self-assessment by management at all major
operations
Review of the self-assessment by the internal
audit function
Investment project management
Operating policies and procedures
Operating budgets
Accounting policies and procedures as per
the corporate accounting manual
108
Monitored by established management
committee and sub-committees
Reviewed by internal audit
Implemented, updated and monitored by
management
Reviewed by the internal audit function
Monitored by controlling unit
Reviewed by the internal audit function
Approved by the Board
Developed and updated by the reporting
department
Reviewed by the internal audit function
In 2016, the internal audit function certified
and reviewed the internal control system; more
straightforward connection between the result
of the self-assessment of internal control by the
management and an internal audit plan has
been established
Continuous enhancement of procedures
regarding quality and reporting control, as
well as other elements of the project oversight
process
Operating policies and procedures were
updated as per the internal initiatives by
operational management and in response
to recommendations from the internal audit
function
Operating budgets were prepared, and approved
by the Board
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 directors’ consideration 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
2016, 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 minimise the risk,
and EVRAZ’ Business Security department
ensures that appropriate processes are in
place to protect the Group’s interests.
Internal audit
Internal audit is an independent appraisal
function that the Board has established 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 28 February 2017.
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. Once a year,
the function provides an opinion of the overall
effectiveness of the Group’s internal controls.
In 2016, EVRAZ’ 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, consequently, 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, consideration of the
results of the self-assessment of internal control
by the management, 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 2016, internal audit projects covered the
following Group risks:
▪ Cost effectiveness
▪ Health, safety and environment
▪ Capital projects and expenditure
▪ Treasury and working capital management
▪ Human resources
▪ Compliance
▪ Business interruption, and equipment and
infrastructure downtime management
▪ Transportation, sourcing, raw materials and
▪
energy supply
IT security and IT infrastructure risk
management
▪ Quality
EVRAZ’ internal audit function is structured on a
regional basis, reflecting the geographic diversity
of the Group’s operations. The Group’s internal
audit function works to align common internal
audit practices throughout the Group via quality
assurance and improvement programmes.
Our approach to risk
appetite
Risk appetite is an important part of the
risk management process that serves as a
measure of the risks EVRAZ’ management is
willing to accept in pursuit of value. The Board
has approved a risk appetite in accordance
with the risk management methodology
adopted by EVRAZ.
Risk appetite is considered in evaluating
strategies and setting objectives within the
Group’s strategic cycle, in decision making and
in developing risk management actions and
methods, as well as in identifying particular risks
and uncertainties that require specific Board
oversight. The strategic objectives of the Group
are aligned with and risk mitigation actions are
reflective of the risk appetite approved by the
Group. The Group adopts a robust approach in
relation to risk management. Risk appetite for
some specific business processes (eg in fraud,
security, bribery and corruption, as well as in the
health and safety process) is assessed, defined
and evaluated separately from the rest of the
processes.
The management reassesses the risk appetite
at least annually via the Risk Committee/Risk
Management Group. The Risk Management
Group reports on the analysis performed to the
Audit Committee, which makes recommendations
to the Board regarding the level of risk appetite.
The Risk Management Group and the Audit
Committee last reviewed the Group’s risk profile
in October 2016 and finalised the assessment
in January 2017. Based on the results of the
most recent review, the management concluded
that the approach for acceptance of risks within
the company had not changed and that the
risk appetite remained the same as in the prior
year. An appropriate recommendation regarding
the level of risk appetite was made to the Audit
Committee and to the Board.
Objectives for 2017
Further risk management training for
the Group’s top management took place
in early 2017.
In addition to the objective of inducting
new members of the top management
team into the corporate risk management
process and practices, this training session
supported the improved risk management
reporting procedure that has been
introduced as part of the transformation
of the Risk Committee into the Risk
Management Group. Further training on
risk management and development of risk
management system is planned for 2017.
Further information regarding EVRAZ’
internal control and risk management
processes can be found at www.evraz.
com/governance/control.
For the reports from each committee,
please see pages 110-129.
109
Annual Report & Accounts 2016www.evraz.comСorporate governance Audit Committee report
Dear Shareholders, I am pleased to present the Audit Committee
Report for the financial year ended 31st December 2016. I am delighted
to welcome Karl Gruber as a member of the Audit Committee allowing us
to benefit from his extensive experience in the steel industry. Over the
course of the last year, I have visited our operations at NTMK, ZMSK and
the Uskovskaya mine at Raspadskaya and will continue a rolling
programme to visit all the key assets over the coming year.
Once again, I would like to extend the thanks of the Committee to the
executive and financial management of the Company, the internal audit
department and EY, our external auditor, for their continuing diligence and
valued contributions to the work of the Committee.
Role and Responsibilities
of the Audit Committee
Committee Members
and Attendance
During 2016, the Audit Committee reviewed
and amended its terms of reference to reflect
latest regulatory developments and the
transformation of the Risk Committee into
the Risk Management Group as detailed
on page 33. The revised terms of reference
for both the Audit Committee and the Risk
Management Group were approved by
the Board.
The Audit Committee minutes are tabled
at the Board meeting for consideration,
and the Chairman updates the Board orally
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. An external
assessment will be undertaken during 2017.
EVRAZ also confirms its compliance, during the
financial year commencing 1 January 2016, with
the provisions of the Competition and Markets
Authority Order 2014 on mandatory tendering
and audit committee responsibilities.
On 14 March 2016, Olga Pokrovskaya stood
down from the Board and was replaced on
the Audit Committee from that date by Karl
Gruber. As a result, all of the Audit Committee
members are Independent Non-Executive
Directors. Karl Gruber has extensive experience
in the steel industry and enhances the sectoral
expertise of the Audit Committee. As disclosed
in the Corporate Governance Report page 104,
Olga Pokrovskaya continues to attend Audit
Committee meetings as an observer, providing
additional technical expertise and valuable
regional expertise.
Senior members of the Group’s finance
function, the head of Group Internal Audit (who
acts as secretary to the Audit Committee and
the Risk Management Group), and the external
auditors also attend Committee meetings.
Key members of the management team and
Risk Management Group are also invited to
attend Committee meetings when appropriate;
in 2016, these included the CEO and VP’s of
Strategy, Steel, IT, Security, Legal, Compliance
and Personnel, the CFO of Evraz North
America plc (hereinafter ENA) 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.
Deborah Gudgeon
Independent Non-Executive Director,
Chairman of Audit Committee
The role and responsibilities of the Audit
Committee are delegated by the Board
and set out in the written terms of reference
http://www.evraz.com/governance/
directors/committees/.
110
The Audit Committee met 9 times during
2016 and 4 times in early 2017 before the
publication of this Annual Report.
Details of committee attendance
are set out on page 105
Activities and Work of the
Committee during 2016
During 2016, the Audit Committee has continued
to focus 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.
In line with regulatory guidance, the Audit
Committee undertook a tender process to
appoint an external auditor for the years
ending 31 December 2017 and 2018, and
recommended the reappointment of EY to the
Board. Further details of the tender process are
included later in this report.
The Committee monitored the progress of the
2016/17 financial transformation project which
includes migration of the operations of three
Russian accounting centres to one shared
service centre in Novokutznetzk and changes
to the operational model of the accounting
function, and considered the implications for
the quality, timeliness and continuity of financial
reporting through the transition process and in
the future. The financial statements for 2016
were prepared under the existing reporting
structure and the Committee will continue to
monitor the migration process during 2017.
The Committee monitored the process
for collating information and reviewed the
disclosure required in support of the Payment
to Government filing on the website at
30 June 2016 and to Companies House by
30 November 2016. This review identified an
error in the original filing on the website in
which an amount was erroneously classified as
a payment to government.
A verification process was undertaken by
management, and reviewed by EY, to review the
completeness and accuracy of the disclosure
and an updated report was uploaded to the
website and filed with the FCA.
▪
▪
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 reviewed and updated
the process for capturing, monitoring and
approving related party transactions. This
review, and the accuracy and completeness
of the disclosures in the 2016 financial
statements, were considered by the Committee
and will be reviewed again during 2017.
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 Management Group.
In December 2016, EVRAZ received advance
notice from the Financial Reporting Council
of its intention to review the judgements and
estimates disclosures in the 2016 financial
statements as part of its thematic review.
Significant Financial
Reporting Issues
considered by the Audit
Committee in 2016
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:
▪ compliance with financial reporting
standards and governance requirements;
the material financial areas in which significant
accounting judgements have been made;
the critical accounting policies and
substance, consistency and fairness of
management estimates;
the clarity of disclosures; and
▪
▪ 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.
Financial reporting standards
and governance requirements
The full financial statements can
be found on pages 138-255.
The Audit Committee considered a number
of financial reporting issues in relation to
the Interim Results for H1 2016 and the
financial statements for 2016. 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 financial statements continue to be impacted
by fluctuations in 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
separate 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
EVRAZ is exposed to a range of risks and
inherent uncertainties as set out on pages 34-35,
many of which are outside the control of the
111
Annual Report & Accounts 2016www.evraz.comСorporate governance Company. 2016 saw significant volatility in
raw material prices with a four-fold increase in
coking coal prices and steel prices rising 80%
over the year. The Audit Committee reviewed
management’s going concern analysis which
included both a base case and a flexed
downside scenario which is based upon forward
pricing close to the bottom of the range of
current investment analyst forecasts, and a
reduced level of budgeted capital expenditure.
The Committee carefully considered the
projected Use and Sources of Funds for the
period to June 2018 which includes scheduled
loan repayments, new committed funding
and free cash flow after capital expenditure.
Given the volatility of the current global supply/
demand environment, the Committee again
focused on the pessimistic downside case
and the implications on free cash flow and
compliance with financial covenants.
Following these detailed considerations, the
Audit Committee resolved to recommend the
going concern basis of preparation for the
Financial Statements as at 31 December 2016
to the Board.
The Committee reviewed the analysis
supporting the viability statement before it
was considered by the Board. The Committee
reviewed the scenarios that might challenge
viability, the key assumptions in each scenario
and the proposed disclosures in the viability
statement.
Areas of significant accounting
judgement and management
estimates
Impairment of goodwill and assets
(Notes 5 and 6). The Committee considered
management’s impairment recommendations
in the context of the current and future
trading environment. Testing was undertaken
as at 30 September 2016 and reassessed
at 31 December 2016 when no further
impairment triggers were identified. The
continued weakness of the rouble means that
the carrying values of Russian cash generating
units remain low in US dollar terms and are
largely not challenged by the value in use
comparisons used to determine impairment,
even in a negative pricing environment
During H1 2016, the organisational, cash
flow and asset interdependence of the ENA
business was reassessed for the purpose of
impairment testing and the constituent plants
allocated to 5 new cash generating units based
upon the end markets they serve.
As a result of deteriorating market conditions
in North America during H2 2016, management
undertook a detailed review which resulted
in the reduction of both volume and price
forecasts used in the impairment testing
of these assets. Of the $465 million impairment
charge in 2016, $446 million relates to the
goodwill and PPE impairment of operations
in North America. The balance of $19 million
relates to the specific impairment of PPE
at other cash generating units including
unutilised assets at Raspadskaya and Yuzhny
Stan, and increased site restoration provisions
at Evrazruda and Yuzhkuzbassugol. As the
operation of Palini e Bertoli has been restarted,
the VIU was reassessed resulting in a partial
reversal of the impairment already recognised
on the idling of this asset. The Audit Committee
considered this reversal and concluded that
it was appropriate.
Other matters
In October 2016, EVRAZ entered into a contract
to sell Evraz Yuzhkoks with consideration
payable in a number of instalments to August
2017. Completion of the transaction requires
fulfilment of several conditions not fully within
the control of the parties to the transaction.
Management consider that the agreement has
not yet become unconditional and continue to
treat Evraz Yuzhkoks as an asset held for sale
in the financial statements, with consideration
instalments already received classified as
“advances from customers” in the statement
of financial position. Given the uncertainty on
completion, the Audit Committee accepted
management’s proposed treatment.
Property tax accrued and paid by production
subsidiaries has been reclassified from
general and administrative expenses to cost
of revenue, and the costs and related expenses
of certain personnel have been reclassified
to better reflect the current operational
structure and make the financial statements
more comparable with industry peers. The
Committee reviewed the implications of the
change and the adequacy of the disclosure and
were satisfied. The implications of the change
are set out in Note 2.
EVRAZ internal policy is to undertake a valuation
of mineral reserves on a regular basis, at least
every three years, but the valuation due in 2016
was postponed due to cost reduction initiatives.
A valuation will be undertaken during 2017
which will reflect the changes in mining plans
and expected long term prices.
112
Fair, balanced
and understandable
In considering whether the Annual Report
is fair, balanced and understandable, the
Committee reviewed the information it had
received, discussions held with management
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 and external advisers. 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.
The Audit Committee recommended
approval of the Group’s 2016 Consolidated
Financial Statements by the Board. Both
recommendations were accepted by the Board.
Other Matters
UK Bribery Act (“UKBA”)
completeness for maintaining registers of
entertainment costs, business gifts, charitable
and sponsorship expenditure at a number
of key entities during the year. Based upon
the output, the mitigation plan and training
programmes will be updated to reflect the
increasing maturity of these processes.
In March 2016, Transparency International
produced a report on “Transparency in
Corporate Reporting: Assessing Emerging
Market Multinationals”. EVRAZ achieved a
score of 85% for its anti-corruption programme
compared to an average score of 48% for all
the firms surveyed.
Sanctions Compliance Controls
Compliance with the control processes,
procedures and reporting framework
established to minimise the risk of breaching
sanctions was tested by Internal Audit during
the year, along with progress against the
recommendations of the Group’s external
legal advisers, and found to be satisfactory.
The controls and processes for monitoring
compliance are 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
This should be read in conjunction
with Risk Management and Internal
Control section on pages 107-109.
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 identified by
the external audit in 2014. A comprehensive
framework for annually monitoring compliance
with EVRAZ’ anti-corruption policies and
identifying risk was developed during 2016
by the compliance, legal and internal audit
teams. Using this framework, compliance
was tested in November and December 2016
indicating further progress in reducing risk.
Internal audit also tested the procedure and
EVRAZ has an integrated approach to risk
management to ensure that the review and
consideration of risks inform the management
of the business at all levels, the design of
internal controls and internal audit process.
During 2016, the Risk Committee was
replaced by the Risk Management Group with
membership comprising the Group’s vice-
presidents and chaired by the CEO.
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 2016 and reviewed by the Audit
Committee in December 2016.
113
Annual Report & Accounts 2016www.evraz.comСorporate governance The Risk Management Group attended
the Audit Committee in October 2016 and
presented the updated Risk Register and their
recommendation on the level of Risk Appetite.
These were reviewed by the Audit Committee,
along with the draft Statement of Principal
Risks and Uncertainties to be included
in the 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 and
followed up by the Group’s Management
Committee and the progress on resolving
issues is monitored regularly.
The Audit Committee continues to receive
bi-annual updates on whistleblowing reports
together with a security report on the progress
of follow-up investigations and resulting actions
in relation to 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 Management Group
and the Audit Committee. In particular, the
Audit Committee considered whether the
accelerated reporting timetable and financial
transformation project had implications for the
risk and control environment.
The Chairman of the Audit Committee tables
the Internal Audit report judgement on the risk
and control environment to the Board.
The Group continued the implementation
of the IT security risk mitigation plan during
2016 and an external risk reassessment was
undertaken in early 2017, revealing significant
progress. The mitigation plan will be updated
by March 2017 to recalibrate the mitigation
plan to reflect the progress already made.
The EVRAZ policy on the level and economic
terms of external insurance cover was reviewed
by the Audit Committee in January 2017 and
approved by the CEO. The Risk Register was
amended in 2016 to acknowledge the level
of self-insurance by the Group.
Internal Audit
The Audit Committee reviewed the internal
audit plans for 2017 and recommended
certain revisions in view of the macroeconomic
environment, risk profile of the business and
resources available. The plan was revised
to reflect the updated risk analysis and
to prioritise key business cycles and controls
from a risk perspective. Overall, 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 and Key Performance
Indicators of the Internal Audit function
in early 2017. 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 of the Internal Audit
function in the Russian Federation, CIS
and Europe was undertaken during 2015
and confirmed that it 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 is secretary to both
the Audit Committee and Risk Management
Group and prepares the minutes.
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 of the external auditor with ethical,
professional and regulatory requirements.
These include:
▪
review and approval of the external audit
plan 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;
114
market transactions and cyber security risk
assessment. Non- audit fees were 14.7% of the
2016 audit fee of $4.1 million. Irrespective of
prior approval of the CFO and Audit Committee
Chairman, all fees are reported to the Audit
Committee for noting and comment.
The Audit Committee continues to consider EY
to be effective and independent in their role as
auditor.
Re-appointment of the external
auditor
In view of the UK Governance Code guidance
on re-appointment of the external auditor and
the EU legislation on audit regulation, the Audit
Committee resolved in 2015 to undertake
a tender process during 2016 to allow for the
appointment of an external auditor for the year
ended 31 December 2017.
A Request for Proposal was sent to six firms
who were judged to have suitable, relevant
experience. Interested candidates who could
confirm their independence attended a series
of meetings with key management and with
the Chairman of the Audit Committee before
the deadline for submission of their proposals
in the middle of July 2016. Based upon these
submissions, management selected two
candidates to make a presentation to a special
meeting of the Audit Committee. The Audit
Committee considered both proposals and
presentations in accordance with a number
of pre-agreed specific criteria including
steel and mining experience in Russia and
worldwide, experience of comparable complex
organisations, quality control and local team
experience, audit co-ordination and service
delivery. Based upon this review, the Audit
Committee concluded that Ernst & Young
LLP (“EY”) was the preferred candidate and
recommended their reappointment as external
auditor to the Board for the years ending
31 December 2017 and 2018.
▪
▪
review and approval of the external auditor’s
engagement letter;
review of the FRC’s Quality Inspection Report
May 2016 (https://www.frc.org.uk/Our-
Work/Publications/Audit-Quality-Review/
Audit-Quality-Inspection-Report-May-2016-
Deloitte.pdf) and EY’s response;
▪
▪ consideration of the external auditors report
on the Interim Review and Annual Report
and Representation Letters; and
reviewing the external auditors management
letter on the 2015 audit with management,
considering management’s response and
proposed actions, and requesting that
Internal Audit undertake a follow-up audit
of key areas.
The 2016 financial reporting timetable was
accelerated compared to 2015, and the Audit
Committee gave particular consideration to
the implications for the external audit process
and the resulting early hard close, acceleration
of substantive procedures and year-end roll
forward procedures.
Following completion of the 2015 audit, Mr Ken
Williamson was replaced as Senior Statutory
Auditor by Mr Steven Dobson. Management
and members of the Audit Committee also
completed a questionnaire to assess the
effectiveness and independence of the external
audit process in 2015, which was found to
be satisfactory.
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 2016,
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 2016, non-audit fees totalled $612,000
and were primarily in relation to capital
115
Annual Report & Accounts 2016www.evraz.comСorporate governance Nominations Committee report
Since EVRAZ’ Board was reduced to eight directors in early 2016,
the Nominations Committee has monitored the Board’s composition to
ensure that it remains appropriate and continues to uphold the integrity of
the Company’s corporate governance. As a committee, we are satisfied that
this is the case but will continue to keep this in view during 2017. Although
we anticipate that there will be a period of stability in the Board’s
membership for the foreseeable future, the Nominations Committee is
beginning to look at its long-term succession planning to ensure that new
directors are brought on to the Board who can maintain and, where
appropriate, further enhance the skills, experiences and perspectives
brought to bear on the Board’s business and decisions.
Role
Board evaluation output
The Nominations Committee is responsible for
making recommendations to the Board on the
structure, size and composition of the Board
and its committees, and overseeing succession
planning for directors and senior management.
Committee members and
attendance
The members of the Nominations Committee
at 31 December 2016 were Sir Michael Peat
(chairman), Alexander Izosimov, Karl Gruber,
Alexander Abramov, and Eugene Shvidler. 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 two occasions during
2016.
The CEO attended all meetings and the
company secretary acted as the committee’s
secretary.
Activity during 2016
During 2016, the committee considered the
following issues.
In early 2016, the committee reviewed the
output from the internally facilitated Board
and committee evaluation process undertaken
at the end of 2015. The committee conducted
a further evaluation exercise in late 2016
and considered whether there were any
issues that needed to be reviewed in relation
to the composition of the Board. Whilst
no immediate issues were identified, the
committee continues to monitor any evolving
needs in relation to Board membership. The
committee also considered the results of the
Board Committees Effectiveness review
questionnaires issued in October 2016 and
collated for review in December 2016.
The composition of the Board
and its committees
Following the resignations from the Board
in March 2016, the committee considered
the composition of the Board and the new
composition of the Audit and Remuneration
committees, and agreed that the size
and composition of each was appropriate
to the ongoing needs of the Board and
the Group. 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.
Sir Michael Peat
Senior Independent Non-Executive Director,
Chairman of Nominations Committee
116
Succession planning
The committee considered succession
planning for the future non-executive
directorate, recognising the length of service
of each of the current independent non-
executive directors. The committee noted that
the process of succession planning would
need to begin in the next three years.
In August 2016, members of the committee
joined the members of the Remuneration
Committee to receive a presentation from
the chief executive officer on succession
planning among the senior executive team.
The committee also received reports from
the chief executive officer on the recruitment
process for the chief financial officer, who was
appointed in November 2016.
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.
Best practices for Nominations
Committee
The committee undertook a detailed review
of the most recent developments in corporate
governance impacting the work of the
Nominations Committee. This included the FRC
feedback statement published in May 2016
on ‘UK Board Succession Planning’; and the
updated target set by the Davies Review for 33%
of FTSE350 directors to be female by 2020.
The committee also discussed the joint report
issued by Ernst & Young and the ICSA in May
2016, entitled “Coming out of the Shadows”
and used the 12 questions for Boards and
Nomination Committees set out in that report
as a basis for identifying future areas for
development in relation to the role of the
committee.
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 27 January 2017.
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 27 January 2017, 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. Following
Olga Pokrovskaya ceasing to be a director
on 14 March 2016, this objective has been
re-introduced. The Board will be reviewing
its diversity policy with a view to 33%
representation of women on the Group’s
board by 2020.
2017 priorities
The committee will continue to fulfil its general responsibilities with
particular emphasis on compliance with the UK Corporate Governance
Code, board diversity and succession planning. In addition, it will
continue to consider development and succession planning for senior
management. It will also provide and encourage training for directors
and implement the recommendations from the forthcoming external
review of the Board’s performance.
117
Annual Report & Accounts 2016www.evraz.comСorporate governance Health, Safety and Environment Committee report
Each year, we evaluate our HSE strategy’s strengths and
weaknesses to ensure that our performance measures up to our
stakeholders’ expectations and addresses their concerns. EVRAZ’ HSE
initiatives continue to bring life-saving improvements to our facilities.
We monitor the leadership team’s activities to understand accountability
and the overall efforts to change the safety culture. Identifying and
evaluating environmental risk continues to guide measurable
improvements related to air emissions, water consumption and
discharge, as well as reducing and recycling solid waste streams.
I believe the EVRAZ team demonstrates a willingness for continuous
improvement, and as a committee, we believe the progress over the last
few years will provide long-term value-creation for our stakeholders.
raised and, where appropriate, making
recommendations to the Board concerning
the same;
▪ Making whatever recommendations it
deems appropriate to the Board on any area
within its remit where action or improvement
is needed.
The committee met on two occasions during
2016, on 3 February 2016 and on 10 August
2016 at EVRAZ’ headquarters in Moscow,
Russia.
As per the 2016 plan, the committee chairman
together with the HSE vice president has
visited Evraz North America production sites
to review HSE practices, as well as a European
safety workshop conducted in Helsinki.
In addition to scheduled meetings, Committee
members receive a monthly HSE summary
report and a quarterly HSE report is provided to
the Board.
The committee has considered and approved
the matrix with roles and responsibilities of the
corporate HSE team, reviewed HSE initiatives
implemented during 2011-2016, and generally
supported the initiatives carried out by the
Group in recent years.
The committee has reviewed the HSE reporting
procedure and noted the effort taken by
EVRAZ to improve the quality and transparency
of health and safety reporting. It has
recommended to improve the report by shaping
it to be more target oriented, both for each
division and for EVRAZ globally. The committee
has also supported the decision to extend the
reporting focus on micro injuries (first aid cases
and medical treatment cases taken together).
The following sections summarise how the
committee has fulfilled its duties in 2016.
HSE Performance
Assessment of the Group
Health & Safety Performance
Health & Safety performance is measured by
the following metrics:
▪ Fatal incidents
▪ Lost Time Injuries (LTI)
▪ Lost Time Injury Frequency Rate (LTIFR),
which is calculated as the number of injuries
resulting in lost time per 1 million hours
worked
▪ Cardinal safety rules enforcement
▪ Progress of H&S initiatives
Since August 2016, the committee has started
the practice of inviting divisional (operational)
vice presidents to discuss the current
challenges, as well as division-specific HSE
initiatives.
The HSE Committee has continued to review
the causes of all fatalities and serious
property damage incidents within the Group,
as well as the follow up actions taken by
the management. On the HSE Committee’s
Karl Gruber
Independent Non-Executive Director
Chairman of Health, Safety and Environment
Committee
Committee members
The members of the Health, Safety and
Environment Committee at 31 December 2016
were Karl Gruber (chairman), Alexander Frolov
and Olga Pokrovskaya.
Role of the Health,
Safety and Environment
Committee
The Health, Safety and Environment Committee
leads the Board’s thinking on health and safety
issues, as well as maintaining responsibility for
environmental and local community matters.
Responsibilities of the Health, Safety and
Environment Committee are:
▪ Assessing the Group’s performance with
regard to the impact of health, safety,
environmental and community relations
decisions and actions upon employees,
communities and other third parties, and on
the Group’s reputation;
▪ On behalf of the Board, receiving reports
from management concerning all fatalities
and serious incidents within the Group and
actions taken by management as a result of
such fatalities or serious incidents;
▪ Reviewing the results of any independent
audits of the Group’s performance in
regard to environmental, health, safety and
community relations matters, reviewing
any strategies and action plans developed
by management in response to issues
118
suggestion, each fatality case was animated
using video format to provide 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.
The committee members have reviewed the
status of 2016 H&S initiatives, and decided
that priority HSE initiatives are generally on
track. It was noted separately that extra focus
should be added to improving the quality of
safety conversations.
The committee has reviewed the alcohol testing
process at various Group facilities and has
suggested steps for further improvement of the
procedure.
Additionally, the committee has reviewed the
Coal Division’s HSE initiatives, presented by
Sergey Stepanov, the division vice president.
The committee has noted that key initiatives
have been developed to mitigate the major
industrial safety risks related to coal mining:
▪
Improvement of ventilation and gas
monitoring system
▪ Five-year gas drainage program development
▪ Prevention of spontaneous combustions
▪ Prevention of caving
▪ 20% face delays reduction because of rock
▪ Non-mining waste and by-product
generation, recycling and re-use
▪ Fresh water intake and water management
aspects
The Committee has focused on the
management of air, water and waste issues,
as well as related projects designed to
minimise environmental risks (such as
air emissions reduction, water usage and
discharged water return into production,
metallurgical waste recycling), and has
concluded that in most areas the initiatives
that have been started need to be
implemented further.
The committee has reviewed the risks and
opportunities related to introduction of new
Russian regulations. It was noted that the risk
related with additional financial commitments
due to environmental regulatory changes have
been reviewed in the framework of the Russian
Steel HSE Committee and consolidated
positions have been provided to the regulator.
In addition, the extent of the Group’s
environmental compliance has been evaluated
by analysing a set of compliance metrics:
▪ Non-compliance related environmental levies
(taxes) and penalties
▪ EVRAZ environmental commitments
tension
and liabilities
The committee has reviewed the plan and
procedures for industrial safety audits of
processes and structural units at EVRAZ
facilities. Its suggestions include improving
the existing plan for audits at steel and ore
mining facilities: the audits shall be organised
as cross-audits by representatives of similar
operations from other EVRAZ facilities, as
decided by the HQ Industrial Safety Team; the
audit intensity should correlate with the risks
highest on the risk matrix.
Environmental Performance
In 2016, the committee reviewed EVRAZ’
environmental performance twice, including its
progress in achieving the environmental targets
set in 2012:
▪ Air emissions (nitrogen oxides – NOx,
sulphur oxides – SOx, dust and volatile
organic compounds)
▪ Major cases of environmental litigations
and claims
▪ Coverage of assets by environmental
permits/licenses
▪ Cases of public complaints
▪ Potential environmental incidents and
prevention actions
In order to improve environmental compliance
management, the committee has discussed a
new approach in assessing the probability of
environmental risks, and has agreed to update
the Risk Assessment Methodology by adding a
Time Factor coefficient that takes into account
time limits for possible risk realisation. This is
intended to help management review and set
priorities for environmental CAPEX expectations.
The committee has reviewed the corporate
environmental initiatives and site risk mitigation
projects introduced during 2011-2016.
It was noted that the corporate environmental
management system has been developed
to prevent and mitigate environmental risks,
as well as coordinate environmental liabilities,
to ensure regulatory compliance and improve
environmental performance. It was noted
that the risk level has decreased due to the
implementation of mitigation measures.
The committee members have reviewed the
five-year environmental forecast representing
environmental performance: key air emissions,
freshwater consumption and non-mining
waste recycling. The model that was presented
was developed taking into consideration the
future effects of environmental projects and
investment projects with environmental effects
(baseline scenario). Long-term enterprise
development scenarios and asset disposal
plans affecting the reduction of emissions and
freshwater intake were also taken into account
(alternative scenarios).
For more details on HSE performance,
see the Corporate Social Responsibility
section on pages 75-83.
HSE audit results review
EVRAZ operations are subject to HSE
compliance inspections undertaken
by governmental supervisory agencies.
The consequential risks of violating HSE
regulations might be regulatory fines,
penalties or – in the worst-case scenario –
withdrawal of mining or plant environmental
licences, which would halt operations.
The committee members reviewed:
▪ Findings of industrial safety audits
performed by the Internal Industrial
Safety Department
▪ Findings of audits of the HSE function
performed by the Internal Audit
Department
▪ Status of external environmental
inspection carried out by environmental
authorities and implementation
of corrective actions
119
Annual Report & Accounts 2016www.evraz.comСorporate governance Remuneration report
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.
Directors’
Remuneration Policy
Key decisions
taken during the year
▪ The Committee reviewed the CEO’s salary
and determined that his salary for 2017
will remain frozen at the same level as
it has been since 2012. This reflects the
continuing challenging market conditions
and low level of wage increases to
employees across the Group in general.
▪ Based on performance against the pre-
determined KPIs and targets, the CEO’s
annual bonus payout for 2016 was 40.78%
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 Remuneration Policy
remains appropriate in the context of business
performance and strategy.
The current Remuneration Policy was approved
by shareholders at the AGM in June 2014. The
Regulations require that shareholders formally
approve the Remuneration Policy every three
years and so it is intended that an updated
Remuneration Policy will be put before
shareholders for approval by way of a binding
vote at the Company’s AGM on 20 June 2017.
If approved by shareholders, the updated
Remuneration Policy will have effect
immediately thereafter. Prior to that date, the
Company’s existing Remuneration Policy will
continue to apply.
The Company reviewed the Remuneration
Policy during the year and believes that it
remains appropriate. As such, the 2017
Remuneration Policy will remain broadly
unchanged from the Remuneration Policy
approved by shareholders at the 2014 AGM.
Annual remuneration
report
The second part of the report, the Annual
remuneration report, sets out details
of remuneration paid in 2016 and how the Group
intends to apply its Remuneration Policy in
2017. This section will be put to an advisory
shareholder vote at the forthcoming AGM.
Alexander Izosimov
Independent Non-Executive Director
Chairman of the 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) (the “Regulations”).
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 (April 2016).
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.
120
Policy report
Details of the Remuneration Policy relating to
executive and non-executive directors are set
out in the following section. In accordance with
section 439A of the Companies Act 2006, a
binding shareholder resolution to approve this
report will be proposed at the Annual General
Meeting of the Company to be held in 2017. If
approved by shareholders, the Remuneration
Policy will have effect immediately thereafter.
Prior to that date, the Company’s existing
Remuneration Policy will continue to apply.
Remuneration Policy
Element
Purpose and
link to strategy
Operation
Executive director
The main objectives of the Remuneration
Policy are to attract, retain and reward
talented staff and management, by offering
compensation that is competitive within the
industry, motivates management to achieve the
Company’s business objectives, encourages
a high level of performance, and aligns
the interests of management with those of
shareholders.
Maximum potential value
Performance metrics
Base salary
Provides a
level of base
pay to reflect
individual
experience and
role to attract
and retain high
calibre talent.
Generally, the maximum
increase per year will be in
line with the overall level of
increases within the Group.
None
However, there is no overall
maximum opportunity as
increases may be made above
this level at the Committee’s
discretion, to take account of
individual circumstances such
as increases in scope and
responsibility and to reflect the
individual’s development and
performance in the role.
Normally reviewed annually, taking
into account individual and market
conditions, including: size and
nature of the role, relevant market
pay levels, individual experience
and pay increases for employees
across the Group.
For the current CEO, base salary
incorporates a director’s fee (paid
to all directors of the Company
for participation in the work of
the Board committees and Board
meetings – see the section on Non-
executive Director Remuneration
Policy below). Where a salary is
paid in a currency other than US
dollars, the Committee may make
additional payments to ensure that
the total annual salary equals the
level of annual salary in US dollars.
Benefits
To provide a
market level
of benefits, as
appropriate
for individual
circumstances
to recruit and
retain executive
talent.
Benefits currently include private
healthcare.
Other benefits (including pension
benefits) may be provided if the
Committee considers it appropriate.
The current CEO does not
participate in any pension scheme
during the reporting period.
In the event that an executive
director is required by the Group to
relocate, or following recruitment,
benefits may include but are not
limited to a relocation, housing,
travel and education allowance.
None
The cost of benefits will
generally be in line with that for
the senior management team.
However, the cost of insurance
benefits may vary from year
to year depending on the
individual’s circumstances.
The overall benefit value will
be set at a level the Committee
considers proportionate and
appropriate to reflect individual
circumstances, in line with
market practices.
There is no total maximum
opportunity.
121
Annual Report & Accounts 2016www.evraz.comСorporate governance Element
Annual
bonus
Purpose and
link to strategy
Aligns executive
remuneration
to Company
strategy
through
rewarding the
achievement of
annual financial
and strategic
business
targets.
Non-executive directors
Chairman
and non-
executive
director
remuneration
To provide
remuneration
that is sufficient
to attract and
retain high
calibre non-
executive talent
Operation
Maximum potential value
Performance metrics
200% of base salary in respect
of any financial year of the
Company
The Company operates an annual
bonus arrangement under which
awards are generally delivered
in cash.
Targets are reviewed annually and
linked to corporate performance
based on predetermined targets.
The bonus is based on achievement of
the Company’s key quantitative financial,
operational and strategic measures
in the year to ensure focus is spread
across the key aspects of Company
performance and strategy.
The exact measures and associated
weighting will be determined on
an annual basis, according to the
Company’s strategic priorities, however
at least 60% will be based on Group
financial measures.
For achievement of threshold
performance, 0% of maximum will
be paid, rising straight line to 50% of
maximum for target performance and
100% of maximum for outstanding
performance.
The Committee retains discretion to
adjust bonus payments to reflect the
overall performance of the Company.
Director fees are normally paid in the form of cash fees, but with the flexibility to forgo all or part of such fees
(after deduction of applicable income tax and social taxes) to acquire shares in the Company should the non-
executive director so wish. Non-executive director fees are reviewed from time to time.
Non-executive directors receive an annual fee for Board membership.
Additional fees are payable by reference to other Board responsibilities taken on by the non-executive directors
(for example, membership and chairmanship of the Board committees).
The chairman of the Board receives an all-inclusive annual fee.
Costs incurred in the performance of non-executive directors’ duties for the Company may be reimbursed or paid
for directly by the Company, including any tax due on the costs. This may include travel expenses, professional
fees incurred in the furtherance of duties as a director, and the provision of training and development.
In addition, the Company contributes an annual amount towards secretarial and administrative expenses of non-
executive directors.
Non-executive directors may not participate in the Company’s share incentive schemes or pension arrangements.
Total fees paid to non-executive directors will remain within the limit stated in the Articles of Association.
The Committee reserves the right to make any
remuneration payments and payments for loss
of office that are not in line with the policy set
out above where the terms of the payment
were agreed before the policy came into effect
or at a time when the relevant individual was
not a director of the Company and, in the
opinion of the Committee, the payment was
not in consideration of the individual becoming
a director of the Company.
The CEO’s incentive arrangements are subject
to “malus”, under which the Committee may
adjust bonus payments downwards to reflect
the overall performance of the Company.
The Committee does not operate clawback
arrangements on directors’ remuneration on
the basis that such arrangements would not be
enforceable under the Russian Labour Code.
The Committee will keep this under review and
should the Russian Labour Code change, they
will revisit the inclusion of such provisions in
the Group’s variable remuneration plans in
order to comply with Provision D.1.1 of the 2016
Corporate Governance Code. This is noted in
the Corporate Governance report on page 104.
The Committee may make minor amendments
to the Remuneration 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.
122
Performance measures
and targets
Policy on recruitment
of executive directors
Annual bonus measures and targets are
selected to provide an appropriate balance
between incentivising the director to meet
financial objectives for the year and achieving
key operational objectives. They are reviewed
annually by the Committee to ensure that the
measures and weightings are in line with the
strategic priorities and needs of the business.
In the event of hiring a new executive director,
remuneration would be determined in line
with the following Remuneration Policy. This
Remuneration Policy has been developed
to enable the Company to recruit the best
candidate possible who will be able to
contribute to the Company’s performance and
will help to reach its goals.
▪ So far as practicable and appropriate, the
Committee will seek to structure pay and
benefits of any new executive directors in
line with the current Remuneration Policy.
▪ Notwithstanding this, the Committee
recognises that the executive director
Remuneration Policy set out above is tailored
towards the only current executive director,
the CEO, who has a significant shareholding
in the Company. Any new executive director
is likely to have a different fact-pattern to
the current CEO, and thus the Committee
believes it is important to retain the flexibility
to be able to offer other elements, namely
market competitive, share-based incentive
programs, which are linked to the Company’s
performance and designed to align the
executive director’s interests to the delivery
of growth in shareholder value.
▪ The maximum level of variable remuneration
which may be granted in respect of recruitment
(excluding any buyouts) will not exceed the
ongoing 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.
▪ 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.
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
practices, 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 (calculated by
reference to KPIs aligned with the Group’s
strategy) and benefits, senior managers are
also entitled to participate in a long-term
incentive programme. This is designed to
align the 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.
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.
Minimum
100%
2,521
In line with expectations
50%
50%
Maximum
33%
5,021
67%
Base pay
Annual bonus
▪ 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).
▪ To facilitate recruitment, the Committee may
need to compensate an executive director
for the loss of remuneration arrangements
forfeited on joining the Company. In granting
any buyout award, the Committee will take
into account relevant factors including any
performance conditions attached to the
awards forfeited, the form in which they
were granted (eg 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.
▪ 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 remuneration will
typically be in line with the Remuneration Policy
as set out above. Any specific cash or share
arrangements delivered to the chairman or
non-executive directors will not include share
options or any other performance-related
elements.
Minimum
In line with
expectations
Maximum
Base pay
Base salary + value of annual benefits provided in 2016
7,521
Annual bonus
0% of salary
100% of salary
(target opportunity)
200% of salary
(maximum opportunity)
123
Annual Report & Accounts 2016www.evraz.comСorporate governance
Consideration of conditions
elsewhere in the Company
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 the Remuneration Policy,
the Committee takes into account investor body
guidelines and shareholder views.
Executive director’s
service contract
and loss of office policy
The CEO has a service contract with
a subsidiary of EVRAZ plc.
The terms of the CEO’s service contract
Executive
director
Date
of contract
Alexander V.
Frolov
31 December
2016
Notice
period
N/A
The CEO’s service contract does not provide
for any specific notice period and therefore, in
the event of termination, the applicable notice
period will be as provided for in the Russian
Labour Code from time to time (where the
termination is at the Company’s initiative, the
entitlement to pay in lieu of notice is currently
limited to 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 normally
provide for a notice period of no more than 12
months and for any compensation provisions for
termination without notice to be capped at 12
months’ base salary and contractual benefits.
There is no automatic entitlement to annual
bonus and executive directors would not
normally receive a bonus in respect of the
financial year of their cessation. However,
where an executive director leaves by reason
of death, disability, ill-health, or other reasons
that the Committee may determine, a bonus
may be awarded. Any such bonus would
normally be subject to performance and time
pro-rating, unless the Committee determines
otherwise.
Non-executive directors
letters of appointment
Each non-executive director has a letter
of appointment setting out the terms and
conditions covering their 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 20 June 2017.
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.
The key terms of the non-executive directors’ appointment letters
Non-executive directors
Alexander G. Abramov
Karl Gruber
Alexander Izosimov
Sir Michael Peat
Deborah Gudgeon
Eugene Shvidler
Eugene Tenenbaum
124
Date of contract
14 October 2011
14 October 2011
28 February 2012
14 October 2011
31 March 2015
14 October 2011
14 October 2011
Notice period
Three months
Three months
Three months
Three months
Three months
Three months
Three months
Annual remuneration report
This section summarises remuneration paid
out to directors for the 2016 financial year,
and details of how the Remuneration Policy will
be implemented in the 2017 financial year.
Pension and benefits (audited)
The CEO does not currently receive any
pension benefit. Benefits consist principally
of private healthcare.
Executive director’s
remuneration
Annual bonus
In 2016, 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 (10.68% of issued share capital
as of 1 March 2017) 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.
Single total figure
of remuneration (audited)
The CEO is eligible for a performance-related
bonus that is paid in cash following the year
end, subject to the agreement of the Committee
and approval by the Board of Directors. 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 2016 (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 2016, 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$50 million), Cash
Cost Index and Board assessment of overall
performance against strategic objectives.
The Committee reviews the resulting bonus
payout to ensure that it is appropriate in light
of the Group’s overall performance.
Despite a highly volatile business environment
in 2016, EVRAZ generally outperformed
its financial targets, resulting in an annual
bonus payout of 40.78% of the maximum.
Management focused on best utilisation
of temporary market improvements: domestic
steel price growth in Q2 and export coal and
iron ore price rises in Q4. These efforts, along
with tight control over operational efficiency
and investments, have helped to overcome
the market fall in Q1 and mitigate logistics
issues in Russia. Free cash flow was negatively
affected by transaction costs associated with
earlier debt repayment. However, the working
capital optimisation drive fully compensated
for this.
The Committee determined that this level of
vesting is reflective of the Company’s overall
financial performance and commensurate
with the shareholder experience.
Key elements of the CEO’s remuneration
package received in relation to 2016
(compared with the prior year)
Alexander
V. Frolov
Salary and
director fees
1
2016 (US$)
2015 (US$)
2,500,000
2,500,000
Benefits
21,184
19,935
Details of the targets set for each KPI, the actual achievement in the year
and total payout level for the 2016 bonus
KPIs
Result Measurement
Threshold
Planned level
(% of target)
Outstanding
Actual 2016
Bonus
payout
(% of max)
2,038,870
666,650
LTIFR
2.09
1.74
1.39
2.36
4,560,054
3,186,585
EBITDA
US$1,160m US$1,450m US$1,740m US$1,542m
Bonus
Total
Base salary
The current CEO salary was approved by the
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 an EVRAZ plc
subsidiary).
For 2016, the CEO's salary will remain
unchanged at US$2,500,000.
Total
FCF
US$500m
US$625m
US$750m
US$659m
Cash cost index
110%
100%
90%
105%
BoD discretion
Committee assessment of overall
Company performance during the year,
including consideration of operational
performance, financial performance,
shareholder value creation, outcome
of key projects and stakeholder
relationship management.
See section
Board
assessment
of overall
performance
on page 126
0.0
65.9
63.6
24.4
50.0
40.78
1 At the start of 2015, the 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.
125
Annual Report & Accounts 2016www.evraz.comСorporate governance Board assessment of overall
performance
Annual bonus for 2017
EVRAZ’ Remuneration policy stipulates that the
discretionary portion of the bonus should reflect
the CEO’s performance in relation to the Group’s
key strategic priorities, as well as his efforts
to ensure its long-term success. The key reasons
to award the discretionary portion of the bonus
in full are:
▪ The business stabilised in 2016
▪ Progress was made on all key strategic
priorities amid very volatile times for the
Group
– Net debt was reduced by 10% year-on-year
– In terms of portfolio development, EVRAZ
continued to grow and retained its
leadership positions in the targeted value-
added segments (rails, long steel, and
premium coking coal)
– Costs were reduced by more than
US$300 million, allowing the Group to retain
one of the world’s lowest cost positions
▪ The CEO placed a strong focus on developing
senior management talent, which allowed
them to implement appropriate and timely
changes to strengthen the performance
of EVRAZ’ executive team
For 2017, the bonus framework will be in line
with 2016. 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.
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$750,000 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 2017.
Non-executive directors’
remuneration
Aggregate directors’
remuneration
Non-executive directors’ remuneration payable
in respect of 2016 and 2015 is set out in a
table below.
The aggregate amount of directors’ remuneration
payable in respect of qualifying services for the
year ended 31 December 2016 was US$6,977
thousand (2015: US$5,968 thousand).
A non-executive director’s remuneration
consists of an annual fee of US$150,000
and a fee for Committee membership
(US$24,000) or chairmanship (US$100,000
for chairmanship of the Audit Committee
and US$50,000 for other committees).
For reference, the fees payable for the
chairmanship of a Committee include the
membership fee, and any director elected
Share ownership by the
Board of Directors (audited)
As set out earlier in this report, there are no
formal minimum shareholding requirements
currently in place, reflecting the CEO’s current
shareholding in EVRAZ.
Single total figure of remuneration (audited)
Non-executive director
Alexander G. Abramov
Alexander Izosimov
Eugene Shvidler
Eugene Tenenbaum
Karl Gruber
Duncan Baxter
3
Olga Pokrovskaya
3
Sir Michael Peat
Deborah Gudgeon
Terry Robinson
4
2016 (US$ thousand)
2015 (US$ thousand)
Total
fees
1
750
242.6
174
150
248
84
74.25
219
269
2
Admin
30
30
30
30
30
6.25
6.25
30
30
Total
780
Total
fees
1
750
272.6
212.2
204
180
278
90.25
80.5
249
299
174
150
238
224
198
216.2
154
190
2
Admin
30
30
30
30
30
30
30
30
20
15
Total
780
242.2
204
180
268
254
228
246.2
174
205
1 Total fees include annual fees and fees for Committee membership or chairmanship (pro rata working days).
2 The Group contributes an annual amount of US$30,000 towards secretarial and administrative expenses of non-executive directors. In addition to the amounts disclosed above, the Group reimburses
directors’ travel and accommodation expenses incurred in the discharge of their duties.
3 Resigned on 14 March 2016
4 Resigned on 18 June 2015
126
The directors’ interests in EVRAZ’ shares
as of 31 December 2016 were as follows:
Policy on external
appointments
Number
of shares
303,541,958
Total holding,
Ordinary
shares, %
21.38%
151,573,018
10.68%
43,805,030
3.09%
80,000
0.01%
Directors
Alexander
Abramov
Alexander
Frolov
Eugene
Shvidler
Alexander
Izosimov
The Committee believes that the Company
can benefit from executive directors holding
approved non-executive directorships in other
companies, offering executive directors the
opportunity to broaden their experience and
knowledge. Company policy is to allow executive
directors to retain fees paid from any such
appointment. The CEO does not currently hold a
non-executive directorship of another company.
There have been no changes in the directors’
interests from 31 December 2016 through
28 February 2017.
Relative importance
of spend on pay
The graph below shows comparison of total
cost of remuneration paid to all employees
between current and previous years and
financial metrics in US$ millions. EBITDA was
chosen for the comparison as it is a KPI which
best shows the Group’s financial performance.
For more information on EBITDA
definition please see page 260.
The shares held by Alexander Izosimov were
acquired in 2012 when he was appointed as an
independent non-executive director.
All shares held by directors are held outright,
with no performance or other conditions
attached to them, other than those applicable
to all shares of the same class.
Other directors do not currently hold any shares
in the Company.
Total shareholder return performance,
US$ million
450
120
90
60
30
0
07.11.11
30.12.11
31.12.12
31.12.13
31.12.14
31.12.15
31.12.16
EVRAZ
FTSE 350 Mining Index
CEO’s total remuneration paid in 2011-2016
Performance graph
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.
The table below shows as a single figure the
CEO's total remuneration over the past six
years, along with a comparison of variable
payments as a percentage of the maximum
bonus available.
Relative performance of spend on pay,
US$ million
1,542
1,438
1,454
1,200
336
0
0
0
EBITDA
Share
buyback
Dividends
Total
employee pay
2015
2016
CEO single figure of total remuneration, US$
Annual bonus payout (as a % of maximum opportunity)
2016
2015
2014
2013
2012
2011
4,560,054
3,186,585
5,808,752
4,894,286
2,141,000
1,667,000
40.78%
13.33%
77%
50%
0%
11.3%
127
Annual Report & Accounts 2016www.evraz.comСorporate governance Percentage change in the elements of remuneration for the director undertaking
the role of CEO compared with average figures for Russia-based administrative
personnel
CEO
0%
6%
203%
Russian
administrative
personnel
5%
13%
30%
▪
▪
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;
to oversee any major changes in employee
benefits structures throughout the Group.
During 2016, the 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 2015 results;
and to approve the 2016 long-term incentive
plan (LTIP) awards for key senior management.
Salary
Benefits
Annual bonus
Role of the Committee
The 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.
▪
The main responsibilities of the Committee are:
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;
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;
to review and take into account
remuneration trends across the Group when
setting the Remuneration Policy;
to review regularly the appropriateness and
relevance of the Remuneration Policy;
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;
to approve awards for participants where
existing share incentive plans are in place;
▪
▪
▪
▪
Percentage change in remuneration
The table on the right 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.
Composition
of the Remuneration
Committee
This section gives details of the composition
of the Committee and activities undertaken
over the past year.
Members of the Committee
The composition of the Committee changed
during the year. The current members of the
Remuneration Committee are set out below:
▪ Alexander Izosimov (became Committee
Chairman on 14 March 2016)
▪ Deborah Gudgeon (joined the Committee
on 14 March 2016)
▪ Sir Michael Peat (joined the Committee
on 14 March 2016)
Karl Gruber stepped down from the
Committee and joined the Audit Committee
on 14 March 2016.
Duncan Baxter who was Committee Chairman
till 14 March 2016 stepped down from the
Board of Directors on 14 March 2016.
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.
128
Advisers
The Committee received advice during the year
from Deloitte LLP, which it selected to provide
independent remuneration consultancy services
to the Group. Deloitte is a 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. The code of conduct can be found at
www.remunerationconsultantsgroup.com.
During the year, Deloitte advised the
Committee on developments in the regulatory
environment and market practice and on the
development and disclosure of the Group’s
pay arrangements. The total fee for advice
provided to the Committee during the year was
GBP29,900. Other parts of Deloitte provided
unrelated tax and regulatory advisory services
during the year.
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 of the Board and the 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 table on the left sets out actual voting
results from the Annual General Meeting,
which was held, in respect of the previous
remuneration report and Remuneration Policy.
Actual voting results from the Annual General Meeting
Number of votes
To approve the Annual remuneration report section of the directors'
remuneration report for the year ended 31 December 2015
That the Directors' Remuneration Policy contained in the directors’
remuneration report for the year ended 31 December 2013 be
approved
1 Percentage of votes cast.
For
Against
Withheld
Total votes as % of
issued share capital
1,062,930,124
(99.00%)
1
10,684,012
(1.00%)
20,000
75.63%
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,
Alexander Izosimov
Chairman of the Remuneration Committee
28 February 2017
129
Annual Report & Accounts 2016www.evraz.comСorporate governance 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
2016, which they are required to produce by
applicable UK company law. The Directors’
Report comprises the Directors’ Report section
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 under
registered number 7784342. EVRAZ plc listed
on the London Stock Exchange in November
2011 and is a member of the FTSE 250 Index.
Dividends
Share capital
The Company’s current dividend policy was adopted on 8 April 2014. It 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 2016. No dividend is recommended for the year ended 31 December 2016.
Details of the Company’s share capital are set out in Note 20 to the Consolidated Financial Statements, including
details on the movements in the Company’s issued share capital during the year.
As of 31 December 2016, the Company’s issued share capital has consisted of 1,506,527,294 ordinary shares,
of which 87,015,166 ordinary shares are held in treasury. Therefore, the total number of voting rights in the Company
is 1,419,512,128.
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.
Authority to purchase
own shares and
transfer of treasury
shares to Company’s
Employee Share Trust
Details of the Company’s authority to purchase its own shares, which will be sought at the Company’s forthcoming Annual
General Meeting, will be set out in the notice of meeting for that AGM.
On 20 May 2016, the Company transferred 11,368,416 ordinary shares out of treasury to the Company’s Employee
Share Trust, which represented 0.76% of the Company’s issued share capital. Details are set out in Note 20 to the
Consolidated Financial Statements.
Directors
Directors’
appointment
and re-election
Biographies of the directors who served on the Board during the year are provided in the Governance section on pages 100-101.
In addition, Duncan Baxter and Olga Pokrovskaya served as directors until 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 Company’s Articles of Association. 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.
For additional information about directors’ appointment and resignation, see the Corporate Governance Report on page 105.
All of the continuing directors will stand for re-election at the 2017 AGM to be held on 20 June 2017.
Directors’ interests
Information on share ownership by directors can be found in this Report and in the Remuneration Report on page 127.
Directors’
indemnities and
director and officer
liability insurance
Powers of directors
Major interests in
shares
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 director 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’s 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 the AGM.
Notifiable major share interests of which the Company has been made aware are set out in this Directors’ Report.
130
Research and
development
Sustainable
development
Payments to
governments
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 the Company’s
efforts in R&D in different operations, please refer to the Business Review on pages 38-71.
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 CSR Report on pages 74-94.
EVRAZ published its report on payments to governments in June 2016. The report provides citizens, authorities and
independent users with information on payments made to governments where the Company conducts its extractive
activities. The report is prepared in accordance with the requirements of the Disclosure and Transparency Rules
Instrument 2014 “Report on payments to governments”, issued by the UK Financial Conduct Authority. The report
is available on the Company’s website at www.evraz.com.
Political donations
No political contributions were made in 2016.
Greenhouse gas
emissions
In 2016, in accordance with the requirements of the Companies Act 2006 (Strategic and Directors’ Report)
Regulations 2013, EVRAZ undertook to assess full emissions of greenhouse gases (GHGs) from facilities under its
control. Details can be found in the CSR Report on pages 80-81.
Employees
Information regarding the Company’s employees can be found in the Our People section on pages 86-89.
Overseas branches
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.
Financial risk
management and
financial instruments
Information regarding the financial risk management and internal control processes and policies, as well as 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, Risk Management and Internal Control section
on pages 107-109, and the Financial Review on pages 24-29.
Going concern
Auditor
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 24-29.
The Directors have considered the Group’s debt maturity and cash flow projections and an analysis of projected debt covenants
compliance for the period to the end of June 2018. The Board is satisfied that the Group’s forecasts and projections, taking
into account reasonably possible changes in trading performance, show that the Group will continue in operation for the
foreseeable future and has neither the intention nor the need to liquidate or materially curtail the scale of its operations.
For this reason the Group continues to adopt the going concern basis in preparing its financial statements.
More details are provided in Note 2 to the consolidated financial statements on page 155.
The Audit Committee conducted a tender for the external audit of the Group in July 2016. In November, the Board
approved the Committee’s recommendation to re-appoint Ernst & Young LLP as the Company’s auditor. Details of the
tender process are set out in the Audit Committee Report on page 115.
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 on pages 8-37.
Events since the
reporting date
Annual general
meeting (AGM)
Electronic
communications
The major events after 31 December 2016 are disclosed in Note 33 to the Consolidated Financial Statements on page 237.
The 2017 AGM will be held on 20 June 2017 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 the 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 2016 Annual Report, the Notice of the AGM and other corporate publications, reports and
announcements are available on the Company’s website at the following links:
http://www.evraz.com/investors/information/general_meeting/
http://www.evraz.com/investors/annual_reports/
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.
Corporate governance
statement
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 the EVRAZ Corporate Governance Report (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.
131
Annual Report & Accounts 2016www.evraz.comСorporate governance Major shareholdings
The Company’s issued share capital as of 31 December 2016 and 28 February 2017 was
1,506,527,294 ordinary shares, of which 87,015,166 ordinary shares are held in treasury.
Thus, the total voting rights are 1,419,512,128 ordinary shares.
As of 31 December 2016 and 28 February 2017, the following significant holdings of voting rights in the Company’s share capital 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
33,960,653
83,751,827
82,887,014
63.79
2.39
5.90
5.84
1 Lanebrook Ltd. (the major shareholder) is a limited liability company incorporated under the laws of Cyprus on 16 March 2006. Its beneficiaries are Roman Abramovich, Alexander Abramov, Alexander Frolov,
and Eugene Shvidler.
2 Includes shares held by Gennady Kozovoy, Kadre’s shareholder, both indirectly through Kadre and directly
3 Verocchio Ltd. is owned by Alexander Vagin.
The Company is aware of the following individuals who each have a beneficial interest in three percent or more of EVRAZ plc’s issued share
capital (in each case, except for Gennady Kozovoy, held indirectly) as of 31 December 2016 and 28 February 2017:
Number of ordinary shares
% of issued share capital
Roman Abramovich
Alexander Abramov
Alexander Frolov
Gennady Kozovoy
Alexander Vagin
Eugene Shvidler
440,528,063
303,541,958
151,573,018
83,751,827
82,887,014
43,805,030
31.03
21.38
10.68
5.90
5.84
3.09
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
Location
Note 9 to the Consolidated Financial Statements
Note 21 to the Consolidated Financial Statements,
Remuneration Report
Not applicable
None
None
None
None
None
None
Contracts of significance with a controlling shareholder
Relationship Agreement section on pages 133-134
Provision of services by a controlling shareholder
Shareholder waiver of dividends
Shareholder waiver of future dividends
Agreements with controlling shareholder
None
None
None
Relationship Agreement section below
132
Significant contractual arrangements
Relationship agreement
The Controlling Shareholder and the Company
have entered into a Relationship Agreement
that regulates the on-going relationship between
them, ensures that the Company is in compliance
with the provisions of the Listing Rules and
capable of carrying on its business independently
of the Controlling Shareholder, and ensures that
any transactions and relationships between the
Company and the Controlling 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 Controlling
Shareholder ceases to own or control (directly or
indirectly) in aggregate at least 30% of the issued
Ordinary Shares in the Company (or at least 30%
of the aggregate voting rights in the Company), or
if the Controlling 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
Controlling Shareholder and the Company
agree that:
▪
the Controlling Shareholder has the right
to appoint the maximum number of Non-
Executive Directors that may be appointed
whilst ensuring that the composition of
the Board remains compliant with the UK
Corporate Governance Code for so long as
it holds an interest of 30% or more of the
Company (or holds 30 % or more of the
aggregate voting rights in the Company)
with each appointee being a ‘‘Shareholder
Director’’;
▪
the Controlling 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 Listing Rules
and the Disclosure and Transparency Rules;
▪ neither the Controlling Shareholder nor any
of its Associates will propose or procure
the proposal of any shareholder resolution
that is intended or appears to be intended
to circumvent the proper application of the
Listing Rules;
▪
transactions, relationships and agreements
between the Company and/or its
subsidiaries (on the one hand) and the
Controlling Shareholder or a member of
the Controlling Shareholder Group (on the
other) shall be entered into and conducted
on arm’s length terms and on a 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’’);
▪
▪
▪
▪
the Controlling Shareholder shall, insofar
as it is legally able to do so, exercise its
powers, and shall procure that each member
of the Controlling Shareholder Group does
the same, so that the Company is managed
in accordance with the principles of good
governance set out in the UK Corporate
Governance Code, save as agreed in writing
by a majority of the Independent Committee;
the Controlling Shareholder will, and will
procure (as far as is reasonably possible)
that each member of the Controlling
Shareholder Group will, treat as confidential
all information (subject to certain exceptions)
acquired relating to the Company and
its subsidiaries; the provision of, access
to and use of information pursuant to
the Relationship Agreement is governed
by applicable laws relating to insider
information and the disclosure rules of the
Financial Conduct Authority;
the Controlling Shareholder shall not, and
shall procure, insofar as it is legally able to
do so, that each member of the Controlling
Shareholder Group shall not, take any action
that precludes or inhibits the Company and/
or any of its subsidiaries from carrying on its
business independently of the Controlling
Shareholder or any member of the
Controlling Shareholder Group;
the quorum for any Board meeting of
the Company shall be two, of which at
least one must be a Director other than
a Controlling Shareholder Director and/
or a Director who has (or had, in the 12
months prior to the relevant date) any
business or other relationship with the
Controlling Shareholder or any member of
the Controlling Shareholder Group that could
materially interfere with the exercise of his
or her independent judgement in matters
concerning the Company (‘‘Lanebrook
Director’’);
▪
▪
▪
▪
the Controlling Shareholder shall not, and
shall procure, insofar as it is legally able to
do so, that each member of the Controlling
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;
the Controlling Shareholder shall not,
and shall procure, insofar as it is legally
able to do so, that each member of the
Controlling Shareholder Group shall not,
exercise any of its voting or other rights
and powers to procure any amendment to
the Memorandum and Articles that 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
Controlling Shareholder or any member of
the Controlling Shareholder Group;
in any matter that, in the opinion of an
independent Director, gives rise to a
potential conflict of interest between the
Company and/or any of its subsidiaries (on
the one hand) and the Lanebrook Directors,
the Controlling Shareholder or any member
of the Controlling 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;
for so long as the Controlling Shareholder
holds an interest of 50% or more in the
Company, the Controlling 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 Controlling Shareholder
and that the Board makes its decisions in
a manner consistent with its duties to the
Company and stakeholders of EVRAZ plc.
133
Annual Report & Accounts 2016www.evraz.comСorporate governance 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:
the Company has complied with
▪
the independence provisions of the
Relationship Agreement;
▪ so far as the Company is aware, the
Controlling Shareholder (or any of
its associates) has complied with
the independence provisions of the
Relationship Agreement; and
▪ so far as the Company is aware, the
Controlling Shareholder has complied
with the procurement obligations in the
Relationship Agreement.
Other agreements
The 9.50% per annum notes due 2018,
issued by Evraz Group S.A. on 24 April 2008,
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 2016, the principal amount
of these notes amounted to US$125 million.
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.
The change of control provisions contained in
several loan agreements with a total principal
amount of US$1,088 million outstanding
as of 31 December 2016 specify that if a
change of control occurs, each lender under
these agreements has a right to cancel their
commitments and request prepayment of
their portion of the respective loans.
134
Articles
of Association
The Company’s Articles of Association were
adopted with effect from June 2012 and
contain, amongst others, provisions on
the rights and obligations attaching to the
Company’s shares, including the redeemable
non-voting preference shares and the
subscriber shares. The Articles of Association
may only be amended by special resolution at
a general meeting of the shareholders.
Share rights
Without prejudice to any rights attached to
any existing shares, the Company may issue
shares with rights or restrictions as determined
by either the Company by ordinary resolution
or, if the Company passes a resolution, the
Directors. The Company may also issue shares
that 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 2017 Notice
of the 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
that he or she holds.
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 or she 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
or her 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. 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:
▪ So far as he or she is aware, there is no
relevant audit information of which the
Company’s auditors are unaware.
▪ He or she has taken all the reasonable steps
that he or she ought to have taken as a
Director to make him or 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 has been
prepared in accordance with applicable UK
company law and was approved by the Board
on 28 February 2017.
By the order of the Board
Alexander Frolov
Chief Executive Officer, EVRAZ plc
28 February 2017
Directors’ responsibility statements
Responsibility Statement
under the Disclosure and
Transparency Rules
Each of the directors whose names and
functions are listed on pages 100-101 confirm
that to the best of their knowledge:
▪
the consolidated financial statements of
EVRAZ plc, prepared in accordance with
International Financial Reporting Standards
as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial
position and profit or loss of the Company and
the undertakings included in the consolidation
taken as a whole (the ‘Group’);
the Annual Report and Accounts, including
the Strategic Report include a fair review of
the development and performance of the
business and the position of the Company and
the Group, together with a description of the
principal risks and uncertainties that they face.
▪
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 the Companies Acts the directors must
not approve the Group and parent company
financial statements unless they are satisfied
that they give a true and fair view of the state
of affairs of the Group and parent company and
of the profit or loss of the Group and parent
company for that period. In preparing each
of the Group and parent company financial
statements the directors are required to:
▪ Present fairly the financial position, financial
performance and cash flows of the Group
and parent company;
▪ Select suitable accounting policies in
accordance with IAS8:Accounting Policies,
Changes in Accounting Estimates and Errors
and then apply them consistently;
▪ Present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information;
▪ Make judgements and estimates that are
reasonable;
▪ Provide additional disclosures when
compliance with the specific requirements
in IFRSs as adopted by the European Union
is insufficient to enable users to understand
the impact of particular transactions, other
events and conditions on the Group’s and
parent company’s financial position and
financial performance; and
▪ State that the Group and parent company
financial statements have been prepared in
accordance with IFRSs as adopted by the
European Union, subject to any material
departures discloses and explained in the
financial statements.
The directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Group’s and parent
company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the Group and parent company
and enable them to ensure that the financial
statements comply with the Companies Act
2006 and, with respect to the Group financial
statements, Article 4 of the IAS Regulation.
They are also responsible for safeguarding
the assets of the Group and parent company
and hence for taking reasonable steps for the
prevention and detection of fraud and other
irregularities.
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
28 February 2017
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Annual Report & Accounts 2016www.evraz.comСorporate governance S
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Annual Report & Accounts 2016
Contents
Independent Auditors Report ....................138
Consolidated Financial Statements ..........146
Consolidated Statement of Operations ........................................ 146
Consolidated Statement of Comprehensive Income ................... 147
Consolidated Statement of Financial Position ............................. 148
Consolidated Statement of Cash Flows ........................................ 149
Consolidated Statement of Changes in Equity ............................. 150
Notes to the Consolidated Financial Statements ........................ 154
1. Corporate Information ....................................................... 154
2. Significant Accounting Policies ......................................... 154
3. Segment Information ........................................................ 173
4. Changes in Composition of the Group ............................. 180
5. Goodwill ............................................................................. 182
6. Impairment of Assets ........................................................ 183
7. Income and Expenses ....................................................... 187
8. Income Taxes ..................................................................... 189
9. Property, Plant and Equipment ........................................ 191
10.Intangible Assets Other Than Goodwill ............................ 193
11. Investments in Joint Ventures and Associates............... 195
12. Disposal Groups Held for Sale ........................................ 197
13. Other Non-Current Assets ............................................... 199
14. Inventories ....................................................................... 200
15. Trade and Other Receivables ......................................... 200
16. Related Party Disclosures ............................................... 201
17. Other Taxes Recoverable .................................................. 203
18. Other Current Financial Assets ....................................... 203
19. Cash and Cash Equivalents ............................................ 203
20. Equity ................................................................................ 204
21. Share-Based Payments ................................................... 205
22. Loans and Borrowings ..................................................... 207
23. Employee Benefits ........................................................... 211
24. Provisions ......................................................................... 220
25. Other Long-Term Liabilities .............................................. 221
26. Trade and Other Payables ............................................... 223
27. Other Taxes Payable ......................................................... 223
28. Financial Risk Management Objectives and Policies .... 223
29. Non-Cash Transactions .................................................... 231
30. Commitments and Contingencies .................................. 231
31. Auditor’s Remuneration ................................................... 233
32. Material Partly-Owned Subsidiaries .............................. 233
33. Subsequent Events .......................................................... 237
34. List of Subsidiaries and Other Significant Holdings ...... 238
Separate Financial Statements .................246
Separate Statement of Comprehensive Income .......................... 246
Separate Statement of Financial Position .................................... 247
Separate Statement of Cash Flows .............................................. 248
Separate Statement of Changes in Equity ................................... 249
Notes to the Separate Financial Statements ............................... 250
www.evraz.com
137
Independent Auditor’s report
to the Members of EVRAZ plc
Our opinion on the Financial Statements
In our opinion EVRAZ plc’s financial statements (the “Financial Statements”):
▪ give a true and fair view of the state of the Group and of the Parent Company’s affairs as at 31 December 2016 and of the Group’s and the Parent
Company’s loss for the year then ended;
▪ have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and
▪ have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Consolidated financial statements,
Article 4 of the IAS Regulation.
What we have audited
EVRAZ plc’s financial statements 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 10.
The financial reporting framework that has been applied in their preparation is applicable law
and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
Overview
Materiality
▪ Overall Group materiality of $41.0 million which represents 2.7% of adjusted EBITDA
1
.
Audit scope
▪ We performed a full scope audit of five components and audit procedures on specific balances, where we consider the risk of material
misstatement to be higher, for a further ten components.
▪ The 15 reporting components where we performed audit procedures accounted for 78% of the Group’s adjusted EBITDA and 93% of the
Group’s revenue (of which 60% and 76% respectively were covered by full scope components).
▪ For the remaining 45 reporting components of the Group with no individual component greater than 6% of EBITDA or 1% of Revenue we
have performed other procedures appropriate to respond to the risk of material misstatement.
▪ We have obtained an understanding of the entity-level controls of the Group which assisted us in identifying and assessing risks of
material misstatement due to fraud or error, as well as assisting us in determining the most appropriate audit strategy.
Areas of focus
▪ Goodwill and non-current asset impairment
▪ Going concern
▪ Completeness of related party transactions
What has changed
▪
In the prior year the accounting for a contract with Praxair was assessed as an area of audit focus. As the determination of the accounting
treatment was a once-off event and considered to be appropriate, we have concluded that this is no longer an area of audit focus in 2016.
1 Management’s EBITDA in the annual report does not include social and charitable expenditure.
These expenses have been included in adjusted EBITDA used for our calculation of materiality as they are incurred every year.
138
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 Consolidated 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 139 to 140. 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 each focus area to have increased, decreased or stayed the same compared to 2015.
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 Consolidated financial statements. Since the 2015 audit we have made the following changes to our areas of focus:
▪ The accounting treatment of a Praxair contract is no longer an area of focus for the current year as the determination of the accounting treatment
was a once-off and was considered to be appropriate in the prior year.
Area of focus
Our audit approach
Goodwill and non-current asset impairment
Refer to the Group Audit Committee report on page 110, the estimates and judgments on page 158 to 162.
and the disclosures of impairment in note 6 of the Consolidated Financial Statements
At 31 December 2016 the carrying value of goodwill was
US$880 million (2015: US$1,176 million). The Group
recognised impairment charges in respect of goodwill,
other intangible assets and items of PP&E during the
year of US$465 million (2015: US$441 million).
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 CGUs
with the largest carrying values, those for which an
impairment had been recognised in the year and those
with the lowest headroom.
This year we performed a detailed evaluation of
management’s reassessment of CGUs for EVRAZ Inc
NA and EVRAZ Inc. NA Canada. The CGUs for North
America have been restructured to reflect changes in the
business and cash flow interdependence.
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.
Our audit procedures included the evaluation 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:
▪ Decreases in steel prices;
▪
Increases in production costs; and
▪ Discount rates.
We corroborated management’s assumptions with reference to historical data and,
where applicable, external benchmarks.
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
Consolidated 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 assessed whether the revised CGUs for North America are consistent with IAS
36 and the actual business operations, and challenged the extent and nature of
underlying changes driving the reassessment.
What we reported to
the Audit Committee
Risk direction:
We consider the
management’s estimates
to be reasonable for
the current year with
assumptions within
an acceptable range.
Management has also
reflected known changes
in the circumstances of
each CGU in its forecasts
for forthcoming periods.
We concluded that the
related disclosures
provided in the
Consolidated Financial
Statements are
appropriate.
We are satisfied that
the Group’s CGUs meet
the definition of IAS 36
and are appropriately
disclosed in the Financial
Statements.
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Annual Report & Accounts 2016www.evraz.comIndependent Auditors Report Area of focus
Going concern
Our audit approach
What we reported to
the Audit Committee
Risk direction:
Refer to the Group Audit Committee report on page 110, the Directors’ report on page 130 and within significant accounting policies on page 155 of the
Consolidated Financial Statements
The Group is highly geared (net debt at 31 December
2016 US$4,802 million, 2015 US$5,349 million), has
regular debt repayments and a number of restrictive
covenants over a proportion of its debt.
Management and the Board prepare a cash flow
forecast and undertake sensitivity analysis (Base and
Pessimistic cases) 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.
During 2016 management negotiated covenant
holidays for the periods ranging from 31 December
2017 to 30 June 2018 for the loan balances that
were subject to financial maintenance covenants.
Furthermore, actual Group EBITDA for 2016 as well
as forecast Group EBITDA for are higher than the
respective figures in the previous year. We therefore
consider the level of risk in relation to Going Concern to
have decreased.
Since management’s going concern model and analysis are prepared centrally, audit
procedures on this area were performed directly by the Group audit team. Covenant
compliance testing was split between the Group and component teams as appropriate.
We discussed the detailed cash flow forecasts prepared by management in their
model. The main procedures performed on the models and areas where we
challenged management were as follows:
▪ We have tested the quality of management forecasting by comparing cash flow
forecasts for prior periods to actual outcomes;
▪ We verified the consistency of forecasts used in the going concern assessment
with those used for impairment calculations;
▪ 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;
▪ We tested the arithmetic integrity of the calculations including those related to
management’s sensitivities;
▪ We also performed our own sensitivity calculations to test the adequacy of the
available headroom and, in particular, covenant compliance; and
▪ We agreed the sources of liquidity and uses of funds to supporting documentation.
▪ We considered the appropriateness of the disclosures made in the
Consolidated Financial Statements in respect of going concern.
Based on audit
procedures performed
we agree with the
conclusion reached by
management that there
is no material uncertainty
in relation to the going
concern assumption for
the preparation of the
financial statements.
Completeness of related party transactions
Risk direction:
Refer to the Group Audit Committee report on page 110 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 Consolidated Financial Statements.
Although the error itself was not material, given regulatory
and investor interest in this area coupled with the risk
that this might not be an isolated incident, we considered
our audit risk had increased. We therefore reassessed
the risk of completeness of related party transactions as
significant and adapted our audit strategy accordingly.
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 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 unrelated companies.
Based on our procedures
performed we consider
the related party
disclosure provided in the
Consolidated Financial
Statements not to be
materially misstated.
Across the Russian components we obtained an understanding of 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.
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
Performance materiality
Reporting threshold
US$41.0 million
US$20.5million
US$2.1 million
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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 $41.0 million (2015: $37.8 million), which is set at 2.7% (2015: 2.7%) of adjusted EBITDA. We adjusted
EBITDA to include social and charitable expenditure, which is excluded from the Group’s reported EBITDA. 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$1,542 million (as included in the Consolidated Financial Statements)
Inclusion of social expenses of US$23 milllion to determine adjusted EBITDA
Take 2.7% of the adjusted EBITDA
Adjustment
Materiality
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 charitable expenditure, to be the most appropriate
performance metric on which to base our materiality calculation as we considered that to be the most relevant performance measure to the
stakeholders of the entity.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessment, together with our assessment of the Group’s overall control environment, our judgment was that 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% (2015: 50%) of materiality, namely $20.5 million (2015: $18.9 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 $4.1 million to $13.3 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 $2.1million (2015: $1.9 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.
141
Annual Report & Accounts 2016www.evraz.comIndependent Auditors Report 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 estimation 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 Consolidated 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 a full scope audit of five components (full scope components), which were selected based on their size or
risk characteristics. For the remaining ten 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 Consolidated Financial Statements either because of
the size of these accounts or their risk profile. The extent of our audit work on the specific scope accounts was similar to that for a full scope audit.
The 15 reporting components where we performed full or specific scope procedures accounted for 78% (2015: 77%) of the Group adjusted EBITDA,
93% (2015: 92%) of the Group’s revenue and 86% (2015: 86%) of the Group’s total assets. For the current year, the full scope components
contributed 60% (2015: 60%) of the Group adjusted EBITDA, 76% (2015: 74%) of the Group’s revenue and 57% (2015: 57%) of the Group’s Total
assets. The specific scope components contributed 19% (2015: 17%) of the Group adjusted EBITDA, 18% (2015: 18%) of the Group’s revenue
and 29% (2015: 29%) 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.
EBITDA 1
Revenue
Total assets
Full
Specific
Other
%
60
19
21
Full
Specific
Other
%
76
18
6
Full
Specific
Other
%
57
29
14
1 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.
142
For the remaining 45 components of the Group with no individual component greater than 3% of EBITDA or 1% of Revenue, 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 Consolidated 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 2015 in terms of overall coverage of the Group and the number of full and specific
scope entities.
Integrated team structure
The overall audit strategy is determined by the senior statutory auditor, Steven Dobson. 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. 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 including internal valuation specialists used in the audit to discuss the audit approach and issues arising from
their work.
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 relevant 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 and the USA. 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 Consolidated Financial Statements.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement set out on page 135, the directors are responsible for the preparation of the
Consolidated 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 Consolidated 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.
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Annual Report & Accounts 2016www.evraz.comIndependent Auditors Report Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
▪
▪ based on the work undertaken in the course of the audit
– the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are prepared
is consistent with the Financial Statements.
– The Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements;
▪ based on the work undertaken in the course of the audit, information given in the Corporate Governance Statement set out on pages 104 to 119 in the
annual report with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures
and in compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and Transparency rules sourcebook made by the Financial Conduct Authority:
– is consistent with the Financial Statements; and
– has been prepared in accordance with applicable legal requirement;
▪ based on the work undertaken in the course of the audit, rules 7.2.2, 7.2.3 and 7.2.7 in the Disclosure Guidance and Transparency Rules sourcebook
made by the Financial Conduct Authority (with respect to the Company’s corporate governance code and practices about its administrative,
management and supervisory bodies and their committees) have been complied with if applicable.
Matters on which we are required to report by exception
ISAs (UK and Ireland) reporting
We are required to report to you if, in our opinion, financial and non-financial information in the
annual report is:
We have
no exceptions to report.
▪ materially inconsistent with the information in the audited Consolidated financial statements; or
▪ apparently materially incorrect based on, or materially inconsistent with, our knowledge of the
Group acquired in the course of performing our audit; or
▪ 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 135 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 2006 reporting
In light of the knowledge and understanding of the Company and its environment obtained
in the course of the audit, we have identified no material misstatements in the Strategic Report,
Directors’ Report or Corporate Governance Statement set out on pages 8-37, 130-135, 104-119
of the Annual Report at http://www.evraz.com/
We have
no exceptions to report.
We are required to report to you if, in our opinion:
▪ adequate accounting records have not been kept by the parent company, or returns adequate
for our audit have not been received from branches not visited by us; or
▪
the parent company financial statements and the part of the Directors’ Remuneration Report to
be audited are not in agreement with the accounting records and returns; or
▪ certain disclosures of directors’ remuneration specified by law are not made; or
▪ we have not received all the information and explanations we require for our audit.
▪ a Corporate Governance Statement has not been prepared by the company.
Listing Rules review requirements
We are required to:
▪
the directors’ statement in relation to going concern, set out on page 131, and longer-term
viability, set out on page 36; and
▪
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
We have
no exceptions to report.
144
Statement on the Directors’ Assessment of the Principal Risks that Would
Threaten the Solvency or Liquidity of the Entity
ISAs (UK and Ireland) reporting
We are required to give a statement as to whether we have anything material to add or to draw
attention to in relation to:
▪
the directors’ confirmation in the annual report that they have carried out a robust assessment
of the principal risks facing the entity, including those that would threaten its business model,
We have nothing
material to add
or to draw attention to.
future performance, solvency or liquidity;
▪
the disclosures in the annual report that describe those risks and explain how they are being
managed or mitigated;
▪
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
▪
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.
Steven Dobson
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
28 February 2017
Notes:
▪ 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.
▪ Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.
145
Annual Report & Accounts 2016www.evraz.comIndependent Auditors Report EVRAZ plc
Consolidated Financial Statements
Year Ended 31 December 2016
EVRAZ plc Consolidated Statement of Operations
(IN MILLIONS OF US DOLLARS, EXCEPT FOR PER SHARE INFORMATION)
Continuing operations
Revenue
Sale of goods
Rendering of services
Cost of revenue
Gross profit
Selling and distribution costs
General and administrative expenses
Social and social infrastructure maintenance expenses
Loss on disposal of property, plant and equipment
Impairment of assets
Foreign exchange gains/(losses), net
Other operating income
Other operating expenses
Profit/(loss) from operations
Interest income
Interest expense
Share of profits/(losses) of joint ventures and associates
Gain/(loss) on 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
Notes
2016
*
2015
*
2014
Year ended 31 December
3
3
7
7
7
6
7
7
7
11
7
12
4
7
8
$ 7,477
236
7,713
(5,521)
2,192
(623)
(469)
(23)
(22)
(465)
(48)
22
(101)
463
10
(481)
(23)
(9)
–
–
(52)
(92)
(96)
$ (188)
$ (215)
27
$ (188)
$ 8,552
215
8,767
(6,583)
2,184
(728)
(553)
(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
(930)
(822)
(30)
(48)
(540)
(1,005)
35
(88)
(101)
17
(563)
10
(583)
136
–
–
(1,084)
(194)
$ (1,278)
$ (1,175)
(103)
$ (1,278)
Earnings/(losses) per share:
for profit/(loss) attributable to equity holders of the parent entity, basic and
diluted, US dollars
20
$ (0.15)
$ (0.45)
$ (0.78)
*
The amounts shown here do not correspond to the previously issued financial statements and reflect reclassifications described in Note 2.
The accompanying notes form an integral part of these consolidated financial statements.
146
EVRAZ plc 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
Total other comprehensive income/(loss)
Total comprehensive income/(loss), net of tax
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Year ended 31 December
Notes
2016
2015
2014
$ (188)
$ (719)
$ (1,278)
4,12
13
11
23
8
9
8
543
–
–
543
13
13
11
–
11
–
–
–
567
$ 379
$ 341
38
$ 379
(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)
The accompanying notes form an integral part of these consolidated financial statements.
147
Annual Report & Accounts 2016www.evraz.comConsolidated financial statements EVRAZ plc Consolidated Statement of Financial Position
(IN MILLIONS OF US DOLLARS)
The financial statements of EVRAZ plc (registered number 7784342) on pages 146-245 were approved by the Board of Directors on 28 February
2017 and signed on its behalf by Alexander Frolov, Chief Executive Officer.
Notes
2016
2015
2014
31 December
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
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
Liabilities directly associated with disposal groups classified as held for sale
Total equity and liabilities
9
10
5
11
8
13
13
14
15
16
17
18
19
12
20
20
20
22
8
23
24
25
26
22
16
27
24
12
The accompanying notes form an integral part of these consolidated financial statements.
148
$ 4,652
$ 4,302
$ 5,796
297
880
64
156
91
45
6,185
984
502
60
13
8
43
192
33
1,157
2,992
27
3,019
$ 9,204
$ 1,507
(270)
2,517
112
415
(3,790)
491
186
677
5,502
348
317
205
94
6,466
935
266
392
226
39
169
26
2,053
8
2,061
$ 9,204
324
1,176
74
119
79
56
6,130
899
447
50
5
6
44
127
35
1,375
2,988
1
2,989
$ 9,119
$ 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
$ 9,119
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
$ 11,630
$ 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
$ 11,630
EVRAZ plc 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 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
Year ended 31 December
2016
2015
2014
$ (188)
$ (719)
$ (1,278)
(87)
521
22
465
48
(10)
481
23
9
–
–
52
1
(7)
16
(3)
(87)
585
41
441
367
(9)
475
20
48
(21)
167
3
18
(56)
20
–
1,343
1,293
(17)
(38)
(1)
136
(32)
(3)
40
20
62
(7)
204
55
9
66
(34)
(3)
3
100
(72)
1
(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)
Net cash flows from operating activities
1,503
1,622
1,957
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
(1)
–
2
–
–
1
4
(382)
7
27
1
1
(340)
(2)
(2)
7
–
–
(3)
4
(423)
10
44
–
6
(359)
(4)
–
3
(102)
(29)
1
8
(612)
14
311
2
19
(389)
149
Annual Report & Accounts 2016www.evraz.comConsolidated financial statements EVRAZ plc Consolidated Statement of Cash Flows (continued)
(IN MILLIONS OF US DOLLARS)
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 under covenants reset
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
Decrease/(increase) in cash of disposal groups classified as assets held for sale (Note 12)
Year ended 31 December
2016
2015
2014
$ –
13
–
–
–
–
–
1,301
(2,428)
(5)
(4)
–
(250)
14
–
(1)
(9)
(1,369)
(10)
(216)
1,375
(2)
$ (339)
$ (13)
6
–
–
–
–
1
3,801
(3,961)
(9)
–
(5)
(464)
5
7
(1)
(3)
(962)
(12)
289
1,086
–
–
267
(251)
(90)
(3)
–
2,579
(3,223)
(942)
–
(42)
(94)
–
14
(1)
(12)
(1,811)
(282)
(525)
1,604
7
Cash and cash equivalents at the end of the year
$ 1,157
$ 1,375
$ 1,086
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.
$ (413)
6
(149)
$ (443)
4
(204)
$ (517)
10
(263)
150
EVRAZ plc Consolidated Statement of Changes in Equity
(IN MILLIONS OF US DOLLARS)
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
Total
Non-
controlling
interests
Total
equity
At 31 December 2015
$ 1,507
$ (305)
$ 2,501
$ 124
$ –
$ –
$ 644
$ (4,335) $ 136
$ 133 $ 269
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
Acquisition of non-
controlling interests in
subsidiaries
Contribution of a non-
controlling shareholder to
share capital of the Group’s
subsidiary
Transfer of treasury shares
to participants of the
Incentive Plans (Notes 20
and 21)
Share-based payments
(Note 21)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35
–
–
–
–
–
–
–
–
16
–
–
(12)
(12)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(215)
–
(215)
27
(188)
11
545
556
11
567
12
–
–
–
–
(192)
545
341
38
379
(2)
–
(2)
2
–
–
(35)
–
–
–
–
–
–
16
13
13
–
–
–
16
At 31 December 2016
$ 1,507
$ (270)
$ 2,517
$ 112
$ –
$ –
$ 415
$ (3,790) $ 491
$ 186 $ 677
The accompanying notes form an integral part of these consolidated financial statements.
151
Annual Report & Accounts 2016www.evraz.comConsolidated financial statements EVRAZ plc Consolidated Statement of Changes in Equity (continued)
(IN MILLIONS OF US DOLLARS)
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
Total
Non-
controlling
interests
Total
equity
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
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
–
–
–
–
–
–
–
–
–
–
–
20
–
(1)
(28)
(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.
152
EVRAZ plc Consolidated Statement of Changes in Equity (continued)
(IN MILLIONS OF US DOLLARS)
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
Total
Non-
controlling
interests
Total
equity
At 31 December 2013
$ 1,473
$ (1)
$ 2,326
$ 162
$ 156
$ 12
$ 2,589
$ (1,685) $ 5,032
$ 431 $ 5,463
Net loss
Other comprehensive
income/(loss)
Reclassification of
revaluation surplus to
accumulated profits in
respect of the disposed
items of property, plant
and equipment
Total comprehensive
income/(loss) for
the period
Issue of shares
(Note 20)
Acquisition of non-
controlling interests in
subsidiaries
Purchase of treasury
shares (Note 20)
Transfer of treasury
shares to participants
of the Incentive Plans
(Notes 20 and 21)
Share-based payments
(Note 21)
Dividends declared by
the parent entity to its
shareholders (Note 20)
Dividends declared
by the Group’s
subsidiaries to
non-controlling
shareholders (Note 20)
–
–
–
–
34
–
–
–
–
–
–
–
–
–
–
–
–
(13)
14
–
–
–
–
–
–
–
122
3
–
–
30
–
–
–
–
(7)
(7)
–
–
–
–
–
–
–
At 31 December 2014
$ 1,507
$ –
$ 2,481
$ 155
–
–
–
–
(156)
–
–
–
–
–
–
(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
The accompanying notes form an integral part of these consolidated financial statements.
153
Annual Report & Accounts 2016www.evraz.comConsolidated financial statements EVRAZ plc
Notes to the Consolidated Financial Statements
Year ended 31 December 2016
1. Corporate Information
These consolidated financial statements were authorised for issue by the Board of Directors of EVRAZ plc on 28 February 2017.
EVRAZ plc (“EVRAZ plc” or “the Company”) was incorporated on 23 September 2011 as a public company limited by shares under the laws of the
United Kingdom with the registered number in England of 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
2016
2015
2014
Effective
ownership interest, %
EVRAZ Nizhny Tagil Metallurgical Plant
EVRAZ Consolidated West-Siberian Metallurgical Plant
EVRAZ Highveld Steel and Vanadium Limited
EVRAZ Dneprovsk Metallurgical Plant
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya
Yuzhkuzbassugol
EVRAZ Kachkanarsky Mining-and-Processing Integrated Works
Evrazruda
EVRAZ Sukha Balka
100.00
100.00
–
97.73
100.00
100.00
81.95
100.00
100.00
100.00
99.42
100.00
100.00
–
96.94
100.00
100.00
81.95
100.00
100.00
100.00
99.42
100.00
100.00
85.11
96.90
100.00
100.00
81.95
100.00
Business
activity
Steel production
Steel production
Steel production
Steel production
Steel production
Steel production
Coal mining
Coal mining
Location
Russia
Russia
South Africa
Ukraine
USA
Canada
Russia
Russia
Russia
Russia
Ukraine
100.00 Ore mining and processing
100.00
99.42
Ore mining
Ore mining
The full list of the Group’s subsidiaries and other significant holdings as of 31 December 2016 is presented in Note 34.
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 2016, but not adopted by the European Union, do not have any impact on the Group’s consolidated financial
statements.
154
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
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.
Restatement of Financial Statements
Reclassification of Expenses
In 2016, the Group reclassified property tax accrued and paid by the production subsidiaries from general and administrative expenses to the “cost of
revenue” caption. In addition, the Group reclassified staff costs of certain categories of personnel and the related expenses from cost of revenues and
selling expenses to general and administrative expenses and from selling expenses to cost of revenues.
The reclassifications were made to better reflect the nature of these costs in the current business environment and in order to make the financial
statements more comparable with industry peers.
The effects of the restatement on the previously reported amounts are set out below.
Statement of Operations
Cost of revenue
Gross profit
Selling and distribution costs
General and administrative expenses
Statement of Operations
Cost of revenue
Gross profit
Selling and distribution costs
General and administrative expenses
As previously
reported
Property tax
Staff costs
Other
expenses
Restated
Year ended 31 December 2015
$ (6,595)
2,172
(795)
(474)
$ (27)
(27)
–
27
$ 48
48
47
(95)
$ (9)
(9)
20
(11)
$ (6,583)
2,184
(728)
(553)
As previously
reported
Property tax
Staff costs
Other
expenses
Restated
Year ended 31 December 2014
$ (9,734)
3,327
(1,009)
(743)
$ (50)
(50)
–
50
$ 58
58
60
(118)
$ (8)
(8)
19
(11)
$ (9,734)
3,327
(930)
(822)
155
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
Changes in Accounting Policies
In the preparation of these consolidated financial statements, the Group followed the same accounting policies and methods of computation as
compared with those applied in the previous year, except for the adoption of new standards and interpretations and revision of the existing standards
as of 1 January 2016.
New/Revised Standards and Interpretations Adopted in 2016:
▪ Amendments to IAS 19 – Defined Benefit Plans: Employee Contributions
IAS 19 requires an entity to consider contributions from employees or third parties when accounting for defined benefit plans. Where the contributions
are linked to service, they should be attributed to periods of service as a negative benefit. This amendment is not relevant to the Group, since none of
the entities within the Group has defined benefit plans with contributions from employees.
▪ Amendments to IAS 1 – Disclosure Initiative
The amendments to IAS 1 Presentation of Financial Statements clarify existing IAS 1 requirements:
– The materiality requirements in IAS 1
– The requirements that apply when additional subtotals are presented in the statement of financial position and the statements of profit or loss
and OCI
– That specific line items in the statements of profit or loss and OCI and the statement of financial position may be disaggregated
– That entities have flexibility as to the order in which they present the notes to financial statements
– That the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line
item, and classified between those items that will or will not be subsequently reclassified to profit or loss.
▪ Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint Operations
The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the
joint operation constitutes a business, must apply the relevant IFRS 3 principles for business combinations accounting. The amendments also clarify
that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint
control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing
joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the
acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively
effective for annual periods beginning on or after 1 January 2016, with early adoption permitted.
▪ Amendments to IAS 16 and IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation
The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating
a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based
method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortise intangible
assets.
156
Notes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
▪ Amendments to IAS 16 and IAS 41 – Bearer Plants
The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments,
biological assets that meet the definition of bearer plants will no longer be within the scope of IAS 41. Instead, IAS 16 will apply. After initial
recognition, bearer plants will be measured under IAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model
(after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of IAS 41 measured at fair value less
costs to sell. For government grants related to bearer plants, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance will
apply. The amendments are retrospectively effective for annual periods beginning on or after 1 January 2016. These amendments do not have any
impact to the Group as the Group does not have any bearer plants.
▪ Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment Entities: Applying the Consolidation Exemption
The amendments address issues that have arisen in applying the investment entities exception under IFRS 10 “Consolidated Financial Statements”.
The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a
subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value.
Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides
support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments
to IAS “28 Investments in Associates and Joint Ventures” allow the investor, when applying the equity method, to retain the fair value measurement
applied by the investment entity associate or joint venture to its interests in subsidiaries.
These amendments are applied retrospectively and do not have any impact on the Group as the Group does not apply the consolidation exception.
▪ Amendments to IAS 27 – Equity Method in Separate Financial Statements
The amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate
financial statements. Entities already applying IFRS and electing to change to the equity method in its separate financial statements will have to apply
that change retrospectively.
▪ Annual Improvements to IFRSs 2010-2012 Cycle
The amendments relate to IFRS 2 “Share-based Payment, IFRS 3 “Business Combinations”, IFRS 8 “Operating Segments”, IAS 16 “Property, Plant and
Equipment” and “IAS 38 Intangible Assets”, IAS 24 “Related Party Disclosures”.
▪ Annual Improvements to IFRSs 2012-2014 Cycle
The amendments relate to IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”, IFRS 7 “Financial Instruments: Disclosures”,
IAS 19 “Employee Benefits”, IAS 34 “Interim Financial Reporting”.
The amendments described above had no significant impact on the financial position and performance of the Group or the disclosures in the
consolidated financial statements.
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
157
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 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 2016
Effective for annual periods beginning on or after
▪ Amendments to IAS 7 – Disclosure Initiative
▪ Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses
▪ Amendments to IAS 40 – Transfers of Investment Property
▪ Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions
▪ Amendments to IFRS 4 – Applying IFRS 9 “Financial Instruments” with IFRS 4 “Insurance Contracts”
▪ Annual Improvements to IFRSs 2014-2016 Cycle
▪
IFRS 9 “Financial Instruments”
▪
IFRS 15 “Revenue from Contracts with Customers”
▪
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”
▪
IFRS 16 “Leases”
1 Subject to EU endorsement
1 January 2017
1
1 January 2017
1
1 January 2018
1
1 January 2018
1
1 January 2018
1
1 January 2018
1
1 January 2018
1 January 2018
1 January 2018
1
1 January 2019
1
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.
The Group plans to apply IFRS 15, IFRS 16 and IFRS 9 starting from the dates effective in the European Union. At present the Group is in the process
of analysis of the possible impact of the application of these standards on its consolidated financial statements, but the preliminary results show that
the impact will not be significant.
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:
▪
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).
▪ 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 amendments 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.
158
Notes to the consolidated financial statements (continued) 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 2016, 2015 and 2014, the Group recognised a net impairment loss of $151 million, $190 million and $192 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.
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Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
Significant Accounting Judgements and Estimates (continued)
Estimation Uncertainty (continued)
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 2016, 2015 and 2014 was $880 million, $1,176 million and $1,541 million, respectively. In 2016,
2015 and 2014, the Group recognised an impairment loss in respect of goodwill in the amount of $316 million, $251 million and $330 million,
respectively (Note 5). 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 6.
Mineral Reserves
Mineral reserves and the associated mine plans are a material factor in the Group’s computation of a depletion charge. The Group estimates its
mineral reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”).
Estimation of reserves in accordance with the JORC Code involves some degree of uncertainty. The uncertainty depends mainly on the amount of
reliable geological and engineering data available at the time of the estimate and the interpretation of this data, which also requires use of subjective
judgement and development of assumptions. Mine plans are periodically updated which can have a material impact on the depletion charge for the
period.
Site Restoration Provisions
The Group reviews site restoration provisions at each reporting date and adjusts them to reflect the current best estimate in accordance with IFRIC 1
“Changes in Existing Decommissioning, Restoration and Similar Liabilities”.
The amount recognised as a provision is the best estimate of the expenditures required to settle the present obligation at the end of the reporting
period based on the requirements of the current legislation of the country where the respective operating assets are located. The carrying amount
of a provision is the present value of the expected expenditures, i.e. cash outflows discounted using pre-tax rates that reflect current market
assessments of the time value of money and the risks specific to the liability.
The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a
provision. Considerable judgement is required in forecasting future site restoration costs.
Future events that may affect the amount required to settle an obligation are reflected in the amount of a provision when there is sufficient objective
evidence that they will occur.
160
Notes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
Significant Accounting Judgements and Estimates (continued)
Estimation Uncertainty (continued)
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 2016, 2015 and 2014, allowances for doubtful accounts in respect of trade and other
receivables have been made in the amount of $47 million, $48 million and $57 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.
161
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
Significant Accounting Judgements and Estimates (continued)
Foreign Currency Transactions
The presentation currency of the Group is the US dollar because presentation in US dollars is most relevant 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. At the reporting date, the assets and liabilities of the subsidiaries with functional currencies other than the US dollar are translated
into the presentation currency at the rate of exchange ruling at the end of the reporting period, and their statements of operations are translated
at the exchange rates that approximate the exchange rates at the dates of the transactions. The exchange differences arising on the translation
are taken directly to a separate component of equity. On disposal of a subsidiary with functional currency other than the US dollar, the deferred
cumulative amount recognised in equity relating to that particular subsidiary is recognised in the statement of operations.
The following exchange rates were used in the consolidated financial statements:
USD/RUB
EUR/RUB
EUR/USD
USD/CAD
USD/ZAR
EUR/ZAR
USD/UAH
RUB/UAH
2016
2015
2014
31 December
average
31 December
average
31 December
average
60.6569
63.8111
1.0541
1.3427
13.6282
14.3342
25.5458
0.3807
67.0349
74.2336
1.1069
1.3248
14.7073
16.2840
27.1909
0.4483
72.8827
79.6972
1.0887
1.3840
15.5742
17.0078
24.0007
0.3293
60.9579
67.7767
1.1095
1.2788
12.7550
14.1552
21.8290
0.3534
56.2584
68.3427
1.2141
1.1601
11.5719
14.0668
15.7686
0.2803
38.4217
50.8150
1.3285
1.1048
10.8488
14.4054
11.9064
0.3050
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.
162
Notes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
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.
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.
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Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
Basis of Consolidation (continued)
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.
164
Notes to the consolidated financial statements (continued) 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
21
10
5
4
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.
165
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
Exploration and Evaluation Expenditures
Exploration and evaluation expenditures represent costs incurred by the Group in connection with the exploration for and evaluation of mineral
resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. The expenditures include
acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling, activities in
relation to evaluating the technical feasibility and commercial viability of extracting mineral resources. These costs are expensed as incurred.
When the technical feasibility and commercial viability of extracting a mineral resource are demonstrable, the Group commences recognition of
expenditures related to the development of mineral resources as assets. These assets are assessed for impairment when facts and circumstances
suggest that the carrying amount of an asset may exceed its recoverable amount.
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date as to whether
the fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised from
the commencement of the lease term at the fair value of the leased property or, if lower, at the present value of the minimum lease payments.
Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance charges are charged to interest expense.
The depreciation policy for depreciable leased assets is consistent with that for depreciable assets which are owned. If there is no reasonable
certainty that the Group will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term or its
useful life.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease
payments are recognised as an expense in the statement of operations on a straight-line basis over the lease term.
Goodwill
Goodwill represents the excess of the aggregate of the consideration transferred for an acquisition of a subsidiary or an 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.
166
Notes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
Goodwill (continued)
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
7
7
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 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.
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Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
Financial Assets (continued)
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.
168
Notes to the consolidated financial statements (continued) 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).
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.
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Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate
asset but only when the reimbursement is virtually certain.
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that
reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used,
the increase in the provision due to the passage of time is recognised as an interest expense.
Provisions for site restoration costs are capitalised within property, plant and equipment.
Employee Benefits
Social and Pension Contributions
Defined contributions are made by the Group to the Russian and Ukrainian state pension, social insurance 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.
170
Notes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
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.
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).
171
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 2. Significant Accounting Policies (continued)
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.
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.
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.
172
Notes to the consolidated financial statements (continued) 3. Segment Information
For management purposes the Group has four reportable operating segments:
▪ Steel segment includes production of steel and related products at all mills except for those located in North America. Extraction of vanadium ore
and production of vanadium products, iron ore mining and enrichment and certain energy-generating companies are also included in this segment
as they are closely related to the main process of steel production.
▪ Steel, North America is a segment, which includes production of steel and related products in the USA and Canada.
▪ Coal segment includes coal mining and enrichment. It also includes operations of Nakhodka Trade Sea Port as it is used to a significant extent for
shipping of products of the coal segment to the Asian markets.
▪ Other operations include energy-generating companies, shipping and railway transportation companies.
Management and investment companies are not allocated to any of the segments. Operating segments have been aggregated into reportable
segments if they show a similar long-term economic performance, have comparable production processes, customer industries and distribution
channels, operate in the same regulatory environment, and are generally managed and monitored together.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
Management monitors the results of the operating segments separately for the purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated based on EBITDA (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;
3) in case of volatility of functional currencies the IFRS statements of operations are translated at the exchange rates that approximate the exchange
rates at the dates of the transactions (quarterly, semi-annual averages, etc.) while in management accounts simple average for the whole accounting
period is used.
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. Management believes that this measure is more useful and relevant for the users and is more
comparable with the Russian steel peers.
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Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued)
3. Segment Information (continued)
The following tables present measures of segment profit or loss based on management accounts.
Year ended 31 December 2016
US$ million
Revenue
Steel
Steel,
North America
Coal
Other operations
Eliminations
Total
Sales to external customers
$ 5,528
$ 1,464
Inter-segment sales
Total revenue
Segment result – EBITDA
194
5,722
$ 986
–
1,464
$ 22
$ 484
676
1,160
$ 613
$ 63
233
296
$ 15
$ –
(1,103)
(1,103)
$ (44)
$ 7,539
–
7,539
$ 1,592
Year ended 31 December 2015
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
Year ended 31 December 2014
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
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
Steel
Steel,
North America
Coal
Other operations
Eliminations
Total
$ 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
174
Notes to the consolidated financial statements (continued)
3. Segment Information (continued)
The following table shows a reconciliation of revenue and EBITDA used by management for decision making and revenue and profit or loss before tax
per the consolidated financial statements prepared under IFRS.
Year ended 31 December 2016
US$ million
Revenue
Reclassifications and other adjustments
Revenue per IFRS financial statements
EBITDA
Unrealised profits adjustment
Reclassifications and other adjustments
Steel
$ 5,722
(225)
$ 5,497
Steel,
North America
Coal
Other operations
Eliminations
Total
$ 1,464
–
$ 1,464
$ 1,160
162
$ 1,322
$ 296
67
$ 363
$ (1,103)
170
$ (933)
$ 7,539
174
$ 7,713
$ 986
$ 22
$ 613
$ 15
$ (44)
$ 1,592
(11)
29
18
–
6
6
(3)
34
31
–
2
2
2
–
2
EBITDA based on IFRS financial statements
$ 1,004
$ 28
$ 644
$ 17
$ (42)
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
Other non-operating (gains)/losses, net
Profit/(loss) before tax
(21)
(219)
(11)
(8)
(43)
$ 702
–
(155)
(430)
(5)
14
$ (548)
(2)
(141)
(24)
(9)
107
$ 575
–
(3)
–
–
–
–
–
–
–
–
$ 14
$ (42)
(12)
71
59
$ 1,651
(109)
$ 1,542
(23)
(518)
(465)
(22)
78
$ 592
(129)
$ 463
$ (471)
(23)
(9)
(52)
$ (92)
175
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 3. Segment Information (continued)
EBITDA based on IFRS financial statements
$ 1,081
$ 55
$ 351
Unallocated subsidiaries
Steel,
North America
Coal
Other operations
Eliminations
Total
Steel
$ 6,260
(273)
$ 5,987
$ 2,263
7
$ 2,270
$ 952
116
$ 1,068
$ 1,033
$ 51
$ 348
62
(14)
48
2
2
4
–
3
3
(24)
(260)
(81)
(8)
(270)
–
(153)
(258)
(10)
(89)
(1)
(165)
(102)
(23)
(153)
$ 393
40
$ 433
$ 16
–
(2)
(2)
$ 14
–
(3)
–
–
4
$ (1,128)
137
$ (991)
$ 110
(43)
–
(43)
$ 67
–
–
–
–
–
$ 438
$ (455)
$ (93)
$ 15
$ 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)
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
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
176
Notes to the consolidated financial statements (continued) 3. Segment Information (continued)
Year ended 31 December 2014
US$ million
Revenue
Reclassifications and other adjustments
Revenue per IFRS financial statements
Steel
$ 9,705
(186)
$ 9,519
$ 3,159
1
$ 3,160
$ 1,216
102
$ 1,318
EBITDA (restated)
$ 1,777
$ 283
$ 314
Steel,
North America
Coal
Other operations
Eliminations
Total
$ (1,692)
$ 12,962
108
99
$ (1,584)
$ 13,061
$ 574
74
$ 648
$ 31
1
–
5
6
$ 2
–
(53)
–
(53)
128
9
19
156
–
(1)
(2)
(3)
10
1
51
62
$ 1,933
$ 280
$ 376
$ 37
$ (51)
(21)
(389)
(196)
(20)
84
(1)
(165)
(261)
(1)
(21)
(3)
(267)
(81)
(27)
(333)
–
(4)
(2)
–
4
–
–
–
–
–
$ 1,391
$ (169)
$ (335)
$ 35
$ (51)
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
$ 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)
177
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 3. Segment Information (continued)
The revenues from external customers for each group of similar products and services are presented in the following table:
2016
2015
2014
$ 1,783
162
584
1,694
246
331
155
33
268
31
5,287
158
372
232
588
103
10
1,463
756
12
70
838
125
125
$ 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
129
129
$ 3,286
487
1,022
2,359
356
604
278
27
456
58
8,933
337
619
513
1,499
178
12
3,158
722
2
65
789
181
181
$ 7,713
$ 8,767
$ 13,061
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 products
Rendering of services
Coal
Coal
Other products
Rendering of services
Other operations
Rendering of services
178
Notes to the consolidated financial statements (continued) 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
2016
2015
2014
CIS
Russia
Kazakhstan
Ukraine
Others
America
USA
Canada
Mexico
Others
Asia
Taiwan
Indonesia
Thailand
Republic of Korea
Japan
China
Singapore
Philippines
Vietnam
Jordan
United Arab Emirates
Mongolia
Others
Europe
Turkey
Czech Republic
Italy
Germany
Poland
Austria
Slovakia
Other members of the European Union
Others
Africa
Egypt
Kenya
Republic of South Africa
Others
Other countries
$ 3,080
184
296
150
3,710
$ 3,104
237
242
185
3,768
$ 5,279
384
333
209
6,205
826
682
192
22
1,722
376
195
138
123
117
67
66
65
47
30
18
10
120
1,372
213
100
85
38
34
26
19
88
37
640
138
78
4
45
265
4
1,566
779
203
18
2,566
323
197
121
123
97
131
13
85
28
81
40
11
104
1,354
392
28
114
45
27
50
38
97
24
815
43
44
100
71
258
6
1,727
1,589
173
40
3,529
485
429
285
254
120
103
25
51
8
88
43
26
37
1,954
242
58
114
74
37
139
60
143
49
916
12
37
363
35
447
10
None of the Group’s customers amounts to 10% or more of the consolidated revenues.
$ 7,713
$ 8,767
$ 13,061
179
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 3. Segment Information (continued)
Non-current assets other than financial instruments, deferred tax assets and post-employment benefit assets were located in the following countries at 31
December:
US$ million
Russia
Canada
USA
Ukraine
Kazakhstan
Czech Republic
Italy
Republic of South Africa
Other countries
2016
2015
2014
$ 3,553
1,233
877
144
53
31
22
17
8
$ 3,105
1,162
1,347
195
60
32
5
15
11
$ 4,273
1,553
1,468
302
118
35
54
130
6
$ 5,938
$ 5,932
$ 7,939
4. Changes in Composition of the Group
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.
180
Notes to the consolidated financial statements (continued) 4. Changes in Composition of the Group (continued)
Deconsolidation of Subsidiaries (continued)
Highveld Steel and Vanadium Limited (continued)
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 $4 million
were derecognised. Management analysed the classification of Highveld to determine whether its disposal constitutes a discontinued operation under
IFRS 5 and concluded that this is not the case.
The table below demonstrates the carrying values of assets and liabilities of Highveld, which were included in the steel segment of the Group’s
operations, at the date of derecognition.
US$ 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
181
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued)
5. Goodwill
Goodwill relates to the assembled workforce and synergy from integration of the acquired subsidiaries into the Group. The table below presents
movements in the carrying amount of goodwill.
US$ million
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
Deconsolidation of subsidiaries (Note 4)
Adjustment to contingent consideration
Translation difference
At 31 December 2015
Impairment
Flat rolled products
Seamless pipes
Oil Country Tubular Goods
Transfer to disposal groups classified as held for sale
Translation difference
At 31 December 2016
Gross
amount
Impairment
losses
Carrying amount
$ 2,981
$ (993)
$ 1,988
–
–
–
–
(7)
(3)
(343)
$ 2,628
–
–
–
–
(17)
(3)
(216)
$ 2,392
–
–
–
–
(28)
3
(330)
(171)
(90)
(69)
–
–
236
$ (1,087)
(251)
(157)
(53)
(41)
17
–
105
$ (1,216)
(316)
(188)
(111)
(17)
28
17
$ 2,367
$ (1,487)
(330)
(171)
(90)
(69)
(7)
(3)
(107)
$ 1,541
(251)
(157)
(53)
(41)
–
(3)
(111)
$ 1,176
(316)
(188)
(111)
(17)
–
20
$ 880
As explained in Note 6, the composition of cash generating units of Steel North America was reassessed during the year and the disclosures below
reflect this reassessment. The carrying amount of goodwill was allocated among cash-generating units as follows at 31 December:
US$ million
2016
2015
2014
EVRAZ Inc. NA/EVRAZ Inc. NA Canada
Oregon Steel Portland Mill
Rocky Mountain Steel Mills
OSM Tubular – Camrose Mills
General Scrap
Others
Calgary
Red Deer
Regina Steel
Regina Tubular
Others
Large diameter pipes
Oil Country Tubular Goods
Long products
EVRAZ Vanady-Tula
EVRAZ Vametco Holdings
EVRAZ Nikom, a.s.
Others
182
$ 808
$ 1,109
$ 1,459
–
–
–
–
–
–
–
–
–
–
355
137
316
33
6
29
4
188
410
–
16
1
92
–
288
98
16
–
–
–
28
6
30
3
241
410
157
16
1
109
48
340
118
19
–
–
–
36
9
33
4
$ 880
$ 1,176
$ 1,541
Notes to the consolidated financial statements (continued) 6. Impairment of Assets
A summary of impairment losses recognition and reversals is presented below.
Year ended 31 December 2016
US$ million
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya
EVRAZ Stratcor Inc.
EVRAZ Palini e Bertoli
Yuzhny Stan
Evrazruda
Others, net
Recognised in profit or loss
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
US$ million
EVRAZ Highveld Steel and Vanadium Limited
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
EVRAZ Palini e Bertoli
Raspadskaya
Yuzhkuzbassugol
Others, net
Recognised in profit or loss
Goodwill and
intangible assets
Property, plant and
equipment
Taxes receivable
Total
$ (88)
$ –
$ (387)
$ (299)
(17)
–
–
–
–
–
–
(26)
(17)
(16)
19
(5)
(10)
(8)
$ (316)
(316)
$ (151)
(151)
–
–
–
–
–
–
2
$ 2
2
Goodwill and
intangible assets
Property, plant and
equipment
Taxes receivable
Total
$ (210)
(41)
–
–
–
–
–
$ (251)
(251)
–
$ –
(7)
(91)
(37)
(30)
(19)
(6)
$ (190)
(189)
(1)
$ –
–
–
–
–
–
(1)
$ (1)
(1)
–
Goodwill and
intangible assets
Property, plant and
equipment
Taxes receivable
Total
$ (17)
(171)
(90)
(69)
–
–
–
$ (347)
(347)
$ (41)
–
–
(43)
(9)
(71)
(28)
$ (192)
(192)
$ –
–
–
–
(1)
–
–
$ (1)
(1)
(43)
(17)
(16)
19
(5)
(10)
(6)
$ (465)
(465)
$ (210)
(48)
(91)
(37)
(30)
(19)
(7)
$ (442)
(441)
(1)
$ (58)
(171)
(90)
(112)
(10)
(71)
(28)
$ (540)
(540)
183
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 6. Impairment of Assets (continued)
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 the Group assessed the recoverable amount of each cash-generating unit to which the goodwill was
allocated or where indicators of impairment were identified. Given the market volatility, in 2015 and 2014 the impairment test was performed as of
31 December in the respective years. In 2016, impairment test was performed as of 30 September, the conclusions were reassessed at 31 December
and no further impairment triggers were identified.
In the first half of 2016, based on the analysis of market changes and cash inflow dependence between the assets and new business organisational
structure, management reassessed the composition of cash generating units of Steel North America for the purposes of impairment testing. The
assets of EVRAZ Inc. NA and EVRAZ Inc. NA Canada, which were previously allocated to cash-generating units based on individual plant level, were
merged into 5 new units based on principal markets served by each cash-generating unit:
▪ Large diameter pipes;
▪ Oil Country Tubular Goods (casing and tubing);
▪ Seamless pipes;
▪ Flat rolled products (plates and coils);
▪ Long products (rails, rod and bar products).
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 the 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 the
determination of fair value less costs to sell the asset’s value additionally includes the cashflows of future projects not started yet and the associated
capital expenditure costs.
The major drivers that led to impairment were the changes in expectations of long-term prices for iron ore and steel products, the increase in
forecasted costs and changes in forecasted production volumes. Management lowered their forecasts for periods after 2016, because the
expectations of market recovery in North America changed.
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 of
forecast,
years
Pre-tax
discount rate, %
Commodity
Average
price of
commodity
per tonne
in 2017
Recoverable
amount of CGU,
US$ million
Carrying amount
of CGU before
impairment,
US$ million
Steel North America
Large diameter pipes
Oil Country Tubular Goods
Seamless pipes
Flat rolled products
Long products
EVRAZ Vanady-Tula
EVRAZ Vametco Holdings
EVRAZ Nikom, a.s.
5
5
5
5
5
5
5
5
10.69
10.36
10.22
9.77
10.08
steel products
steel products
steel products
steel products
steel products
$978
$887
$1,111
$592
$572
12.98
vanadium products
$10,990
14.59
ferrovanadium
products
ferrovanadium
$16,247
10.74
products
$12,568
1,288
362
25
294
686
393
33
43
877
379
136
509
549
58
17
33
184
Notes to the consolidated financial statements (continued) 6. Impairment of Assets (continued)
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.
Period of forecast,
years
Pre-tax discount
rate, %
Commodity
Average price
of commodity per
tonne
in 2017
EVRAZ Dneprovsk Metallurgical Plant
EVRAZ Consolidated West-Siberian Metallurgical Plant
EVRAZ Palini e Bertoli
EVRAZ Stratcor Inc.
Raspadskaya
Mezhegeyugol
EVRAZ Kachkanarsky Mining-and-Processing Integrated Works
EVRAZ Sukha Balka
Evrazruda - Sheregesh mine
5
5
8
5
18
25
23
17
10
23.5
15.01
15.70
12.62
12.71
11.88
13.88
24.92
16.64
coal
coal
ore
ore
ore
steel products
steel products
steel products
$312
$314
€480
vanadium products
$33,803
The value in use of the cash-generating units for which an impairment loss was recognised or reversed in the reporting year was as follows:
US$ million
Oil Country Tubular Goods
Seamless pipes
Flat rolled products
EVRAZ Stratcor Inc.
EVRAZ Palini e Bertoli
30 September
2016
31 December
2015
362
25
294
20
24
$51
$58
$37
$24
$40
–
169
–
45
5
The value in use of Oil Country Tubular Goods and Flat rolled products at 31 December 2015 has not been disclosed, because of the changes in the
composition of North-American cash-generating units in 2016. Similarly the value in use as disclosed in the 31 December 2015 financial statements
has not been re-presented as it is no longer directly comparable.
At 31 December 2015, management expected to recover investments in EVRAZ Palini e Bertoli principally through sale and the recoverable amount
of this cash-generating unit was measured at $5 million 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).
185
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 6. Impairment of Assets (continued)
The estimations of value in use are most sensitive to the following assumptions:
Discount Rates
Discount rates reflect the current market assessment of the risks specific to each cash-generating unit. The discount rates have been determined
using the Capital Asset Pricing Model and analysis of industry peers. Reasonably possible changes in discount rates could lead to an additional
impairment at EVRAZ Stratcor Inc., EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units. If discount rates were 10% higher, this would lead
to an additional impairment of $120 million.
Sales Prices
The price assumptions for the products sold by the Group were estimated based on industry research using analysts’ views published by Bank
of America Merill Lynch, Citigroup, Credit Suisse, Deutsche Bank, JP Morgan, Morgan Stanley, RBC, Renaissance Capital, UBS and VTB during
the period from August to December 2016. The Group expects that the nominal prices will fluctuate with a compound annual growth rate of
(6.6)% - 9.9% in 2017 – 2021, 2.5% in 2022 and thereafter. Reasonably possible changes in sales prices could lead to an additional impairment at
EVRAZ Sukha Balka, EVRAZ Stratcor Inc., EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units. If the prices assumed for 2017 and 2018
in the impairment test were 10% lower, this would lead to an additional impairment of $37 million.
Sales Volumes
Management assumed that the sales volumes of steel products in 2017 will increase by 7.6% 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 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 2017 and 2018 in
the impairment test, this would lead to an additional impairment of $12 million.
Cost Control Measures
The recoverable amounts of cash-generating units are based on the business plans approved by management. A reasonably possible deviation in cost
from these plans could lead to an additional impairment at EVRAZ Dneprovsk Metallurgical Plant, EVRAZ Sukha Balka, EVRAZ Nikom, 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 2017 and 2018 in
the impairment test, this would lead to an additional impairment of $139 million.
Sensitivity Analysis
For the cash-generating units, which were not impared in the reporting period and for which the reasonably possible changes could lead to
impairment, the recoverable amounts would become equal to their carrying amounts if the assumptions used to measure the recoverable amounts
changed by the following percentages:
Discount rates
Sales
prices
Sales volumes
Cost control measures
EVRAZ Sukha Balka
EVRAZ Dneprovsk Metallurgical Plant
EVRAZ Nikom
–
–
–
(8.6)%
–
–
–
–
–
5.9%
3.8%
9.3%
186
Notes to the consolidated financial statements (continued) 7. Income and Expenses
Cost of revenues, selling and distribution costs, general and administrative expenses include the following for the years ended 31 December:
US$ million
2016
2015
2014
Cost of inventories recognised as expense
Staff costs, including social security taxes
Depreciation, depletion and amortisation
$ (2,761)
(1,200)
(521)
$ (3,295)
(1,454)
(585)
$ (5,162)
(2,210)
(833)
In 2016, 2015 and 2014, the Group recognised (expense)/income on allowance or net reversal of the allowance for net realisable value in the amount
of $2 million, $(1) million and $(4) million, respectively.
Staff costs include the following:
US$ million
Wages and salaries
Social security costs
Net benefit expense
Share-based awards
Other compensations
2016
2015
2014
$ 864
212
43
16
65
$ 1,200
$ 1,025
$ 1,611
254
45
20
110
398
31
30
140
$ 1,454
$ 2,210
The average number of staff employed under contracts of service was as follows:
Steel
Steel, North America
Coal
Other operations
Unallocated
2016
2015
2014
56,974
3,193
14,808
896
2,080
77,951
63,126
3,847
18,042
1,312
2,901
89,228
The major components of other operating expenses were as follows:
US$ million
2016
2015
2014
Idling, reduction and stoppage of production, including termination
benefits
Restoration works and casualty compensations in connection with
accidents
Other
$ (81)
(1)
(19)
$ (101)
$ (54)
(2)
(22)
$ (78)
69,404
3,936
20,460
1,465
3,270
98,535
$ (52)
(10)
(26)
$ (88)
187
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) $ (55)
(448)
(1)
(30)
(15)
(14)
$ (563)
$ 9
4
4
$ 17
$ (1)
(6)
(588)
–
12
7. Income and Expenses (continued)
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)
Other
2016
2015
2014
$ (133)
(306)
–
(22)
(14)
(6)
$ (481)
$ (88)
(342)
–
(24)
(13)
(8)
$ (475)
Interest income consisted of the following for the years ended 31 December:
US$ million
2016
2015
2014
Interest on bank accounts and deposits
Interest on loans and accounts receivable
Other
$ 6
2
2
$ 10
$ 4
3
2
$ 9
Gain/(loss) on financial assets and liabilities included the following for the years ended 31 December:
US$ million
2016
2015
2014
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
$ (2)
(50)
23
14
6
$ (9)
$ (11)
(15)
(25)
5
(2)
$ (48)
$ (583)
In 2016, other non-operating losses included $39 million relating to the settlement of the Group’s guarantee under a long-term take-or-pay supply
contract of the Group’s former subsidiary.
188
Notes to the consolidated financial statements (continued)
8. Income Taxes
The Group’s income was subject to tax at the following tax rates:
Russia
Canada
Cyprus
Czech Republic
Italy
South Africa
Switzerland
Ukraine
USA
2016
2015
2014
20.00%
26.06%
12.50%
19.00%
31.40%
28.00%
9.09%
18.00%
37.72%
20.00%
25.89%
12.50%
19.00%
31.40%
28.00%
9.72%
18.00%
37.41%
20.00%
25.61%
12.50%
19.00%
31.40%
28.00%
9.65%
18.00%
37.78%
Major components of income tax expense for the years ended 31 December were as follows:
US$ million
Current income tax expense
2016
2015
2014
$ (185)
$ (100)
$ (356)
Adjustment in respect of income tax of previous years
Deferred income tax benefit/(expense) relating to origination and reversal
of temporary differences
2
87
1
87
(1)
163
Income tax (expense)/benefit reported in the consolidated statement of
operations
$ (96)
$ (12)
$ (194)
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
2016
2015
2014
$ (92)
18
2
(2)
(63)
(157)
110
(4)
$ (707)
141
1
2
(64)
(176)
88
(4)
$ (1,084)
217
(1)
(4)
(73)
(505)
170
2
$ (96)
$ (12)
$ (194)
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.
189
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued)
8. Income Taxes (continued)
Deferred income tax assets and liabilities and their movements for the years ended 31 December were as follows:
Year ended 31 December 2016
US$ million
Deferred income tax liabilities:
Change
recognised
in
statement
of
operations
Change
recognised
in other
comprehen
sive
income
Change
due to
disposal of
subsidiaries
Transfer to
disposal
groups
classified as
held for sale
2016
Translation
difference
2015
Valuation and depreciation of property, plant and equipment
$ 567
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
Year ended 31 December 2015
US$ million
Deferred income tax liabilities:
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
Year ended 31 December 2014
US$ million
Deferred income tax liabilities:
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
190
81
58
706
226
138
10
140
514
156
89
48
700
208
127
9
123
467
119
$ 352
112
59
912
247
177
13
101
538
97
(62)
(11)
5
(68)
(5)
4
(1)
21
19
28
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
–
(2)
(3)
(3)
–
66
3
5
74
23
8
2
(2)
31
12
55
$ 563
89
48
700
208
127
9
123
467
119
$ 352
$ 348
(59)
Change
recognised
in
statement
of
operations
Change
recognised
in other
comprehen
sive
income
Change
due to
disposal of
subsidiaries
Transfer to
disposal
groups
classified as
held for sale
2015
Translation
difference
2014
(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)
(14)
(14)
(143)
(57)
(16)
(3)
(6)
(82)
(28)
(89)
$ 741
112
59
912
247
177
13
101
538
97
$ 471
Change
recognised
in
statement
of
operations
Change
recognised
in other
comprehen
sive
income
Change
due to
disposal of
subsidiaries
Transfer to
disposal
groups
classified as
held for sale
2014
(40)
(21)
13
(48)
101
29
4
(19)
115
46
–
–
–
–
–
15
–
–
15
3
$ 471
(117)
(12)
Translation
difference
2013
(339)
$ 1,120
(12)
(22)
(373)
(128)
(35)
(7)
–
(170)
(38)
(241)
145
68
1,333
274
173
16
115
578
86
$ 841
–
–
–
–
–
(5)
–
5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Valuation and depreciation of property, plant and equipment
$ 741
Notes to the consolidated financial statements (continued) 8. Income Taxes (continued)
As of 31 December 2016, 2015 and 2014, 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 in the same jurisdiction, 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 2016, the unused tax losses carried forward
approximated $9,729 million (2015: $7,658 million, 2014: $8,060 million). The Group recognised deferred tax assets of $226 million
(2015: $208 million, 2014: $247 million) in respect of unused tax losses. Deferred tax assets in the amount of $2,329 million (2015: $1,895 million,
2014: $1,771 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 $8,593 million (2015: $6,642 million, 2014: $6,767 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
$8,549 million (2015: $6,410 million, 2014: $6,513 million) are available indefinitely for offset against future taxable profits of the companies in
which the losses arose and $44 million will expire in 2018 (2015: $232 million, 2014: $254 million).
9. Property, Plant and Equipment
Property, plant and equipment consisted of the following as of 31 December:
US$ 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
2016
2015
2014
$ 100
1,755
4,446
223
2,440
38
424
9,426
(872)
(2,637)
(144)
(1,093)
(28)
(4,774)
$ 4,652
$ 97
1,512
3,961
193
2,100
37
302
8,202
(690)
(2,163)
(114)
(908)
(25)
(3,900)
$ 4,302
$ 124
1,908
5,094
249
2,572
60
428
10,435
(790)
(2,633)
(147)
(1,024)
(45)
(4,639)
$ 5,796
191
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 9. Property, Plant and Equipment (continued)
The movement in property, plant and equipment for the year ended 31 December 2016 was as follows:
US$ million
Land
Buildings
and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
Mining
assets
Other
assets
Assets under
construction
Total
At 31 December 2015, 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 2016, cost, net of
accumulated depreciation
$ 97
$ 822
$ 1,798
$ 79
$ 1,192
$ 12
$ 302
$ 4,302
–
–
(1)
–
(4)
2
–
–
6
1
64
(5)
(72)
(42)
5
(4)
–
114
5
209
(12)
(309)
(90)
17
(10)
(3)
204
–
14
(2)
(21)
(2)
–
–
–
11
–
43
(9)
(79)
(30)
3
–
20
207
2
3
(4)
(4)
–
–
–
–
1
442
(333)
–
–
(11)
1
(10)
–
33
450
–
(33)
(485)
(179)
28
(24)
17
576
$ 100
$ 883
$ 1,809
$ 79
$ 1,347
$ 10
$ 424
$ 4,652
The movement in property, plant and equipment for the year ended 31 December 2015 was as follows:
US$ million
Land
Buildings
and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
Mining
assets
Other
assets
Assets under
construction
Total
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)
–
40
(7)
(77)
(16)
2
(1)
(2)
(13)
–
(13)
6
(228)
4
234
(29)
(343)
(44)
2
–
(65)
(4)
–
(418)
–
28
(4)
(24)
–
–
–
(1)
–
–
(22)
1
176
(7)
(88)
(109)
3
–
(2)
–
45
(375)
1
3
–
(5)
–
–
–
(1)
–
–
(1)
480
(481)
(22)
–
486
–
(71)
(537)
(36)
(209)
13
–
(5)
–
–
(75)
20
(1)
(77)
(24)
51
(1,132)
$ 97
$ 822
$ 1,798
$ 79
$ 1,192
$ 12
$ 302
$ 4,302
192
Notes to the consolidated financial statements (continued) 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
At 31 December 2013, cost, net of
accumulated depreciation
Additions
Assets put into operation
Disposals
Depreciation and depletion charge
Impairment losses recognised in
statement of operations
Impairment losses reversed through
statement of operations
Transfer to assets held for sale
Change in site restoration and
decommissioning provision
Translation difference
At 31 December 2014, cost, net of
accumulated depreciation
Buildings
and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
Land
Mining
assets
Other
assets
Assets under
construction
Total
$ 157
$ 1,655
$ 3,781
$ 188
$ 2,690
$ 27
$ 992
$ 9,490
–
–
(2)
–
(4)
–
–
–
(27)
1
198
(7)
(112)
8
450
(41)
(470)
(20)
(85)
5
(4)
6
(604)
10
(3)
(4)
1
22
(3)
–
172
(10)
(38)
(150)
–
–
–
–
(79)
–
–
61
–
5
–
(5)
–
–
–
–
609
(847)
(5)
–
619
–
(68)
(775)
(21)
(209)
2
–
4
17
(7)
67
(1,185)
(68)
(1,136)
(12)
(306)
(3,338)
$ 124
$ 1,118
$ 2,461
$ 102
$ 1,548
$ 15
$ 428
$ 5,796
Assets under construction include prepayments to constructors and suppliers of property, plant and equipment in the amount of $34 million,
$24 million and $22 million as of 31 December 2016, 2015 and 2014, 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 2016 was $9 million (2015: $16 million, 2014: $18 million).
10. Intangible Assets Other Than Goodwill
Intangible assets consisted of the following as of 31 December:
US$ million
Cost:
Customer relationships
Water rights and environmental permits
Contract terms
Other
Accumulated amortisation:
Customer relationships
Water rights and environmental permits
Contract terms
Other
2016
2015
2014
$ 663
57
25
90
835
(460)
–
(8)
(70)
(538)
$ 297
$ 651
57
20
83
811
(419)
–
(4)
(64)
(487)
$ 324
$ 981
57
26
65
1,129
(642)
–
(3)
(43)
(688)
$ 441
193
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 10. Intangible Assets Other Than Goodwill (continued)
As of 31 December 2016, 2015 and 2014, water rights and environmental permits with a carrying value of $57 million had an indefinite useful life.
The movement in intangible assets for the year ended 31 December 2016 was as follows:
US$ million
At 31 December 2015, cost, net of accumulated
amortisation
Additions
Amortisation charge
Translation difference
At 31 December 2016, cost, net of accumulated
amortisation
Customer
relationships
Water rights and
environmental
permits
Contract terms
Other
Total
$ 232
–
(35)
6
$ 203
$ 57
–
–
–
$ 57
$ 16
–
(2)
3
$ 17
$ 19
3
(4)
2
$ 20
$ 324
3
(41)
11
$ 297
The movement in intangible assets for the year ended 31 December 2015 was as follows:
US$ million
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
Customer
relationships
Water rights and
environmental
permits
Contract terms
Other
Total
$ 339
$ 57
$ 23
$ 22
$ 441
–
(43)
(20)
(44)
–
–
–
–
–
(2)
–
(5)
6
(5)
–
(4)
6
(50)
(20)
(53)
$ 232
$ 57
$ 16
$ 19
$ 324
The movement in intangible assets for the year ended 31 December 2014 was as follows:
US$ million
At 31 December 2013, cost, net of accumulated
amortisation
Additions
Amortisation charge
Impairment loss recognised in statement of operations
Transfer to assets held for sale
Translation difference
At 31 December 2014, cost, net of accumulated
amortisation
Customer
relationships
Water rights and
environmental
permits
$ 448
$ 57
–
(60)
(16)
(1)
(32)
–
–
–
–
–
$ 339
$ 57
Contract terms
Other
Total
$ 44
–
(4)
–
–
(17)
$ 23
$ 39
4
(8)
–
–
(13)
$ 22
$ 588
4
(72)
(16)
(1)
(62)
$ 441
194
Notes to the consolidated financial statements (continued) 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 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
Share of profit/(loss)
Impairment of investments
Translation difference
Investment at 31 December 2016
Timir
Streamcore
Other associates
Total
$ 141
–
–
(59)
$ 82
(1)
(23)
(18)
$ 40
(2)
(26)
7
$ 19
$ 40
8
–
(19)
$ 29
4
–
(7)
$ 26
5
–
6
$ 37
$ 10
2
(1)
(1)
$ 10
–
–
(2)
$ 8
–
–
–
$ 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
Impairment of investments
Share of profits/(losses) of joint ventures and associates recognised in the
consolidated statement of operations
2016
2015
2014
$ 3
(26)
$ (23)
$ 3
(23)
$ (20)
$ 191
10
(1)
(79)
$ 121
3
(23)
(27)
$ 74
3
(26)
13
$ 64
$ 10
–
$ 10
Timir Iron Ore Project
In 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. Under the joint venture agreement major operating and financial decisions are made by unanimous consent of
the Group and Alrosa, and no single venturer is in a position to control the activity unilaterally. Consequently, the Group accounts for its interest in
Timir under the equity method.
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 to 15 July 2014. The consideration was measured as the present value of the expected cash outflows.
In 2014 and 2015, the parties amended the payment schedule. The latest schedule effective at 31 December 2016 provides for an execution of
payments of 500 million roubles in each of January 2017 and 2018 and 480 million roubles in 2019. From the dates of the amendments the Group
incurs interest charges on the unpaid liability.
In 2016, 2015 and 2014, the Group paid 500 million roubles ($7 million), $Nil and 990 million roubles ($28 million), respectively, of purchase
consideration. Previously, in 2013, 1,980 million roubles ($61 million) were paid.
At 31 December 2016, 2015 and 2014, trade and other accounts payable included liabilities relating to this acquisition in the amount of $27 million,
$28 million and $36 million, respectively.
195
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 11. Investments in Joint Ventures and Associates (continued)
Timir Iron Ore Project (continued)
The table below sets out Timir’s assets and liabilities as of 31 December:
US$ million
2016
2015
2014
Mineral reserves and property, plant and equipment
Accounts and notes receivable
Total assets
Deferred income tax liabilities
Current liabilities
Total liabilities
Net assets
Net assets attributable to 51% ownership interest
$ 55
8
63
–
25
25
38
$ 19
$ 101
–
101
5
17
22
79
$ 40
$ 202
1
203
21
21
42
161
$ 82
In 2016, 2015 and 2014, Timir’s income and expenses comprised $4 million, $2 million and $Nil, respectively, of other expenses.
Due to the postponement of the major project activities, the Group assessed the recoverability of its investment in Timir at 30 September 2016 and
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 23 years. The discount rates were 11.75%, 12.70% and 14.46% in 2016, 2015 and 2014, respectively. As a result, in 2016
and 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 2 years.
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 $55 million which would give a $19 million effect on the
share of profits/(losses) of joint ventures and associates recognised in the consolidated statement of operations.
Streamcore
The Group owns a 50% interest in Streamcore (Cyprus), a joint venture established for the purpose of exercising joint control over facilities for scrap
procurement and processing in Siberia, Russia.
The table below sets out Streamcore’s assets and liabilities as of 31 December:
US$ million
Property, plant and equipment
Inventories
Accounts receivable
Total assets
Deferred income tax liabilities
Current liabilities
Total liabilities
Net assets
Net assets attributable to 50% ownership interest
2016
2015
2014
$ 24
4
91
119
1
44
45
$ 74
$ 37
$ 19
$ 27
3
51
73
1
20
21
$ 52
$ 26
5
51
83
1
24
25
$ 58
$ 29
196
Notes to the consolidated financial statements (continued) 11. Investments in Joint Ventures and Associates (continued)
Streamcore (continued)
The table below sets out 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
12. Disposal Groups Held for Sale
2016
2015
2014
$ 286
(270)
(6)
$ 10
$ 5
$ 278
(263)
(7)
$ 8
$ 4
$ 478
(450)
(12)
$ 16
$ 8
The major classes of assets and liabilities of the disposal groups measured at the lower of carrying amount and fair value less costs to sell were as follows as
of 31 December:
US$ million
Property, plant and equipment
Other non-current assets
Inventories
Accounts receivable
Cash and cash equivalents
Assets classified as held for sale
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
2016
2015
2014
$ 15
$ 1
3
1
6
2
27
5
3
8
–
–
–
–
–
1
–
–
–
–
$ 3
–
1
–
–
4
13
–
13
–
$ 19
$ 1
$ (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
Liabilities directly associated with assets classified as held for sale
Steel production
Steel, North America
2016
2015
2014
$ 27
27
–
8
8
–
$ 1
–
1
–
–
–
$ 4
1
3
13
–
13
197
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 12. Disposal Groups Held for Sale (continued)
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 2014–2016.
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
2016
2015
2014
$ 9
$ 25
$ 178
–
–
–
–
9
–
–
–
–
–
13
–
–
38
17
–
17
–
19
79
64
20
360
28
100
128
–
$ 9
$ 21
$ 232
The net assets of disposal groups sold in 2014–2016 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
Other operations
Cash flows on disposal of subsidiaries and other business units were as follows:
2016
2015
2014
$ 9
$ 38
9
–
–
–
–
–
–
–
6
31
1
–
17
4
13
–
US$ million
2016
2015
2014
Net cash disposed of with subsidiaries
Cash received
Net cash inflow
$ –
27
$ 27
$ (13)
57
$ 44
$ 360
330
9
–
21
128
126
–
2
$ (20)
331
$ 311
In 2016, cash inflows included $16 million of prepayment for the sale of certain disposal groups.
The disposal groups sold during 2014–2016 are described below.
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.
198
Notes to the consolidated financial statements (continued) 12. Disposal Groups Held for Sale (continued)
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 $5 million of cumulative exchange gains reclassified from other comprehensive income to the
consolidated statement of operations.
Other Disposal Groups Held for Sale
Other disposal groups held for sale included a few small subsidiaries involved in non-core activities (construction business, trading activity and
recreational services) and other non-current assets.
13. Other Non-current Assets
Other non-current assets consisted of the following as of 31 December:
Non-current Financial Assets
US$ 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
Available-for-Sale Financial Assets
2016
2015
2014
$ 3
11
–
21
4
52
$ 91
$ 5
5
1
23
5
40
$ 79
2016
2015
2014
$ 7
2
36
$ 45
$ 18
6
32
$ 56
$ 17
7
1
21
4
48
$ 98
$ 4
12
24
$ 40
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 of the Singapore Exchange ($3 million, $5 million and $16 million at 31 December
2016, 2015 and 2014, respectively). The change in the fair value of these shares is initially recorded in other comprehensive income.
In 2016, 2015 and 2014, impairment losses relating to the decline in market quotations of Delong shares in the amount of $Nil, $Nil and $12 million,
respectively, were recorded through other comprehensive income and $2 million, $11 million and $1 million, respectively, were recognised in the
statement of operations.
199
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 14. Inventories
Inventories consisted of the following as of 31 December:
US$ million
Raw materials and spare parts
Work-in-progress
Finished goods
2016
2015
2014
$ 434
173
377
$ 984
$ 402
188
309
$ 899
$ 588
307
477
$ 1,372
As of 31 December 2016, 2015 and 2014, the net realisable value allowance was $34 million, $35 million and $47 million, respectively.
As of 31 December 2016, 2015 and 2014, certain items of inventory with an approximate carrying amount of $315 million, $383 million and
$607 million, respectively, were pledged to banks as collateral against loans provided to the Group (Note 22).
15. Trade and Other Receivables
Trade and other receivables consisted of the following as of 31 December:
US$ million
Trade accounts receivable
Other receivables
Allowance for doubtful accounts
2016
2015
2014
$ 518
31
549
(47)
$ 502
$ 472
23
495
(48)
$ 447
$ 684
25
709
(55)
$ 654
Ageing analysis and movement in allowance for doubtful accounts are provided in Note 28.
200
Notes to the consolidated financial statements (continued) 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
Loans
Timir
Trade balances
Vtorresource-Pererabotka
Yuzhny GOK
Other entities
Less: allowance for doubtful accounts
Amounts due from
related parties
Amounts due to
related parties
2016
2015
2014
2016
2015
2014
$ 7
1
–
–
8
–
$ 8
$ 5
1
–
–
6
–
$ 4
11
37
3
55
(2)
$ –
39
185
2
226
–
$ –
10
129
4
143
–
$ –
5
96
7
108
–
$ 6
$ 53
$ 226
$ 143
$ 108
In 2016 and 2014, 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
2016
2015
2014
2016
2015
2014
Sales to
related parties
Purchases from
related parties
Genalta Recycling Inc.
Interlock Security Services
Vtorresource-Pererabotka
Yuzhny GOK
Other entities
$ –
–
7
25
–
$ –
–
8
29
–
$ –
1
17
42
3
$ 8
19
281
77
11
$ 14
24
274
70
12
$ 24
39
465
125
24
$ 32
$ 37
$ 63
$ 396
$ 394
$ 677
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.
201
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 16. Related Party Disclosures (continued)
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. In August-September 2016, the main businesses of this group were sold by a key person to third
parties and they ceased to be related parties to the Group.
Lanebrook Limited is a controlling shareholder of the Company. In 2008, the Group acquired from Lanebrook a 1% ownership interest in Yuzhny GOK
for a cash consideration of $38 million (Note 18). As part of the transaction, the Group signed a put option agreement that gives the Group the right
to sell these shares back to Lanebrook Limited for the same amount. In January 2014, the Group sold 0.14% of the shares to Lanebrook Limited for
$6 million. The put option for the remaining shares expires on 31 December 2017.
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 2016, 2015 and 2014, the purchases of scrap metal from Vtorresource-Pererabotka amounted to
$256 million (1,437,411 tonnes), $219 million (1,339,101 tonnes) and $383 million (1,601,041 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 2016, 2015 and 2014, the volume of purchases was 1,619,745 tonnes, 1,517,580 tonnes and 1,486,415 tonnes,
respectively.
On 1 April 2014, a Ukrainian subsidiary of the Group received a non-interest bearing loan of 2,935 million Ukrainian hryvnias ($267 million at the
exchange rate as of the date of disbursement) from Standart IP, an entity under control of one of the major shareholders. The proceeds were used for
the purposes of short-term liquidity management for the subsidiary. The loan was fully repaid in several instalments by 10 April 2014 using the loans
provided by the other Group’s subsidiary.
The transactions with related parties were based on prevailing market terms.
Compensation to Key Management Personnel
Key management personnel include the following positions within the Group:
▪ directors of the Company,
▪ vice presidents,
▪ senior management of major subsidiaries.
In 2016, 2015 and 2014, key management personnel totalled 34, 46 and 51 people, respectively. Total compensation to key management personnel
were included in general and administrative expenses in the consolidated statement of operations and consisted of the following:
US$ million
Salary
Performance bonuses
Social security taxes
Share-based payments (Note 21)
Termination benefits
Other benefits
2016
2015
2014
$ 14
9
3
8
–
–
$ 34
$ 16
9
4
10
–
–
$ 39
$ 20
29
4
14
1
1
$ 69
Other disclosures on directors’ remuneration required by Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts & Reports)
regulations 2008 are included in the Directors’ Remuneration Report.
202
Notes to the consolidated financial statements (continued) 17. Other Taxes Recoverable
Taxes recoverable consisted of the following as of 31 December:
US$ million
Input VAT
Other taxes
2016
2015
2014
$ 89
103
$ 192
$ 61
66
$ 127
$ 71
87
$ 158
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
2016
2015
2014
Investments in Yuzhny GOK (Note 16)
Restricted deposits at banks
Collateral under swap agreements (Note 25)
$ 32
1
–
$ 33
$ 32
3
–
$ 35
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
Ukrainian hryvnia
Other
2016
2015
2014
$ 1,058
$ 1,196
71
2
2
24
121
29
20
9
$ 32
1
7
$ 40
$ 943
108
6
3
26
At 31 December 2016, 2015 and 2014, the assets of disposal groups classified as held for sale included cash amounting to $2 million, $Nil and $Nil,
respectively.
$ 1,157
$ 1,375
$ 1,086
203
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 20. Equity
Share Capital
Number of shares
2016
31 December
2015
2014
Ordinary shares of $1 each, issued and fully paid
1,506,527,294
1,506,527,294
1,506,527,294
Share Issue
On 16 January 2013, EVRAZ plc issued 132,653,006 shares in connection with the acquisition of a controlling interest in Corber, which held 81.95%
in Raspadskaya.
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
2016
31 December
2015
2014
Number of treasury shares
87,015,878
98,481,249
–
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, in 2016 and 2015, 11,465,371 shares and 9,977,259 shares, respectively, were transferred to the participants of Incentive Plans. The
cost of treasury shares transferred to the participants of Incentive Plans, amounted to $35 million and $31 million in 2016 and 2015, respectively.
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 $14 million, was charged to accumulated profits.
204
Notes to the consolidated financial statements (continued) 20. Equity (continued)
Earnings per Share
Earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted average number of ordinary shares
in issue during the period. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders by the
weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued
on the conversion of all the potential dilutive ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Weighted average number of ordinary shares for basic and diluted
earnings per share
Profit/(loss) for the year attributable to equity holders of the parent,
US$ million
Earnings/(losses) per share, basic and diluted
2016
2015
2014
1,414,906,412
1,437,134,241
1,505,833,080
$ (215)
$ (0.15)
$ (644)
$ (0.45)
$ (1,175)
$ (0.78)
In 2014-2016, 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) were included in the calculation of
basic earnings per share for 2014 starting from the date of their issue.
Dividends
Dividends declared by the parent company during 2014–2016 were as follows:
Date of declaration
To holders
registered at
Dividends declared,
US$ million
US$ per share
Special for 2014
08/04/2014
06/06/2014
90
0.06
On 8 April 2014, the Board of directors of EVRAZ plc proposed to declare special dividends in the amount of $90.4 million representing $0.06 per
share. The dividends were paid out of the sale proceeds for EVRAZ Vitkovice Steel.
In addition, certain subsidiaries of the Group declared dividends. The share of non-controlling shareholders in those dividends was $Nil, $Nil and
$3 million in 2016, 2015 and 2014, respectively.
21. Share-based Payments
On 6 September 2012, 24 September 2013, 8 August 2014, 26 October 2015 and 15 September 2016, 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 2016 are presented below:
Number of Shares of EVRAZ plc
Total
Incentive Plan 2016
Incentive Plan 2015
Incentive Plan 2014
Incentive Plan 2013
March 2017
March 2018
March 2019
March 2020
12,813,209
10,810,789
7,842,200
3,115,151
2,076,677
2,076,677
3,115,023
3,115,151
3,151,362
4,727,042
4,727,177
–
4,007,054
4,007,070
–
–
3,578,116
–
–
–
34,581,349
10,383,528
12,605,581
8,014,124
3,578,116
205
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 21. Share-based Payments (continued)
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 2014–2016.
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 2016, 2015 and 2014 was $1.73, $1.12 and $1.51 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 2014-2016:
Dividend yield (%)
Expected life (years)
Market prices of the shares of EVRAZ plc
(2011: Evraz Group S.A.) at the grant dates
Incentive Plan
2016
Incentive Plan
2015
Incentive Plan
2014
Incentive Plan
2013
Incentive Plan
2012
Incentive Plan
2011
n/a
0.5 – 3.5
7.3 – 9.1
0.6 – 3.6
3.6 – 4.8
0.6 – 3.6
4.0 – 8.8
0.6 – 3.6
1.9 – 5.4
0.6 – 2.6
3.6 – 4.8
0.5 – 2.5
$1.73
$1.36
$1.68
$2.13
$3.61
$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
2016
2015
2014
43,767,553
10,383,528
(8,104,361)
(11,465,371)
34,581,349
36,608,052
20,610,611
(3,473,851)
(9,977,259)
43,767,553
27,692,062
20,220,620
(3,064,281)
(8,240,349)
36,608,052
In 2014, the actual quantity of the vested shares transferred by EVRAZ plc to the participants was reduced by 596,896 shares, which represent
withholding taxes and other deductions.
The weighted average share price at the dates of exercise was $1.78, $2.59 and $1.72 in 2016, 2015 and 2014, respectively.
The weighted average remaining contractual life of the share-based awards outstanding as of 31 December 2016, 2015 and 2014 was 1.2, 1.5 and
1.6 years, respectively.
In the years ended 31 December 2016, 2015 and 2014, the expense arising from the equity-settled share-based compensations was as follows:
US$ million
2016
2015
2014
Expense arising from equity-settled share-based payment transactions
$ 16
$ 20
$ 30
206
Notes to the consolidated financial statements (continued)
22. Loans and Borrowings
Short-term and long-term loans and borrowings were as follows as of 31 December:
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
6.75% notes due 2022
Rouble-denominated
8.75% rouble bonds due 2015
9.95% rouble bonds due 2015
8.40% rouble bonds due 2016
12.95% rouble bonds due 2019
12.60% rouble bonds due 2021
Other liabilities
Fair value adjustment to liabilities assumed in
business combination
Unamortised debt issue costs
Interest payable
2016
Non-
current
Current
2015
Non-
current
Current
2014
Non-
current
Current
$ 2,067
$ 1,799
$ 268
$ 2,236
$ 1,958
$ 278
$ 1,662
$ 1,441
$ 221
–
–
26
125
528
350
–
–
–
125
528
350
1,000
1,000
750
500
–
–
–
247
247
–
1
(44)
97
750
500
–
–
–
247
247
–
–
(44)
–
–
–
26
–
–
–
–
–
–
–
–
–
–
–
–
1
–
97
–
286
186
353
796
350
–
286
186
353
796
350
1,000
750
1,000
750
–
–
–
165
206
–
–
7
(54)
66
–
–
–
–
206
–
–
7
(54)
12
–
–
–
–
–
–
–
–
–
–
–
165
–
–
–
–
–
54
138
600
392
509
850
350
–
600
392
509
850
350
1,000
1,000
–
–
69
267
356
–
–
1
20
(57)
74
–
–
–
–
356
–
–
–
20
(55)
7
138
–
–
–
–
–
–
–
–
69
267
–
–
–
1
–
(2)
67
$ 5,894
$ 5,502
$ 392
$ 6,347
$5,850
$ 497
$ 6,231
$ 5,470
$ 761
The average effective annual interest rates were as follows at 31 December:
US dollar
Russian rouble
Euro
South African rand
Long-term borrowings
Short-term borrowings
2016
2015
2014
2016
2015
2014
6.85%
12.71%
3.94%
–
6.87%
11.84%
5.57%
–
6.78%
9.00%
3.55%
–
3.31%
2.86%
2.72%
–
–
–
–
–
–
–
–
9.98%
The liabilities are denominated in the following currencies at 31 December:
US$ million
US dollar
Russian rouble
Euro
Other
Unamortised debt issue costs
2016
2015
2014
$ 4,911
$ 5,412
$ 5,387
809
217
1
(44)
621
368
–
(54)
700
193
8
(57)
$ 5,894
$ 6,347
$ 6,231
207
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 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 2016, 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 28% of the consolidated assets at
31 December 2016 and generated almost 19% of the consolidated revenues in 2016. In addition, property, plant and equipment and inventory
of these subsidiaries amounting to $1,013 million and $315 million, respectively, at 31 December 2016 (2015: $1,052 million and $382 million,
2014: $1,140 million and $607 million, respectively) were pledged as collateral under the notes.
At 31 December 2015 and 2014, 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. In addition, property, plant and equipment of EVRAZ Caspian Steel amounting to $55 million at 31 December 2015
(2014: $108 million) were pledged as collateral under the same loan. In 2016, the loan was fully repaid.
The Group’s pledged assets at carrying value included the following at 31 December:
US$ million
Property, plant and equipment
Inventory
Issue of Notes and Bonds
2016
2015
2014
$ 1,013
315
$ 1,107
383
$ 1,263
607
In June 2016, the Group issued 6.75% notes due 2022 in the amount of $500 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, 6.75% notes due 2018 and 7.75% bonds due 2017 at the tender offer settled on
17 June 2016 and to refinance other current indebtedness of the Group.
In March 2016, the Group completed a placement of bonds in the total amount of 15,000 million Russian roubles ($247 million at 31 December 2016),
which bear interest of 12.60% per annum and mature on 23 March 2021. The currency risk exposure of these bonds was not hedged.
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.
208
Notes to the consolidated financial statements (continued) 22. Loans and Borrowings (continued)
Repurchase of Rouble-Denominated Bonds
In 2016, the Group fully settled its 8.40% rouble bonds due 2016, there was no gain or loss on this transaction.
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.
Repurchase of US Dollar-Denominated Notes
In 2016, the Group partially repurchased 9.50% notes due 2018 ($228 million), 6.75% notes due 2018 ($268 million) and 7.75% bonds due 2017
($160 million). The premium over carrying value on the repurchase in the amount of $20 million, $7 million and $5 million, respectively, was charged
to the Gain/(loss) on financial assets and liabilities caption of the consolidated statement of operations.
In 2016, the Group fully repurchased 7.40% notes due 2017 ($286 million) paying a premium over the carrying value of $14 million.
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.
209
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 22. Loans and Borrowings (continued)
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.
Several bank credit facilities totalling $1,829 million contain certain financial maintenance covenants. These covenants require EVRAZ plc to
maintain two key ratios, consolidated net indebtedness to 12month 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.
In the first half of 2016, EVRAZ plc signed amendments to these facilities, whereby the testing of financial ratios was suspended for three semi-annual
testing periods starting from 30 June 2016, subject to compliance with certain additional restrictions on indebtedness and dividends. As a result, as
of 31 December 2016, only one of the outstanding facilities has the EBITDA to interest cover ratio tested against a comfortable level of minimum 1.5x.
Transaction costs relating to these amendments amounted to $4 million.
Notes due 2018, 2020, 2021 and 2022 totalling $2,903 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.
The $400 million 7.75% notes due 2017 issued by Raspadskaya in 2012, out of which $374 million are held by Evraz Group S.A. at 31 December
2016, have covenants similar to those of Evraz Group S.A., but with the ratio calculation based on the consolidated numbers of Raspadskaya and the
restrictions applying only to 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 $350 million notes due 2019 issued by Evraz Inc NA Canada in November 2014 have certain covenants, that contain restrictions on the
incurrence of new debt by EVRAZ North America plc, the parent company of Evraz Inc NA and Evraz Inc NA Canada, and its subsidiaries (together,
“Evraz North America”) and restrictions on certain types of payments, including dividends, from Evraz North America.
During 2016 the Group was in compliance with all financial and non-financial covenants.
Unamortised Debt Issue Costs
Unamortised debt issue costs represent agent commission and transaction costs paid by the Group in relation to the arrangement and reset of loans
and notes.
210
Notes to the consolidated financial statements (continued) 22. Loans and Borrowings (continued)
Unutilised Borrowing Facilities
The Group had the following unutilised borrowing facilities as of 31 December:
US$ million
Committed
Uncommitted
Total unutilised borrowing facilities
23. Employee Benefits
Russian Plans
2016
2015
2014
$ 187
883
$ 1,070
$ 317
663
$ 980
$ 439
1,225
$ 1,664
Certain Russian subsidiaries of the Group provide regular lifetime pension payments and lump-sum amounts payable at retirement date. These
benefits generally depend on years of service, level of remuneration and amount of pension payment under the collective bargaining agreements.
Other post-employment benefits consist of various compensations and certain non-cash benefits. The Group funds the benefits when the amounts of
benefits fall due for payment.
In addition, some subsidiaries have defined benefit plans under which contributions are made to a separately administered non-state pension fund.
The Group matches 100% of the employees’ contributions to the fund up to 4% of their monthly salary. The Group’s contributions become payable at
the participants’ retirement dates. At the end of the reporting year the benefit obligation was valued based on the terms of the pension plan assuming
that all defined benefit plan participants will continue to participate in the plan.
Defined contribution plans represent payments made by the Group to the Russian state pension, social insurance and medical insurance funds at the
statutory rates in force, based on gross salary payments. The Group has no legal or constructive obligation to pay further contributions in respect of
those benefits.
Ukrainian Plans
The Ukrainian subsidiaries make regular contributions to the State Pension Fund thereby compensating 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.
The Ukrainian pension legislation provides for 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.
211
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 23. Employee Benefits (continued)
US and Canadian Plans
The Group’s subsidiaries in the USA and Canada have defined benefit pension plans that cover specified eligible employees. Benefits are based on
pensionable years of service, pensionable compensation, or a combination of both depending on the individual plan. The subsidiaries also have U.S.
and Canadian supplemental retirement plans (“SERP’s”), which are non-qualified plans designed to maintain benefits for eligible employees at the
plan formula level. The subsidiaries provide other unfunded post-retirement medical and life insurance plans (“OPEB’s”) for certain of their 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, depending on their work location, participants’ benefits vesting
dates range from immediate to after three years of service. In addition, the subsidiaries have defined contribution plans available for eligible U.S. and
Canadian-based employees in which the subsidiaries generally match a percentage of the participants’ contributions.
In the third quarter of 2015, a 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
2016
2015
2014
Expense under defined contribution plans
$ 212
$ 254
$ 398
Defined Benefit Plans
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 2016 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.
212
Notes to the consolidated financial statements (continued) 23. Employee Benefits (continued)
The components of net benefit expense recognised in the consolidated statement of operations for the years ended 31 December 2016, 2015 and
2014 and amounts recognised in the consolidated statement of financial position as of 31 December 2016, 2015 and 2014 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 2016
US$ million
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 2015
US$ million
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
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term
employee benefits obligation
Curtailment gain
Net benefit expense
Russian
plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
Total
$ (2)
(9)
1
(1)
1
$ (2)
(5)
–
1
–
$ (19)
(8)
–
–
–
$ –
–
–
–
–
$ (23)
(22)
1
–
1
$ (10)
$ (6)
$ (27)
$ –
$ (43)
Russian
plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
Total
$ (4)
(11)
–
7
2
$ (2)
(6)
–
2
–
$ (23)
(7)
–
(3)
1
$ –
–
(1)
–
–
$ (29)
(24)
(1)
6
3
$ (6)
$ (6)
$ (32)
$ (1)
$ (45)
Russian
plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
Total
$ (7)
(15)
22
6
$ 6
$ (3)
(7)
–
–
$ (19)
(6)
–
–
$ (10)
$ (25)
$ –
(2)
–
–
$ (2)
$ (29)
(30)
22
6
$ (31)
213
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 23. Employee Benefits (continued)
Gains/(losses) recognised in other comprehensive income
Year ended 31 December 2016
US$ million
Russian
plans
Ukrainian
plans
Russian
plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
Total
$ (1)
3
$ 2
$ –
(8)
$ (8)
$ –
8
$ 8
$ –
(5)
$ (5)
$ 7
(6)
$ 1
$ –
–
$ –
US
& Canadian
plans
Other
plans
Total
$ (10)
24
$ 14
$ –
–
$ –
Russian
plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
Total
$ –
15
–
$ 15
$ –
(17)
–
$ (17)
$ 46
(78)
2
$ (30)
$ –
(1)
–
$ (1)
$ 6
5
$ 11
$ (10)
11
$ 1
$ 46
(81)
2
$ (33)
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 2015
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
214
Notes to the consolidated financial statements (continued) 23. Employee Benefits (continued)
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 2016
US$ million
Benefit obligation
Plan assets
31 December 2015
US$ million
Benefit obligation
Plan assets
31 December 2014
US$ million
Benefit obligation
Plan assets
2016
2015
2014
$ 25
26
(1)
$ 13
13
–
Russian
Plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
Total
$ 711
(535)
176
US
& Canadian
plans
Other
plans
$ 691
(526)
165
$ 2
–
2
$ 2
–
2
$ 108
–
108
Russian
Plans
Ukrainian
plans
$ 90
(1)
89
Russian
Plans
Ukrainian
plans
$ 110
–
110
$ 31
–
31
$ 45
–
45
$ 58
–
58
$ 73
73
–
$ 852
(535)
317
Total
$ 828
(527)
301
US
& Canadian
plans
Other
plans
Total
$ 790
(608)
182
$ 14
–
14
$ 972
(608)
364
215
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 23. Employee Benefits (continued)
Movements in net defined benefit liability/(asset)
US$ million
Russian
plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
Total
At 31 December 2013
$ 231
$ 83
$ 164
$ 14
$ 492
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
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 2016
(6)
(13)
(15)
(1)
(86)
$ 110
6
(9)
8
(1)
(25)
$ 89
10
(7)
(2)
–
18
$ 108
10
(6)
17
–
(46)
$ 58
6
(3)
5
–
(21)
$ 45
6
(3)
(8)
(4)
(5)
$ 31
25
(34)
30
–
(3)
2
(2)
1
–
(1)
$ 182
$ 14
32
(30)
(14)
–
(5)
$ 165
27
(17)
(1)
–
2
$ 176
1
(1)
–
(11)
(1)
$ 2
–
–
–
–
–
$ 2
31
(55)
33
(1)
(136)
$ 364
45
(43)
(1)
(12)
(52)
$ 301
43
(27)
(11)
(4)
15
$ 317
216
Notes to the consolidated financial statements (continued) 23. Employee Benefits (continued)
Movements in benefit obligation
US$ million
Russian
plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
Total
At 31 December 2013
$ 232
$ 83
$ 728
$ 14
$ 1,057
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
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
Translation difference
At 31 December 2016
15
7
(14)
–
(21)
(16)
(6)
(1)
(86)
$ 110
11
4
(7)
(8)
(1)
14
(5)
(2)
(1)
–
7
3
(6)
1
13
3
–
–
(46)
$ 58
6
2
(2)
(3)
–
2
3
–
–
–
(25)
$ 90
(21)
$ 45
9
2
1
(7)
–
(1)
(3)
(1)
–
5
2
(1)
(3)
–
(6)
(2)
–
(4)
33
19
(37)
17
71
(10)
–
–
(31)
$ 790
30
23
3
(35)
(8)
(17)
1
(1)
–
(31)
(64)
$ 691
27
19
–
(43)
(10)
14
2
–
–
2
–
(2)
–
1
–
–
–
(1)
$ 14
–
–
–
(1)
–
1
–
–
(11)
–
(1)
$ 2
–
–
–
–
–
–
–
–
–
57
29
(59)
18
64
(23)
(6)
(1)
(164)
$ 972
47
29
(6)
(47)
(9)
–
(1)
(3)
(12)
(31)
(111)
$ 828
41
23
–
(53)
(10)
7
(3)
(1)
(4)
18
$ 108
(5)
$ 31
11
$ 711
–
$ 2
24
$ 852
217
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 23. Employee Benefits (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 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
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 2016
2016
2015
2014
11.21
8.26
13.79
9.12
10.93
8.76
14.35
9.66
9.8
10.4
14.6
20.3
Russian
plans
Ukrainian
plans
US
& Canadian
plans
Other
plans
Total
$ 1
–
–
13
(14)
–
–
$ –
–
–
9
(8)
–
–
$ 1
–
(1)
7
(7)
–
$ –
$ –
$ 564
$ –
$ 565
–
–
6
(6)
–
–
27
46
34
(37)
2
(28)
–
–
2
(2)
–
–
27
46
55
(59)
2
(28)
$ –
$ 608
$ –
$ 608
–
–
3
(3)
–
–
23
(10)
30
(35)
(31)
(59)
–
–
1
(1)
–
–
23
(10)
43
(47)
(31)
(59)
$ –
$ 526
$ –
$ 527
–
–
3
(3)
–
$ –
19
7
17
(43)
9
–
–
–
–
–
19
6
27
(53)
9
$ 535
$ –
$ 535
The amount of contributions expected to be paid to the defined benefit plans during 2017 approximates $36 million.
The major categories of plan assets as a percentage of total plan assets were as follows at 31 December:
US & Canadian plans:
Equity funds and investment trusts
Corporate bonds and notes
Property
Cash
2016
2015
2014
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
45%
13%
–
2%
60%
40%
–
–
–
40%
50%
13%
–
2%
65%
34%
1%
–
–
35%
31%
13%
–
6%
50%
49%
1%
–
–
50%
218
Notes to the consolidated financial statements (continued)
23. Employee Benefits (continued)
The principal assumptions used in determining pension obligations for the Group’s plans are shown below:
2016
2015
2014
Russian
plans
Ukrainian
plans
US &
Canadian
plans
Other
plans
Russian
plans
Ukrainian
plans
US &
Canadian
plans
Other
plans
Russian
Plans
Ukrainian
plans
US &
Canadian
plans
Other
plans
8.2%
17.5%
3.9-4.2%
2.8-9.1%
9.6%
13.0%
3.9-4.5%
2.8-9%
11%
15.0%
3.6-4.9%
2.8-8.8%
7%
7%
11%
11%
–
3%
3%
–
8%
8%
8%
–
8%
3–3.3%
3%
–
8%
8%
10%
–
10%
3-3.3%
3%
–
68.6
65.5 85.8-86.6
77.1-81
68.5
65.5
86.3-87.5
78.1-79
68.0
65.2
86.4-87.8
74.9-79
79.0
75.5 88.6-89.3
77.1-87
78.9
75.5
89-89.3
75.2-85
78.5
75.3 88.9-89.8
73.4-85
–
–
5-7%
8.6%
–
–
5.4-7%
8.8%
–
–
5.5-7%
7.5-7.7%
Discount rate
Future benefits
increases
Future salary
increase
Average life
expectation,
male, years
Average life
expectation,
female, years
Healthcare
costs increase
rate
The following table demonstrates the sensitivity analysis of reasonable changes in the significant assumptions used for the measurement of the
defined benefit obligations, with all other variables held constant.
Impact on the defined benefit obligation
at 31 December 2016,
US$ million
Impact on the defined benefit obligation
at 31 December 2015,
US$ million
Impact on the defined benefit obligation
at 31 December 2014,
US$ million
Reasonable
change in
assumption
Russian
plans
Ukrainian
plans
US &
Canadian
plans
Other
plans
Russian
plans
Ukrainian
plans
US &
Canadian
plans
Other
plans
Russian
plans
Ukrainian
plans
US &
Canadian
plans
Discount rate
10%
(10%)
$(8)
10
$(4)
5
$(41)
44
$–
–
$(8)
10
$(5)
6
$(35)
37
$–
–
$(11)
14
$(6)
7
$(53)
58
Other
plans
$(6)
6
Future
benefits
increases
Future salary
increase
Average life
expectation,
male, years
Average life
expectation,
female, years
Healthcare
costs
increase rate
10%
(10%)
10%
(10%)
1
(1)
1
(1)
10%
(10%)
7
(7)
1
(1)
1
(1)
1
(1)
–
–
1
(1)
1
(1)
–
–
–
–
–
–
–
–
1
(1)
13
(13)
5
(5)
1
(1)
–
–
–
–
–
–
–
–
–
–
7
(6)
1
(1)
1
(1)
1
(1)
–
–
1
(1)
2
(2)
–
–
–
–
–
–
–
–
2
(2)
14
(14)
4
(4)
–
–
–
–
–
–
–
–
–
–
–
–
9
(8)
1
(1)
1
(1)
1
(1)
–
–
2
(2)
3
(2)
–
–
–
–
–
–
–
–
3
(2)
15
(15)
4
(4)
–
–
–
–
–
–
–
–
–
–
3
–
219
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 24. Provisions
At 31 December the provisions were as follows:
US$ million
Non-current
Current
Non-current
Current
Non-current
Current
2016
2015
2014
Site restoration and decommissioning costs
$ 204
$ 20
$ 145
$ 20
$ 171
Legal claims
Other provisions
–
1
3
3
–
1
2
1
–
2
$ 205
$ 26
$ 146
$ 23
$ 173
In the years ended 31 December 2016, 2015 and 2014, the movement in provisions was as follows:
US$ million
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
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
Translation difference
At 31 December 2016
Site restoration and
decom-missioning
costs
Legal
claims
Other provisions
Total
$ 280
56
15
(40)
72
(39)
(2)
(41)
(96)
$ 205
13
13
35
19
(20)
(4)
(54)
(4)
(38)
$ 165
15
14
17
5
(9)
(9)
26
$ 224
$ 9
4
–
–
–
(2)
(6)
–
(2)
$ 3
3
–
–
–
(1)
(2)
–
–
(1)
$ 2
5
–
–
–
(1)
(3)
–
$ 3
$ 10
19
–
–
–
(16)
(6)
–
(1)
$ 6
4
–
–
–
(6)
(2)
–
–
–
$ 2
8
–
–
–
(5)
(1)
–
$ 4
$ 34
3
4
$ 41
$ 299
79
15
(40)
72
(57)
(14)
(41)
(99)
$ 214
20
13
35
19
(27)
(8)
(54)
(4)
(39)
$ 169
28
14
17
5
(15)
(13)
26
$ 231
220
Notes to the consolidated financial statements (continued) 24. Provisions (continued)
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
13.2% in 2016 (2015: 1.5% to 12.8%, 2014: from 1.5% to 22.6%). The majority of costs are expected to be paid after 2061.
25. Other Long-Term Liabilities
Other long-term liabilities consisted of the following as of 31 December:
US$ million
2016
2015
2014
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)
$ –
22
–
18
5
3
5
1
66
120
(26)
$ 94
$ 274
$ 713
59
–
16
2
5
5
1
43
405
(289)
$ 116
–
2
15
6
5
4
1
48
794
(352)
$ 442
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 2014-2016, are summarised in the table below.
Year
of issue
Bonds principal,
millions
of roubles
Hedged amount,
millions
of roubles
Swap amount,
US$ million
Interest rates
on the swap amount
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
2009
2010
2011
2013
20,000
15,000
20,000
3,885
14,019
14,997
19,996
3,735
475
491
711
121
7.50% - 8.90%
5.65% - 5.88%
4.45% - 4.60%
3.06% - 3.33%
221
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 25. Other Long-Term Liabilities (continued)
Derivatives Not Designated as Hedging Instruments (continued)
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
2016
2015
2014
$ –
–
–
$ 165
165
430
$ 692
688
1,323
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 2016, 2015 and 2014, the change in fair value of the derivatives of $273 million, $439 million and $(494) million, respectively, together with
a realised gain/(loss) on the swap transactions, amounting to $(250) million, $(464) million and $(94) million, respectively, was recognised within
gain/(loss) on financial assets and liabilities in the consolidated statement of operations (Note 7).
In 2014–2016, upon repayment of the 8.40%, 9.95%, 8.75% and 13.5% bonds, the related swap contracts matured.
Hedging Instruments
In July 2015, the Group completed a placement of bonds in the total amount of 15,000 million Russian roubles ($247 million at 31 December
2016), 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 ($246 million at 31 December 2016).
Year
of issue
Bonds principal,
millions
of roubles
Hedged amount,
millions
of roubles
Swap amount,
US$ million
Interest rates
on the swap amount
12.95 per cent bonds due 2019
2015
15,000
14,948
265
5.90% - 6.55%
The Group accounted for these swap contracts as cash flow hedges. In 2016 and 2015, the change in fair value of these derivatives amounted to
$37 million and $(59) million, respectively. The realised gain on the swap transactions amounting to $14 million (2015: $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 2016 and 2015, the Group did not recognise any amounts in other comprehensive income. All the swaps were assessed as effective. In 2016 and
2015, $37 and $(59) million, respectively, were recorded in the Foreign exchange gains/(losses) caption in the consolidated statement of operations.
Contingent Consideration Payable
Contingent consideration represents additional payments for the acquisition of Stratcor in 2006. This consideration could be paid each year up to
2019. The payments depend on the deviation of the average prices for vanadium pentoxide from certain levels and the amounts payable for each
year are limited to maximum amounts. In 2014–2016, the Group was not required to pay this consideration due to the movements in the vanadium
pentoxide market relative to the levels set in the agreement.
222
Notes to the consolidated financial statements (continued) 26. Trade and Other Payables
Trade and other payables consisted of the following as of 31 December:
US$ 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
2016
2015
2014
$ 737
134
26
38
$ 935
$ 621
122
289
38
$ 1,070
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
2016
2015
2014
$ 104
39
9
4
7
6
$ 169
$ 51
30
10
4
7
5
$ 107
$ 774
196
352
57
$ 1,379
$ 78
40
15
4
7
7
$ 151
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 2016, the major customers were Russian Railways and Enbridge Inc. (4% and 3.5% 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.
223
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 28. Financial Risk Management Objectives and Policies (continued)
Credit Risk (continued)
At 31 December the maximum exposure to credit risk is equal to the carrying amount of financial assets, which is disclosed below.
US$ million
2016
2015
2014
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)
$ 12
52
35
506
34
8
1,157
$ 1,804
$ 8
40
37
452
28
7
1,375
$ 1,947
$ 8
55
49
658
45
43
1,086
$ 1,944
Receivables from related parties in the table above do not include prepayments in the amount of $Nil, $Nil and $11 million as of 31 December 2016,
2015 and 2014, respectively.
The ageing analysis of trade and other receivables, loans receivable and receivables from related parties at 31 December is presented in the table
below.
US$ million
Not past due
Past due
less than six months
between six months and one year
over one year
2016
2015
2014
Gross amount
Impairment
Gross amount
Impairment
Gross amount
Impairment
$ 408
$ (1)
$ 385
187
130
7
50
(46)
(2)
(2)
(42)
150
95
9
46
$ –
(48)
(8)
(2)
(38)
$ 537
266
178
46
42
$ –
(57)
(13)
(8)
(36)
$ 595
$ (47)
$ 535
$ (48)
$ 803
$ (57)
In the years ended 31 December 2016, 2015 and 2014, 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
2016
2015
2014
$ (48)
(1)
5
5
(8)
$ (47)
$ (57)
(18)
5
8
14
$ (48)
$ (60)
(40)
14
1
28
$ (57)
224
Notes to the consolidated financial statements (continued) 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 2016
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
$ –
–
–
–
–
142
1
–
143
2
118
209
329
$ –
74
–
17
91
12
25
–
37
–
650
13
663
$ 26
250
–
5
281
114
74
1
189
–
7
–
7
$ 656
$ 2,763
$ 726
295
–
19
970
196
91
–
287
1
–
–
1
563
1
58
28
5
19
$ 4,171
1,210
6
118
3,385
778
5,505
893
154
–
1,047
1
–
–
1
312
21
–
333
1
–
–
1
1,669
366
1
2,036
5
775
222
1,002
$ 472
$ 791
$ 477
$ 1,258
$ 4,433
$ 1,112
$ 8,543
225
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 28. Financial Risk Management Objectives and Policies (continued)
Liquidity Risk (continued)
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
$ –
$ 4
$ 188
$ 498
$ 3,012
$ 780
$ 4,482
–
–
–
–
85
–
–
85
3
152
133
288
8
–
9
21
80
26
–
106
–
502
9
511
301
–
278
767
86
73
1
160
–
5
–
5
309
–
11
818
197
93
1
291
2
–
–
2
517
1
124
3,654
1,353
133
–
1,486
1
–
–
1
35
5
17
837
45
1
–
46
1
–
–
1
1,170
6
439
6,097
1,846
326
2
2,174
7
659
142
808
$ 373
$ 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
$ –
$ 73
$ 430
$ 410
$ 2,836
$ 1,032
9
–
63
358
–
305
320
–
467
589
–
7
70
2
24
$ 4,781
1,346
2
866
145
1,093
1,197
3,432
1,128
6,995
86
13
–
99
–
615
29
644
25
36
1
62
–
42
1
43
606
43
1
650
1
–
–
1
543
33
1
577
2
–
–
2
71
3
–
74
2
–
–
2
1,413
128
3
1,544
5
831
108
944
–
–
–
–
82
–
–
82
–
174
78
252
Payables to related parties in the tables above do not include advances received in the amount of $4 million, $1 million and $Nil as of 31 December
2016, 2015 and 2014, respectively.
$ 334
$ 888
$ 1,198
$ 1,848
$ 4,011
$ 1,204
$ 9,483
226
Notes to the consolidated financial statements (continued) 28. Financial Risk Management Objectives and Policies (continued)
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s income
or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures, while
optimising the return on risk.
Interest Rate Risk
The Group borrows on both a fixed and variable rate basis and has other interest-bearing liabilities, such as finance lease liabilities and other
obligations.
The Group incurs interest rate risk on liabilities with variable interest rates. The Group’s treasury function performs analysis of current interest rates.
In case of changes in market fixed or variable interest rates management may consider the refinancing of a particular debt on more favourable terms.
The Group does not have any financial assets with variable interest rates.
Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Group does not account for any fixed rate financial assets or liabilities at fair value through profit or loss. Therefore, a change in interest rates at
the reporting date would not affect the Group’s profits.
The Group does not account for any fixed rate financial assets as assets available for sale. Therefore, a change in interest rates at the reporting date
would not affect the Group’s equity.
Cash Flow Sensitivity Analysis for Variable Rate Instruments
Based on the analysis of exposure during the years presented, reasonably possible changes in floating interest rates at the reporting date would
affect profit before tax (“PBT”) by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain
constant.
In estimating reasonably possible changes the Group assessed the volatility of interest rates during the reporting periods.
2016
2015
2014
Basis points
Effect on PBT
Basis points
Effect on PBT
Basis points
Effect on PBT
US$ millions
US$ millions
US$ millions
(11)
11
(4)
4
(200)
700
$ 1
(1)
–
$ –
6
$ (21)
(12)
50
(25)
25
(525)
550
$ 2
(8)
–
$ –
13
$ (14)
(2)
2
(7)
7
–
–
$ –
–
–
$ –
–
$ –
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
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.
227
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 28. Financial Risk Management Objectives and Policies (continued)
Market Risk (continued)
Currency Risk (continued)
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
2016
2015
2014
USD/RUB
EUR/RUB
CAD/RUB
EUR/USD
USD/CAD
EUR/CZK
USD/CZK
USD/ZAR
EUR/ZAR
USD/UAH
RUB/UAH
USD/KZT
Sensitivity Analysis
$ 1,242
(75)
335
(116)
(672)
(1)
6
(4)
–
(136)
4
(161)
$ 304
(399)
312
119
(499)
(1)
6
(5)
–
(113)
1
(157)
$ (439)
(220)
372
109
(469)
(1)
1
(34)
10
(248)
2
(150)
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.
2016
2015
2014
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
(20.02)
20.02
(20.68)
20.68
(22.38)
22.38
(9.16)
9.16
(9.16)
9.16
(0.65)
0.65
(9.17)
9.17
(21.23)
21.23
(19.62)
19.62
(9.88)
9.88
(22.29)
22.29
(12.13)
12.13
(325)
198
16
(16)
(75)
75
10
(11)
62
(61)
–
–
(1)
1
1
(1)
–
–
13
(13)
(1)
1
20
(20)
(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)
USD/RUB
EUR/RUB
CAD/RUB
EUR/USD
USD/CAD
EUR/CZK
USD/CZK
USD/ZAR
EUR/ZAR
USD/UAH
RUB/UAH
USD/KZT
228
Notes to the consolidated financial statements (continued) 28. Financial Risk Management Objectives and Policies (continued)
Market Risk (continued)
Currency Risk (continued)
Sensitivity Analysis (continued)
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.
2016
2015
2014
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
(20.02)
20.02
65
(43)
(13)
40
55
(104)
(28.74)
28.74
228
(126)
USD/RUB
Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
▪ Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
▪ Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly;
and
▪ Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data
(unobservable inputs).
The carrying amounts of financial instruments, such as cash, short-term and long-term investments, short-term accounts receivable and payable,
short-term loans receivable and payable and promissory notes, approximate their fair value.
At 31 December the Group held the following financial instruments measured at fair value:
US$ million
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
2016
2015
2014
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)
3
–
–
–
–
–
22
–
–
–
–
–
5
–
–
–
–
274
59
–
–
–
–
–
17
–
–
–
–
713
–
–
–
–
–
2
229
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 28. Financial Risk Management Objectives and Policies (continued)
Fair Value of Financial Instruments (continued)
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
Carrying amount
Fair
value
Carrying amount
Fair
value
Carrying amount
Fair
value
2016
2015
2014
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
6.75% notes due 2022
Rouble-denominated
8.75% rouble bonds due 2015
9.95% rouble bonds due 2015
8.40% rouble bonds due 2016
12.95% rouble bonds due 2019
12.60% rouble bonds due 2021
$ 390
1,516
–
–
27
126
533
349
1,010
772
515
–
–
–
247
255
–
$ 402
1,528
–
–
26
137
554
359
1,066
856
544
–
–
–
260
269
–
$ 397
1,680
–
290
195
354
802
347
1,009
746
–
–
–
167
205
–
–
$ 385
1,564
–
299
190
379
804
328
955
747
–
–
–
165
208
–
–
$ 254
1,235
139
606
417
507
856
345
1,008
–
–
71
271
358
–
–
–
$ 251
1,059
140
531
278
471
730
345
801
–
–
70
250
299
–
–
–
$ 5,740
$ 6,001
$ 6,192
$ 6,024
$ 6,067
$ 5,225
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
2016
2015
2014
3.7 – 6.4%
1.8 – 4.0%
11.03%
4.1 – 9.8%
8.9 – 14.7%
1.8 – 6.2%
12.77%
1.9%
–
USD
EUR
RUB
230
Notes to the consolidated financial statements (continued)
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 2016.
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
2016
2015
2014
Liabilities for purchases of property, plant and equipment
Loans provided in the form of payments by banks for property, plant and
equipment
$ 71
46
$ 63
–
$ 45
–
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.
231
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 30. Commitments and Contingencies (continued)
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 its best estimate of the probable outflow of resources embodying economic benefits, which will be required to settle these liabilities. Possible
liabilities which were identified by management at the end of the reporting period as those that can be subject to different interpretations of the tax
laws and other regulations and are not accrued in these financial statements could be up to approximately $23 million.
Contractual Commitments
At 31 December 2016, the Group had contractual commitments for the purchase of production equipment and construction works for an approximate
amount of $172 million.
In 2010, the Group concluded a contract with PraxAir (Note 2, Accounting Judgements) 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 (extended to 25 years in 2015). 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, effective from 2015 the
Group no longer considers this supply contract to fall within the scope of IFRIC 4 “Determining whether an Arrangement Contains a Lease”.
At 31 December 2016, the Group has committed expenditure of $552 million over the life of the contract.
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 $63 million under these programmes in 2017.
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 2016 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 2017 to 2022, under which the Group
will perform works aimed at reductions in environmental pollution and contamination. As of 31 December 2016, the costs of implementing these
programmes are estimated at $119 million.
232
Notes to the consolidated financial statements (continued) 30. Commitments and Contingencies (continued)
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 2016, possible legal risks approximate $21 million.
31. Auditor’s Remuneration
The remuneration of the Group’s auditor in respect of the services provided to the Group was as follows.
US$ million
2016
2015
2014
Audit of the parent company of the Group
Audit of the subsidiaries
Total assurance services
Services in connection with capital market transactions
Total other services
$ 2
2
4
–
–
$ 4
$ 2
3
5
–
–
$ 5
$ 2
5
7
2
2
$ 9
32. Material Partly-Owned Subsidiaries
Financial information of subsidiaries that have material non-controlling interests is provided below.
Name
Raspadskaya
EVRAZ Highveld Steel and Vanadium Limited
New CF&I (subsidiary of EVRAZ Inc NA)
Country of
incorporation
Non-controlling interests
2016
2015
2014
Russia
Republic of
South Africa
USA
18.05%
–
10.00%
18.05%
–
10.00%
18.05%
14.89%
10.00%
233
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 32. Material Partly-Owned Subsidiaries (continued)
US$ million
2016
2015
2014
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
$ 92
–
98
(4)
186
23
–
(3)
7
$ 27
$ 56
–
101
(24)
133
(32)
1
3
(47)
$ 108
4
98
8
218
(58)
(19)
9
(35)
$ (75)
$ (103)
The summarised financial information regarding these 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
2016
2015
2014
$ 503
(306)
197
(67)
(17)
77
190
(31)
159
(33)
$ 126
90
216
1
–
$ 420
(334)
86
(79)
(91)
(114)
(198)
(24)
(222)
44
$ (178)
(152)
(330)
(51)
–
$ 444
(437)
7
(85)
(9)
(277)
(364)
(32)
(396)
77
$ (319)
(598)
(917)
(154)
–
234
Notes to the consolidated financial statements (continued) 32. Material Partly-Owned Subsidiaries (continued)
EVRAZ Highveld Steel and Vanadium Limited
US$ million
Revenue
Cost of revenue
Gross profit/(loss)
Operating costs
Impairment of assets
Foreign exchange gains/(losses), net
Profit/(loss) from operations
Non-operating gains/(losses)
Profit/(loss) before tax
Income tax benefit/(expense)
Net profit/(loss)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to non-controlling interests
dividends paid to non-controlling interests
New CF&I
US$ million
Revenue
Cost of revenue
Gross profit/(loss)
Operating costs
Impairment of assets
Foreign exchange gains/(losses), net
Profit/(loss) from operations
Non-operating gains/(losses)
Profit/(loss) before tax
Income tax benefit/(expense)
Net profit/(loss)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to non-controlling interests
dividends paid to non-controlling interests
2016
From 1 January to 14 April
2015
2014
$ –
–
–
–
–
–
–
–
–
–
$ –
–
–
–
–
$ 145
(138)
7
(21)
–
(2)
(16)
20
4
–
$ 4
(1)
3
–
–
2016
2015
2014
$ 384
(391)
(7)
(48)
–
–
(55)
21
(34)
9
$ (25)
(4)
(29)
(3)
–
$ 635
(565)
70
(52)
–
–
18
20
38
(12)
$ 26
4
30
3
–
$ 544
(539)
5
(81)
(58)
(3)
(137)
(7)
(144)
13
$ (131)
(7)
(138)
(20)
–
$ 922
(768)
154
(49)
–
–
105
18
123
(37)
$ 86
(10)
76
8
–
235
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 32. Material Partly-Owned Subsidiaries (continued)
Summarised statement of financial position as at 31 December
2016
2015
2014
$ 1,004
30
655
1,689
65
52
952
1,069
620
528
92
$ 883
51
279
1,213
54
507
247
808
405
348
57
$ 1,316
32
117
1,465
93
530
107
730
735
627
108
2016
2015
2014
$ –
$ –
$ 80
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2016
2015
2014
$ 184
957
117
1,258
30
81
166
277
981
883
98
$ 214
967
125
1,306
42
81
173
296
1,010
909
101
30
149
259
–
64
169
233
26
22
4
$ 237
929
186
1,352
85
86
201
372
980
882
98
Raspadskaya
US$ million
Property, plant and equipment
Other non-current assets
Current assets
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Total equity
attributable to:
equity holders of parent
non-controlling interests
EVRAZ Highveld Steel and Vanadium Limited
US$ million
Property, plant and equipment
Other non-current assets
Current assets
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Total equity
attributable to:
equity holders of parent
non-controlling interests
New CF&I
US$ million
Property, plant and equipment
Other non-current assets
Current assets
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Total equity
attributable to:
equity holders of parent
non-controlling interests
236
Notes to the consolidated financial statements (continued) 32. Material Partly-Owned Subsidiaries (continued)
Summarised cash flow information
Raspadskaya
US$ million
Operating activities
Investing activities
Financing activities
EVRAZ Highveld Steel and Vanadium Limited
US$ million
Operating activities
Investing activities
Financing activities
New CF&I
US$ million
Operating activities
Investing activities
Financing activities
33. Subsequent Events
There were no significant events after the reporting date.
2016
2015
2014
$ 176
(100)
(89)
$ 107
(32)
(49)
2016
From 1 January to 14 April
2015
2014
$ –
–
–
$ –
(5)
(2)
2016
2015
2014
$ 5
(5)
–
$ 101
(101)
–
$ 120
(61)
(41)
$ (15)
(15)
7
$ 154
(154)
–
237
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 34. List of Subsidiaries and Other Significant Holdings
Country of
incorporation
Name
Relationship
effective
ownership
in 2016, %
Registered address
Notes
Austria
Hochvanadium Handels GmbH
indirect subsidiary
85.11%
Renngasse 1, Freyung 1013 Wien
Austria
Hochvanadium Holdings AG
indirect subsidiary
85.11%
Renngasse 1, Freyung 1013 Wien
Note 4,
Deconsolidation of
subsidiaries
Note 4,
Deconsolidation of
subsidiaries
British Virgin
Islands
Cassar World Investments Corporation
indirect subsidiary
100.00%
Geneva Place, Waterfront Drive, PO Box
3469, Road Town, Tortola
liquidated
Canada
Camrose Pipe Corporation
indirect subsidiary
100.00%
8735 Harborgate Portland, OR 97203
Canada
Canadian National Steel Corporation
indirect subsidiary
100.00%
Canada
Evraz Inc NA Canada
indirect subsidiary
100.00%
Canada
EVRAZ Materials Recycling Inc.
indirect subsidiary
100.00%
Canada
Evraz Wasco Pipe Protection Corporation
indirect subsidiary
51.00%
700 - 9th Avenue S.W. Suite 3000
Calgary, AB T2P 3V4
40 King Street West, Suite 5800, Toronto,
Ontario M5H 3S1
40 King Street West
Suite 5800
Toronto, ON. M5H 3S1
181 Bay Street, Suite 2100, Toronto,
Ontario M5J 2T3
2400, 525 8th Avenue SW
Calgary AB T2P 1G1
Canada
Canada
Genalta Recycling Inc.
joint venture
50.00%
General Scrap Partnership
indirect subsidiary
100.00%
308 Highway 2 East Minot, ND 58702
Canada
Genlandco Inc.
indirect subsidiary
100.00%
Canada
Kar-basher Manitoba Ltd
joint venture
50.00%
Canada
Kar-basher of Alberta Ltd
indirect subsidiary
100.00%
Canada
King Crusher Inc.
joint venture
50.00%
Canada
New Gensubco Inc.
indirect subsidiary
100.00%
Canada
Sametco Auto Inc.
indirect subsidiary
100.00%
China
Delong Holdings Limited
investment
15.04%
Cyprus
Actionfield Limited
indirect subsidiary
60.02%
Cyprus
Crownwing Limited
indirect subsidiary
100.00%
Cyprus
East Metals Limited
indirect subsidiary
100.00%
Cyprus
Laybridge Limited
indirect subsidiary
100.00%
Cyprus
Malvero
indirect subsidiary
100.00%
Cyprus
Mastercroft Finance Limited
indirect subsidiary
100.00%
Cyprus
Mastercroft Mining Limited
indirect subsidiary
100.00%
Cyprus
RVK Invest Limited
associate
42.61%
360 Main Street 30th FL Winnipeg,
Manitoba R3C 4G1
200-233 Portage Avenue Winnipeg,
Manitoba R3B 2A7
30th Floor, 360 Main Street,
Winnipeg, MB, R3C 4G1
700 - 9th Avenue S.W.
Suite 3000
Calgary, AB T2P 3V4
Aikins, MacAulay & Thorvaldson LLP
30th Floor, 360 Main Street,
Winnipeg, MB, R3C 4G1
387 Broadway
Winnipeg MB R3C 0V5
55 Market Street
Level 10
Singapore 048941
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
4 Themistokli Dervi, Julia House, 1066,
Nicosia
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 2016, %
Registered address
Notes
Cyprus
Sinano Limited
indirect subsidiary
100.00%
Cyprus
Steeltrade Limited
indirect subsidiary
100.00%
Cyprus
Streamcore Limited
joint venture
50.00%
Cyprus
Tuva Railway Limited
indirect subsidiary
60.02%
Cyprus
Unicroft Limited
indirect subsidiary
100.00%
Cyprus
Vanston Limited
indirect subsidiary
100.00%
Cyprus
Velcast Limited
indirect subsidiary
100.00%
Czech Republic
Nikom, a.s.
indirect subsidiary
100.00%
Italy
Evraz Palini e Bertoli S.r.l
indirect subsidiary
100.00%
Kazakhstan
Evraz Caspian Steel
indirect subsidiary
65.00%
Kazakhstan
EvrazMetall Kazakhstan
indirect subsidiary
100.00%
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
Leoforos Archiepiskopou Makariou lll,
135, EMELLE Building, flat/office 22,
3021, Limassol
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
Czech Republic, Mnisek pod Brdy, Prazska
900, 25210
via E. Fermi 28, 33058 San Giorgio di
Nogaro (UD)
41, ul. Promyshlennaya, Kostanai,
110000
office 201, 9, shosse Alash, Saryarkinskiy
raion, Astana
Luxembourg
Corber Enterprises S.à r.l
indirect subsidiary
100.00%
13, avenue Monterey, L2163, Luxembourg liquidated
Luxembourg
Evraz Greenfield Development S.A.
direct subsidiary
100.00%
13, avenue Monterey, L2163, Luxembourg liquidated
Luxembourg
Evraz Group S.A.
direct subsidiary
100.00%
13, avenue Monterey, L2163, Luxembourg
Luxembourg
Mastercroft S.à r.l
indirect subsidiary
100.00%
13, avenue Monterey, L2163, Luxembourg liquidated
Malta
Malta
Malta
Aino Dake Maritime Limited
indirect subsidiary
100.00%
198 Old Bakery Street, Valleta VLT 1455
liquidated
Kita Dake Maritime Limited
indirect subsidiary
100.00%
198 Old Bakery Street, Valleta VLT 1455
liquidated
Mae Dake Maritime Limited
indirect subsidiary
100.00%
198 Old Bakery Street, Valleta VLT 1455
liquidated
Mexico
Evraz NA Mexico
indirect subsidiary
100.00%
Frida Kahlo 195-709, Valle Оrientе, San
Pedro Garza Carcia, Nuevo Leon, 66269
Netherlands
ECS Holdings Europe B.V.
indirect subsidiary
65.00%
Hoogoorddreef 15, 1101 BA Amsterdam
Netherlands
Palmrose B.V.
indirect subsidiary
100.00%
Hoogoorddreef 15, 1101 BA Amsterdam
Republic of S.Africa Evraz Highveld Steel and Vanadium Limited
indirect subsidiary
85.11%
Old Pretoria Road, Portion 93 of the
Farm Schoongezicht 308 JS eMalahleni
(Witbank)
Note 4,
Deconsolidation of
subsidiaries
Republic of S.Africa Evraz Vametco Alloys (PTY) Ltd
indirect subsidiary
59.07%
83 Lois Avenue Menlyn Pretoria 0181
Republic of S.Africa Evraz Vametco Holdings (PTY) Ltd
indirect subsidiary
59.07%
83 Lois Avenue Menlyn Pretoria 0181
Republic of S.Africa Evraz Vametco Properties (PTY) Ltd
indirect subsidiary
59.07%
83 Lois Avenue Menlyn Pretoria 0181
Republic of S.Africa Mapochs Mine (Proprietary) Limited
indirect subsidiary
62.98%
Old Pretoria Road, Portion 93 of the
Farm Schoongezicht 308 JS eMalahleni
(Witbank)
Note 4,
Deconsolidation of
subsidiaries
239
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 34. List of Subsidiaries and Other Significant Holdings (continued)
Country of
incorporation
Name
Relationship
effective
ownership
in 2016, %
Registered address
Notes
Republic of S.Africa Mapochs Mine Community Trust
indirect subsidiary
-
Russia
Aktiv-Media
indirect subsidiary
100.00%
Note 4,
Deconsolidation of
subsidiaries
Portion 93 of the farm Schoongezicht
No.308 JS, eMalahleni
Office 6, 35, ul. Ordzhonikidze,
Novokuznetsk, Kemerovskaya obl.,
654007
39, ul. Kondomskoe shosse,
Novokuznetsk, Kemerovskaya obl.,
654018
Russia
Russia
ATP Evrazruda
ATP NTMK
indirect subsidiary
100.00%
indirect subsidiary
100.00%
1, ul. Metallurgov, Nizhny Tagil, 622025 merged
Russia
ATP Yuzhkuzbassugol
indirect subsidiary
100.00%
Russia
ATP ZSMK
indirect subsidiary
100.00%
Russia
AVT-Ural
indirect subsidiary
51.00%
Russia
Beltrans
indirect subsidiary
100.00%
Russia
Blagotvoritelniy fond Evraza - Sibir
indirect subsidiary
Russia
Blagotvoritelniy fond Evraza - Ural
indirect subsidiary
20, Silikatnaya, Novokuznetsk,
Kemerovskaya obl., 654086
2, ul. Promstroevskaya, Novokuznetsk,
Kemerovskaya obl., 654038
2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624350
64, ul. Sumskaya, Belgorod,
Belgorodskaya obl., 308015
1, ul. Ploshad Pobedy, Novokuznetsk,
Kemerovskaya obl., 654010
office 4, 39, ul. Karl Marks, Nizhny Tagil,
Sverdlovskaya obl., 622001
merged
11, ul. Kirova, Novokuznetsk,
Kemerovskaya obl., 654000
liquidated
-
-
-
Blagotvoritelniy fond Veteran Evraz Sibir
indirect subsidiary
Briyanskmetallresursy
indirect subsidiary
99.96%
14, ul. Staleliteinaya, Bryansk, 241035
Russia
Centr kultury i iskusstva NTMK
indirect subsidiary
Russia
Centr podgotovki personala Evraz-Ural
indirect subsidiary
1, ul., Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
1, ul., Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
-
-
Russia
Centr Servisnykh Resheniy
indirect subsidiary
100.00%
Centralnaya Obogatitelnaya Fabrika
Abashevskaya
Centralnaya Obogatitelnaya Fabrika
Kuznetskaya
indirect subsidiary
92.10%
indirect subsidiary
100.00%
1, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
12, Tupik Strelochny, Novokuznetsk,
Kemerovskaya obl., 654086
16, Shosse Severnoe, Novokuznetsk,
Kemerovskaya obl., 654000
Russia
Russia
Russia
Russia
Russia
Consortium Tuvinskie dorogi
indirect subsidiary
60.02%
4, ul. Belovezhskaya, Moscow, 121353
Russia
DakService
indirect subsidiary
100.00%
Russia
DaksSoft
indirect subsidiary
100.00%
Russia
Elekrosvyaz YKU
indirect subsidiary
87.20%
Russia
Russia
Evraz Consolidated West-Siberian
metallurgical Plant
EVRAZ Kachkanarsky Ore Mining and
Processing Plant
indirect subsidiary
100.00%
indirect subsidiary
100.00%
Russia
Evraz Nakhodka Trade Sea Port
indirect subsidiary
100.00%
Russia
Evraz Nizhny Tagil Metallurgical Plant
indirect subsidiary
100.00%
9, ul. Khimicheskaya, Taganrog,
Rostovskaya obl., 347913
9, ul. Khimicheskaya, Taganrog,
Rostovskaya obl., 347913
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654027
16, ul. Shosse Kosmicheskoe,
Novokuznetsk, Kemerovskaya obl.,
654043
2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624350
22, ul. Portovaya, Nakhodka, Primorsky
krai, 692904
1, ul., Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
merged
liquidated
240
Notes to the consolidated financial statements (continued) 34. List of Subsidiaries and Other Significant Holdings (continued)
Country of
incorporation
Name
Relationship
effective
ownership
in 2016, %
Registered address
Notes
Russia
EVRAZ Vanady-Tula
indirect subsidiary
100.00%
1, ul. Przhevalskogo, Tula, 300016
Russia
EvrazEK
indirect subsidiary
100.00%
2B, ul. Khlebozavodskaya, Novokuznetsk,
Kemerovskaya obl., 654006
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
indirect subsidiary
100.00%
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
merged
Russia
Russia
Russia
Russia
Russia
Evrazenergotrans
EvrazHolding LLC
EvrazHolding-Finance
EvrazMetall Centr
EvrazMetall Chernozemie
indirect subsidiary
100.00%
5, Montazhny proezd, Voronezh, 394028 merged
Russia
EvrazMetall Dalniy Vostok
indirect subsidiary
100.00%
Russia
EvrazMetall Severo-Zapad
indirect subsidiary
100.00%
Russia
EvrazMetall Sibir
indirect subsidiary
100.00%
Russia
EvrazMetall Ural
indirect subsidiary
100.00%
Russia
EvrazMetall Volga
indirect subsidiary
100.00%
Russia
EvrazMetallService
indirect subsidiary
100.00%
A, 88, Okeansky Prospect, Vladivostok,
Primorsky Krai, 690002
merged
Office 1, 5, p. Metallostroy, St.Petersburg,
196641
merged
30, Shosse Severnoe, Novokuznetsk,
Kemerovskaya obl., 654043
10, ul. Krasnoarmeiskaya, Ekaterinburg,
Sverdlovskaya obl., 620075
merged
4, ul. Novikova-Priboya, Nizhny Novgorod,
603058
merged
30, Shosse Severnoe, Novokuznetsk,
Kemerovskaya obl., 654043
merged
Russia
Russia
Russia
Evrazruda
Evraz-Service
Evraztekhnika
indirect subsidiary
100.00%
21, ul. Lenina, Tashtagol, Kemerovskaya
obl., 652990
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
Russia
Gurievsky rudnik
indirect subsidiary
100.00%
1, ul. Zhdanova, Gurievsk, Kemerovskaya
obl., 652780
Russia
Industrialnaya Vostochno-Evropeiskaya
company
indirect subsidiary
100.00%
3, ul. Khimicheskaya, Taganrog,
Rostovskaya obl., 347913
Russia
Information systems
indirect subsidiary
100.00%
Russia
Inprom
indirect subsidiary
100.00%
Russia
Issledovatelsky centr
associate
20.00%
Kachkanarskaya teplosnabzhauschaya
company
indirect subsidiary
100.00%
Russia
Russia
22, ul. Portovaya, Nakhodka, Primorsky
krai, 692904
liquidated
2-a, ul. Marshala Zhukova, Taganrog,
Rostovskaya obl., 347942
2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624351
17, 8 mocroraion, Kachkanar,
Sverdlovskaya obl., 624350
sold
Kalugametalltorg
indirect subsidiary
90.947%
25, ul. Pronchisheva, Kaluga, 248009
sold
Russia
Kulturno-sportivniy centr metallurgov
indirect subsidiary
-
Russia
Kuznetskpogruztrans
indirect subsidiary
94.50%
Russia
Kuznetskteplosbyt
indirect subsidiary
100.00%
20, Prospect Metallurgov, Novokuznetsk,
Kemerovskaya obl., 654007
18, ul. Promyshlennaya, Novokuznetsk,
Kemerovskaya obl., 654029
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
241
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 34. List of Subsidiaries and Other Significant Holdings (continued)
Country of
incorporation
Name
Relationship
effective
ownership
in 2016, %
Registered address
Notes
Russia
Management Company EVRAZ
Mezhdurechensk
indirect subsidiary
100.00%
69, ul. Kirova, Novokuznetsk,
Kemerovskaya obl., 654080
Russia
Medsanchast Vanady
indirect subsidiary
100.00%
Russia
Mekona
indirect subsidiary
100.00%
Russia
Metallenergofinance
indirect subsidiary
100.00%
Russia
Metalloservisnie centry
indirect subsidiary
100.00%
Russia
Metallurg-Forum
indirect subsidiary
75.00%
Russia
Metpromstroy
indirect subsidiary
100.00%
12 microraion, Kachkanar, Sverdlovskaya
obl., 624350
22, ul. Portovaya, Nakhodka, Promorsky
krai
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
9, ul. Khimicheskaya, Taganrog,
Rostovskaya obl., 347913
1, ul., Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
5, p. Metallostroy, St. Petersburg,
196641
62, ul. Internationalnaya, Kyzyl, Tyva
Republic, 667000
merged
Russia
Russia
Mezhegeyugol Coal Company
indirect subsidiary
60.02%
Mezhegeyugol LLC
indirect subsidiary
60.02%
4, ul. Belovezhskaya, Moscow, 121353
Russia
Mine Abashevskaya
indirect subsidiary
100.00%
Russia
Mine Alardinskaya
indirect subsidiary
100.00%
Russia
Mine Esaulskaya
indirect subsidiary
100.00%
Russia
Mine Kureinskaya
indirect subsidiary
100.00%
Russia
Mine Kusheyakovskaya
indirect subsidiary
100.00%
Russia
Mine Osinnikovskaya
indirect subsidiary
100.00%
Russia
Mine Uskovskaya
indirect subsidiary
100.00%
Russia
Mining Metallurgical Company “Timir”
joint venture
51.00%
Russia
Montajnik Raspadskoy
indirect subsidiary
81.95%
Russia
Mordovmetallotorg
indirect subsidiary
99.90%
Russia
MUK-96
indirect subsidiary
81.95%
Russia
Novokuznetskmetallopttorg
associate
48.51%
Russia
Nizhny Tagil Telecompany Telecon
indirect subsidiary
100.00%
Russia
Obogatitelnaya Fabrika Raspadskaya
indirect subsidiary
81.95%
Russia
Ohothichie hozyaistvo
indirect subsidiary
-
Olzherasskoye shakhtoprokhodcheskoye
upravlenie
indirect subsidiary
81.95%
5, ul. Kavkazskaya, Novokuznetsk,
Kemerovskaya obl., 654013
56, ul. Ugolnaya, Malinovka, Kaltan,
Kemerovskaya obl., 652831
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654027
4, ul. Nevskogo, Novokuznetsk,
Kemerovskaya obl.
5, ul. Kavkazskaya, Novokuznetsk,
Kemerovskaya obl., 654013
3, ul. Shakhtovaya, Osinniki,
Kemerovskaya obl.,
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654027
4, Prospect Geologov, Neryungri, Republic
of Saha (Yakutia), 678960
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
39, Aleksandrovskoe Shosse, Saransk,
Respublica Mordovia, 430006
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
16, ul. Chaikinoi, Novokuznetsk,
Kemerovskaya obl., 654005
74, ul. Industrialnaya, Nizhny Tagil,
Sverdlovskaya obl., 622025
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
Osinnikovsky remontno-mekhanichesky zavod indirect subsidiary
84.43%
130, ul. Lenina, Osinniki, Kemerovskaya
obl., 652810
Penzametalltorg
indirect subsidiary
100.00%
100, ul. Baidukova, Penza, 440015
Russia
Russia
Russia
242
Notes to the consolidated financial statements (continued) 34. List of Subsidiaries and Other Significant Holdings (continued)
Country of
incorporation
Name
Relationship
effective
ownership
in 2016, %
Registered address
Notes
Russia
Promuglepoject
indirect subsidiary
100.00%
Russia
Publishing House IKaR
indirect subsidiary
100.00%
Russia
Raspadskaya
indirect subsidiary
81.95%
Russia
Raspadskaya logisticheskaya company
indirect subsidiary
81.95%
Russia
Raspadskaya ugolnaya company
indirect subsidiary
81.95%
Russia
Raspadskaya-Energo
indirect subsidiary
81.95%
Russia
Raspadskaya-Koksovaya
indirect subsidiary
81.95%
4, ul. Nevskogo, Novokuznetsk,
Kemerovskaya obl., 654027
4, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624356
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654027
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
Razrez Raspadskiy
indirect subsidiary
81.95%
Regional Media Company
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
Regionalniy Centr podgotovki personala
Evraz-Sibir
indirect subsidiary
-
Rembytcomplect
indirect subsidiary
100.00%
4, ul. Nevskogo, Novokuznetsk,
Kemerovskaya obl., 654027
8, 8 microraion, Kachkanar,
Sverdlovskaya obl., 624350
Remontno-stroitelny complex
indirect subsidiary
100.00%
1, ul. Metallurgov, Nizhny Tagil, 622025 merged
Salda Energo
indirect subsidiary
100.00%
2, ul. Engels, Nizhnya Salda,
Sverdlovskaya obl.
merged
Samarskiy mekhanicheskiy zavod
indirect subsidiary
100.00%
1A, ul. Groznenskaya, Samara, 443004
Russia
Sanatoriy-porfilactory Lenevka
indirect subsidiary
-
Russia
Sibirskaya registratsionnaya company
investment
10.06%
Sibir-VK
Sibmetinvest
joint venture
50.00%
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
Specializirovannoye Shakhtomontazhno-
naladochnoye upravlenie
indirect subsidiary
79.14%
Lenevka, Prigorodny raion, Sverdlovskaya
obl., 622911
57, Prospect Stroiteley, Novokuznetsk,
Kemerovskaya obl., 654005
37A, ul. Kutuzova, Novokuznetsk,
Kemerovskaya obl., 654041
28, proezd Zaschitny, Novokuznetsk,
Kemerovskaya obl., 654034
36, Gvardeisky bulvar, Nizhny Tagil,
622005
67, Prospect Lenina, Nizhny Tagil,
Sverdlovskaya obl., 622034
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
1B, ul. Poselok Mekhzavoda, Ryazan,
390007
Russia
Sportivniy complex Uralets
indirect subsidiary
-
Russia
Tagilteplosbyt
indirect subsidiary
100.00%
Tomusinskoye pogruzochno-transportnoye
upravlenie
indirect subsidiary
48.01%
Torfagregat
indirect subsidiary
100.00%
Trade Company EvrazHolding
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
Trade House EvrazHolding
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
Tulametallopttorg
indirect subsidiary
100.00%
36, Aleksinskoe shosse, Tula, 300000
Russia
TV-Most
indirect subsidiary
100.00%
Russia
TVN
indirect subsidiary
100.00%
office 164, 31, Moscovsky prospect,
Kemerovo, 650065
35, ul. Ordzhonikidze, Novokuznetsk,
Kemerovskaya obl., 654007
243
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) 34. List of Subsidiaries and Other Significant Holdings (continued)
Country of
incorporation
Name
Relationship
effective
ownership
in 2016, %
Registered address
Notes
Russia
Uliyanovskmetall
indirect subsidiary
99.37%
Russia
United accounting systems
indirect subsidiary
100.00%
Russia
United Coal Company Yuzhkuzbassugol
indirect subsidiary
100.00%
Russia
Upravlenie po montazhu, demontazhu i
remontu gornoshakhtnogo oborudovaniya
indirect subsidiary
100.00%
Russia
Vanadyservice
indirect subsidiary
100.00%
20, 11 proezd Inzhenerny, Ulyanovsk,
432072
63, Prospect Octyabrsky, Novokuznetsk,
Kemerovskaya obl., 654006
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654027
130, ul. Lenina, Osinniki, Kemerovskaya
obl., 652810
11a, 10 microraion, Kachkanar,
Sverdlovskaya obl., 624350
2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624350
Russia
Russia
Vanady-transport
Vladimirmetallopttorg
indirect subsidiary
100.00%
indirect subsidiary
95.63%
57, ul. P. Osipenko, Vladimir, 600009
Russia
Vtorresurspererabotka
joint venture
50.00%
Russia
Yuzhno-Kuzbasskoye geologorazvedochnoye
upravlenie
indirect subsidiary
100.00%
Russia
Yuzhny Stan
indirect subsidiary
100.00%
Russia
ZAO Irkutskvtorchermet
associate
42.61%
Russia
ZAO Vtorchermet
associate
42.61%
Russia
Zapsibzhilstroy
indirect subsidiary
100.00%
Russia
Zavod metallurgicheskih reagentov
associate
50.00%
37A, ul. Kutuzova, Novokuznetsk,
Kemerovskaya obl., 654041
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654027
1, ul. Zarechnaya, rabochy poselok
Ust-Donetsky, Ust-Donetsky raion,
Rostovskaya obl., 346550
office 212, bld. ZAO Vtorchermet, ul.
Severny Promuzel, Irkutsk, 664053
office 211, bld. ZAO Vtorchermet, ul.
Severny promuzel, Irkutsk, 664053
16, ul. Shosse Kosmicheskoe,
Novokuznetsk, Kemerovskaya obl.,
654043
1, ul., Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
Switzerland
East Metals A.G.
indirect subsidiary
100.00%
Baarerstrasse 131, 6300 Zug
Switzerland
East Metals Shipping A.G.
indirect subsidiary
100.00%
Baarerstrasse 131, 6300 Zug
Ukraine
Bon Life
indirect subsidiary
97.73%
Ukraine
Evraz Dneprovsk Metallurgical Plant
indirect subsidiary
97.73%
Ukraine
Evraz Sukha Balka
indirect subsidiary
99.4193%
Ukraine
Evraz Ukraine
indirect subsidiary
100.00%
Ukraine
Evraz Yuzhkoks
indirect subsidiary
94.96%
26, ul. Starokazatskaya, Dnepr,
Dnepropetrovskaya obl., 49000
3, ul. Mayakovskogo, Dnepr,
Dnepropetrovskaya obl., 49064
5, ul. Konstitutsionnaya, Krivoy Rog,
Dnepropetrovskaya obl., 50029
31, ul. Udarnikov, Dnepr,
Dnepropetrovskaya obl., 49064
1, ul. Vyacheslav Chernovil, Kamenskoye,
Dnepropetrovskaya obl., 51909
Ukraine
Ukraine
Evraztrans-Ukraine
LK Adzhalyk
indirect subsidiary
100.00%
3, ul. Mayakovskogo, Dnepr,
Dnepropetrovskaya obl., 49064
indirect subsidiary
100.00%
kv.97, 1, Prospect Pravdy, Kharkov, 61022
Ukraine
Trade House Evraz Ukraine
indirect subsidiary
99.42%
Ukraine
United accounting systems Ukraine
indirect subsidiary
99.90%
31, ul. Udarnikov, Dnepr,
Dnepropetrovskaya obl., 49064
3, ul. Mayakovskogo, Dnepr,
Dnepropetrovskaya obl., 49064
244
Notes to the consolidated financial statements (continued) 34. List of Subsidiaries and Other Significant Holdings (continued)
Country of
incorporation
Name
Relationship
effective
ownership
in 2016, %
Registered address
Notes
United Kingdom
Evraz North America plc
indirect subsidiary
100.00%
20-22 Bedford Row
London
England
WC1R 4JS
United Kingdom
Viscaria 2 Limited
indirect subsidiary
100.00%
20 – 22 Bedford Row, London WC1R 4JS
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
CF&I Steel LP
indirect subsidiary
90.00%
1612 E Abriendo Pueblo, CO 81004
Colorado and Wyoming Railway Company
indirect subsidiary
90.00%
2100 S. Freeway Pueblo, CO 81004
East Metals Services Inc.
indirect subsidiary
100.00%
Evraz Claymont Steel, Inc.
indirect subsidiary
100.00%
Evraz Inc. NA
indirect subsidiary
100.00%
Evraz Stratcor, Inc.
indirect subsidiary
100.00%
Evraz Trade NA LLC
indirect subsidiary
100.00%
200 E. Randolph Drive Suite 7800
Chicago, IL 60601
4001 Philadelphia Pike, Claymont,
Delaware 19703
200 E. Randolph Drive Suite 7800
Chicago, IL 60601
4285 Malvern Road, Hot Springs, AR
71901
200 E. Randolph Drive Suite 7800
Chicago, IL 60601
Fremont County Irrigating Ditch Co.
investment
13.80%
113 W. 5th Street Florence, CO 81226
General Scrap Inc.
New CF&I Inc.
indirect subsidiary
100.00%
3101 Valley Street Minot, ND 58702
indirect subsidiary
90.00%
1612 E Abriendo Pueblo, CO 81004
Oregon Ferroalloy Partners
indirect subsidiary
60.00%
Oregon Steel Mills Processing Inc.
indirect subsidiary
100.00%
OSM Distribution Inc.
indirect subsidiary
100.00%
Strategic Minerals Corporation
indirect subsidiary
78.76%
14400 Rivergate Blvd. Portland, OR
97203
200 East Randolph Drive, #7800
Chicago, IL 60601
200 E. Randolph Drive Suite 7800
Chicago, IL 60601
4285 Malvern Road, Hot Springs, AR
71901
Union Ditch and Water Co.
indirect subsidiary
57.59%
113 W. 5th Street Florence, CO 81226
US Tungsten
indirect subsidiary
78.76%
4285 Malvern Road, Hot Springs,
Arkansas 71901
245
Annual Report & Accounts 2016www.evraz.comConsolidated financial statementsNotes to the consolidated financial statements (continued) EVRAZ plc
Separate Financial Statements
For the year ended 31 December 2016
Separate Statement of Comprehensive Income
(IN MILLIONS OF US DOLLARS)
General and administrative expenses
Operating income
Impairment of investments
Foreign exchange gains/(losses)
Interest expense
Dividend income
Other non-operating gains/(losses)
Net profit/(loss)
Total comprehensive income/(loss)
The accompanying notes form an integral part of these separate financial statements.
Notes
2016
2015
31 December
7
3
3
3,7
8
4,9
$ (7)
11
(21)
(4)
(14)
–
(39)
(74)
$ (74)
$ (8)
6
(145)
9
(3)
350
2
211
$ 211
246
Separate Statement of Financial Position
(IN MILLIONS OF US DOLLARS)
Notes
2016
2015
31 December
ASSETS
Non–current assets
Investments in subsidiaries
Investments in joint ventures
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
Loan payable to related parties
Financial guarantee liabilities
Current liabilities
Trade and other payables
Loan payable to related parties
Financial guarantee liabilities
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
3
3
7
7
5
5
3,5
5
6
3,9
7
7
3,9
7
7
$ 3,165
18
18
3,201
14
2
16
3,217
1,507
(270)
(584)
127
117
1,958
2,855
41
274
18
333
17
3
9
29
362
$ 3,217
The Financial Statements on pages 246 to 255 were approved by the Board of Directors on 28 February 2017 and signed on its behalf by
Alexander Frolov, Chief Executive Officer.
The accompanying notes form an integral part of these separate financial statements.
$ 2,880
40
24
2,944
12
16
28
2,972
1,507
(305)
(584)
127
101
2,067
2,913
20
–
21
41
8
–
10
18
59
$ 2,972
247
Annual Report & Accounts 2016www.evraz.comSeparate financial statements
Separate Statement of Cash Flows
(IN MILLIONS OF US DOLLARS)
Cash flows from operating activities
Net profit/(loss)
Adjustments to reconcile net profit/(loss) to net cash flows from operating activities:
Notes
2016
2015
$ (74)
$ 211
7
3
3
3,7
9
8
7
9
3
4
7
7
8
3
5
7
7
3
Operating income
Impairment of investments
Foreign exchange (gains)/losses
Interest expense
Other non-operating (gains)/losses
Dividend income
Changes in working capital:
Receivables from related parties
Trade and other payables
Net cash flow used in operating activities
Cash flows from investing activities
Investments in subsidiaries
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/(used in) investing activities
Cash flows from financing activities
Purchase of treasury shares
Proceeds from loans provided by related parties
Repayment of loans provided by related parties, including interest
Payments for investments on deferred terms, including interest
Net cash flow from/(used in) financing activities
Net decrease 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
Supplementary cash flow information:
Interest paid
The accompanying notes form an integral part of these separate financial statements.
(11)
21
4
14
39
–
(7)
11
(8)
(4)
(300)
–
–
–
–
32
(268)
–
305
(39)
(8)
258
(14)
16
$ 2
(8)
(6)
145
(9)
3
(2)
(350)
(8)
1
–
(7)
(88)
8
(16)
16
350
60
330
(339)
–
–
(2)
(341)
(18)
34
$ 16
(2)
248
Separate Statement of Changes in Equity
(IN MILLIONS OF US DOLLARS)
Notes
Issued
capital
Treasury
shares
Reorganisation
reserve
Merger
reserve
Share-
based
payments
Accumulated
profits
Total
At 31 December 2014
$ 1,507
$ –
$ (584)
$ 57
$ 81
$ 1,960
$ 3,021
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
Total comprehensive income/(loss) for the year
Share-based payments
Transfer of treasury shares to participants of the
Incentive Plans
At 31 December 2016
3
6
5
5
6
5
–
–
–
–
–
–
–
(336)
–
–
–
–
–
70
–
–
–
–
20
–
211
(70)
–
(3)
211
–
20
(339)
–
$ 1,507
31
$ (305)
–
$ (584)
–
$ 127
–
$ 101
(31)
$ 2,067
–
$ 2,913
–
–
–
–
–
35
–
–
–
–
–
–
–
16
–
(74)
–
(35)
(74)
16
–
$ 1,507
$ (270)
$ (584)
$ 127
$ 117
$ 1,958
$ 2,855
The accompanying notes form an integral part of these separate financial statements.
249
Annual Report & Accounts 2016www.evraz.comSeparate financial statements EVRAZ plc
Notes to the Separate Financial Statements
For the year ended 31 December 2016
1. Corporate Information
These separate financial statements of EVRAZ plc were authorised for issue in accordance with a resolution of the directors on 28 February 2017.
EVRAZ plc (“EVRAZ plc” or “the Company”) was incorporated on 23 September 2011 as a public company limited by shares under the laws of the
United Kingdom. The Company was incorporated under the Companies Act 2006 with the registered number in England 7784342. The Company’s
registered office is at 5th Floor, 6 St. Andrew Street, London, EC4A 3AE, United Kingdom.
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 2016, 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.
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.
250
2. Significant Accounting Policies (continued)
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:
Ownership interest
Cost, net of impairment
US$ million
2016
2015
2016
2015
Subsidiaries
Evraz Group S.A.
EVRAZ Greenfield Development S.A.
Joint Ventures
100%
–
100%
100%
OJSC Mining and Metallurgical Company Timir
51.00001%
51.00001%
The movement in investments was as follows:
3,165
–
3,165
18
2,849
31
2,880
40
$US million
31 December 2014
Additional investments
Reduction of investments
Share-based compensations
Impairment loss (recognition)/reversal
Sale of Corber investment
31 December 2015
Additional investments
Share-based compensations
Liquidation of investments
Impairment loss (recognition)/reversal
31 December 2016
Evraz Group S.A.
EVRAZ Greenfield
Development S.A.
Corber
Timir
Total
$ 2,250
$ 254
$ 421
$ 92
$ 3,017
88
–
20
–
491
$ 2,849
300
16
–
–
$ 3,165
–
(60)
–
(163)
–
$ 31
–
–
(32)
1
$ –
–
–
–
70
(491)
$ –
–
–
–
–
$ –
–
–
–
(52)
–
$ 40
–
–
–
(22)
$ 18
88
(60)
20
(145)
–
$ 2,920
300
16
(32)
(21)
$ 3,183
251
Notes to the separate financial statements (continued)Annual Report & Accounts 2016www.evraz.comSeparate financial statements
3. Investments in Subsidiaries and Joint Ventures (continued)
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 2016, the Company made a cash contribution to the share capital of Evraz Group S.A. in the amount of $300 million.
In addition, the Company recognises share-based payments made to employees of subsidiaries under control of Evraz Group S.A. as an addition to
the cost of its investments in Evraz Group S.A. (Note 6). In 2016 and 2015, share-based compensations amounted to $16 million and $20 million,
respectively.
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 owned
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, 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 a 13.90% discount rate reflecting time
value of money and risks associated with the asset. 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 2016, EGD transferred the Mezhegey project to Evraz Group S.A. and was liquidated. The Company received from EGD $32 million in cash as
a return of shareholder’s funds. Consequently, the Company reversed impairment of $1 million being the difference between cash proceeds from EGD
and its carrying value before liquidation.
Corber Enterprises S.à r.l.
In 2013, EVRAZ plc acquired a 50% ownership interest in Corber Enterprises S.à r.l. (“Corber”), which was at that time the parent of a coal mining
company Raspadskaya, for $964 million. In 2014, the investment was impaired by $543 million recognised in the statement of comprehensive
income and transferred out of the merger reserve.
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 and the Company recognised a reversal of impairment
amounting to $70 million.
252
Notes to the separate financial statements (continued) 3. Investments in Subsidiaries and Joint Ventures (continued)
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.
In 2016 and 2015 the Company recognised $3 million and $3 million within interest expense, respectively, representing interest charges on the
postponed installments.
In 2016, the Company paid 500 million roubles ($7 million) of purchase consideration and $1 million of interest charges. In 2015, only interest
charges were paid in the amount of of US$2 million.
In 2016 and 2015, the Company recognised $4 million foreign exchange losses and $9 million of foreign exchange gains, respectively, on liabilities for
Timir.
At 31 December 2016 and 2015, trade and other accounts payable included liabilities relating to this acquisition in the amount of $27 million and
$28 million, respectively.
At 30 September 2016 and 31 December 2015, 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 11.75% and 12.70% in 2016 and 2015,
respectively. As a result, in 2016 and 2015, the Company recognised impairment losses of $22 million and $52 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 2 years.
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.
253
Notes to the separate financial statements (continued)Annual Report & Accounts 2016www.evraz.comSeparate financial statements 4. Financial Assets
In 2015, the Company sold bonds of Raspadskaya, an indirect subsidiary, to Evraz Group S.A. at a price close to the market value and received
$8 million in cash. The bonds were purchased in 2014 for $6 million. The gain of $2 million was recognised in the statement of comprehensive
income within the other non-operating gains/(losses) caption.
5. Equity
Share Capital
Number of shares
31 December
2016
2015
Ordinary shares of $1 each, issued and fully paid
1,506,527,294
1,506,527,294
EVRAZ plc does not have an authorised limit on its share capital.
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. During 2016, 11,465,371 of ordinary shares were transferred to the participants of
Incentive Plans (2015: 9,977,259 ordinary shares), (Note 6).
At 31 December 2016 and 2015, the Company held 87,015,878 and 98,481,249 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.
Dividends
The Company have not declared dividends for the years 2016 and 2015.
Distributable Reserves
$US million
Accumulated profits
Reorganisation reserve
31 December
2016
2015
1,958
(584)
1,374
2,067
(584)
1,483
254
Notes to the separate financial statements (continued) 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 2016 and 2015, the Company recognised $16 million and $20 million, respectively, 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.
Loans Received From/Issued To Related Parties
In 2016, the Company received a loan of $100 million from East Metals A.G., an indirect subsidiary of the Company. The loan bears interest of 3.75%
per annum and matures in June 2018. During 2016 the Company repaid an amount of $32 million. In addition, the Company received a loan of
$5 million from East Metals A.G., which bears interest of 3.13% per annum and matures in May 2018. In 2016, the Company recognised US$2 million
of interest expense under the loans from East Metals A.G., out of which of US$1 million were paid.
In 2016, the Company received loans of $200 million from Evrazholding Finance, an indirect subsidiary of the Company. The loans bear interest
of 6.31% per annum and mature in March 2021. In 2016, the Company recognised interest expense of US$9 million, out of which $6 million were
repaid.
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.
Guarantees
In 2014-2016, 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 $1,784 million at 31 December 2016 (2015: $1,814 million). The loans are due for repayment during
the period from 2015 to 2023. The Company earns guarantee fees in respect of these guaranties and in 2016 it accrued $9 million of such income
(2015: $6 million). In 2016, the Company recognised an additional financial guarantee liability of $5 million (2015: $25 million).
In addition, in 2016 the Company accrued $1 million of guarantee fees for the issued guaranties to East Metals A.G. for liabilities of Mastercroft
Finance Limited, both indirect subsidiaries of the Company, and $1 million of guarantee fees for the issued guaranties to several banks for liabilities
of East Metals A.G amounting to $141 million.
Other Transactions
In 2016, OOO Evrazholding, an indirect subsidiary of the Company, rendered consulting services in the amount of $1 million (2015: $1 million).
Other disclosures on directors’ remuneration required by Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts & Reports)
regulations 2008 are included in the Directors’ Remuneration Report.
8. Dividend Income
In 2015, Evraz Group S.A. declared and paid dividends to the Company in the amount of $350 million.
9. Other non-operating loss
In 2016, other non-operating losses represent $39 million (including $8 million paid in 2016) relating to the settlement of the Company’s guarantee
under a long-term take-or-pay supply contract of a former indirect subsidiary of the Company.
10. Subsequent Events
There were no significant events after the reporting date.
255
Notes to the separate financial statements (continued)Annual Report & Accounts 2016www.evraz.comSeparate financial statements Contents
Stock performance indicators
and shareholder information......................... 258
Definitions of selected alternative
performance measures ................................. 260
Data on mineral reserves .............................. 262
Terms and abbreviations ............................... 263
QR codes to additional information .............. 266
Contact details ............................................... 266
N
O
I
T
A
M
R
O
F
N
I
L
A
N
O
I
T
I
D
D
A
256
Annual Report & Accounts 2016
www.evraz.com
257
Stock performance indicators
and shareholder information
Information about shares of EVRAZ plc
The issued share capital of EVRAZ plc ("the
Company") is 1,506,527,294 ordinary shares
with a nominal value of US$1 each. As at 31
December 2016, the current number of shares
outstanding is 1,419,512,128. The Company
holds 87,015,166
The total number of voting rights attaching
to the ordinary shares of the Company is
therefore 1,419,512,128.
ordinary shares in treasury.
1
The figure of 1,419,512,128 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
Market
Listing category
FTSE index
FTSE sector
FTSE sub-sector
Country of share register
Segment
MiFID Status
SEDOL
ISIN number
EVR LN
SETS
MAINMARKET
Premium Equity Commercial Companies
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
Industrial Metals & Mining
Iron & Steel
GB
STMM
Regulated Market
B71N6K8
GB00B71N6K86
1 The number of shares differs from figure in the Financial statements for the amount of treasury shares held in Trust.
258
Share price
Relative share price dynamics,
52w
Shareholder structure
Ultimate beneficial owners,
% of voting rights1
450
400
350
300
250
200
150
100
50
0
Roman Abramovich2
Alexander Abramov3
Alexander Frolov3
Gennady Kozovoy4
Alexander Vagin4
Eugene Shvidler2
Other
%
31.03
21.38
10.68
5.90
5.84
3.09
22.08
04.01.16 04.02.16 04.03.16 04.04.16 04.05.16 04.06.16 04.07.16 04.08.16 04.09.16 04.10.16 04.11.16 04.12.16
EVRAZ
FTSE 250 INDEX
FTSE 350 MINING INDEX
1 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 Gennady Kozovoy, held indirectly).
2 The number of shares as per TR-1 Form: Notification of major interest in shares dated 7 June 2016. Includes pro-rata shareholding held via Lanebrook and additional shares held outside Lanebrook.
3 The number of shares as per Notification on PDMRs dealing dated 30 December 2016.
4 The number of shares is as per TR-1 Form: Notification of major interest in shares dated 6 February 2013. For Mr Kozovoy, includes shares held directly.
Unsolicited telephone calls and correspondence
Shareholders are advised to be wary of any
unsolicited advice, offers to buy shares at
a discount, or offers of free reports about
the Company. These are typically from
overseas-based ‘brokers’ who target US or UK
shareholders, offering to sell them what often
turns out to be worthless or high risk shares.
These operations are commonly known as
‘boiler rooms’ and the ‘brokers’ can be very
persistent and extremely persuasive.
If you receive any unsolicited investment
advice:
▪ Make sure you get the correct name of the
person and organisation.
▪ Check that they are properly authorised
by the FSA before getting involved by
visiting www.fsa.gov.uk/fsaregister and
contacting the firm using the details on the
register.
▪ Report the matter to the FSA either
by calling 0845 606 1234 or visiting
www.fsa.gov.uk/scams.
If the calls persist, hang up.
▪
Details of any share dealing facilities that the
company endorses will be included in Company
mailings.
Electronic shareholder communications
EVRAZ uses its website www.evraz.com as its
primary means of communication with its
shareholders provided that the shareholder
has agreed or is deemed to have agreed that
communications may be sent or supplied
in that manner in accordance with the
Companies Act 2006.
Electronic communications allow shareholders
to access information instantly as well as
helping EVRAZ reduce its costs and its impact
on the environment. Shareholders can
sign up for electronic communications via
Computershare’s Investor Centre website at
www.investorcentre.co.uk.
Shareholders that have consented or are
deemed to have consented to electronic
communications can revoke their consent at
any time by contacting the Company’s registrar,
Computershare.
259
Annual Report & Accounts 2016www.evraz.comAdditional information Definitions of selected alternative
performance measures
Definition
of Free Cash Flow
Free Cash Flow represents EBITDA, net of non-
cash items, less changes in working capital,
income tax paid, interest paid and covenant
reset charges, conversion premiums, premiums
on early repurchase of bonds and realised
gain/(losses) on interest payments under swap
contracts, interest income and debt issue costs,
less capital expenditure, including recorded in
financing activities, purchases of subsidiaries,
net of cash acquired, proceeds from sale of
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’
calculation of Free Cash Flow may be different
from the calculation used by other companies
and therefore comparability may be limited.
Definition of 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 173
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
31 December 2016 31 December 2015
Change Change, %
Cash and cash equivalents
1,157
1,375
(218)
2
-
-
-
2
-
(16)
n/a
-
1,159
1,375
(216)
(16)%
Cash of disposals
classified as held for sale
Collateral under swaps
Cash and short-term
bank deposits
Total debt
Calculation of total debt, US$ million
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.
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
31 December 2016 31 December 2015
Change Change, %
5,502
5,850
(348)
(6)
392
43
19
5
497
(105)
(21)
47
(4)
(9)
325
(306)
(94)
5
-
-
Total debt
5,961
6,724
(763)
(11)
260
Net debt
Calculation of net debt, US$ million
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.
31 December 2016 31 December 2015
Change Change, %
Total debt
Short-term bank deposits
Cash and cash equivalents
Cash of assets classified
as held for sale
Collateral under swaps
5,961
-
(1,157)
(2)
-
6,724
(763)
-
(1,375)
-
-
-
218
(2)
-
Net debt
4,802
5,349
(547)
(11)
-
(16)
n/a
-
(10)
Labor productivity,
US$/t
P=S/V
S - Labor Costs (asset and A-category
subsidiaries), exclusive of tax, local currency
(on Division consolidation sites with
different currencies, $)
V - production volume, tn. (for steel assets:
V - metal products shipped.
LTIFR
The KPI is calculated on a year-to-date basis
for the company employees only.
LTIFR = X•1000000/Y
X is the total number of occupational
injuries resulted in lost time among the
company employees in the reporting period.
Fatalities are not included.
Y is the actual total number of man-hours
worked by all company employees in the
reporting period.
Semi-finished products
cash costs, US$/t
Cash cost of semi-finished products
is defined as the production cost less
depreciation, the result is divided by
production volumes of steel semi-products.
Raw materials from EVRAZ coal and iron ore
producers are accounted for on at-cost-basis.
Costs of semi-finished steel products
of EVRAZ NTMK, EVRAZ ZSMK are then
weighted averaged by the total saleable
semi-finished products production volume.
Coking coal concentrate
cash cost, US$/t
Cash cost of coking coal concentrate
is defined as cost of revenues less
depreciation and SG&A, the result is divided
by sales volumes.
Number of EBS
transformations
Number of EBS transformations
implemented at the key assets during the
reporting year.
Customer focus and
cost-cutting effects
Each project effect is calculated as an
absolute deviation of targeted metriс year to
year multiplied by relevant price or volume
depending on project’s focus.
261
Annual Report & Accounts 2016www.evraz.comAdditional information Data on mineral reserves
Coal
Yuzhkuzbassugol JORC Equivalent Coal Reserves as at 31 December 20161, kt
Mine
Alardinskaya
Yesaulskaya
Osinnikovskaya
Uskovskaya
Yerunakovskaya VIII
Total
Raspadskaya JORC Equivalent Coal Reserves as at 31 December 20161, kt
Mine
Raspadskaya
MUK-96
Raspadskaya Koksovaya
Razrez Raspadsky
Total
Iron ore
Proved and Probable
93,533
14,377
62,309
129,050
126,276
425,545
Proved and Probable
876,627
131,876
179,513
134,417
1,322,433
Evrazruda JORC Equivalent Iron Ore Reserves as at 31 December 20161, kt
Mine
Tashtagol
Sheregesh
Kaz
Total
Proved and Probable
Fe, %
S, %
1,984
61,332
5,589
68,905
38
29.8
32.9
28.0
1
0.9
0.9
0.8
Kachkanarsky GOK (EVRAZ KGOK) JORC Equivalent Iron Ore Reserves as at 31 December 20161, kt
Mine
Gusevogorskoye Deposit
Main pit
Southern pit
Northern pit
Western pit
Kachkanar Proper (Sobstvenno-Kachkanarskoye) Deposit
Total
Evraz Sukha Balka JORC Equivalent Iron Ore Reserves as at 31 December 20161, kt
Total
1 Reserves and Resources are in-situ or ROM (Run of Mine) tonnes
262
Proved and Probable
Fe, %
V2O5, %
408,820
34,592
540,573
131,354
6,904,420
8,019,758
16.1
16.6
15.6
16.1
16.5
16.4
0.14
0.16
0.12
0.16
0.14
0.14
Proved and Probable
68,371
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, eg
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.
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.
263
Annual Report & Accounts 2016www.evraz.comAdditional information 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
Ladle furnace
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.
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
Pellet
Pig iron
Oilfield Casing and Tubing Goods or Oil Country Tubular Goods – pipes used in the oil industry.
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.
Pipe blank
A flat sheet of metal, a semi-finished product, sold to pipemakers to manufacture pipes.
264
Plate
A long thin square shaped construction element made from slabs.
Pulverised coal injection
(PCI)
A cost-reducing technique in iron-making, where cheaper coal is prepared to replace normal coking coal in the blast
furnace. The coal is pulverised into very small particles before injection into the furnace.
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’ 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.
Unrealised profit (URP)
Inter-segment unrealised profit or loss (URP) is a change in the sales margin included in balances of inventories
purchased from segments other than the reportable segment between the end and the beginning of the reporting
period.
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.
265
Annual Report & Accounts 2016www.evraz.comAdditional information QR codes to additional information
Online version
of Annual Report
and Accounts 2016
http://ar2016.evraz.com/
Annual reports
http://www.evraz.com/investors/
annual_reports/
Corporate governance
documents
http://www.evraz.com/governance/
documents/
Information for
investors
http://www.evraz.com/investors/
Contact details
Registered Name and Number
EVRAZ plc (Company No. 07784342)
Secretary
Prism Cosec
Investor Relations
Tel: London: +44 (0) 207 832 8990
Moscow: +7 (495) 232 1370
ir@evraz.com
Auditors
Ernst & Young LLP
Solicitors
Linklaters LLP
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
266
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