Making
the World
Stronger.
Annual Report & Accounts
2017
About the report
Report boundaries
This annual report (“the Report”) presents
the results for EVRAZ plc and its subsidiaries
for 2017 divided into segments: Steel; Steel,
North America; and Coal. It details the Group’s
o(cid:83)e(cid:85)ational and financial (cid:85)es(cid:88)lts and co(cid:85)(cid:83)o(cid:85)ate
social responsibility activities in 2017.
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,
and the Competition and Market Authority Order.
The Report has also been prepared taking into
account the International Integrated Reporting
Framework, and the GRI G4 Sustainability
Reporting Guidelines.
Global footprint
Global footprint
HEADQUARTERS
HEADQUARTERS
Moscow
Moscow
S
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T
N
O
C
XX,XXX
XX,XXX
STEEL
STEEL
Russia
Russia
Kazakhstan
Kazakhstan
Ukraine
Ukraine
Switzerland
Switzerland
Czech Republic
Czech Republic
Italy
Italy
USA
USA
STEEL, NORTH AMERICA
STEEL, NORTH AMERICA
USA
USA
Canada
Canada
Our people
Our people
COAL
COAL
Russia
Russia
EXPLORE
ONLINE VERSION
OF THE ANNUAL
REPORT 2017
Our employees are an integral part of the company’s success.
Our employees are an integral part of the company’s success.
We hire the best people, nurture their development and provide
We hire the best people, nurture their development and provide
career growth opportunities.
career growth opportunities.
DOWNLOAD
PDF VERSION
OF THE ANNUAL
REPORT 2017
employees
employees
in 2017
in 2017
CONTENTS
MEET EVRAZ
EVRAZ IN FIGURES
01
02
04
STRATEGIC REPORT
Chairman’s introduction .........................................06
C(cid:75)ie(cid:73) e(cid:91)ec(cid:88)ti(cid:89)e o(cid:73)fice(cid:85)(cid:183)s lette(cid:85) ...............................08
EVRAZ’ business model .......................................... 12
Success factors and KPIs .......................................16
Market overview ......................................................24
Strategic priorities ...................................................26
Financial review .......................................................30
Principal risks and uncertainties ...........................36
42
BUSINESS REVIEW
EVRAZ’ key production assets and markets ......... 44
Steel segment .........................................................46
Coal segment ...........................................................60
Steel, North America segment ...............................70
80
CSR REPORT
Our approach ............................................................82
Health, safety and environment .............................82
Social policy .............................................................96
Anti-corruption and anti-bribery .......................... 104
106
CORPORATE GOVERNANCE
Board of Directors ................................................ 108
Management ......................................................... 112
Corporate governance report............................... 114
Remuneration report ............................................ 128
Directors’ report .................................................... 136
Directors’ responsibility statements ................... 141
FINANCIAL STATEMENTS
Independent Auditor’s report to members
of EVRAZ Plc ......................................................... 144
Consolidated financial statements (cid:90)it(cid:75) notes .. 152
(cid:54)e(cid:83)a(cid:85)ate financial statements (cid:90)it(cid:75) notes ......... 252
142
264
ADDITIONAL INFORMATION
Stock performance indicators
and shareholder information ............................... 266
(cid:39)efinitions o(cid:73) selected alte(cid:85)nati(cid:89)e
performance measures ........................................ 267
Data on mineral reserves ..................................... 268
Short summary of relevant
anti-corruption policies ........................................ 269
Terms and abbreviations ...................................... 270
Contact details ..................................................... 272
Global footprint
Annual Report & Accounts 2017
Meet EVRAZ
EVRAZ is a global steel and
mining company, the leading
producer of infrastructure steel
products with low-cost production
along the value chain.
Production in 2017
18.0 mt
IRON ORE
PRODUCTS
23.3 mt
RAW
COKING COAL
14.0 mt
CRUDE
STEEL
HEADQUARTERS
Moscow
STEEL SEGMENT
Russia
Kazakhstan
Ukraine
Switzerland
Czech Republic
Italy
USA
COAL SEGMENT
Russia
STEEL, NORTH AMERICA SEGMENT
USA
Canada
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
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Our people
Our customers
in >70 countries
Our employees are an integral part of the Group’s success. We hire
the best people, nurture their development and provide career
growth opportunities.
70,186
employees
in 2017
Product type
Customer type
Semi-finished steel products
Construction products
Railway products
Industrial products
Coking coal concentrate
Raw coking coal
Tubular products
1
Steel rolling facilities
Wholesale companies, traders
Railways, rail carriers
Industrial companies
Steelmaking facilities
Steelmaking facilities
Energy transmission operators
Making the World Stronger
(cid:40)(cid:57)(cid:53)(cid:36)(cid:61) in fi(cid:74)ures
Operating highlights
CRUDE STEEL OUTPUT, kt
STEEL PRODUCTS OUTPUT1, kt
2017
2016
2015
14,033
13,5132
14,351
2017
2016
2015
12,676
12,2882
13,160
IRON ORE PRODUCTS OUTPUT, kt
RAW COKING COAL PRODUCTION
IN RUSSIA, kt
2017
2016
2015
18,042
19,9072
20,445
2017
2016
2015
23,306
Consolidated crude steel production and
steel product output, net of re-rolled volumes,
increased mainly due to improved market
demand in North America and higher crude
steel production at EVRAZ ZSMK following
the completion of planned capital repairs at
its blast furnaces in 2016.
Iron ore products output dropped due to the
disposal of Evraz Sukha Balka in June 2017.
Raw coking coal production increase was
driven by higher annual output at the
Raspadskaya mine, Raspadskaya-Koksovaya
mine and Mezhegeyugol amid improved
productivity.
For more information, see Business
review section on pages 42–79.
22,257
20,889
1Net of re-rolled volumes.
2Change to the previously reported figures due to corrections
of data.
Financial highlights
CONSOLIDATED REVENUES BY SEGMENT, US$ million
(1,456)
7,743
1,864
2,214
462
10,827
(933)
5,497
1,464 1,322
363
7,713
(991)
5,987
2,270
1,068
433
8,767
CONSOLIDATED EBITDA BY SEGMENT, US$ million
(164)
1,483
58 1,226
2,624
21
(151)
1,004
28 644
1,542
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2017
2016
2015
2017
2016
2015
NET DEBT
–17.4% yoy
US$3,966 million
CAPEX3
+40.9% yoy
US$603 million
NET PROFIT
US$759 million
(63)
1,081
55 351
1,438
14
3Including payments on deferred terms recognised in
financing activities and non-cash transactions.
Steel
Steel, NA
Coal
Other operations
Unallocated and eliminations
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Annual Report & Accounts 2017
CSR highlights
Shareholder structure
LTIFR (excluding fatalities),
per million hours
EVRAZ GHG EMISSIONS, MtCO2e
ULTIMATE BENEFICIAL OWNERS,
% of voting rights1
2017
2016
2015
1.90
2.36
2.18
2017
2016
2015
41.67
40.83
43.04
For more information, see page 84.
For more information, see page 90.
KEY AIR EMISSIONS, kt
FRESH WATER CONSUMPTION, million m3
2017
2016
2015
137.11
130.68
134.17
2017
2016
2015
319.43
327.60
340.23
For more information, see page 90.
For more information, see page 92.
EMPLOYEES BY REGION IN 2017
Russia and CIS
North America
Europe
70.2
thousand people
94.5%
5.2%
0.3%
For more information,
see page 98.
DIVERSITY OF EMPLOYEES, SENIOR MANAGEMENT AND DIRECTORS, % (number of people)
Board
Senior management
Employees
Men
Women
88 (7)
12 (1)
81 (75)
19 (18)
73 (50,815)
27 (19,270)
Roman Abramovich2
Alexander Abramov 4
Alexander Frolov 3
Gennady Kozovoy 4
Alexander Vagin4
Eugene Shvidler2
Other
30.76
21.09
10.53
5.85
5.79
3.06
22.92
1The Group is aware of the following beneficiaries who
have an interest in three percent or more of EVRAZ
plc’s share capital (in each case, except for Gennady
Kozovoy, held indirectly).
2The number of shares as per TR-1 Form: Notification of
major interest in shares dated 10 May 2017. Includes
pro-rata shareholding held via (cid:47)anebrook and additional
shares held outside (cid:47)anebrook.
3The number of shares as per PDMRs dealing notification
dated 05 September 2017.
4The number of shares is as per TR-1 Form: Notification
of major interest in shares dated 6 February 201(cid:22). For
Mr Kozovoy, includes shares held directly.
GEOGRAPHIC DISPERSION
(INSTITUTIONAL SHAREHOLDERS), %
United Kingdom
North America
Russia
Europe (excl. United Kingdom, Russia)
45
27
21
7
3
For more information,
see Additional information
section on page 266
4
Strategic
report
Making the World Strongerwww.evraz.com Strategic
report
5
Annual Report & Accounts 2017 Making the World Stronger
Chairman’s
Chairman’s
introduction
introduction
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Dear shareholder,
EVRAZ celebrated its 25th anniversary of operations
in 2017, a year in which the Group delivered a robust
performance. This was due to a combination of
factors, which included improving market conditions
and internal measures to make our company even
stronger. With this in mind, it is my great pleasure to
present EVRAZ’ 2017 annual report.
In 2017, many of the trends seen in the previous
year continued, and even strengthened, including
solid growth on the steel and bulk commodities
markets. This was spurred by rising demand in major
economies and significant capacity optimisations
in China, which led to higher utilisation rates. These
trends triggered a clear upward movement in steel,
coal and iron ore prices, buoying margins worldwide
and fuelling investors’ confidence in the sector.
Safety
Ensuring zero injuries and fatalities in the
workplace has always been and remains of
paramount importance for EVRAZ’ executive
management.
Sadly, despite every effort of the management,
ten people lost their lives in 2017. Members of the
Health, Safety and Environment Committee have
worked closely with operational management to
understand and address the root causes of these
tragic events.
As in previous years, we have met with the
management of each of the operations that
experienced fatalities last year to discuss the
incidents, and to ensure that appropriate lessons
learned have been identified and shared throughout
the organisation to prevent recurrence. The Board,
and particularly its Health, Safety and Environment
Committee under the chairmanship of Karl Gruber,
has been engaging closely with chief executive
Alexander Frolov and his management team to
confront this challenge.
Governance
The Board continues to ensure that the Group
operates in line with global best practice and
that the Board complies with the guidelines
laid out in the UK Corporate Governance Code.
In 2017, an externally conducted evaluation
of Board performance was undertaken, which
concluded that the Board’s structure and
processes were appropriate for the Group. Certain
minor improvements were suggested and will be
implemented. See page 116.
The Board continues to consider the business’ long-
term development and has a progressive policy to
renew major production facilities where appropriate.
As part of this process, during the year, the Board
reviewed all the Group’s assets, along with the most
appropriate technological solution for each site.
This enabled the Board to assess the level of capital
Annual Report & Accounts 2017
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Our strong performance in 2017 was
testimony to the hard work and passion
of EVRAZ’ people.
investment needed in the medium to long term,
and to estimate the potential returns that could be
generated from that investment.
annual instalments of minimum US$150 million
each following interim and full year results.
During 2017, the Board considered in detail
the disposal of Evraz Nakhodka Trade Sea Port,
located on Russia’s (cid:51)acific coast. In accordance
with the requirements of the Relationship
Agreement in place between the Company and
Lanebrook Ltd, outlined on page 139 and in
compliance with the Listing Rules, the sale to
a wholly-owned subsidiary of Lanebrook Limited
was deemed a related-party transaction and duly
approved at a shareholders’ meeting at which
Lanebrook did not vote. See page 114.
Our people
Our strong performance in 2017 was testimony
to the hard work and passion of EVRAZ’ people.
The Board believes that the business’ future
growth lies in the development of its people. With
this in mind, it has reviewed succession planning
to ensure corporate strategy execution, and is
focused on the need to look deeper into the Group
for future leaders.
Dividends
The Board recognises the importance of cash
returns to shareholders.
An interim dividend of US$0.30 per share, totalling
US$429.6 million, was declared in August 2017,
marking a return to dividends. This decision
followed a comprehensive review of EVRAZ’
financial situation, which indicated that the Group
is well placed to meet its current and future
financial requirements. Other factors considered
included the solid results for the first half of 2017
and the positive outlook for the full year.
The strength of the underlying cash flow generation
and continuing success with deleveraging have
allowed the Company to announce a formal
dividend policy.
Going forward, the Company aims to
declare dividends of a minimum amount of
US$300 million per annum to be paid in semi-
(cid:37)ased upon the financial performance of the
business, the Board may consider a higher
distribution level, taking into account the outlook for
our major markets, the Board’s view of the long-term
growth prospects of the business and future capital
investment requirements, as well as the Company’s
commitment to maintain a strong balance sheet.
In line with our existing capital allocation policy, no
dividends will be paid out if Net Debt/EBITDA is
above 3.0x.
Given the improving performance throughout 2017,
EVRAZ has announced a second interim dividend.
On 28 February 2018, the Board of Directors
voted to disburse a total of US$429.6 million, or
US$0.30 per share. The record date is 9 March
2018 and payment date is 29 March 2018. The
move underscores the solid results delivered
and free cash flow generated, which allowed the
Group to spend US$836 million on reducing net
debt as well as pay dividends. By the year-end, the
Net Debt/EBITDA ratio had decreased to 1.5x.
Outlook
Looking to 2018, we are optimistic about our
opportunities to further grow the business. While
the global steel and mining industries will continue
to be volatile, we have a clear view of the future
and possess the right assets, strategy and people
to continue to deliver on our strategic goals.
I am tremendously proud of EVRAZ’ progress in 2017
and look forward to furthering the Group’s journey
as chairman of its Board. Thank you for your support.
Alexander Abramov
Chairman of the Board, EVRAZ plc
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Making the World Stronger
Chief executive
officer(cid:183)s letter
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Annual Report & Accounts 2017
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(cid:40)(cid:57)(cid:53)(cid:36)(cid:61) (cid:69)enefite(cid:71) from an (cid:88)ps(cid:90)in(cid:74)
on the global markets, as well as from
ongoing strategic initiatives on cost-
cutting and product development. These
factors helped to generate strong EBITDA
of US$2,624 million in 2017.
Dear shareholder,
Last year was a turning point for both EVRAZ
and global steel and raw material markets. The
Group navigated a challenging period due to
its clear strategic vision, bringing it to a new
stage of sustainable and robust long-term
development.
EVRAZ benefited from an upswing on the
global markets, as well as from ongoing
strategic initiatives on cost-cutting and
product development. These factors helped
to generate strong EBITDA of US$2,624 million
in 2017. The Group’s business model also
attained a fundamentally new level of
sustainability as the net d ebt/EBITDA ratio
reached 1.5x.
Safety is EVRAZ’ overriding priority. In 2017,
the Group’s lost-time injury frequency ratio fell
to 1.90, from 2.36 in 2016, mainly following
the improvements made and procedures
adopted in recent years. Environmental
protection is also an important part of our
long-term sustainable development, and we
implemented several projects to reduce our
ecological footprint in 2017.
EVRAZ believes that expanding and diversifying
its product portfolio is the foundation of robust
development. To strengthen our positions,
we have set ambitious targets in all core
segments.
In the Steel segment, we are aiming to improve
our product mix by increasing the share
of finished products and to spur domestic
demand by promoting steel construction.
In the Coal segment, we are striving to expand
volumes and reach full self-sufficiency in all
coking coal grades by developing new projects,
especially in the low- and mid-volatility coal
grades. In the Steel, North America segment,
the target is to strengthen our leadership
positions in energy pipe and rail markets
in North America by developing the product
mix. In 2017, total sales volumes rose by 1.2%
in the Steel, 4.6% in the Coal and 12.7% in the
Steel, North America segments.
The Group plans to continue improving its
cost base via a combination of ‘top-down’
and ‘bottom-up’ approaches to generating
initiatives. Our ‘employee-sourced’ approach
alone has identified a standalone potential
annual effect of US$144 million, facilitated
by EVRAZ Business System transformations.
We expect to generate an even greater effect,
as EVRAZ Business System transformations
are implemented in 100% of our production
shops. Overall in 2017, we delivered an
EBITDA effect of US$267 million from our
customer-focus and cost-cutting initiatives.
We believe that these improvement processes
are vital for our long-term competitiveness.
The Group’s CAPEX strategy continues
to concentrate on prudent investments.
In 2017, our capital expenditures totalled
US$603 million, of which US$236 million went
on development projects and US$367 million
on maintenance.
More than 50% of our development CAPEX
was spent on constructing the blast furnace
no. 7 at EVRAZ NTMK and around 25% went
towards various projects at EVRAZ North
America. In 2018, we expect CAPEX to be
around US$650 million, which we believe will
provide sufficient resources for the strategic
investments currently under consideration.
See more
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Making the World Stronger
EVRAZ has disposed of several non-core and
less efficient assets, such as EVRAZ NMT(cid:51),
Evraz Sukha Balka and Evraz Yuzhkoks
in 2017, with the aim of focusing the business
model and making it more consistent.
The Group delivered strong financial results
and met its deleveraging targets in 2017. This
allowed us to disburse US$429.6 million in
interim dividends. EVRAZ also received a ‘BB’
credit rating from S&P in 2017. Combined
with the reduction in total debt, this should
positively influence interest payments going
forward.
Looking ahead, EVRAZ’ goal is to maintain
healthy net leverage and keep net debt in
the range of US$3–4 billion. Doing so would
enable us to hold leading positions in terms
of total returns to shareholders and to resume
regular dividends going forward.
Steel segment
The Steel segment remains the core of EVRAZ’
business model, allowing it to maintain
top positions in the global rail and regional
construction steel markets. In 2017, the
segment’s EBITDA reached US$1,483 million,
driven by the strong business model,
favourable markets, synergies with the Coal
division, and ongoing programme to improve
efficiency.
One of the Steel segment’s key strategic
priorities is increasing the share of finished
steel products. In 2017, we introduced
successful initiatives to stimulate the demand
for hot-rolled beams by substituting welded
products, as well as promoting the use of
steel in construction. This helped to boost the
demand for H-beams by 6% in Russia.
Capital investment in the Steel segment
totalled US$358 million for the period.
We finalised the construction works for
US$196 million project to build the blast
furnace no. 7 at EVRAZ NTMK. This will
allow us to conduct capital repairs on the
blast furnace no. 6 without reducing pig iron
production. We are also finalising EVRAZ
NTMK’s new 134 ktpa grinding ball mill, which
we began building in 2016 and expect to
launch in mid-2018.
Looking forward, we are considering projects
to increase the share of finished steel in our
portfolio, support iron ore mining volumes
and maintain our current facilities to
minimise risks. Next year, we are targeting
(cid:23).8 million tonnes of finished steel products
output at our Russian plants, mostly in line
with last years’ figures.
The segment’s strong financial performance
in 2017 was also spurred by a 77% year-on-
year surge in vanadium prices. With annual
sales volumes of 15,672 mtV of finished
vanadium products and a global market share
of c.20%, our vanadium business generated
additional US$200 million in revenues from
ferrovanadium and chemicals last year.
Coal segment
The Coal segment is EVRAZ’ fastest-growing
business. In 2017, coking coal production rose
by 4.7% year-on-year to 23.3 million tonnes,
securing the Group’s leading positions on the
Russian and global coking coal markets. The
segment’s EBITDA nearly doubled last year to
US$1,226 million.
These positive results were underpinned by
favourable market conditions amid a shortage
of seaborne coking coal supplies. Prices
climbed by 56% to an annual average of
US$101 per tonne on an FCA basis.
In addition to the supportive external
environment, the Group’s strategic decisions
also facilitated such a strong performance.
This includes the launch of a new premium
low-volatile coking coal open pit at
Raspadskaya-Koksovaya mine with a capacity
of more that 1 million tonnes per year. This
increased the level of vertical integration in
the Steel and Coal segments, bringing our self-
sufficiency in coal to 50% in 2017. In addition,
the Coal segment launched several efficiency
improvement projects at Raspadskaya, aimed
at improving the washing yield.
In 2018, EVRAZ aims to strengthen the Coal
segment’s positions by increasing mining
volumes at existing operations to more than
2(cid:23) million tonnes and considering brownfield
or greenfield expansion options, as well as
by seeking prudent domestic acquisitions.
The Steel segment
remains the core
of EVRAZ’ business
model, allowing
it to maintain top
positions in the
global rail and
regional construction
steel markets.
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The coking coal concentrate rouble cash cost
is expected to improve by 2% next year.
The Group remains committed to improving
safe working conditions at all the Coal
segment’s mines to minimise the probability of
an accident occurring.
Steel, North America segment
In 2017, EVRAZ North America delivered a
better financial performance year-on-year,
driven by the investment projects that it
has implemented, as well as the recovery of
oil prices and drilling activity in the US and
Canada. The segment generated positive
EBITDA of US$58 million, up 107% year-on-
year.
This performance was supported by a rebound
in the OCTG market, which drove sales
volumes to 333 kt and a market share of 28%
in Western Canada.
Other enhancements related to the North
American rail market, where the Group sold
366 kt of rails and increased its market share
to 34%.
The Coal segment
is EVRAZ’ fastest-
growing business.
In 2017, coking coal
production rose
by 4.7% y-o-y to
23.3 million tonnes,
securing the Group
a leading position
on the Russian and
global coking coal
markets.
Last year, EVRAZ North America finalised
two large investment projects in Regina,
Canada, which helped to gain new capabilities
to produce new products aimed at growing
segments of large-diameter pipe market.
These projects are already generating
additional demand from clients and we can
fully leverage this product development
in 2018. We are also initiating two new
investment projects in the US and Canada
aimed at improving our OCTG product mix and
strengthen cost position: heat treat capacities
at the Red Deer ERW mill and threading at
the Pueblo seamless pipe mill. We currently
estimate total CAPEX for these projects at
US$50 million.
In 2018, we forecast rolled steel production in
North America to exceed 2 million tonnes, up
c.10% year-on-year.
Outlook for 2018
Regarding 2018, we expect demand to
grow further on both the Russian and North
American steel markets, with prices stabilising
at relatively high levels.
After reaching our net debt target in 2017,
we have approved a new dividend policy for
the benefit of our shareholders. This policy
is based upon a level of regular dividends,
with the potential for additional distributions
if the long term growth prospects of the
business and our commitment to invest in our
operations and maintain a strong capital base
permit.
As we progress in 2018, we remain committed
to our vision and believe that our pipeline of
investment projects and operational efforts,
combined with favourable market conditions
will enable us to generate strong financial
results and benefit all our stakeholders.
Alexander Frolov
(cid:38)(cid:75)ief (cid:40)(cid:91)ecuti(cid:89)e (cid:50)fficer
Making the World Stronger
(cid:40)(cid:57)(cid:53)(cid:36)(cid:61)(cid:183) business model
Our vision
EVRAZ is a global steel and mining
company, the leading producer
of infrastructure steel products
with low-cost production along the
value chain.
Global market trends
In 2017, global steel and raw materials markets experienced a turnaround.
(cid:51)(cid:85)ices (cid:90)e(cid:85)e mainl(cid:92) d(cid:85)i(cid:89)en (cid:69)(cid:92) t(cid:75)e e(cid:73)ficient steelma(cid:78)in(cid:74) ca(cid:83)acit(cid:92) o(cid:83)timisation
programme in China, supply disruptions in the coal industry, and growing
demand for steel products in all regions across the globe.
For more information, see page 24.
Success
factors
Strategic
priorities
As part of its leadership drive,
EVRAZ is implementing its strategy
(cid:69)ased on fi(cid:89)e (cid:78)e(cid:92) s(cid:88)ccess (cid:73)acto(cid:85)s(cid:17)
Development of product
portfolio and customer
base
(cid:40)(cid:57)(cid:53)(cid:36)(cid:61)(cid:183) st(cid:85)ate(cid:74)ic (cid:83)(cid:85)io(cid:85)ities (cid:85)e(cid:193)ect
current focus areas that are
driven by market conditions and
business fundamentals.
Health, safety
and environment
For more information, see page 26.
Human
capital
Retention of low-cost
position
For more information, see page 27.
Customer
focus
Prudent CAPEX
strategy
Asset
development
EVRAZ business
system
For more information, see page 28.
Regular dividends
and proactive debt
management
For more information, see page 29.
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EFFICIENCY IMPROVEMENT
PROGRAMME EFFECT IN 2017
c. US$267 million
Include:
104
163
Customer focus initiatives, US$ million
Cost-cutting initiatives, US$ million
See p. 52
See p. 74
Construction of the
Blast Furnance #7
at EVRAZ NTMK
Regina steelmaking
expansion and
construction of the
LDP mill
NET DEBT/EBITDA
(AS OF 31 DECEMBER 2017)
1.5 X
DIVIDENDS PAID IN 2017
c. US$430 million
Annual Report & Accounts 2017
Annual Report & Accounts 2017
(cid:40)(cid:57)(cid:53)(cid:36)(cid:61)(cid:183) (cid:69)(cid:88)siness mo(cid:71)el (cid:75)as pro(cid:89)en its efficienc(cid:92)
during the ups and downs of the recent commodity
cycle. We have now entered a period of stable
development, ensured by our clear strategic vision
an(cid:71) stron(cid:74) financial position(cid:17)
Alexander Frolov
(cid:38)(cid:75)ief (cid:40)(cid:91)ecuti(cid:89)e (cid:50)fficer
Business
segments
Competitive
advantages
The value
we create
Operational model is on the following page
Steel
EVRAZ’ Steel segment uses locally sourced raw
materials to produce steel products in the CIS,
which it sells for domestic infrastructure and
construction projects while taking a flexible
approach to exports.
For more information, see page 46.
Coal
EVRAZ’ Coal segment provides raw materials
for the Group’s steel mills, supplies coking
coal to major domestic coke and steel
producers, and exports its products to foreign
customers.
For more information, see page 60.
Steel, NA
The Steel, North America segment focuses
on the premium Western US and Canada
markets, offering high value added
infrastructural, rail and LD/OCTG pipe steel
products.
For more information, see page 70.
EVRAZ uses the synergies derived from
its competitive advantages to ensure
that its overall operations are able to
generate, sustain and capture value
over the long-term.
Shareholders
EVRAZ strives to act in shareholders’
best interest by building an experienced
management team and implementing
corporate governance best practices.
For more information, see pages 26–27.
Leader in infrastructure
steel products
A premium portfolio of railway,
construction and tubular products with
firm footprint in Russian, North American
and global markets.
Strong position in coking
coal market
The largest coking coal producer in Russia
with an attractive portfolio of hard and
semi-hard coking coal grades.
Vertically integrated
low-cost operations
A sound base of steel and coal assets
in the first quartile of the global cost
curve.
Employees
EVRAZ is among the most sought-after
employers in its regions of operation partly due
to its staff development programmes and best-
in-class working conditions.
Customers
EVRAZ generates value for its global clientele
by prioritising value-added products, offering
better shipping terms and running a client-
oriented business model.
Suppliers and business partners
EVRAZ honours its position as a vital
purchaser of auxiliary materials by fostering
the advancement of its customers’ industries
and running fair, transparent tenders.
Local communities
EVRAZ believes that conducting its business
in a sustainable manner helps to promote
regional prosperity where it operates
and strives to create healthier, happier
local communities by sponsoring social
and economic development programmes.
Government
EVRAZ is one of Russia’s largest taxpayers
and employers, and plays a valuable role for
the state by providing construction and railway
products for the development of infrastructure.
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Making the World Stronger
(cid:50)(cid:83)erational model
INPUT
OPERATIONS
Proved and probable
reserves
10.0
bln t of iron ore
1.9
bln t of coking coal
Self-coverage
81%
in iron ore
184%
in coking coal
Number of employees
(as of 31.12.2017)
49,123
in Steel segment
13,402
in Coal segment
3,578
in Steel, NA segment
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STEEL SEGMENT
Raw
materials
Steelmaking
Iron ore products consumption
19,047 kt
13,198 kt
Internal consumption
3rd parties’ iron ore products purchases 5,849 kt
3rd parties scrap purchases
Coking coal products consumption
Coal segment coal products
3rd parties raw coal
3rd parties concentrate
1,668 kt
9,668 kt
5,778 kt
1,622 kt
2,268 kt
COAL SEGMENT
EVRAZ’ unique combination of reserves,
operations, product quality and clients
make its Coal segment a crucial pillar of the
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.
Pig iron production
Crude steel production
11,320 kt
12,285 kt
Vanadium slag production
18,636 mtV
Coal
mining
Total raw coking coal mined
Sales to Steel segment
23,306 kt
1,160 kt
STEEL, NORTH AMERICA SEGMENT
Raw
materials
Steelmaking
3rd parties scrap puchases
Slab purchases1
1,151 kt
543 kt
1Including 539 kt from Steel segment and 4 kt from 3rd parties.
Crude steel production
1,748 kt
OPERATIONS
SALES TO 3RD PARTIES
EBITDA
Annual Report & Accounts 2017
Annual Report & Accounts 2017
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STEEL PRODUCTS, kt
Rolling and
processing
11,879
kt
Steel products production
Vanadium in final products
(production)
11,263 kt
11,359 mtV
Semi-finished products
Construction products
Railway products
Flat-rolled products
Tubular products
Other steel products
5,735
3,750
1,281
511
51
551
IRON ORE PRODUCTS
VANADIUM
PRODUCTS (SALEABLE)
2,932 kt
15,672 mtV
The Steel segment’s EBITDA improved,
reflecting higher steel and vanadium prices
and the effects of cost-cutting initiatives
implemented in 2017. This was partially
offset by an increase in expenses in US
dollar terms as a result of the rouble’s
strengthening impact on costs, as well as by
rising prices for raw materials such as coal,
iron ore and scrap.
+ 47.7% yoy
US$1,483 million
COKING COAL PRODUCTS, kt
Coal
washing
10,499
kt
The Coal segment’s EBITDA increased
year- on-year largely driven by higher sales
prices in line with global benchmarks.
+ 90.4% yoy
US$1,226 million
Total coking coal concentrate
production
Sales to Steel segment
13,060 kt
4,618 kt
Coking coal concentrate
Raw coal
8,197
2,302
Rolling and
processing
STEEL PRODUCTS, kt
1,885
kt
The Steel, North America segment’s EBITDA
increased year-on-year, supported by greater
revenues from sales of tubular, railway and
flat-rolled products as well as higher expenses
in prior year connected with suspension of
production. This was partly offset by higher
prices for scrap and purchased semi-finished
products.
+ 107.1% yoy
Steel products production
1,851 kt
Tubular products
Flat-rolled products
Railway products
Construction products
Semi-finished products
749
512
376
241
7
US$58 million
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Making the World Stronger
Success factors and KPIs
HEALTH, SAFETY AND ENVIRONMENT
Strategic goal
One of EVRAZ’ top priorities is protecting
its employees’ health and safety, as well as
preserving the environment in its areas of
operation. In 2017, the Group’s strategic goal
remains unchanged: achieving and maintaining
a lost-time injury frequency rate (LTIFR) of
below 1.0 by 2021. See page 84.
Overview
Implementing behaviour safety conversations
and standard safe operating procedures are
two major initiatives launched in 2017. During
the year, the Group’s employees conducted half
a million safety conversations. We also made
extra efforts to improve the quality of our safety
reporting. On the ecological front, we completed
three environmental projects and launched four
new initiatives last year, mainly in the Urals and
Siberia. See pages 89–92.
Outlook
In 2018, EVRAZ will begin to implement
a contractor safety programme. We will also
continue our ongoing efforts to improve the
quality of safety conversations and standard
safe operating procedures. Two major ecological
issues that EVRAZ will proactively manage in
2018 are high sulphur content in iron ore and
waste management.
LTIFR (excluding fatalities),
per 1 million hours
KPI
2017
2016
2015
1.90
2.36
2.18
Despite the Group’s efforts, there were ten
fatalities (six employees and four contractors)
at its sites in 2017, while the LTIFR dipped to
1.90, compared with 2.36 in 2016.
CSR review
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 80–105
provides an overview of the Group’s policies and
performance in 2017 in key areas of CSR.
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CSR
Our people
See pages 96–99.
Health and safety
See pages 84–88.
Environmental matters
See pages 89–95.
Annual Report & Accounts 2017
Annual Report & Accounts 2017
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HUMAN CAPITAL
LABOUR PRODUCTIVITY, STEEL,
tonnes per person
2017
2016
2015
KPI
352
327
321
The labour productivity per person for steel
products grew by 7.6% to 352 tonnes per
person in 2017, compared with 327 tonnes
per person in 2016.
DIVERSITY OF EMPLOYEES, SENIOR
MANAGEMENT AND DIRECTORS,
% (number of people)
Board
Senior management
Employees
88 (7)
12 (1)
81 (75)
19 (18)
Men
Women
73 (50,815)
27 (19,270)
EVRAZ sees diversity as a crucial business
driver and strives to ensure that all
employees’ rights receive equal protection.
Strategic goal
Engaged, motivated, loyal and competent
employees are the key pillar of EVRAZ’
business. We strive to continuously improve
productivity and establish world-class HR
practices. See page 96.
Overview
In 2017, the Group focused its human capital
efforts on managing its employee engagement
programme, developing the key competencies
required for operations management, and
centralising administrative functions in one
shared service centre in Novokuznetsk,
Siberia. Due to ongoing labour productivity
improvements and asset divestments,
total headcount decreased by more than
7,000 employees last year. During the year, we
were also able to improve engagement by an
average of 17% at key production sites.
See page 98.
Outlook
In 2018, the Group will continue its efforts to
improve employee engagement, develop a new
team framework for specific complex projects at
its plants, and implement changes in the staff
motivation system.
Social
and community matters
Human
rights
Anti-corruption
and anti-bribery
EVRAZ strives to adhere to international
corporate social responsibility principles
by making a meaningful contribution to local
economies and supporting communities
wherever it operates. Everywhere the Group
operates, it seeks to build sustainable,
positive partnerships with local governments
and non-government organisations, as well
as with business, media and other partners.
See pages 100–103.
The Group’s commitments are based on
internationally recognised standards and respect for
all human rights, including civil, political, economic,
social and cultural rights. EVRAZ seeks to develop
and maintain a work environment that is free from
discrimination. Child labour, bonded labour, human
trafficking and other forms of slavery (known as
modern slavery) are strictly prohibited at all Group
subsidiaries and by their suppliers.
See page 82.
EVRAZ is fully committed to strict
compliance with the Law of the Russian
Federation no. 273 “On Preventing
Corruption,” the UK Bribery Act, the US
Foreign Corrupt Practices Act and other
relevant local legal equivalents. EVRAZ
has implemented and further developed
policies and procedures that define
compliance managers’ day-to-day efforts.
See pages 104–105.
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Making the World Stronger
Success factors and KPIs
CUSTOMER FOCUS
STEEL
COAL
STEEL NORTH
AMERICA
Strategic goals
• Increase the share of value-added products
• Strengthen the domestic market share in
construction products in Siberia
Strategic goals
• Supply 100% of the coking coal needed at
EVRAZ’ steel plants in all coal grades
• Increase market shares in Russia and
• Secure a 70% market share in the Russian
Ukraine
Strategic goals
• Strengthen EVRAZ’ leading positions in
energy pipe markets for LDP in North
America and OCTG in Western Canada
• Achieve a 40% market share in the rail
rails market
• Establish an export price formula based on
segment
hard coking coal benchmarks
• Maintain a leading position in the West Coast
Overview 2017
• Improved customer relations and realised
debottlenecking initiatives at operations,
leading to respective increases of 6% and
106% in the sales volumes of rails and
wheels in Russia
• Enhanced demand for beams in Russia,
Overview 2017
• Expanded export sales volumes by shipping
to new destinations (Indonesia, Europe)
and applying a better price formula, driving
total overseas sales up 28% year-on-year to
4.8 million tonnes
helping to boost the total market volume by
6% from 771 thousand tonnes in 2016 to
819 thousand tonnes in 2017
• Began mining a new premium low-vol
HCC coal grade, helping sales to reach
0.3 million tonnes
• Developed new export geographies and
• Increased internal coal use at EVRAZ’ steel
plants to 50%
Outlook 2018
• Increase sales in Russia and Ukraine
• Seek new export supply routes through ports
on the Baltic Sea
• Further develop overseas client base to
accommodate the growth in volumes
product types, including selling rails to five
new countries and developing nine new types
of wheels
• Increased export shipments of rebars by
29 thousand tonnes and semi-fnished steel
products by 20 thousand tonnes
• Achieved a combined EBITDA effect from
these initiatives of US$68 million
Outlook 2018
• Increase domestic and export sales of
wheels by further debottlenecking efforts and
certifying new types of products
• Retain the strategy for beam sales
unchanged, driven primarily by engineering
solutions for construction projects, shipment
and flexible payment terms, as well as by
lead-time improvements at EVRAZ NTMK
• Double export sales of rails by developing
new profiles and reducing logistics costs
For KPIs and detailed tracking, see page 26.
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plate market
Overview 2017
• Experienced a surge in OCTG volumes due
to the premium product mix and increased
drilling volumes, driving the market share
for OCTG in Western Canada to 28% and
increasing sales volumes by 306% to
333 thousand tonnes
• Expanded the rail product portfolio to
benefit from the market upside, doubled the
welding business with a new technology and
sold 366 thousand tonnes of rails in North
America
• Ramped up EVRAZ Regina’s LDP mill, which
produced its first thick-walled (1-inch) pipe
in the reporting period
• Achieved a combined EBITDA effect from
these initiatives of US$35 million
Outlook 2018
• Upgrade the OCTG product portfolio through
two projects: the heat treatment at EVRAZ
Red Deer and the premium threading for
seamless pipes at EVRAZ Pueblo
• Reach the targeted LDP volumes of
275 thousand tonnes at EVRAZ Regina due
to participation in new pipeline projects
• Develop new high-value added products at
EVRAZ Portland
• Asset development
KPI
Annual Report & Accounts 2017
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STEEL
COAL
STEEL NORTH
AMERICA
Strategic goal
• Generate annual cost-reduction initiatives in
the amount of 3% of the cost base at every
business unit across the Steel segment
Strategic goal
• Generate annual cost-reduction initiatives in
Strategic goal
• Become the lowest-cost producer of rails,
the amount of 3% of the cost base
• Remain in the first quartile of the global cost
LDP, OCTG and plate products when delivered
to the Western US and Canada
curve
Overview 2017
• Implemented a programme to reduce pig iron
• Reach a saleable annual product volume of
22 million tonnes
production costs
• Finalised most of the construction work for
EVRAZ NTMK’s blast furnace no. 7
• Implemented an energy efficiency
programme, generating an EBITDA effect of
US$10 million
• Achieved a combined EBITDA effect from
Overview 2017
• Improved degassing efficiency, tunnelling
rates and operating time at longwall faces
• Launched open-pit mining at Raspadskaya-
Koksovaya, producing 0.5 million tonnes of
raw coal last year
these initiatives of US$78 million
• Launched commercial production at
Mezhegeyugol, mining 0.9 million tonnes of
raw coal last year
• Launched flotation at the third section of
Raspadskaya’s processing plant to increase
concentrate output by 3%
Overview 2017
• Finalised EVRAZ Regina’s steelmaking
upgrade project
• Reduced conversion costs at EVRAZ Portland
by US$5/t
• Improved the rail production yield to 92%
• Achieved a combined EBITDA effect from
these initiatives of US$12 million
Outlook 2018
• Realise the full-year savings at EVRAZ Regina
due to the degasser working for the whole
year
• Increase the production volumes for all
product groups
Outlook 2018
• Launch the blast furnace no. 7 and the new
grinding ball mill at EVRAZ NTMK, as well as
the boiler unit no. 9 at EVRAZ ZSMK
• Implement a programme to reduce
steelmaking costs for BOF and EAF in the
Urals and Siberia divisions
• Increase production volumes of finished steel
and vanadium
• Perform capital repairs on EVRAZ NTMK’s
blast furnace no. 6
• Achieved a combined EBITDA effect from
• Focus on optimising electrode consumption
these initiatives of US$73 million
and improving yields
Outlook 2018
• Increase coal mining volumes by 1 million
tonnes through the ramp-up of operations
at the Raspadskaya-Koksovaya open pit,
the launch of the third longwall at the
Raspadskaya mine and the introduction
of additional equipment at the Raspadsky
open pit
• Switch to low-ash seams and improve
washing yields by 3–4%
• Use new flotation equipment at the first
and second sections of Raspadskaya’s
processing plant
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For KPIs and detailed tracking, see page 27.
KPI
Digital
transformation
EVRAZ digital transformation strategically
addresses customer focus and asset
development success factors.
Making the World Stronger
Advanced analytics and
scenario optimisation
Machine learning
Remotely-controlled
operations
Industrial analytics
and big data
Digital techn
olo
Digita
l t
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inin
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Mobility
Expert systems
Machine learning
Results in 2017
19
16
11
projects were
implemented
projects are
planned or being
implemented
projects
are being
considered
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Main
directions
VISION
EVRAZ’ digital transformation
vision is to constantly monitor best
practices and success stories, and
to plan implementations in the
Group when technology matures
to an adequate level and can drive
productivity gains, cost reductions
and safety improvements.
Dig it a
Lean and paperless
back office
Integrated
e-commerce
l
t e chnologies in s
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s
Annual Report & Accounts 2017
Annual Report & Accounts 2017
CUSTOMER
FOCUS
ASSET
DEVELOPMENT
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Key projects in 2017
STEEL
SEGMENT
MINING
ASSETS
SALES
AND CORPORATE FUNCTIONS
Machine learning
Optimise vanadium slag
output in converter shop
EVRAZ NTMK
Stage 1 completed in Q4 2017
Advanced analysis
and scenario
modelling
Mine planning and scheduling
EVRAZ KGOK
Duration: 2017 – 2018
Integrated
e-commerce
Online services for clients
EVRAZ Trading Company
Launched in 2017
Semi-product converter produces two
commercial products, vanadium slag and
steel semi-product. A computer-aided model
developed using machine learning algorithms
calculates optimal values for manufacturing
process parameters (oxygen, coolant,
additives) and recommends them for the
converter operator to use.
Implementation effect
• Increased vanadium slag output
• Optimised oxygen and coolant use
• Improved technological process stability
An integrated geological suite enables mining
professionals to:
• quantify and evaluate iron ore deposits;
• plan the efficient extraction of reserves(cid:30)
• produce long-term and medium-term mining
schedules that meet capacity and ore
quality targets.
Online services are available for EVRAZ
clients via a website optimised for PCs and
mobile devices. An intuitive dashboard
displays an overview of a client’s operations,
encompassing order management, financial
statements, payments and shipments
(including railway tracking).
Implementation effect
• Higher and more stable Fe content
• Ore concentrate output increased by
2% year-on-year
• Ore consumption reduced by
1-2% year-on-year
Implementation effect
• Higher customer satisfaction and loyalty
• Labour costs generated by routine
communications with a customer are
reduced
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Industrial analysis
and big data
Digital model of all steel
production stages
EVRAZ ZSMK
Duration: 2017 – 2018
Remotely-controlled
operations
(cid:48)ine (cid:193)eet mana(cid:74)ement s(cid:92)stem
Razrez Raspadskiy
Launched in 2017
Lean and paperless
back office
Robotic process automation
EvrazHolding
Launched in 2017
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Project scope includes:
• Integrated optimisation of material flows at
each production stage from raw materials
to semi-finished products
• Optimisation of production plans for each
process stage
• Scenario comparison and sensitivity
analysis for production and financial
parameters
Implementation effect
Adequate model accuracy is reached for the
first two phases (washing plant, sinter plant,
coal preparation plant and coke plant).
The system makes it possible to manage
Razrez Raspadskiy’s mine fleet (dump trucks,
excavators and bulldozers) and to monitor
vehicle speed, dump truck loading and
fuel consumption. The software helps the
dispatcher to optimise the distribution of dump
trucks among excavators and unloading points
given current production plans.
Robotic process automation (RPA) is a
technology that has emerged to simplify
business process delivery and perform
repetitive mundane tasks instead of office
clerks. The pilot project executed for several
back-office processes has proved the
maturity of RPA software and its capability for
the EVRAZ Shared Services Centre (ESCC).
Implementation effect
• Increased mine fleet productivity
• Reduced equipment downtime
• Reduced equipment wear and tear and fuel
consumption
Conclusions derived from proof of
concept
• RPA is applicable for the majority (60%) of
21
ESCC processes
• Roll-out roadmap is prepared: all ESSC
processes can be robotised with 2-3 years
Making the World Stronger
Success factors and KPIs
EVRAZ BUSINESS SYSTEM
Strategic goal
The EVRAZ Business System (EBS) is a combined
approach to the Group’s operations. The key
elements are setting targets, developing staff,
improving processes, supporting management
systems, fostering our corporate culture,
and implementing necessary infrastructure
improvements. The deployment of EBS is realised
through a series of EBS-Transformations (EBS-T)
with the aim to cover all main operations by the
end of 2020. This approach is targeted to reach
100% employee engagement and help to generate
initiatives with the effect of 3% from the cost base.
EBS Transformation
MAIN STEPS
Start
Overview
In 2017, EVRAZ executed several production-
shop transformation projects in Siberia, which
were focused on bottom-line costs reduction
via EBS tools and were supported by full
employee engagement. EBS teams were also
formed last year to roll out EBS Transformation
(EBS-T) to other divisions. Overall, we have
identified a total potential economic effect of
US$144 million from EBS initiatives.
Outlook
The key focus for 2018 will be on rolling out
EBS transformations to other divisions, such as
the Urals and Coal segments, using the special
EBS teams that were formed in 2017, as well
as on continuing the transformation process
in Siberia. All told, the programme envisages
completing up to 31 EBS transformations
throughout these business units by the end of
the year.
Interim results
Transfer
Preparation
Active phase 16 weeks
Support phase 16 weeks
Results gallery
Steering committee
Create working
groups, collect
preliminary
information, plan
working steps.
Improve, set goals, develop activities,
plan and implement. Department staff
attend training, conduct improvement
measures and form a plan for further
site development.
Finish initiatives that have been started
and document the result, fully transfer
updated processes to production
personnel.
All initiatives transferred
to production personnel
with support from EBS
development team.
KEY APPLIED TOOLS
The idea factory is a programme aimed at collecting ideas from staff. A technical council
reviews the ideas every two weeks, staff receive a monetary award for each idea that
is accepted, and the best ideas are entered into a quarterly contest for valuable prizes.
The problem-solving board is a simple and accessible tool for gathering comments and
problems from staff. It triggers a mechanism to quickly solve safety problems and improve
working conditions.
The A3 thinking algorithm is a problem-solving approach, applied by EBS-T teams.
The improvement cycle is an analogue of rapid improvement event tool which helps to
find solutions for previously unresolved problems using high level of interaction between
employees.
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Key developments and KPIs
EBS Transformation KPIs are used in areas
involved in the EBS-T project. In 2016 and
2017, this included the EVRAZ ZSMK and
Evrazruda, while in 2018, it will expand to
the EVRAZ NTMK and the Raspadskaya Coal
Company.
NUMBER OF AREAS
NUMBER OF EMPLOYEES INVOLVED
31
40
30
20
10
0
7
2017
2018 plan
560
2016
3,478
13,000
15,000
10,000
5,000
0
2017
2018 plan
1
2016
NUMBER OF INITIATIVES
(Idea factory)
EXAMPLES OF INITIATIVES GENERATED BY EMPLOYEES IN 2017
AND POTENTIAL EBITDA EFFECT, US$ million
2,935
2017
124
2016
Implementation
of new sampling
device
Usage of one
railcar for
various cargo
Mill set-up
process
improvement
+
US$2.5 million
+
US$0.5 million
+
US$0.4 million
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2017 FINANCIAL RESULTS
Last year’s cost-cutting initiatives delivered the EBITDA effect of US$163 million. Combined
with a US$104 million gain from customer-focus efforts, EVRAZ’ total EBITDA effect from
initiatives was US$267 million in 2017.
In 2017 EBITDA reached US$2,624 million, up 70.2% from US$1,542 million in 2016,
(cid:69)oosting t(cid:75)e (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) (cid:80)argin fro(cid:80) (cid:21)(cid:19).(cid:19)(cid:8) to (cid:21)(cid:23).(cid:21)(cid:8) an(cid:71) increasing free cas(cid:75) (cid:193)o(cid:90) to
US$1,322 million.
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EBITDA, US$ million
2017
2016
2015
KPI
2,624
1,542
1,438
FREE CASH FLOW, US$ million
KPI
2017
2016
2015
1,322
23
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799
Making the World Stronger
Market Overview
Global picture
In 2017, the positive trends seen in prices for steel
and raw materials were supported by the ongoing
supply optimisation, mainly in China, and by growing
demand for steel and raw materials globally.
STEEL PRICES, US$ per tonne
IRON ORE PRICES, US$ per tonne
Slab, FE&SEA, CIF HRC, FOB China
+34%
2017 vs. 2016
avg.
+32%
2017 vs. 2016
avg.
800
600
400
200
0
Iron ore fines dry, CFR China
+22%
2017 vs. 2016
avg.
200
150
100
50
0
2011
2016
2017
2011
2016
2017
In 2017, steel prices surged by 32% year-on-
year to an average of US$446 per tonne, based
on Slab CIF FE&SEA contracts. Prices peaked
at US$430 per tonne in March, gradually
retreated to a bottom of US$402 per tonne
in June, and then quickly recovered to a new
high of US$518 per tonne in September.
Such substantial growth was mainly driven by
Chinese steel capacity optimisations and strong
domestic demand. It was also supported by
positive consumption trends in other global steel
consumption markets, such as Europe, North
America and Asia, which were up by an average
of 3% during the year.
Steel sector optimisation in China presumed
steel capacity cuts of 40 million tonnes in 2017,
continuing the trend that the local government
launched a year ago. Additional substantial
capacity cuts of 120 million tonnes were related
to shutdowns of induction furnaces, shipments
from which were not previously reported in the
official statistics. Meanwhile, Chinese steel
demand continued to recover, with 730 million
tonnes consumed during 2017, up 5% year-on-
year due to strong property sales and stable
infrastructure spending. Consequently, net
Chinese steel export volumes fell by 29% to
71.7 million tonnes and the capacity utilisation
rate surged by 6 percentage points to 76.9%.
Chinese ecological regulations and shutdowns
of inefficient production facilities have also
elevated prices for products related to the steel
industry, such as electrodes and refractory
materials.
For the iron ore market, 2017 has been a
period of high volatility. The 62% Fe CFR China
price surged twice during the year, reaching
US$91 per tonne in February and US$74 per
tonne in August, pushing the average price
up 22% year-on-year to US$71 per tonne.
Local price peaks were driven by a sharp
increase in iron ore demand after closures
of induction furnaces in China and by overall
positive consumption sentiment. The peaks
were also supported by delays in launching
investment projects caused by suppliers’ value-
over-volume strategy. (cid:37)ooming profitability at
steel mills, where margins on billet reached
US$177 per tonne in August, has supported
demand for high-grade and direct charge
iron ore, leading to a 5% climb in China’s iron
ore imports. A similar trend was seen in the
seaborne pellet market, where the BF pellet
premium reached US$45 per tonne in Q3 2017.
COKING COAL PRICES, US$ per tonne
HCC, FOB Australia, spot
+32%
2017 vs. 2016
avg.
300
200
100
0
2011
2016
2017
The positive trend on the coking coal market
continued in 2017, leading to an average price
of US$189 per tonne for hard coking coal spot
FOB Australia contracts, up 32% year-on-year.
In H1 2017, the hard coking coal price peaked
at US$260 per tonne in April then dipped
back to US$146 per tonne in June. During
H2 2017, prices remained within the borders
of US$160 –250 per tonne. The latter was due
to supply disruptions caused by the ongoing
optimisation programme in China’s domestic
steam and coking coal industry that started
in 2016 with an aim to close 4,300 small
and inefficient mines, in addition to a ban
on new coal mine approvals. Another coal
supply disruptor was bad weather conditions,
including Cyclone Debbie, which curtailed
13 million tonnes of Australian coking coal
shipments, or about 3% of global shipments
last year. Supply disruptions were partially
substituted by higher-cost shipments from North
America and other non-traditional suppliers.
Additionally, Chinese imports grew 20% year-on-
year to 71 million tonnes in 2017. As a result, a
market balance squeeze was seen among major
coal grades, especially premium ones.
VANADIUM PRICES, US$ per kgV
LMB FeV mid
+77%
2017 vs. 2016
avg.
2012
2016
2017
50
40
30
20
10
0
In 2017, the LMB FeV price surged to US$33
per kgV, up 77% from US$18.5 per kgV in
2016. This was spurred primarily by the ban
on vanadium slag imports in China and the
closure of small producers in few provinces
due to environmental checks. Another demand
driver was China’s announcement to revise
rebar standards, which could introduce higher
vanadium content for rebar products. These
changes positively influenced global demand
for the commodity and the supply response
was limited due to the scarcity of vanadium
production facilities.
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Annual Report & Accounts 2017
Annual Report & Accounts 2017
TRENDS IN EVRAZ’ CORE MARKETS
Steel
Coal
Steel, North America
Russian construction steel markets recovered
by 5% from the low levels of 2015-2016 due
to favourable macroeconomic conditions, such
as the 1.5% GDP growth and 21% rebound
in oil prices. Another driver was substantial
government expenditures on construction,
including the ongoing modernisation of public
transport systems (for example, US$3.1 billion
was spent to develop Moscow’s metro and
suburban train systems), as well as infrastructure
and residential construction programmes.
Russian coking coal demand remained stable
with concentrate consumption levels at
38 million tonnes, essentially flat year-on-year.
The high-vol grades segment continued to be
profitable, as the depletion of several large
mines in Russia compensated for increased
competition among these grades. Export
shipments continued to grow due to favourable
market conditions, rising by 3% year-on-year to
22 million tonnes.
In 2017, US steel demand rebounded by
6.7% year-on-year to 97 million tonnes due
to positive trends in the manufacturing,
machinery and energy industries. About
50% of the increase in apparent steel
consumption has been captured by
finished steel imports, which were up
3.2 million tonnes. The remaining half of the
increased domestic demand has been met
by higher domestic shipments.
Long-term prospects
Global urbanisation
Urbanisation in developing countries, as
well as continued development of advanced
economies, remains the largest demand
driver for steel and other commodities.
According to United Nations data, an estimated
55% of the world’s population lived in urban
settlements in 2017. 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 upturn
in steel consumption per capita from around
100 kilogrammes per capita in the beginning
of 2000, to some 543 kilogrammes per capita
in 2017, compared with 388 kilogrammes
per capita in developed countries. Apart
from organic growth, in cooperation with
other countries, China can also add about
150 million tonnes to global steel demand by
implementing its “belt and road” initiative, a
long-term plan to develop infrastructure and
rebuild ancient land and sea trading routes from
China to Europe. Another country with strong
steel demand growth potential is India, which
in recent years has delivered steady economic
growth and had steel consumption of only
c. 65 kilogrammes per capita in 2015.
Russian construction industry
to regain growth
Russia’s construction industry is expected
to grow at an annual average rate of 1.8%,
reaching US$301 billion in 2021 due
to the ongoing modernisation of public
infrastructure, government construction
programmes, and residential construction
growth.
declining lending interest rates will contribute
even more to residential construction growth
across the country.
North America
(cid:55)he upgrade of and significant investments
into US and Canadian infrastructure will
support demand for steel products in the
region.
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. The
government’s current investment programme
views US 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 provide transportation, water,
telecommunications and energy infrastructure
needed to enable new economic development
in the country.
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 has extremely high potential in terms
of steel usage intensity in construction, as
less than 10% of its buildings are constructed
using steel frames, compared with more
than 70% in developed countries such as
the UK and US. During the last two years,
EVRAZ has been working to promote beam
demand in Russia by collaborating with project
institutions, as well as improving product
availability to clients.
The ongoing modernisation of public
infrastructure will be a key source of support
for growth in construction activity. Under the
railway development strategy for 2030, the
government plans to lay 20,000 kilometres
of track at a cost of US$62.5 billion. Other
projects envisage building 78 new metro
stations and 160 kilometres of new track, and
renovating dilapidated airport infrastructure
through an investment of US$3.4 billion by
2020.
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 square metres of housing
per capita, compared with 44 square metres
per capita in the UK and 70 square metres
per capita in the US. The government’s
focus on the development of affordable
housing for middle- and low-income groups is
expected to drive market growth. Moscow’s
renovation programme entails spending
roughly US$58 billion on residential housing
construction in the next five years. Additionally,
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Making the World Stronger
Strategic priorities
Development
of product
portfolio
and customer
base
Premium
infrastructure steel
products, a wide range
of coking coal grades,
and modernised
large-scale production
sites make EVRAZ the
leader in the markets
where it operates.
PRODUCTION IN KEY MARKETS 2017, mt
Long steel
Raw coking coal
LDP
0.9
Russia
EVRAZ
Peer 1
Peer 2
Peer 3
Peer 4
0.4
0.4
3.8
2.5
2.2
1.8
1.7
Russia
EVRAZ
Peer 1
Peer 2
Peer 3
Peer 4
9.2
9.0
6.2
North America
22.6
14.4
EVRAZ
Avg.
peer
0.2
0.1
Rails
Russia
EVRAZ
Peer 1
North America
EVRAZ
Peer 1
Peer 2
0.2
0.1
CUSTOMER FOCUS PROGRAMME1,
US$ million
BREAKDOWN OF CUSTOMER FOCUS
PROGRAMME EFFECT IN 2017, %
1-2%
of revenue
104
KPI
169
3-5 year target
2017
2016
2015
53
US$104
million
T(cid:88)b(cid:88)la(cid:85)
Wheels
(cid:54)t(cid:85)(cid:88)(cid:70)t(cid:88)(cid:85)al(cid:86)
Rail
Beam
NPD
Other
31
28
15
8
7
4
7
In 2017, our customer focus programme brought an
additional EBITDA effect of US$104 million.
Most of the efforts were aimed at expanding the sales
of wheels, structural products, beams and rail products
in Russia, as well as OCTG products in North America.
RAILS SALES VOLUMES IN RUSSIA,
kt
KEY DRIVERS
Premium
infrastructure steel
products, a wide
range of coking
coal grades, and
modernised large-
scale production
sites make EVRAZ the
leader in the markets
where it operates.
70% of the
domestic
market
3-5 year
target
789
702
747
2017
2016
2015
800
600
400
200
0
OCTG SALES IN NORTH AMERICA,
kt
HARD COKING COAL SALES,
mt
333
82
45%
market share
in Canada
600
400
200
0
4.6
5.5
5.4
Further
improve
product
portfolio
10
8
6
4
2
0
2016
2017
3-5 year
target
2015
2016
2017
3-5 year
target
152
2015
Sales of rails on the Russian market remain stable
throughout the cycle. With its key client, Russian
Railways, EVRAZ aims to secure a leading market
share despite the increase in domestic competition.
In 2017, EVRAZ’ OCTG sales rose four-fold year-on-
year given the strong drilling activity and a leading
market position in Canada.
EVRAZ has solid positions in key HCC grades,
(cid:90)(cid:75)ic(cid:75) are (cid:69)eing (cid:71)e(cid:89)e(cid:79)o(cid:83)e(cid:71) t(cid:75)roug(cid:75) t(cid:75)e (cid:69)ro(cid:90)nfie(cid:79)(cid:71)
expansion of current operations and potential
investments in new projects.
1Please see page 268 for details.
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Retention
of low-cost
position
GLOBAL COST CURVE, FOB IN 2017, US$/t
Steel slab
Coking coal
EVRAZ
mt
US$/t
500
400
300
200
100
0
mt
EVRAZ
US$/t
200
150
100
50
0
0
100
200
300
400
500
600
700
800
0
50
100
150
200
250
300
350
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EVRAZ’ assets are
in the first quartile
of global cost curves
in semi-finished steel
products and coking
coal concentrate.
1-2%
of revenue
104
53
COST-CUTTING PROGRAMME1,
US$ million
BREAKDOWN OF COST-CUTTING
PROGRAMME EFFECT IN 2017, %
3-5 year target
2017
2016
2015
169
2-3%
of COGS
163
KPI
316
321
US$163
million
Yields and raw material
(cid:70)o(cid:86)t(cid:86) (cid:76)(cid:81) (cid:56)(cid:85)al(cid:86) a(cid:81)d (cid:54)(cid:76)be(cid:85)(cid:76)a
Increasing productivity
and cost effectiveness
Improvements at coal
washing plants and mines
G&A costs and non G&A
headcount
37
23
18
10
Yields and raw material
costs of NA and other assets
Optimisation of assets
8
4
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The average annual EBITDA effect from cost-cutting
initiatives totalled US$163 million. The plan is to
maintain the current pace of improvement with an
annual cost-cutting programme at the level of at least
2-3% of the cost base.
Cost savings in 2017 were focused on improving
operations, optimising the usage of materials and
services, as well as reducing headcount to improve
productivity.
COKING COAL CONCENTRATE
CASH COST1, US$/t
G&A EXPENSES,
US$ million
31
30
42
KPI
50
40
30
20
10
0
553
469
540
Further
G&A
reduction
600
400
200
0
2015
2016
2017
2015
2016
2017
3-5 year
target
KEY DRIVERS
Premium
EVRAZ’ assets are
infrastructure steel
in the first quartile
products, a wide
of global cost curves
CASH COST OF SEMI-FINISHED
PRODUCTS1, US$/t
range of coking
in semi-finished steel
coal grades, and
products and coking
modernised large-
coal concentrate.
scale production
sites make EVRAZ the
leader in the markets
where it operates.
258
195
185
2016
2017
2015
KPI
250
200
150
100
50
0
(cid:38)as(cid:75) costs of se(cid:80)i(cid:16)finis(cid:75)e(cid:71) (cid:83)ro(cid:71)ucts tota(cid:79)(cid:79)e(cid:71)
US$258 per tonne in 2017, mainly due to the surge
in raw materials prices and the strengthening
of the rouble.
The Coal segment’s cash cost was US$42 per tonne
in 2017, mainly due to the currency factor and
geological conditions.
1Please see page 268 for details.
G&A expenses were up by 15% in dollar terms in 2017.
This was mainly due to the strengthening rouble’s
effect on costs. Reducing administrative costs remains
a priority and EVRAZ was able to achieve substantial
synergies in the divisions during the year. Further
a(cid:71)(cid:80)inistrati(cid:89)e cost re(cid:71)uction an(cid:71) si(cid:80)(cid:83)(cid:79)ification of t(cid:75)e
management structure are in the pipeline for the next
couple years.
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
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M
A
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I
O
N
27
Making the World Stronger
Strategic priorities
Prudent
CAPEX
strategy
The Group’s investment
projects are aimed
at further developing
its competitive
advantages, while
maintenance
investments are
focused on supporting
the sustainability of
EVRAZ’ operations.
ANNUAL CAPEX BREAKDOWN BY
MAINTENANCE AND DEVELOPMENT,
US$ million
390
260
2018
o(cid:88)tloo(cid:78)
2017
2016
2015
600–700
367
236
603
264
164
257
171
428
428
Maintenance
Development
28
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REALISED INVESTMENT PROJECTS
Construction of an LDP mill at Regina
Launched in 2017
• Produce 1 inch X70 pipe
EVRAZ NORTH AMERICA LDP SALES, kt
• Reduce conversion cost by US$14 million annually
3-5 year target
• Add 250 thousand tonnes of welding and
(cid:20)(cid:25)(cid:19) t(cid:75)ousan(cid:71) tonnes of finis(cid:75)ing ca(cid:83)acity
Total CAPEX
US$ 74 million
2018
2017
2016
2015
>350
200–300
178
305
363
ONGOING INVESTMENT PROJECTS
Construction of the blast furnace no. 7 at EVRAZ NTMK
Will be launched in 2018
The new blast furnace no. 7 is slated to be launched
in Q1 2018 with pig iron capacity of 2.5 mtpa to
maintain stable volumes during the capital repair of blast
furnace no. 6 in 2018-19. In 2018, pig iron production
volumes could be lower due to the repairs, but they will
reach more than 5 mtpa in the medium term.
Total CAPEX
US$ 196 million
EVRAZ NTMK PIG IRON PRODUCTION, kt
3-5 year target
2018
2017
2016
2015
>5,000
4,600
4,714
4,832
4,921
Grinding ball mill construction at EVRAZ NTMK
Will be launched in 2018
A new grinding ball mill with 134 ktpa capacity.
EVRAZ grinding ball production is expected to
increase to more than 300 ktpa.
EVRAZ GRINDING BALL SALES, kt
3-5 year target
Total CAPEX
US$ 19 million
2018
2017
2016
2015
>300
290
253
249
253
Annual Report & Accounts 2017
Annual Report & Accounts 2017
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P
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Regular
dividends and
proactive debt
management
NET DEBT,
US$ million
5,349
4,802
DIVIDENDS AND SHARE BUYBACKS,
US$ million
6,000
Dividends
3,966
4,500
US$3–4
billion
Share buybacks
3,000
Total
1,500
0
2015
2016
2017
0
336
336
0
0
0
430
0
430
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B
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S
N
E
S
S
R
E
V
E
W
I
EVRAZ was consistent
in its deleveraging
strategy for the last
three years and
reached its target
figures in 2017.
Going forward the
Group plans to keep
a moderate net debt
level and resume
regular dividend
payments depending
on the financial results.
2015
2016
2017
3-5 year target
NET DEBT/EBITDA
3-5 year target
2.0x
1.5
2017
2016
2015
3.1
3.7
TOTAL DEBT AND NET DEBT,
US$ million
2017
2016
2015
5,432
3,966
5,961
4,802
6,724
5,349
Total debt
Net debt
C
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P
O
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T
C
O
R
P
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R
A
T
E
G
O
V
E
R
N
A
N
C
E
In 2017, the Group continued to focus on deleveraging and reduced its total debt by US$529 million through the
re(cid:83)ay(cid:80)ent of (cid:80)aturities sc(cid:75)e(cid:71)u(cid:79)e(cid:71) for current an(cid:71) c(cid:79)osest years. (cid:53)o(cid:69)ust free cas(cid:75) (cid:193)o(cid:90) of (cid:56)(cid:54)(cid:7)(cid:20)(cid:15)(cid:22)(cid:21)(cid:21) (cid:80)i(cid:79)(cid:79)ion a(cid:79)(cid:79)o(cid:90)e(cid:71)
(cid:40)(cid:57)(cid:53)(cid:36)(cid:61) to significant(cid:79)y (cid:71)ecrease its net (cid:71)e(cid:69)t to (cid:56)(cid:54)(cid:7)(cid:22)(cid:15)(cid:28)(cid:25)(cid:25) (cid:80)i(cid:79)(cid:79)ion. (cid:55)oget(cid:75)er (cid:90)it(cid:75) i(cid:80)(cid:83)ro(cid:89)e(cid:71) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:15) t(cid:75)is resu(cid:79)te(cid:71) in a net
leverage ratio of 1.5 times. At the year-end, liquidity was strong with US$1,466 million in cash on hand.
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
AVERAGE COST OF BORROWING
AS OF YEAR-END, %
INTEREST PAYMENTS (including premium),
US$ million
8
6
4
2
0
2015
2016
2017
(cid:36)(cid:89)e(cid:85)a(cid:74)e l(cid:76)(cid:73)e o(cid:73) t(cid:75)e debt
portfolio
(cid:36)(cid:89)e(cid:85)a(cid:74)e (cid:70)o(cid:86)t o(cid:73) bo(cid:85)(cid:85)o(cid:90)(cid:76)(cid:81)(cid:74)
as of year-end
389
409
425
2017
2016
2015
454
65
454
45
452
27
Interest
Premium paid on repurchased
(cid:40)(cid:88)(cid:85)obo(cid:81)d(cid:86)(cid:18)(cid:43)(cid:60) (cid:37)o(cid:81)d(cid:86)
(cid:39)uring (cid:21)(cid:19)(cid:20)(cid:26)(cid:15) (cid:40)(cid:57)(cid:53)(cid:36)(cid:61) focuse(cid:71) on re(cid:71)ucing its (cid:71)e(cid:69)t ser(cid:89)ice costs. (cid:55)(cid:75)e (cid:42)rou(cid:83) re(cid:83)rice(cid:71) an(cid:71) refinance(cid:71) se(cid:89)era(cid:79) cre(cid:71)it
facilities and issued new Eurobonds due in 2023 to fund a tender offer for notes with shorter maturities. These
measures reduced the weighted average cost of the outstanding borrowings and extended the duration of the debt
portfolio.
Cash spent on interest, net of interest income and interest gains from swaps, continued to decrease in the reporting
period, driven by the overall reduction in debt and lower interest rates. In addition, to reduce interest expense, the Group
prepaid US$953 million in Eurobonds and US$350 million in high-yield bonds, paying a premium of US$65 million over
the par value of bonds in these transactions.
A
D
D
I
T
I
O
N
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F
O
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I
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29
Making the World Stronger
Making the World Stronger
(cid:41)inancial
review
Statement of operations
In its full-year financial results for 2017,
EVRAZ reported an increase of 40.4% year-
on-year in consolidated revenues, which
were US$10,827 million compared with
US$7,713 million in 2016. This performance was
driven partially by higher volumes but mostly by
an upswing in prices for steel and coal products
amid more favourable market trends.
In 2017 E(cid:37)ITDA increased significantly mainly
driven by improved market conditions in steel
and coal markets as well as efficiency initiatives.
In 2017 EBITDA reached US$2,624 million, up
70.2% from US$1,542 million in 2016, boosting
the EBITDA margin from 20.0% to 24.2% and
increasing free cash flow to US(cid:7)1,322 million.
The Steel segment’s revenues (including inter-
segment) increased by 40.9% year-on-year
to US$7,743 million, or 63.0% of the Group’s
total before elimination. The growth was mainly
attributable to higher revenues from sales of
steel products, which rose by 39.8% year-on-year,
largely due to an upturn in average sales prices
of 38.6% that was underpinned by favourable
market conditions. Steel product sales volumes
remained strong in 2017 (+1.2% y-o-y).
trend in global benchmarks. Volumes rose
by 4.6% due to the stable demand and the
improved productivity at mines.
The Steel, North America segment’s revenues
grew by 27.3% year-on-year. Prices rose by 18.7%
and volumes climbed by 12.7%, boosting the
segment’s revenues from sales of steel products
by 31.4%. The key drivers of this growth were an
improved demand for oil country tubular goods
(OCTG) following a recovery in oil prices and a
stronger demand for railway products.
The Steel segment’s E(cid:37)ITDA improved, reflecting
higher steel and vanadium prices and the
effects of cost-cutting initiatives implemented
in 2017. This was partially offset by an increase
in expenses in US dollar terms as a result of the
the rouble’s strengthening impact on costs, as
well as by rising prices for raw materials such as
coal, iron ore and scrap.
The Coal segment’s revenues surged by 67.5%
year-on-year, supported largely by higher sales
prices, which grew by 62.9% amid an upward
The Steel, North America segment’s EBITDA
increased year-on-year, supported by greater
revenues from sales of tubular, railway and flat-
30
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rolled products as well as higher expenses in prior
year connected with suspension of production.
This was partly offset by higher prices for scrap
and purchased semi-finished products.
The Coal segment’s EBITDA increased year-on-
year largely driven by higher sales prices in line
with global benchmarks.
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.
Annual Report & Accounts 2017
Annual Report & Accounts 2017
I
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C
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P
O
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T
In 2017 (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) increase(cid:71) si(cid:74)nificantl(cid:92) mainly driven
by improved market conditions in steel and coal
mar(cid:78)ets as (cid:90)ell as efficienc(cid:92) initiati(cid:89)es(cid:17)
REVENUES, US$ million
Segment
Steel
Steel, North America
Coal
Other operations
Eliminations
Total
REVENUES BY REGION, US$ million
Segment
Russia
Americas
Asia
CIS (excl. Russia)
Europe
Africa and rest of the world
Total
EBITDA, US$ million
Segment
Steel
Steel, North America
Coal
Other operations
Unallocated
Eliminations
Total
Nikolay Ivanov
(cid:38)(cid:75)ief (cid:41)inancia(cid:79) (cid:50)fficer
2017
7,743
1,864
2,214
462
(1,456)
10,827
2017
4,255
2,201
2,162
812
1,128
269
2016
5,497
1,464
1,322
363
(933)
7,713
2016
3,080
1,722
1,372
630
640
269
Change
Change, %
2,246
400
892
99
(523)
3,114
40.9
27.3
67.5
27.3
56.0
40.4
Change
Change, %
1,175
479
790
182
488
–
38.1
27.8
57.6
28.9
76.3
–
40.4
10,827
7,713
3,114
2017
1,483
58
1,226
21
(131)
(33)
2,624
2016
1,004
28
644
17
(109)
(42)
1,542
Change
Change, %
479
30
582
4
(22)
9
1,082
47.7
107.1
90.4
23.5
20.2
(21.4)
70.2
(cid:41)o(cid:85) mo(cid:85)e in(cid:73)o(cid:85)mation on t(cid:75)e definition o(cid:73) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:15)
please see page 267.
I
B
U
S
N
E
S
S
R
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C
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R
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C
O
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P
O
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A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
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S
T
A
T
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M
E
N
T
S
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31
Making the World Stronger
The following table details the effect of the Group’s cost-cutting initiatives.
EFFECT OF GROUP’S COST-CUTTING INITIATIVES IN 2017, US$ million
Improving yields and raw material costs, including
Improving yields and raw material costs of Urals and Siberia divisions
Various improvements at coal beneficiating plants and mines
Improving yields and raw material costs of North American assets and vanadium operations
Increasing productivity and cost effectiveness
Others, including
Reduction of general and administrative (G&A) costs and non-G&A headcount
Optimisation of asset portfolio
Total
104
61
30
13
37
22
16
6
163
REVENUES, COST OF REVENUE AND GROSS PROFIT BY SEGMENTS, US$ million
2017
2016
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 (cid:178) gross profit
Unallocated (cid:178) gross profit
Eliminations (cid:178) gross profit
Total
7,743
(5,795)
1,948
1,864
(1,656)
208
2,214
(973)
1,241
104
(8)
(151)
3,342
5,497
(4,068)
1,429
1,464
(1,243)
221
1,322
(701)
621
85
(7)
(157)
2,192
40.9
42.5
36.3
27.3
33.2
(5.9)
67.5
38.8
99.8
22.4
14.3
(3.8)
52.5
In 2017, selling and distribution expenses
increased by 15.1%, mostly due to the stronger
rouble and higher sales volumes. General
and administrative expenses rose by 15.1%,
primarily because of the effect that the rouble
appreciation had on costs.
The appreciation of the Russian rouble against
the US dollar in 2017 led to exchange losses
recognised in income statement of non-Russian
subsidiaries, which are not offset with the
exchange gains recognised in equity of the
Russian subsidiaries.
Foreign exchange losses amounting to
US$54 million mainly related to intra-group
loans denominated in roubles payable by
Evraz Group S.A. to the Russian subsidiaries.
Interest expenses incurred by the Group
decreased, mainly due to the reduction in total
debt and the efforts undertaken to refinance
existing facilities during the reporting period.
32
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Annual Report & Accounts 2017
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The interest expense for bank loans, bonds
and notes dropped to US$394 million in 2017,
compared with US$439 million a year earlier.
Losses on financial assets and liabilities
amounted to US$57 million and were mostly
related to premiums on early repurchases
of bonds denominated in US dollars.
The net loss of US$360 million on disposal
groups classified as held for sale was caused
mostly by a reclassification to the statement of
operations of accumulated losses on translation
of the net assets of the sold subsidiaries into
presentation currency (US dollars) in the amount
of US$741 million. Subsidiaries with net assets
of US$134 million were sold for consideration of
US$515 million net of transaction costs.
For the reporting period, the Group had
an income tax expense of US$396 million,
compared with US$96 million a year earlier.
The change reflects the Group’s better
operating results and income tax on the sale
transaction of Evraz Nakhodka Trade Sea Port
in the amount of US$60 million.
GROSS PROFIT, EXPENSES AND RESULTS, US$ million
Item
(cid:42)(cid:85)oss (cid:83)(cid:85)ofit
Selling and distribution costs
General and administrative expenses
Impairment of assets
Foreign exchange gains/(losses), net
Other operating income and expenses, net
(cid:51)(cid:85)ofit (cid:73)(cid:85)om o(cid:83)e(cid:85)ations
Interest expense, net
Share of profits(cid:18)(losses) of joint ventures and associates
Loss on financial assets and liabilities, net
Loss on disposal groups classified as held for sale, net
Other non-operating losses, net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:69)e(cid:73)o(cid:85)e ta(cid:91)
Income tax benefit(cid:18)(expense)
(cid:49)et (cid:83)(cid:85)ofit(cid:18)(cid:11)loss(cid:12)
CASH FLOW, US$ million
Item
Cash flows from operating activities before changes in working capital
Changes in working capital
(cid:49)et cas(cid:75) (cid:193)o(cid:90)s (cid:73)(cid:85)om o(cid:83)e(cid:85)atin(cid:74) acti(cid:89)ities
Short-term deposits at banks, including interest
Purchases of property, plant and equipment and intangible assets
(cid:51)roceeds from sale of disposal groups classified as held for sale,
net of transaction costs
Other investing activities
(cid:49)et cas(cid:75) (cid:193)o(cid:90)s (cid:88)sed in in(cid:89)estin(cid:74) acti(cid:89)ities
(cid:49)et cas(cid:75) (cid:193)o(cid:90)s (cid:88)sed in financin(cid:74) acti(cid:89)ities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
2017
3,342
(717)
(540)
12
(54)
(57)
1,986
(423)
11
(57)
(360)
(2)
1,155
(396)
759
2017
2,111
(154)
1,957
7
(595)
412
9
(167)
2016
2,192
(623)
(469)
(465)
(48)
(124)
463
(471)
(23)
(9)
–
(52)
(92)
(96)
(188)
2016
1,343
160
1,503
4
(382)
27
11
(340)
(1,479)
(1,369)
(2)
309
(10)
(216)
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E
S
S
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O
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C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
Change
Change, %
1,150
(94)
(71)
477
(6)
67
1,523
48
34
(48)
(360)
50
1,247
(300)
947
52.5
15.1
15.1
n/a
12.5
(54.0)
n/a
(10.2)
n/a
n/a
n/a
(96.2)
n/a
n/a
n/a
Change
Change, %
768
(314)
454
3
(213)
385
(2)
173
(110)
8
525
57.2
n/a
30.2
75.0
55.8
n/a
(18.2)
33
(50.9)
(8.0)
(80.0)
n/a
Making the World Stronger
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
(cid:49)et cas(cid:75) (cid:193)o(cid:90)s (cid:73)(cid:85)om o(cid:83)e(cid:85)atin(cid:74) acti(cid:89)ities
Interest and similar payments
Capital expenditures, including recorded in financing activities
and non-cash transactions
(cid:51)roceeds from sale of disposal groups classified as held for sale,
net of transaction costs
Other cash flows from investing activities
(cid:41)(cid:85)ee cas(cid:75) (cid:193)o(cid:90)
2017
2,624
2,627
(154)
(485)
(31)
1,957
(453)
(603)
412
9
1,322
2016
1,542
1,549
160
(183)
(23)
1,503
(454)
(428)
27
11
659
Change
Change, %
1,082
1,078
(314)
(302)
(8)
454
1
(175)
385
(2)
663
70.2
69.6
n/a
n/a
34.8
30.2
(0.2)
40.9
n/a
(18.2)
100.6
In 2017, net cash flows from operating activities
increased by 30.2% year-on-year. Free cash
flow for the period was US$1,322 million.
(cid:41)o(cid:85) mo(cid:85)e in(cid:73)o(cid:85)mation on t(cid:75)e definition o(cid:73) (cid:73)(cid:85)ee
cas(cid:75) (cid:193)o(cid:90)(cid:15) (cid:83)lease see page 267.
CAPEX and key projects
CAPITAL EXPENDITURES IN 2017, US$ million
In 2017, EVRAZ’ capital expenditure increased
to US$603 million, compared with US$428
million a year earlier, due to significant expenses
on major projects and the strengthening of the
rouble exchange rate against the US dollar.
EVRAZ NTMK continued to implement its two
main construction projects during 2017, the
blast furnace no. 7 and the new grinding ball
mill, both of which are scheduled to be launched
in Q1 2018. In 2017, the degasser was installed
at EVRAZ Regina’s steel mill. This was the
last important module of the upgrade project,
making it possible to achieve the project’s full
planned effect.
Capital expenditures (including those recognised
in financing activities) for 2017 in millions of
US dollars can be summarised as follows.
Blast furnace no. 7
The construction of EVRAZ NTMK’s blast furnace no. 7 has been in progress since
Q3 2016. It is due to be launched in Q1 2018.
Steel mill upgrade
The upgrade of EVRAZ Regina’s steel mill has been in progress since Q2 2015.
The aim is to improve steel quality, increase the capacity for casting by 110 kt
and rolling by 250 kt, and result in a crown yield saving from 0.75% to 1.1%.
The project was completed in 2017.
Grinding ball mill construction
The construction of EVRAZ NTMK’s new grinding ball mill has been in progress
since Q2 2015. It is due to be completed in Q1 2018 and is expected to increase
ball production to more than 300 kt by 2019.
Boiler modernisation
The modernisation of EVRAZ ZSMK’s boiler unit no. 9 has been in progress since
Q3 2016. It was launched in Q4 2017, making it possible to achieve the project’s
planned effect.
Other development projects
Maintenance
Total
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367
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Annual Report & Accounts 2017
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Financing and liquidity
EVRAZ began 2017 with total debt of
US$5,961 million. Throughout the year, the
Group prepaid and refinanced several of its bank
financing facilities, further reducing its financial
leverage and debt service costs.
In two transactions, amounting to
US$110 million in January and US$270 million
in July, EVRAZ prepaid the remaining outstanding
principal of its US$500 million syndicated pre-
export financing facility. The Group also prepaid
its UniCredit Bank and Nordea Bank loans in the
amounts of US$44 million and US$13 million,
respectively.
In August, the Group partially repaid and
refinanced the remainder of its loan from
Gazprombank. This transaction reduced the
outstanding balance, converted the rouble-
denominated part into US dollars, repriced
the facility and extended the final maturity to
2022. Upon completion of this transaction, the
loan from Gazprombank consists of a tranche
denominated in US dollars of US$152 million and
a euro-denominated tranche of EUR180 million.
In September, EVRAZ prepaid US$99 million
toward one of its outstanding loans from VTB.
To fund the prepayments, the Group
raised several new bank loans: a six-year,
US$200 million credit from Alfa-Bank, as well
as two-, three-, and five-year tranches totalling
US$300 million from Sberbank. In November,
it also borrowed US$100 million from ING DiBa
with final maturity in 2022.
In October, EVRAZ’ North American subsidiaries
entered into a new US$450 million asset-based
lending facility maturing in 2022, which was
arranged by JP Morgan Chase Bank N.A. and a
syndicate of banks. This agreement is intended
to finance the North American operations’
working capital needs and has replaced a similar
facility that would have matured in 2019.
During 2017, EVRAZ was also active on capital
markets completing several transactions.
In March, Evraz Group S.A. issued a
US$750 million Eurobond due in 2023 with a
semi-annual coupon of 5.375%, which is the
lowest rate in the Group’s history. The proceeds
were used to fund the tender offer for the
Eurobonds due in 2018 and 2020. The Group
partially repurchased the 9.50% notes due in
2018 (US$50 million), the 6.75% notes due in
2018 (US$332 million) and the 6.50% bonds
due in 2020 (US$300 million). The total cash
outflow was US(cid:7)726 million, including the
premium paid over the nominal value.
In October, Evraz Group S.A. completed an
early redemption, at the make-whole price, of
its 9.5% notes due in 2018 with a principal
amount of US$75 million and its 6.75%
notes due in 2018 with a principal amount of
US(cid:7)196 million. The total cash outflow was
US$285 million, including the premium paid
over the nominal value.
In May, Evraz Inc NA Canada called
US$345 million of its 7.50% senior secured
notes due in 2019. In September, it called the
remaining US$5 million outstanding of these
notes in full. These two transactions resulted in
a total cash outflow of US(cid:7)36(cid:23) million, including
the premium paid over the nominal value.
These activities, as well as scheduled drawings
and repayments of bank loans, brought the
Group’s total debt down by US$529 million
to US$5,432 million as at 31 December
2017. Net debt dropped by US$836 million
to US$3,966 million, compared with
US$4,802 million as at 31 December 2016.
Mainly due to decreasing total debt and the
Group’s efforts to refinance existing facilities
during 2017, interest expenses accrued in
respect of loans, bonds and notes decreased
to US$394 million for the reporting period,
compared with US$439 million a year earlier.
Net debt to EBITDA stood at 1.5 times,
compared with 3.1 times as at 31 December
2016.
At the year-end, the Group had a
total outstanding principal of around
US(cid:7)1,772 million on debt with financial
maintenance covenants, comprised of various
bilateral facilities. The maintenance covenants
under these facilities include the two key ratios
that are calculated based on EVRAZ plc’s
consolidated financial statements: a maximum
net leverage and a minimum EBITDA interest
coverage ratio. As of the year-end, EVRAZ was in
full compliance with its financial covenants.
As at 31 December 2017, the Group had
accumulated US$1,466 million of cash and
cash equivalents. It had additional liquidity
sources available in the form of US$131 million
in committed and US$1,251 million in
uncommitted credit facilities.
At the year-end, short-term loans and the
current portion of long-term loans totalled
US$148 million. Cash on hand and committed
credit facilities were more than sufficient to
cover all of EVRAZ’ debt principal maturing in
2018 and 2019.
Key recent developments
In February 2018, EVRAZ repaid two
US$100 million loans from Alfa Bank due
2019, a US$200 million loan from Alfa Bank
due 2023 and a US$100 million loan from
Sberbank due 2020. The Group financed these
repayments with a combination of its cash
balances and a new 5-year US$300 million
term loan from Alfa bank. These transactions
resulted in an extension of maturity profile and
reduction of interest charges.
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Making the World Stronger
(cid:51)rinci(cid:83)al ris(cid:78)s and uncertainties
Risk management system
The risk management process aims to identify, evaluate and manage potential
and actual threats to the Group’s ability to achieve its objectives.
For more information, see risk management
and internal control section of the corporate
governance report on pages 117–119.
CEO
Has ultimate responsibility for risk
management, ensuring that it is in
place and effectively functioning
Board of Directors
• 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
Identifies, assesses and monitors
Group-wide risks and mitigation
actions
Audit Committee
• Supports the board in monitoring risk
exposure against risk appetite
• Reviews the effectiveness of risk
management and internal control systems
Internal audit
Supports the Audit Committee
in reviewing the effectiveness
of risk management and
internal control systems
TOP-DOWN APPROACH
TOP-DOWN APPROACH
(cid:50)(cid:89)e(cid:85)si(cid:74)(cid:75)t(cid:15) identification(cid:15) assessment
(cid:50)(cid:89)e(cid:85)si(cid:74)(cid:75)t(cid:15) identification(cid:15) assessment
and management of risks at the corporate level
and management of risks at the corporate level
Effective Risk Management
(cid:44)dentification(cid:15) assessment and mana(cid:74)ement
(cid:44)dentification(cid:15) assessment and mana(cid:74)ement
of risks at regional and site levels and across functions
of risks at regional and site levels and across functions
BOTTOM-UP APPROACH
BOTTOM-UP APPROACH
Site levels
• Identification, assessment and mitigation of risks
• Promoting risk awareness and safety culture
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Regional business unit management teams
• Adopt regional risk appetite
• Support the Risk Management Group in reviewing and monitoring effectiveness of risk management
• Identify, assess and manage risks at the regional level
• Monitor risk management process and effectiveness of internal control
Risk migration
in 2017 and robust
assessment
In 2017, management carried out a robust
reassessment of the principal risks facing
the Group. The Audit Committee has carefully
reviewed this assessment on behalf of the Board.
The assessment focused on the risks that
could adversely affect the Group’s strategies.
It included an evaluation of risks identified
at the operational level to consider their
relevance and significance for the Group, as well
as a 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 updated. Management
also considered the speed of impact of each risk
in their assessment.
In addition, a reassessment of the cybersecurity
and IT infrastructure failure risk has led to the
identification of this as a principal risk, mostly
due to the rising level of cybercrime globally
and the increasing reliance on IT systems.
On 27 June 2017, a computer virus attacked
many major companies around the world,
including EVRAZ.
The assessment included other risks that
were not recognized as principal, eg HR and
employee risks, taxation, compliance risks
(including anti-corruption and anti-bribery
matters), social and community risks, risks
related with respect for human rights, and
other risks. While the impact and probability
analysis suggests that such risks could
affect the Group’s operations to some extent,
the management believes they are being
adequately managed and does not consider
them as being capable of seriously affecting
the Group’s performance, future prospects or
EVRAZ activity in these areas is
reputation.
described in more detail on pages 82–105.
All the EVRAZ IT systems and data affected by
the virus attack have been quickly recovered.
Although no significant damage has been
caused by the cybersecurity incident to date and
no financial data was affected or manipulated,
the management continues to implement
additional measures to minimise similar risks.
While the composition of the Group’s principal
risks has not changed substantially 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 the
assessment of some of the risks.
Annual Report & Accounts 2017
Annual Report & Accounts 2017
The Group closely monitors the impact of the UK
referendum result in favour of leaving the EU and
continues to believe that it will not significantly
affect its business.
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Key developments in 2017
Risk management training for the Group’s
top management took place in early 2017.
In addition to 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 was
introduced as part of the transformation of the
Risk Committee into the Risk Management
Group at the end of the prior year.
To enhance the depth of analysis for individual
process risks, the Group began to update
its occupational safety risk assessment
methodology in 2017.
The internal control self-assessment and
risks analysis performed by line managers at
plants has been extended to ensure increased
coverage and a more comprehensive result.
The major purpose is to increase the depth
of involvement of management and employees
in the process of improving internal control and
risk management.
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PRINCIPAL RISKS
AND UNCERTAINTIES HEAT
MAP IN 2017
1
2
3
4
5
6
7
8
9
Global economic factors,
industry conditions and cyclicality
Product competition
Cost effectiveness
Treasury: availability of finance
Functional currency devaluation
HSE: environmental
HSE: health, safety
Potential action by governments
Business interruption
10
Cybersecurity and IT infrastructure
failure
Speed of impact,
lack of manageability
low
hight
Risk migration, yoy
Risk appetite level
5
4
3
2
1
SEVERITY
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Making the World Stronger
Principal risks
Success Factors
Strategic priorities
Health, safety
and environment
Human
capital
Customer
focus
Asset
development
EVRAZ
business system
Development of product portfolio
and customer base
Retention of low-cost positions
Prudent CAPEX strategy
Regular dividends and proactive debt
management
Risk
1.
Global economic
factors, industry
conditions and
cyclicality
2.
Product competition
3.
Cost effectiveness
Related with
Description and impact
Mitigating/
risk management actions in 2017
Direction/
reason for change
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 Group’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, further reducing
and managing the cost base with the
objective of being among the sector’s
lowest-cost producers, and balance
sheet/gearing improvement.
Excessive supply on the global market
and greater competition, mostly in the
steel products market, mainly due to
competitors’ activity and introduction of
new facilities.
Low demand for construction products
and increasing competition in this
segment.
Increasing competition in the rail
product segment.
Excessive supply of slabs on the global
market and intensified competition.
Most of the Group’s steel production
remains sensitive to costs and prices.
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.
Expand product portfolio and penetrate
new geographic and product markets.
Develop and improve loyalty and
customer focus programmes and
initiatives.
Quality improvement initiatives.
Focus on expanding the share of value-
added products.
Implementation
of mitigating/risk
management actions
focused on product
portfolio development
and exploring market
opportunities.
For both the mining and steelmaking
operations, the Group is implementing
cost-reduction projects to increase
asset competitiveness.
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.
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Risk
4.
Treasury: availability
o(cid:73) finance
5.
Functional currency
devaluation
6.
HSE: environmental
Annual Report & Accounts 2017
Annual Report & Accounts 2017
Related with
Description and impact
Mitigating/
risk management actions in 2017
Direction/
reason for change
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Extension of debt
maturity profile
on more favourable
terms.
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.
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.
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.
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, waste recycling, tailing
management, air emissions (including
greenhouse gases), and community
satisfaction.
Consequently, EVRAZ faces risks
including regulatory fines, penalties,
adverse impact on reputation and, in
the extreme, the withdrawal of plant
environmental licences, which would
curtail operations indefinitely.
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.
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.
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.
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.
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Risk
7.
HSE: health, safety
8.
Potential government
action
9.
Business interruption
Making the World Stronger
Related with
Description and impact
Mitigating/
risk management actions in 2017
Direction/
reason for change
(cid:51)otential danger of fire, explosions and
electrocution, as well as risks specific to
individual mines: methane levels, rock
falls and other accidents could lead to
loss of personnel, outage or production
delays, 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 licences, thereby curtailing
operations for an indefinite period.
New laws, regulations or other
requirements could limit the
Group’s ability to obtain financing on
international markets, sell its products
and purchase equipment.
Risk of capital controls that affect the
Group in terms of free flow of capital.
EVRAZ may also be adversely affected
by government sanctions against
Russian businesses or otherwise
reducing its ability to conduct business
with counterparties.
Risk of adverse geopolitical situation in
countries of operation.
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.
Management K(cid:51)Is place significant
emphasis on safety performance and
the standardisation of critical safety
programmes.
Implementing an energy isolation
programme.
Further development of a programme of
behaviour safety observations which drives
a more proactive approach to preventing
injuries and incidents.
A series of health and safety initiatives
related to underground mining.
Maintenance and repair modernisation
programmes, downtime management
system.
Development of occupational safety risk
assessment methodology.
Analysis of effectiveness of corrective
measures.
While these risks are mostly outside the
Group’s control, EVRAZ and its executive
teams are members of various national
industry bodies.
As a result, they contribute to the
development of such bodies and, when
appropriate, participate in relevant
discussions with political and regulatory
authorities.
Procedures have been implemented
and will be further developed to
ensure that sanction requirements
are complied with across the Group’s
operations.
The Group has defined and established
disaster recovery procedures that 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 incident cause analysis is
performed in order to develop and
implement preventative actions.
Records of minor interruptions are
reviewed to identify any more significant
underlying issues.
Further development of a cybersecurity
protection system, focused on:
• isolation and protection of industrial
networks;
• antivirus software systems update;
• upgrade and expansion of backup
system;
• implementation of incident
monitoring systems;
• and other measures.
Rising level of
cybercrime globally
combined with
increasing reliance
on IT.
10.
Cybersecurity and IT
infrastructure failure
Information technology and information
security risks have the potential to
cause prolonged production delays or
shutdowns.
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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. EVRAZ believes that a five-
year period is optimal for the viability analysis,
as it corresponds to the period used in the
Group’s strategic planning and therefore reflects
the information available to management
regarding the future performance of the
business. Visibility of performance and risks
beyond the strategic planning cycle is limited
and scenarios beyond this five-year period
have not been analysed for the purposes of the
viability statement.
In accordance with provision C.2.2 of the
UK Corporate Governance Code 2016, the
Board has assessed the Group’s prospects
over the period of the current strategic plan
to December 2022 and consider 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 38–40,
and 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 190–193;
— future pricing of steel and raw materials
is within the range of the external analyst
forecasts set out in Note 6;
— annual steel volumes are assumed to
exceed the 2017 level by 2.4% to 14.1%
over the five-year period to December 2022(cid:30)
• Global economic decline:
— steel and raw material prices and
exchange rates during 2018 and future
periods are at the lower end of the
external analyst forecast set out in Note 6;
— sales volumes are assumed to decrease
by 3.0% in comparison with the base
scenario;
• Increased conversion costs in the CIS;
• Limited access to capital markets;
• Appreciation of local operating currencies;
• Cybersecurity failure resulting in production
delays or shutdowns;
• Business interruption, leading to lost
production and restoration costs;
• 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 this assessment
of its prospects based on stress-testing to
be 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 continue in operation and meet
its liabilities as they fall due over the five-year
period to December 2022.
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-half
of the current debt level in all the scenarios
considered;
• selling prices remain in line with prevailing
market assumptions.
EVRAZ’ Strategic Report, as set out
on pages 4–41 inclusive, has been
reviewed and was approved by the
Board of Directors on 28 February 2018.
Alexander
Frolov
(cid:38)(cid:75)ief (cid:40)(cid:91)ecuti(cid:89)e (cid:50)fficer
EVRAZ plc
By the order of the Board
28 February 2018
Annual Report & Accounts 2017
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42
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Making the World Strongerwww.evraz.com Business
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Annual Report & Accounts 2017 Making the World Stronger
Key production assets
and markets
PLEASE SEE INTERACTIVE MAP
ON ANNUAL REPORT WEB-SITE
https://ar2017.evraz.com/en/business-review/map
Sales1
1,877 kt
s
a
c
i
r
e
m
A
44 kt
478 kt
3,694 mtV
m
m
g
g
e
e
s
s
a
a
c
c
i
i
r
r
e
e
m
m
A
A
Portland
1
Seattle
Vancouver
USA
4
5
Calgary
Edmonton
3
Denver
Pueblo
2
6
Regina
Canada
10
e
m
g
e
s
l
l
e
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t
S
S
Ottawa
Washington
For the data on mineral reserves,
please see page 268.
For data on sales, please see Sales review,
on pages 54, 68, 78.
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Steel, NA segment
Steel segment
Coal segment
1 EVRAZ Portland
1 EVRAZ ZSMK
6 EVRAZ Vanady-Tula
1 Yuzhkuzbassugol
2 EVRAZ Pueblo
2 Evrazruda
7 EVRAZ DMZ
2 Raspadskaya
3 EVRAZ Red Deer
3 EVRAZ KGOK
8 EVRAZ Nikom
3 Mezhegeyugol
4 EVRAZ Calgary
4 EVRAZ NTMK
9 EVRAZ Palini e Bertoli
5 EVRAZ Camrose
5 Evraz Caspian
10 EVRAZ Stratcor
6 EVRAZ Regina
Steel
Sales1
1,281 kt
4,807 kt
R
u
s
s
i
a
4,402 kt
538 kt
2,827 mtV
A
s
i
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C
I
S
E
u
r
o
p
e
85 kt
4,314 kt
354 kt
2,974 kt
2,698 mtV
384 kt
927 kt
920 kt
52 kt
359 mtV
1,182 kt
446 kt
382 kt
1,117 kt
12,529 mtV
Afric
39 kt
577 kt
45 mtV
C
o
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S
t
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m
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n
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Krasnoyarsk
3
1
1
2
2
Novokuznetsk
Novosibirsk
Russia
Nizhny Tagil
4
3
Astana
5
Kazakhstan
Moscow
Tula
6
7
Dnepr
Ukraine
Prague
8
Czech
Republic
9
Italy
Rome
Coal products
Iron ore products
Vanadium products
Finished steel products
Semi-finished steel products
a
Annual Report & Accounts 2017
Sales1
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P
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1,281 kt
4,807 kt
R
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4,402 kt
538 kt
2,827 mtV
A
s
i
a
C
I
S
E
u
r
o
p
e
85 kt
4,314 kt
354 kt
2,974 kt
2,698 mtV
384 kt
927 kt
920 kt
52 kt
359 mtV
1,182 kt
446 kt
382 kt
1,117 kt
12,529 mtV
Afric
39 kt
577 kt
45 mtV
I
B
U
S
N
E
S
S
R
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V
E
W
I
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S
R
R
E
P
O
R
T
C
O
R
P
O
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G
O
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E
R
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A
N
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Sales1
1,877 kt
s
a
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m
A
44 kt
478 kt
3,694 mtV
t
n
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m
g
e
s
a
c
i
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m
A
h
t
r
o
N
l
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t
S
10
t
n
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m
g
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s
l
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t
S
Portland
1
Seattle
Vancouver
USA
4
5
Calgary
3
Edmonton
Denver
Pueblo
2
6
Regina
Canada
Ottawa
Washington
C
o
a
l
s
e
g
m
e
n
t
S
t
e
e
l
s
e
g
m
e
n
t
3
2
2
Krasnoyarsk
1
1
Novokuznetsk
Novosibirsk
Russia
Nizhny Tagil
3
4
Astana
5
Kazakhstan
Moscow
Tula
6
7
Dnepr
Ukraine
Prague
8
Czech
Republic
9
Italy
Rome
1Sales to 3rd parties
Coal products
Iron ore products
Vanadium products
Finished steel products
Semi-finished steel products
a
Making the World Stronger
Steel segment
Introduction and highlights
OUR VISION
• Be a world leader in rail production
• Be a leader on the Russian construction steel market
• (cid:37)e an e(cid:73)ficient (cid:83)(cid:85)od(cid:88)ce(cid:85) o(cid:73) (cid:83)(cid:85)emi(cid:88)m (cid:83)(cid:85)od(cid:88)cts (cid:73)o(cid:85) in(cid:73)(cid:85)ast(cid:85)(cid:88)ct(cid:88)(cid:85)e (cid:83)(cid:85)o(cid:77)ects
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.
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Annual Report & Accounts 2017
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Financial highlights
REVENUES
EBITDA MARGIN
US$ 7,743 million 19.2%
+40.9% yoy
EBITDA
CAPEX
US$ 1,483 million
US$ 358 million
+47.7% yoy
+119.6% yoy
Production highlights
Crude steel
Steel products
12,285 kt
11,263 kt
18,042 kt
Vanadium products (saleable) 11,359 mtV
Iron ore products
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Sales highlights (sales to 3rd parties only)
Finished products
(cid:54)emi(cid:16)finis(cid:75)ed (cid:83)(cid:85)oducts
5,735 kt
6,143 kt
2,932 kt
Vanadium products (saleable) 15,672 mtV
Iron ore products
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Making the World Stronger
Strategic priorities
Development
of product
portfolio and
customer base
Improving beam
consumption
Key developments in 2017
• EVRAZ continued to implement its strategy
to expand the beam market:
— optimised the distribution system;
— launched a program to ensure shipment
within 30 days;
— set up a project sales department to
market beams to large infrastructure
projects;
— EVRAZ NTMK developed 18 new I-beam
profiles and began developing bridge
steels;
— EVRAZ began the first stage of developing
a line of prefabricated buildings using its
390 and 440 steel beams;
— began R&D work for using rolled beams
in load-bearing structures for bridge
construction, as well as in contact-line
support structures;
• These initiatives coupled with the
organic market growth made a significant
contribution to the 6% rise in beam
consumption in Russia in 2017;
• To expand sales into new segments, EVRAZ
worked to develop new federal standards
with Russia’s Federal Agency on Technical
Regulating and Metrology (Russian
abbreviation: Rosstandart).
Outlook for 2018
• Use the project sales department to boost
beam sales to major infrastructure projects
(to c.40 thousand tonnes) by replacing
welded analogues;
• EVRAZ NTMK plans to develop 10 new
I-beam profiles(cid:30)
• Develop new steel profiles for bridge
construction and the electric power sector;
• Launch new line of prefabricated buildings
using EVRAZ’ hot-rolled beams;
• When new I-beam standards come
into effect, market new I-beam profiles
to software systems for engineers.
Expansion of railway product portfolio
Railway wheels
Rails
Key developments in 2017
• Optimised the product mix and increased
production capacity for wheels, allowing
EVRAZ to meet customers’ increasing needs
and boost sales volumes to the Russian and
CIS markets by 96% year-on-year;
• Developed nine new wheel profiles, including:
— four types of locomotive wheels for General
Electric (US);
— passenger wheels for Deutsche Bahn:
EVRAZ began to fulfil a three-year contract
to manufacture and supply BA220 wheels
for Deutsche Bahn’s Regio Dosto 2003
double-decker trains, which travel at
speeds up to 160 kilometres per hour;
— cargo wheels for Turkey and Slovenia;
— a new type of cargo wheel for Europe (to
replace an outdated model) that is widely
used in the rail network;
— cargo wheels for Austrian railways.
Key developments in 2017
• Expanded export geography for rails
(Mozambique, Poland, Serbia, Greece and
Guinea);
• Developed and received TSI certification for
(cid:23)9E5 and 5(cid:23)E(cid:23) European rail profiles, for
future delivery to Deutsche Bahn;
• EVRAZ ZSMK delivered type 60E1 rails
manufactured to meet the Indian IRST
standard for the metro system in Nagpur, one
of India’s largest cities.
Outlook for 2018
• EVRAZ plans to grow rail exports by
around 170 thousand tonnes through the
development of new rail profiles and active
work to reduce logistics costs;
• Develop and certify three profiles to meet
South Korean standards.
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Outlook for 2018
• To meet rising demand for wheels, EVRAZ
Railcars
plans to increase shipments by around 13%
by expanding machining capacity;
Outlook for 2018
• Develop new beam profiles and channels
• Develop and certify two types of cargo wheels
for Europe, as well as cargo wheels for Turkey,
India, Deutsche Bahn and Greece.
for railcars.
Annual Report & Accounts 2017
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Development of the
construction product
portfolio
Key developments in 2017
• Developed and certified new types of rebar
at EVRAZ ZSMK for export delivery to:
— Netherlands;
— Poland;
— British standard for South-East Asia;
— Singapore;
• On the domestic market, developed four rebar
profiles to meet the new federal standard
at EVRAZ ZSMK, four new channels at
EVRAZ NTMK, and three new steel profiles at
EVRAZ DMZ;
• Expanded the market for tongue-and-groove
• Develop new structural steel profiles, new
types of rebar to meet the new federal
standards at EVRAZ ZSMK, and three new
angled profiles at EVRAZ NTMK(cid:30)
• Further develop the market for tongue-and-
groove sheets by seeking new applications;
• Market steel profiles, including specialised
rebar for oil and gas storage facility
construction in the Arctic.
Expansion of the customer
base for value-added semis
Key developments in 2017
• Operating efficiency efforts to debottleneck
the production line helped to grow round
billet sales by around 40%;
sheets by participating in new projects.
• The start of 430-mm diameter OS steel
Marketing
Key developments in 2017
• Launching the loyalty programme allowed
EVRAZ to increase its domestic market
share in Siberia by 9 percentage points
for structural steel (to 74%) and by
3 percentage points for rebar and rolled
steel (to 84%);
• To increase customer satisfaction, EVRAZ
Metall Inprom and Trade Company
EvrazHolding launched an online account
service to allow customers to view order
status and warehouse stocks in real time, to
make it possible for retail orders to be placed
online, and to improve the documentation
workflow.
Outlook for 2018
• If favourable markets continue, EVRAZ plans
to expand rebar exports by roughly 60% by
developing new profiles to meet European and
US standards;
grade round bars deliveries for railroad axle
production.
Outlook for 2018
• Create a new online platform for beam sales
Outlook for 2018
• Renew contracts for round billet.
via EVRAZ Metall Inprom;
• Begin manufacturing and marketing stronger
grinding balls at EVRAZ NTMK to improve
competitive position (lower customer costs by
optimising total cost of ownership).
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Making the World Stronger
Strategic priorities
Retention
of low-cost
position
Continuous focus on
efficienc(cid:92) i(cid:80)pro(cid:89)e(cid:80)ent
Main cost-reduction
programmes
The Steel segment’s efficiency improvement
programme continued in 2017.
More efficient use of raw and basic materials
saved US$54 million. Payroll expenses were also
cut by US$2 million. Productivity growth generated
an additional US$10 million. Reduction of G&A
costs saved US$0.2 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$0.3 million.
Additionally, a series of measures were
undertaken to reduce energy costs by
US$8 million. See page 93.
Reduction of pig iron production costs by
5% (combined initiative at EVRAZ NTMK and
EVRAZ KGOK)
Status
Improved the quality of coking coal and sinter
(relative to 2016), which allowed the blast
furnace shop to optimise coking coal usage and
adjust the total carbon level.
Productivity improvement at the
EVRAZ NTMK’s wheel-bandage shop
Status
Reduced development cycle for wheels by
optimising software and testing new cutting
tools.
Reduction of pig iron production costs by
5% (combined initiative at EVRAZ ZSMK and
Evrazruda)
Status
Optimised the coal charge and increased the
use of Fe-containing waste.
Contin(cid:88)o(cid:88)s castin(cid:74) mac(cid:75)ine (cid:11)(cid:477)(cid:477)(cid:472)(cid:12)
reconstruction at EVRAZ ZSMK
Status
The development of a new continuous casting
technology made it possible to reduce refractory
brick and metal consumption.
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Prudent
CAPEX
strategy
Key investment projects
Wheel resurfacing capacity expansion
Mining
The project aim is to expand the wheel resurfacing
capacity in order to balance production capacity in
2019-2022 and increase production volumes.
Evrazruda’s Tashtagolsky deposit life
extension until 2020
Steelmaking
Construction of blast furnace no. 7
at EVRAZ NTMK
The project aim is to maintain stable pig iron
production volumes during the capital repair of
blast furnace no. 6 in 2018-2019.
Status
• The concrete work was finished at all
installations;
• Installation of metal structures is completed
at the central unit, charge feed unit, air
heater block and gas cleaning unit, and 70%
complete at the aspiration unit;
• Equipment installation is 100% complete at
the charge feed unit, 100% at the air heater
block, and 100% at the gas cleaning unit,
foundry yards – 90%;
• Refractory masonry work at the central
Status
• Technical and engineering documentation has
been completed, a construction site has been
prepared;
• Working documentation is being developed
and four machines for full-profile wheel
resurfacing are being manufactured.
CAPEX in 2017
US$2 million
Optimisation of electric arc furnace shop
at EVRAZ ZSMK
The project aim is to intensify melting at the
electric arc furnace no. 2.
unit is 90% complete, lining of gas and air
lines – 90%, installation of cable routes – 40%,
installation of electrical equipment – 60%.
Status
The warranty testing has been completed and
the technology is being fine-tuned.
CAPEX in 2017
US$133 million
CAPEX in 2017
US$3 million
Grinding ball mill construction
at EVRAZ NTMK
Transfer of the EVRAZ ZSMK’s boiler no. 9
to the secondary gas combustion
The project aim is to construct the new grinding
ball mill in order to increase production and
sales volumes.
Status
• Completed: project documentation,
foundation work, partial delivery of primary
and auxiliary equipment;
• Construction and installation work
is under way for the primary and auxiliary
equipment.
The project aim is to rebuild the boiler no.9
in order to transfer it to the secondary gas
combustion and decommission two boilers from
the steam-air station.
Status
• Main construction and pre-commissioning
work have been completed;
• (cid:51)rocess flow tests are under way on the boiler
no. 9, and the gas pipeline for blast furnace
gas is being tested.
CAPEX in 2017
US$8 million
CAPEX in 2017
US$7 million
The project aim is to increase ore production
at the Tashtagolsky deposit to 3.25 million
tonnes per year and partially transition to
sub-floor caving technology using self-propelled
equipment.
Status
• The project documentation executor and
some suppliers for the main process
equipment have been selected. Part of
the research work has been developed,
engineering surveys of the construction site
have been carried out. The mining exploration
work is 50% complete for the Zapadny site;
• The transition to 100% self-propelled mining
equipment is being completed.
CAPEX in 2017
US$0.5 million
Key maintenance projects
EVRAZ ZSMK
EVRAZ ZSMK conducted planned capital repairs
of the BOF converter no. 5 in April-June and the
blast furnace no. 2 in June.
ERVAZ KGOK
EVRAZ KGOK continues to reconstruct and
modernise its tailings facilities. This project will
allow the Group to maintain its current level of
in-house iron ore raw material supplies.
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CONSTRUCTION OF THE BLAST FURNACE No. 7
To be launched
in Q1 2018
EVRAZ NTMK
EVRAZ NTMK’s blast furnaces no. 5 and no. 6 each currently have an effective operating volume of 2,200 m3.
They are known as the most productive and efficient blast furnaces in Russia and Europe. Building the new
blast furnace no. 7 provides alternative capacity while the blast furnace no. 6 is taken off-line for a major
overhaul.
PIG IRON PRODUCTION, kt
BF
No.5
BF
No.6
4,714 kt
4,714 kt
Idled
Repaired
BF
No.5
BF
No.6
BF
No.7
Newly
built
>5,000 kt
>5,000 kt
>5,000
2017
2–3 year plan
How
we plan to
maintain
stable
pig iron
production
at EVRAZ NTMK
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Making the World Stronger
Market review
Russian steel market
Russia’s economy embarked on a growth
path in 2017 with GDP increasing by 1.5%.
Positive trends in housing statistics and
a broader economic recovery supported
demand for steel products, which rose by 5%
to 38.1 million tonnes. The demand for long
steel climbed by 7%, 5% for flat steel and 2%
for tubular products. In the railway segment, the
demand for wheels surged by 96% due to the
new cycle in railcar construction, and the rail
consumption improved by 10%. In construction
steel, the beam market grew by 6%, while
demand for rebar and structural products was
up a respective 3% and 5%.
Russian export volumes were in line with the
previous year’s figure of 2(cid:23).2 million tonnes,
mainly driven by the combination of a stronger
rouble and solid domestic demand. Total
crude steel production in Russia rose by 2% to
71.6 million tonnes.
In 2017, Russian steel prices rode the wave
of stronger global benchmarks and domestic
demand. The CPT Moscow rebar price averaged
US$444 per tonne, up 15% from US$387 per
tonne in 2016. The price for channels performed
even better, growing by 49% to US$622 per
tonne. Hot-rolled coil averaged US$563 per
tonne CPT Moscow, up 31% from US$431 per
tonne in 2016. Plates averaged US$555 per
tonne, up 31% from US$423 per tonne in 2016.
Other steel markets
In Ukraine, domestic steel consumption
rose by 5% to 4.7 million tonnes in 2017, up
from 4.5 million tonnes in 2016, due to the
continuing stabilization of the political situation
and economy. Export volumes dropped by
13% to 15.6 million tonnes due to a temporary
shutdown of certain steel plants in the beginning
of 2017.
Kazakh steel consumption improved by 18%
to 3.0 million tonnes in 2016, compared with
2.5 million tonnes in 2016, due to the weak
performance in 2016 and general growth in
the construction sector in 2017. Steel product
exports climbed by 11% to 3.4 million tonnes
amid rising global steel prices and growing
demand in Russia.
RUSSIAN STEEL CONSUMPTION BY PRODUCT TYPE, mt
11.3
16.5
10.3
10.7
15.4
10.5
16.1
10.1
11.3
11.2
18.6
11.2
Flat products
Long products
Tubular products
38.1
36.2
37.9
41.0
RUSSIAN STEEL PRICES, US$/t
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Rebars Channels HRC Plate
2017
2016
2015
2014
800
600
400
200
0
Sales volumes
review
External steel product sales volumes at
EVRAZ’ Steel segment remained strong
in 2017 (+0.7% y-o-y). The decline in
construction products shipments was
compensated by railway products sales, which
rose by 13% with wheels being the major
growth driver. Sales volumes of semi-fnished
steel products to third parties remained
mostly unchanged in 2017.
EVRAZ’ sales volumes of key finished products
in Russia mostly increased in 2017. The new
cycle in railcar production led to a doubling
of wheel sales, and rail sales were up 6%
due to Russian Railways’ stable investment
programme. Rebar sales were down 12% due
to heightened competition in Central Russia.
Beams and structural products shipments
faced a decline of 6% and 12% respectively.
Despite the growth of demand in the
Russian long steel sector, the competition
is increasing. EVRAZ is undertaking several
initiatives to support domestic market
share and developing new product types
for clients. In rails, the market share was
almost the same as last year at roughly
70% and we target this market share going
forward. The Group’s share on the structural
product market was 41%, market shares for
beams and rebars stood at 56% and 11%
respectively. The share of the grinding balls
market was 63%.
Evraz Caspian Steel’s rebar sales decreased
by 39% to 110 thousand tonnes in 2017.
Sales at EVRAZ DMZ were almost the same
as in 2016 at 964 thousand tonnes due
to a combination of improved local market
demand and reduced export shipments.
The Group’s finished vanadium product
sales volumes increased by 3.2%, from
15.2 thousand tonnes of pure vanadium
in 2016 to 15.7 thousand tonnes in 2017,
amid a decline in supplies from China and
positive global prices.
EVRAZ sold 1.7 million tonnes of iron ore
pellets to third parties in the year, up 3.2%
year-on-year, due to increased demand on
the Russian market. Other external iron ore
product volumes dropped by 53% due to the
disposal of Evraz Sukha Balka.
EVRAZ MARKET SHARES IN RUSSIA BY KEY PRODUCTS, %
Annual Report & Accounts 2017
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69%
72%
Beams
56%
63%
Grinding
balls
63%
70%
Rebar
10%
14%
EVRAZ remained
the leader in rail
production with
a 69% market
share in 2017.
Railway
wheels
28%
27%
Structural
shapes
41%
43%
2017
2016
GEOGRAPHIC BREAKDOWN OF EXTERNAL STEEL PRODUCT SALES, kt
Russia
Asia
Europe
CIS
Africa, America and the rest of the world
Total
STEEL SEGMENT SALES VOLUMES, kt
Steel products, external sales
— 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 chemicals1
Iron ore products
— Iron ore concentrate
— Pellets
— Other iron ore products
2017
4,939
3,328
1,499
972
1,141
2016
4,998
3,285
1,302
883
1,323
11,879
11,792
2017
11,879
5,735
3,750
1,281
511
601
587
12,466
22,319
6,647
15,672
2,937
25
1,726
1,186
2016
11,792
5,601
4,135
1,134
351
571
521
12,313
20,428
5,261
15,167
4,222
40
1,672
2,510
Change, %
(1.2)
1.3
15.1
10.0
(13.8)
0.7
Change, %
0.7
2.4
(9.3)
13.0
45.6
5.3
12.7
1.2
9.3
26.3
3.2
(30.4)
(37.5)
3.2
(52.7)
1The difference in 2016 numbers vs annual report 2016 is a result of adjustments in the sales volumes of vanadium products.
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55
Making the World Stronger
Financial performance
Sales review
In 2017, revenues from the Steel segment
climbed by 40.9% to US$7,743 million,
compared with US$5,497 million a year earlier.
The segment’s revenues were affected by rising
steel sales prices, primarily for semi-finished,
construction and railway products.
Revenues from external sales of semi-finished
products grew by 48.9% due to a 46.5% uptick
in average prices. Most of the incremental
revenues came from higher prices for billets and
slabs and increased export volumes of semi-
finished products.
Revenues from sales of construction products to
third parties surged by 21.8% due to an upswing
of 31.1% in average prices. This was partly offset
by a 9.3% reduction in sales volumes, primarily
on the Russian market, which was affected by
heightened competition.
Revenues from external sales of railway products
rose due to a 34.8% increase in prices, which was
supported by market upside and growth of 13.0%
in sales volumes. Greater sales of railway products
during the reporting period were attributable to
higher demand for wheels as the Russian market
entered a new cycle in railcar production.
STEEL SEGMENT REVENUES BY PRODUCTS
Steel products, external sales
— Semi-finished products1
— Construction products2
— Railway products3
— Flat-rolled products4
— Other steel products5
Steel products, inter-segment sales
— Including sales to Steel, North America
Iron ore products
Vanadium products
Other revenues
Total
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1Includes billets, slabs, pig iron, pipe blanks and other semi-finished products
2Includes rebar, wire rods, wire, beams, channels and angles
3Includes rail, wheels, tyres and other railway products
4Includes commodity plate and other flat-rolled products
5Includes rounds, grinding balls, mine uprights and strips
External revenues from flat-rolled products
jumped by 93.2%, driven by surges of 47.6%
in average prices and 45.6% in sales volumes
amid an improving market situation. This was in
line with global market trends and the increased
production volumes at Evraz Palini e Bertoli.
The share of sales to the Russian market edged
down from 49.7% in 2016 to 48.4% in 2017,
mainly due to a shift in sales to Europe and
the CIS.
Steel segment revenues from sales of iron ore
products climbed by 23.9%. This was due to an
upswing of 54.3% in average prices and a drop
of 30.4% in sales volumes, which stemmed
from the deconsolidation of Evraz Sukha Balka
in June 2017. In 2017, around 66.5% of EVRAZ’
iron ore consumption in steelmaking came from
the Group’s own operations, compared with
68.4% a year earlier.
Steel segment revenues from sales of
vanadium products surged by 81.1% due to
increases of 71.8% in average prices and 9.3%
in sales volumes, despite the deconsolidation
of Strategic Minerals Corporation following its
disposal in April 2017. The positive price trend
was in line with global benchmarks, which
were driven by stronger demand influenced by
changes to China’s environmental policy and a
scarcity of production facilities.
GEOGRAPHIC BREAKDOWN OF EXTERNAL STEEL PRODUCT SALES, US$ million
Russia
Asia
Europe
CIS
Africa, America and rest of the world
2017
3,012
1,492
701
528
486
2016
2,222
1,001
438
384
424
Total
6,219
4,469
Change, %
35.6
49.1
60.0
37.5
14.6
39.2
% of total
segment
revenues
Change, %
2017
2016
US$
million
6,219
2,523
2,171
863
313
349
284
270
192
545
503
% of total
segment
revenues
80.3
32.6
28.0
11.1
4.0
4.6
3.7
3.5
2.5
7.0
6.5
US$
million
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
7,743
100.0
5,497
100.0
39.2
48.9
21.8
47.8
93.2
41.9
54.3
53.4
23.9
81.1
29.6
40.9
Annual Report & Accounts 2017
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Steel segment
cost of revenues
In 2017, the Steel segment’s cost of revenues
increased by 42.5% year-on-year. The main
reasons for the growth were:
• The cost of raw materials rose by 59.3%,
• Staff costs increased by 16.2%, largely
because of the effect that rouble
strengthening had on costs, accompanied
by wage inflation at Russian sites. This
was partially offset by a reduction of
US$14 million in costs following the disposal
of Evraz Sukha Balka and Strategic Minerals
Corporation.
primarily due to an increase in prices for all
key raw materials, (particularly for coking coal,
iron ore and scrap) and the stronger rouble.
This was accompanied by higher production
volumes at EVRAZ ZSMK versus 2016, when
planned capital repairs to blast furnaces were
performed. The growth in raw material costs
was partially offset by cost-cutting initiatives,
which reduced consumption.
• Depreciation and depletion costs increased
by 13.1%, primarily due to the rouble’s
appreciation.
• Energy costs were higher due to the
stronger rouble and increased tariffs in local
currencies.
• Other costs increased, primarily due to
changes in goods for resale and semi-finished
products.
• Costs for auxiliary materials grew by 6.4% in
the view of the rouble strengthening impact on
costs, as well as higher prices for electrodes.
This was partially offset by a reduction of
US$12 million in costs following the disposal
of Evraz Sukha Balka in June 2017 and
Strategic Minerals Corporation in April 2017.
• Higher service costs were mainly driven by the
appreciation of the Russian currency.
• Transportation costs increased by 29.4%,
primarily due to the stronger rouble and
higher export sales volumes of steel products.
Steel segment
gross profit
The Steel segment’s gross profit surged
by 36.3% year-on-year, driven primarily by
higher steel and vanadium prices. This was
partially offset by a rise in prices for purchased
raw materials and the effect that rouble
strengthening had on costs.
STEEL SEGMENT COST OF REVENUES
Cost of revenues
Raw materials
— Iron ore
— Coking coal
— Scrap
— Other raw materials
Auxiliary materials
Services
Transportation
Staff costs
Depreciation
Energy
Other1
2017
2016
US$
million
5,795
2,756
485
1,356
466
449
334
269
449
530
241
474
742
% of
segment
revenues
74.8
35.6
6.3
17.5
6.0
5.8
4.3
3.5
5.8
6.8
3.1
6.1
9.6
US$
million
4,068
1,730
292
830
277
331
314
221
347
456
213
395
392
% of
segment
revenues
Change, %
74.0
31.5
5.3
15.1
5.0
6.1
5.7
4.0
6.3
8.3
3.9
7.2
7.1
42.5
59.3
66.1
63.4
68.2
35.6
6.4
21.7
29.4
16.2
13.1
20.0
89.3
1Includes goods for resale, changes in work in progress and finished goods, taxes in cost of revenues, semi-finished products, allowance for inventory and inter-segment unrealised profit.
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57
Making the World Stronger
Vanadium operations
Global
vanadium market
Total
c. 81 kmtV
20%
46%
12%
22%
EVRAZ
China
Peer
Others
EVRAZ is a leading
player in the global
vanadium market.
EVRAZ vanadium production cost curve
EVRAZ produces
ferrovanadium from slag
(a by-product of steel
production at EVRAZ NTMK),
making the Group one of the
lowest-cost vanadium
producers in the world.
V
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Magnetite
Catalysts/
Stone coal
EVRAZ
slag
processing
Chinese
slag
processing
Production volumes, kmtV
EVRAZ’ vanadium production
model overview
Our vanadium business is organically
built into our steel making model.
EVRAZ’ product portfolio includes
ferrovanadium, vanadium pentoxide,
vanadium oxides and chemicals.
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Iron ore
EVRAZ KGOK
EVRAZ NTMK
Steel products
50%
Own
production
By-product
V-slag
18.6 kmtV
50%
Third parties
processing
Sales of finished
products in 2017
15.7 kmtV
Annual Report & Accounts 2017
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Key vanadium production facilities
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Vanadium pentoxide
EVRAZ Vanady-Tula (Russia)
EVRAZ Nikom (Czech Republic)
EVRAZ Stratcor (US)
EVRAZ Vanady-Tula is the largest
Russian producer of ferrovanadium.
Its production facilities are in Tula, the
administrative centre of Tula region.
EVRAZ Nikom is a ferrovanadium
producer in the Czech Republic. It has one
processing facility, which it uses to process
vanadium pentoxide received from EVRAZ
Vanady-Tula and third-party suppliers.
EVRAZ Stratcor is a producer of high-purity
vanadium alloys and chemicals, and a major
supplier of vanadium to the chemical and
titanium industries.
Key consumers:
EVRAZ Nikom, EVRAZ Stratcor,
steel producers
Key consumers:
Steel producers
Key consumers:
Catalyst producers, VAL/titanium industry,
specialty chemical producers
Iron ore
EVRAZ KGOK
EVRAZ NTMK
Steel products
50%
Own
production
By-product
V-slag
18.6 kmtV
50%
Third parties
processing
Sales of finished
products in 2017
15.7 kmtV
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59
Making the World Stronger
Coal segment
Introduction and highlights
OUR VISION
EVRAZ strives to secure its leading positions on the Russian and global
coking coal markets.
PRODUCT PORTFOLIO
The product portfolio comprises a wide range of coking coal blends,
including hard, semi-hard, and semi-soft. In 2017, the portfolio expanded
to incl(cid:88)de t(cid:75)e deficit (cid:50)(cid:54) (cid:11)(cid:83)(cid:85)emi(cid:88)m lo(cid:90)(cid:16)(cid:89)ol (cid:43)CC(cid:12) co(cid:78)in(cid:74) coal (cid:74)(cid:85)ade(cid:17)
EVRAZ ranks first among Russian coking coal
producers. The Group offers integrated solutions
to optimise 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. In 2017,
EVRAZ expanded its export geography by sending
its first coal shipments to Indonesia and further
diversifying its deliveries in Europe.
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Financial highlights
REVENUES
EBITDA MARGIN
US$ 2,214 million 55.4%
+67.5% yoy
EBITDA
CAPEX
US$ 1,226 million
US$ 126 million
+90.4% yoy
+35.5% yoy
Production highlights
Raw coking coal
Coking coal concentrate
23,306 kt
13,0601 kt
Sales highlights (sales to 3rd parties only)
Raw coal
Coking coal concentrate
2,302 kt
8,197 kt
1Excluding 2,0(cid:27)(cid:22) kt of coal concentrate which was produced
at EVRAZ ZSMK coal washing plant.
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Making the World Stronger
Strategic priorities
Development
of product
portfolio and
customer base
Securing the position as a major coking coal supplier
in Russia
Increase sales to Ukrainian
market
Key developments in 2017
• Consistent product quality helped to retain
Outlook for 2018
• Maintain leading positions on the Russian
Key developments in 2017
• Maintained sales volumes to Ukraine.
Russian market leadership;
• Production volumes rose;
• Investments to expand and overhaul
production facilities helped to boost output of
saleable products;
• Open-pit mining was launched at the
Raspadskaya-Koksovaya mine site;
• Coal mining was resumed at the Raspadskaya
mine’s production seam no. 6;
• Investments into the new flotation equipment
at the third section of Raspadskaya’s
beneficiation plant helped to improve product
quality.
market by keeping product quality consistent;
• Improve reliability of deliveries;
• Increase premium low vol. HCC production
Medium-term outlook
• To increase annual sales to Ukraine.
volumes;
• Boost saleable products volume to
c. 18 million tonnes by increasing mining
volumes at the Raspadsky open-pit with
additional equipment, as well as increasing
mining efficiency at other assets(cid:30)
• Launch flotation at Raspadskaya’s first and
second sections (full +1.5% yield effect
from 2019).
Expansion of the export
portfolio
Key developments in 2017
EVRAZ achieved its targets for 2017 export
sales by:
• Maintaining a flexible sales geography:
— Export priorities: Ukraine, Japan, South
Korea, and Vietnam;
— Entering new markets, like Indonesia, and
expanding geographical diversity within
Europe;
— Sending some volumes to China via spot
contracts;
• Conducting site visits for new clients and
regular audits at the request of key customers.
Coking coal export volumes to countries in South-
East Asia exceeded 4.3 million tonnes (up 25%
year-on-year). Additionally, exports to Turkey and
other European countries increased by 1 million
tonnes (a six-fold increase).
Outlook for 2018
• Ensure a diverse sale geography by seeking new
supply routes from Baltic Sea ports;
• Increase export sales to South-East Asia and
European countries.
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Retention
of low-cost
position
(cid:55)(cid:75)e increase of t(cid:75)e efficienc(cid:92)
along the value chain
2018 plan
• Achieve targeted 15% year-on-year tunnelling
(cid:51)ro(cid:71)(cid:88)ction (cid:193)o(cid:90) optimisation at (cid:90)as(cid:75)in(cid:74)
plants
The Coal segment’s long-term programme to
improve efficiency continues.
• Reach new sustainable peak tunnelling rates;
• Continue adding high-efficiency tunnelling
growth;
In 2017, planned cost optimisations saved
US$73 million, with the additional effect of
US$61 million coming from productivity growth,
improving auxiliary material usage, optimisation
of industrial services, and G&A and payroll
optimisations.
Main projects in 2017
(cid:39)e(cid:74)assin(cid:74) efficienc(cid:92) impro(cid:89)ement
Status
• Began degassing seams using long directional
holes at the Yerunakovskaya-VIII mine;
• Introduced modern equipment to increase
the length of traditional underground seam
degassing holes at the Raspadskaya and
Yerunakovskaya mines.
2018 plan
• Expand underground seam degassing using
long directional holes to the Alardinskaya and
Raspadskaya-Koksovaya mines;
• Search for new seam degassing technology
with a low gas recovery factor for use at the
Osinnikovskaya mine;
• Continue experimenting with degassing
seams using plasma impulse excitation.
Tunnelling rates increase
Status
• Increased tunnelling rates by 15% year-on-
year after adding high-efficiency tunnelling
equipment;
• Reached a maximum rate of 600 metres
per month using the bolter miners at the
Raspadskaya and Yerunakovskaya mines.
equipment.
Operating time increase at clearing faces
Status
• Increased average daily operating time by
reducing accident and operational delays, as
well as repair shift work;
• Increased average daily production per face by
5% year-on-year to 6.3 thousand tonnes per day.
2018 plan
• Reach 500 thousand tonnes per month at
faces in the Alardinskaya and Raspadskaya
mines (seam no. 6);
• Increase operating time and extraction on
face no. 4-1-5-4 at the Osinnikovskaya mine
to 5 thousand tonnes per day with final
extraction of reserves in June 2018;
• Ramp up of both both the Alardinskaya and
Raspadskaya mines to 500 thousand tonnes
per month;
• Achieve mine rate of 5 thousand tonnes per day
at longwall no. 4-1-5-4 of Osinnikovskaya mine.
Raspadskaya washing plant upgrade
Status
• Launched flotation at the Raspadskaya
washing plant’s third section which led to an
increase in concentrate output by 3%.
2018 plan
• Reduce ash content in mined raw coal (+1% to
the yield);
• (cid:37)egin using the new flotation equipment at the
first and second sections of the Raspadskaya
washing plant (+1.5% to the yield from 2019).
Status
• Screw separation section was automated
at the Raspadskaya washing plant, which
increased concentrate production volumes
at section no. 7 by boosting coal processing
volumes;
• Optimised operations at the Kuznetskaya
washing plant, which helped to improve coal
processing efficiency and increased concentrate
output by 73 thousand tonnes.
2018 plan
• Setup raw coal and concentrate warehouses
at coal washing plants to reduce idle time from
logistics and to increase plant operating time;
• Increase concentrate production by reducing
ash content in the mined raw coal;
• Reduce idle time at the Raspadskaya washing
plant on crushing large coal chunks, purchase
crushers for the open-pit at Raspadskaya-
Koksovaya site and Alardinskaya mines;
• Launch a press filter at the Kuznetskaya
washing plant to increase concentrate output.
Saleable product output optimisation
Status
• Additional volumes of saleable products were
produced at current washing capacities through
the sieving of low ash coal from the Uskovskaya
and Mezhegeyugol mines on saleable raw coal
and coal for further processing.
2018 plan
• Acquire sieving equipment for the Uskovskaya
mine;
• Launch dry enrichment at Razrez Raspadskiy;
• Separate high-ash coal with sieving equipment
directly at Razrez Raspadskiy and open-pit at
Raspadskaya-Koksovaya site.
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INSTALLATION OF THE FLOTATION EQUIPMENT
(cid:54)ta(cid:74)e (cid:20) o(cid:73) t(cid:75)e (cid:83)(cid:85)o(cid:77)ect
completed in 2017
Raspadskaya
washing plant
CONCENTRATE YIELD IMPROVEMENT
The new equipment will allow
to reduce operating costs by
increasing production throughput.
Moreover, it will allow to improve
the quality of coal concentrate.
3rd
section
1st
section
2nd
section
3rd
section
Concentrate
Concentrate
yield improved
yield improved
+3%
+3%
2017
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Additional
Additional
effect on yield
effect on yield
+1.5%
+1.5%
2019
How we plan
to upgrade
coal washing
capacities
Technology
• the flotation section comprises M-flot mechanical,
six-dimensional flotation machines with a volume of
16 m3, chamber press-filters, chemical tanks and
conveyor belts
• the flotation process is used to separate small solid
particles in a liquid of a certain density that allows the
coal particles to float to the surface, while the rock
settles to the bottom and is removed
INSTALLATION OF THE FLOTATION EQUIPMENT
d
c
b
e
a
Pulp supply
Pulp supply
Froth
Froth
Agitator
Agitator
Agitator
Agitator
Hydrophobic particles adhere to the
Hydrophobic particles adhere to the
gas bubble forming a particle-air
gas bubble forming a particle-air
aggregate that is lighter than water,
aggregate that is lighter than water,
and travels upwards to the surface
and travels upwards to the surface
Hydrophilic particles do not adhere
Hydrophilic particles do not adhere
to the bubbles and fall down to the
to the bubbles and fall down to the
bottom of the flotation tank
bottom of the flotation tank
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Tails (containing
Tails (containing
hydrophilic material)
hydrophilic material)
Making the World Stronger
Strategic priorities
Prudent
CAPEX
strategy
The Coal segment’s main investments in
2017 were directed towards maintaining
stable production and improving efficiency.
Maintenance CAPEX totalled US$124 million.
Spending priorities included replacing and
repairing worn out equipment, upgrading
existing production processes with more
modern and efficient equipment (to accelerate
tunnelling rates, improve degassing volumes,
and increase concentrate output from plants),
as well as reserving new blocks and seams for
future work.
A total of US$2 million was spent to develop
coal production in 2017.
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Key investment projects
Maintenance project
Mezhegey project
The project aim is to add 1.5 mtpa of coking coal
capacity (grade Zh under Russian classification).
Status
• In January 2017, Mezhegeyugol launched
commercial production;
• Since then, it has been operating with
commercial mining volumes of up to
1.3 million tonnes of coal per year;
• The mine uses the board-and-pillar
technique;
• In 2017, the mine set a new tunnelling rate
record for the Group of 1,046 linear metres
per month by a single team.
CAPEX in 2017
US$1.0 million
Preparation of a new blocks and seams
at Osinnikovskaya, Yesaulskaya and
Uskovskaya mines
The project aim is to prepare reserves for future
mining at Osinnikovskaya, Yesaulskaya and
Uskovskaya sites.
• Fourth block at Osinnikovskaya mine:
— conducted capital mining and preparation
work for face 4-1-5-6;
— communications, degassing and gas
management equipment were installed;
• Seam 29(cid:492) at (cid:60)esaulskaya mine:
— restored and worked seams 26(cid:492) and 29(cid:492) to
launch longwall 29-37;
— tunnelling equipment was acquired;
— project documentation was prepared for
work at seam 29a;
• Seam 48 at Uskovskaya mine:
Raspadskaya-Koksovaya open-pit
— working options for seam 48 were prepared,
The project aim is to begin open-pit mining of the
valuable OS (premium low-vol HCC) grade coal at
the Raspadskaya-Koksovaya site.
Status
• Approval received, and commercial coal
production launched;
• Positive samples with customers prompted a
review with an aim to increase mining plans
and grow production in 2018.
CAPEX in 2017
US$0.5 million
optimal solution was chosen;
— geological survey was conducted in order to
determine seam 48 quality.
CAPEX in 2017
US$11.1 million
Outlook for 2018
In 2018, the Group aims to continue improving
productivity and coal mining volumes, gain
experience on working coal seams, and optimise
its technological cycle. In following years,
EVRAZ plans to invest primarily in maintaining
production volumes.
Annual Report & Accounts 2017
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250
200
150
100
50
0
Market review
Russian coking coal market trends
Russian coking coal concentrate consumption
remained almost flat year-on-year at 38.2 million
tonnes in 2017. Export shipments rose by 4% to
21.5 million tonnes, compared with 20.5 million
tonnes in 2016, on increased Chinese demand,
which helped to offset reduced exports to Ukraine.
Domestic coking coal prices followed upward trends
in global benchmarks in 2017. The Zh grade of
premium coking coal averaged US$154 per tonne
FCA Kuzbass, up 69% from US$91 per tonne in
2016, while the GZh grade of semi-soft coking coal
averaged US$114 per tonne, up 66% year-on-year.
DOMESTIC COKING COAL CONCENTRATE
CONSUMPTION, mt
COAL PRICES, US$/t
2017
2016
2015
2014
2013
38.2
38.3
38.8
39.6
41.4
2011 2012 2013 2014 2015 2016
2017
GZh
GZh+Zh
Zh (mono-concentrate)
Making the World Stronger
Sales volumes
review
EVRAZ’ coking coal product sales climbed by
5% to 16.3 million tonnes in 2017, compared
with 15.6 million tonnes in 2016, due to stable
local and export demand, as well as higher
production volumes at the Group’s current
mines and the launch of a new open-pit mine at
the Raspadskaya-Koksovaya.
Intersegment coking coal product sales remained
mostly unchanged at 5.8 million tonnes. Total
external coking coal product sales rose by 6%
year-on-year to 10.5 million tonnes, compared
with 9.9 million tonnes in 2016, due to an
expanded customer base and stable coal quality.
Coking coal product sales on Russia’s domestic
market fell by 2% to 9.7 million tonnes due
to the launch of new mines in high-vol coal
grades, with around 50% consumed by EVRAZ’
steelmaking facilities.
The Group’s coal product export shipments
increased by 15% to 6.6 million tonnes in
2017, compared with 5.8 million tonnes the
year before. EVRAZ was able to increase sales
to China from 0.4 million tonnes in 2016 to
1.2 million tonnes in 2017, while maintaining
stable volumes in Ukraine, Europe, South Korea
and Japan.
In 2017, EVRAZ retained its leading position on
the domestic market with a 21% share across all
coal grades.
COAL SEGMENT SALES VOLUMES, kt
Coal products, external sales
— Coking coal
— Coal concentrate
Coal products, inter-segment sales
— Coking coal
— Coal concentrate
Total, coal products
2017
10,499
2,302
8,197
5,778
1,160
4,618
2016
9,867
1,569
8,298
5,701
1,249
4,452
16,277
15,568
Change, %
6.4
46.7
(1.2)
1.4
(7.1)
3.7
4.6
EVRAZ MARKET SHARE OF RUSSIA’S HIGH-VOL COKING COAL GRADES, %
Hard
coking coal
34%
33%
2017
2016
Semi-hard
coking coal
44%
51%
In 2017, EVRAZ retained its leading
position on the domestic market
with a 21% share across all coal
grades.
Financial performance
Sales review
The segment’s overall revenues increased
sharply amid rising sales prices as global market
trends remained favourable. This was driven
by supply disruptions caused by the ongoing
capacity optimisation programme in China and
extreme weather conditions in Australia.
Sales volumes rose due to higher annual output
at the Raspadskaya and the Raspadskaya-
Koksovaya mines, as well as the launch of
commercial production at Mezhegeyugol.
Revenues from internal sales of coal products
grew, mainly because of a surge in prices of
78.4% and an uptick in volumes of 1.4%. This
was in line with the upward trends seen among
global benchmarks.
Revenues from external sales of coal products
rose due to growth of 61.1% in prices and 6.4%
in sales volumes, which was driven by stable,
positive demand on the domestic and export
markets and higher coal production volumes.
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In 2017, the Coal segment’s sales to the Steel
segment amounted to US$830 million (37.5%
of total sales), compared with US$483 million
(36.5%) a year earlier.
During the reporting period, roughly 50.0% of
EVRAZ’ coking coal consumption in steelmaking
came from the Group’s own operations,
compared with 47.5% in 2016.
COAL SEGMENT REVENUES BY PRODUCT
External sales
Coal products
— Coking coal
— Coal concentrate
Inter-segment sales
Coal products
— Coking coal
— Coal concentrate
Other revenues
Total
Annual Report & Accounts 2017
2017
2016
US$
million
% of total
segment
revenues
US$
million
% of total
segment
revenues
Change, %
1,266
174
1,092
811
75
736
137
57.2
7.9
49.3
36.6
3.4
33.2
6.2
756
66
690
451
42
409
115
57.2
5.0
52.2
34.1
3.2
30.9
8.7
2,214
100.0
1,322
100.0
67.5
163.6
58.3
79.8
78.6
80.0
19.1
67.5
Coal segment cost
of revenues
The main drivers of the year-on-year increase in the
Coal segment’s cost of revenues were as follows:
• The consumption of auxiliary materials rose
by 55.0% amid an increase in mine openings
and higher drilling meterage. This was
accompanied by growth in prices for auxiliary
materials and spare parts, as well as by the
rouble’s appreciation impact on costs. The
increase in auxiliary materials costs was
partially offset by the effect of cost-cutting
initiatives.
the increase in open-pit mining works at the
Raspadskaya-Koksovaya mine.
• Transportation costs grew in the reporting
period, primarily due to the higher share
of exports in the sales mix, which had a
negative impact on trading companies. This
was accompanied by the appreciation of the
rouble and an increase in tariffs for the supply
of wagons.
• Staff costs were up because of rouble
strengthening and wage inflation at Russian
sites. This was partially offset by a reduction
of US$7 million due to the disposal of Evraz
Nakhodka Trade Sea Port.
• Depreciation and depletion costs rose,
• Costs for services climbed due to the stronger
rouble, the rescheduled longwall repositioning
at Yuzhkuzbassugol’s mines, the growth of
service costs to drill degassing holes and
primarily due to the stronger Russian currency.
• The growth in energy costs was attributable to
the impact of the stronger rouble on costs and
higher electricity prices in local currencies.
• Other costs decreased in the reporting period,
mainly due to changes in work in progress
and finished goods. This was partially offset
by higher taxes after the mineral tax rate
was increased, as well as the effect of rouble
strengthening.
Coal segment gross
profit
The Coal segment’s gross profit for 2017
amounted to US$1,241 million, up from
US$621 million a year earlier, primarily due to
higher sales prices.
COAL SEGMENT COST OF REVENUES
2017
2016
US$
million
% of
segment
revenues
US$
million
% of
segment
revenues
Change, %
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Cost of revenues
Auxiliary materials
Services
Transportation
Staff costs
Depreciation/depletion
Energy
Other1
973
124
114
259
198
162
49
67
43.9
5.6
5.1
11.7
8.9
7.3
2.2
3.1
701
80
85
136
164
134
37
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53.0
6.1
6.4
10.3
12.4
10.1
2.8
4.9
38.8
55.0
34.1
90.4
20.7
20.9
69
32.4
3.1
1Primarily includes goods for resale, certain taxes, changes in work in progress and finished goods, allowance for inventory, raw materials and inter-segment unrealised profit.
Making the World Stronger
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.
• (cid:55)(cid:75)e (cid:193)at di(cid:89)ision o(cid:83)e(cid:85)ates t(cid:75)e onl(cid:92) (cid:83)late mill on t(cid:75)e (cid:56)(cid:54) (cid:58)est Coast(cid:17)
EVRAZ is the largest producer by volume in the
North American rail and large-diameter pipe (LDP)
markets. EVRAZ 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.
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Financial highlights
REVENUES
EBITDA MARGIN
US$ 1,864 million 3.1%
+27.3% yoy
EBITDA
CAPEX
US$ 58 million
+107.1% yoy
US$ 107 million
–35.2% yoy
Production highlights
Crude steel
Steel products
1,748 kt
1,851 kt
Sales highlights (sales to 3rd parties only)
Steel products
1,885 kt
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Making the World Stronger
Strategic priorities
Development
of product
portfolio and
customer base
Marketing and customer focus
Tubular division
Long division
• Successfully re-entered the tool-steel plate
market by developing a strategic alliance with
a key distributor in this market.
Key developments in 2017
• Successfully ramped up OCTG mills to
Key developments in 2017
• The demand for rails increased driven by
Outlook for 2018
• Further increase the market share in the wind
respond to a sharp increase in the market
demand and expanded the market share
in Western Canada to c. 28% (a five-year
historical high);
• Achieved target production volumes at the
upgraded Calgary heat treat line with effective
100% utilisation throughout the year;
• Conducted successful trials of thick-wall pipe
production at the new EVRAZ Regina LDP mill;
• On January 4, 2018, the Canadian
International Trade Tribunal found that
imports of a small diameter line pipe
into Canada (24 inches or less in outside
diameter) from South Korea have injured the
Canadian industry and implemented duties
ranging by producer from 4% to 88%;
• (cid:52)ualified a new coating facility with key LD(cid:51)
customers.
Outlook for 2018
• Expect to maintain a leading market share
of the OCTG market in Western Canada
supported by a strong demand;
• Strong LDP order book for 2018 to secure
high capacity utilisation of the EVRAZ Regina
spiral mill;
• (cid:37)egin production of first sizeable thick-wall
orders for key LDP customers using new
capabilities of the EVRAZ Regina spiral mill;
• Increasing demand and pricing for small-
diameter line pipe, supported by import duties
in Canada;
• Expect high capacity utilisation at the new
Regina Coating facility supported by a strong
LDP and a line pipe demand;
• Aim to finalise most of the construction work
to launch a new heat treat line at EVRAZ Red
Deer in early 2019.
higher coal, metals and minerals shipments;
tower segment;
• Increased sales volumes to Western
• Continue expanding the market share in the
Class I railroads as their destocking cycle
completed;
• Successfully ramped up the seamless mill
to 100% utilisation supported by the strong
OCTG demand in North America;
• Shipped 13 thousand tonnes of rod to
15 new customers in 2017.
Outlook for 2018
• Rail demand is still likely to be relatively
weak, with rail customers expecting 2018 to
be a trough year in terms of capital spending
followed by a subsequent recovery of the
demand starting in 2019;
• Plan to start a new seamless threading line
at the end of 2018, allowing for significant
cost reductions and faster delivery of the
seamless pipe to our customers in the
Bakkens and Rockies regions;
armoured vehicle market sector;
• Develop the chain to secure a long-term coil
supply agreement with Western OEM.
New product development
and quality increase
Tubular division
Key developments in 2017
• Produced thick-wall pipe (1 inch) at the new
LD(cid:51) mill, full customer qualifications expected
in 2018;
• Developed a mildly sour-service casing product
and sold first volumes to Canadian market(cid:30)
• Completed development of EB, QB1-HT
and 11¾-inch QB-2 connections, currently
marketing the products;
• Plan to strengthen technical partnerships
• Launched ENA 110MS and P110-HCi
with our key rod customers by continuing to
focus on the product innovation; shifting our
product mix towards high-carbon rod.
Flat division
Key developments in 2017
• Secured a large contract and has become
a leading supplier to one of the largest wind
tower producers in North America;
• Secured a trial order for a prototype
armoured vehicle;
• Regained the qualification as a supplier to a
large armoured vehicle OEM;
• Gained the qualification and began supplying
to a new armoured vehicle and military
battle tank OEM;
seamless OCTG products.
Outlook for 2018
• Introduce a number of new premium and
semi-premium connections to the OCTG
market:
— The semi-premium connection suitable
for tubing (2 7/8-inch to 3 ½-inch outside
diameter);
— The QB-2 premium connection
designed from the ground up for long
horizontal shale wells that undergo
multiple stimulation cycles is in the final
development stage;
— The QB2-XL premium connection for large
sizes (10 ¾-inch outside diameter and
larger);
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Annual Report & Accounts 2017
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• Finalise the development of sour-service line
pipe product and launch it to market;
• Continue X70 development trials with the
focus on improvement of the low- temperature
properties for both helical and straight seam
UOE pipe.
Long division
Key developments in 2017
• The Apex G2 rail continues to perform well in
customer test tracks, initial revenue service
trial results suggest this grade significantly
reduces wear;
• The welded rail business almost doubled;
• EVRAZ reached a milestone receiving a
conditional approval with unlimited supply of
the H36C wheel profile from the AAR(cid:30) H36C
wheel sales increased 45% year-on-year in
2017, as supply agreements were signed with
two major Class I railways.
Outlook for 2018
• In 2018, EVRAZ expects to obtain an approval
from a strategic Class I partner for in-track
use of rail, on the back of the agreement
reached in 2017 to supply Apex G2 rail for
trackwork components;
• EVRAZ expects two North American
locomotive wheel profiles and one additional
freight car profile to enter the market in H2
2018 after obtaining the approval from the
AAR to supply additional wheel profiles to the
market.
the heat treat flatness and reduced the
retreat rate by 25%;
• Increased the percentage of material that
qualifies for use in seismic protection of
structures, determined chemical properties
and control practices for various gauge ranges
that resulted in an increase in success rate;
• Successfully completed the trial related to
enhancing the plate surface compatible with
high-speed laser cutting, the next step will be
to test the material at different thicknesses
and with less powerful lasers;
• (cid:52)ualified additional domestic slab sources for
Flat division
armour grades.
Key developments in 2017
• Developed FlatRx product, began creating
Outlook for 2018
• Develop the “TruTank” product to increase our
demand in the market;
• Completed development of the 650 Brinell
product and secured the business for the
large armoured vehicle OEM;
• Roll line and quench press alignment coupled
with modification to quench practice improved
participation in the tank market;
• Develop the 700 bhn product for prototype
armoured vehicles;
• Develop the LFQ product for laser cutting
applications.
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STEELMAKING EXPANSION
AND CONSTRUCTION OF THE LDP MILL
Duration:
2017–2018
EVRAZ Regina
Investment projects implemented at EVRAZ Regina in 2017 made it possible to:
• gain capabilities to manufacture new products with increasing demand;
improve product quality (lower impurities, higher weld quality, etc);
•
• significantly reduce production costs across the entire value chain.
Steelmaking
Degasser
Continuous casting
machine
New
equipment
Improves steel
quality and
reduces cost
(cid:54)i(cid:74)nificant
modifications
Width adjustment
has been added to
the caster which
allows to increase
yield and machine
availability
How we plan
to supply new
products at
a lower cost
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STEELMAKING EXPANSION
AND CONSTRUCTION OF THE LDP MILL
Rolling mill
(cid:54)i(cid:74)nificant
modifications
• larger passes and reductions
improve internal quality of steel
• high cooling rate
• capability to coil up to 1-inch
thick at full width
New
pipe mill
Finishing
line
Coating
line
New
equipment
• the new mill is capable to produce a
pipe with thickness of up to 1 inch
• the mill meets new market standards
on a thicker-wall pipe
• the two-step welding process has
a significant advantage in the yield
and labour intensity
New line
• the new line for
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internal and external
pipe coating
replaces third-party
suppliers
• addressed the lack
of inner-diameter
coating capabilities
Making the World Stronger
Strategic priorities
Retention
of low-cost
position
During the year, our operations focused on
adjusting controllable costs. Across our support
functions, we realised full-year savings from
the programmes initiated in 2016 to eliminate
redundancies and streamline fixed costs.
These programs delivered US$12 million
in benefit during 2017 in comparison to 2016.
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Main projects in 2017
(cid:42)(cid:9)(cid:36)(cid:15) fi(cid:91)e(cid:71) cost(cid:15) an(cid:71) in(cid:71)(cid:88)strial ser(cid:89)ices
optimisation
Status
Additional savings were generated by continued
focus on streamlining incidental and non-value
adding processes, as well as from the realised
full-year impact of actions taken in 2016.
Outlook for 2018
Expect to maintain costs at lower levels as
volumes increase.
Raw materials and basic
materials consumption optimisation
at EVRAZ Regina
Status
Alloy savings were realised due to improved
melting practices, rolling and cooling.
Outlook for 2018
Expect to experience the full-year impact of
savings from investments.
Flux/powder usage reduction at EVRAZ
Regina
Status
Reduced flux(cid:18)powder usage in steelmaking.
Outlook for 2018
Expect to realise the full-year impact of savings
with the degasser operational for the full year.
Yield improvement at EVRAZ Regina’s steel
and tubular facilities
Status
• Realised savings amid the effect from longer
and wider coils;
• Increased productivity as a result of the
investment project at the steel facility.
Outlook for 2018
• Expect to experience the full-year impact of
savings from the investment project;
• Expect to achieve incremental 100 thousand
tonnes of casting capacity at the steel facility.
Conversion cost reduction at
EVRAZ Portland
Actions in 2017
Reduced conversion costs with continued focus
on maintaining costs in line with volumes.
Outlook for 2018
Continued focus on cost reduction.
Annual Report & Accounts 2017
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Prudent
CAPEX
strategy
Key investment projects
Steelmaking expansion at EVRAZ Regina
The aim of the project is to upgrade steelmaking
facility, increase steelmaking capacity and
improve quality.
Status
All equipment installation completed.
CAPEX in 2017
US$45 million
Seamless threading
at EVRAZ Pueblo
The aim of the project is to install threading
equipment for in-house threading of seamless
pipe to reduce production costs.
Status
In progress.
CAPEX in 2017
US$4 million
New LDP mill construction at EVRAZ Regina
The aim of the project is to install the new LDP
mill in order to increase LDP production capacity.
Heat treat
at EVRAZ Red Deer
The aim of the project is to expand heat treating
capacity.
Status
The mill continues ramping up as planned.
Status
In progress.
CAPEX in 2017
US$3 million
CAPEX in 2017
US$7 million
Key maintenance projects
During 2017, the EVRAZ North America’s
operations completed the following maintenance
projects:
EVRAZ Portland
Installation of transition rolls and repairs of the
cooling beds.
EVRAZ Pueblo
The final phase of upgrades of the electrical
drives in the wire rod mill.
EVRAZ Regina
The upgrade of the welder on the ERW
welding line.
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Making the World Stronger
Market review
North American steel market trends
US FINISHED STEEL CONSUMPTION,
mt
US steel product consumption increased by
6.6% to 97 million tonnes in 2017, up from
91 million tonnes in 2016. The demand
improved driven by stronger rail market as a
result of the end of de-stocking cycle of Class I
railroads, and improved by 2.(cid:23)% for flat products
and by 89% for tubular products, due to an
uptick in oil prices and recovered drilling activity.
Large-diameter pipe (LDP) market fundamentals
were relatively strong during the reporting period
and demand was stable at 1.0 million tonnes.
Finished steel product imports, which
significantly influenced the US steel industry in
2015-2016, increased by 14% year-on-year to
26 million tonnes in 2017 due to improvements
in the domestic demand.
US steel price premiums to Europe and Asia
were compressed during 2017, albeit the trend
was also positive. Prices increased by 23% to
US(cid:7)7(cid:23)0 per tonne for flat products, by 11%
to US$651per tonne for rebar, and by 39% to
US$1,224 per tonne for OCTG.
25.7
61.0
25.9
59.6
26.5
60.8
28.0
66.5
2017
2016
2015
2014
97.2
10.4
91.1
5.5
95.1
7.8
105.5
11.0
NORTH AMERICA PRICES, US$/t
Long products
Flat products
Tubular products
1,500
1,200
900
600
300
0
2011 2012 2013 2014 2015 2016
2017
Plate Price, Domestic US
Rebar, Domestic US
OCTG Carbon
STEEL, NORTH AMERICA SEGMENT SALES VOLUMES, kt
Steel products
— Semi-finished products
— Construction products
— Railway products
— Flat-rolled products
— Tubular products
Total
2017
2016
Change, %
7
241
376
512
749
0
281
321
536
534
1,885
1,672
n/a
(14.3)
17.1
(4.5)
40.3
12.7
EVRAZ MARKET SHARES IN NORTH AMERICA BY KEY PRODUCTS, %
OCTG
in Canada
28%
14%
2017
2016
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34%
28%
LDP
in North America
17%
27%
Sales volumes
review
Evraz North America’s steel product sales
improved by 13%, from 1.7 million tonnes in
2016 to 1.9 million tonnes in 2017, due to
improvements in the domestic energy and
infrastructure sectors. EVRAZ sold 376 thousand
tonnes of railway products in 2017, an increase
of 17% year-on-year, in the view of the market
shift to the premium product mix and the market
share increase. Flat product volumes went
down by 4% to 512 thousand tonnes in 2017,
compared with 536 thousand tonnes in 2016.
Construction product sales decreased by 14% to
241 thousand tonnes.
Tubular products sales surged by 40% to
749 thousand tonnes in 2017, up from
534 thousand tonnes in 2016. The major
driver were OCTG products, which saw 306%
annual sales growth from 82 thousand tonnes
in 2016 to 333 thousand tonnes in 2017 amid
a recovery in the drilling activity. LDP sales
dropped by 42% to 178 thousand tonnes due to
major pipeline projects experiencing difficulties
with receiving project approvals.
Evraz North America maintained its leadership
in North American rail and Canadian OCTG
markets during 2017, with respective market
shares by volume of roughly 34% and 28%. In
2017, the Group ramped up EVRAZ Regina’s mill
after the completion of its investment projects,
and initiated two new projects at EVRAZ Red
Deer and EVRAZ Pueblo to further improve the
OCTG product mix.
Financial performance
Sales review
The segment’s revenues from steel product sales
increased significantly as a result of improved
prices and volumes, by 18.7% and 12.7%,
respectively. This was mainly attributable to
a greater demand on the tubular market, mostly
for OCTG and small-diameter line pipe, as well as
stronger sales volumes for seamless pipe.
Railway product revenues surged by 33.2%, driven
by a 17.1% increase in volumes, accompanied by
a 16.1% increase in average selling prices. The
demand for rails improved after Class I railroads
finished destocking.
Revenues from flat-rolled products increased due to
an upswing in prices of 19.3%, which was partially
offset by a decline in sales volumes of 4.5%.
Revenues from tubular product sales grew by
48.8% year-on-year due to increases of 40.3% in
volumes and 8.5% in prices. The growth in sales
volumes was driven by improved demand for OCTG
amid a recovery in drilling activities that was led
by rising oil prices. The reduced demand for large-
diameter line pipe products, which was caused by
the slow pace of project approvals, partially offset
the growth in revenues from tubular products.
Steel, NA segment
cost of revenues
In 2017, the Steel, North America segment’s cost
of revenues rose by 33.2% year-on-year. The main
drivers were:
• Raw material costs increased by 65.0%,
primarily because of higher scrap prices,
accompanied by increased consumption of
other raw materials due to higher sales of
tubular products driven by the market recovery
in the reporting period.
• Costs of semi-finished products grew by 61.2%
due to higher prices for purchased semi-finished
products and increased sales volumes of steel
products.
Annual Report & Accounts 2017
• Auxiliary material costs increased by 42.3%, as
production volumes of crude steel and finished
products were higher year-on-year.
• Service costs went up 14.8%, as sales volumes
increased year-on-year.
• Energy costs grew due to higher rates and
greater sales volumes of steel products.
• Other costs were down for the reporting period,
primarily due to changes in work in progress and
finished goods and allowances for inventories.
Steel, NA segment
gross profit
The Steel, North America segment’s gross profit
totalled US$208 million for 2017, down from
US$221 million a year earlier. While the decline
was primarily caused by higher prices for scrap and
purchased semi-finished products, it was partially
offset by an increase in revenues due to improved
market conditions.
STEEL, NORTH AMERICA SEGMENT
REVENUES BY PRODUCT
2017
2016
US$
million
% of total
segment revenues
US$
million
% of total
segment revenues
Change, %
Steel products
— Semi-finished products
— Construction products1
— Railway products2
— Flat-rolled products3
— Tubular products4
Other revenues5
Total
1,774
4
159
309
427
875
90
95.2
0.2
8.5
16.6
22.9
47.0
4.8
1,350
0
158
232
372
588
114
92.2
0.0
10.8
15.8
25.4
40.2
7.8
1,864
100.0
1,464
100.0
31.4
n/a
0.6
33.2
14.8
48.8
(21.1)
27.3
1Includes beams, rebar and structural tubing
2Includes rails and wheels
3Includes commodity plate, specialty plate and other flat-rolled products
4Includes large-diameter line pipes, ERW pipes and casing, seamless pipes, casing and tubing, and other tubular products
5Includes scrap and services
STEEL, NORTH AMERICA
SEGMENT COST OF REVENUES
Cost of revenues
Raw materials
Semi-finished products
Auxiliary materials
Services
Staff costs
Depreciation
Energy
Other6
2017
US$
million
1,656
645
303
148
124
254
95
111
(24)
% of segment
revenues
88.8
34.6
16.3
7.9
6.7
13.6
5.1
6.0
(1.4)
2016
US$
million
1,243
391
188
104
108
195
97
85
75
% of segment
revenues
Change, %
84.9
26.7
12.8
7.1
7.4
13.3
6.6
5.8
5.2
33.2
65.0
61.2
42.3
14.8
30.3
(2.1)
30.6
n/a
6Primarily includes transportation, goods for resale, certain taxes, changes in work in progress and fixed goods and allowances for inventories.
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CSR
report
Making the World Strongerwww.evraz.com CSR
report
81
Annual Report & Accounts 2017 Making the World Stronger
OUR APPROACH
EVRAZ views corporate social responsibility
as an integral part of its business and
strives to address and monitor all relevant
matters in this area. The corporate social
responsibility section of this annual report,
on pages 80–105, provides an overview
of the Group’s policies and performance
in 2017 in key areas, including human
rights, health and safety, the environment,
human capital management and community
engagement, as well as an outline of how
EVRAZ intends to improve its performance in
the years ahead. The Group considers these
policies appropriate and effective.
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/
EVRAZ follows the OECD’s 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.
EVRAZ fully endorses the provisions of the
United Nations’ Universal Declaration of
Human Rights.
In accordance with its internal Code of
Business Conduct, EVRAZ seeks to develop
and maintain a work environment that is free
from discrimination. The Group is committed
to providing every employee with equal
opportunities. All personnel and applicants
are assessed according to their professional
skills, qualities, experience and abilities.
Decisions made on grounds unrelated to
an individual’s job performance (eg related
to the person’s race, ethnic origin, sex,
religion, political views, nationality, age,
sexual orientation, citizenship status, marital
status or disability) are discriminatory and
prohibited by the law and the principles
accepted in the Group.
Child labour, bonded labour, human
t(cid:85)a(cid:73)fic(cid:78)in(cid:74) and ot(cid:75)e(cid:85) (cid:73)o(cid:85)ms o(cid:73) sla(cid:89)e(cid:85)(cid:92) (cid:11)(cid:78)no(cid:90)n
as modern slavery) are strictly prohibited at
all EVRAZ subsidiaries and their suppliers.
Modern slavery is an abuse of human rights
and is a criminal offence in the UK and other
jurisdictions. The Group is committed to
acting ethically and requires suppliers to
conduct business within the same ethical
framework.
Respect for others is one of EVRAZ’ overriding
principles. In the cross-cultural environment
in which the Group operates, all cultures must
be treated with respect. EVRAZ’ rules prohibit
the use of abusive, harassing, discriminatory,
degrading or aggressive speech or written
comments, verbal or physical demonstrations
of a sexual nature, and actions or speech that
insult the honour or dignity of an individual.
Health, safety and environment
Governance and approach
EVRAZ places a top priority on continuously
improving its health, safety and environment
(HSE) management throughout its operations.
This includes implementing process upgrades
and introducing tiered management and control
systems.
HSE management touches all levels of EVRAZ’
business, from strategic decision making to day-
to-day operations. Since the HSE Committee’s
inception in 2010, the Board of Directors has
delegated to it responsibility for monitoring all
HSE strategies, policies, initiatives and activities.
The Group adopted its Health, Safety and
Environment Policy in March 2011 and updated it
in March 2016 to add a fourth organisation-wide
cardinal safety rule.
Group has its own HSE function, which reports
to operational management with the oversight of
the vice president of HSE. All plant managers are
responsible for HSE compliance.
EVRAZ is an active partner in local and
international industry organisations, including 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
EVRAZ’ main steel mills have been certified
under the ISO 14001 and OHSAS 18001
standards.
safety through the entire production cycle,
from purchasing raw materials to selling
finished products. This also includes planning,
distributing resources, collecting, analysing and
submitting information, and reflecting emerging
trends in indicators.
EVRAZ operates a continuous-cycle HSE
management process with the following phases:
• forecast and assess primary HSE risks;
• develop and implement HSE initiatives;
• monitor, review, and investigate incidents;
• analyse performance, correct and set new
strategic HSE goals.
For each HSE KPI, EVRAZ sets primary metrics
that are then continuously monitored to
improve the system using prompt analysis and
adjustments as necessary.
Executive-level HSE matters fall under the remit
of the HSE Committee, which has also delegated
authority to a vice president responsible for
coordinating HSE issues. Every entity in the
The primary functions of the HSE system
include identifying potential environmental
pollutants and risks to employees’ health and
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Annual Report & Accounts 2017
HSE CORPORATE MANAGEMENT
STRUCTURE
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Committee
o(cid:73) t(cid:75)e (cid:37)oa(cid:85)d
o(cid:73)(cid:172)(cid:39)i(cid:85)ecto(cid:85)s
(cid:40)(cid:57)(cid:53)(cid:36)(cid:61) (cid:83)lc
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EVRAZ
CEO
(cid:57)ice (cid:51)(cid:85)esident
HSE
(cid:43)ealt(cid:75)
and Safety
(cid:39)i(cid:85)ecto(cid:85)ate
(cid:44)nd(cid:88)st(cid:85)ial
Safety
(cid:39)i(cid:85)ecto(cid:85)ate
(cid:40)n(cid:89)i(cid:85)omental
Management
(cid:39)i(cid:85)ecto(cid:85)ate
HSE reporting system
The Group relies on its HSE reporting system to
collect and share appropriate data throughout the
organisation with an aim to continuously improve
the process. The corporate HSE functions monitor
subsidiaries using monthly, quarterly and annual
HSE performance reporting.
The internal audit function regularly assesses
EVRAZ’ compliance with HSE policies, which
is supplemented by external monitoring by
government agencies. The Group conducts
a detailed analysis of any recommendations
resulting from the inspections to ensure that
remedial actions can be taken, where needed.
All EVRAZ facilities review lessons learnt to
improve their own processes.
Universal incident reporting rules are used
throughout the organisation, beginning with
recording all injuries and incidents entailing lost
time and/or fatalities, and immediately issuing
a ‘flash report’ to all relevant management. The
HSE function then conducts standard ‘lean’ format
investigations and promptly disseminates lessons
learnt to concerned parties. The HSE Management
Committee reviews every case involving a fatality,
severe injury or serious incident and follows
up to ensure that all remedial action has been
implemented in full.
EVRAZ distributes monthly HSE reports to all
personnel containing data on any injuries and
incidents that have occurred in the past month, as
well as updated HSE KPI metrics on the lost-time
injury frequency rate, fatalities and cardinal rule
violations.
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Making the World Stronger
Health and safety
OUR APPROACH
As a vertically integrated company,
EVRAZ’ employees and contractors
work in an environment that has
inherent safety and health risks.
Starting deep underground, the risks
associated with extracting coal and
iron ore include the possibility of
a s(cid:88)dden (cid:85)oc(cid:78) colla(cid:83)se(cid:15) (cid:193)oodin(cid:74)(cid:15)
exposure to rock and coal dust, mine
de(cid:16)(cid:74)asification and t(cid:75)e (cid:89)entilation o(cid:73)
methane, use of explosives as part of
the extraction process. In steelmaking,
the risks include but are not limited to
large moving machinery, movement of
material with large-capacity cranes,
excessive heat, the manipulation of
molten metal(cid:15) confined s(cid:83)aces(cid:17)
Providing a safe and healthy work
environment to ensure all those
working in the Group’s facilities
return home to their families and
friends every day, alive and uninjured,
is one of EVRAZ’ main core values.
This begins with eliminating
identified (cid:85)is(cid:78)s t(cid:75)(cid:85)o(cid:88)(cid:74)(cid:75) in(cid:89)estment
in engineered solutions, which is a
priority in the Group’s continuing
efforts, especially as related to
identified co(cid:85)(cid:85)ecti(cid:89)e meas(cid:88)(cid:85)es
following previous incidents.
When engineering controls are not
immediately available, organisational
controls are implemented. The group
is consistentl(cid:92) findin(cid:74) im(cid:83)(cid:85)o(cid:89)ed
methods to train employees and
cont(cid:85)acto(cid:85)s on identified (cid:85)is(cid:78)s(cid:15)
established safety and health
(cid:85)e(cid:74)(cid:88)lations(cid:15) and tas(cid:78)(cid:16)s(cid:83)ecific sa(cid:73)e
work practices. Once trained, an
extensive testing process is used to
verify knowledge retention. Finally,
and as a last resort, new personal
protective equipment is constantly
being evaluated and issued when risks
cannot be eliminated, but instead
must be guarded against. The Group
takes every effort to manage and
effectively mitigate the risks typical
within its various divisions, including
contractors.
The daily decisions that managers,
employees and contractors make
determine the level of safe or, in
some cases, unsafe behaviour. The
management is consistently being
challenged to lead by example and
hold employees to the highest level
of accountability for their actions
and non-actions related to HSE. The
Group continuously strives to move
the culture in a personal ownership
direction by constantly challenging all
employees and contractors through a
focused communication programme
on identified (cid:85)is(cid:78)s and (cid:69)e(cid:75)a(cid:89)io(cid:88)(cid:85)
observations. This is followed by
immediate conversations to provide
coaching and counselling and, as the
culture improves, praise and reward
for safe actions.
Results in 2017
LTIFR (excluding fatalities),
per 1 million hours
FATALITIES
LTIFR
The lost time injury frequency rate (LTIFR)
is a strategic KPI that is cascaded down
throughout the organisation in individual
management performance scorecards. The
group saw a 19% year-on-year reduction from
the 2016 LTIFR of 2.36 to an LTIFR of 1.90
in 2017. This was mainly due to a significant
improvement in the LTIFR of the Coal division,
which experienced a 22% year-on-year reduction
in 2017. For more information about how EVRAZ
ensures safe underground mining conditions,
see page 86.
2017
2016
2015
2014
2013
The Group has continued its efforts related
to behaviour safety conversations, hands-on
practical employee training, and standard
operating procedures, which were contributing
factors in this improvement.
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1.90
10
2.36
2.18
1.60
2.05
4
6
0
6
6
10
12
18
13
3
19
7
24
6
2017
2016
2015
2014
2013
EVRAZ employees
Contractors
Annual Report & Accounts 2017
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Fatalities
EVRAZ experienced six employee fatalities in
2017. The main critical risk categories identified
were fall from height, electrical shock, and
rock fall, as well as three involving employees
who were struck by mobile equipment. The
group has ongoing focused fatality prevention
campaigns in each of these critical risks areas
to eliminate future repeated root causes.
In addition to the employee fatalities, there
were four additional fatal incidents involving
contractors. The four risk categories involved in
the contractor fatalities included the common
factors of fall from height and struck by mobile
equipment, along with exposure to carbon
monoxide and a fall due to a structural failure.
The HSE Committee reviews every fatality and
severe injury to determine root causes and
corrective actions. Identified risk factors are
addressed via the HSE initiatives launched by
NUMBER OF SEVERE INJURIES
(INCL. CONTRACTORS)
38
45
38
51
57
126
133
148
2017
2016
2015
2014
167
2013
177
AMHW (without contractors)
Severe
the corporate block and operational divisions in
2018, including falling from height prevention,
traffic management and safety routes, gas
safety, contractor management, and electrical
safety, among others.
Treatment of occupational diseases
EVRAZ is legally mandated to provide
insurance against work-related accidents and
occupational diseases that covers treatment for
all occupational illnesses. Temporary disability
benefits are provided to cover treatment costs
for employees with occupational illnesses.
Employees may also receive financial
assistance from the Group, based on their
medical condition and other circumstances.
Employees who need prolonged medical
treatment are also eligible to be compensated
for moral harm, although these funds may
not be used to arrange independent medical
treatment.
TRAINING ON HEALTH AND SAFETY STANDARDS
Each of the Group’s business divisions has
its own training centres where 100% of staff
attend regular training. Every employee
is tested annually on their knowledge of
working instructions and HSE regulations,
and engineering and technical specialists are
certified by commissions on their knowledge
of safety rules, annually on HSE, and on
emergency response.
Additionally, both employees and contractors
routinely test their practical skills using
specialised simulators, as well as an electronic
system that verifies their knowledge.
As a good practice, more than 800 employees
in the Coal segment fill out a daily
questionnaire before each shift that covers
their knowledge of safe working methods
for various operations associated with high
levels of risk. In 2018, the division plans to
implement 100% daily testing.
Practical tests for electricians
at EVRAZ ZSMK
The Coal division uses training courses
and practical tests on simulators with real
equipment
Safe working
at height simulator
1,124 workers were trained
in the Siberia division
9,869 workers were trained
in the Coal segment 3,562 workers were trained
in the Siberia division
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85
Making the World Stronger
HEALTH AND SAFETY MEASURES
AT EVRAZ’ COAL MINES
EVRAZ pays special attention to ensure
that working conditions for miners are not
only safe, but as comfortable as possible.
initiatives aimed at injuries reduction
regular employees’ health monitoring
regular health and safety trainings
This includes:
•
•
•
• ventilation systems improvement
• a five-year degassing programme
• spontaneous combustion and gas-
dynamic phenomena monitoring
a
The Group has installed directional
The Group has installed directional
drilling equipment for degassing holes.
It also uses anti-pyrogens to prevent
coal self-combustion, as well as nitrogen
systems and inert foam equipment
How we
care for our
miners
d
A system for
A system for
mountain massif
monitoring was
introduced to
prevent rock
bumps
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HEALTH AND SAFETY MEASURES
AT EVRAZ’ COAL MINES
b
High-performance local
ventilation fans are used
to improve the reliability of
ventilation and increase the
amount of air supplied
A system with the ability to send SMS/e-mail alerts has been
installed to transmit methane concentrations from personnel’s
individual gas analysers to the central control room online
c
9,869 workers
of the Coal segment were
trained on simulators with
the real equipment in 2017
e
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A lockout-tagout system is used to protect
A lockout-tagout system is used to protect
personnel from unauthorised activation
personnel from unauthorised activation
of
of equipment during the repair work
87
All staff are provided with personal protective
All staff are provided with personal protective
equipment and regularly participate in health
equipment and regularly participate in health
and safety trainings. Employees undergo
and safety trainings. Employees undergo
annual medical examinations and receive
annual medical examinations and receive
treatment at health resorts
treatment at
Making the World Stronger
Number of registered occupational
illnesses. In 2017, the number of occupational
diseases registered at EVRAZ’ facilities worldwide
fell by a further 29% to 254 cases, compared
with 354 cases in 2016. This is mainly a result
of a closer look at working conditions and a
corporate effort to eliminate the highest-risk
workplaces in terms of employee health. In
addition, there are ongoing efforts among all the
Group’s facilities to properly treat occupational
illnesses in an effort to preserve and improve
employee health. To determine the risk group and
evaluate fitness to work, every worker undergoes
an annual medical check-up. Personnel who are
prone to occupational illness also receive free
treatment at therapeutic resorts.
Standard operating 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. In 2017, EVRAZ designed
and implemented almost 2,500 standard
safe work procedures for its most hazardous
operations.
Key projects
Corporate-wide initiatives in 2017 were once
again focused on cultural change through
improving the safety behaviour of employees
and contractors.
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,
the volume of these conversations has led the
group to create an internal IT solution to record
them, as well as to track trends and corrective
actions. In 2017, EVRAZ’ managers held over
500,000 safety conversations with the Group’s
employees, many of whom made at least one
suggestion about potential safety improvements
in the workplace.
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Key risk localisation programmes
To make safety initiatives more industry specific
and better tailored to the needs of respective
facilities, EVRAZ has suggested that business
divisions design key risk projects. These projects
and related initiatives not only address critical
division-specific risks, but also consider historic
trends to prevent reoccurrence of past incidents.
Objectives for 2018
In 2018, in addition to continuing the division-
specific key risk programmes, EVRAZ plans
to continue implementing the key initiatives
targeted at developing safe employee behaviour.
Safety conversations and safe work
procedures
Instead of paying attention to the quantity of
safety conversations, the group will shift its
focus to the quality of the observation and
related conversation.
With the shift in focus from quantity to quality,
there is now an improved effort to document
unsafe actions and related behaviour, and to
correct them before they lead to incident and
injury.
As a critical element of improving the quality
of safety conversations, a more structured
approach will be adopted by conducting the
conversations after planned observation of
operations and then comparing them with safe
work procedures.
Contractor safety
EVRAZ plans to further integrate contractors into
own HSE management system. An important
aspect of this integration is increasing the
accountability of contract holders of the HSE
performance of contractors.
Lockout – tagout – tryout
The ongoing implementation of the energy
isolation principles applied in lockout – tagout –
tryout (LOTO) procedures will remain a focus in
2018. This is a long-term initiative with plans
for completion by 2020. The planned level of
integration by the end of 2018 is 60%.
Falling from height prevention
At the division level, initiatives continued to
prevent falling from height incidents. The
focus of these efforts is training and testing
contractors’ practical knowledge of the safe
methods to prevent falling from height. Only
those employees and contractors who prove
their knowledge and ability to use safety systems
when working at height are allowed to work at
the Group’s facilities.
Annual Report & Accounts 2017
The Group maintains compliance with the
regulations on the registration, evaluation,
authorisation and restriction of chemicals
(REACH), as applicable for various substances
that are supplied to or manufactured in the EU
(European Economic Area) by EVRAZ assets.
The Group supports the European Community’s
health and environmental goals as established
in the Regulation (EC) No. 1907/2006 of the
European Parliament and of the Council, which
governs the REACH requirements.
Environmental awards in 2017
EVRAZ
Award of the Russian Ministry of Natural
Resources. For an active environmental policy
Awarding organisation:
Russian Ministry of Natural Resources
The Group conducts training courses and
seminars and fosters the exchange of
experience in the environmental field for its
environmental specialists.
EVRAZ NTMK
Award: Leader in Environmental Management
in Russia – 2017. Most ecologically
responsible steelmaker
Awarding organisation:
Russia-wide Review Competition
for Health and Ecology
In 2017, EVRAZ received several other national
and regional awards recognising its environmental
programmes.
The HSE Committee adopted new five-year
environmental targets:
• decreasing fresh water consumption by 10%;
• recycling 95% of non-mining waste per year;
• maintaining the greenhouse gas intensity
ratio below 2 tonnes of carbon dioxide (CO2)
equivalent (tCO2e) per tonne of steel cast.
The Group has committed to implement
various environmental protection programmes
over 2018-22. As of 31 December 2017, the
estimated cost to implement these programmes
totalled US$102 million.
In 2017, EVRAZ spent US$30.7 million on
measures to ensure environmental compliance
and US$28.0 million on projects to improve its
environmental performance. Non-compliance-
related environmental levies and penalties were
US$2.6 million. The Group’s assets had no
significant environmental incidents or material
environmental claims during the reporting
period.
The group evaluates its environmental
liability and risk associated with existing sites
and assets being acquired by conducting
environmental audits (due diligence).
Each EVRAZ worksite has its own environmental
management system built in accordance with
the corporate approach. While international
certification is not a legal requirement, eight
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.
Environmental strategy
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 an overriding long-term priority.
In 2012, after determining the key challenges
and focus areas, EVRAZ voluntarily adopted five-
year environmental targets (over 2012-2016)
aimed at:
• reducing air emissions1 by 5%;
• decreasing fresh water consumption by 15%;
• recycling 100% of non-mining waste.2
By the end of 2016, the Group had met the
targets set for water consumption, which was
reduced by 17.3%, and recycling, with 120%
of waste being recycled (exceeding the 100%
target by recycling waste from prior periods).
Despite the intensive programme to reduce
air emissions, at the end of 2016, EVRAZ was
yet to fulfil the target for air emissions, having
registered an increase of 18.8% since 2011 due
to higher sulphur content in the ore extracted at
the Group’s mines.
Environment
Environmental management
EVRAZ strives to mitigate the potential
environmental consequences of extracting
metals and coal at its steel and mining
operations. The Group’s approach to
effective mitigation lies in implementing best
management practices and technological
advances that prevent or control undesired
environmental impacts and reduce the
consumption of energy and natural resources.
Environmental legislation strictly regulates
these operations and requires the Group to
obtain environmental permits and licences.
EVRAZ sites must maintain compliance with
the terms of such permits and licenses 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.
The Group is aware of the environmental risks
and liabilities of its production processes and
pays increasing attention to environmental
matters with a view to the prevention or
minimisation of any adverse influences. The
group-wide environmental procedures are part
of the corporate management system, which is
based on the plan-do-check-act (PDCA) model
and has been developed to extend the principles
of EVRAZ’ health, safety and environment (HSE)
policy and support the implementation of its
environmental strategy. These procedures cover
the process on environmental risk assessment,
planning, legal compliance management,
reporting, etc.
EVRAZ conducts an Environmental and social
impact assessment (ESIA) for all new operations
and projects, which includes consulting 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.
1Including nitrogen oxides (NOx), sulphur oxides (SOx), dust and volatile organic compounds (VOC) only.
2The 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.
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Making the World Stronger
streambeds of the Kholodny stream and the
tributaries of the Bolshoy Kaz river.
The Group has planted trees and put up
birdhouses as part of its projects to restore
parks and natural landscapes.
Air emissions
Reducing air emissions is one of EVRAZ’
overriding environmental priorities. The
key air emissions comprise nitrogen oxides
(NOx), sulphur oxides (SOx), dust and volatile
organic compounds (VOC). In 2017, the key
air emissions increased by 4.9% compared
to 2016.
The current strategy for reducing air emissions
envisages upgrading gas treatment systems,
introducing modern technology and eliminating
obsolete equipment.
That said, the strategy to reduce air emissions
has had a visible impact. The Group’s VOC
emissions have steadily decreased, falling
by 35% from 1.7 thousand tonnes in 2011
to 1.1 thousand tonnes in 2017, (including
0.1 k tone in 2017 or 8% vs 2016) due to
measures undertaken at coke production
sites.
Dust emissions dropped by 8% from 2011 to
2017 including 5% in 2017 comparing to 2016.
EVRAZ’ NOx emissions have remained mostly
stable at around 29 thousand tonnes. Yearly
deviations have been related to the increased
fuel consumption needed to burn out excess
sulphur from ore and iron.
EVRAZ is implementing several long-term
projects aimed at remediating the impacts
of past operations. Since 2011, Evrazruda’s
Abagursky branch has been working to reclaim
137 hectares from its old tailing field. The
Raspadskaya mine is executing a project to
reclaim 138 hectares of land that were disturbed
by open-pit mining.
Projects aimed at restoring aquatic biodiversity
such as releasing juvenile fish into local rivers.
In the spring of 2017, the “Clean Shore”
campaign helped to clear debris from the
protected watersheds of the Dnieper, Bolshoy
Unzas, Kondoma, Maly Bachat rivers, the
SOx emissions surged by 45% within the
last 4 years (starting since 2013) due to the
higher sulphur content in the ore which has
resulted in higher SOx emissions. Following
Biodiversity
EVRAZ recognises its responsibility to prevent
and minimise its potential impact on the
environment and biodiversity at all stages of
the mining and steelmaking process, including
when performing geological surveys, designing
facilities, conducting operations and restoring
sites that are no longer used.
The Group’s long-term goal is to foster a culture
among its employees of care and concern for
the environment and biodiversity of the areas
in which it operates, as well as in how they
implement its projects and create a positive
dialogue with the local community.
EVRAZ’ KEY AIR EMISSIONS, kt
EVRAZ’ GHG EMISSIONS IN 2017,
million tCO2e
GHG EMISSIONS PER NET REVENUE,
kg CO2e/US$
2017
2016
2015
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137.11
130.68
134.17
36.69
27.04
124.24
0.83 0.62
119.12
8.82
0.94
4.97
EVRAZ total
Steel segment
3.42
EVRAZ total
Steel segment
3.8
3.9
5.3
5.7
Steel, North America segment
Steel, North America segment
0.8
0.7
Coal segment
Coal segment
4.4
6.4
Direct emissions
(Scope 1)
Indirect energy emissions
(Scope 2)
2017
2016
Annual Report & Accounts 2017
SPECIFIC SCOPE 1 AND 2 GHG
EMISSIONS FROM THE STEEL SEGMENT
(INCL. NA), tCO2e per tonne of steel cast
2017
2016
2015
2014
2013
2.02
2.11
2.09
2.18
2.15
EVRAZ' target
2
that, the management has set a task to find
the technology and methods to reduce these
emissions from sinter production.
Greenhouse gas emissions
EVRAZ’s operations generate carbon dioxide
and other greenhouse gas (GHG) emissions.
The Group understands that mitigating climate
change risks is a crucial element in planning
for the future welfare of its employees and local
communities throughout its global enterprises.
The Group understands the urgency of
preventing climate change 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 at its facilities and has taken
part in the CDP Climate Change Programme
since 2011.
A key aspect of EVRAZ’ strategy is to reduce
greenhouse gas emissions by consuming fewer
energy resources.
The Group set a five-year target for its Steel
segment to keep the greenhouse gases
intensity ratio below 2 tonnes of carbon dioxide
(CO2) equivalent (tCO2e) per tonne of steel cast.
The Group measures direct (Scope 1) emissions
of all seven “Kyoto” GHGs1 and indirect
(Scope 2) emissions from the use of electricity
and heat. The inventory approach2 was based
on the 2006 IPCC Guidelines for National
Greenhouse Gas Inventories (IPCC 2006)
and the WRI/WBCSD GHG Protocol Corporate
Accounting and Reporting Standard. EVRAZ
reports data in terms of tCO2e, calculated using
the IPCC 2006 global warming potentials.
EVRAZ has collected GHG emissions data for
2017 and compared them with the 2013-2016
levels. The Steel segment continues to generate
more than half of the gross GHG emissions from
the Group’s operations. Nearly 93% 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.
In 2017, the overall GHG emissions from
EVRAZ’ operations increased by around 2%
year-on-year. Emissions of CO2 fell by 1.34%
(or 0.386 million tCO2e) due to reduced
concentrate consumption at EVRAZ ZSMK and
lower coal consumption at EVRAZ NTMK, as
well as to the cease in operations at several
mills in Russia, Ukraine and South Africa during
the reporting period. In the Coal segment, CH4
emissions rose by 18% due to higher methane
emissions from the coal mined.
In 2017, EVRAZ increased its Scope 1 emissions
by 2% and brought down its Scope 2 emissions
by 1%. The former was due to an increase in
methane emissions, which accounted for some
3% of total emissions, while the latter was due
to the cease in operations at several mills in
Russia, Ukraine and South Africa.
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 and specific emission in the
steel segment per tonne of steel cast for 2013-
2017 (see graphs).
The averege specific emissions of World Steel
Association members is 1.9 tCO2e per tonne
of steel cast as of 2016. EVRAZ specific GHG
emissions in the steel segment is higher due to
the key role played by integrated iron and steel
works (which inherently emit more GHGs than
rolling mills).
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EVRAZ’ GHG EMISSIONS, million tCO2e
Direct (Scope 1)
— CO2
— CH4
— N2O
— PFC and HFC
— SF6
— NF3
Indirect (Scope 2)
Total GHG emissions
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
20163
35.81
28.76
6.99
0.07
2017
36.69
28.37
8.26
0.06
0.0002
0.0002
0.0002
0.0001
0.00003
–
–
8.05
50.97
–
–
7.96
47.00
–
–
6.17
43.04
–
–
5.02
40.83
—
—
4.97
41.67
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1Carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC) and perfluorocarbons (PFC), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3).
2The inventory of emissions includes all entities that EVRAZ 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 for post-mining coal methane
emissions) where direct measurement data were not available. Indirect emissions were estimated using emission factors specifically developed for the country or region, if available, or otherwise factors
provided by UK Defra.
3The results for 2016 were recalculated due to improvements in data quality and several identified inaccuracies regarding material flows, which resulted in a downward correction of 0.15 million tCO2e for
Scope 1 emissions.
Making the World Stronger
target, pumped water is partly used for
technological needs. In 2017, EVRAZ pumped
out and used 21.15 million cubic metres of mine
water, compared with 20.3 million cubic metres
a year earlier.
Waste management
Mining and steelmaking operations produce
significant amounts of waste, including the
surplus rock, spent ore and tailings left over
after 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 and
maximises operational and financial efficiency.
In line with the Group’s strategy to reduce waste
storage volumes and enhance waste disposal,
EVRAZ’ operations regularly review opportunities
to recycle and re-use waste.
The main waste by-product that gets recycled
is metallurgical slag, which includes materials
that previously had been disposed of in dumps.
Processing this waste has allowed the Group to
maintain a recycling rate of more than 100%.
Most of the old slag in these dumps has been
processed over the past few years, which is the
primary reason why the recycling rate went down
in 2017.
Since 2013, the Group’s strategy has been to
avoid generating waste by applying technology
to minimise waste at the source. During the past
five years, more than 50% of what used to be
classified as waste has been re-introduced to
the production process or used as a by-product
instead of being disposed as waste.
Water consumption
and discharge
EVRAZ strives to make efficient use of water
resources and prevent any negative water quality
impacts through environmental incidents.
In 2017, almost 85% of the Group’s total water
intake came from surface sources, including
rivers, lakes and reservoirs, up 1 percentage
point year-on-year.
During the reporting period, the ongoing
programmes to improve the water management
at EVRAZ’ operations continued to deliver
environmental benefits. In 2017, the Group
consumed 8.2 million cubic metres less fresh
water than in 2016, for a year-on-year reduction
of 2.5%.
In 2017, the management decided to continue
its water management programs and set a
new five-year target to decrease fresh water
consumption by 10% compared with the
baseline of 2016.
While water pumped from mines (dewatering)
is not included in the fresh water consumption
EVRAZ’ FRESH WATER CONSUMPTION
FOR PRODUCTION NEEDS,
million cubic metres
2017
2016
2015
2014
2013
319.43
327.60
340.23
332.13
368.44
In 2017, EVRAZ’ steel mills generated
9.22 million tonnes of metallurgical waste and
RECYCLING RATE, %
2017
2016
2015
2014
2013
104.6
120.1
126.3
110.0
105.7
by-products, including slag, sludge, scale and
others, and recycled or re-used 9.67 million
tonnes of material. Overall, the Group recycled
or re-used 104.7% of non-mining waste and by-
products in 2017, compared with 120% a year
earlier.
The Group reviewed its waste management
activities. Its existing programmes have helped
to reduce the generation of hazardous waste
and decrease the volume of disposed waste. The
management has decided to continue its waste
minimisation efforts and set a target to reuse or
recycle at least 95% of waste.
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 2017, 29.7% or 50.4 million
tonnes of such waste material were re-used,
compared with 18% or 28.6 million tonnes in
2016.
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.
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Re-use
Recycle
Burn as fuel /
generate heat
Store
Burn
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).
Energy
efficienc(cid:92)
EVRAZ operates in Metal and Mining sector
which is energy intensive. Energy saving is of
great importance for the Group as we aim to
ensure the competitiveness and to minimise
environmental impacts, such as greenhouse gas
emissions. In 2017, EVRAZ continued to focus
on making its operations more energy efficient
with initiatives to increase in-house electricity
generation and self-reliance in energy resources.
Optimising resource use, including light, heat,
fuel, compressed gas and separation products,
were vital parts of this strategy.
Steel segment
Steelmaking
EVRAZ ZSMK (Russia). EVRAZ ZSMK’s energy
efficiency programme continued in 2017,
including measures aimed at regulating the
electricity use at rolling mills, reducing the rate
of specific air consumption for oxygen production
by intensifying the argon extraction process,
increasing the consumption of blast furnace
gas, replacing air heaters at boiler units, and
regulating the electricity consumption of the
hydraulic handling system.
Natural gas consumption totalled 754 million
cubic metres in the reporting period, an increase
of 89 million cubic metres year-on-year, due
to a reduction in the use of pulverised-coal
injection. Overall electricity usage amounted
to 4,093 million kWh, which is 39 million kWh
less than in 2016, thanks to the measures
mentioned above.
EVRAZ NTMK (Russia). EVRAZ NTMK’s energy
efficiency programme led to a reduction in
electricity purchases of by 69.9 million kWh,
of which 73% was due to lower oxygen
consumption at blast furnace shop, 8% from the
replacement of lamps to the LED fixtures in the
shops, and the rest from a number of small
other projects.
In 2017, EVRAZ NTMK purchased
428.6 million kWh of electricity from third-party
producers, a reduction of 4.3 million kWh year-
on-year.
A total of 1,222 million cubic metres of natural
gas were consumed during the reporting period,
an increase of 41 million cubic metres year-
on-year as a result of higher gas usage by the
blast furnaces, amid a reduction in the use of
pulverised-coal injection.
EVRAZ DMZ (Ukraine). In 2017, EVRAZ DMZ
implemented initiatives aimed at lowering
its purchases of energy, increasing in-house
electricity generation, maximising associated
gas consumption (from blast furnaces and
coking facilities) and reducing secondary energy
losses.
It undertook further measures to improve
the accounting of natural gas, electricity, and
drinking water consumption to better monitor
resource usage.
In 2017, EVRAZ DMZ used a total of 46.4 million
cubic metres of natural gas, an increase of
8.6 million cubic metres year-on-year, and
consumed 295 million kWh of electricity, a
reduction of 17.5 million kWh year-on-year.
Iron ore mining
Evrazruda (Russia). Evrazruda’s energy efficiency
programme for 2017 included modernising
the Abagursky branch’s tailings transportation
system, switching to a new material for the
friction bearings on the ball grinders to reduce
electricity consumption, installing metering
devices for drinking and technical water at the
Sheregeshskaya mine, and replacing 250-watt
and larger incandescent lamps with LED fixtures.
Evrazruda’s operations consumed a total of
405.4 million kWh of electricity, a reduction of
34.1 million kWh year-on-year due to its energy-
efficiency programme.
KGOK (Russia). EVRAZ KGOK’s energy efficiency
programme for 2017 included a number of
technological measures, including the closure
of additional mills, which led to a reduction
electricity purchases by 21.6 million kWh year-
on-year.
Coal segment
In 2017, the Coal segment continued to
implement its energy efficiency programme,
focusing primarily on repairing and upgrading
the boiler units to improve their efficiency,
switching to less expensive boiler fuels like
internally sourced coal, and optimising the de-
watering system.
The segment’s electricity consumption grew
in line with production volumes during the
reporting period, rising from 925 million kWh
in 2016 to 976 million kWh in 2017.
Annual Report & Accounts 2017
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EVRAZ NTMK RECEIVES ISO 50001
CERTIFICATION
In 2017, EVRAZ NTMK’s energy management
system was certified ISO 50001 compliant.
EVRAZ NTMK has been working hard for
many years to improve its energy efficiency,
implementing more than 100 initiatives in the
past five years that have resulted in an annual
savings of more than RUB1 billion.
The plant has successfully passed the audit
certifying that its operations and energy
management system comply with all the
international standard’s requirements. The
auditors who inspected the production,
management and support processes gave
the plant’s energy management system high
marks.
The audit determined that EVRAZ NTMK’s
energy management system is in full
compliance with the ISO 50001 international
standard.
Steel, North America segment
In 2017, Evraz North America’s energy-saving
initiatives continued. EVRAZ kept focusing on
finding incremental efficiency gains to improve
energy consumption across the mills.
Higher production volumes led to year-on-year
increases in the consumption of electricity and
natural gas, the former rising from 1,152 GWh
to 1,454 GWh and the latter climbing from
3,840 million cubic metres to 4,735 million
cubic metres.
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Making the World Stronger
The year
of Ecology
in Russia
KEY
PROJECTS
C
In 2017, EVRAZ implemented three key ecological projects as a part of
the year of Ecology in Russia, a joint initiative of the Ministry of Natural
Resources and Environment, Federal Service for the Supervision
of Natural Resources, and the administrations of Kemerovo and
Sverdlovsk regions.
Air emission
reduction
projects
EVRAZ’ ecological programme
includes more than 20 projects,
focused on reducing air emissions,
protecting water resources and
implementing environment-themed
social projects.
EVRAZ ZSMK
EVRAZ NTMK
EVRAZ ZSMK launched two dust removal units
that use bag filters, replacing the outdated wet
flue dust cleaning units. Two additional filtration
units will be launched by the end of 2018. The
new equipment will reduce dust emissions from
the sinter plant by 22%. The four planned units
will have a combined capacity to filter 900,000
cubic metres of air per hour and will eliminate
more than 99% of impurities.
EVRAZ NTMK retrofitted its coke dry quenching
plant using its own patented technology to purify
secondary coke gases in fabric filters for later re-
use in production. Previously, these secondary
gases were flared into the atmosphere but now
they are used as fuel. The project has helped
to decrease the plant’s overall atmospheric
emissions by 20%. The reduction in greenhouse
gas emissions is equivalent to 40,000 tonnes of
carbon dioxide.
Since 2001, EVRAZ
ZSMK has reduced its
atmospheric impact in
Novokuznetsk by 43%.
Since 2001, EVRAZ
NTMK has lowered its
atmospheric impact in
Nizhny Tagil by 24%.
In 2018, retrofitting the
dry coke quenching plant
will lead to a further
reduction of 20%.
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From 2010 to 2017,
EVRAZ ZSMK reduced
the volume of water
discharged into the
Tom river by 45%.
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protection
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Raspadskaya
Since 2011, Raspadskaya has been
implementing a programme to protect water
resources by upgrading the equipment used to
filter the water that it pumps out of mines and
quarries. In 2017, the Raspadskaya-Koksovaya
mine launched a water filtration unit that uses
pressure-flotation technology with post-treatment
of wastewater in a high-speed filtration and
disinfection system. The Group has previously
used this technology at the Uskovskaya and
Erunakovskaya-8 mines. Some of the filtered
water is re-used in the production cycle and the
rest is discharged into rivers in compliance with
all environmental standards.
EVRAZ ZSMK
Since 2011, EVRAZ ZSMK has been implementing
a programme to protect water resources that aims
to gradually close the water cycle and minimise
discharge volumes. In 2017, the programme
helped to reduce the freshwater intake by
4.4 million cubic metres and the discharge into
rivers by 3.4 million cubic metres of water per year.
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For several years now, EVRAZ has been
implementing social projects aimed at protecting
the environment and improving the ecology
of the areas where it operates and in nearby
cities. The Group’s employees have cleaned up
garbage from city streets, courtyards, production
areas and riverbanks.
Siberia
• Employees of EVRAZ ZSMK, Evrazruda
and Raspadskaya made more than
200 birdhouses. They are now placed on the
premises of the Group’s facilities, as well
as in the gardens and yards of Novokuznetsk
and Mezhdurechensk schools.
• Siberian enterprises have also released more
than 70,000 juvenile Nelma fish, which are
also called White Salmon, into the Siberian
rivers.
• EVRAZ employees took part in the “Give a tree
a second life” programme and transplanted
trees from Razrez Raspadskiy’s mining sites
at local parks, in public squares, along city
streets and around kindergartens.
Social and
environmental
projects
Urals
CIS
• EVRAZ NTMK employees help to keep the
• Ukrainian employees regularly hold
Demidov Museum Plant in Nizhny Tagil clean
and tidy. This year, they participated in the
fifteenth annual volunteer clean-up event.
• Following a storm in Nizhny Tagil, EVRAZ
NTMK employees helped clean up the
premises of sponsored kindergartens and
schools.
• Kachkanar employees helped to give their city
a new look, including by cleaning up waste
form the Kachkanar pond.
environmental activities: they plant trees along
highways, clean up city parks and streets. In
2017, EVRAZ DMZ joined the “Turn in your
batteries!” campaign, placing special containers
to collect used batteries at the facilities’
entrances and in the canteens. The batteries
they collect are recycled in a special facility.
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Social policy
Our people
OUR APPROACH
EVRAZ believes that its success
depends on its employees, which is
why it constantly invests in human
capital development. We understand
that the only skilled, engaged and
motivated staff can meet the needs
of our demanding customers.
Compliance with national labour
laws and regulations in the
Personnel profile
Staff recruitment policy
EVRAZ creates opportunities for its staff to
advance within the organisation and, where
necessary, supplements this with a targeted
search for outside experts. This helps to keep
the Group prepared for future challenges and to
reach our ambitious goals.
When evaluating candidates, EVRAZ relies
on professionalism and its principles. These
represent the qualities and behaviours that we
want to see in employees. The EVRAZ principles
include:
• safety;
• respect for people;
• performance and responsibility;
• client focus;
• effective teamwork.
EVRAZ continues to invest in talented young
specialists, including working with students to
provide vocational guidance. In 2017, we created a
team of children who study at schools we sponsor
to take part in the WorldSkills Junior competition.
The Group focuses on two priority areas for
attracting young specialists:
• an internship programme, after which the
best students receive offers for permanent
positions at EVRAZ;
• the Group also works with universities and
colleges to improve educational programs
by offering joint courses and equipping
laboratories, enabling students to study
modern technologies and standards.
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countries where the Group operates
is a key aspect to this approach.
This includes laws on occupational
safety, minimum wages and
salaries, employees’ rights to paid
time off, maternity leave, collective
bargaining, healthcare coverage,
(cid:83)ension (cid:69)enefits(cid:15) (cid:83)e(cid:85)sonal data
protection, freedom from all forms
of discrimination, etc.
EVRAZ FUNDS MODERNISATION OF THE
ENGINEERING AND DESIGN LABORATORY
In 2017, EVRAZ provided funding to modernise
the engineering and design laboratory
at Nizhny Tagil Mining and Metallurgical
College. This included upgrading the facility’s
computers and purchasing new software
and other tools. The new equipment will
help students to better study this academic
discipline.
Over the past five years, the Group has
helped to upgrade the college’s facilities for
automation engineering, electrodynamics,
mechatronics, robotics and distance learning,
metalworks, welding and electrical installation.
In 2017, the Group updated its EVRAZ New
Leaders Programme. The topics covered
under the programme are always derived
from a business need: specific problems that
need to be addressed. Over the past year, the
programme’s focus has shifted from production
issues to become more people-oriented. In
2017, an additional 70 employees graduated
the seventh EVRAZ New Leaders Programme,
which is hosted by the Skolkovo Moscow
School of Management. Overall, 317 people
have completed the programme, 60% of which
received new positions at the Group.
Staff development
Staff development strategy. In 2017, EVRAZ
continued its “From Foreman to Managing
Director” programme. This is one of the tools
that we use to teach line managers critical
skills in four key areas: HSE, HR, production
management and improvements management.
Each of these areas has evaluation criteria
that are analysed quarterly, and foreman and
area managers have a feedback loop to upper
management at their disposal. Our training
relies on applied skills that each person needs:
we teach leaders to communicate with their
team, provide feedback, build a dialogue, and
foster a safe working environment.
Over the past year, the Group has expanded
the programme to include area managers at
its Russian and Ukrainian production assets.
Overall, 1,800 line managers have participated
in since the “From Foreman to Managing
Director” programme launched in 2016,
including 300 area managers in 2017. A total
of 83% of participants noted the following
improvements after completing the courses:
time management, goal setting, communication
and feedback, as well as standard job tools and
responsibilities, like production visits and shift
meetings.
Performance management. To ensure high
efficiency, EVRAZ continues to improve its
performance management process, which was
updated in 2017, including:
• KPI methodologies were standardised;
• The list of technical KPIs was updated to
reflect best industry practice (the list is
reported to the CEO);
• Goal setting deadlines were shortened.
Training and development. EVRAZ relies
on its staff’s technical expertise to develop
proprietary educational materials and training
programmes that help to prepare its workforce
to handle whatever challenges they might face
on the job.
Over the past year, the Group has expanded
its young engineers’ clubs project, which was
started in the Urals division (EVRAZ NTMK and
EVRAZ KGOK).
CORPORATE SCIENTIFIC AND
TECHNICAL YOUTH CONFERENCE
In 2017, a total of 50 young professionals
from EVRAZ’s largest production subsidiaries
took part in the Group’s fifth annual corporate
scientific and technical youth conference.
The teams presented their best technical
implementation solutions and then used
the tools of the “Theory of Inventive Problem
Solving” (Russian abbreviation: TRIZ) method
to improve their solutions. They presented their
final proposals to EVRAZ’ panel of scientific
experts, which recommended all the solutions
presented for implementation at the Group’s
operations.
SAP SUCCESS FACTORS
In 2017, the SAP SuccessFactors
implementation was completed. The project
automated the processes for searching for
candidate, building careers and creating a staff
reserve, setting goals and assessing personnel.
These are used for calculating bonuses based
on employees’ final KPI results.
The SAP solution combined these HR processes
into one system, which helped to improve
process efficiency and create a single database.
In 2017, a total of 10 sessions of EVRAZ’
“Chief Engineer School” were held at Russian
and Ukrainian sites, as well as a technical
forum dedicated to improving the efficiency
of mining operations. A special feature of the
reporting year was the addition of a new format
for the programme: participants were part of
a scientific and technical council tasked with
solving problems involving benchmarking
production processes.
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.
EVRAZ continues to invest in increasing the
prestige of working professions. Workers’ roles
are actively changing as they technologically
determine business results and the quality
of the products that EVRAZ offers to the
market.
Assessment of training programme
efficiency. As part of the “Retaining and
Developing Engineering Competency”
programme that was established in 2012,
the Group gathered about 700 of its top
experts to take part in training programs
and technical forums, as well as to set tasks
for and supervise projects involving young
professionals.
The scientific and technical advisory board
strengthened its role and provided valuable
guidance, helping the experts to benchmark the
progress of technology and the development of
technological solutions.
Annual Report & Accounts 2017
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Regular 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.
Assessment of personnel
Ahead of the annual talent committees in
2017, EVRAZ conducted 360° feedback
sessions for 220 managers (CEO-2 and
successors). This helped to determine their
strong points and areas of improvement, and
going forward will facilitate the creation of a
group development programme.
EVRAZ continues to apply various assessment
methods, depending on the goals and
category of personnel, including Korn Ferry’s
Learning Agility™ model, the “From Foreman
to Managing Director” programme, SHL testing
and questionnaires.
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Pavel Tereshenko,
electrical installer at EVRAZ ZSMK,
won a gold medal at WorldSkills
WORLDSKILLS HI-TECH 2017
CHAMPIONSHIP
In 2017, EVRAZ took part for the fourth time
in the Russian Federation’s WorldSkills hi-tech
national championship. The Group’s staff
took their first gold prize, three silvers and
two bronze medals out of the seven skills
competitions in which they took part.
This is first time that EVRAZ sent a junior team
to the championship and they took second
place in the “electrical installation 12+”
nomination.
NUMBER OF EMPLOYEES AS OF
31 DECEMBER 2017, thousand people
2017
2016
2015
2014
2013
70.2
77.8
84.5
94.8
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Making the World Stronger
Headcount
In 2017, EVRAZ had 70,186 employees,
a reduction of 9.8% compared with 2016.
To better achieve the Group’s strategy, it
disposed of non-core assets in 2017, such
as Evraz Nakhodka Trade Sea Port and Evraz
Sukha Balka.
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.
BREAKDOWN OF EMPLOYEES BY AGE
AS OF 31 DECEMBER 2017, %
BREAKDOWN OF EMPLOYEES BY REGION
IN 2017, %
70,186
employees
70,186
employees
<20
20-29
30-39
40-49
50-59
>60
Russia and CIS
Noth America
Europe
0.3
14.9
30.6
29.3
20.8
4.1
94.5
5.2
0.3
BREAKDOWN OF PERMANENT
AND TEMPORARY STAFF, %
DIVERSITY OF EMPLOYEES, SENIOR
MANAGEMENT AND DIRECTORS, %
(number of people)
100
Board
90
80
70
60
Senior management
Employees
2013
2014
2015
2016
2017
Permanent
Temporary
Men
Women
88 (7)
12 (1)
81 (75)
19 (18)
73 (50,815)
27 (19,270)
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
EVRAZ uses a wide range of channels to
communicate with employees, including its
corporate intranet and website; corporate
publications; social media channels; webcasts
and Q&A sessions with the senior management
team; town hall meetings and employee surveys
(including engagement surveys).
Work with trade unions
EVRAZ’ relationship with labour unions that
represent its employees’ rights is founded on
the principle of partnership, which allows it to
maintain constructive and positive relations.
The management regularly meet with union
representatives for discussions at every
EVRAZ operating facility. The overall level of
unionisation at the Group’s enterprises stands
at around 73%, albeit with significant variations
across operations and countries.
The labour unions at EVRAZ’ operations 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.
Meanwhile, the Ukrainian Union of Metallurgists
and Miners represents the Group’s employees at
its operations in Ukraine.
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
Association. In Ukraine, in negotiations with
trade unions at the industry and national level,
EVRAZ has the right to an advisory vote in the
Working Group of the Federation of Metallurgists
of Ukraine.
EMPLOYEE TURNOVER, %
Region
Russia and CIS
North America
Europe
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Voluntary
Overall
Voluntary
Overall
Voluntary
Overall
Voluntary
Overall
Voluntary
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21
7
14
9
17
20
15
7
14
9
12
20
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5
12
14
14
26
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Annual Report & Accounts 2017
EVRAZ WINS BUSINESS PROCESS
MANAGEMENT PROJECT OF THE YEAR AWARD
The Russian chapter of the Association of
Business Process Management Professionals
holds an annual nationwide contest with
the support of the Skolkovo Foundation’s IT
cluster. Out of a total of 24 business process
management projects presented at the
competition, EVRAZ’ HR services solutions
centre won the grand prize and was named
Business Process Management project of the
year.The SAP solution combined these HR
processes into one system, which helped to
processes into one system, which helped to
improve process efficiency and create a single
improve process efficiency and create a single
database.
database.
Objectives for 2018
Objectives for 2018
EVRAZ strives to implement international best
practices in the field of human resources to
match its needs and expectations. This helps
the Group to maintain high-quality processes
and ensures that it has engaged, motivated,
loyal and competent managers and employees.
The following programmes are a vital part of
these efforts:
• EVRAZ Business System. One of the group’s
overriding priorities for 2018 is to continue
supporting the EVRAZ Business System
transformation in terms of employee
development, motivation and engagement.
• Digital HR. The human resources function is
focused on digitising its operations, including
through the introduction of employee and
manager self-services.
• Human capital development. The Group is
implementing a human capital development
programme that aspires to cultivate world-
class leadership qualities among its middle
managers and executives.
• Employee engagement. In 2018, EVRAZ aims
to further improve employee engagement by
promoting an ongoing dialogue between the
organisation and its people, at every level.
Tracking employee engagement
Measuring employee engagement in 2016
helped to determine EVRAZ’ HR priorities for
2017. We used the survey to develop local
and corporate-wide improvement plans. The
corporate focus was on ensuring that every
employee knows what is happening within the
Group, including its short- and long-term goals,
the development plans for the operations where
they work, and what the employees themselves
can expect. We chose a new format that we
call “Informational Days” to discuss these
matters with staff. All told, we gathered more
than 3,000 people at our subsidiaries and the
management company. Local activities were
mostly focused on improving working conditions.
More than 50 such improvement measures were
implemented in the Urals and Siberia divisions,
where we implemented the pilot programme last
year.
In 2017, the engagement survey included all the
Group’s main operations. The projects primary
goal is to establish a dialogue between the
organisation and its employees at all levels, from
the enterprise, to the shop and site.
EVRAZ Hotline
EMPLOYEE ENGAGEMENT SURVEY
RESPONSE RATE, %
75%
66%
2017
2016
Financial motivation
In 2017, EVRAZ launched a grading program
where consultants helped to evaluate
roles within the organisation and develop
remuneration management principles. The
grading system and remuneration management
principles will improve the transparency of
employee remuneration.
As part of the EVRAZ Business System
Transformations project, the Group introduced
a system to motivate employees to provide for
process improvement ideas and take an active
role in their implementation.
BREAKDOWN OF HOT LINE ENQUIRIES
IN 2017, %
The Group strives to look beyond compliance
with minimum wage requirements to ensure that
it compensates its staff adequately.
704
requests
Labour relations
Health and safety
General information
Security
Others
Key projects
HR Transformation
The HR service solutions centre (SSC) project
encompasses the entire HR service chain,
including employee records, payroll, and
timesheet data. In 2017, the centre’s services
were rolled out to assets in the Urals division.
This brought the total number of users to more
than 55,000 employees. Since the its inception
in August 2016, the centre has performed more
than 580,000 operations. As of December
2017, the HR SSC project has helped to
improve service quality and reduce process
costs by 3%.
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In 2017, the hotline received 704 requests.
The most popular issue concerned labour
relations, including the quality of services for
workers (114) and salaries (71). There was
a significant increase in enquiries concerning
safe pedestrian routes and lighting conditions
(25). These requests helped the Group to
identify the most dangerous areas, like railway
crossings, and improve their safety.
AVERAGE WAGE RATIO,
EVRAZ VS THE REGION OF PRESENCE
Kemerovo region
Tula region
Sverdlovsk region
Dnepropetrovsk region
Russia
Ukraine
1.20
1
1.60
1.52
1.44
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Relations with local
communities
EVRAZ supports an open and meaningful dialogue
with all stakeholders, including local communities,
government entities and non-government
organisations, and sponsors important local social
events. For example, the Group implemented three
programmes as part of Russia’s “Year of Ecology”.
EVRAZ representatives also participate in all important
industry events, such as exhibitions, congresses, and
meetings with government and business.
Awards
EVRAZ
Award: National contest “The leaders
of Russian business: dynamics and
responsibility”. Nomination: “The best import-
replacement project”
Awarding organisation:
Russian Union of Industrialists and
Entrepreneurs (Russian abbreviation: RSPP)
EVRAZ was awarded for its project to reconstruct
the rail production line at EVRAZ ZSMK to
manufacture a new generation of rails that made it
possible to replace imports from Austria and Japan,
and even begin producing rails for export markets.
Public organisations
and initiatives
EVRAZ participates in Russian Steel, the Steel
Construction Development Association (SCDA), the
Russian Managers’ Association, the Association of
Railway Product Producers, and others.
Community relations
OUR APPROACH
EVRAZ strives to adhere to
international corporate social
responsibility principles by making
a meaningful contribution to
local economies and supporting
communities wherever it operates.
This includes fostering proper ethical
behaviour, caring for employee
health and safety, protecting the
environment, and being an engaged
partner in local communities.
Everywhere that EVRAZ operates,
it seeks to build sustainable,
positive partnerships with local
governments and non-government
organisations, as well as with
business, media and other partners.
EVRAZ sponsors various charity
projects in these regions with an
aim to improve the quality of life
in local communities; to support
infrastructural, sport, educational
and cultural programmes; and to
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provide assistance for children who
might have special needs or lack
adequate social protections.
EVRAZ has two charity funds
that operate in Siberia and the
Urals. When choosing projects
to support, the funds take into
consideration EVRAZ’ charity
(cid:83)olic(cid:92)(cid:17) (cid:55)(cid:75)is (cid:83)olic(cid:92) defines (cid:73)oc(cid:88)s
areas for support, including funding
orphanages and needy families,
sponsoring educational, sport and
cultural projects, and subsidising
medical centres and ecological
programmes.
US$ 31 million
spent on social programmes and social
infrastructure maintenance in 2017
KEY
PRO
Annual Report & Accounts 2017
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EVRAZ
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CASE STUDY:
GENERATION M PROJECT
EVRAZ and one of Russia’s largest mobile telephone operators
organised the Generation M project with the help of the
Mezhdurechensk municipal government. Several events took
place as part of the project, including a photography contest and
exhibition (famous photographers organised workshops for kids)
and a movie contest (children will shoot their own movies after
attending workshops with directors and actors). Russian cinema
star Alena Babenko visited the city and officiated at the contest’s
opening ceremony. The winners will visit Moscow and Mosfilm,
a leading Russian film production company. In December, the first
a leading Russian film production company. In December, the first
ever World Press Photo exhibition opened in Mezhdurechensk.
ever World Press Photo exhibition opened in Mezhdurechensk.
EVRAZ supports
disabled children and
orphanages, in particular its
project for children with cerebral
project for children with cerebral
palsy. Children in the programme
palsy. Children in the programme
receive medical treatment, including
receive medical treatment, including
therapeutic massage, and attend
therapeutic massage, and attend
various innovative classes in the
various innovative classes in the
arts, photography, puppetry,
arts, photography, puppetry,
and aquatic therapy.
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Activities
• The hippotherapy courses in Nizhny Tagil,
Novokuznetsk and Mezhdurechensk continued.
Children from Mezhdurechensk joined the charity programme
• Children from Mezhdurechensk joined the charity programme
“Dream ski” and completed a downhill skiing course for the
“Dream ski” and completed a downhill skiing course for the
first time in their life. EVRAZ donated special equipment for the
first time in their life. EVRAZ donated special equipment for the
classes and sent instructors for special training. A year earlier the
classes and sent instructors for special training. A year earlier the
programme with support of EVRAZ opened in Novokuznetsk.
programme with support of EVRAZ opened in Novokuznetsk.
EVRAZ gave more than 3,000 New Year presents to children in
• EVRAZ gave more than 3,000 New Year presents to children in
orphanages.
In Novokuznetsk, EVRAZ sponsored capital repairs for orphanages.
• In Novokuznetsk, EVRAZ sponsored capital repairs for orphanages.
In Nizhny Tagil, EVRAZ sponsored a professional kindergarten orientation course
• In Nizhny Tagil, EVRAZ sponsored a professional kindergarten orientation course
called “Today a child, tomorrow a steelmaker”.
In Kachkanar, EVRAZ sponsored the renovation of a local kindergarten.
• In Kachkanar, EVRAZ sponsored the renovation of a local kindergarten.
In Dnipro, Ukraine, EVRAZ supports a kindergarten boarding school.
• In Dnipro, Ukraine, EVRAZ supports a kindergarten boarding school.
In Dnipro, EVRAZ DMZ employees participating in the “Presents for Saint Nickolas Day” campaign
• In Dnipro, EVRAZ DMZ employees participating in the “Presents for Saint Nickolas Day” campaign
brought sweets, presents and toys to an orphanage.
brought sweets, presents and toys to an orphanage.
In Kamenskoye, employees gathered presents for the local childrens’ hospital.
• In Kamenskoye, employees gathered presents for the local childrens’ hospital.
In Indiana, EVRAZ North America made charitable donations to the YMCA Champions for Youth
• In Indiana, EVRAZ North America made charitable donations to the YMCA Champions for Youth
Campaign, which is focused on raising money to ensure under-privileged students can participate
Campaign, which is focused on raising money to ensure under-privileged students can participate
in after-school activities.
In Alabama, EVRAZ North America made charitable donations to the Boy Scouts of America as part
• In Alabama, EVRAZ North America made charitable donations to the Boy Scouts of America as part
of the Christmas for Kids/Progress charity event.
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101
Making the World Stronger
EVRAZ:
City of Friends –
City of Ideas
This programme aims
to improve the quality of life
in Russian cities by developing
sports, culture, education and
medicine.
Nizhny Tagil
summer
of 2017
Kachkanar
autumn
of 2017
Novokuznetsk Mezhdurechensk
IN 2017, EVRAZ’ 25TH YEAR IN OPERATION,
THE GROUP HELD ITS “CITY OF FRIENDS – CITY
OF IDEAS” SOCIAL CONTEST IN FOUR CITIES,
COMPARED WITH JUST ONE CITY IN 2016.
CITIZENS PAID SPECIAL ATTENTION
TO THE ECOLOGY THEME
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215
BIDS IN SIBERIA
BIDS IN URALS
54
PROJECTS RECEIVED
MONETARY GRANTS
>34.5
THOUSAND VOTES
WERE CAST FOR THE
PROJECTS DURING
ONLINE VOTING
EVRAZ
EVRAZ
for Cities
for Cities
Activities
• In Novokuznetsk, the Group sponsored the reconstruction
of Pervostroiteley Square and installed several sports grounds
and playgrounds. EVRAZ also provided rails for the reconstruction of tram
lines in the city.
EVRAZ supports the local
infrastructure in the cities
and towns where it operates.
The Group sponsors medical,
educational, and cultural
institutions.
• In Mezhdurechensk, the Group helped to install a new sports field.
• In Tashtagol district, EVRAZ sponsored the renovation of social infrastructure.
• In Kemerovo region, EVRAZ sponsored educational institutions.
• In Kachkanar, EVRAZ donated special equipment to the city’s central hospital.
• In Nizhny Tagil, the Group supported a city beautification project.
• In the settlement of Valerianovsk, EVRAZ donated equipment to create a cinema in the
local library.
• In Dnipro, EVRAZ DMZ repaired a road and a public transportation station.
• In Canada, EVRAZ North America made charitable donations to the Multiple Sclerosis
Society, which was important for the group because it receives almost no government
funding.
• In Fort Worth, Texas, EVRAZ North America sponsored the annual BNSF golf event
to benefit the United Way of Tarrant County Texas.
• EVRAZ North America made a charitable donation to the American Red Cross for
the victims of Hurricane Harvey, the most powerful hurricane to make landfall in the
US since 2004, impacting much of Texas and Louisiana.
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CASE STUDY:
(cid:477)(cid:56)(cid:47)(cid:55)(cid:56)(cid:53)(cid:40)
In 2017, the Group paid special attention to
cultural activities. EVRAZ supported the local
drama theatre in Novokuznetsk and organised
its concert tour to Mezhdurechensk. EVRAZ also
became a partner of the “Art cherry” festival in
Osinniki, Kemerovo oblast.
Annual Report & Accounts 2017
EVRAZ continued to
support professional
and amateur sports
teams.
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EVRAZ
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for Sport
CASE STUDY:
STREETBALL TOURNAMENT
For the first time, Raspadskaya organised a streetball
tournament in Mezhdurechensk. World champion Mikhail
Gunter attended the tournament, which was named in his
honour as the Guntercup 2017. He organised a special
workshop for young basketball players.
Activities
• In the Urals, EVRAZ sponsored the prestigious Grand Slam judo tournament (World Cup), which
brought the world’s best sportsmen to Ekaterinburg.
• As part of EVRAZ’ third-annual “Take Five” event, races took place in Novokuznetsk, Nizhny Tagil
and Moscow.
• In the Urals, EVRAZ supported taekwondo, athletics, and hockey in Nizhny Tagil.
• In Kachkanar, the group sponsored the Olimp youth sport school’s participation in an international
festival of school sports.
• In Kachkanar, EVRAZ sponsored the renovation of a sports centre.
• In Alberta, EVRAZ North America made a charitable donation to the Alberta Cancer Foundation
and sponsored the Enbridge® Alberta Ride to Conquer Cancer®, a bicycle ride through the
Canadian Rockies that raises money for cancer research. Team EVRAZ (comprised of more than
20 riders from Calgary, Red Deer, Camrose, and Regina) collectively raised the seventh highest
amount in the event’s team fundraising.
NEW PROJECTS
Stronger than steel
EVRAZ faces
EVRAZ introduced the “Stronger than steel”
photo project, which is devoted to key
professions at the Group. Exhibitions with these
photos took place in Moscow, Siberia and the
Urals.
EVRAZ launched a website devoted to its
employees. Everyone can upload a photo, video
or audio story connected with EVRAZ. Likes
can be exchanged for prizes. The best authors
become the heroes of TV stories and will be
invited to Moscow in 2018.
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Making the World Stronger
Anti-corruption and anti-bribery
OUR APPROACH
EVRAZ is fully committed to strict
compliance with the Law of the
Russian Federation no. 273 “On
Preventing Corruption,” the UK
Bribery Act, the US Foreign Corrupt
Practices Act and other relevant
local legal equivalents.
Preventing corruption, bribery, and
moral unscrupulousness is one of
the Group’s top priorities. EVRAZ
has implemented and further
developed policies and procedures
t(cid:75)at define com(cid:83)liance mana(cid:74)e(cid:85)s(cid:183)
day-to-day efforts. Today, they
scrutinise tender procedures,
check potential and existing
business partners, vet prospective
new candidates, and ensure that
principles set forth in the Group’s
Anti-corruption Policy and Code of
Ethics are adhered to throughout
its operations.
Policies and regulations
All EVRAZ subsidiaries strictly comply with the
Code of Conduct and Anti-corruption Policy,
which are the key documents that define the
norms of ethical and responsible behaviour
for employees in all circumstances. These and
other relevant policies are available on the
corporate intranet and employees bear personal
responsibility for full compliance with them. Staff
are also consistently encouraged to approach
compliance managers whenever they have
questions about the expected course of action
in difficult situations or when they want to voice
concerns about known violations.
Compliance managers are present at every
major asset and are also responsible for
anti-corruption and anti-bribery matters in
the Group’s smaller local businesses. They
investigate possible non-compliance with
policies; monitor charity payments and
hospitality spending; and act on whistle-blower
allegations of possible bribery, corruption,
fraud and malfeasance. They then present
their findings and recommendations to local
managing directors, as well as the Group’s
compliance manager and specialists reporting to
the senior vice president for business support.
The latter review and scrutinise investigation
results to liaise with senior management as
necessary. Compliance managers routinely
inform the Audit Committee about the status
of ongoing anti-corruption efforts and prepare
memos at the committee’s request.
EVRAZ has implemented and tested all
elements of its compliance system throughout
its operations in Russia, Ukraine, the US,
Canada, and Kazakhstan. All Group assets
have implemented corporate policies to
duly cover business processes bearing high
corruption risk. The compliance and asset
protection units present at all sites closely
monitor the effectiveness of and adherence
to these regulations. The internal audit and
legal departments provide assistance where
necessary.
Risk analysis
Once a year, compliance managers perform
a comprehensive analysis of potential anti-
corruption risks across all assets. For this
purpose, they analyse every business process
and define key risk areas.
Compliance managers have examined the
following processes for signs of risk:
• Purchase of goods or services;
• Payments;
• Sale of goods, work, and services;
• Business gifts, hospitality, entertainment and
travel expenses;
• Charity and sponsorship;
• Interaction with government authorities;
• Hiring and transferring staff;
• Vetting contractors or customers;
• Contract approval;
• Company property management.
KEY COMPANY POLICIES TO REGULATE ANTICORRUPTION AND ANTI-MONEY LAUNDERING EFFORTS
Code of Conduct
Anti-corruption policy
Rules on securities dealings
Hotline policy and
whistle-blowing procedures
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Anti-corruption
training policy
Sponsorship
and charity policy
Gifts and business
entertainment
policy
Candidates'
background and
criminal record check
Conflict of interest
policy
Contractors/
suppliers due
diligence check
For more information, see Short summary of relevant anti-corruption policies on page 269.
The compliance, internal audit, legal, and
business support functions jointly developed
the methodology applied during the analysis
specifically for this purpose. They evaluate specific
random events for signs of predefined risks,
including tenders, contract approvals, purchases,
inventory checks and charitable donations.
The compliance managers meet with top
managers of each asset to inform them of
the investigation results, discuss any threats
revealed, and recommend further actions.
The compliance managers then monitor any
corrective measures that are undertaken to
mitigate the discussed risks.
The Group’s compliance officer then presents
a consolidated analysis to the Audit Committee.
In early February 2018, the compliance officer
presented to the Audit Committee the analysis
for 2017, which revealed no significant
violations of anti-corruption statutes or cases of
noncompliance with Group policies.
Key developments in 2017
EVRAZ is pleased to report that its compliance
function was not required to initiate any
investigations into suspected signs of corruption
or bribery in 2017. We believe that this is an
indication of our successful policy and ongoing
preventative efforts.
The Group has additional compliance control
measures in place for payments to non-resident
companies (specifically offshore entities), which
have proven their effectiveness at its Russian
and Ukrainian assets. Compliance managers
use electronic means to approve such payments,
as well as gifts and hospitality to be provided or
accepted.
In 2017, the Group continued to develop a
set of measures to ensure compliance with
the EU Market Abuse Regulation (the “MAR”)
which came into force in July 2016. Following
the request from the Board, the management
together with Linklaters have agreed on the
Annual Report & Accounts 2017
following approach to regular legal updates with
a view to ensure compliance with policies and
procedures under the Market Abuse Regulation:
preparation of the EVRAZ Compliance Manual
with updated content tailored for EVRAZ’
continuing obligations as a UK premium-listed
company and developing in-person training for
the management team in EVRAZ’ Moscow office.
A team of c.25 managers will be trained during
Q1 2018. The training will be based on the
topics covered in the EVRAZ Compliance Manual
and was followed by test.
In addition, nearly 3,000 more managers in the
US, Canada, Russia, Ukraine and Kazakhstan
completed online anti-corruption training
developed by Thomson Reuters. Overall, almost
8,000 employees have received this training to
date. The programme will continue in 2018 and
those previously trained will also refresh their
active knowledge of anti-corruption principles
and best practices.
Inform senior vice president for business support
and interregional relations
Mar-Oct
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ANTI-CORRUPTION RISK MANAGEMENT CYCLE
Determine or update list of risks for all business processes
Oct
Input from legal, internal audit
and security departments
Prepare comprehensive list of risks
Oct-Nov
Check events for signs of risk
Nov-Dec
Compliance
team
Risk owners
Monitor how risks are being
mitigated
Mar-Oct
Discuss results with risk
owners and top managers
Feb
Input from internal audit
Top managers
Analyse and draft risk reports
Dec-Jan
Compliance officer presents reports
to the Audit Committee
Feb
EXAMPLES OF ANTI-CORRUPTION RISKS TESTED IN COMPANY’S BUSINESS PROCESSES
In the process “purchase of goods or services”,
compliance managers have defined and tested
for the following risks:
• considerable changes in the volume of
goods purchased or work performed after
the tender has already been considered and
awarded;
• purchasing goods or services via middlemen
and agents when direct contracts are
possible;
• purchasing goods, work or services at prices
and on terms that are above the market
average.
Other corruption risk indicators include lacking
supporting documents; violating the existing
approved procurement procedures; and
reimbursing expenses that are not mentioned
in the contract or addendums.
• there is no business purpose to justify
expenses or the purpose may cause
reasonable doubts when scrutinised by
auditors or regulators;
• business hospitality expenses exceed the
Compliance managers further examine each
process to highlight fundamental risks. For
example, they analyse gifts and hospitality
events to reveal whether:
• event expenses are inconsistent with the
limits set by corporate policies;
• there are violations of the procedure for
approving expenses and participation in
events;
• a business event is held at resort or tourist
area;
event’s format or do not match the expense
items stated in the event preparation
documents;
• there is a lack of or inconsistency in
supporting documents when reimbursing
expenses to employees.
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Making the World Stronger
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Corporate
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107
Making the World Stronger
Board of Directors
Alexander Abramov
Eugene Shvidler
KEY TO COMMITTEE MEMBERSHIP
Chairman
Member
Audit
Committee
Nominations
Committee
Remuneration
Committee
HSE
Committee
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Alexander Frolov
Eugene Tenenbaum
Annual Report & Accounts 2017
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BIOGRAPHIES OF THE MEMBERS OF THE BOARD OF DIRECTORS
Alexander
Abramov
Non-Executive
Chairman
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 (cid:51)hysics and Technology with a first-class
honours degree in 1982, and he holds a PhD in Physics and
Mathematics. He founded EvrazMetall in 1992.
Other appointments: 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.
Alexander
Frolov
Chief Executive
Officer
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 (cid:51)hysics and Technology with a first-class
honours degree in 1987 and received a PhD in Physics and
Mathematics in 1991.Prior to working at EVRAZ, he was a
research fellow at the I.V. Kurchatov Institute of Atomic Energy.
He joined EvrazMetall in 199(cid:23) and served as its chief financial
officer from 2002 to 200(cid:23), then as senior executive vice
president of Evraz Group S.A. from 2004 to April 2006.
Other Appointments: None.
Eugene
Shvidler
Non-Executive
Director
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.
Skills and experience: 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.
Committee membership: Mr Shvidler is a member of the
Nominations Committee.
Other Appointments: Mr Shvidler currently serves as chairman
of Millhouse LLC and Highland Gold Mining Ltd.
Eugene
Tenenbaum
Non-Executive
Director
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.
years in corporate finance with K(cid:51)MG 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.
Skills and experience: Mr Tenenbaum served as head of
corporate finance for Sibneft in Moscow from 1998 through
2001. He worked as director for corporate finance at Salomon
(cid:37)rothers from 199(cid:23) until 1998. (cid:51)rior to that, he spent five
Other Appointments: Mr Tenenbaum is currently managing
director of MHC (Services) Ltd and serves on the Board of
Chelsea FC Plc and AFC Energy PLC.
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Making the World Stronger
Board of Directors
Independent directors
Karl Gruber
Alexander Izosimov
KEY TO COMMITTEE MEMBERSHIP
Chairman
Member
Audit
Committee
Nominations
Committee
Remuneration
Committee
HSE
Committee
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Deborah Gudgeon
Sir Michael Peat
Annual Report & Accounts 2017
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Karl Gruber
Independent
Non-Executive
Director
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.
in mechanical engineering. He has held various management
positions, including eight years as a member of the Managing
(cid:37)oard 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 chaired 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.
Skills and experience: Mr Gruber has extensive experience in
the international metallurgical mill business and holds a diploma
Other appointments: None.
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Independent
Non-Executive
Director
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 is a qualified chartered
accountant with 30 years experience. She started her career
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 (cid:51)LC and was appointed a
member of the Finance Committee in March 1993. From 1995
to 1998, she 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 founding director of the Special Situations
Advisory team for BDO LLP, providing integrated advice on
corporate finance, restructuring, debt and performance
improvement. From 2011 to 2017, Ms Gudgeon served as
managing director of Gazelle Corporate Finance Limited.
Other appointments: Ms Gudgeon is currently a Senior Adviser
of (cid:51)enfida Limited.
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Izosimov
Independent
Non-Executive
Director
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 worked
at Mars Inc, where he held various managerial positions,
including regional president for CIS, Central Europe and
Nordics, and was a member of the executive board. Prior to
Mars Inc, Mr Izosimov was a consultant with McKinsey and
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.
Other appointments: None.
Sir Michael
Peat
Senior
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 (cid:51)eat 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. He holds an MA and MBA, and is a fellow of the
Institute of Chartered Accountants in England and Wales.
Other appointments: 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.
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Making the World Stronger
Management
Alexander Frolov
(cid:38)(cid:75)ief (cid:40)(cid:91)ecuti(cid:89)e (cid:50)fficer
Leonid Kachur
(cid:54)enior (cid:57)ice (cid:51)resi(cid:71)ent(cid:15)
(cid:37)usiness (cid:54)u(cid:83)(cid:83)ort an(cid:71) (cid:44)nterregiona(cid:79) (cid:53)e(cid:79)ations
Aleksey Ivanov
(cid:54)enior (cid:57)ice (cid:51)resi(cid:71)ent(cid:15)
(cid:38)o(cid:80)(cid:80)erce an(cid:71) (cid:37)usiness (cid:39)e(cid:89)e(cid:79)o(cid:83)(cid:80)ent
Nikolay Ivanov
(cid:38)(cid:75)ief (cid:41)inancia(cid:79) (cid:50)fficer
Alexander Kuznetsov
(cid:57)ice (cid:51)resi(cid:71)ent(cid:15)
(cid:38)or(cid:83)orate (cid:54)trategy an(cid:71) (cid:51)erfor(cid:80)ance (cid:48)anage(cid:80)ent
Ilya Shirokobrod
(cid:57)ice (cid:51)resi(cid:71)ent(cid:15) (cid:54)a(cid:79)es
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Natalia Ionova
(cid:57)ice (cid:51)resi(cid:71)ent(cid:15)
(cid:43)u(cid:80)an (cid:53)esources
Sergey Stepanov
(cid:57)ice (cid:51)resi(cid:71)ent(cid:15)
(cid:43)ea(cid:71) of t(cid:75)e (cid:38)oa(cid:79) (cid:39)i(cid:89)ision
Annual Report & Accounts 2017
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Maksim Andriasov
(cid:57)ice (cid:51)resi(cid:71)ent(cid:15)
(cid:43)ea(cid:71) of t(cid:75)e (cid:56)ra(cid:79)s (cid:39)i(cid:89)ision
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Konstantin Rubin
(cid:57)ice (cid:51)resi(cid:71)ent(cid:15)
(cid:43)ea(cid:79)t(cid:75)(cid:15) (cid:54)afety an(cid:71) (cid:40)n(cid:89)iron(cid:80)ent
Sergey Vasiliev
(cid:57)ice (cid:51)resi(cid:71)ent(cid:15) (cid:38)o(cid:80)(cid:83)(cid:79)iance (cid:90)it(cid:75) (cid:37)usiness (cid:51)roce(cid:71)ures
an(cid:71) (cid:36)sset (cid:51)rotection
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Vsevolod Sementsov
(cid:57)ice (cid:51)resi(cid:71)ent(cid:15)
(cid:38)or(cid:83)orate (cid:38)o(cid:80)(cid:80)unications
Artem Natrusov
(cid:57)ice (cid:51)resi(cid:71)ent(cid:15)
(cid:44)nfor(cid:80)ation (cid:55)ec(cid:75)no(cid:79)ogies
Yanina Staniulenaite
(cid:36)cting (cid:57)ice (cid:51)resi(cid:71)ent(cid:15)
(cid:47)ega(cid:79)
Making the World Stronger
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 100 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 its website: (cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80)
The UK Corporate Governance Code is available at
(cid:90)(cid:90)(cid:90).frc.org.u(cid:78).
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 2017, EVRAZ
complied with all the principles and provisions of
the 2016 UK Corporate Governance Code (the
Governance Code is available at (cid:90)(cid:90)(cid:90).fic.org.u(cid:78)),
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 (cid:83)ages (cid:20)(cid:21)(cid:27)(cid:178)(cid:20)(cid:22)(cid:24).
Board
responsibilities
and activities
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.
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The EVRAZ Board is responsible for the
following key aspects of governance and
performance:
• financial and operational performance(cid:30)
• strategic direction;
• major acquisitions and disposals;
• overall risk management;
• capital expenditure and operational budgeting;
• business planning;
• approval of internal regulations and policies.
During the year ended 31 December 2017,
the Board considered a wide range of matters,
including:
• the critical success factors for strategic
development of the Group’s competitive
advantages;
• the performance of key businesses, including
commercial initiatives to improve operational
performances and revenues, with particular
emphasis on North America;
• the Group’s consolidated budget and budgets
of individual business units;
• the interim and full-year results, and the 2016
annual report;
• the appropriateness of the going concern
basis of financial reporting(cid:30)
• the assumptions, stress-test scenarios and
mitigating actions used in preparing the
Company’s viability statement;
• HSE updates;
• investment project reviews;
• disposal of non-core businesses;
• changes to the composition of various Board
committees;
• implementation throughout the Group over
the next five years of the EVRAZ (cid:37)usiness
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 externally
facilitated Board evaluation exercises and
action plans resulting therefrom.
During 2017, the Board considered in detail
the disposal of Evraz Nakhodka Trade Sea Port
(NTS(cid:51)). This facility, located on Russia’s (cid:51)acific
coast, was no longer considered to be a core
activity of the Group, and financial advisers had
been appointed to market the facility. During the
sale process, an offer to purchase the port and
its activity was received from Lanebrook Ltd, the
Group’s majority shareholder.
Under the Listing Rules the deal was deemed
a related-party transaction and accordingly, in
line with the relationship agreement in place
between the Company and Lanebrook Ltd,
(cid:83)age (cid:20)(cid:22)(cid:28), the Board delegated authority to
review and agree, if appropriate, the transaction
to a committee of the Board comprised
exclusively of the independent non-executive
directors (INEDs).
The INEDs took advice from Morgan Stanley and
Co International plc and Clifford Chance LLP, and
they considered that the fair value comparison
of the Lanebrook Ltd offer was better than
the other trade sale offers received, and
recommended the sale of NTSP to Lanebrook
Ltd to shareholders. A special general meeting
of the Company’s shareholders was held on
23 May 2017, and the shareholders, excluding
Lanebrook Ltd who were not permitted to vote,
approved the transaction with 92% of votes cast
being in favour.
The Board also discussed in detail the proposal
to pay an interim dividend of US$0.3 per
ordinary share, totalling US$429.6 million, on
8 September 2017. The level of distributable
reserves within the balance sheet was
considered, noting that it was sufficient to
enable the dividend to be paid. The expectations
of institutional shareholders were noted, as well
as that the proposed figure recognised that no
dividend had been paid in 2016. It was decided
to proceed but to also ensure that shareholders
realised that the 2017 interim payment might be
higher than future dividend payments.
In keeping with the requirements of the
Relationship Agreement (cid:11)see (cid:83)age (cid:20)(cid:22)(cid:28)(cid:12) in place
between the Company and Lanebrook Ltd, its
major shareholder, the INEDs of the Company
have conducted an annual review to consider
the continued good standing of the Relationship
Annual Report & Accounts 2017
Agreement and are satisfied that the terms
of the Relationship Agreement are being fully
observed by both parties. In accordance with LR
9.8.(cid:23)R (1(cid:23)) 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;
• so far as the Company is aware, the
Controlling Shareholder has complied
with the procurement obligations in the
Relationship Agreement.
Stakeholders
The Board considers the interests of all
stakeholders by taking a long-term view of
how the business needs to develop within its
economic market. The Board has considered
the technological developments in the market
to ensure that its assets are improved to remain
competitive, and that the necessary financing
requirements will be available over the medium
to long term to implement strategic projects.
When development plans for projects are in
their early stages, the management engages
key customers to ensure that the products
produced meet their specific requirements.
Assisted by the Nominations Committee, the
Board regularly reviews the management’s
development plans and the Group’s overall
HR policy, including the current HR initiatives
in place. The Board’s HSE Committee is
charged with embedding a safety culture for
employees across the Group’s operations and
monitoring the implementation of the Group’s
environmental policy.
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 for the
day-to-day management of the Company and
its subsidiaries. The Group’s CEO is Alexander
Frolov.
The CEO is supported by the executive team.
Board meetings and composition
BOARD COMPOSITION
EVRAZ plc held 10 scheduled Board meetings
during 2017. In 2018, up to the date of this
report’s publication, two Board meetings
were held.
Independent Non-Executive Directors
Non-Executive Directors
Chairman, Non-Executive
Executive Director
50%
25%
12.5%
12.5%
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 2017.
As at 31 December 2017, the Board comprised
the chairman, one executive director, and six
non-executive directors, including a senior
independent director. Olga Pokrovskaya, a
former non-executive director, is invited to
attend Board meetings in an advisory capacity
and to attend Audit Committee meetings as an
observer.
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 (excluding the Health,
Safety and Environment Committee) on and
chair all Board Committees.
The (cid:37)oard 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.
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
9/10
10/10
10/10
10/10
10/10
10/10
4
-
-
-
4/4
4/4
4/4
-
-
2
-
2/2
2/2
-
-
-
-
-
9
-
-
8/9
9/9
9/9
-
-
-
3
3/3
-
3/3
-
3/3
3/3
3/3
-
1
1
1
1
1
1
1
1
1
1Alexander Abramov was unable to attend one Board call due to a late arising conflicting commitment. Karl Gruber was unable to attend
one Board meeting due to a personal matter. In addition to the 10 scheduled Board meetings held in 2017, two meetings were held by
all of the independent non-executive directors to consider and recommend to shareholders the disposal of Evraz Nakhodka Trade Sea
Port to the related party (cid:47)anebrook (cid:47)td, as required by the Relationship Agreement in place between EVRAZ plc and (cid:47)anebrook (cid:47)td.
Boardroom diversity
EVRAZ recognises the importance of diversity
both at Board level and throughout the whole
organisation. The Group 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. As stated
in the CSR report on (cid:83)ages (cid:27)(cid:19)(cid:178)(cid:20)(cid:19)(cid:24), 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. People
with disabilities are given full consideration,
both during the recruitment process and once
employed, to ensure that their unique aptitudes
and abilities are taken into account.
For more detailed information, see the Nominations
Committee report on (cid:83)ages (cid:20)(cid:21)(cid:23)(cid:178)(cid:20)(cid:21)(cid:24) and the CSR
report on (cid:83)ages (cid:27)(cid:19)(cid:178)(cid:20)(cid:19)(cid:24).
The Company believes that the Board
composition 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.
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Board expertise
The Board has determined that, as a whole,
it has the appropriate skills and experience
necessary to discharge its functions. Executive
and non-executive directors have the experience
required to contribute meaningfully to the
Board’s deliberations and resolutions. Non-
executive directors assist the Board by
constructively challenging and helping develop
strategy proposals. Most of the directors have
been in post since the incorporation of EVRAZplc
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 on (cid:83)ages (cid:20)(cid:21)(cid:23)(cid:178)(cid:20)(cid:21)(cid:24).
Performance evaluation
An externally facilitated annual Board evaluation
was conducted in September and October
2017 by Lintstock LLP, who have no other
business relationship with the Group. As with
the internally facilitated reviews undertaken
in 2015 and 2016, the review was carried
Making the World Stronger
out at the initiative and with the 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 committees
The Board is supported in its work by the
following principal committees: the Audit
Committee, the Remuneration Committee, the
Nominations Committee, and the Health, Safety
and Environment Committee.
Each committee has written terms of reference,
approved by the Board, summarising its role and
responsibilities.
Board performance was deemed to be
satisfactory. At its December meeting, the Board
agreed an action plan for 2018 that would
allow the Board to increase its involvement
in reviewing and considering management’s
strategy proposals and to enhance its focus not
only on the commercial issues but also on safety,
environmental, other CSR issues and on HR policy.
The Audit Committee consists 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. Deborah Gudgeon
has relevant recent financial experience.
The plan seeks to give Board members more
exposure to senior management below Board
level. Further consideration will be given
to succession planning and ensuring that
appropriate induction programmes are in place
for Board members.
The Board will also increase the amount of time
now devoted to considering risk issues and
its appetite for risk across all aspects of the
business.
The Company will continue to undertake regular
performance evaluations of the Board in line
with the requirements of the UK Corporate
Governance Code.
The terms of reference for each Committee
are available on the Group’s website:
(cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80).
BOARD COMPOSITION AS OF 31 DECEMBER 2017
Position
Committee membership
Years of tenure
CEO
HSEC – member
Name
Executive director
Alexander Frolov
Non-executive directors
Alexander Abramov
Eugene Shvidler
Eugene Tenenbaum
Independent non-executive directors
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Chairman
Director
Director
Director
Director
Director
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Sir Michael Peat
Senior independent director
NC – member
NC – member
None
HSEC – chairman
AC – member
NC – member
AC – chairman
RC – member
RC – chairman
NC – member
AC – member
NC – chairman
RC – member
6
6
6
6
6
2
5
6
Annual Report & Accounts 2017
THE ROLE AND COMPOSITION OF EACH COMMITTEE
Committee name
Function
Composition
Audit Committee
Audit, financial reporting, risk
management and controls
All three members are independent non-executive
directors
Link to committee report
See on (cid:83)ages (cid:20)(cid:21)(cid:19)(cid:178)(cid:20)(cid:21)(cid:22)
Nominations
Committee
Remuneration
Committee
Selection and nomination of Board
members
All five members are non-executive directors, of which
three are independent
(cid:54)ee on (cid:83)ages (cid:20)(cid:21)(cid:23)(cid:178)(cid:20)(cid:21)(cid:24)
Remuneration of Board members
and top management
All three members are independent non-executive
directors
(cid:54)ee on (cid:83)ages (cid:20)(cid:21)(cid:27)(cid:178)(cid:20)(cid:22)(cid:24)
HSE Committee
HSE issues
Two of the three members1 are non-executive with an
independent chairman who is also a non-executive
director of the Company
See on (cid:83)ages (cid:20)(cid:21)(cid:25)(cid:178)(cid:20)(cid:21)(cid:26)
1The members of the Health, Safety and Environment Committee at (cid:22)1 December 2017 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 1(cid:23) March 2016. With more than 50(cid:8) 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.
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Shareholder engagement
The Company continues to encourage shareholder
engagement. The annual general meeting was
held on 20 June 2017 and all directors, including
all committee chairs, were in attendance. All
shareholders are welcomed to attend, ask
questions and discuss issues with individual
directors. A further special general meeting was
held on 23 May 2017 to approve the disposal of
Evraz Nakhodka Trade Sea Port to a wholly-owned
subsidiary of Lanebrook Limited, a related party.
The CEO, supported by the chief financial officer
and the vice president of investor relations, brief
analysts and institutional investors fully after
the publication of the Company’s half-year and
full-year results.
In October 2017, an investor day was held for
analysts and institutional investors, where
key members of the management team
gave presentations to explain the Group’s
operations and performance. Sir Michael
Peat, the senior independent non-executive
director and chairman of the Nominations
Committee attended, and presented on the
Company’s corporate governance structure as
well as meeting with investors, as did Deborah
Gudgeon, an independent non-executive director
and chairman of the Audit Committee.
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 2017, 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’s ability to achieve 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
INTERNAL CONTROL
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Ensuring Group’s
ongoing internal control
process is(cid:172)adequate and
effective
The Audit
committee
Primary oversight
of internal control
regime
Reviewing
effectiveness
of internal control
INTERNAL CONTROL FRAMEWORK
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review of reports
Reviews of
reports and
effectiveness
EVRAZ ASSURANCE FRAMEWORK
(annual management self-assessments)
Risk Management
Group
Regional Risk
Committees
or Business Units
management teams
Site level managers
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COMPONENTS OF THE INTERNAL CONTROL SYSTEM
Component
Basis for assurance
Action in 2017
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
• Monitored by established management
committee and sub-committees
• Reviewed by the internal audit function
Operating policies and procedures
• Implemented, updated and monitored by
Operating budgets
management
• Reviewed by the internal audit function
• Monitored by controlling unit
• Reviewed by the internal audit function
• Approved by the Board
In 2017, the internal audit function reviewed
and assessed effectiveness of the internal
control system, and established a more
straightforward connection between the result
of the management’s internal control self-
assessment and the internal audit plan
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 as per the
corporate accounting manual
• Developed and updated by the reporting
department
• Reviewed by the internal audit function
Accounting policies and procedures were
updated as part of the standard annual review
process
approved by the Board is used to identify
particular risks and uncertainties that require
specific (cid:37)oard oversight. In 2017, the process
in relation to principal risks and uncertainties
was consistent with the UK Corporate
Governance Code, the FRC Guidance on the
Strategic Report issued in June 2014, and
the abovementioned FRC guidance 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.
• The Group has established a reporting
process involving business unit
management teams and other relevant
bodies at major enterprises. 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 (cid:83)ages (cid:22)(cid:25)(cid:178)(cid:23)(cid:20).
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 (cid:37)oard’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 evaluates the individual components of
the framework. In 2017, all major production
sites were certified as having effective internal
control.
A department headed by Senior Vice President
Leonid Kachur has specific responsibility for
preventing and detecting business fraud and
abuse, including fraudulent behaviour by
employees, customers and suppliers that may
cause a direct economic loss to the business.
Solid internal controls help to minimise the
risk, and EVRAZ’ Business Security department
ensures that appropriate processes are in place
to protect the Group’s interests.
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
with an aim 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,
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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 2017, 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 the 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 management internal control
self-assessment, 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 2017, internal audit projects covered the
following Group risks:
• Product competition;
• 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 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 the
Group.
Risk appetite is considered in evaluating
strategies and setting objectives within EVRAZ’
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 (cid:37)oard
oversight. The Group’s strategic objectives are
aligned with and risk mitigation actions are
reflective of the risk appetite approved by the
Board. 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 Management
Group, which reports on the analysis performed
to the Audit Committee. The committee then
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 2017 and
finalised the assessment in (cid:45)anuary 2018 .
Based on the results of the most recent review,
the management concluded that the approach
for acceptance of risks within the Group 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 2018
Further development and integration of the risk
management system and risk management
practices is planned for 2018.
Within risk analysis in individual processes, the
methodological update for occupational safety
risk assessment is scheduled to be finalised in
2018.
Further information regarding EVRAZ’ internal
control and risk management processes can be
found at: (cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80)(cid:18)go(cid:89)ernance(cid:18)contro(cid:79).
For the reports from each committee, please see
pages 120–135.
Making the World Stronger
Audit Committee
report
report
Deborah Gudgeon
(cid:44)n(cid:71)e(cid:83)en(cid:71)ent (cid:49)on(cid:16)(cid:40)(cid:91)ecuti(cid:89)e (cid:39)irector(cid:15)
(cid:38)(cid:75)air(cid:80)an of (cid:36)u(cid:71)it (cid:38)o(cid:80)(cid:80)ittee
The role and responsibilities of the
Audit Committee are delegated by the
Board and set out in the written terms
of reference (cid:75)tt(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80)(cid:18)
go(cid:89)ernance(cid:18)(cid:71)irectors(cid:18)co(cid:80)(cid:80)ittees(cid:18).
Dear shareholders,
I am pleased to present the (cid:36)udit (cid:38)ommittee (cid:53)eport for the financial year ended
(cid:22)(cid:20)st (cid:39)ecember (cid:21)(cid:19)(cid:20)(cid:26)(cid:17)
Once again, I would li(cid:78)e to extend the than(cid:78)s of the (cid:38)ommittee to the executive and financial
management of the (cid:38)ompany, the internal audit department and (cid:40)(cid:60), our external auditor, for
their continuing diligence and valued contributions to the wor(cid:78) of the (cid:38)ommittee(cid:17)
Role and
Responsibilities
of the Audit
Committee
as appropriate and no changes were deemed
necessary.
EVRAZ also confirms its compliance, during the
financial year commencing 1 (cid:45)anuary 2017, with
the provisions of the Competition and Markets
Authority Order 2014 on mandatory tendering
and audit committee responsibilities.
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.
Committee
Members and
Attendance
The Audit Committee reviews the Group Risk
Register and the Group Risk Appetite proposed
by management before they are considered by
the Board.
During the year, the Committee members
undertook a self-assessment process facilitated
by an external organisation, Lintstock LLP,
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.
The Audit Committee members are all
Independent Non-Executive Directors. The
Committee members have a wide range of skills
and experience: Deborah Gudgeon has recent
and relevant financial experience, and Karl Gruber
has extensive sector experience and knowledge.
Alexander Izosimov has wide ranging corporate
and executive experience. As disclosed in the
Corporate Governance Report (cid:83)age (cid:20)(cid:20)(cid:24), Olga
Pokrovskaya continues to attend Audit Committee
meetings as an observer, providing additional
technical expertise and valuable regional expertise.
The terms of reference for both the Audit
Committee and the Risk Management Group
were reviewed by the Committee and considered
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
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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 2017, 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.
The Audit Committee met 9 times during 2017
and 3 times in early 2018 before the publication
of this annual report.
Details of committee attendance are set out
on (cid:83)age (cid:20)(cid:20)(cid:24).
Activities and Work
of the Committee
during 2017
During 2017, 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.
The Committee monitors the IT security of the
Group on an ongoing basis including the results
of the external audit, mitigation plans and the
level of attempted attacks. Following the virus
attack in June 2017, the Committee reviewed
the implications of and response to the attack,
and considered the mitigation plan developed to
enhance the resilience of IT security and business
continuity across the Group. This will remain an
area of focus for the Audit Committee in 2018.
During 2017, the Committee continued
to monitor the progress of the financial
transformation project and considered the
implications for the quality, timeliness and
continuity of financial reporting through the
Annual Report & Accounts 2017
ongoing transition. Following the successful
implementation of the initial project, the scope
of the Shared Service Centre at Novokutznetzk
was extended during 2017 with the migration of
transactional activities and procurement back
office operations and a pilot project to assess
the potential to employ Robotics. The Committee
also reviewed the status of the procurement
transformation project. Progress on both of
these projects will be reviewed on an ongoing
basis during 2018.
The Committee reviewed the updated
information and disclosure required in support
of the (cid:51)ayments to Government filing for
2017 as well as the new disclosures in 2017
in respect of the Modern Slavery Act and Tax
Strategy before their approval by the Board.
The Committee continued to monitor the process
for capturing, monitoring and approving related
party transactions during 2017 together with the
accuracy and completeness of the disclosures
in the 2017 financial statements.
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
Financial Reporting Council (“FRC”) Guidance
on Risk Management, Internal Control and
Related Financial and Business Reporting. At the
request of the Committee, Linklaters LLP have
prepared an updated EVRAZ Compliance Manual
and worked with management to develop an in-
house training programme to ensure compliance
with the EU Market Abuse Regulation.
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.
FRC reviewed EVRAZ’s judgements and estimates
disclosures in the 2016 financial statements
as part of its 2017 thematic review. The review
covered only the specific disclosures relating to
the thematic review and considered compliance
with reporting requirements. The FRC requested
clarification in respect of the specific assumptions
used to determine certain judgements and
estimates, and the sensitivity of some estimates to
the assumptions made. As a result of the review,
the FRC used certain disclosures from the EVRAZ
2016 financial statements as examples of better
practice in the Thematic Review Judgements and
Estimates published on 9 November 2017 and
certain disclosures including those in respect of
(cid:51)(cid:51)(cid:9)E and mineral reserves have been refined in
the 2017 financial statements.
Significant
Financial Reporting
Issues considered
by the Audit
Committee in 2017
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 (cid:83)ages (cid:20)(cid:23)(cid:21)(cid:178)(cid:21)(cid:25)(cid:22).
The Audit Committee considered a number
of financial reporting issues in relation to the
Interim Results for H1 2017 and the financial
statements for 2017. 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 significant risks and
areas of focus 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 wide range of risks and
inherent uncertainties as set out on (cid:83)ages (cid:22)(cid:27)(cid:178)(cid:23)(cid:19),
many of which are outside the control of the
Company. During 2017, growing global demand
and supply optimization in China supported
positive steel and raw material price growth but
markets remain volatile. 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 2019
which includes scheduled loan repayments,
new committed funding, free cash flow after
capital expenditure and payments arising from
the revised dividend policy. Given the volatility of
the current global supply/demand environment
in which EVRAZ operates, 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 2017
to the Board.
The Committee reviewed the analysis supporting
the viability statement before it was considered
by the Board. The Committee also 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 tangible assets
(Notes 5 and 6). The Committee considered
management’s impairment recommendations
in the context of the current and future trading
environment and the mineral reserves valuation
undertaken by IMC during 2017. Testing was
undertaken as at 30 September 2017 and
reassessed at 31 December 2017 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.
As a result of changes to coal, iron ore and steel
price expectations, revised production volumes
and improvements to net working capital, there
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is an impairment reversal of US$12 million
recorded in the financial statements in 2017.
This includes a net charge of US$19 million in
respect of the intangibles and property, plant
and equipment of ENA and a specific impairment
charge of US$9 million at Yuzhkuzbassugol to
reflect increased site restoration provisions.
These charges are offset by a reversal of
US$20 million of the impairment recognised on
the idling of Palini e Bertoli, which was restarted
in 2016, to reflect a significant improvement to
net working capital assumptions and sales mix
changes and net reversals of US$9 million at
Raspadskaya and US$8 million at Evrazruda to
reflect updated mine plans. The Audit Committee
considered these reversals and concluded that
they were appropriate.
Other matters
There were a number of disposals during 2017
and the Committee reviewed the accounting
treatment for each of these, in particular:
• the sale of Evraz Nakhodka Trade Sea Port
(“NMTP”) to Lanebrook Limited, the ultimate
controlling shareholder of the Group, for a cash
consideration of US$340 million in June 2017.
Coterminous with the sale, the Group entered
into a five year agreement with NMT(cid:51) to
transship specified volumes of the Group’s coal
and metals. US$8 million of the consideration
was recognized as relating to the terms of
the transshipment agreement and has been
treated as deferred income in the financial
statements and is being amortized over the five
year agreement, reducing shipping costs; and
• the sale of Evraz Yuzhkoks completed on
19th December 2017 with consolidation of
this entity ceasing from that date. A loss of
US$91 million was recognized on the sale,
including US$132 million of cumulative
exchange losses reclassified from other
comprehensive income to statement of
operations.
The Committee considered the implications of
the US Tax Reform Bill (Tax Cuts and Jobs Act)
passed in December 2017 for ENA, including
whether historic deferred tax assets and
intra-group interest would be tax deductible.
Management’s treatment and disclosure were
reviewed and agreed.
Fair, balanced and
understandable
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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 was
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 2017 Consolidated
Financial Statements by the Board. Both
recommendations were accepted by the Board.
Other Matters
UK Bribery Act (“UKBA”)
The Committee continues 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 late 2017 and the
results reported to the Committee in February
2018 indicating further progress in reducing
risk. Anti-corruption training continued during
2017 with a further 3,000 managers across the
business completing the programme developed
by Thomson Reuters. The programme will be
continued and extended in 2018. Internal audit
also tested the procedure and completeness for
maintaining registers of entertainment costs,
business gifts, and 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.
Sanctions Compliance Controls
and the control processes, procedures and
reporting framework are updated regularly to
incorporate the latest guidance. These were
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. There is a process of continuing
education of compliance personnel and
executive management in relation to sanctions.
Risk Management
and Internal
Control
This should be read in conjunction with the
Risk Management and Internal Control section
on (cid:83)ages (cid:20)(cid:20)(cid:26)(cid:178)(cid:20)(cid:20)(cid:28).
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.
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 and reviewed by the
Audit Committee in December 2017.
The Risk Management Group attended
the Audit Committee in October 2017 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
The Committee receives regular updates
from the Group’s external legal advisers and
the Compliance Officer on any extension or
change to the evolving sanctions framework
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
Annual Report & Accounts 2017
training related to the finance transformation
project. Non-audit fees were 7.5% of the 2017
audit fee of US$3.6 million compared to 14.7% of
the 2016 audit fee. Irrespective of prior approval
of the CFO and Audit Committee Chairman, all
fees are reported to the Audit Committee for
noting and comment. The policy on non-audit
services was updated in (cid:45)anuary 2018 to reflect
the latest guidance (cid:75)tt(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80)(cid:18)
go(cid:89)ernance(cid:18)(cid:71)ocu(cid:80)ents(cid:18).
Re-appointment of the external
auditor
Following a tender process undertaken
during 2016, the Committee recommended
the re-appointment of Ernst & Young LLP
(“EY”) as external auditor for the years ending
31 December 2017 and 2018. EY was appointed
as external auditor of EVRAZ plc in 2011, and
the current audit engagement partner, Steven
Dobson, assumed the role for the 2016 year
end and will continue up to and including the
2020 financial year’s audit. The Audit Committee
continues to consider EY to be effective and
independent in their role as auditor and has
provided the Board with its recommendation
to the shareholders that EY be re-appointed
as external auditor for the year ending 31st
December 2018.
The Committee considered the UK Governance
Code guidance on re-appointment of the
external auditor and the EU legislation on audit
regulation together with the performance of
EY and recommended that, subject to the
agreement of appropriate terms, a further
tender to appoint an external auditor be deferred
from 2018 to 2019 and potentially to 2021.
Audit Committee considered whether the
financial and procurement transformation
projects 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.
Following the cyber-attack in June 2017, the
Group extended and accelerated the IT Security
Risk Mitigation plan, including a comprehensive
timeline of critical measures to be implemented
in 2017 and 2018. This mitigation plan is
regularly recalibrated to reflect progress already
made and new threats identified.
Internal Audit
The Audit Committee reviewed the internal
audit plans for 2018 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 2018. 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. The
conclusion was again 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. An external
assessment of the Internal Audit function at ENA
will be undertaken during 2018.
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 with
respect 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;
• review and approval of the external auditor’s
engagement letter;
• review of the FRC’s Quality Inspection Report
June 2017 and EY’s response;
• consideration of the external auditor’s report
on the Interim Review and annual report and
Representation Letters; and
• review of the external auditor’s management
letter on the 2016 audit with management,
consideration of management’s response and
proposed actions, and directing that Internal
Audit undertake a follow-up audit of key areas.
Although the 2017 financial reporting timetable
was not accelerated compared to 2016,
the Audit Committee again considered the
implications of the early hard close, acceleration
of substantive procedures and year-end roll
forward procedures for the external audit
process, together with the SAP BCS upgrade at
the end of 2017.
Management and members of the Audit
Committee also completed a questionnaire to
assess the effectiveness and independence of
the external audit process in 2016, 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 2017, 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: (cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80). 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, and 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 2017, non-audit
fees totalled US$272,000 (2016 US$612,000)
and were primarily in relation to capital market
transactions, quality assurance reviews and
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Making the World Stronger
Nominations Committee
report
Sir Michael Peat
(cid:54)enior (cid:44)n(cid:71)e(cid:83)en(cid:71)ent (cid:49)on(cid:16)(cid:40)(cid:91)ecuti(cid:89)e
(cid:39)irector(cid:15) (cid:38)(cid:75)air(cid:80)an of (cid:49)o(cid:80)inations
Committee
The Board delegates the Nominations
Committee’s role and responsibilities,
which are set out in written terms of
reference (cid:75)tt(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80)(cid:18)
go(cid:89)ernance(cid:18)(cid:71)irectors(cid:18)co(cid:80)(cid:80)ittees.
(cid:55)he Nominations (cid:38)ommittee has continued to monitor the (cid:37)oard(cid:183)s composition to ensure
that it remains appropriate for the (cid:38)ompany and to uphold the integrity of the (cid:38)ompany(cid:183)s
corporate governance(cid:17) (cid:36)s a committee, we have no significant matters to raise(cid:30) however,
with three of the four independent non(cid:16)executive directors having completed six years
in post, the Nominations (cid:38)ommittee will underta(cid:78)e a s(cid:78)ills analysis as a precursor
to commencing succession planning for non(cid:16)executive directors(cid:17)
Role
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 Nominations Committee members at
31 December 2017 were Sir Michael Peat,
Alexander Izosimov, Karl Gruber, Alexander
Abramov, and Eugene Shvidler. Sir Michael Peat
served as the chairman of the Nominations
Committee throughout the year.
Activity during
2017
During 2017, the committee considered the
following issues.
Board and committee
composition
The Board agreed that the size of the
Board and its committees, and the size
and composition of each committee was
appropriate for the ongoing needs of 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.
Three of the five committee members were
independent non-executives.
Succession planning
The committee met on three occasions during
2017.
The CEO attended all meetings and the company
secretary acted as the committee’s secretary.
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The committee considered succession
planning for non-executive directors, in the
context of the length of service of each of
the current non-executive directors. The
committee has commenced a search for an
additional independent non-executive director,
and has appointed Heidrick & Struggles to
undertake the search. Heidrick & Struggles
has no other relationship with the business,
and will consider a wide range of candidates
in line with the (cid:37)oard’s desire to reflect race
and gender diversity on the Board where
appropriate. The final choice of candidate will
depend on appointing the most experienced
candidate to meet the skills and knowledge
requirement for the industry sector. The
committee also paid close attention to senior
management succession.
Board performance
evaluation
As required by the UK Corporate Governance
code, the Company needed to undertake
a board performance evaluation in 2017
using an external facilitator. The committee
decided, following consideration, to appoint
Lintstock LLP, which undertook the last
externally evaluated review in 2014,
to maintain consistency of approach.
The committee reviewed and approved
Lintstock’s brief for the evaluation. Following
conclusion of the review, the committee
considered the outcome of the report and
prepared an action plan for the Board to
review and agree, which reflected some
minor improvements to board process and
information flow. The outcome of the review
and the action plan are described in the
Corporate Governance section on (cid:83)age (cid:20)(cid:20)(cid:25).
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.
Annual Report & Accounts 2017
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Best practices for
Nominations Committee
The committee undertook a review of the
most recent developments in corporate
governance impacting the work of the
Nominations Committee.
Performance
of 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 18
January 2018.
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.
The externally facilitated board evaluation
undertaken by Lintstock LLP asked individual
directors to assess their performance and
concerns. 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, and noted no
concerns.
Diversity policy
The Board’s diversity policy is to have board
membership that reflects the international
nature of the Group’s operations and
includes at least two women as board
members. After Olga Pokrovskaya ceased
to be a director on 14 March 2016, this
objective received renewed emphasis. The
committee continues to actively review and
monitor the Group’s performance against
its diversity policy, including with regards to
aspects such as age, gender and educational
and professional backgrounds, as disclosed
in the CSR report on (cid:83)ages (cid:28)(cid:25)(cid:178)(cid:28)(cid:28).
The Nominations Committee and the Board
are committed to meeting best practice
standards in gender diversity. The nature of
the steel and mining industries makes this
more challenging but does not diminish the
committee’s and the Boards’ commitment.
The Board has appointed a recruitment
agency to look for an additional independent
non-executive director.
2018 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 external review of
the Board’s performance.
Making the World Stronger
HSE Committee
report
Karl Gruber
(cid:44)n(cid:71)e(cid:83)en(cid:71)ent (cid:49)on(cid:16)(cid:40)(cid:91)ecuti(cid:89)e (cid:39)irector(cid:15)
(cid:38)(cid:75)air(cid:80)an of (cid:43)ea(cid:79)t(cid:75)(cid:15) (cid:54)afety an(cid:71)
(cid:40)n(cid:89)iron(cid:80)ent (cid:38)o(cid:80)(cid:80)ittee
The Board delegates the HSE
Committee’s role and responsibilities,
which are set out in written terms of
reference (cid:75)tt(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80)(cid:18)
go(cid:89)ernance(cid:18)(cid:71)irectors(cid:18)co(cid:80)(cid:80)ittees(cid:18).
In (cid:21)(cid:19)(cid:20)(cid:26), the (cid:42)roup made significant improvements in (cid:43)(cid:54)(cid:40) reporting transparency and (cid:43)(cid:54)(cid:40)
ris(cid:78) assessment practices by implementing controls and auditing processes(cid:17) (cid:55)hese efforts
have led to a considerable (cid:21)(cid:19)(cid:8) improvement in our (cid:47)(cid:55)I(cid:41)(cid:53)(cid:17) (cid:39)espite these achievements,
we were still roc(cid:78)ed by several tragic fatalities that occurred during the past year(cid:17) (cid:55)his fact
should lead to a greater focus on eliminating the root causes of fatalities, paying more
attention to systems and procedures, and fostering a culture in which everyone cares about
each other(cid:183)s safety and our common environment(cid:17) (cid:58)e will continue our efforts to ma(cid:78)e sure
that our managers at all levels understand the range of health, safety and environmental
ris(cid:78)s in their part of the organisation, give sufficient attention to each of them, and
demonstrate leadership to engage their employees in safety(cid:17)
Role and
responsibilities
The Board has tasked the Health, Safety
and Environment (HSE) Committee with
providing guidance on matters of health and
safety. The committee is also accountable
for environmental and local community risks
that are deemed to be material to the group’s
operations.
The HSE Committee’s responsibilities include:
• Evaluating the impact of the Group’s HSE
initiatives, community efforts and operations
on its workforce, the local populace and
EVRAZ’ reputation;
• Acting as the Board’s interface with the
management regarding fatalities or serious
incidents at the Group’s operations, and
reviewing the mitigating actions undertaken
in response;
• Monitoring the HSE aspects of independent
audits of the Group’s operations, reviewing
the management’s strategies and planned
responses to any issues that may arise
from time to time and, as needed, briefing
the Board on any recommendations in this
regard;
• Apprising the Board and providing
recommendations, as appropriate, whenever
it deems that a matter within its remit
warrants action or improvement.
Committee
members
and attendance
As of 31 December 2017, the HSE Committee’s
members were Karl Gruber (chairman),
Alexander Frolov and Olga Pokrovskaya, who
has continued as a committee member since
leaving the Board on 14 March 2016.
The committee met at EVRAZ’ headquarters in
Moscow, Russia on two occasions during 2017:
8 February 2017 and 2 August 2017. Both
meetings were duly convened and had a proper
quorum.
The committee receives monthly HSE updates
and provides a quarterly HSE report to the
Board.
During the reporting period, the HSE Committee
met to review current issues and division-
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specific HSE initiatives with the divisional
(operational) vice presidents of the Ukraine,
Urals and Coal divisions. As planned, the
committee chairman and vice president
responsible for HSE matters also visited the
production sites of EVRAZ’ Urals division to
review HSE practices in 2017.
Activity during
2017
The following sections summarise how the
committee fulfilled its duties in 2017.
HSE performance review
In 2017, the committee reviewed EVRAZ’ HSE
initiatives twice, using the following metrics to
measure performance:
• 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 health and safety initiatives.
The HSE Committee reviews every fatality,
severe injury and serious property damage
incident that takes place at the Group
to determine the root cause and assess
the management’s follow-up efforts. This is
an ongoing practice that includes annotating
each case with a detailed description
of the incident scene, sequence of events,
root cause analysis and corrective actions
taken.
Throughout the reporting period,
the HSE Committee continued to focus
on the HSE reporting procedure, noting the
effort that the Group has taken to improve
quality and transparency in this regard.
EVRAZ’ LTIFR figure began to rise in (cid:52)2 2015,
when the Group launched a systemic effort
to ensure full transparency in reporting.
Several LTI incidents that were not duly
reported brought serious consequences
for the managers involved, sending a clear
message to both blue-collar employees and
managers at all levels that failing to report an
LTI is unacceptable and will not be tolerated.
Annual Report & Accounts 2017
as well as the implementation of corrective
actions.
The HSE Committee’s review had the following
findings:
• The trends of HSE risk minimisation and the
practice of cross-audits are satisfactory;
• The audit intensity should correlate with the
risks highest on the risk matrix;
• Sites should be re-audited at a later stage to
ensure that safe conditions are maintained.
The committee also reviewed the plan for
industrial safety audits for 2017 and requested
to maintain the focus on coal operations.
Externally
facilitated review
During the year, committee members undertook
a self-assessment process with the assistance
of an external facilitator, Lintstock LLP, to
consider the HSE Committee’s performance,
composition, duties, responsibilities and access
to management.
The external review rated the committee’s
performance highly and recommended
continuing with a greater focus on longer-term
HSE strategy and keeping the organisation
moving to achieve its vision of having accident-
free operations.
Following this evaluation, the members of the
HSE Committee expressed their approval of the
approach applied so far and agreed to focus on
all measures and activities already introduced to
the organisation.
For more details on HSE issues, see the Corporate
Social Responsibility section on pages 84–95.
EVRAZ’ LTIFR stabilised in H1 2017and has
since begun to decrease.
Due to the increased number of contractor
fatalities, the committee has requested a
deeper analysis of contractors’ health and
safety statistics, as well as information on
implemented countermeasures.
The HSE Committee measures the Group’s
environmental performance against the below
metrics, which are intended to track the
implementation of environmental targets:
• Key air emissions, including nitrogen oxides
(NOx), sulphur oxides (SOx), dust and volatile
organic compounds;
• Non-mining waste and by-product generation,
recycling and re-use;
• Fresh water intake and water management
aspects.
It also monitors the following additional
environmental compliance metrics:
• Non-compliance related environmental levies
(taxes) and penalties;
• EVRAZ’ environmental commitments and
liabilities;
• Major environmental litigation and claims;
• Asset coverage with environmental permits/
licenses;
• Public complaints;
• Material environmental incidents and
preventative measures;
• Environmental risk assessment.
In an effort to improve environmental
compliance management, the committee
has endorsed lowering the threshold used to
assess whether financial losses associated
with environmental risks are material.
The risk level has decreased due to the
implementation of mitigation measures within
the last five years. This change in methodology
would increase the significance of some
environmental risks to assist the management
in setting proper priorities for EVRAZ’
environmental initiatives.
The HSE Committee has reviewed the forecast
on greenhouse gas (GHG) emissions based on
the Group’s production plans and initiatives, as
well as the estimated risks and opportunities
associated with GHG issues.
HSE strategy review
In 2017, committee members approved the
annual HSE targets and reviewed the status
of the year’s HSE efforts, concluding that the
priority HSE initiatives are generally on track.
The committee supports the efforts of
the Group’s management to develop and
implement an HSE management system,
including the following corporate-level HSE
initiatives that were launched in previous
years:
• Implementing a lockout-tagout (LOTO) system;
• Providing the proper personal protective
equipment for electric arc exposure;
• Introducing safe operating procedures for the
10 most hazardous jobs (operations) in every
shop;
• Safety conversations;
• Divisional health and safety initiatives;
• Environmental programmes, including air
emission, water consumption and waste
management initiatives.
The HSE Committee specifically discussed
the efficiency of safety conversations and
standardisation through safe work procedures
with the divisional vice presidents and asked
to arrange a random check on whether the
facilities have controls in place to ensure that
personnel are indeed following safe operating
procedures.
It also reviewed the status of the environmental
projects that EVRAZ launched as part of Russia’s
2017 Year of Ecology action plan, concluding
that the HSE initiatives require further
implementation in all areas.
HSE regulatory changes
The HSE Committee monitored the risks and
opportunities related to introduction of new
Russian regulations. In 2017, the EVRAZ
team reviewed more than 30 drafts of HSE-
related legislation as part of the Russian Steel
Association’s HSE Committee, helping to provide
consolidated positions to the regulator. The
committee also oversaw the follow-up related
to the introduction of new Russian regulations
based on the best available techniques
approach.
HSE audit results review
State supervisory agencies and internal HSE
auditors conduct compliance inspections of
EVRAZ’ operations.
The committee members reviewed:
• The HQ Industrial Safety Department’s audits
of processes and structural units at EVRAZ’
facilities;
• The health and safety cross-audits performed
by representatives of similar operations from
other EVRAZ facilities and headed by the HQ
Safety Team;
• The environmental risks identified via the H(cid:52)
Environmental Management Directorate’s
internal audit and risk assessment process;
• The Internal Audit Department’s audits of the
HSE function;
• External environmental inspections that are
carried out by environmental authorities,
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Making the World Stronger
Remuneration
report
report
Alexander Izosimov
(cid:44)n(cid:71)e(cid:83)en(cid:71)ent (cid:49)on(cid:16)(cid:40)(cid:91)ecuti(cid:89)e (cid:39)irector(cid:15)
(cid:38)(cid:75)air(cid:80)an of t(cid:75)e (cid:53)e(cid:80)uneration
Committee
(cid:53)emuneration (cid:51)olicy is designed to attract, retain and motivate qualified senior
executives in order to deliver sustainable business ob(cid:77)ectives and maximise long(cid:16)term
returns to shareholders(cid:17)
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).
Annual remuneration report
The second part of the report, the Annual
Remuneration Report, sets out details of
remuneration paid in 2017 and how the Group
intends to apply its Remuneration Policy in
2018. This section will be put to an advisory
shareholder vote at the forthcoming AGM.
Key decisions taken during
the year
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.
The Remuneration Committee reviewed the
CEO’s salary and determined that his salary
for 2018 will remain the same as it has been
since 2012, as the CEO’s current compensation
package compares satisfactorily with recent
market benchmarking.
Directors’
Remuneration Policy
The current Remuneration Policy was
approved by shareholders at the Annual
General Meeting (AGM) in June 2017.
The Regulations require that shareholders
formally approve the policy every three years.
Based on performance against the pre-
determined KPIs and targets, the CEO’s
annual bonus for 2017 was 59.82% 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 considered
when deciding on executive remuneration
at EVRAZ to ensure that its Remuneration
Policy remains appropriate in the context of
business performance and strategy.
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Policy report
Details of the Remuneration Policy relating to
executive and non-executive directors are set
out in the following section.
The Remuneration Policy’s primary objectives
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.
The Remuneration 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 Remuneration
Committee may adjust bonus payments
downwards to reflect the Company’s overall
performance. 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, it 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 (cid:83)age (cid:20)(cid:20)(cid:23).
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.
REMUNERATION POLICY
Element
Purpose and
link to strategy Operation
Executive director
Base salary
Provides a
level of base
pay to reflect
individual
experience and
role to attract
and retain high
calibre talent.
Normally reviewed annually,
considering 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.
(cid:37)enefits 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 at this time.
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.
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.
(cid:37)enefits
Annual bonus
To provide
a market level
of benefits,
as appropriate
for individual
circumstances,
to recruit and
retain executive
talent.
To align
executive
remuneration
to Company
strategy by
rewarding the
achievement
of annual
financial and
strategic
business
targets.
Annual Report & Accounts 2017
Maximum potential value
Performance metrics
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.
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.
Up to 200% of base salary in respect
of any financial year of the Company.
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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
Company’s overall performance.
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Element
Non-executive directors
Chairman and non-
executive director
remuneration
Purpose and link to
strategy
To provide
remuneration that is
sufficient to attract and
retain high calibre non-
executive talent.
Making the World Stronger
Operation
Maximum potential value
Performance metrics
Director fees are normally paid in the form of cash, 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.
Performance measures and targets
Annual bonus measures and targets are
selected to provide an appropriate balance
between incentivising the director to meet
financial objectives for the year and achieving
key operational objectives. The Remuneration
Committee reviews them annually to ensure that
the measures and weightings are in line with the
strategic priorities and needs of the business.
Remuneration arrangements throughout
the Group
This remuneration approach and philosophy
is applied consistently at all levels, up to
and including the executive director. This
ensures that there is alignment with business
strategy throughout the Group. Remuneration
arrangements below (cid:37)oard 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 on the right provides an indication of
what could be received by the executive director
under the Remuneration Policy.
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5,026
• The maximum level of variable remuneration
APPLICATION OF THE REMUNERATION
POLICY, US$ thousand
2,526
100%
0%
50%
50%
Minimum
In line with expectations
33%
67%
Base pay
Annual bonus
Maximum
7,526
Policy on recruitment
of executive directors
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 Remuneration 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
programmes, 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.
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 Remuneration Committee’s intention
would be for any share-based incentive
awards to be subject to performance
conditions. Where the intention is to grant
regular long-term incentive awards to a
candidate, the committee would seek
appropriate shareholder approval for a new
share plan in accordance with the Listing
Rules.
• When setting salaries for new hires, the
committee will consider 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
consider relevant factors, including any
Base pay
Annual bonus
Minimum
In line with expectations
Maximum
(cid:37)ase sala(cid:85)(cid:92) (cid:14) (cid:89)al(cid:88)e o(cid:73) ann(cid:88)al (cid:69)enefits (cid:83)(cid:85)o(cid:89)ided in (cid:21)(cid:19)(cid:20)(cid:26)
0% of salary
100% of salary
(target opportunity)
200% of salary
(maximum opportunity)
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Annual Report & Accounts 2017
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 Remuneration Committee retains the
flexibility to alter the performance measures
of the annual bonus for the first year of
appointment, if it 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.
Executive director’s service
contract and loss of office
policy
The CEO has a service contract with a subsidiary
of EVRAZ plc.
Executive
director
Date of
contract
Notice period
(months)
Alexander
Frolov
31 December
2016
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
Remuneration 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
Remuneration 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 reappointment
and, accordingly, each non-executive director
will stand for re-election at the AGM on 19 June
2018.
Copies of the directors’ letters of appointment
or, in the case of the CEO, the service contract,
are available for inspection by shareholders at
the Group’s registered office.
Consideration of conditions elsewhere
in the Company
Management prepares details of all employee
pay and conditions, and the Remuneration
Committee considers them on an annual basis.
The committee takes this into account when
setting the CEO’s remuneration. However, it 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 considers investor body guidelines
and shareholder views.
KEY TERMS OF NON-EXECUTIVE DIRECTORS’ APPOINTMENT LETTERS
Non-executive directors
Alexander Abramov
Karl Gruber
Alexander Izosimov
Sir Michael Peat
Deborah Gudgeon
Eugene Shvidler
Eugene Tenenbaum
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
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131
Annual
remuneration
report
This section summarises remuneration paid
out to directors for the 2017 financial year, and
details of how the Remuneration Policy will be
implemented in the 2018 financial year.
Executive director’s
remuneration
In 2017, 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$150,000) and any applicable fees for
participation in the work of the Board committees
as laid out in the section below on non-executive
director remuneration. However, the Remuneration
Committee considers these fees to be incorporated
in his base salary. Alexander Frolov’s current
shareholding (10.53% of issued share capital as
of 28 February 2018) provides alignment with
the delivery of long-term growth in shareholder
value. As such, the committee does not consider
it necessary for the CEO to participate in any
long-term incentive plans or to impose formal
shareholding guidelines. However, the committee
will continue to review this on an ongoing basis.
Single total figure
of remuneration (audited)
KEY ELEMENTS OF THE CEO’S
REMUNERATION PACKAGE RECEIVED
IN RELATION TO 2017 (COMPARED WITH
THE PRIOR YEAR)
Alexander
Frolov
Salary and
director fees1
(cid:37)enefits
Bonus
Total
2017 (US$)
2016 (US$)
2,500,000
2,500,000
25,803
21,184
2,990,750
2,038,870
5,516,553
4,560,054
1The salary is paid in roubles and the amounts pain in the year
reconciled at the year end so as to equal (cid:56)S(cid:7)2,500,000.
Base salary
The Remuneration Committee approved
the CEO’s current salary on 23 May 2008 at the
level of US$2,500,000 (which includes, for the
avoidance of doubt, the directors’ fee, fees paid
for committee membership and any salary from
subsidiaries of EVRAZ plc).
Making the World Stronger
Pension and benefits (audited)
The CEO does not currently receive any pension
benefit. (cid:37)enefits consist principally of private
healthcare.
Annual bonus
The CEO is eligible for a performance-related
bonus that is paid in cash following the year-
end, subject to the Remuneration Committee’s
agreement and the Board of Directors’ approval.
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 2017
(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 2017, the following five indicators,
each with an equal weighting of 20%, were
considered when determining the CEO’s annual
bonus: LTIFR, EBITDA, Free Cash Flow (adjusted for
disposals higher than US$50 million), Cash Cost
Index and Remuneration Committee assessment
of overall performance against strategic objectives.
The Remuneration Committee reviews the
resulting bonus pay-out to ensure that it is
appropriate considering the Group’s overall
performance.
In 2017, EVRAZ outperformed its financial
targets, resulting in an annual bonus payout of
59.82% of the maximum. Management sought
to maximise the benefit from the positive market
trends, increasing coal sales as prices rose in
2017. Other contributors to the outperformance
included a rise in steel, vanadium and iron
ore prices and tight control over operational
efficiency and investments. While negative
changes in working capital affected free cash
flow, better operational results fully compensated
this.
The Remuneration Committee determined that
this level of vesting is reflective of the Company’s
overall financial performance and commensurate
with the shareholder experience.
Board assessment of overall
performance
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 efforts to
ensure its long-term success. During the year, the
business continued to deliver in relation to key
strategic priorities and create long-term returns
for shareholders.
The Remuneration Committee determined that
2017 had been an exceptionally successful year
and in recognition of this the CEO receive the
full amount of the discretionary 20% part of the
bonus. The key reasons for this are:
• The overall strong operating and financial
performance in the year, which is also reflected
in the payment of a dividend, strong share
price growth and the inclusion of EVRAZ’s
shares in the FTSE 100 index;
• EBITDA reached US$2.6 billion level
significantly exceeding the stretch target set,
coupled with strong FCF;
• Net Debt / EBITDA <2.0 level achieved, as of
31.12.2017 it stood at 1.5x;
• Standard & Poor’s credit rating upgraded from
‘BB-’ to ‘BB’;
DETAILS OF THE TARGETS SET FOR EACH KPI, THE ACTUAL ACHIEVEMENT IN THE YEAR,
AND TOTAL PAY-OUT LEVEL FOR THE 2017 BONUS
Result Measurement
Planned
level
KPIs
LTIFR
EBITDA
FCF
Threshold
(% of target) Outstanding Actual 2017
2.24
1.87
1.50
1.90
US$1,549m US$1,936m US$2,323m US$2,624m
US$569m
US$711m
US$854m
US$953m
Cash cost index
110%
100%
90%
114%
Discretion
Remuneration Committee assessment
of overall performance against strategic
objectives
see
comment
a(cid:69)o(cid:89)e
Bonus
payout
(% of max)
49.1
100
100
0
50
59.82
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For 2018, the CEO’s salary will remain
unchanged at US$2,500,000.
Total
• Optimisation of the asset portfolio through the
successful disposal of the non-core assets of
Evraz Nakhodka Trade Sea Port, Evraz Sukha
Balka and Evraz Yuzhkoks;
• Cost-cutting initiatives that delivered
US$163 million and implementation of the
pilot EVRAZ Business System transformation
in Siberia division; and
• Employee engagement which improved
significantly from 39% to 56% on the key
production sites in Russia.
Annual bonus for 2018
For 2018, the bonus framework will be in
line with 2017. The Board considers forward-
looking targets 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 pay-outs may be adjusted downwards
to reflect the Group’s overall performance.
Non-executive directors’
remuneration
Non-executive directors’ remuneration payable
in respect of 2017 and 2016 is set out in the
table below.
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
as chairman of more than one committee is
Annual Report & Accounts 2017
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 2018.
Aggregate directors’
remuneration
The aggregate amount of directors’
remuneration payable in respect of
qualifying services for the year ended
31 December 2017 was US$7,795 thousand
(2016: US$6,977 thousand).
Share ownership by the Board
of Directors (audited)
As set out earlier in this report, there are no
formal minimum shareholding requirements
currently in place, reflecting the CEO’s current
shareholding in EVRAZ.
The directors’ interests in EVRAZ’s shares as of
31 December 2017 were as follows.
There have been no changes in the directors’
interests from 31 December 2017 through
28 February 2018.
The shares held by Alexander Izosimov were
acquired in 2012 when he was appointed as an
independent non-executive director.
All shares held by directors are held outright with
no performance or other conditions attached to
them, other than those applicable to all shares
of the same class.
Other directors do not currently hold any shares
in the Company.
Policy on external
appointments
The Remuneration Committee believes that the
Company can benefit from executive directors
holding approved non-executive directorships
in other companies, offering executive directors
the opportunity to broaden their experience and
knowledge. EVRAZ’ policy is to allow executive
directors to retain fees paid from any such
appointment. The CEO does not currently hold a
non-executive directorship of another company.
DIRECTORS’ INTEREST IN EVRAZ’ SHARES AS OF 31 DECEMBER 2017
Directors
Alexander Abramov
Alexander Frolov
Eugene Shvidler
Alexander Izosimov
Number of shares
Total holding, ordinary
shares, %
302,068,451
150,837,368
43,805,030
80,000
SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED)
Non-executive director
Total fees1
Admin2
Total
Total fees1
Admin2
2017 (US$ thousand)
2016 (US$ thousand)
Alexander Abramov
Alexander Izosimov
Eugene Shvidler
Eugene Tenenbaum
Karl Gruber
Duncan Baxter3
Olga Pokrovskaya3
Sir Michael Peat
Deborah Gudgeon
750
248
174
150
248
224
274
30
30
30
30
30
30
30
780
278
204
180
278
254
304
750
242.6
174
150
248
84
74.25
219
269
30
30
30
30
30
6.25
6.25
30
30
1Total fees include annual fees and fees for Committee membership or chairmanship (pro rata working days).
(cid:21)The Group contributes an annual amount of (cid:56)S(cid:7)(cid:22)0,000 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.
3Resigned on 1(cid:23) March 2016.
21.09%
10.53%
3.06%
0.01
Total
780
272.6
204
180
278
90.25
80.5
249
299
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Relative importance of spend
on pay
The table below shows a comparison of the
total cost of remuneration paid to all employees
between current and previous years and
financial metrics in US(cid:7) millions. E(cid:37)ITDA was
chosen for the comparison as it is a KPI which
best shows the Group’s financial performance.
RELATIVE PERFORMANCE
OF SPEND ON PAY, US$ million
Committee composition
This section details the Remuneration
Committee’s composition and activities
undertaken over the past year.
Committee members
The Remuneration Committee’s composition
was unchanged during the year and its current
members are:
• Alexander Izosimov
• Deborah Gudgeon
• Sir Michael Peat
EBITDA
Shares buyback
Dividends
2016
1,542
0
0
2017
2,624
0
430
No directors are involved in deciding their own
remuneration. The committee may invite other
individuals to attend all or part of any committee
meeting, as and when appropriate
and necessary, in particular the CEO, the head
of human resources and external advisers.
Total employee pay
1,200
1,364
Role
The Remuneration Committee is a formal
committee of the Board and can operate with a
quorum of two committee members. It is operated
according to its Terms of Reference, a copy of
which can be found on the Group’s website.
The Remuneration Committee’s main
responsibilities 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;
TOTAL SHAREHOLDER RETURN PERFORMANCE, %
(cid:41)o(cid:85) mo(cid:85)e in(cid:73)o(cid:85)mation on t(cid:75)e definition o(cid:73) (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:15)
please see page 267.
Performance graph
The graph on the right shows the Company’s
performance measured by total shareholder
return compared with the performance of the
FTSE 350 Basic Resources index since EVRAZ
plc’s admission to the premium listing segment
of the London Stock Exchange on 7 November
2011. The FTSE 350 Basic Resources 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 on the right 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.
Percentage change in
remuneration over the period
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, and so are
subject to a similar external environment and
pressures.
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100
80
60
40
20
0
07.11.2011
31.12.2012
31.12.2013
31.12.2014
31.12.2015
31.12.2016
31.12.2017
EVRAZ
FTSE 350 Basic Resources Index
CEO’S TOTAL REMUNERATION PAID IN 2011-2017
C(cid:40)(cid:50) sin(cid:74)le fi(cid:74)(cid:88)(cid:85)e o(cid:73) total
remuneration, US$
Annual bonus payout (as a %
of maximum opportunity)
2017
2016
2015
2014
2013
2012
2011
5,516,553
4,560,054
3,186,585
5,808,752
4,894,286
2,141,000
1,667,000
59.82
40.8%
13.3%
77%
50%
0%
11.3%
PERCENTAGE CHANGE IN THE ELEMENTS OF REMUNERATION FOR THE DIRECTOR
UNDERTAKING THE ROLE OF CEO COMPARED WITH AVERAGE FIGURES FOR RUSSIA-
BASED ADMINISTRATIVE PERSONNEL
Salary
(cid:37)enefits
Annual bonus
CEO
0%
22%
47%
Russia-based administrative
personnel (local currency)
0%
4%
14%
• to review and consider remuneration
trends across the Group when setting the
Remuneration Policy;
• to review regularly the Remuneration Policy’s
appropriateness and relevance;
• 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;
• 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 2017, the committee met four 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 2016 results; and to
approve the 2017 long-term incentive plan (LTIP)
awards for key senior management.
Advisers
Following a competitive tendering process,
the Remuneration Committee during the year
appointed Korn Ferry Hay Group Limited (KFHG),
which it selected to provide independent
remuneration consultancy services to the
Group. KFHG 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
(cid:90)(cid:90)(cid:90).re(cid:80)unerationconsu(cid:79)tantsgrou(cid:83).co(cid:80).
During the year, consultants 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 GBP36,912.
The committee is satisfied that the advice it has
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 below sets out actual voting results
from the Annual General Meeting, which was
held, in respect of the previous remuneration
report and Remuneration Policy.
Annual Report & Accounts 2017
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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 2016
For
1,066,790,366
(98.00%)1
To approve the Directors’ Remuneration Policy
Report for the year ended 31 December 2016
1,056,318,861
(97.29%)
Against
21,770,261
(2.00%)
29,439,227
(0.68%)
1Percentage of votes cast.
Withheld
554
Total votes as % of
issued share capital
76.01%
2,803,093
75.82%
Signed on behalf of the Board of Directors,
Alexander Izosimov
(cid:38)(cid:75)air(cid:80)an of t(cid:75)e
(cid:53)e(cid:80)uneration (cid:38)o(cid:80)(cid:80)ittee
28 February 2018
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135
Making the World Stronger
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 (cid:92)ea(cid:85) endin(cid:74) (cid:22)(cid:20) (cid:39)ecem(cid:69)e(cid:85)
2017, 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 100 Index.
Dividends
Share capital
The strength of the underlying cash flow generation and continuing success with deleveraging have allowed the Company
see (cid:83)age (cid:26) for details.
to announce a formal dividend policy. Please
The Company paid an interim dividend of US$0.30 per ordinary share, totalling US$429.6 million, on 8 September 2017
to shareholders on the register as at 18 August 2017.
The Board of Directors has declared a second interim dividend of US$0.30 per share, totalling US$429.6 million, to be paid
on 29 March 2018 to shareholders on the register as of 9 March 2018.
Details of the Company’s share capital are set out in (cid:49)ote (cid:21)(cid:19) to the Consolidated Financial Statements, including details on
the movements in the Company’s issued share capital during the year.
As of 31 December 2017, the Company’s issued share capital consisted of 1,506,527,294 ordinary shares, of which
74,473,951 are held in treasury. Therefore, the total number of voting rights in the Company is 1,432,053,343.
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 (AGM), will be set out in the notice of meeting for that AGM.
On 3 May 2017, the Company transferred 12,541,215 ordinary shares out of treasury to the Company’s Employee Share
Trust, which represented 0.83% of the Company’s issued share capital.
Details are set out in (cid:49)ote (cid:21)(cid:19) to the Consolidated Financial Statements.
Directors
Biographies of the directors who served on the Board during the year are provided in the Governance section
on (cid:83)ages (cid:20)(cid:19)(cid:27)(cid:178)(cid:20)(cid:20)(cid:20).
Directors’ appointment
and re-election
The Board has the power at any time to elect any person to be a director, but the number of directors must not exceed the
maximum number fixed by the 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
All of the continuing directors will stand for re-election at the 2018 AGM to be held on 19 June 2017.
on (cid:83)age (cid:20)(cid:20)(cid:24).
Directors’ interests
Information on share ownership by directors can be found in this Report and in the Remuneration Report
on (cid:83)age (cid:20)(cid:22)(cid:22).
Directors’ indemnities
and director and
o(cid:73)fice(cid:85) lia(cid:69)ilit(cid:92)
insurance
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.
Powers of directors
Subject to the Company’s Articles of Association, UK legislation and to any directions given by special resolution, the business
of the Company is managed by the Board, which may exercise all the powers of the Company. The Articles of Association
contain specific provisions concerning the Company’s power to borrow money and 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.
Major interests in shares Notifiable major share interests of which the Company has been made aware are set out in this Directors’ Report.
Research and
development
EVRAZ is constantly engaged in process and product innovation. EVRAZ research and development centres located at the
Company’s production sites improve and develop high-quality steel products to better meet customers’ needs and to ensure
that the Company remains competitive in the global and local markets.
For examples of the Company’s efforts in research and development in different operations, please refer to the Business
Review
on (cid:83)ages (cid:23)(cid:21)(cid:178)(cid:26)(cid:28).
136
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Annual Report & Accounts 2017
Sustainable
development
Payments to
governments
The Corporate Social Responsibility section of this report focuses on the health and safety, environmental and employment
performance of the Company’s operations, and outlines the Company’s core values and commitment to the principles of
sustainable development and development of community relations programmes.
Details of the Company’s policies and performance are provided in the Corporate Social Responsibility section
on (cid:83)ages (cid:27)(cid:19)(cid:178)(cid:20)(cid:19)(cid:24).
EVRAZ published its report on payments to governments in June 2017. 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
(cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80).
Political donations
No political contributions were made in 2017.
Greenhouse gas
emissions
Employees
Overseas branches
Financial risk
management and
financial inst(cid:85)(cid:88)ments
Going concern
Auditor
In 2017, 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 Corporate Social Responsibility section
on (cid:83)age (cid:28)(cid:20).
Information regarding the Company’s employees can be found in the Our People section
on (cid:83)ages (cid:28)(cid:25)(cid:178)(cid:28)(cid:28).
EVRAZ does not have any branches. A full list of the Group’s controlled subsidiaries is disclosed in (cid:49)ote (cid:22)(cid:23) of the
Consolidated Financial Statements.
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 (cid:49)ote (cid:21)(cid:28) to the Consolidated Financial
Statements, the Corporate Governance, Risk Management and Internal Control section
Financial Review
on (cid:83)ages (cid:20)(cid:20)(cid:26)(cid:178)(cid:20)(cid:20)(cid:28), and the
on (cid:83)ages (cid:22)(cid:19)(cid:178)(cid:22)(cid:24).
on (cid:83)ages (cid:22)(cid:19)(cid:178)(cid:22)(cid:24).
The financial position and performance of the Group and its cash flows are set out in the Financial Review section of the
report
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.
More details are provided in (cid:49)ote (cid:21) to the consolidated financial statements
on (cid:83)age (cid:20)(cid:25)(cid:20).
The Audit Committee conducted a tender for the external audit of the Group in July 2016. Ernst and Young LLP were selected
to undertake the audits for the financial years ending December 2017 and 2018 (subject to shareholder approval at the
respective AGM). The Board has agreed that subject to satisfactory commercial terms being agreed with Ernst & Young LLP,
no re-tender will take place until the conclusion of the 2020 financial year. A decision on whether to retender will be taken
thereafter.
Ernst and (cid:60)oung LL(cid:51) have indicated their willingness to continue in office and a resolution seeking to re-appoint them will be
proposed at the forthcoming AGM.
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Future developments
Information on the Group and its subsidiaries’ future developments is provided in the Strategic Report
on (cid:83)ages (cid:19)(cid:23)(cid:178)(cid:23)(cid:20).
Events since the
reporting date
Annual general
meeting (AGM)
The major events after 31 December 2017 are disclosed in (cid:49)ote (cid:22)(cid:22) to the Consolidated Financial Statements
on (cid:83)age (cid:21)(cid:23)(cid:23).
The 2018 AGM will be held on 19 June 2018 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
(cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80).
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Electronic
communications
A copy of the 2017 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:
(cid:75)tt(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80)(cid:18)in(cid:89)estors(cid:18)infor(cid:80)ation(cid:18)genera(cid:79)(cid:66)(cid:80)eeting(cid:18)
(cid:75)tt(cid:83)(cid:29)(cid:18)(cid:18)(cid:90)(cid:90)(cid:90).e(cid:89)ra(cid:93).co(cid:80)(cid:18)in(cid:89)estors(cid:18)annua(cid:79)(cid:66)re(cid:83)orts(cid:18)
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.
137
Making the World Stronger
Major shareholdings
The Company’s issued share capital as of
31 December 2017 and 28 February 2018
was 1,506,527,294 ordinary shares, of which
74,473,9511 are held in treasury. Thus, the total
voting rights are 1,432,053,343 ordinary shares.
As of 31 December 2017 and 28 February 2018,
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 Ltd2
Kadre Enterprises Ltd3
Verocchio Enterprises Ltd4
Number of ordinary shares
% of voting rights
905,487,416
83,751,827
82,887,014
63.23
5.85
5.79
1The number of shares differs from figure in the Financial statements for the amount of shares held in Trust.
(cid:21)(cid:47)anebrook (cid:47)td (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.
3Includes shares held by Gennady Kozovoy, Kadre(cid:10)s shareholder, both indirectly through Kadre and directly. The number of shares is as per TR-1 Form: Notification of
major interest in shares dated 6 February 201(cid:22).
4Verocchio (cid:47)td is owned by Alexander Vagin. The number of shares is as per TR-1 Form: Notification of major interest in shares dated 6 February 201(cid:22).
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
2017 and 28 February 2018:
Roman Abramovich
Alexander Abramov
Alexander Frolov
Gennady Kozovoy
Alexander Vagin
Eugene Shvidler
Number of ordinary shares
% of voting rights
440,528,063
302,068,451
150,837,368
83,751,827
82,887,014
43,805,030
30.76
21.09
10.53
5.85
5.79
3.06
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:
Interest capitalised
Note 9 to the Consolidated
Financial Statements
Waiver of future emoluments
by a director
None
Cont(cid:85)act o(cid:73) si(cid:74)nificance in
which a director is interested
None
Shareholder waiver of future
dividends
None
Publication of unaudited
financial in(cid:73)o(cid:85)mation
Not applicable
Detail of long-term incentive
schemes
Note 21 to the Consolidated
138
Financial Statements,
Remuneration Report
Non pre-emptive issues of
equity for cash
None
Non pre-emptive issues of
equity for cash in relation
to major subsidiary
undertakings
None
Waiver of emoluments by a
director
None
Parent participation in a
placing by a listed subsidiary
None
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a controlling shareholder
Relationship Agreement
Agreements with controlling
shareholder
Relationship Agreement
section on page 139
section below
Provision of services by a
controlling shareholder
None
Shareholder waiver of
dividends
None
Annual Report & Accounts 2017
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
while 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 (cid:37)oard 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.
Other agreements
The change of control provisions contained in
several loan agreements with a total principal
amount of US$1,245 million outstanding
as of 31 December 2017 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.
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Making the World Stronger
Articles of
Association
The Company’s Articles of Association
were adopted with effect from June 2012
and contain, among others, provisions on
the rights and obligations attaching to the
Company’s shares, including the redeemable
non-voting preference shares and the
subscriber shares. The Articles of Association
may only be amended by special resolution at
a general meeting of the shareholders.
Share rights
Without prejudice to any rights attached to any
existing shares, the Company may issue shares
with rights or restrictions as determined by
either the Company by ordinary resolution or, if
the Company passes a resolution, the Directors.
The Company may also issue 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 Notice
of the 2018 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.
140
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The EVRAZ Directors’ Report has been
prepared in accordance with applicable
UK company law and was approved by the
Board on 28 February 2018.
Alexander
Frolov
(cid:38)(cid:75)ief (cid:40)(cid:91)ecuti(cid:89)e (cid:50)fficer
(cid:40)(cid:57)(cid:53)(cid:36)(cid:61) (cid:83)(cid:79)c
By the order of the Board
28 February 2018
Annual Report & Accounts 2017
Directors’ responsibility
statements
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Responsibility Statement
under the Disclosure and
Transparency Rules
Each of the directors whose names and
functions are listed on (cid:83)ages (cid:20)(cid:19)(cid:27)(cid:178)(cid:20)(cid:20)(cid:20)
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:
• (cid:51)resent fairly the financial position, financial
performance and cash flows of the Group
and parent company;
The directors are also responsible for
preparing the Strategic Report, 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
(cid:38)(cid:75)ief (cid:40)(cid:91)ecuti(cid:89)e (cid:50)fficer
(cid:40)(cid:57)(cid:53)(cid:36)(cid:61) (cid:83)(cid:79)c
28 February 2018
• Select suitable accounting policies in
accordance with IAS 8 (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(cid:30) 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 (cid:23) 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.
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Making the World Stronger
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Financial
statements
Annual Report & Accounts 2017
CONTENTS
INDEPENDENT AUDITORS REPORT ................. 144
CONSOLIDATED FINANCIAL STATEMENTS ...... 152
Consolidated Statement of Operations ....................................... 152
Consolidated Statement of Comprehensive Income .................. 153
Consolidated Statement of Financial Position ........................... 154
Consolidated Statement of Cash Flows ....................................... 155
Consolidated Statement of Changes in Equity ............................157
Notes to the Consolidated Financial Statements ....................... 160
1. Corporate Information ...................................................... 160
2. Significant Accounting Policies ....................................... 160
3. Segment Information........................................................ 180
4. Changes in Composition of the Group ............................ 187
5. Goodwill ............................................................................. 189
Impairment of Assets ....................................................... 190
6.
Income and Expenses....................................................... 194
7.
8.
Income Taxes .................................................................... 196
9. Property, Plant and Equipment ........................................ 198
10. Intangible Assets Other Than Goodwill ........................... 200
11. Investments in Joint Ventures and Associates ............... 202
12. Disposal Groups Held for Sale ......................................... 204
13. Other Non-Current Assets .................................................207
14. Inventories ........................................................................ 208
15. Trade and Other Receivables .......................................... 208
16. Related Party Disclosures ................................................ 208
17. Other Taxes Recoverable .................................................. 210
18. Other Current Financial Assets ....................................... 210
19. Cash and Cash Equivalents .............................................. 210
20. Equity ................................................................................. 211
21. Share-Based Payments .................................................... 212
22. Loans and Borrowings ...................................................... 214
23. Employee Benefits ............................................................ 219
24. Provisions .......................................................................... 228
25. Other Long-Term Liabilities .............................................. 229
26. Trade and Other Payables ................................................ 231
27. Other Taxes Payable ......................................................... 231
28. Financial Risk Management Objectives and Policies ... 231
29. Non-Cash Transactions ..................................................... 239
30. Commitments and Contingencies ................................... 239
31. Auditor’s Remuneration ................................................... 241
32. Material Partly-Owned Subsidiaries ................................ 241
33. Subsequent Events ........................................................... 244
34. List of Subsidiaries and Other Significant Holdings ...... 245
SEPARATE FINANCIAL STATEMENTS ............... 252
143
Separate Statement of Comprehensive Income ......................... 252
Separate Statement of Financial Position .................................. 253
Separate Statement of Cash Flow ............................................... 254
Separate Statement of Changes in Equity .................................. 255
Notes to the Separate Financial Statements .............................. 256
Financial
statements
Independent Auditors Report
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 (cid:180)Financial Statements(cid:181)):
• give a true and fair view of the state of the Group and of the Parent Company’s affairs as at 31 December 2017 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(cid:30) and
• have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Consolidated Financial Statements, Article (cid:23)
of the IAS Regulation.
What we have audited
EVRAZ plc’s financial statements comprise:
Group
Parent company
the Consolidated Statement of Operations, the Consolidated Statement of Comprehensive Income;
the Separate Statement of Comprehensive Income;
the Consolidated Statement of Financial (cid:51)osition
the Consolidated Statement of Cash Flows(cid:30)
the Consolidated Statement of Changes in Equity; and
the related notes 1 to 34.
the Separate Statement of Financial (cid:51)osition(cid:30)
the Separate Statement of Cash Flows(cid:30)
the Separate Statement of Changes in Equity; and
the related notes 1 to 9.
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.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We are independent of the group and
parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical
Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Use of our report
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.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs(UK) require us to report to you whether we
have anything material to add or draw attention to:
• the disclosures in the annual report set out on pages 36–40 that describe the principal risks and explain how they are being managed or mitigated;
• the directors’ confirmation set out on page 37 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, future performance, solvency or liquidity;
• the directors’ statement set out on page 161 in the financial statements about whether they considered it appropriate to adopt the going concern
144
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
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• whether the directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit; or
• the directors’ explanation set out on page 41 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.
Independent Auditors Report
Annual Report & Accounts 2017
Overview
Materiality
Audit scope
• Overall Group materiality of (cid:7)79 million (2016: (cid:7)(cid:23)1) which represents 3% (2016: 2.7%) of E(cid:37)ITDA.
• 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 75% of the Group’s E(cid:37)ITDA and 90% of the Group’s revenue (of
which 55% and 77% respectively were covered by five full scope components and 20% and 13% respectively (cid:178) by 10 specific scope components).
• For the remaining (cid:23)5 reporting components of the Group we have performed other procedures appropriate to respond to the risk of material
misstatement.
• We have obtained an understanding of the entity-level controls of the Group which assisted us in identifying and assessing risks of material
misstatement due to fraud or error, as well as assisting us in determining the most appropriate audit strategy.
Areas of focus
• Goodwill and non-current asset impairment
• Completeness of related party transactions
What has changed
• Due to the improvements in the Group’s liquidity and performance as a result of more favourable market conditions, which has seen E(cid:37)ITDA
increase by 7(cid:23)% year-on year, together with the forecast outlook the conclusions in respect of the going concern assumptions are less
judgemental. As a result, we have deemed going concern to no longer be an area of special audit focus.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included
those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit(cid:30) and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide
a separate opinion on these matters.
Area of focus
Our audit approach
Goodwill and non-current asset impairment
Refer to the Group Audit Committee report on page 120, the estimates and judgments on pages 166–168
and the disclosures of impairment in note 6 of the Consolidated Financial Statements
At 31 December 2017 the carrying value of goodwill
was US(cid:7)917 million (2016: US(cid:7)880 million). The Group
recognised a net impairment reversal in respect of
other intangible assets and items of PP&E during the
year of US(cid:7)12 million (2016: US(cid:7)(cid:23)65 million charge).
The net reversal is driven by improved market
conditions resulting in a net increase in headroom
compared to the position when charges were initially
made, leading us to believe that the risk has reduced.
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 recent
economic environment in the Group’s operating
jurisdictions and because the assessment of the
recoverable amount of the Group’s Cash Generating
Units ((cid:180)CGUs(cid:181)) 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.
We performed audit procedures on the 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.
What we reported to
the Audit Committee
Risk direction
We consider
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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Independent Auditors Report
Area of focus
Our audit approach
Completeness of related party transactions
Refer to the Group Audit Committee report on page 120 and note 16 of the Consolidated Financial Statements
What we reported to
the Audit Committee
Risk direction
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, leading to us
assessing the completeness of related party transactions as
a significant risk.
This remained unchanged for the current year audit; we
considered 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 and
shareholders.
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.
(cid:37)ased 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 related parties. .
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.
In the prior year our auditor’s report included a key audit matter in relation to going concern. In the current year the performance of the group has
improved largely as a result of more favourable market conditions, demonstrated by a year-on-year increase in E(cid:37)ITDA of 7(cid:23)%, a reduction of 17% in net
debt and no significant going concern issues. As a result we have deemed going concern to no longer be an area of particular audit focus.
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
$79 million
Materiality
Performance
materiality
$39.5 million
Reporting
threshold
$4.0 million
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 (cid:7)79.0 million (2016: (cid:7)(cid:23)1.0 million), which is set at 3.0% (2016: 2.7%) of E(cid:37)ITDA. We reverted to using
3% which we had previously used due to the return to a more favourable business environment and the resulting improved strength in the Group’s
performance, outlook and financial position. 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.
We determined materiality for the (cid:51)arent Company to be (cid:133)36.(cid:23) million (2016: (cid:133)35.0 million), which is 1.5% (2016: 1.3%) of Equity.
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Rationale for Group 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. E(cid:37)ITDA 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
E(cid:37)ITDA as a key metric. We therefore, considered E(cid:37)ITDA 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% (2016: 50%) of materiality, namely (cid:7)39.5 million (2016: (cid:7)20.5 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 $7.9 million to $25.7 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 (cid:7)(cid:23).0 million (2016: (cid:7)2.1 million), as well
as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and disclosures in the Financial Statements sufficient to give reasonable assurance that the
Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the
reasonableness of significant accounting estimates made by the directors(cid:30) 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
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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.
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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 75% (2016: 78%) of the Group E(cid:37)ITDA, 90% (2016:
93%) of the Group’s revenue and 82% (2016: 86%) of the Group’s total assets. For the current year, the full scope components contributed 55% (2016:
60%) of the Group E(cid:37)ITDA, 77% (2016: 76%) of the Group’s revenue and 58% (2016: 57%) of the Group’s Total assets. The specific scope components
contributed 20% (2016: 19%) of the Group E(cid:37)ITDA, 13% (2016: 18%) of the Group’s revenue and 2(cid:23)% (2016: 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
%
Revenue
%
Total Assets
%
Full
Specific
Other
54
20
26
Full
Specific
Other
77
77
13
13
10
10
Full
Specific
Other
58
24
18
For the remaining (cid:23)5 components of the Group we performed other procedures, including analytical review, review of internal audit reports, testing of
consolidation journals, cross check of the related party list against journals, 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 2016 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. 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 E(cid:60) 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 seven 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.
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During the current year’s audit cycle visits were undertaken by the Group audit team to component teams in Russia and the USA. The senior statutory
auditor visited 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 141, 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 (cid:51)ractices (cid:37)oard’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.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. The
directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as
uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:
• Fair, balanced and understandable set out on page 141(cid:178) the statement given by the directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s
performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting set out on page 120 (cid:178) the section describing the work of the audit committee does not appropriately address matters
communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 141 (cid:178) the parts of the directors’ statement required
under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions specified for review by
the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance
Code.
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Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
In our opinion, 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 and those reports have been prepared in accordance with applicable legal requirements(cid:30)
• the information about internal control and risk management systems in relation to financial reporting processes and about share capital structures,
given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and Transparency Rules sourcebook made by the Financial Conduct Authority
(the FCA Rules), is consistent with the financial statements and has been prepared in accordance with applicable legal requirements(cid:30) and
• information about the company’s corporate governance code and practices and about its administrative, management and supervisory bodies and
their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not
identified material misstatements in:
• the strategic report or the directors’ report; or
• the information about internal control and risk management systems in relation to financial reporting processes and about share capital structures,
given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us 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(cid:30) 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
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 141, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to
liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
(cid:36)(cid:88)dito(cid:85)(cid:183)s (cid:85)es(cid:83)onsi(cid:69)ilities (cid:73)o(cid:85) t(cid:75)e a(cid:88)dit o(cid:73) t(cid:75)e financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are(cid:30) to identify and assess the risks of material misstatement of the financial statements due to fraud(cid:30) to
obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing
appropriate responses(cid:30) and to respond appropriately to fraud or suspected fraud identified during the audit. However, the primary responsibility for the
prevention and detection of fraud rests with both those charged with governance of the entity and management.
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Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most significant which
are directly relevant to specific assertions in the financial statements are those related to the report framework (IFRS, the Companies act 2006 and UK
Corporate Governance Code) and the relevant tax compliance regulations in Russia.
• We have considered the impact of the sanctions against Russia on the group’s operations, customer base and credit risk as well as the possibility of
further more restrictive sanctions being imposed and nothing has come to our attention to suggest that the operations or the liquidity of the group
have been adversely affected directly by the current political and economic situation other than the negative impact on capital markets and the
financing options available to management. We reviewed management’s assessment of the sanctions impact on the group’s operations and the
external advice received by the Group.
• We understood how EVRAZ Plc is complying with those legal and regulatory frameworks by making enquiries to management, internal audit, those
responsible for legal and compliance procedures and the company secretary. We corroborated our enquiries through our review of board minutes and
papers provided to the Audit Committee.
• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by meeting with
management from various parts of the business to understand where it is considered there was a susceptibility of fraud. We also considered
performance targets and their propensity to influence on efforts made by management to manage earnings. We considered the programs and controls
that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud(cid:30) and how senior management monitors
those programs and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These
procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free of fraud or
error.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
• We were appointed by the company in 2011 to audit the financial statements for the year ending 31 December 2011 and subsequent financial
periods. The period of total uninterrupted engagement including previous renewals and reappointments is seven years, covering periods from our
initial appointment in 2011 through to the year ended 31 December 2017.
• The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain independent of
the group and the parent company in conducting the audit.
• The audit opinion is consistent with the additional report to the audit committee.
Steven Dobson
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
28 February 2018
Notes:
1. The maintenance and integrity of the EVRAZ plc web site is the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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Consolidated financial statements
EVRAZ plc
Consolidated Financial Statements
Year Ended 31 December 2017
EVRAZ plc Consolidated Statement
of Operations
in millions of US dollars, except for per share information
Notes
2017
2016
2015
Year ended 31 December
Continuing operations
Revenue
Sale of goods
Rendering of services
Cost of revenue
(cid:42)(cid:85)oss (cid:83)(cid:85)ofit
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(cid:18)(losses), net
Other operating income
Other operating expenses
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:73)(cid:85)om o(cid:83)e(cid:85)ations
Interest income
Interest expense
Share of profits(cid:18)(losses) of joint ventures and associates
Gain(cid:18)(loss) on financial assets and liabilities, net
Gain(cid:18)(loss) on disposal groups classified as held for sale, net
Loss of control over a subsidiary
Other non-operating gains(cid:18)(losses), net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:69)e(cid:73)o(cid:85)e ta(cid:91)
Income tax benefit(cid:18)(expense)
(cid:49)et (cid:83)(cid:85)ofit(cid:18)(cid:11)loss(cid:12)
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Earnings(cid:18)(losses) per share for profit(cid:18)(loss) attributable to equity holders of
the parent entity, US dollars:
(cid:37)asic
Diluted
3
3
7
7
7
6
7
7
7
11
7
12
4
7
8
20
20
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The accompanying notes form an integral part of these consolidated financial statements.
$ 10,520
307
10,827
(7,485)
3,342
(717)
(540)
(31)
(4)
12
(54)
39
(61)
1,986
14
(437)
11
(57)
(360)
–
(2)
1,155
(396)
$ 759
$ 699
60
$ 759
$ 0.49
$ 0.48
$ 7,477
236
7,713
(5,521)
2,192
(623)
((cid:23)69)
(23)
(22)
((cid:23)65)
((cid:23)8)
22
(101)
463
10
((cid:23)81)
(23)
(9)
(cid:178)
(cid:178)
(52)
(92)
(96)
$ 8,552
215
8,767
(6,583)
2,184
(728)
(553)
(28)
((cid:23)1)
((cid:23)(cid:23)1)
(367)
28
(78)
(2(cid:23))
9
((cid:23)75)
(20)
((cid:23)8)
21
(167)
(3)
(707)
(12)
(cid:7) (188)
(cid:7) (719)
(cid:7) (215)
27
(cid:7) (188)
(cid:7) (0.15)
(cid:7) (0.15)
(cid:7) (6(cid:23)(cid:23))
(75)
(cid:7) (719)
(cid:7) (0.(cid:23)5)
(cid:7) (0.(cid:23)5)
Consolidated financial statements
Annual Report & Accounts 2017
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EVRAZ plc Consolidated Statement
of Comprehensive Income
in millions of US dollars
(cid:49)et (cid:83)(cid:85)ofit(cid:18)(cid:11)loss(cid:12)
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 on disposal of subsidiaries
Net gains(cid:18)(losses) on available-for-sale financial assets
Net gains(cid:18)(losses) on cash flow hedges
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(cid:18)(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
2017
2016
2015
$ 759
(cid:7) (188)
(cid:7) (719)
4,12
13
25
11
23
8
9
8
266
747
30
9
1,052
4
4
26
(15)
11
–
–
–
1,067
$ 1,826
$ 1,762
64
$ 1,826
543
(cid:178)
(cid:178)
(cid:178)
543
13
13
11
(cid:178)
11
(cid:178)
(cid:178)
(cid:178)
567
$ 379
$ 341
38
$ 379
(820)
142
(cid:178)
(cid:178)
(678)
(27)
(27)
1
(5)
((cid:23))
(1)
(cid:178)
(1)
(710)
(cid:7) (1,(cid:23)29)
(cid:7) (1,3(cid:23)0)
(89)
(cid:7) (1,(cid:23)29)
The accompanying notes form an integral part of these consolidated financial statements.
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
153
Consolidated financial statements
EVRAZ plc Consolidated Statement of Financial Position
in millions of US dollars
The financial statements of EVRAZ plc (registered number 778(cid:23)3(cid:23)2) on pages 152(cid:178)251 were approved by the (cid:37)oard of Directors on 28 February 2018
and signed on its behalf by Alexander Frolov, Chief Executive Officer.
Notes
2017
2016
2015
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
Unrealised gains and losses
Accumulated profits
Translation difference
Non-controlling interests
Non-current liabilities
Long-term loans
Deferred income tax liabilities
Employee benefits
Provisions
Other long-term liabilities
Amounts payable under put options for shares in subsidiaries
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
13,25
32
22
8
23
24
25
4
26
22
16
27
24
12
The accompanying notes form an integral part of these consolidated financial statements.
154
m
o
c
.
z
a
r
v
e
w
w
w
.
$ 4,933
259
917
79
173
151
39
6,551
1,198
731
89
11
12
50
225
47
1,466
3,829
–
3,829
$ 4,652
297
880
64
156
91
45
6,185
984
502
60
13
8
43
192
33
1,157
2,992
27
3,019
$ 4,302
324
1,176
74
119
79
56
6,130
899
447
50
5
6
44
127
35
1,375
2,988
1
2,989
$ 10,380
$ 9,204
$ 9,119
$ 1,507
(231)
2,500
111
39
635
(2,777)
1,784
242
2,026
5,243
328
284
269
54
61
6,239
1,128
272
148
256
67
212
32
2,115
–
2,115
$ 10,380
$ 1,507
(270)
2,517
112
(cid:178)
415
(3,790)
491
186
677
5,502
348
317
205
94
(cid:178)
6,466
935
266
392
226
39
169
26
2,053
8
2,061
$ 9,204
$ 1,507
(305)
2,501
124
(cid:178)
644
((cid:23),335)
136
133
269
5,850
352
301
146
116
(cid:178)
6,765
1,070
228
497
143
17
107
23
2,085
(cid:178)
2,085
$ 9,119
Consolidated financial statements
Annual Report & Accounts 2017
EVRAZ plc Consolidated Statement of Cash Flows
in millions of US dollars
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Cas(cid:75) (cid:193)o(cid:90)s (cid:73)(cid:85)om o(cid:83)e(cid:85)atin(cid:74) acti(cid:89)ities
Net profit(cid:18)(loss)
Adjustments to reconcile net profit(cid:18)(loss) to net cash flows from operating activities:
Deferred income tax (benefit)(cid:18)expense (Note 8)
Depreciation, depletion and amortisation (Note 7)
Loss on disposal of property, plant and equipment
Impairment of assets
Foreign exchange (gains)(cid:18)losses, net
Interest income
Interest expense
Share of (profits)(cid:18)losses of associates and joint ventures
(Gain)(cid:18)loss on financial assets and liabilities, net
(Gain)(cid:18)loss on disposal groups classified as held for sale, net
Loss of control over a subsidiary
Other non-operating (gains)(cid:18)losses, net
(cid:37)ad 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(cid:18)payables to related parties
Taxes recoverable
Other assets
Trade and other payables
Advances from customers
Taxes payable
Other liabilities
(cid:49)et cas(cid:75) (cid:193)o(cid:90)s (cid:73)(cid:85)om o(cid:83)e(cid:85)atin(cid:74) acti(cid:89)ities
Cas(cid:75) (cid:193)o(cid:90)s (cid:73)(cid:85)om in(cid:89)estin(cid:74) acti(cid:89)ities
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)
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
(cid:51)roceeds from sale of disposal groups classified as held for sale, net of transaction costs (Note 12)
Dividends received
Other investing activities, net
(cid:49)et cas(cid:75) (cid:193)o(cid:90)s (cid:88)sed in in(cid:89)estin(cid:74) acti(cid:89)ities
Continued on the next page
Year ended 31 December
2017
2016
2015
$ 759
(cid:7) (188)
(cid:7) (719)
(89)
561
4
(12)
54
(14)
437
(11)
57
360
–
2
10
(26)
17
2
2,111
(199)
(201)
(27)
24
(32)
(2)
150
19
123
(9)
(87)
521
22
465
48
(10)
481
23
9
(cid:178)
(cid:178)
52
1
(7)
16
(3)
(87)
585
41
441
367
(9)
475
20
48
(21)
167
3
18
(56)
20
(cid:178)
1,343
1,293
(17)
(38)
(1)
136
(32)
(3)
40
20
62
(7)
204
55
9
66
(3(cid:23))
(3)
3
100
(72)
1
1,957
1,503
1,622
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
(2)
(2)
4
(5)
(1)
7
(595)
15
412
1
(1)
(167)
(1)
(cid:178)
2
(cid:178)
1
4
(382)
7
27
1
1
(3(cid:23)0)
(2)
(2)
7
(cid:178)
(3)
4
((cid:23)23)
10
44
(cid:178)
6
(359)
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
155
Consolidated financial statements
EVRAZ plc Consolidated Statement of Cash Flows
(continued)
in millions of US dollars
Cas(cid:75) (cid:193)o(cid:90)s (cid:73)(cid:85)om financin(cid:74) acti(cid:89)ities
Purchase of treasury shares (Note 20)
Contributions of non-controlling shareholders to the Group’s subsidiaries
Sale of non-controlling interests (Note 4)
Payments for investments on deferred terms (Note 11)
Dividends paid by the parent entity to its shareholders (Note 20)
Proceeds from bank loans and notes
Repayment of bank loans and notes, including interest
Net proceeds from(cid:18)(repayment of) bank overdrafts and credit lines, including interest
Payments under covenants reset
Restricted deposits at banks in respect of financing activities
Payments for purchase of property, plant and equipment on deferred terms
Gain(cid:18)(loss) on derivatives not designated as hedging instruments (Note 25)
Gain(cid:18)(loss) on hedging instruments (Note 25)
Collateral under swap contracts
(cid:51)ayments under finance leases, including interest
Other financing activities, net
(cid:49)et cas(cid:75) (cid:193)o(cid:90)s (cid:88)sed in financin(cid:74) acti(cid:89)ities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase(cid:18)(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Decrease(cid:18)(increase) in cash of disposal groups classified as assets held for sale (Note 12)
Year ended 31 December
2017
2016
2015
$ –
2
–
(11)
(430)
2,441
(3,344)
(139)
–
(13)
–
2
14
–
(2)
1
(1,479)
(2)
309
1,157
–
(cid:7) (cid:178)
13
(cid:178)
(8)
(cid:178)
1,301
(2,(cid:23)28)
(5)
((cid:23))
(cid:178)
(cid:178)
(250)
14
(cid:178)
(1)
(1)
(1,369)
(10)
(216)
1,375
(2)
(cid:7) (339)
6
1
(2)
(cid:178)
3,801
(3,961)
(9)
(cid:178)
(cid:178)
(5)
((cid:23)6(cid:23))
5
7
(1)
(1)
(962)
(12)
289
1,086
(cid:178)
Cash and cash equivalents at the end of the year
$ 1,466
$ 1,157
$ 1,375
(cid:54)(cid:88)(cid:83)(cid:83)lementa(cid:85)(cid:92) cas(cid:75) (cid:193)o(cid:90) in(cid:73)o(cid:85)mation(cid:29)
Cash flows during the year:
Interest paid
Interest received
Income taxes paid by the Group
$ (405)
8
(427)
(cid:7) ((cid:23)13)
6
(1(cid:23)9)
(cid:7) ((cid:23)(cid:23)3)
4
(20(cid:23))
156
m
o
c
.
z
a
r
v
e
w
w
w
.
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated financial statements
Annual Report & Accounts 2017
EVRAZ plc Consolidated Statement
of Changes in Equity
In millions of US dollars
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Attributable to equity holders of the parent entity
Issued
capital
Treasury
shares
Additional
paid-in
capital
Revaluation
surplus
Unrealised
gains and
losses
Accumulated
(cid:83)(cid:85)ofits
Translation
difference
Total
Non-
controlling
interests
Total
equity
At 31 December 2016
$ 1,507
$ (270)
$ 2,517
$ 112
Net profit
Other comprehensive income(cid:18)
(loss)
Reclassification of revaluation
surplus to accumulated profits in
respect of the disposed items of
property, plant and equipment
Reclassification of additional
paid-in capital in respect of
the disposed subsidiaries
Total comprehensive income(cid:18)
(loss) for the period
Derecognition of non-controlling
interests on sale of subsidiaries
(Note 12)
Derecognition of non-controlling
interests under put options
(Note 4)
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)
Dividends declared by the
parent entity to its shareholders
(Note 20)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
39
–
–
–
–
–
(34)
(34)
–
–
–
–
17
–
–
–
(1)
–
(1)
–
–
–
–
–
–
$ –
–
39
–
–
$ 415
$ (3,790)
699
–
$ 491
699
$ 186
60
11
1,013
1,063
1
34
–
–
–
–
4
–
–
$ 677
759
1,067
–
–
39
745
1,013
1,762
64
1,826
–
–
–
–
–
–
–
(56)
–
(39)
–
(430)
–
–
–
–
–
–
–
(56)
–
–
17
(430)
(6)
(4)
2
–
–
–
(6)
(60)
2
–
17
(430)
At 31 December 2017
$ 1,507
$ (231)
$ 2,500
$ 111
$ 39
$ 635
$ (2,777)
$ 1,784
$ 242
$ 2,026
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
157
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated 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
Unrealised
gains and
losses
Accumulated
(cid:83)(cid:85)ofits
Translation
difference
Total
At 31 December 2015
$ 1,507
(cid:7) (305)
$ 2,501
$ 124
(cid:7) (cid:178)
$ 644
(cid:7) ((cid:23),335)
Net loss
Other comprehensive income(cid:18)
(loss)
Reclassification of revaluation
surplus to accumulated profits in
respect of the disposed items of
property, plant and equipment
Total comprehensive income(cid:18)
(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)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
35
(cid:178)
(cid:178)
16
(cid:178)
(cid:178)
(12)
(12)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(215)
(cid:178)
$ 136
(215)
11
545
556
12
(cid:178)
(192)
545
(2)
(cid:178)
(35)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
341
(2)
(cid:178)
(cid:178)
16
Non-
controlling
interests
$ 133
27
11
(cid:178)
38
2
13
(cid:178)
(cid:178)
Total
equity
$ 269
(188)
567
(cid:178)
379
(cid:178)
13
(cid:178)
16
At 31 December 2016
$ 1,507
(cid:7) (270)
$ 2,517
$ 112
(cid:7) (cid:178)
$ 415
(cid:7) (3,790)
$ 491
$ 186
$ 677
158
m
o
c
.
z
a
r
v
e
w
w
w
.
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated financial statements
Annual Report & Accounts 2017
EVRAZ plc Consolidated Statement
of Changes in Equity (continued)
in millions of US dollars
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Attributable to equity holders of the parent entity
Issued
capital
Treasury
shares
Additional
paid-in
capital
Revaluation
surplus
Unrealised
gains and
losses
Accumulated
(cid:83)(cid:85)ofits
Translation
difference
Total
Non-
controlling
interests
Total
equity
At 31 December 2014
$ 1,507
(cid:7) (cid:178)
$ 2,481
$ 155
(cid:7) (cid:178)
$ 1,299
(cid:7) (3,6(cid:23)(cid:23))
$ 1,798
$ 218
$ 2,016
Net loss
Other comprehensive income(cid:18)
(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(cid:18)
(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)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(336)
31
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
20
(cid:178)
(1)
(28)
(2)
(31)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(6(cid:23)(cid:23))
(cid:178)
(6(cid:23)(cid:23))
((cid:23))
(691)
(696)
(75)
(1(cid:23))
(719)
(710)
28
2
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(618)
(691)
(1,3(cid:23)0)
(89)
(1,(cid:23)29)
(cid:178)
(3)
(cid:178)
(3)
(31)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(3)
(cid:178)
(339)
(cid:178)
20
((cid:23))
2
6
(cid:178)
(cid:178)
(cid:178)
((cid:23))
(1)
6
(339)
(cid:178)
20
At 31 December 2015
$ 1,507
(cid:7) (305)
$ 2,501
$ 124
(cid:7) (cid:178)
$ 644
(cid:7) ((cid:23),335)
$ 136
$ 133
$ 269
The accompanying notes form an integral part of these consolidated financial statements.
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
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Consolidated financial statements
Notes to the consolidated financial statements
EVRAZ plc Notes to the Consolidated Financial
Statements
Year ended 31 December 2017
1. Corporate Information
These consolidated financial statements were authorised for issue by the (cid:37)oard of Directors of EVRAZ plc on 28 February 2018.
EVRAZ plc ((cid:180)EVRAZ plc(cid:181) or (cid:180)the Company(cid:181)) 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 778(cid:23)3(cid:23)2. The Company’s registered office is at 5th Floor, 6 St. Andrew Street, London, EC(cid:23)A 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 (cid:180)Group(cid:181)), 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
2017
2016
2015
Business activity
Location
Effective ownership interest, %
EVRAZ Nizhny Tagil Metallurgical Plant
EVRAZ Consolidated West-Siberian Metallurgical Plant
EVRAZ Dneprovsk Metallurgical Plant
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya
Yuzhkuzbassugol
EVRAZ Kachkanarsky Mining-and-(cid:51)rocessing Integrated Works
Evrazruda
EVRAZ Sukha (cid:37)alka
100.00
100.00
97.73
100.00
100.00
81.95
100.00
100.00
100.00
–
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
Steel production
Steel production
Steel production
Steel production
Steel production
Coal mining
Coal mining
100.00 Ore mining and processing
100.00
99.42
Ore mining
Ore mining
Russia
Russia
Ukraine
USA
Canada
Russia
Russia
Russia
Russia
Ukraine
The full list of the Group’s subsidiaries and other significant holdings as of 31 December 2017 is presented in Note 3(cid:23).
(cid:21)(cid:17) Significant Accounting Policies
Basis of Preparation
These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ((cid:180)IFRS(cid:181)), as
adopted by the European Union.
International Financial Reporting Standards are issued by the International Accounting Standard (cid:37)oard ((cid:180)IAS(cid:37)(cid:181)). IFRSs that are mandatory for application
as of 31 December 2017, but not adopted by the European Union, do not have any significant impact on the Group’s consolidated financial statements.
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
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(cid:21)(cid:17) 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.
(cid:37)ased 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.
Changes in Accounting Policies
New/Revised Standards and Interpretations Adopted in 2017:
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 2017.
• Amendments to IAS 7 (cid:178) Disclosure Initiative
The amendments require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes arising
from cash flows and non-cash changes (such as foreign exchange gains or losses). On initial application of the amendment, entities are not required to
provide comparative information for preceding periods. The Group disclosed additional information in Note 22 in these consolidated financial statements
for the year ended 31 December 2017.
• Amendments to IAS 12 (cid:178) Recognition of Deferred Tax Assets for Unrealised Losses
The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on
the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable
profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.
The application of these amendments has no effect on the Group’s financial position and performance as the Group followed the same principles in prior
periods.
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:17) Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
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 standard, interpretation or amendment that has been issued but is not yet effective.
Standards Issued But Not Yet Effective in the European Union
(cid:54)tanda(cid:85)ds not (cid:92)et e(cid:73)(cid:73)ecti(cid:89)e (cid:73)o(cid:85) t(cid:75)e financial statements (cid:73)o(cid:85) t(cid:75)e (cid:92)ea(cid:85) ended (cid:22)(cid:20) (cid:39)ecem(cid:69)e(cid:85) (cid:21)(cid:19)(cid:20)(cid:26)
Effective for annual periods beginning on or after
• Amendments to IAS (cid:23)0 (cid:178) Transfers of Investment (cid:51)roperty
• Amendments to IFRS 2 (cid:178) Classification and Measurement of Share-based (cid:51)ayment Transactions
• Amendments to IFRS (cid:23) (cid:178) Applying IFRS 9 (cid:180)Financial Instruments(cid:181) with IFRS (cid:23) (cid:180)Insurance Contracts(cid:181)
• Annual Improvements to IFRSs 201(cid:23)-2016 Cycle
• IFRS 9 (cid:180)Financial Instruments(cid:181)
• IFRS 15 (cid:180)Revenue from Contracts with Customers(cid:181)
• IFRIC 22 (cid:180)Foreign Currency Transactions and Advance Consideration(cid:181)
• IFRS 16 (cid:180)Leases(cid:181)
• Amendments to IAS 28 (cid:178) Long-term Interests in Associates and (cid:45)oint Ventures
• Amendments to IAS 19 (cid:178) (cid:51)lan Amendment, Curtailment or Settlement
• Amendments to IFRS 9 (cid:178) (cid:51)repayment Features with Negative Compensation
• IFRIC 23 (cid:180)Uncertainty over Income Tax Treatments(cid:181)
• Annual Improvements to IFRSs 2015-2017 Cycle
• IFRS 17 (cid:180)Insurance Contracts(cid:181)
1
Subject to EU endorsement
1
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1
1 January 2018
1 January 2019
1
1 January 2019
1
1 January 2019
1
1 January 2019
1
1 January 2019
1
1 January 2019
1 January 2021
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 9 and IFRS 15 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.
IFRS 9 “Financial Instruments”
Starting from 2018, the Group will apply IFRS 9 (cid:180)Financial Instruments(cid:181) that replaces IAS 39 (cid:180)Financial Instruments: Recognition and Measurement(cid:181).
IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge
accounting. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge
accounting, the requirements are generally applied prospectively, with some limited exceptions.
The Group will adopt the new standard on the required effective date and due to the exemption in IFRS 9 will not restate comparative periods in the year
of initial application. As a consequence, any adjustments to the carrying amounts of financial assets or liabilities are to be recognised at 1 (cid:45)anuary 2018,
with the difference recognised in the opening balance of accumulated profits.
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:17) Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
IFRS 9 “Financial Instruments” (continued)
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During 2017, the Group has performed a detailed impact assessment of all three aspects of IFRS 9. This assessment is based on currently available
information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018.
Overall, the Group expects no significant impact on its statement of financial position and equity. The Group has assessed the impact of IFRS 9 to the
Group’s consolidated financial statements as follows:
(a) Classification and measurement
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model, in which assets are managed and
their cash flow characteristics. IFRS 9 includes three principal classification categories for financial assets: measured at amortised cost, at fair value
through other comprehensive income and at fair value through profit or loss. It eliminates the existing IAS 39 categories of held to maturity, loans and
receivables and available-for-sale financial assets.
(cid:37)ased on the assessment, the Group does not expect a significant impact on its statement of financial position or equity on applying the classification
and measurement requirements of IFRS 9.
The Group expects to continue measuring all financial assets, which are currently measured at fair value, at fair value through profit or loss with the
exception of equity investments in Delong Holdings Limited, which were classified as available-for-sale with a fair value of (cid:7)33 million at 31 December
2017 (Note 13). At 1 (cid:45)anuary 2018, the Group has irrevocably designated these investments as measured at fair value through other comprehensive
income. Consequently, all subsequent changes in fair value will be reported in other comprehensive income, no impairment losses will be recognised in
profit or loss and no gains or losses will be recycled to profit or loss upon derecognition.
Loans and trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of
principal and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for
amortised cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required.
(b) Impairment
Under IFRS 9, the new impairment model requires the recognition of impairment provisions based on the expected credit losses rather than only incurred
credit losses under IAS 39. The expected credit losses represent measures of an asset’s credit risk. This will require considerable judgement about how
changes in economic factors affect expected credit losses, which will be determined on a probability-weighted basis.
The new impairment model applies to the Group’s financial assets, including, but not limited to, trade and other receivables, loans receivable, restricted
deposits, cash and cash equivalents.
Loss allowances are measured on either of the following bases:
• 12-month basis - these are expected credit losses that result from default events on a financial instrument that are possible within the 12 months
after the reporting date; or
• lifetime basis - these are expected credit losses that result from all possible default events over the expected life of a financial instrument.
(cid:37)ased on the assessments undertaken to the date, the Group expects an insignificant change in the loss allowance for trade debtors and other financial
assets held at amortised cost.
The Group’s cash and cash equivalents have low credit risk based on the external credit ratings of banks and financial institutions. Therefore, the Group
determined that no additional allowances are required at 31 December 2017 in connection with the adoption of the new impairment model under IFRS 9.
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:17) Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
IFRS 9 “Financial Instruments” (continued)
(c) Hedge accounting
The Group made a choice to continue applying IAS 39 (cid:180)Financial Instruments: Recognition and Measurement(cid:181) to all existing hedge contracts (Note 25).
IFRS 15 “Revenue from Contracts with Customers”
IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount
that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The new revenue
standard will supersede all current revenue recognition requirements under IFRS. The Group plans to adopt the new standard on the required effective
date (from 1 (cid:45)anuary 2018) using the modified retrospective method, i.e. with the cumulative effect of applying this standard recognised at the date of
initial recognition. During 2017, the Group performed a preliminary assessment of the impacts of IFRS 15. In preparing to adopt IFRS 15, the Group is
considering the following:
(a) Sale of goods and services
For contracts with customers in which the sale of goods produced by the Group is generally expected to be the only performance obligation, adoption
of IFRS 15 is not expected to have any impact on the Group’s revenue and profit or loss. The Group expects the revenue to be recognised at the point in
time when control of the asset is transferred to the customer, generally on dispatch or shipping of the goods.
Some contracts with customers provide a right of return, trade discounts or volume rebates. Currently, the Group recognises revenue from the sale of
goods measured at the fair value of the consideration received or receivable, net of the estimated returns and allowances, trade discounts and volume
rebates. IFRS 15 requires the estimated variable consideration to be constrained to prevent over-recognition of revenue, i.e. variable consideration
should be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur
when the uncertainty associated with the variable consideration is subsequently resolved. The Group expects that application of the constraint will not
result in significant effects as the Group already applies similar principles.
(b) Advances received from customers
Under certain contracts, the Group produces steel products specifically for the needs of some customers with no alternative use. The Group has
enforceable rights to payment of 100% of the contract price if the contract is cancelled after the pipe manufacturing process has begun. The Group
recognises revenue from such contracts at the moment of the transfer of ownership rights. However, the Group has determined that IFRS 15 requires the
recognition of revenue for such transactions over the period of manufacturing the products. This will affect the timing of revenue and cost recognition
within the financial statements of the Group on the transition to IFRS 15.
The Group receives only short-term advances from its customers. No interest is accrued on the advances received under the Group’s accounting policy.
Under IFRS 15, the Group must determine whether there is a significant financing component in its contracts.
However, the Group decided to use the practical expedient provided in IFRS 15, which allows not to adjust the promised amount of consideration for the
effects of a significant financing component in the contracts where the Group expects, at contract inception, that the period between the Group’s transfer
of a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Therefore, for short-term
advances, the Group will not account for a financing component even if it is significant.
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:17) Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
IFRS 15 “Revenue from Contracts with Customers” (continued)
(c) (cid:51)rincipal versus agent considerations
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The Group enters into contracts with its customers, under which the Group provides transportation and handling services using third party providers (i.e.
the Group selects suitable firms and manages the shipment and delivery). These services are provided to the customers before, or after, they obtain
control over the goods. The cost of services is included in the contract price. According to the current accounting policies, these services are recognised
at the moment when the right of ownership over the goods is passed to the customers and presented as revenue from the sale of goods with the
corresponding expenses included in selling costs in the statement of operations.
Under IFRS 15, transportation and handling services rendered by the Group before control over the goods is transferred to the customers do not
represent a separate performance obligation.
However, the Group has preliminarily concluded that when it provides such services after obtaining control over the goods by the customers, it acts
as an agent rather than a principal in these contracts. As a result, the Group concluded that it transfers control over its services at a point in time.
Consequently, the Group will need to allocate the transaction price to respective performance obligations and recognise revenue from these services and
the associated costs on a net basis.
The Group is in the process of collecting information relating to the possible adjustments to the amounts of revenue reported according to the current
accounting standards. The preliminary results of this assessment are the reduction of revenue with the same decrease in selling expense for the amount
of transportation costs under contracts, in which the Group acted as an agent (at least (cid:7)202 million and (cid:7)168 million in 2017 and 2016, respectively).
(d) (cid:51)resentation and disclosure requirements
The presentation and disclosure requirements in IFRS 15 are more detailed than under current IFRS. The Group expects that the notes to the financial
statements will be expanded because of the disclosure of significant judgements made: when determining the transaction price of those contracts that
include variable consideration, how the transaction price has been allocated to the performance obligations, and the assumptions made to estimate the
stand-alone selling prices of each performance obligation. Also, extended disclosures are expected as a result of the significant judgements made when
assessing the contracts if the Group conclude that it acts as an agent instead of a principal.
In addition, as required by IFRS 15, the Group will disaggregate revenue recognised from contracts with customers into categories that depict how
the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. It will also disclose information about the
relationship between the disclosure of disaggregated revenue and revenue information disclosed for each reportable segment.
(e) Other adjustments
The recognition and measurement requirements in IFRS 15 are also applicable for recognition and measurement of any gains or losses on disposal
of non-financial assets (such as items of property and equipment and intangible assets), when that disposal is not in the ordinary course of business.
However, the effect of these changes is not expected to be material for the Group.
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:17) Significant Accounting Policies (continued)
(cid:54)i(cid:74)nificant (cid:36)cco(cid:88)ntin(cid:74) (cid:45)(cid:88)d(cid:74)ements and (cid:40)stimates
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 1(cid:23) April 2015 (Note (cid:23)).
• The Group determined based on the criteria in IFRIC (cid:23) (cid:180)Determining whether an Arrangement Contains a Lease(cid:181) that the supply contract with (cid:51)raxAir
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.
• At 31 December 2017, the Group has recognised deferred tax assets of (cid:7)173 million (Note 8). Included within this balance is (cid:7)73 million related
to unutilised interest expenses in the USA previously incurred on intra-group loans. As a result of the recent enactment of the Tax Cuts and (cid:45)obs Act
((cid:180)TC(cid:45)A(cid:181)) in the USA, uncertainty exists as to whether these unutilised interest expenses will be deductible against future taxable earnings under the
new tax law and, therefore, whether the deferred tax asset will be recoverable. The Group’s interpretation of the new legislation is that the deferred tax
asset will be recoverable and, consequently, it has not created an allowance against this balance.
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:17) Significant Accounting Policies (continued)
(cid:54)i(cid:74)nificant (cid:36)cco(cid:88)ntin(cid:74) (cid:45)(cid:88)d(cid:74)ements and (cid:40)stimates (cid:11)contin(cid:88)ed(cid:12)
Estimation Uncertainty
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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 2017, 2016 and 2015, the Group
recognised a net impairment reversal(cid:18)(loss) of (cid:7)20 million, (cid:7)(151) million and (cid:7)(190) 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 (cid:180)Accounting (cid:51)olicies, Changes
in Accounting Estimates and Errors(cid:181). 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.
The useful lives of items of property, plant and equipment can be impacted to a significant degree by changes in expectations of long-term prices (which
are subject to significant fluctuations even within a one year timeframe), the dollar-denominated value of the cost of production of each respective facility
(which will move with the fluctuations in the USD(cid:18)RU(cid:37) exchange rate, because a significant portion of the Group’s costs are incurred in the Russian
roubles) and the resulting profitability of the specific facilities. These expectations may affect the planned timing and the level of repairs as well as the
planned timing of decommissioning or replacement of the respective items of property, plant and equipment, thus affecting their useful lives. Significant
changes in these variables may lead to a reassessment of useful lives of property, plant and equipment. In the past the Group had cases, when such
reassessments significantly affected the Group’s depreciation expense (the last case happened in 201(cid:23), when the reassessment led to a decrease in
the depreciation expense by (cid:7)52 million).
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Notes to the consolidated financial statements (continued)
(cid:21)(cid:17) Significant Accounting Policies (continued)
(cid:54)i(cid:74)nificant (cid:36)cco(cid:88)ntin(cid:74) (cid:45)(cid:88)d(cid:74)ements and (cid:40)stimates (cid:11)contin(cid:88)ed(cid:12)
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 2017, 2016 and 2015 was $917 million, $880 million and $1,176 million, respectively. In 2017, 2016
and 2015, the Group recognised an impairment loss in respect of goodwill in the amount of (cid:7)Nil, (cid:7)316 million and (cid:7)251 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 ((cid:180)(cid:45)ORC Code(cid:181)). 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.
The changes in the pricing environment and geology-related risk factors may lead to a revision of mining plans, decisions to abandon or to mothball
certain parts of a mine, to a reassessment of the capital expenditures required for the extraction of the proved and probable reserves, as well as to the
changes in the resources classified as proved and probable reserves. As the value of the Group’s mining assets is very significant (Note 9), including
$1,233 million of coal mining assets at 31 December 2017, these changes may have a material impact on the depletion charge and impairment, which
may arise as a result of a decline in the recoverable amounts of the affected mines.
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.
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.
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:17) Significant Accounting Policies (continued)
Foreign Currency Transactions (continued)
The following exchange rates were used in the consolidated financial statements:
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EUR(cid:18)USD
USD(cid:18)CAD
USD(cid:18)UAH
2017
2016
2015
31 December
average
31 December
average
31 December
average
57.6002
68.8668
1.1993
1.2530
28.0672
58.3529
65.9014
1.1297
1.2979
26.5947
60.6569
63.8111
1.0541
1.3427
25.5458
67.0349
74.2336
1.1069
1.3248
27.1909
72.8827
79.6972
1.0887
1.3840
24.0007
60.9579
67.7767
1.1095
1.2788
21.8290
Transactions in foreign currencies in each subsidiary of the Group are initially recorded in the functional currency at the rate ruling at the date of the
transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was
determined. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the end
of the reporting period. All resulting differences are taken to the statement of operations.
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on
the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.
Basis of Consolidation
Subsidiaries
Subsidiaries, which are those entities in which the Group has an interest of more than 50% of the voting rights and over which the Group has control,
or otherwise has power to exercise control over their operations, are consolidated. Subsidiaries are consolidated from the date on which control is
transferred to the Group and are no longer consolidated from the date that control ceases.
All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also
eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, accounting policies for subsidiaries
have been changed to ensure consistency with the policies adopted by the Group.
Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests are presented in
the consolidated statement of financial position within equity, separately from the parent’s shareholders’ equity.
Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling
interests having a deficit balance.
Acquisition of Subsidiaries
(cid:37)usiness 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.
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:17) Significant Accounting Policies (continued)
Basis of Consolidation (continued)
Acquisition of Subsidiaries (continued)
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.
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 (cid:180)(cid:51)redecessor(cid:181)). Related goodwill inherent in the (cid:51)redecessor’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.
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:17) Significant Accounting Policies (continued)
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(cid:30) unrealised
losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Interests in Joint Ventures
The Group’s interest in its joint ventures is accounted for under the equity method of accounting whereby an interest in jointly ventures is initially
recorded at cost and adjusted thereafter for post-acquisition changes in the Group’s share of net assets of joint ventures. The statement of operations
reflects the Group’s share of the results of operations of joint ventures.
Property, Plant and Equipment
The Group’s property, plant and equipment is stated at purchase or construction cost, excluding the costs of day-to-day servicing, less accumulated
depreciation and any impairment in value. Such cost includes the cost of replacing part of plant and equipment when that cost is incurred and
recognition criteria are met.
The Group’s property, plant and equipment include mining assets, which consist of mineral reserves, mine development and construction costs and
capitalised site restoration costs. Mineral reserves represent tangible assets acquired in business combinations. Mine development and construction
costs represent expenditures incurred in developing access to mineral reserves and preparations for commercial production, including sinking shafts and
underground drifts, roads, infrastructure, buildings, machinery and equipment.
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.
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:17) Significant Accounting Policies (continued)
Property, Plant and Equipment (continued)
The table below presents the useful lives of items of property, plant and equipment.
(cid:37)uildings and constructions
Machinery and equipment
Transport and motor vehicles
Other assets
Useful lives (years)
Weighted average remaining useful life (years)
15(cid:178)60
(cid:23)(cid:178)(cid:23)5
7(cid:178)20
3(cid:178)15
21
11
6
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.
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.
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:17) Significant Accounting Policies (continued)
Leases (continued)
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease
payments are recognised as an expense in the statement of operations on a straight-line basis over the lease term.
Goodwill
Goodwill represents the excess of the aggregate of the consideration transferred for an acquisition of a subsidiary or an associte and the amount
recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of
the net assets of the acquiree, the difference is recognised in the consolidated statement of operations.
Goodwill on acquisition of a subsidiary is included in intangible assets. Goodwill on acquisition of an associate is included in the carrying amount of the
investments in associates.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more
frequently, if events or changes in circumstances indicate that the carrying amount may be impaired. For the purpose of impairment testing, goodwill
acquired in a business combination is allocated to each of the Group’s cash-generating units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Impairment is determined by assessing the recoverable amount of the cash-generating unit, or the group of cash-generating units, to which the goodwill
relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. An impairment
loss recognised for goodwill is not reversed in a subsequent period.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation
disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in
this circumstance is measured based on the relative fair values of the operation disposed of and the portion of the cash-generating unit retained.
Intangible Assets Other Than Goodwill
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is
fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses. Expenditures on internally generated intangible assets, excluding capitalised development costs, are expensed as
incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful
economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the
amortisation method for an intangible asset with a finite life are reviewed at least at each year end. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the asset are treated as changes in accounting estimates.
Intangible assets with indefinite useful lives are not amortised, they are tested for impairment annually either individually or at the cash-generating unit
level.
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:17) Significant Accounting Policies (continued)
Intangible Assets Other Than Goodwill (continued)
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(cid:178)15
10
5(cid:178)19
6
6
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 (cid:180)financial assets at fair value through profit or loss(cid:181). Investments which are included in this category are subsequently carried at
fair value; gains or losses on such investments are recognised in income.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets
are carried at amortised cost using the effective interest method. Gains and losses are recognised in income when the loans and receivables are
derecognised or impaired, as well as through the amortisation process.
Non-derivative financial assets with fixed or determinable payments and fixed maturity that management has the positive intent and ability to hold to
maturity are classified as held-to-maturity. Held-to-maturity investments are carried at amortised cost using the effective yield method.
Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are
classified as available-for-sale(cid:30) 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.
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Annual Report & Accounts 2017
(cid:21)(cid:17) Significant Accounting Policies (continued)
Financial Assets (continued)
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(cid:18)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. (cid:37)ad 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. 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.
Inventories
Inventories are recorded at the lower of cost and net realisable value. Cost of inventory is determined on the weighted average basis and includes
expenditure incurred in acquiring or producing inventories and bringing them to their existing location and condition. The cost of finished goods and work
in progress includes an appropriate share of production overheads based on normal operating capacity, but excluding borrowing costs.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary
to make the sale.
Value Added Tax
The tax authorities permit the settlement of sales and purchases value added tax ((cid:180)VAT(cid:181)) 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.
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Notes to the consolidated financial statements (continued)
(cid:21)(cid:17) Significant Accounting Policies (continued)
Borrowings
(cid:37)orrowings 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.
(cid:37)orrowing 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.
Provisions
(cid:51)rovisions 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.
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
(cid:180)Changes in Existing Decommissioning, Restoration and Similar Liabilities(cid:181).
Provisions for site restoration costs are capitalised within property, plant and equipment.
176
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:17) Significant Accounting Policies (continued)
(cid:40)m(cid:83)lo(cid:92)ee (cid:37)enefits
Social and Pension Contributions
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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(cid:18)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.
(cid:51)ast 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 (cid:180)cost of sales(cid:181), (cid:180)general and administrative expenses(cid:181) and (cid:180)selling and distribution expenses(cid:181).
Other Costs
The Group incurs employee costs related to the provision of benefits such as health services, kindergartens and other services. These amounts
principally represent an implicit cost of employment and, accordingly, have been charged to cost of sales.
Share-based Payments
The Group has management compensation schemes (Note 21), under which certain senior executives and employees of the Group receive remuneration
in the form of share-based payment transactions, whereby they render services as consideration for equity instruments ((cid:180)equity-settled transactions(cid:181)).
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 (cid:37)lack-Scholes-Merton model. In valuing equity-settled transactions, no account is taken of any conditions,
other than market conditions.
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O
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N
A
N
C
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N
A
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A
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M
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:17) Significant Accounting Policies (continued)
Share-based Payments (continued)
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity (additional paid-in capital), over the period in which
service conditions are fulfilled, ending on the date on which the relevant persons become fully entitled to the award ((cid:180)the vesting date(cid:181)). 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 if E(cid:37)ITDA-related conditions are not satisfied or participants lose the entitlement for the shares due to the
termination of their employment. Accumulated share-based expense is adjusted to reflect the number of share options that eventually vest. For market-
related performance conditions, such as TSR (Note 21), if the conditions are not met and the share options do not vest, then no reversal is made for the
share-based expense previously recognised.
The TSR-related vesting condition of the Incentive Plan 2017 was considered by the Group as a market condition. As such, it was included in the
estimation of the fair value of the granted shares and will not be subsequently revised. Vesting condition related to E(cid:37)ITDA was not taken into account
when estimating the fair value of the share options at the grant date. Instead, this will be taken into account by adjusting the share-based expense based
on the number of share options that eventually vest.
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.
The dilutive effect of outstanding share-based awards is reflected as additional share dilution in the computation of earnings per share (Note 20).
Revenue
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.
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.
178
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:17) Significant Accounting Policies (continued)
Revenue (continued)
Rendering of Services
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The Group’s revenues from rendering of services include electricity, transportation, port and other services. Revenue is recognised when services are
rendered, which usually occurs at a point in time.
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 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. 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, tax legislation and
tax planning strategies.
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.
I
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P
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C
O
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P
O
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A
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E
G
O
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E
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N
A
N
C
E
I
I
F
N
A
N
C
A
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S
T
A
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E
M
E
N
T
S
A
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D
I
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I
O
N
A
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I
N
F
O
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A
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I
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179
Consolidated financial statements
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 included operations of Nakhodka Trade Sea (cid:51)ort (sold in (cid:45)une 2017) as it was 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 E(cid:37)ITDA (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 GAA(cid:51) figures with the exception of depreciation and repair expenses which are adjusted to approximate
the amount under IFRS(cid:30)
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 ((cid:180)E(cid:37)ITDA(cid:181)) for that
segment.
Segment EBITDA is determined as a segment’s profit(cid:18)(loss) from operations adjusted for social and social infrastructure maintenance expenses,
impairment of assets, profit(cid:18)(loss) on disposal of property, plant and equipment and intangible assets, foreign exchange gains(cid:18)(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.
180
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
3. Segment Information (continued)
The following tables present measures of segment profit or loss based on management accounts.
Year ended 31 December 2017
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
Year ended 31 December 2016
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
Year ended 31 December 2015
US$ million
Revenue
Sales to external customers
Inter-segment sales
Total revenue
Segment result – EBITDA
Steel
Steel,
North America
Coal
Other operations
Eliminations
Total
$ 8,093
295
8,388
$ 1,567
$ 1,868
–
1,868
$ 77
$ 796
1,142
1,938
$ 1,164
$ 87
301
388
$ 20
$ –
(1,738)
(1,738)
$ (24)
$ 10,844
–
10,844
$ 2,804
Steel
Steel,
North America
Coal
Other operations
Eliminations
Total
$ 5,528
194
5,722
$ 986
$ 1,464
(cid:178)
1,464
$ 22
$ 484
676
1,160
$ 613
$ 63
233
296
$ 15
(cid:7) (cid:178)
(1,103)
(1,103)
(cid:7) ((cid:23)(cid:23))
$ 7,539
(cid:178)
7,539
$ 1,592
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
(cid:7) (cid:178)
(1,128)
(1,128)
$ 110
$ 8,740
(cid:178)
8,740
$ 1,558
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
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N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
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D
I
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I
O
N
A
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I
N
F
O
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A
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I
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N
181
Consolidated financial statements
Notes to the consolidated financial statements (continued)
3. Segment Information (continued)
The following table shows a reconciliation of revenue and E(cid:37)ITDA 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 2017
US$ million
Revenue
Reclassifications and other adjustments
(cid:53)e(cid:89)en(cid:88)e (cid:83)e(cid:85) (cid:44)(cid:41)(cid:53)(cid:54) financial statements
EBITDA
Unrealised profits adjustment
Reclassifications and other adjustments
(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) (cid:69)ased on (cid:44)(cid:41)(cid:53)(cid:54) financial statements
$ 1,483
Unallocated subsidiaries
Steel
Steel,
North America
Coal
Other operations
Eliminations
Total
$ 1,868
(4)
$ 1,864
$ 1,938
276
$ 2,214
$ 388
74
$ 462
$ (1,738)
$ 10,844
282
(17)
$ (1,456)
$ 10,827
$ 1,164
$ 20
$ (24)
$ 2,804
$ 8,388
(645)
$ 7,743
$ 1,567
(49)
(35)
(84)
(29)
(255)
31
4
(31)
$ 77
–
(19)
(19)
$ 58
–
(132)
(19)
–
25
(4)
66
62
–
1
1
(9)
–
(9)
$ 1,226
$ 21
$ (33)
(1)
(167)
–
(7)
20
–
(3)
–
(1)
–
–
–
–
–
–
$ 1,203
$ (68)
$ 1,071
$ 17
$ (33)
(62)
13
(49)
$ 2,755
(131)
$ 2,624
(30)
(557)
12
(4)
14
$ 2,059
(73)
$ 1,986
$ (423)
11
(57)
(360)
(2)
$ 1,155
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(cid:18)(losses), net
Unallocated income(cid:18)(expenses), net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:73)(cid:85)om o(cid:83)e(cid:85)ations
Interest income(cid:18)(expense), net
Share of profits(cid:18)(losses) of joint ventures and
associates
Gain(cid:18)(loss) on financial assets and liabilities
Gain(cid:18)(loss) on disposal groups classified as
held for sale
Other non-operating (gains)(cid:18)losses, net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:69)e(cid:73)o(cid:85)e ta(cid:91)
182
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
3. Segment Information (continued)
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Year ended 31 December 2016
US$ million
Revenue
Reclassifications and other adjustments
(cid:53)e(cid:89)en(cid:88)e (cid:83)e(cid:85) (cid:44)(cid:41)(cid:53)(cid:54) financial statements
EBITDA
Unrealised profits adjustment
Reclassifications and other adjustments
Steel
Steel,
North America
Coal
Other operations
Eliminations
Total
$ 5,722
(225)
$ 5,497
$ 986
(11)
29
18
$ 1,464
(cid:178)
$ 1,464
$ 1,160
162
$ 1,322
$ 22
$ 613
(cid:178)
6
6
(3)
34
31
$ 296
67
$ 363
$ 15
(cid:178)
2
2
(cid:7) (1,103)
170
(cid:7) (933)
$ 7,539
174
$ 7,713
(cid:7) ((cid:23)(cid:23))
$ 1,592
2
(cid:178)
2
(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) (cid:69)ased on (cid:44)(cid:41)(cid:53)(cid:54) financial statements
$ 1,004
$ 28
$ 644
$ 17
(cid:7) ((cid:23)2)
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(cid:18)(losses), net
Unallocated income(cid:18)(expenses), net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:73)(cid:85)om o(cid:83)e(cid:85)ations
Interest income(cid:18)(expense), net
Share of profits(cid:18)(losses) of joint ventures and
associates
Gain(cid:18)(loss) on financial assets and liabilities
Other non-operating (gains)(cid:18)losses, net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:69)e(cid:73)o(cid:85)e ta(cid:91)
(21)
(219)
(11)
(8)
((cid:23)3)
$ 702
(cid:178)
(155)
((cid:23)30)
(5)
14
(cid:7) (5(cid:23)8)
(2)
(1(cid:23)1)
(2(cid:23))
(9)
107
$ 575
(cid:178)
(3)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
$ 14
(cid:7) ((cid:23)2)
(12)
71
59
$ 1,651
(109)
$ 1,542
(23)
(518)
((cid:23)65)
(22)
78
$ 592
(129)
$ 463
(cid:7) ((cid:23)71)
(23)
(9)
(52)
(cid:7) (92)
I
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U
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N
E
S
S
R
E
V
E
W
I
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R
E
P
O
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C
O
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P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
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D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
183
Consolidated financial statements
Notes to the consolidated financial statements (continued)
3. Segment Information (continued)
Steel
Steel,
North America
Coal
Other operations
Eliminations
Total
$ 393
40
$ 433
$ 16
(cid:178)
(2)
(2)
$ 14
(cid:178)
(3)
(cid:178)
(cid:178)
4
(cid:7) (1,128)
137
(cid:7) (991)
$ 110
((cid:23)3)
(cid:178)
((cid:23)3)
$ 67
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
$ 15
$ 67
$ 8,740
27
$ 8,767
$ 1,558
21
(11)
10
$ 1,568
(130)
$ 1,438
(25)
(581)
((cid:23)(cid:23)1)
((cid:23)1)
(508)
(cid:7) (158)
134
(cid:7) (2(cid:23))
(cid:7) ((cid:23)66)
(20)
((cid:23)8)
21
(167)
(3)
(cid:7) (707)
Year ended 31 December 2015
US$ million
Revenue
Reclassifications and other adjustments
(cid:53)e(cid:89)en(cid:88)e (cid:83)e(cid:85) (cid:44)(cid:41)(cid:53)(cid:54) financial statements
EBITDA
Unrealised profits adjustment
Reclassifications and other adjustments
$ 6,260
(273)
$ 5,987
$ 1,033
62
(1(cid:23))
48
$ 2,263
7
$ 2,270
$ 952
116
$ 1,068
$ 51
$ 348
2
2
4
(cid:178)
3
3
(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36) (cid:69)ased on (cid:44)(cid:41)(cid:53)(cid:54) financial statements
$ 1,081
$ 55
$ 351
Unallocated subsidiaries
(2(cid:23))
(260)
(81)
(8)
(270)
$ 438
(cid:178)
(153)
(258)
(10)
(89)
(cid:7) ((cid:23)55)
(1)
(165)
(102)
(23)
(153)
(cid:7) (93)
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(cid:18)(losses), net
Unallocated income(cid:18)(expenses), net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:73)(cid:85)om o(cid:83)e(cid:85)ations
Interest income(cid:18)(expense), net
Share of profits(cid:18)(losses) of joint ventures and
associates
Gain(cid:18)(loss) on financial assets and liabilities
Gain(cid:18)(loss) on disposal groups classified as
held for sale
Loss of control over a subsidiary
Other non-operating (gains)(cid:18)losses, net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:69)e(cid:73)o(cid:85)e ta(cid:91)
184
m
o
c
.
z
a
r
v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
3. Segment Information (continued)
The revenues from external customers for each group of similar products and services are presented in the following table:
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
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
2017
2016
2015
$ 2,171
313
863
2,523
349
440
191
77
466
30
7,423
159
427
309
875
67
26
1,863
1,266
24
93
1,383
158
158
$ 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
$ 10,827
$ 7,713
$ 8,767
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
185
Consolidated financial statements
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
CIS
Russia
Ukraine
Kazakhstan
(cid:37)elarus
Uzbekistan
Kyrgyzstan
Others
America
USA
Canada
Mexico
Others
Asia
Taiwan
Philippines
Indonesia
Republic of Korea
Thailand
Japan
China
Vietnam
Singapore
Mongolia
United Arab Emirates
Jordan
Others
Europe
Turkey
Czech Republic
Italy
Germany
Poland
Austria
Slovakia
Other members of the European Union
Others
Africa
Egypt
Kenya
Algeria
Republic of South Africa
Others
Other countries
2017
2016
2015
$ 4,255
$ 3,080
$ 3,104
368
254
62
37
36
55
5,067
1,465
546
156
34
2,201
468
345
330
321
189
149
145
44
41
28
25
2
75
2,162
328
191
174
76
51
95
35
153
25
1,128
100
106
36
2
20
264
5
296
184
45
41
12
52
3,710
826
682
192
22
1,722
376
65
195
123
138
117
67
47
66
10
18
30
120
1,372
213
100
85
38
34
26
19
88
37
640
138
78
16
4
29
265
4
242
237
60
35
8
82
3,768
1,566
779
203
18
2,566
323
85
197
123
121
97
131
28
13
11
40
81
104
1,354
392
28
114
45
27
50
38
97
24
815
43
44
8
100
63
258
6
None of the Group’s customers amounts to 10% or more of the consolidated revenues.
$ 10,827
$ 7,713
$ 8,767
186
m
o
c
.
z
a
r
v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
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:
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
US$ million
Russia
Canada
USA
Ukraine
Kazakhstan
Czech Republic
Italy
Republic of South Africa
Other countries
2017
2016
2015
$ 3,879
1,332
818
61
51
37
45
–
4
$ 3,553
1,233
877
144
53
31
22
17
8
$ 3,105
1,162
1,347
195
60
32
5
15
11
$ 6,227
$ 5,938
$ 5,932
4. Changes in Composition of the Group
Business Combinations
In (cid:45)une 2017, the Group purchased the business of Western Canada Machining Inc. (Alberta, Canada), which produces couplings for use in the oil and
gas industry. The consideration amounted to $5 million in cash. At the date of business combination the fair value of net assets of the acquired company
was $5 million.
Purchase of Non-controlling Interests
Mezhegeyugol
On 14 March 2017, the Group signed an option agreement with a non-controlling shareholder in respect of shares of Mezhegeyugol, a coal mining
subsidiary of the Group. Under the agreement, the non-controlling shareholder has the right to sell to the Group (the put option) all its shares in
Mezhegeyugol (39.98(cid:23)1%) for (cid:7)39 million and to settle the loan payable to the Group for (cid:7)25 million. As a result, the Group would hold 100% ownership
interest in the subsidiary. The option can be exercised from 1 December 2019 to 1 December 2020.
The Group determined that the terms of the option agreement give the Group the rights to the beneficial interests in Mezgegeyugol and derecognised the
non-controlling interests and recognised a liability under the put option. The difference between the discounted value of the liability under the put option
((cid:7)60 million) and the carrying value of non-controlling interest in the amount of (cid:7)56 million was charged to the accumulated profits of the Group. In
2017, the Group accrued $1 million interest on this liability.
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
(cid:37)oard of Highveld Steel and Vanadium Limited ((cid:180)Highveld(cid:181)) 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 (cid:180)business rescue practitioner(cid:181).
Until Highveld is successfully re-financed(cid:18)restructured, Highveld’s (cid:37)oard 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 (cid:37)oard or its directors, but he would not be bound by any requests or
advice from Highveld’s (cid:37)oard or the directors.
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
187
Consolidated financial statements
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.
(cid:37)ased 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 1(cid:23) 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 1(cid:23) 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
Sale of Subsidiaries
Sales of subsidiaries are disclosed in Note 12.
13 April 2015
$ 77
23
74
59
1
234
61
144
205
4
$ 25
188
m
o
c
.
z
a
r
v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
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.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
US$ million
At 31 December 2014
Impairment
OSM Tubular – Camrose Mills
Oregon Steel Portland Mill
Red Deer
Deconsolidation of subsidiaries (Note (cid:23))
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
Sale of subsidiaries (Note 12)
Translation difference
At 31 December 2017
Gross amount
Impairment losses
Carrying amount
$ 2,628
$ (1,087)
$ 1,541
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(17)
(3)
(216)
$ 2,392
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(28)
3
$ 2,367
(22)
58
$ 2,403
(251)
(157)
(53)
((cid:23)1)
17
(cid:178)
105
$ (1,216)
(316)
(188)
(111)
(17)
28
17
$ (1,487)
16
(15)
$ (1,486)
(251)
(157)
(53)
((cid:23)1)
(cid:178)
(3)
(111)
$ 1,176
(316)
(188)
(111)
(17)
(cid:178)
20
$ 880
(6)
43
$ 917
As explained in Note 6, the composition of cash generating units of Steel North America was reassessed in 2016 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
EVRAZ Inc. NA(cid:18)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
2017
2016
2015
$ 843
$ 808
$ 1,109
–
–
–
–
–
–
–
–
–
–
381
146
316
35
–
35
4
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
355
137
316
33
6
29
4
188
410
(cid:178)
16
1
92
(cid:178)
288
98
16
(cid:178)
(cid:178)
(cid:178)
28
6
30
3
$ 917
$ 880
$ 1,176
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
189
Consolidated financial statements
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 2017
US$ million
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya
EVRAZ (cid:51)alini e (cid:37)ertoli
Yuzhkuzbassugol
Evrazruda
Others, net
Recognised in profit or loss
Year ended 31 December 2016
US$ million
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya
EVRAZ Stratcor Inc.
EVRAZ (cid:51)alini e (cid:37)ertoli
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 (cid:51)alini e (cid:37)ertoli
Yuzhny Stan
Evrazruda
Others, net
Recognised in profit or loss
Recognised in other comprehensive income(cid:18)(loss)
Goodwill and
intangible assets
Property, plant and
equipment
Taxes receivable
Total
$ (13)
–
–
–
–
–
–
$ (13)
(13)
$ 6
(12)
9
20
(9)
8
(2)
$ 20
20
$ –
–
–
–
–
–
5
$ 5
5
$ (7)
(12)
9
20
(9)
8
3
$ 12
12
Goodwill and
intangible assets
Property, plant and
equipment
Taxes receivable
Total
(cid:7) (299)
(17)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:7) (316)
(316)
(cid:7) (88)
(cid:7) (cid:178)
(cid:7) (387)
(26)
(17)
(16)
19
(5)
(10)
(8)
(cid:7) (151)
(151)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
2
$ 2
2
((cid:23)3)
(17)
(16)
19
(5)
(10)
(6)
(cid:7) ((cid:23)65)
((cid:23)65)
Goodwill and
intangible assets
Property, plant and
equipment
Taxes receivable
Total
(cid:7) (210)
((cid:23)1)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:7) (251)
(251)
(cid:178)
(cid:7) (cid:178)
(7)
(91)
(37)
(30)
(19)
(6)
(cid:7) (190)
(189)
(1)
(cid:7) (cid:178)
(cid:7) (210)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(1)
(cid:7) (1)
(1)
(cid:178)
((cid:23)8)
(91)
(37)
(30)
(19)
(7)
(cid:7) ((cid:23)(cid:23)2)
((cid:23)(cid:23)1)
(1)
190
m
o
c
.
z
a
r
v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
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 goodwill was allocated or
where indicators of impairment were identified. Given the market volatility, in 2015 the impairment test was performed as of 31 December. In 2016 and
2017, the impairment tests were 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)(cid:30)
• Seamless pipes;
• Flat rolled products (plates and coils)(cid:30)
• 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. (cid:37)oth 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 reversal in 2017 were improvements in net working capital and changes in expectations of iron ore and steel
prices and production volumes.
The key assumptions used by management in the value-in-use calculations with respect to the cash-generating units to which the goodwill was allocated
are presented in the table below.
Commodity
Period of forecast,
years
Pre-tax discount
rate, %
Average price of
commodity per
tonne in the next
reporting year
Recoverable
amount of CGU, US$
million
Carrying amount
of CGU before
impairment,
US$ million
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Steel North America
Large diameter pipes
Oil Country Tubular Goods
Long products
EVRAZ Vanady-Tula
EVRAZ Nikom, a.s.
steel products
steel products
steel products
vanadium products
ferrovanadium products
5
5
5
5
5
5
5
5
5
5
11.23
10.85
11.02
13.03
11.00
10.69
10.36
10.08
$913
$1,121
$647
$978
$887
$572
12.98 $23,403 $10,990
10.74
$26,576 $12,568
1,074
1,288
547
591
986
47
362
686
393
43
938
383
520
61
34
877
379
549
58
33
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
191
Consolidated financial statements
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
the next reporting year
EVRAZ Caspian Steel
EVRAZ (cid:51)alini e (cid:37)ertoli
EVRAZ Stratcor Inc.
Raspadskaya
Mezhegeyugol
Yuzhkuzbassugol
EVRAZ Kachkanarsky Mining-and-(cid:51)rocessing Integrated Works
Evrazruda - Sheregesh mine
Evrazruda - Tashtagol mine
5
8
5
18
25
14
23
22
22
12.55
14.68
steel products
steel products
12.92 ferrovanadium products
13.09
12.31
13.88
13.61
14.36
13.68
coal
coal
coal
iron ore products
iron ore
iron ore
$373
€467
$35,823
$57
$67
$78
$47
$55
$54
The value in use of the cash-generating units for which an impairment loss was recognised or reversed in the reporting year was as follows:
US$ million
Large diameter pipes
EVRAZ (cid:51)alini e (cid:37)ertoli
Evrazruda - Tashtagol mine
30 September 2017
30 September 2016
1,074
44
84
1,288
24
(cid:178)
192
m
o
c
.
z
a
r
v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
6. Impairment of Assets (continued)
The estimations of value in use are most sensitive to the following assumptions:
Discount Rates
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
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 or
reduced amount of an impairment reversal at EVRAZ Caspian Steel, EVRAZ (cid:51)alini e (cid:37)ertoli, EVRAZ Stratcor Inc., Large diameter pipes and Long products
cash-generating units. If discount rates were 10% higher, this would lead to an additional net impairment loss of (cid:7)37 million.
Sales Prices
The price assumptions for the products sold by the Group were estimated based on industry research using analysts’ views published by Alfa-(cid:37)ank,
(cid:37)alclays, Credit Suisse, Deutsche (cid:37)ank, Goldman Sachs, Morgan Stanley, R(cid:37)C, Sberbank, VT(cid:37) Capital and Wood (cid:9) Company during the period from
September to December 2017. The Group expects that the nominal prices will fluctuate with a compound annual growth rate of (7.(cid:23))%-9.(cid:23)% in 2018 (cid:178)
2022, 2.5% in 2023 and thereafter. Reasonably possible changes in sales prices could lead to an additional impairment or reduced amount of an
impairment reversal at EVRAZ (cid:51)alini e (cid:37)ertoli and EVRAZ Stratcor Inc. cash-generating units. If the prices assumed for 2018 and 2019 in the impairment
test were 10% lower, this would lead to an additional net impairment loss of (cid:7)5 million.
Sales Volumes
Management assumed that the sales volumes of steel products in 2018 will increase by 2.2% 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 or reduced amount of
an impairment reversal at EVRAZ Caspian Steel and EVRAZ (cid:51)alini e (cid:37)ertoli. If the sales volumes were 10% lower than those assumed for 2018 and 2019
in the impairment test, this would lead to an additional net impairment loss of $23 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 or reduced amount of an impairment reversal at EVRAZ Caspian Steel, EVRAZ Nikom, EVRAZ
(cid:51)alini e (cid:37)ertoli and EVRAZ Stratcor Inc. If the actual costs were 10% higher than those assumed for 2018 and 2019 in the impairment test, this would
lead to an additional net impairment loss of $57 million.
Sensitivity Analysis
For the cash-generating units, which were not impaired in the reporting period and for which the reasonably possible changes could lead to impairment,
the recoverable amounts would become equal to their carrying amounts if the assumptions used to measure the recoverable amounts changed by the
following percentages:
Discount rates
Sales
prices
Sales volumes
Cost control measures
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
EVRAZ Caspian Steel
EVRAZ Inc NA (cid:178) Long products
EVRAZ Nikom
EVRAZ (cid:51)alini e (cid:37)ertoli
EVRAZ Stratcor Inc.
5.1%
8%
(cid:178)
(cid:178)
(cid:23).0%
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(6.5)%
(3.5)%
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:23).8%
(cid:178)
5.5%
8.2%
1.0%
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
193
Consolidated financial statements
Notes to the consolidated financial statements (continued)
7. Income and Expenses
Cost of revenues, selling and distribution costs, general and administrative expenses include the following for the years ended 31 December:
US$ million
2017
2016
2015
Cost of inventories recognised as expense
Staff costs, including social security taxes
Depreciation, depletion and amortisation
$ (4,181)
(1,364)
(561)
(cid:7) (2,761)
(1,200)
(521)
(cid:7) (3,295)
(1,(cid:23)5(cid:23))
(585)
In 2017, 2016 and 2015, the Group recognised (expense)(cid:18)income on allowance or net reversal of the allowance for net realisable value in the amount of
(cid:7)((cid:23)) million, (cid:7)2 million and (cid:7)(1) million, respectively.
Staff costs include the following:
US$ million
Wages and salaries
Social security costs
Net benefit expense
Share-based awards
Other compensations
The average number of staff employed under contracts of service was as follows:
Steel
Steel, North America
Coal
Other operations
Unallocated
2017
2016
2015
$ 1,000
246
42
17
59
$ 1,364
$ 864
212
43
16
65
$ 1,200
2017
2016
2015
54,737
3,395
14,629
523
2,736
76,020
56,974
3,193
14,808
896
2,080
77,951
The major components of other operating expenses were as follows:
US$ million
2017
2016
2015
Idling, reduction and stoppage of production, including termination benefits
Restoration works and casualty compensations in connection with accidents
Other
$ (26)
(2)
(33)
$ (61)
(cid:7) (81)
(1)
(19)
(cid:7) (101)
$ 1,025
254
45
20
110
$ 1,454
63,126
3,847
18,042
1,312
2,901
89,228
(cid:7) (5(cid:23))
(2)
(22)
(cid:7) (78)
194
m
o
c
.
z
a
r
v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
7. Income and Expenses (continued)
Interest expense consisted of the following for the years ended 31 December:
US$ million
(cid:37)ank 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 2(cid:23))
Other
2017
2016
2015
$ (115)
(279)
(1)
(19)
(16)
(7)
(cid:7) (133)
(306)
(cid:178)
(22)
(1(cid:23))
(6)
$ (437)
(cid:7) ((cid:23)81)
Interest income consisted of the following for the years ended 31 December:
US$ million
2017
2016
2015
Interest on bank accounts and deposits
Interest on loans and accounts receivable
Other
$ 8
6
–
$ 14
$ 6
2
2
$ 10
Gain(cid:18)(loss) on financial assets and liabilities included the following for the years ended 31 December:
US$ million
2017
2016
2015
Impairment of available-for-sale financial assets (Note 13)
Loss on extinguishment of debts (Note 22)
Gain(cid:18)(loss) on derivatives not designated as hedging instruments (Note 25)
Gain(cid:18)(loss) on hedging instruments (Note 25)
Other
$ –
(78)
4
14
3
$ (57)
(cid:7) (2)
(50)
23
14
6
(cid:7) (9)
(cid:7) (88)
(3(cid:23)2)
(cid:178)
(2(cid:23))
(13)
(8)
(cid:7) ((cid:23)75)
$ 4
3
2
$ 9
(cid:7) (11)
(15)
(25)
5
(2)
(cid:7) ((cid:23)8)
In 2016, other non-operating losses included $39 million relating to the settlement of the Group’s guarantee under a long-term take-or-pay supply
contract of the Group’s former subsidiary.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
195
Consolidated financial statements
Notes to the consolidated financial statements (continued)
8. Income Taxes
The Group’s income was subject to tax at the following tax rates:
Russia
Canada
Cyprus
Czech Republic
Italy
South Africa
Switzerland
Ukraine
USA
2017
2016
2015
20.00%
26.25%
12.50%
19.00%
27.90%
28.00%
9.43%
18.00%
37.83%
20.00%
26.06%
12.50%
19.00%
31.(cid:23)0%
28.00%
9.09%
18.00%
37.72%
20.00%
25.89%
12.50%
19.00%
31.(cid:23)0%
28.00%
9.72%
18.00%
37.(cid:23)1%
On 22 December 2017, new tax legislation has been adopted in the USA, which introduced a reduction in federal income tax rate from 35% to 21%
starting from 1 January 2018. In addition, the new legislation will further limit the deductibility of interest expense on intra-group loans for income
tax purposes. At 31 December 2017, (cid:7)73 million of the Group’s deferred tax assets related to such unutilised interest expenses. Uncertainty exists
as to whether these unutilised interest expenses will be deductible against future taxable earnings under the new tax law and, therefore, whether the
deferred tax asset will be recoverable. The Group’s subsidiaries measured the respective deferred tax assets and liabilities at 31 December 2017 using
the enacted tax rates and based on the assumption that the deferred tax asset carried forward will be recoverable.
Major components of income tax expense for the years ended 31 December were as follows:
US$ million
Current income tax expense
Adjustment in respect of income tax of previous years
Deferred income tax benefit(cid:18)(expense) relating to origination and reversal
of temporary differences
2017
2016
2015
$ (484)
(cid:7) (185)
(cid:7) (100)
(1)
89
2
87
1
87
Income tax (expense)(cid:18)benefit reported in the consolidated statement of operations
$ (396)
(cid:7) (96)
(cid:7) (12)
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
(cid:51)rofit(cid:18)(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 resulting from the changes in tax rates and laws
Tax on dividends distributed by the Group’s subsidiaries
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(cid:18)reversal
Effect of the difference in tax rates in countries other than the Russian Federation
Share of profits in joint ventures and associates
2017
2016
2015
$ 1,155
(cid:7) (92)
(231)
(1)
(6)
(26)
–
(254)
100
20
2
18
2
(cid:178)
(cid:178)
(2)
(63)
(157)
110
((cid:23))
(cid:7) (96)
(cid:7) (707)
141
1
(cid:178)
(cid:178)
2
(6(cid:23))
(176)
88
((cid:23))
(cid:7) (12)
Income tax (expense)(cid:18)benefit reported in the consolidated statement of operations
$ (396)
196
m
o
c
.
z
a
r
v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
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 2017
US$ million
2017
Change
recognised in
statement of
operations
Change
recognised
in other
comprehensive
income
Change due
to disposal of
subsidiaries
Transfer to
disposal groups
classified as
held for sale
Translation
difference
2016
Deferred income tax liabilities:
Valuation and depreciation of property, plant
and equipment
Valuation and amortisation of intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
Net deferred income tax liability
Year ended 31 December 2016
$ 546
62
80
688
267
126
12
128
533
173
$ 328
(36)
(21)
19
(38)
55
8
1
(13)
51
47
(42)
–
–
–
–
–
(15)
–
–
(15)
(10)
5
(10)
(1)
(1)
(12)
(25)
(8)
–
–
(33)
(24)
(3)
–
–
–
–
–
–
–
–
–
–
–
25
3
4
32
11
3
1
1
16
4
20
$ 567
81
58
706
226
138
10
140
514
156
$ 348
US$ million
2016
Change
recognised in
statement of
operations
Change
recognised
in other
comprehensive
income
Change due
to disposal of
subsidiaries
Transfer to
disposal groups
classified as
held for sale
Translation
difference
2015
Deferred income tax liabilities:
Valuation and depreciation of property, plant
and equipment
Valuation and amortisation of intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
Net deferred income tax liability
Year ended 31 December 2015
$ 567
81
58
706
226
138
10
140
514
156
(62)
(11)
5
(68)
(5)
4
(1)
21
19
28
$ 348
(59)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(1)
(cid:178)
(2)
(3)
(3)
(cid:178)
66
3
5
74
23
8
2
(2)
31
12
55
$ 563
89
48
700
208
127
9
123
467
119
$ 352
US$ million
2015
Change
recognised in
statement of
operations
Change
recognised
in other
comprehensive
income
Change due
to disposal of
subsidiaries
Transfer to
disposal groups
classified as
held for sale
Translation
difference
2014
Deferred income tax liabilities:
Valuation and depreciation of property, plant
and equipment
Valuation and amortisation of intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
Net deferred income tax liability
$ 563
89
48
700
208
127
9
123
467
119
$ 352
(55)
((cid:23))
3
(56)
19
(12)
2
22
31
53
(3(cid:23))
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(5)
(cid:178)
(cid:178)
(5)
(1)
4
(8)
(5)
(cid:178)
(13)
(1)
(17)
(3)
6
(15)
(2)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(115)
(1(cid:23))
(1(cid:23))
(1(cid:23)3)
(57)
(16)
(3)
(6)
(82)
(28)
(89)
$ 741
112
59
912
247
177
13
101
538
97
$ 471
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
197
Consolidated financial statements
Notes to the consolidated financial statements (continued)
8. Income Taxes (continued)
As of 31 December 2017, 2016 and 2015, 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 2017, the unused tax losses carried forward approximated $9,893 million
(2016: (cid:7)9,729 million, 2015: (cid:7)7,658 million). The Group recognised deferred tax assets of (cid:7)267 million (2016: (cid:7)226 million, 2015: (cid:7)208 million)
in respect of unused tax losses. Deferred tax assets in the amount of (cid:7)2,339 million (2016: (cid:7)2,329 million, 2015: (cid:7)1,895 million) have not been
recorded as it is not probable that sufficient taxable profits will be available in the foreseeable future to offset these losses. Tax losses of (cid:7)8,711 million
(2016: (cid:7)8,593 million, 2015: (cid:7)6,6(cid:23)2 million) for which deferred tax assets were not recognised arose in companies registered in Canada, Cyprus, Italy,
Luxembourg, Russia, Ukraine, the United Kingdom and the USA. Losses in the amount of (cid:7)8,66(cid:23) million (2016: (cid:7)8,5(cid:23)9 million, 2015: (cid:7)6,(cid:23)10 million)
are available indefinitely for offset against future taxable profits of the companies in which the losses arose and (cid:7)(cid:23)7 million will expire in 2018 (2016:
(cid:7)(cid:23)(cid:23) million, 2015: (cid:7)232 million).
9. Property, Plant and Equipment
(cid:51)roperty, plant and equipment consisted of the following as of 31 December:
US$ million
Cost:
Land
(cid:37)uildings and constructions
Machinery and equipment
Transport and motor vehicles
Mining assets
Other assets
Assets under construction
Accumulated depreciation, depletion and impairment losses:
(cid:37)uildings and constructions
Machinery and equipment
Transport and motor vehicles
Mining assets
Other assets
2017
2016
2015
$ 107
1,894
4,812
255
2,461
37
549
10,115
(968)
(2,906)
(168)
(1,112)
(28)
(5,182)
$ 4,933
$ 100
1,755
4,446
223
2,440
38
424
9,426
(872)
(2,637)
(1(cid:23)(cid:23))
(1,093)
(28)
((cid:23),77(cid:23))
$ 4,652
$ 97
1,512
3,961
193
2,100
37
302
8,202
(690)
(2,163)
(11(cid:23))
(908)
(25)
(3,900)
$ 4,302
198
m
o
c
.
z
a
r
v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
9. Property, Plant and Equipment (continued)
The movement in property, plant and equipment for the year ended 31 December 2017 was as follows:
US$ million
At 31 December 2016, cost, net of
accumulated depreciation
Assets acquired in business combinations
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 2017, cost, net of
accumulated depreciation
Land
Buildings and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
Mining
assets
Other assets
Assets under
construction
Total
$ 100
$ 883
$ 1,809
$ 79
$ 1,347
$ 10
$ 424
$ 4,652
3
–
–
(1)
–
(1)
3
–
–
3
1
–
74
(3)
(84)
(2)
9
(6)
8
46
3
7
344
(11)
(325)
(13)
25
(11)
–
78
–
–
32
(2)
(25)
–
–
(1)
–
4
–
–
50
(3)
(85)
(21)
30
(76)
36
71
–
–
2
–
(3)
–
–
–
–
–
–
622
(502)
–
–
(11)
1
(10)
–
25
7
629
–
(20)
(522)
(48)
68
(104)
44
227
$ 107
$ 926
$ 1,906
$ 87
$ 1,349
$ 9
$ 549
$ 4,933
The movement in property, plant and equipment for the year ended 31 December 2016 was as follows:
US$ million
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
Land
Buildings and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
Mining
assets
Other assets
Assets under
construction
Total
$ 97
$ 822
$ 1,798
$ 79
$ 1,192
$ 12
(cid:178)
(cid:178)
(1)
(cid:178)
((cid:23))
2
(cid:178)
(cid:178)
6
1
64
(5)
(72)
((cid:23)2)
5
((cid:23))
(cid:178)
114
5
209
(12)
(309)
(90)
17
(10)
(3)
204
(cid:178)
14
(2)
(21)
(2)
(cid:178)
(cid:178)
(cid:178)
11
(cid:178)
43
(9)
(79)
(30)
3
(cid:178)
20
207
2
3
((cid:23))
((cid:23))
(cid:178)
(cid:178)
(cid:178)
(cid:178)
1
$ 302
442
(333)
(cid:178)
(cid:178)
(11)
1
(10)
(cid:178)
33
$ 4,302
450
(cid:178)
(33)
((cid:23)85)
(179)
28
(2(cid:23))
17
576
$ 100
$ 883
$ 1,809
$ 79
$ 1,347
$ 10
$ 424
$ 4,652
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
199
Consolidated financial statements
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 2015 was as follows:
US$ million
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
Land
Buildings and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
Mining
assets
Other assets
Assets under
construction
Total
$ 124
$ 1,118
$ 2,461
$ 102
$ 1,548
$ 15
$ 428
$ 5,796
(cid:178)
(cid:178)
(2)
(cid:178)
((cid:23))
(cid:178)
(cid:178)
(1)
(7)
(cid:178)
40
(7)
(77)
(16)
2
(1)
(2)
(13)
(cid:178)
(13)
6
(228)
4
234
(29)
(3(cid:23)3)
((cid:23)(cid:23))
2
(cid:178)
(65)
((cid:23))
(cid:178)
((cid:23)18)
(cid:178)
28
((cid:23))
(2(cid:23))
(cid:178)
(cid:178)
(cid:178)
(1)
(cid:178)
(cid:178)
(22)
1
176
(7)
(88)
(109)
3
(cid:178)
(2)
(cid:178)
45
(375)
1
3
(cid:178)
(5)
(cid:178)
(cid:178)
(cid:178)
(1)
(cid:178)
(cid:178)
(1)
480
((cid:23)81)
(22)
(cid:178)
486
(cid:178)
(71)
(537)
(36)
(209)
13
(cid:178)
(5)
(cid:178)
(cid:178)
(75)
20
(1)
(77)
(2(cid:23))
51
(1,132)
$ 97
$ 822
$ 1,798
$ 79
$ 1,192
$ 12
$ 302
$ 4,302
Assets under construction include prepayments to constructors and suppliers of property, plant and equipment in the amount of $60 million, $34 million
and $24 million as of 31 December 2017, 2016 and 2015, respectively.
Impairment losses were identified in respect of certain items of property, plant and equipment that were recognised as functionally obsolete or as
a result of the testing at the level of cash-generating units (Note 6).
The amount of borrowing costs capitalised during the year ended 31 December 2017 was (cid:7)6 million (2016: (cid:7)9 million, 2015: (cid:7)16 million).
10. Intangible Assets Other Than Goodwill
Intangible assets consisted of the following as of 31 December:
US$ million
Cost:
Customer relationships
Water rights and environmental permits
Contract terms
Other
Accumulated amortisation and impairment:
Customer relationships
Water rights and environmental permits
Contract terms
Other
2017
2016
2015
$ 693
57
26
65
841
(513)
(13)
(11)
(45)
(582)
$ 259
$ 663
57
25
90
835
((cid:23)60)
(cid:178)
(8)
(70)
(538)
$ 297
$ 651
57
20
83
811
((cid:23)19)
(cid:178)
((cid:23))
(6(cid:23))
((cid:23)87)
$ 324
200
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
10. Intangible Assets Other Than Goodwill (continued)
As of 31 December 2017, 2016 and 2015, water rights and environmental permits with a carrying value of $44 million, $57 million and $57 million,
respectively, had an indefinite useful life.
The movement in intangible assets for the year ended 31 December 2017 was as follows:
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
US$ million
At 31 December 2016, cost, net of accumulated amortisation
Additions
Amortisation charge
Impairment losses recognised in statement of operations
Translation difference
At 31 December 2017, cost, net of accumulated amortisation
Customer
relationships
Water rights and
environmental
permits
Contract terms
Other
Total
$ 203
–
(36)
–
13
$ 180
$ 57
–
–
(13)
–
$ 44
$ 17
$ 20
$ 297
–
(3)
–
1
5
(5)
–
–
5
(44)
(13)
14
$ 15
$ 20
$ 259
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
(cid:178)
(35)
6
$ 203
$ 57
(cid:178)
(cid:178)
(cid:178)
$ 57
$ 16
(cid:178)
(2)
3
$ 17
$ 19
$ 324
3
((cid:23))
2
3
((cid:23)1)
11
$ 20
$ 297
The movement in intangible assets for the year ended 31 December 2015 was as follows:
US$ million
Customer
relationships
Water rights and
environmental
permits
Contract terms
Other
Total
At 31 December 2014, cost, net of accumulated amortisation
$ 339
$ 57
$ 23
$ 22
$ 441
Additions
Amortisation charge
Loss of control over a subsidiary
Translation difference
(cid:178)
((cid:23)3)
(20)
((cid:23)(cid:23))
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(2)
(cid:178)
(5)
6
(5)
(cid:178)
((cid:23))
6
(50)
(20)
(53)
At 31 December 2015, cost, net of accumulated amortisation
$ 232
$ 57
$ 16
$ 19
$ 324
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
201
Consolidated financial statements
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 2014
Share of profit(cid:18)(loss)
Impairment of investments
Translation difference
Investment at 31 December 2015
Share of profit(cid:18)(loss)
Impairment of investments
Translation difference
Investment at 31 December 2016
Additional investments
Share of profit(cid:18)(loss)
Dividends paid
Translation difference
Investment at 31 December 2017
Timir
Streamcore
Other associates
Total
$ 10
$ 121
$ 82
(1)
(23)
(18)
$ 40
(2)
(26)
7
$ 19
(cid:178)
1
(cid:178)
1
$ 21
$ 29
4
(cid:178)
(7)
$ 26
5
(cid:178)
6
$ 37
(cid:178)
8
(cid:178)
2
$ 47
(cid:178)
(cid:178)
(2)
$ 8
(cid:178)
(cid:178)
(cid:178)
$ 8
1
2
(1)
1
$ 11
3
(23)
(27)
$ 74
3
(26)
13
$ 64
1
11
(1)
4
$ 79
$ 3
(23)
(cid:7) (20)
Share of profit(cid:18)(loss) of joint ventures and associates which is reported in the statement of operations comprised the following:
US$ million
Share of profit(cid:18)(loss), net
Impairment of investments
Share of profits(cid:18)(losses) of joint ventures and associates recognised in the
consolidated statement of operations
2017
2016
2015
$ 11
–
$ 11
$ 3
(26)
(cid:7) (23)
Timir Iron Ore Project
In April 2013, the Group acquired a 51% ownership interest in the joint venture with Alrosa for the development of (cid:23) iron ore deposits in the southern part
of the (cid:60)akutia 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 (cid:23),950 million roubles ((cid:7)159 million at the exchange rate as of the date of the transaction) payable
in instalments to 15 (cid:45)uly 201(cid:23). 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 (cid:45)anuary 2017 and 2018 and (cid:23)80 million roubles in 2019. From the dates of the amendments the Group
incurs interest charges on the unpaid liability.
In 2017, 2016 and 2015, the Group paid 500 million roubles ((cid:7)8 million), 500 million roubles ((cid:7)7 million) and (cid:7)Nil, respectively, of purchase
consideration. (cid:51)reviously, in 201(cid:23) and 2013, 990 million roubles ((cid:7)28 million) and 1,980 million roubles ((cid:7)61 million) were paid. In addition, the Group
paid interest charges on the liability.
At 31 December 2017, 2016 and 2015, trade and other accounts payable included liabilities relating to this acquisition in the amount of $19 million,
$27 million and $28 million, respectively.
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
11. Investments in Joint Ventures and Associates (continued)
Timir Iron Ore Project (continued)
The table below sets out Timir’s assets and liabilities as of 31 December:
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
US$ million
2017
2016
2015
Mineral reserves and property, plant and equipment
$ 58
$ 55
Other non-current assets
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Net assets
7
65
–
23
–
23
42
8
63
(cid:178)
(cid:178)
25
25
38
Net assets attributable to 51% ownership interest
$ 21
$ 19
$ 101
(cid:178)
101
5
(cid:178)
17
22
79
$ 40
In 2017, 2016 and 2015, Timir’s income and expenses were represented by other expenses only that comprised $2 million, $4 million and $2 million,
respectively.
Due to the postponement of the major project activities, the Group assessed the recoverability of its investment in Timir at 30 September 2017 and 2016
and 31 December 2015. The recoverable amount of the asset was its fair value less costs to sell, which was determined using cash flow projections
based on 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 11.56%, 11.75% and 12.70% in 2017, 2016 and 2015, 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 expenditure to maintain production at budgeted capacities and the
postponement of the start of production for 2 years.
In the calculation of fair value less costs to sell management assumed that the railway tariffs for the iron ore transportation in the Yakutia region, which
are established by the local railway companies, will be reduced to the general level of the tariffs in Russia. These tariffs have not been agreed yet by
the parties. If the assumption were not valid, this would lead to an additional impairment of $58 million which would give a $21 million effect on the
share of profits(cid:18)(losses) of joint ventures and associates recognised in the consolidated statement of operations.
At 31 December 2017, 2016 and 2015 Timir owed to the Group $8 million, $7 million and $5 million, respectively, which were included in other non-
current financial assets in 2017 and in the receivables from related parties caption in previous years. The amounts represent a loan bearing interest
0.5% per annum.
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
203
Consolidated financial statements
Notes to the consolidated financial statements (continued)
11. Investments in Joint Ventures and Associates (continued)
Streamcore
The Group owns a 50% interest in Streamcore (Cyprus), a joint venture established for the purpose of exercising joint control over facilities for scrap
procurement and processing in Siberia, Russia.
The table below sets out Streamcore’s assets and liabilities as of 31 December:
US$ 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
The table below sets out Streamcore’s income and expenses:
US$ million
Revenue
Cost of revenue
Other expenses, including income taxes
(cid:49)et (cid:83)(cid:85)ofit
(cid:42)(cid:85)o(cid:88)(cid:83)(cid:183)s s(cid:75)a(cid:85)e o(cid:73) (cid:83)(cid:85)ofit o(cid:73) t(cid:75)e (cid:77)oint (cid:89)ent(cid:88)(cid:85)e
12. Disposal Groups Held for Sale
2017
2016
2015
$ 24
60
104
188
2
92
94
$ 94
$ 47
$ 24
4
91
119
1
44
45
$ 74
$ 37
2017
2016
2015
$ 458
(432)
(9)
$ 17
$ 8
$ 286
(270)
(6)
$ 10
$ 5
$ 19
3
51
73
1
20
21
$ 52
$ 26
$ 278
(263)
(7)
$ 8
$ 4
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
(cid:36)ssets classified as (cid:75)eld (cid:73)o(cid:85) sale
Non-current liabilities
Current liabilities
(cid:47)ia(cid:69)ilities di(cid:85)ectl(cid:92) associated (cid:90)it(cid:75) assets classified as (cid:75)eld (cid:73)o(cid:85) sale
Non-controlling interests
(cid:49)et assets classified as (cid:75)eld (cid:73)o(cid:85) sale
2017
2016
2015
$ –
$ 15
$ 1
–
–
–
–
–
–
–
–
–
3
1
6
2
27
5
3
8
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
1
(cid:178)
(cid:178)
(cid:178)
(cid:178)
$ –
$ 19
$ 1
204
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
12. Disposal Groups Held for Sale (continued)
The net assets of disposal groups classified as held for sale at 31 December related to the following reportable segments:
US$ million
(cid:36)ssets classified as (cid:75)eld (cid:73)o(cid:85) sale
Steel production
Coal
(cid:47)ia(cid:69)ilities di(cid:85)ectl(cid:92) associated (cid:90)it(cid:75) assets classified as (cid:75)eld (cid:73)o(cid:85) sale
Steel production
2017
2016
2015
$ –
–
–
–
–
$ 27
27
(cid:178)
8
8
$ 1
(cid:178)
1
(cid:178)
(cid:178)
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 2015(cid:178)2017.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
US$ million
Property, plant and equipment
Goodwill
Other non-current assets
Inventories
Accounts receivable
Cash and cash equivalents
Total assets
Employee benefits
Other non-current liabilities
Current liabilities
Total liabilities
Non-controlling interests
Net assets
2017
2016
2015
$ 119
$ 9
$ 25
6
34
27
38
12
236
23
35
38
96
6
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
9
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
13
(cid:178)
(cid:178)
38
(cid:178)
17
(cid:178)
17
(cid:178)
$ 134
$ 9
$ 21
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
The net assets of disposal groups sold in 2015(cid:178)2017 related to the following reportable segments:
US$ million
(cid:36)ssets classified as (cid:75)eld (cid:73)o(cid:85) sale
Steel
Steel, North America
Coal
(cid:47)ia(cid:69)ilities di(cid:85)ectl(cid:92) associated (cid:90)it(cid:75) assets classified as (cid:75)eld (cid:73)o(cid:85) sale
Steel
Coal
Non-controlling interests
Steel
2017
2016
2015
$ 9
$ 38
$ 236
196
–
40
96
79
17
6
6
9
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
Cash flows on disposal of subsidiaries and other business units were as follows:
US$ million
Net cash disposed of with subsidiaries
Cash received
Tax and transaction costs paid
(cid:49)et cas(cid:75) in(cid:193)o(cid:90)
2017
2016
2015
$ (12)
489
(65)
$ 412
(cid:7) (cid:178)
27
(cid:178)
$ 27
6
31
1
17
4
13
(cid:178)
(cid:178)
(cid:7) (13)
57
(cid:178)
$ 44
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
205
Consolidated financial statements
Notes to the consolidated financial statements (continued)
12. Disposal Groups Held for Sale (continued)
The disposal groups sold during 2015(cid:178)2017 are described below.
Yuzhkoks
On 19 December 2017, the Group sold a Ukrainian coking plant (cid:60)uzhkoks, in which it had a 9(cid:23).96% ownership interest, to a third party for cash
consideration of $63 million, including $16 million of prepayment for the sale of this subsidiary received in 2016.
(cid:51)rior to disposal the subsidiary was included in the steel segment. The Group recognised a (cid:7)(91) million loss on sale of the subsidiary, including (cid:7)(132)
million of cumulative exchange losses reclassified from other comprehensive income to the consolidated statement of operations. The result was
included in the Gain on disposal groups classified as held for sale caption of the consolidated statement of operations. Cash disposed with the subsidiary
amounted to $Nil.
Nakhodka Trade Sea Port
On 15 (cid:45)une 2017, the Group sold its wholly-owned subsidiary EVRAZ Nakhodka Trade Sea (cid:51)ort ((cid:180)NMT(cid:51)(cid:181)) to a wholly-owned subsidiary of Lanebrook
Limited (the ultimate controlling shareholder of the Group) for cash consideration of (cid:7)332 million.
In connection with the sale transaction the Group entered into an agreement with NMTP pursuant to which the latter will transship cargo of the Group’s
coal and metals in specified volumes for 5 years on terms specified in the agreement. The Group received a consideration of (cid:7)8 million in respect of the
transshipment agreement, which was recognised as deferred income with a 5-year period of amortisation.
(cid:51)rior to disposal the subsidiary was included in the coal segment. The Group recognised a (cid:7)28(cid:23) million gain on sale of the subsidiary, including (cid:7)(5)
million of transaction costs and (cid:7)(20) million of cumulative exchange losses reclassified from other comprehensive income to the consolidated statement
of operations. The result was included in the Gain on disposal groups classified as held for sale caption of the consolidated statement of operations.
Cash disposed with the subsidiary amounted to $Nil. In addition, the Group paid income tax on the sale transaction in the amount of $60 million.
Sukha Balka
On 1 (cid:45)une 2017, the Group sold a Ukrainian iron ore mine Sukha (cid:37)alka, in which it had a 99.(cid:23)2% ownership interest, to a third party for cash
consideration of $109 million. In 2017, the Group received $94 million. At 31 December 2017, the unpaid amount was $15 million plus $3 million of
interest accrued, which are expected to be paid in the 1st quarter of 2018.
(cid:51)rior to disposal the subsidiary was included in the steel segment. The Group recognised a (cid:7)(555) million loss on sale of the subsidiary, including
(cid:7)(586) million of cumulative exchange losses reclassified from other comprehensive income to the consolidated statement of operations. The result was
included in the Gain on disposal groups classified as held for sale caption of the consolidated statement of operations. Cash disposed with the subsidiary
amounted to $Nil.
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
12. Disposal Groups Held for Sale (continued)
Strategic Minerals Corporation
Following the sale agreement signed in 2016, on 6 April 2017, the Group sold Strategic Minerals Corporation (USA), in which it had a 78.76% ownership
interest, to a third party for cash consideration of (cid:7)16 million. Strategic Minerals Corporation owns a 75% share in the Vametco vanadium mine and plant
located in the Republic of South Africa. Prior to disposal both subsidiaries were included in the steel segment.
The Group recognised a (cid:7)2 million gain on sale of the subsidiary, including (cid:7)(3) million of cumulative exchange losses reclassified from other
comprehensive income to the consolidated statement of operations. The result was included in the Gain on disposal groups classified as held for sale
caption of the consolidated statement of operations. Cash disposed with the subsidiary amounted to $12 million.
EVRAZ Portland Structural Tubing
In 2015, the Group sold assets of Portland Structural Tubing for cash consideration of $51 million. The Group recognised $20 million as a gain on
disposal groups classified as held for sale.
13. Other Non-current Assets
Other non-current assets consisted of the following as of 31 December:
Non-current Financial Assets
US$ million
2017
2016
2015
Available-for-sale financial assets
Hedging instruments (Note 25)
Restricted deposits
Receivables from related parties (Note 11)
Loans receivable
Trade and other receivables
Other
Other Non-current Assets
US$ million
Income tax receivable
Input VAT
Other
Available-for-Sale Financial Assets
$ 33
4
6
8
20
23
57
$ 151
$ 3
(cid:178)
11
(cid:178)
21
4
52
$ 91
2017
2016
2015
$ 2
1
36
$ 39
$ 7
2
36
$ 45
$ 5
(cid:178)
5
1
23
5
40
$ 79
$ 18
6
32
$ 56
The Group holds approximately 15% in Delong Holdings Limited ((cid:180)Delong(cid:181)), a flat steel producer headquartered in (cid:37)eijing (China). The investments in
Delong are measured at fair value based on market quotations of the Singapore Exchange ((cid:7)33 million, (cid:7)3 million and (cid:7)5 million at 31 December 2017,
2016 and 2015, respectively). The change in the fair value of these shares is initially recorded in other comprehensive income.
In 2016 and 2015, impairment losses relating to the decline in market quotations of Delong shares in the amount of $2 million and $11 million,
respectively, were recognised in the statement of operations. In 2017, the Group recognised a $30 million gain on the increase in market quotations in
other comprehensive income.
I
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A
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E
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P
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U
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N
E
S
S
R
E
V
E
W
I
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R
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E
P
O
R
T
C
O
R
P
O
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A
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G
O
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N
A
N
C
E
I
I
F
N
A
N
C
A
L
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A
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N
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D
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N
A
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A
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I
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N
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
14. Inventories
Inventories consisted of the following as of 31 December:
US$ million
Raw materials and spare parts
Work-in-progress
Finished goods
2017
2016
2015
$ 548
245
405
$ 1,198
$ 434
173
377
$ 984
As of 31 December 2017, 2016 and 2015, the net realisable value allowance was $40 million, $34 million and $35 million, respectively.
As of 31 December 2017, 2016 and 2015, certain items of inventory with an approximate carrying amount of $438 million, $315 million and
(cid:7)383 million, respectively, were pledged to banks as collateral against loans provided to the Group (Note 22).
15. Trade and Other Receivables
Trade and other receivables consisted of the following as of 31 December:
US$ million
Trade accounts receivable
Other receivables
Allowance for doubtful accounts
2017
2016
2015
$ 722
63
785
(54)
$ 731
$ 518
31
549
((cid:23)7)
$ 502
$ 402
188
309
$ 899
$ 472
23
495
((cid:23)8)
$ 447
Ageing analysis and movement in allowance for doubtful accounts are provided in Note 28.
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(cid:18)to related parties at 31 December were as follows:
US$ million
Loans
Timir (Note 11)
Dividends receivable
(cid:60)uzhny GOK
Trade balances
Nakhodka Trade Sea Port
Vtorresource-Pererabotka
(cid:60)uzhny GOK
Other entities
Less: allowance for doubtful accounts
Amounts due from related parties
Amounts due to related parties
2017
2016
2015
2017
2016
2015
$ –
$ 7
$ 5
6
–
2
4
–
12
–
$ 12
(cid:178)
(cid:178)
1
(cid:178)
(cid:178)
8
(cid:178)
(cid:178)
(cid:178)
1
(cid:178)
(cid:178)
6
(cid:178)
$ –
–
6
52
195
3
256
–
(cid:7) (cid:178)
(cid:7) (cid:178)
(cid:178)
(cid:178)
39
185
2
226
(cid:178)
(cid:178)
(cid:178)
10
129
4
143
(cid:178)
$ 8
$ 6
$ 256
$ 226
$ 143
At 31 December 2017, the loan receivable from Timir (Note 11) amounting to (cid:7)8 million was classified as a non-current financial asset (Note 13).
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
16. Related Party Disclosures (continued)
In 2017 and 2016, 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
2017
2016
2015
2017
2016
2015
Sales to related parties
Purchases from related parties
Genalta Recycling Inc.
Interlock Security Services
Nakhodka Trade Sea Port
Vtorresource-Pererabotka
(cid:60)uzhny GOK
Other entities
$ –
–
–
8
37
–
(cid:7) (cid:178)
(cid:178)
(cid:178)
7
25
(cid:178)
(cid:7) (cid:178)
(cid:178)
(cid:178)
8
29
(cid:178)
$ 14
11
36
452
107
1
$ 8
19
(cid:178)
281
77
11
$ 14
24
(cid:178)
274
70
12
$ 45
$ 32
$ 37
$ 621
$ 396
$ 394
In addition to the disclosures presented in this note, some of the balances and transactions with related parties are disclosed in Notes 11, 12 (sale of
Nakhodka Trade Sea (cid:51)ort), 13 and 25.
Genalta Recycling Inc. is a joint venture of a Canadian subsidiary of the Group. It sells scrap metal to the Group.
Interlock Security Services is a group of entities controlled by a member of the key management personnel, which provide security services to the
Russian and Ukrainian subsidiaries of the Group. 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. At 31 December 2017, the Group had other receivables from Lanebrook, amounting to
(cid:7)32 million, in connection with the acquisition of a 1% ownership interest in (cid:60)uzhny GOK in 2008 (Note 18).
Nakhodka Trade Sea (cid:51)ort ((cid:180)NTS(cid:51)(cid:181)) is a former subsidiary of the Group (Note 12). NTS(cid:51) renders handling services to the Group.
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 2017, 2016 and 2015, the purchases of scrap metal from Vtorresource-Pererabotka amounted to $422 million
(1,601,320 tonnes), (cid:7)256 million (1,(cid:23)37,(cid:23)11 tonnes) and (cid:7)219 million (1,339,101 tonnes), respectively.
(cid:60)uzhny GOK, an ore mining and processing plant, is an associate of Lanebrook Limited. The Group sold steel products to (cid:60)uzhny GOK and purchased
sinter from the entity. In 2017, 2016 and 2015, the volume of purchases was 1,639,306 tonnes, 1,619,745 tonnes and 1,517,580 tonnes, respectively.
In 2017, (cid:60)uzhny GOK declared dividends for 201(cid:23)-2016 in the amount of 10.16 Ukrainian hryvnias per share. The Group recognised (cid:7)6 million of
dividend income within the other non-operating gains(cid:18)(losses) caption in the consolidated statement of operations. At 31 December 2017, these
dividends were unpaid.
The transactions with related parties were based on prevailing market terms.
Compensation to Key Management Personnel
Key management personnel include the following positions within the Group:
• directors of the Company,
• vice presidents,
• senior management of major subsidiaries.
I
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E
G
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E
P
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N
E
S
S
R
E
V
E
W
I
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R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
209
Consolidated financial statements
Notes to the consolidated financial statements (continued)
16. Related Party Disclosures (continued)
In 2017, 2016 and 2015, key management personnel totalled 30, 34 and 46 people, respectively. Total compensation to key management personnel
were included in general and administrative expenses in the consolidated statement of operations and consisted of the following:
US$ million
Salary
Performance bonuses
Social security taxes
Share-based payments (Note 21)
Termination benefits
2017
2016
2015
$ 15
14
3
9
1
$ 42
$ 14
9
3
8
(cid:178)
$ 34
$ 16
9
4
10
(cid:178)
$ 39
Other disclosures on directors’ remuneration required by Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts (cid:9) Reports)
regulations 2008 are included in the Directors’ Remuneration Report.
17. Other Taxes Recoverable
Taxes recoverable consisted of the following as of 31 December:
US$ million
Input VAT
Other taxes
2017
2016
2015
$ 140
85
$ 225
$ 89
103
$ 192
$ 61
66
$ 127
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
2017
2016
2015
Other receivables from Lanebrook (Note 16)
Restricted deposits at banks
19. Cash and Cash Equivalents
$ 32
15
$ 47
$ 32
1
$ 33
$ 32
3
$ 35
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
Euro
Canadian dollar
Ukrainian hryvnia
Other
2017
2016
2015
$ 1,253
$ 1,058
163
31
9
7
3
71
14
2
2
10
$ 1,196
121
4
29
20
5
$ 1,466
$ 1,157
$ 1,375
At 31 December 2017, 2016 and 2015, the assets of disposal groups classified as held for sale included cash amounting to (cid:7)Nil, (cid:7)2 million and (cid:7)Nil,
respectively.
210
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Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
20. Equity
Share Capital
Number of shares
2017
31 December
2016
2015
I
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T
R
A
T
E
G
C
R
E
P
O
R
T
Ordinary shares of $1 each, issued and fully paid
1,506,527,294
1,506,527,294
1,506,527,294
Treasury Shares
2017
31 December
2016
2015
Number of treasury shares
74,474,663
87,015,878
98,481,249
On 31 March 2015, the (cid:37)oard resolved to announce a return of capital to be effected by a tender offer to shareholders at (cid:7)3.10 per share in the
amount of up to (cid:7)375 million. In April 2015, EVRAZ plc repurchased 108,(cid:23)58,508 of its own shares ((cid:7)336 million). The Company incurred (cid:7)3 million of
transaction costs, which were charged to accumulated profits.
Subsequently, in 2017, 2016 and 2015, 12,541,215 shares, 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 $39 million, $35 million and $31 million in
2017, 2016 and 2015, respectively.
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 outstanding during the
period
Effect of dilution: share options
Weighted average number of ordinary shares adjusted for the effect of
dilution
(cid:51)rofit(cid:18)(loss) for the year attributable to equity holders of the parent,
US(cid:7) million
(cid:37)asic earnings(cid:18)(losses) per share
Diluted earnings(cid:18)(losses) per share
2017
2016
2015
1,427,585,897
26,974,433
1,414,906,412
1,437,134,241
(cid:178)
(cid:178)
1,454,560,330
1,414,906,412
1,437,134,241
$ 699
$ 0.49
$ 0.48
(cid:7) (215)
(cid:7) (0.15)
(cid:7) (0.15)
(cid:7) (6(cid:23)(cid:23))
(cid:7) (0.(cid:23)5)
(cid:7) (0.(cid:23)5)
In 2015-2016, share-based awards (Note 21) were antidilutive as the Group reported net losses.
I
B
U
S
N
E
S
S
R
E
V
E
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I
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R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
211
Consolidated financial statements
Notes to the consolidated financial statements (continued)
20. Equity (continued)
Dividends
Dividends declared by EVRAZ plc during 2015(cid:178)2017 were as follows:
Interim for 2017
09(cid:18)08(cid:18)2017
18(cid:18)08(cid:18)2017
430
0.3
Date of declaration
To holders registered at
Dividends declared,
US$ million
US$ per share
On 9 August 2017, the (cid:37)oard of directors of EVRAZ plc decided to declare interim dividends for 2017 in the amount of (cid:7)(cid:23)30 million, which represents
$0.3 per share.
In addition, certain subsidiaries of the Group declared dividends. The share of non-controlling shareholders in those dividends was (cid:7)Nil in 2015(cid:178)2017.
21. Share-based Payments
In 2015-2017, the Group had several Incentive (cid:51)lans under which certain senior executives and employees ((cid:180)participants(cid:181)) could be gifted shares of the
parent company upon vesting. These plans were adopted on 6 September 2012, 24 September 2013, 8 August 2014, 26 October 2015, 15 September
2016 and 25 September 2017.
The vesting under Incentive Plans adopted before 2017 does not depend on the achievement of any performance conditions. The new Plan adopted in
2017 provides that the number of shares transferred to participants upon vesting is dependent on the Group’s performance versus the selected group
of peers. E(cid:37)ITDA and total shareholder return ((cid:180)TSR(cid:181)) are used as the key performance indicators. If the Group’s E(cid:37)ITDA achieves a specific ranking in
the peer group, then 50% of the shares of a particular tranche become vested, otherwise they are forfeited. If the Group’s TSR achieves a specific ranking
in the peer group, then the other 50% of the shares of a particular tranche become vested, otherwise they are forfeited. Subject to the resolution of the
Remuneration Committee, E(cid:37)ITDA can become the only metric in the performance evaluation (in case if the net debt to E(cid:37)ITDA ratio is equal to 3 or
higher). The TSR-related vesting condition of the Incentive (cid:51)lan 2017 was considered by the Group as a market condition. As such, it was included in the
estimation of the fair value of the granted shares and will not be subsequently revised. Vesting condition related to E(cid:37)ITDA was not taken into account
when estimating the fair value of the share options at the grant date. Instead, this will be taken into account by adjusting the share-based expense based
on the number of share options that eventually vest.
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 2017 are presented below:
Number of Shares of EVRAZ plc
Total
Incentive Plan 2017
Incentive Plan 2016
Incentive Plan 2015
Incentive Plan 2014
March 2018
March 2019
March 2020
March 2021
11,704,880
8,845,167
5,154,227
2,208,336
27,912,610
1,472,241
1,472,241
2,208,348
2,208,336
7,361,166
1,963,834
2,945,758
2,945,879
(cid:178)
7,855,471
4,427,044
4,427,168
(cid:178)
(cid:178)
3,841,761
(cid:178)
(cid:178)
(cid:178)
8,854,212
3,841,761
The plans are administered by the (cid:37)oard of Directors of EVRAZ plc. The (cid:37)oard 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 (cid:37)oard 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 2015(cid:178)2017.
212
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
21. Share-based Payments (continued)
The Group accounted for share-based compensation at fair value pursuant to the requirements of IFRS 2 (cid:180)Share-based (cid:51)ayment(cid:181). The weighted average
fair value of share-based awards granted in 2017, 2016 and 2015 was $2.54, $1.73 and $1.12 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 the 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 2015-2017:
Dividend yield (%)
Expected life (years)
Market prices of the shares of EVRAZ plc
at the grant dates
Incentive Plan
2017
Incentive Plan
2016
Incentive Plan
2015
Incentive Plan
2014
Incentive Plan
2013
Incentive Plan
2012
2.1 (cid:178) 2.9
0.5 (cid:178) 3.5
n(cid:18)a
0.5 (cid:178) 3.5
7.3 (cid:178) 9.1
0.6 (cid:178) 3.6
3.6 (cid:178) (cid:23).8
0.6 (cid:178) 3.6
(cid:23).0 (cid:178) 8.8
0.6 (cid:178) 3.6
1.9 (cid:178) 5.(cid:23)
0.6 (cid:178) 2.6
$ 3.86
$ 1.73
$ 1.36
$ 1.68
$ 2.13
$ 3.61
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
2017
2016
2015
34,581,349
7,361,166
(1,488,690)
(12,541,215)
27,912,610
43,767,553
10,383,528
(8,10(cid:23),361)
(11,(cid:23)65,371)
34,581,349
36,608,052
20,610,611
(3,(cid:23)73,851)
(9,977,259)
43,767,553
The weighted average share price at the dates of exercise was $2.62, $1.78 and $2.59 in 2017, 2016 and 2015, respectively.
The weighted average remaining contractual life of the share-based awards outstanding as of 31 December 2017, 2016 and 2015 was 1.2, 1.2 and
1.5 years, respectively.
In the years ended 31 December 2017, 2016 and 2015, the expense arising from the equity-settled share-based compensations was as follows:
US$ million
2017
2016
2015
Expense arising from equity-settled share-based payment transactions
$ 17
$ 16
$ 20
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
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N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
213
Consolidated financial statements
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
(cid:37)ank loans
US dollar-denominated
7.(cid:23)0% 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
5.375% notes due 2023
Rouble-denominated
8.(cid:23)0% 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
2017
Non–
current
Current
2016
Non–
current
Current
2015
Non–
current
Current
$ 2,113
$ 2,051
$ 62
$ 2,067
$ 1,799
$ 268
$ 2,236
$ 1,958
$ 278
–
–
–
–
–
700
750
500
750
–
260
260
–
–
(28)
86
–
–
–
–
–
700
750
500
750
–
260
260
–
–
(28)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
86
(cid:178)
26
125
528
350
1,000
750
500
(cid:178)
(cid:178)
247
247
(cid:178)
1
((cid:23)(cid:23))
97
(cid:178)
(cid:178)
125
528
350
1,000
750
500
(cid:178)
(cid:178)
247
247
(cid:178)
(cid:178)
((cid:23)(cid:23))
(cid:178)
(cid:178)
26
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
1
(cid:178)
97
286
186
353
796
350
1,000
750
(cid:178)
(cid:178)
165
206
(cid:178)
(cid:178)
7
(5(cid:23))
66
286
186
353
796
350
1,000
750
(cid:178)
(cid:178)
(cid:178)
206
(cid:178)
(cid:178)
7
(5(cid:23))
12
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
165
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
54
$ 5,391
$ 5,243
$ 148
$ 5,894
$ 5,502
$ 392
$ 6,347
$5,850
$ 497
The average effective annual interest rates were as follows at 31 December:
Long–term borrowings
Short–term borrowings
2017
2016
2015
2017
2016
2015
US dollar
Russian rouble
Euro
6.00%
12.78%
3.77%
6.85%
12.71%
3.9(cid:23)%
6.87%
11.8(cid:23)%
5.57%
1.85%
–
–
3.31%
2.86%
(cid:178)
(cid:178)
(cid:178)
(cid:178)
The liabilities are denominated in the following currencies at 31 December:
US$ million
US dollar
Russian rouble
Euro
Other
Unamortised debt issue costs
2017
2016
2015
$ 4,604
$ 4,911
$ 5,412
530
242
43
(28)
809
217
1
((cid:23)(cid:23))
621
368
(cid:178)
(5(cid:23))
$ 5,391
$ 5,894
$ 6,347
214
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
22. Loans and Borrowings (continued)
The movement in loans and borrowings were as follows:
US$ million
1 January
Cash changes:
Cash proceeds from bank loans and notes, net of debt issues costs
Repayment of bank loans and notes, including interest
Net proceeds from(cid:18)(repayment of) bank overdrafts and credit lines,
including interest
Payments under covenants reset
Non-cash changes:
Change in the balance of debt issues costs paid in subsequent reporting period
Non-cash proceeds (Note 29)
Interest and other charges expensed (Note 7)
Interest capitalised (Note 9)
Accrual of premiums and other charges on early repayment of borrowings
(Note 7)
Transfer to disposal groups held for sale
Effect of exchange rate changes
31 December
Pledged Assets
2017
2016
2015
$ 5,894
$ 6,347
$ 6,231
2,441
(3,344)
(139)
–
(1)
8
394
6
78
(6)
60
1,301
(2,(cid:23)28)
(5)
((cid:23))
7
46
439
9
50
(cid:178)
132
3,801
(3,961)
(9)
(cid:178)
(7)
(cid:178)
430
16
15
(cid:178)
(169)
$ 5,391
$ 5,894
$ 6,347
At 31 December 2016 and 2015, a 100% ownership interest in EVRAZ Inc NA and 51% in EVRAZ Inc NA Canada were pledged against a (cid:7)350 million
liability under 7.5% senior secured notes due 2019. In addition, at 31 December 2016, property, plant and equipment and inventory of these subsidiaries
amounting to (cid:7)1,013 million and (cid:7)315 million, respectively (2015: (cid:7)1,052 million and (cid:7)382 million, respectively) were pledged as collateral under the
notes. In 2017, these notes were fully repaid (Repurchase of Notes and (cid:37)onds).
At 31 December 2015, 100% of shares of EVRAZ Caspian Steel were pledged as collateral under a bank loan with a carrying value of (cid:7)107 million at
the end of 2015. In addition, property, plant and equipment of EVRAZ Caspian Steel amounting to $55 million at 31 December 2015 were pledged as
collateral under the same loan. In 2016, the loan was fully repaid.
The Group’s pledged assets at carrying value included the following at 31 December:
US$ million
Property, plant and equipment
Inventory
2017
2016
2015
$ 66
438
$ 1,013
315
$ 1,107
383
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
215
Consolidated financial statements
Notes to the consolidated financial statements (continued)
22. Loans and Borrowings (continued)
Issue of Notes and Bonds
In March 2017, the Group issued 5.375% notes due 2023 in the amount of (cid:7)750 million. The proceeds from the issue of the notes were used to finance
the purchase of 9.50% notes due 2018, 6.75% notes due 2018 and 6.50% bonds due 2020 at the tender offers settled in March 2017 and to refinance
other current indebtedness of the Group.
In (cid:45)une 2016, the Group issued 6.75% notes due 2022 in the amount of (cid:7)500 million. The proceeds from the issue of the notes were used to finance the
purchase of 7.(cid:23)0% 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 (cid:45)une
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 ((cid:7)2(cid:23)7 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 (cid:7)750 million. The proceeds from the issue of the notes were used to
finance the purchase of 7.(cid:23)0% 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 (cid:45)uly 2015, the Group completed a placement of bonds in the total amount of 15,000 million Russian roubles ((cid:7)206 million at 31 December 2015),
which bear interest of 12.95% per annum and have the next put date on 26 (cid:45)une 2019. The currency risk exposure of these bonds was hedged
(Note 25).
Repurchase of Rouble-Denominated Bonds
In 2016, the Group fully settled its 8.(cid:23)0% 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 ((cid:7)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 cash consideration of (cid:7)80 million. The nominal value of the repurchased notes
was (cid:23),150 million roubles ((cid:7)81 million). As a result, the Group recognised a (cid:7)1 million gain within gain(cid:18)(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 ((cid:7)175 million) at par. There was no
gain or loss on this transaction.
In (cid:45)uly 2015, the Group partially repurchased 8.(cid:23)0% bonds due 2016 with the principal of (cid:23),792 million roubles ((cid:7)8(cid:23) million at the exchange rate as
of the date of the transaction) for cash consideration of (cid:23),696 million roubles ((cid:7)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 ((cid:7)(cid:23)8 million) at par. There was no gain or loss on this transaction.
At 31 December 2015, the amount of outstanding bonds was 12,0(cid:23)9 million roubles ((cid:7)165 million).
216
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
22. Loans and Borrowings (continued)
Repurchase of US Dollar-Denominated Notes
In 2017, the Group partially repurchased 9.50% notes due 2018 ((cid:7)125 million), 6.75% notes due 2018 ((cid:7)528 million) and 6.50% bonds due 2020
((cid:7)300 million). The premium over the carrying value on the repurchase and other costs relating to the transaction in the total amount of (cid:7)8 million,
(cid:7)23 million and (cid:7)23 million, respectively, were charged to the Gain(cid:18)(loss) on financial assets and liabilities caption of the consolidated statement of
operations.
In 2017, the Group also fully settled (cid:7)350 million under 7.5% senior secured notes due 2019. Loss on this transaction amounted to (cid:7)17 million,
including $13 million of premium.
In addition, the Group fully settled its 7.75% bonds due 2017 issued by Raspadskaya ((cid:7)26 million), there was no gain or loss on this transaction.
Previously, in 2015, the Group repurchased through a tender offer and market transactions $206 million at par. The difference between the carrying
value of these bonds and the purchase consideration amounting to (cid:7)7 million was credited to the Gain(cid:18)(loss) on financial assets and liabilities caption of
the consolidated statement of operations.
In 2016, the Group partially repurchased 9.50% notes due 2018 ((cid:7)228 million), 6.75% notes due 2018 ((cid:7)268 million) and 7.75% bonds due 2017
((cid:7)160 million). The premium over carrying value on the repurchase in the amount of (cid:7)20 million, (cid:7)7 million and (cid:7)5 million, respectively, was charged to
the Gain(cid:18)(loss) on financial assets and liabilities caption of the consolidated statement of operations.
In 2016, the Group fully repurchased 7.(cid:23)0% notes due 2017 ((cid:7)286 million) paying a premium over the carrying value of (cid:7)1(cid:23) million.
In December 2015, the Group partially repurchased 7.(cid:23)0% notes due 2017 ((cid:7)31(cid:23) million), 9.50% notes due 2018 ((cid:7)156 million) and 6.75% notes
due 2018 ((cid:7)5(cid:23) million). The premium over carrying value on the repurchase in the amount of (cid:7)1(cid:23) million, (cid:7)11 million and (cid:7)1 million, respectively, was
charged the Gain(cid:18)(loss) on financial assets and liabilities caption of the consolidated statement of operations.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
217
Consolidated financial statements
Notes 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.
E(cid:37)ITDA 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 (cid:7)1,772 million contain certain financial maintenance covenants. These covenants require EVRAZ plc to maintain
two key ratios, consolidated net indebtedness to 12month consolidated E(cid:37)ITDA and 12-month consolidated E(cid:37)ITDA 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 acquisitions and disposals by
EVRAZ plc.
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. Transaction costs
relating to these amendments amounted to $4 million. In 2017, the Group sent notices to all respective creditors to resume testing of covenants from
31 December 2017.
Notes due 2020, 2021, 2022 and 2023, totalling $2,700 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 of 3.5 times 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. As of 31 December 2017, gross leverage ratio for Evraz Group S.A. was below 3.5.
Several bank credit facilities totalling $326 million provide for certain covenants restricting the incurrence of indebtedness by Evraz North America plc
and its subsidiaries conditional on a fixed charge ratio. Once the threshold for the ratio is exceeded, it triggers restrictions on incurrence of additional
indebtedness by Evraz North America plc and its subsidiaries.
The incurrence covenants are in line with the Group’s financial strategy and, therefore, do not constitute any excessive restriction on its operations.
During 2017 the Group was in compliance with all financial and non-financial covenants.
Unamortised Debt Issue Costs
Unamortised debt issue costs represent agent commission and transaction costs paid by the Group in relation to the arrangement and reset of loans and
notes.
218
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
22. Loans and Borrowings (continued)
Unutilised Borrowing Facilities
The Group had the following unutilised borrowing facilities as of 31 December:
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
US$ million
Committed
Uncommitted
Total unutilised borrowing facilities
(cid:21)(cid:22)(cid:17) (cid:40)(cid:80)plo(cid:92)ee (cid:37)enefits
Russian Plans
2017
2016
2015
$ 131
1,251
$ 1,382
$ 187
883
$ 1,070
$ 317
663
$ 980
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 (cid:23)% 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 (cid:51)ension 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 C(cid:51)I. Starting from 2018 the minimum annual
indexation of pensions, which takes into account 50% of C(cid:51)I and 50% of salary growth, becomes obligatory.The indexation of pensions at a level
higher than minimally required depends on the availability of financial resources in the State pension fund. The subsidiaries are obliged to pay indexed
preferential pensions. The Group determined the amount of defined benefit obligations based on the assumption that pensions will be indexed at a
minimum required level.
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
219
Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:22)(cid:17) (cid:40)(cid:80)plo(cid:92)ee (cid:37)enefits (continued)
US and Canadian Plans
The Group’s subsidiaries in the USA and Canada have defined benefit pension plans that cover specified eligible employees. (cid:37)enefits 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 ((cid:180)SER(cid:51)’s(cid:181)), 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 ((cid:180)O(cid:51)E(cid:37)’s(cid:181)) for certain of their eligible
employees upon retirement after completion of a specified number of years of service. For the pension plans, SER(cid:51)’s and O(cid:51)E(cid:37)’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(cid:178)7% of annual wages, including
applicable bonuses. The defined contribution plans are funded throughout the year 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.
Some Canadian employees participate in a retirement savings plan. For these employees, the participation may be voluntary, employee contributions are
matched by the employer at 1-3% of annual wages, including applicable bonuses, and depending on the group of employees, are funded either annually
or throughout the year.
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 7(cid:23)9 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 Italy and the Republic of South Africa.
(cid:39)efined Cont(cid:85)i(cid:69)(cid:88)tion (cid:51)lans
The Group’s expenses under defined contribution plans were as follows:
US$ million
2017
2016
2015
Expense under defined contribution plans
$ 246
$ 212
$ 254
(cid:39)efined (cid:37)enefit (cid:51)lans
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 2017 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.
220
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w
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:22)(cid:17) (cid:40)(cid:80)plo(cid:92)ee (cid:37)enefits (continued)
The components of net benefit expense recognised in the consolidated statement of operations for the years ended 31 December 2017, 2016 and 2015
and amounts recognised in the consolidated statement of financial position as of 31 December 2017, 2016 and 2015 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)
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Year ended 31 December 2017
US$ million
Current service cost
Net interest expense
Net actuarial gains(cid:18)(losses) on other long-term employee benefits
obligation
Past service cost
Curtailment(cid:18)settlement gain
Other
Net benefit expense
Year ended 31 December 2016
US$ million
Current service cost
Net interest expense
Net actuarial gains(cid:18)(losses) on other long-term employee benefits
obligation
Past service cost
Curtailment(cid:18)settlement gain
Net benefit expense
Year ended 31 December 2015
US$ million
Current service cost
Net interest expense
Net actuarial gains(cid:18)(losses) on other long-term employee benefits
obligation
Past service cost
Curtailment(cid:18)settlement gain
Net benefit expense
Russian plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
$ (2)
(9)
2
(3)
–
–
$ (1)
(4)
–
3
–
–
$ (18)
$ –
(6)
–
(3)
2
(3)
–
–
–
–
–
$ (21)
(19)
2
(3)
2
(3)
$ (12)
$ (2)
$ (28)
$ –
$ (42)
Russian plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
(cid:7) (2)
(9)
1
(1)
1
(cid:7) (2)
(5)
(cid:178)
1
(cid:178)
(cid:7) (19)
(8)
(cid:178)
(cid:178)
(cid:178)
(cid:7) (cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:7) (23)
(22)
1
(cid:178)
1
(cid:7) (10)
(cid:7) (6)
(cid:7) (27)
(cid:7) (cid:178)
(cid:7) ((cid:23)3)
Russian plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
(cid:7) ((cid:23))
(11)
(cid:178)
7
2
(cid:7) (2)
(6)
(cid:178)
2
(cid:178)
(cid:7) (23)
(7)
(cid:178)
(3)
1
(cid:7) (cid:178)
(cid:178)
(1)
(cid:178)
(cid:178)
(cid:7) (29)
(2(cid:23))
(1)
6
3
(cid:7) (6)
(cid:7) (6)
(cid:7) (32)
(cid:7) (1)
(cid:7) ((cid:23)5)
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
221
Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:22)(cid:17) (cid:40)(cid:80)plo(cid:92)ee (cid:37)enefits (continued)
Gains/(losses) recognised in other comprehensive income
Year ended 31 December 2017
US$ million
Return on plan assets, excluding amounts included in net interest
expense
Net actuarial gains(cid:18)(losses) on post-employment benefit
obligation
Russian plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
$ –
6
$ 6
$ –
(4)
$ (4)
$ 48
(23)
$ 25
$ –
–
$ –
$ 48
(21)
$ 27
In addition to the amounts presented in the table above, actuarial gains(cid:18)(losses) recognised in other comprehensive income include (cid:7)(1) million relating
to a subsidiary classified as a disposal group held for sale.
Year ended 31 December 2016
US$ million
Return on plan assets, excluding amounts included in net interest
expense
Net actuarial gains(cid:18)(losses) on post-employment benefit
obligation
Year ended 31 December 2015
US$ million
Return on plan assets, excluding amounts included in net interest
expense
Net actuarial gains(cid:18)(losses) on post-employment benefit
obligation
Russian plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
(cid:7) (1)
3
$ 2
(cid:7) (cid:178)
8
$ 8
$ 7
(6)
$ 1
(cid:7) (cid:178)
(cid:178)
(cid:7) (cid:178)
Russian plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
(cid:7) (cid:178)
(8)
(cid:7) (8)
(cid:7) (cid:178)
(5)
(cid:7) (5)
(cid:7) (10)
24
$ 14
(cid:7) (cid:178)
(cid:178)
(cid:7) (cid:178)
$ 6
5
$ 11
(cid:7) (10)
11
$ 1
222
m
o
c
.
z
a
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v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:22)(cid:17) (cid:40)(cid:80)plo(cid:92)ee (cid:37)enefits (continued)
Actual return on plan assets was as follows:
US$ million
2017
2016
2015
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Actual return on plan assets
including:
US (cid:9) Canadian plans
Russian plans
Net defined benefit liability
31 December 2017
US$ million
(cid:37)enefit obligation
Plan assets
31 December 2016
US$ million
(cid:37)enefit obligation
Plan assets
31 December 2015
US$ million
(cid:37)enefit obligation
Plan assets
$ 66
66
–
$ 25
26
(1)
Russian Plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
$ 111
–
111
$ 19
–
19
$ 765
(611)
154
$ –
–
–
Russian Plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
$ 108
(cid:178)
108
$ 31
(cid:178)
31
$ 711
(535)
176
$ 2
(cid:178)
2
Russian Plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
$ 90
(1)
89
$ 45
(cid:178)
45
$ 691
(526)
165
$ 2
(cid:178)
2
$ 13
13
(cid:178)
$ 895
(611)
284
$ 852
(535)
317
$ 828
(527)
301
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
223
Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:22)(cid:17) (cid:40)(cid:80)plo(cid:92)ee (cid:37)enefits (continued)
Movements in net defined benefit liability/(asset)
US$ million
At 31 December 2014
Net benefit expense recognised in the statement of operations
Contributions by employer
(Gains)(cid:18)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)(cid:18)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
Net benefit expense recognised in the statement of operations
Contributions by employer
(Gains)(cid:18)losses recognised in other comprehensive income
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
At 31 December 2017
Russian plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
$ 110
$ 58
$ 182
$ 14
$ 364
6
(9)
8
(1)
(25)
$ 89
10
(7)
(2)
(cid:178)
18
$ 108
12
(8)
(6)
(cid:178)
5
$ 111
6
(3)
5
(cid:178)
(21)
$ 45
6
(3)
(8)
((cid:23))
(5)
$ 31
2
(2)
4
(16)
(cid:178)
$ 19
32
(30)
(1(cid:23))
(cid:178)
(5)
$ 165
27
(17)
(1)
(cid:178)
2
$ 176
28
(27)
(25)
(cid:178)
2
$ 154
1
(1)
(cid:178)
(11)
(1)
$ 2
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
$ 2
(cid:178)
(cid:178)
(cid:178)
(2)
(cid:178)
$ –
45
((cid:23)3)
(1)
(12)
(52)
$ 301
43
(27)
(11)
((cid:23))
15
$ 317
42
(37)
(27)
(18)
7
$ 284
224
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o
c
.
z
a
r
v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:22)(cid:17) (cid:40)(cid:80)plo(cid:92)ee (cid:37)enefits (continued)
Movements in benefit obligation
US$ million
At 31 December 2014
Interest cost on benefit obligation
Current service cost
Past service cost
(cid:37)enefits paid
Actuarial (gains)(cid:18)losses on benefit obligation related to changes in
demographic assumptions
Actuarial (gains)(cid:18)losses on benefit obligation related to changes in
financial assumptions
Actuarial (gains)(cid:18)losses on benefit obligation related to experience
adjustments
Curtailment(cid:18)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
(cid:37)enefits paid
Actuarial (gains)(cid:18)losses on benefit obligation related to changes in
demographic assumptions
Actuarial (gains)(cid:18)losses on benefit obligation related to changes in
financial assumptions
Actuarial (gains)(cid:18)losses on benefit obligation related to experience
adjustments
Curtailment(cid:18)settlement gain
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
At 31 December 2016
Interest cost on benefit obligation
Current service cost
Past service cost
(cid:37)enefits paid
Actuarial (gains)(cid:18)losses on benefit obligation related to changes in
demographic assumptions
Actuarial (gains)(cid:18)losses on benefit obligation related to changes in
financial assumptions
Actuarial (gains)(cid:18)losses on benefit obligation related to experience
adjustments
Curtailment(cid:18)settlement gain
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
At 31 December 2017
Russian plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
$ 110
$ 58
$ 790
$ 14
$ 972
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
11
4
(7)
(8)
(1)
14
(5)
(2)
(1)
(cid:178)
6
2
(2)
(3)
(cid:178)
2
3
(cid:178)
(cid:178)
(cid:178)
(25)
$ 90
(21)
$ 45
9
2
1
(7)
(cid:178)
(1)
(3)
(1)
(cid:178)
5
2
(1)
(3)
(cid:178)
(6)
(2)
(cid:178)
((cid:23))
30
23
3
(35)
(8)
(17)
1
(1)
(cid:178)
(31)
(6(cid:23))
$ 691
27
19
(cid:178)
((cid:23)3)
(10)
14
2
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(1)
(cid:178)
1
(cid:178)
(cid:178)
(11)
(cid:178)
(1)
$ 2
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
47
29
(6)
((cid:23)7)
(9)
(cid:178)
(1)
(3)
(12)
(31)
(111)
$ 828
41
23
(cid:178)
(53)
(10)
7
(3)
(1)
((cid:23))
18
$ 108
(5)
$ 31
11
$ 711
(cid:178)
$ 2
24
$ 852
9
2
3
(8)
(cid:178)
(11)
3
(cid:178)
(cid:178)
5
$ 111
4
1
(3)
(2)
(cid:178)
4
(cid:178)
(cid:178)
(16)
(cid:178)
$ 19
24
18
3
(37)
(19)
48
(6)
(2)
(cid:178)
25
$ 765
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(2)
(cid:178)
$ –
37
21
3
((cid:23)7)
(19)
41
(3)
(2)
(18)
30
$ 895
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
225
Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:21)(cid:22)(cid:17) (cid:40)(cid:80)plo(cid:92)ee (cid:37)enefits (continued)
The weighted average duration of the defined benefit obligation was as follows:
Years
Russian plans
Ukrainian plans
US (cid:9) Canadian plans
Other plans
2017
2016
2015
10.11
8.00
13.09
7.46
11.21
8.26
13.79
9.12
10.93
8.76
14.35
9.66
Changes in the fair value of plan assets
US$ million
At 31 December 2014
Interest income on plan assets
Return on plan assets (excluding amounts included in net interest
expense)
Contributions of employer
(cid:37)enefits 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
(cid:37)enefits paid
Translation difference
At 31 December 2016
Interest income on plan assets
Return on plan assets (excluding amounts included in net interest
expense)
Contributions of employer
(cid:37)enefits paid
Other
Translation difference
At 31 December 2017
Russian plans
Ukrainian plans
US & Canadian
plans
Other plans
Total
$ –
$ –
$ 608
$ –
$ 608
(cid:178)
(cid:178)
9
(8)
(cid:178)
(cid:178)
$ 1
(cid:178)
(1)
7
(7)
(cid:178)
$ –
(cid:178)
(cid:178)
8
(8)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
3
(3)
(cid:178)
(cid:178)
$ –
(cid:178)
(cid:178)
3
(3)
(cid:178)
$ –
(cid:178)
(cid:178)
2
(2)
(cid:178)
(cid:178)
23
(10)
30
(35)
(31)
(59)
$ 526
19
7
17
((cid:23)3)
9
$ 535
18
48
27
(37)
(3)
23
(cid:178)
(cid:178)
1
(1)
(cid:178)
(cid:178)
$ –
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
$ –
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
23
(10)
43
((cid:23)7)
(31)
(59)
$ 527
19
6
27
(53)
9
$ 535
18
48
37
((cid:23)7)
(3)
23
$ –
$ –
$ 611
$ –
$ 611
The amount of contributions expected to be paid to the defined benefit plans during 2018 approximates (cid:7)(cid:23)(cid:23) million.
The major categories of plan assets as a percentage of total plan assets were as follows at 31 December:
US (cid:9) Canadian plans:
Equity funds and investment trusts
Corporate bonds and notes
Property
Cash
2017
2016
2015
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
47%
12%
–
2%
61%
39%
–
–
–
39%
(cid:23)5%
13%
(cid:178)
2%
60%
(cid:23)0%
(cid:178)
(cid:178)
(cid:178)
(cid:23)0%
50%
13%
(cid:178)
2%
65%
3(cid:23)%
1%
(cid:178)
(cid:178)
35%
226
m
o
c
.
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a
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v
e
w
w
w
.
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:22)(cid:17) (cid:40)(cid:80)plo(cid:92)ee (cid:37)enefits (continued)
The principal assumptions used in determining pension obligations for the Group’s plans are shown below:
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
2017
2016
2015
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
7.6%
11.6%
3.6-4.0%
5%
5%
6%
6%
–
3%
68.6
65
85.3-87
3%
3%
–
81
8.2%
17.5%
3.9-(cid:23).2%
2.8-9.1%
9.6%
13.0%
3.9-(cid:23).5%
2.8-9%
7%
11%
(cid:178)
3%
8%
8%
(cid:178)
3%
7%
11%
3%
(cid:178)
8%
8%
3(cid:178)3.3%
(cid:178)
68.6
65.5
85.8-86.6
77.1-81
68.5
65.5
86.3-87.5
78.1-79
79.0
75
88-89
87
79.0
75.5
88.6-89.3
77.1-87
78.9
75.5
89-89.3
75.2-85
–
–
6.7%
–
(cid:178)
(cid:178)
5-7%
8.6%
(cid:178)
(cid:178)
5.(cid:23)-7%
8.8%
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.
(cid:44)m(cid:83)act on t(cid:75)e defined (cid:69)enefit o(cid:69)li(cid:74)ation
at 31 December 2017, US$ million
(cid:44)m(cid:83)act on t(cid:75)e defined (cid:69)enefit o(cid:69)li(cid:74)ation
at 31 December 2016, US$ million
(cid:44)m(cid:83)act on t(cid:75)e defined (cid:69)enefit o(cid:69)li(cid:74)ation
at 31 December 2015, US$ million
Reasonable
change in
assumption
10%
(10%)
10%
(10%)
10%
(10%)
1
(1)
1
(1)
10%
(10%)
Discount rate
Future benefits
increases
Future salary increase
Average life expectation,
male, years
Average life expectation,
female, years
Healthcare costs
increase rate
Russian
plans
Ukrainian
plans
$(7)
$(2)
8
5
(4)
–
–
1
(1)
1
(1)
–
–
2
–
–
1
(1)
–
–
–
–
–
–
US &
Canadian
plans
$(37)
40
–
–
1
(1)
12
(12)
6
(6)
1
(1)
Other
plans
Russian
plans
Ukrainian
plans
$–
–
(cid:7)(8)
10
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
7
(7)
1
(1)
1
(1)
1
(1)
(cid:178)
(cid:178)
(cid:7)((cid:23))
5
1
(1)
1
(1)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
US &
Canadian
plans
(cid:7)((cid:23)1)
44
(cid:178)
(cid:178)
1
(1)
13
(13)
5
(5)
1
(1)
Other
plans
Russian
plans
Ukrainian
plans
US &
Canadian
plans
Other
plans
(cid:7)(cid:178)
(cid:178)
(cid:7)(8)
10
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
7
(6)
1
(1)
1
(1)
1
(1)
(cid:178)
(cid:178)
(cid:7)(5)
(cid:7)(35)
6
1
(1)
2
(2)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
37
(cid:178)
(cid:178)
2
(2)
14
(1(cid:23))
4
((cid:23))
(cid:178)
(cid:178)
(cid:7)(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
227
Consolidated financial statements
Notes to the consolidated financial statements (continued)
24. Provisions
At 31 December the provisions were as follows:
US$ million
Non–current
Current
Non–current
Current
Non–current
Current
2017
2016
2015
Site restoration and decommissioning costs
$ 260
Legal claims
Other provisions
7
2
$ 269
$ 29
–
3
$ 32
$ 204
(cid:178)
1
$ 205
$ 20
3
3
$ 26
$ 145
(cid:178)
1
$ 146
In the years ended 31 December 2017, 2016 and 2015, the movement in provisions was as follows:
Site restoration and
decommissioning costs
Legal claims
Other provisions
Total
$ 20
2
1
$ 23
$ 214
20
13
35
19
(27)
(8)
(5(cid:23))
((cid:23))
(39)
$ 169
28
14
17
5
(15)
(13)
26
$ 231
25
16
33
15
(16)
(5)
(9)
11
$ 205
13
13
35
19
(20)
((cid:23))
(5(cid:23))
((cid:23))
(38)
$ 165
15
14
17
5
(9)
(9)
26
$ 224
11
16
33
15
(11)
(1)
(9)
11
$ 289
$ 3
3
(cid:178)
(cid:178)
(cid:178)
(1)
(2)
(cid:178)
(cid:178)
(1)
$ 2
5
(cid:178)
(cid:178)
(cid:178)
(1)
(3)
(cid:178)
$ 3
8
(cid:178)
(cid:178)
(cid:178)
(cid:178)
((cid:23))
(cid:178)
(cid:178)
$ 7
$ 6
4
(cid:178)
(cid:178)
(cid:178)
(6)
(2)
(cid:178)
(cid:178)
(cid:178)
$ 2
8
(cid:178)
(cid:178)
(cid:178)
(5)
(1)
(cid:178)
$ 4
6
(cid:178)
(cid:178)
(cid:178)
(5)
(cid:178)
(cid:178)
(cid:178)
$ 5
$ 301
US$ million
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 (cid:23))
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
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 2017
228
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
24. Provisions (continued)
Site Restoration Costs
Under the legislation, mining companies and steel mills have obligations to restore mining sites and contaminated land. The majority of costs are
expected to be paid after 2061.
At 31 December the respective liabilities were measured based on estimates of restoration costs, which are expected to be incurred in the future
discounted at the following annual rates:
Russia
Ukraine
USA
Others
25. Other Long-Term Liabilities
Other long-term liabilities consisted of the following as of 31 December:
2017
2016
2015
8%
13.2%
2.2%
5%
9%
13.2%
1.5%
(cid:23).9-7.(cid:23)%
US$ million
2017
2016
2015
Derivatives not designated as hedging instruments
Hedging instruments
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 financial liabilities
Other non-financial liabilities
Less: current portion (Note 26)
$ –
3
–
5
1
8
1
45
11
74
(20)
$ 54
(cid:7) (cid:178)
22
18
5
3
5
1
62
4
120
(26)
$ 94
10%
12.8%
1.5%
5-7.5%
$ 274
59
16
2
5
5
1
43
(cid:178)
405
(289)
$ 116
Derivatives Not Designated as Hedging Instruments
To manage the currency exposure on the rouble-denominated bonds, the Group partially economically hedged these transactions: in 2010-2013, the
Group concluded currency and interest rate swap contracts under which it agreed to deliver US dollar-denominated interest payments at the rates
ranging from 3.06% to 8.90% per annum plus the US dollar notional amount, in exchange for rouble-denominated interest payments plus the rouble
notional amount. The exchange is exercised on approximately the same dates as the payments under the bonds.
The swap contracts, which were effective at 31 December 2015-2016, 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
9.95 per cent bonds due 2015
8.40 per cent bonds due 2016
8.75 per cent bonds due 2015
2010
2011
2013
15,000
20,000
3,885
14,997
19,996
3,735
491
711
121
5.65% - 5.88%
(cid:23).(cid:23)5% - (cid:23).60%
3.06% - 3.33%
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E
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E
W
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R
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P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
229
Consolidated financial statements
Notes to the consolidated financial statements (continued)
25. Other Long-Term Liabilities (continued)
Derivatives Not Designated as Hedging Instruments (continued)
In 2017, one of the swaps with a notional amount of $26 million did not meet the criteria for effectiveness for hedging instruments and ceased to be
classified as a hedging instrument. This swap was reclassified into Derivatives Not Designated as Hedging Instruments.
The aggregate amounts under swap contracts translated at the year end exchange rates are summarised in the table below.
US$ million
(cid:37)onds principal
Hedged amount
Swap amount
2017
2016
2015
$ 28
28
26
(cid:7) (cid:178)
(cid:178)
(cid:178)
$ 165
165
430
These swap contracts were not designated as cash flow or fair value hedges or excluded from such hedging instruments due to hedge inefficiency.
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(cid:18)RU(cid:37) 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 2017, 2016 and 2015, a change in fair value of the derivatives of $2 million, $273 million and $439 million, respectively, together with a realised
gain(cid:18)(loss) on the swap transactions, amounting to (cid:7)2 million, (cid:7)(250) million and (cid:7)((cid:23)6(cid:23)) million, respectively, was recognised within gain(cid:18)(loss) on
financial assets and liabilities in the consolidated statement of operations (Note 7).
In 2015(cid:178)2016, upon repayment of the 8.(cid:23)0%, 9.95% and 8.75% bonds, the related swap contracts matured.
Hedging Instruments
In (cid:45)uly 2015, the Group completed a placement of bonds in the total amount of 15,000 million Russian roubles ((cid:7)260 million at 31 December 2017),
which bear interest of 12.95% per annum and have the next put date on 26 (cid:45)une 2019. The Group used an intercompany loan to transfer the proceeds
from the bonds within the Group. To manage the currency exposure, the Group entered into a series of cross currency swap contracts with several banks
under which it agreed to deliver US-dollar denominated interest payments at rates ranging from 5.90% to 6.55% per annum plus the notional amount,
totaling approximately (cid:7)265 million, in exchange for rouble-denominated interest payments at the rate of 12.95% per annum plus notional, totaling
1(cid:23),9(cid:23)8 million roubles ((cid:7)260 million at 31 December 2017).
Year of issue
Bonds principal,
millions of roubles
Hedged amount,
millions of roubles
Swap amount, US$
million
Interest rates on the
swap amount
12.95 per cent bonds due 2019
2015
15,000
13,310
239
5.90% - 6.55%
The Group accounted for these swap contracts as cash flow hedges. In 2017, one of these swap contracts with the notional amount of (cid:7)26 million did not
meet the criteria for efficiency and ceased to be classified as hedging instruments. In 2017, 2016 and 2015, the change in fair value of these derivatives
amounted to (cid:7)20 million, (cid:7)37 million and (cid:7)(59) million, respectively. The realised gain on the swap transactions amounting to (cid:7)1(cid:23) million, (cid:7)1(cid:23) million
and (cid:7)5 million, respectively, 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 2017, the Group recognised a (cid:7)9 million gain in other comprehensive income (2016 and 2015: (cid:7)Nil). Most of the swaps
were assessed as effective. Those swaps, which ceased to be effective, were reclassified into Derivatives Not Designated as Hedging Instruments. In
2017, 2016 and 2015, (cid:7)11 million, (cid:7)37 and (cid:7)(59) million, respectively, were recorded in the Foreign exchange gains(cid:18)(losses) caption in the consolidated
statement of operations.
230
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
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
2017
2016
2015
$ 822
158
20
128
$ 1,128
$ 737
134
26
38
$ 935
$ 621
122
289
38
$ 1,070
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W
I
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
2017
2016
2015
$ 129
42
12
6
7
16
$ 104
39
9
4
7
6
$ 212
$ 169
$ 51
30
10
4
7
5
$ 107
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N
A
N
C
E
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 2017,
the major customers were Russian Railways, Sibuglemet Trading and Enbridge Inc. ((cid:23).1%, 1.7% and 1.5% 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.
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
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D
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I
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N
A
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N
F
O
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A
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I
O
N
231
Consolidated financial statements
Notes 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
2017
2016
2015
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)
$ 21
61
65
754
31
19
1,466
$ 2,417
$ 12
52
35
506
34
8
1,157
$ 1,804
$ 8
40
37
452
28
7
1,375
$ 1,947
Receivables from related parties in the table above do not include prepayments in the amount of $1 million, $Nil and $Nil as of 31 December 2017,
2016 and 2015, respectively.
The ageing analysis of trade and other receivables, loans receivable and receivables from related parties at 31 December is presented in the table below.
US$ million
Not past due
Past due
less than six months
between six months and one year
over one year
2017
2016
2015
Gross amount
Impairment
Gross amount
Impairment
Gross amount
Impairment
$ 671
187
114
20
53
$ (1)
(53)
(2)
(10)
(41)
$ 408
187
130
7
50
(cid:7) (1)
((cid:23)6)
(2)
(2)
((cid:23)2)
$ 385
150
95
9
46
(cid:7) (cid:178)
((cid:23)8)
(8)
(2)
(38)
$ 858
$ (54)
$ 595
(cid:7) ((cid:23)7)
$ 535
(cid:7) ((cid:23)8)
In the years ended 31 December 2017, 2016 and 2015, 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
Liquidity Risk
2017
2016
2015
$ (47)
(10)
4
1
(2)
$ (54)
(cid:7) ((cid:23)8)
(1)
5
5
(8)
(cid:7) ((cid:23)7)
(cid:7) (57)
(18)
5
8
14
(cid:7) ((cid:23)8)
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.
232
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
28. Financial Risk Management Objectives and Policies (continued)
Liquidity Risk (continued)
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.
31 December 2017
US$ million
Fixed –rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Financial instruments included in long-term
liabilities
Amounts payable under put options for shares in
subsidiaries
Principal
Interest
(cid:55)otal fi(cid:91)ed(cid:16)(cid:85)ate de(cid:69)t
Variable-rate debt
Loans and borrowings
Principal
Interest
Total variable-rate debt
Non-interest bearing debt
Financial instruments included in long-term 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
$ –
–
–
–
–
–
–
–
–
–
–
143
237
380
$ –
90
–
14
–
–
104
1
19
20
–
770
18
788
$ 4
179
1
3
–
–
187
57
57
114
1
37
–
38
$ 269
$ 2,580
252
4
20
60
4
609
408
64
472
–
–
–
–
416
1
15
–
–
$ 799
22
6
4
–
–
$ 3,652
959
12
56
60
4
3,012
831
4,743
1,013
113
1,126
1
–
–
1
202
4
206
–
–
–
–
1,681
257
1,938
2
950
255
1,207
$ 380
$ 912
$ 339
$ 1,081
$ 4,139
$ 1,037
$ 7,888
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A
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P
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B
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N
E
S
S
R
E
V
E
W
I
C
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R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
233
Consolidated financial statements
Notes to the consolidated financial statements (continued)
28. Financial Risk Management Objectives and Policies (continued)
Liquidity Risk (continued)
31 December 2016
US$ million
Fixed –rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Financial instruments included in long-term
liabilities
(cid:55)otal fi(cid:91)ed(cid:16)(cid:85)ate de(cid:69)t
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
31 December 2015
US$ million
Fixed –rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Financial instruments included in long-term
liabilities
(cid:55)otal fi(cid:91)ed(cid:16)(cid:85)ate de(cid:69)t
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
(cid:7) (cid:178)
(cid:7) (cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
142
1
(cid:178)
143
2
118
209
329
74
(cid:178)
17
91
12
25
(cid:178)
37
(cid:178)
650
13
663
$ 26
250
(cid:178)
5
281
114
74
1
189
(cid:178)
7
(cid:178)
7
$ 656
$ 2,763
$ 726
295
(cid:178)
19
970
196
91
(cid:178)
287
1
(cid:178)
(cid:178)
1
563
1
58
3,385
893
154
(cid:178)
1,047
1
(cid:178)
(cid:178)
1
28
5
19
778
312
21
(cid:178)
333
1
(cid:178)
(cid:178)
1
$ 4,171
1,210
6
118
5,505
1,669
366
1
2,036
5
775
222
1,002
$ 472
$ 791
$ 477
$ 1,258
$ 4,433
$ 1,112
$ 8,543
On demand
Less than 3
months
3 to 12
months
1 to 2 years
2 to 5 years
After 5 years
Total
(cid:7) (cid:178)
$ 4
$ 188
$ 498
$ 3,012
$ 780
$ 4,482
(cid:178)
(cid:178)
(cid:178)
(cid:178)
85
(cid:178)
(cid:178)
85
3
152
133
288
8
(cid:178)
9
21
80
26
(cid:178)
106
(cid:178)
502
9
511
301
(cid:178)
278
767
86
73
1
160
(cid:178)
5
(cid:178)
5
309
(cid:178)
11
818
197
93
1
291
2
(cid:178)
(cid:178)
2
517
1
124
3,654
1,353
133
(cid:178)
1,486
1
(cid:178)
(cid:178)
1
35
5
17
837
45
1
(cid:178)
46
1
(cid:178)
(cid:178)
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
Payables to related parties in the tables above do not include advances received in the amount of $1 million, $4 million and $1 million as of
31 December 2017, 2016 and 2015, respectively.
234
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
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
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I
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
(cid:37)ased 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 ((cid:180)(cid:51)(cid:37)T(cid:181)) 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.
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
2017
2016
2015
Basis points
Effect on PBT
Basis points
Effect on PBT
Basis points
Effect on PBT
US$ millions
US$ millions
US$ millions
(11)
11
(1)
1
(225)
300
$ 2
(2)
–
$ –
–
$ –
(11)
11
((cid:23))
4
(200)
700
$ 1
(1)
(cid:178)
(cid:7) (cid:178)
6
(cid:7) (21)
(12)
50
(25)
25
(525)
550
$ 2
(8)
(cid:178)
(cid:7) (cid:178)
13
(cid:7) (1(cid:23))
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.
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
235
Consolidated financial statements
Notes 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
USD(cid:18)RU(cid:37)
EUR(cid:18)RU(cid:37)
CAD(cid:18)RU(cid:37)
EUR(cid:18)USD
USD(cid:18)CAD
EUR(cid:18)CZK
USD(cid:18)CZK
USD(cid:18)ZAR
USD(cid:18)UAH
RU(cid:37)(cid:18)UAH
USD(cid:18)KZT
Sensitivity Analysis
2017
2016
2015
$ 2,589
$ 1,242
(276)
–
(11)
(892)
(6)
5
–
(199)
(4)
(163)
(75)
335
(116)
(672)
(1)
6
((cid:23))
(136)
4
(161)
$ 304
(399)
312
119
((cid:23)99)
(1)
6
(5)
(113)
1
(157)
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.
2017
2016
2015
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
(10.01)
10.01
(11.35)
11.35
(12.03)
12.03
(7.36)
7.36
(6.76)
6.76
(3.08)
3.08
(7.95)
7.95
–
–
–
–
(5.78)
5.78
(11.99)
11.99
(6.30)
6.30
(282)
241
31
(31)
–
–
1
(1)
61
(60)
–
–
–
–
–
–
–
–
12
(11)
–
–
10
(10)
(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)
(cid:178)
(cid:178)
(1)
1
1
(1)
(cid:178)
(cid:178)
13
(13)
(1)
1
20
(20)
(13.00)
40.00
(15.00)
43.00
(1(cid:23).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)
((cid:23)(cid:23))
109
(16)
14
30
(72)
(cid:178)
(cid:178)
(1)
1
(cid:178)
(1)
(cid:178)
(cid:178)
20
(76)
(cid:178)
(cid:178)
31
(9(cid:23))
USD(cid:18)RU(cid:37)
EUR(cid:18)RU(cid:37)
CAD(cid:18)RU(cid:37)
EUR(cid:18)USD
USD(cid:18)CAD
EUR(cid:18)CZK
USD(cid:18)CZK
USD(cid:18)ZAR
EUR(cid:18)ZAR
USD(cid:18)UAH
RU(cid:37)(cid:18)UAH
USD(cid:18)KZT
236
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
28. Financial Risk Management Objectives and Policies (continued)
Market Risk (continued)
Currency Risk (continued)
Sensitivity Analysis (continued)
I
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A
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E
G
C
R
E
P
O
R
T
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.
2017
2016
2015
Change in
exchange rate
Effect on PBT
Change in
exchange rate
Effect on PBT
Change in
exchange rate
Effect on PBT
%
US$ millions
%
US$ millions
%
US$ millions
USD(cid:18)RU(cid:37)
(10.01)
10.01
66
(49)
(20.02)
20.02
65
((cid:23)3)
(13)
40
55
(10(cid:23))
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(cid:30)
• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly(cid:30) 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
2017
2016
2015
Assets measured at fair value
Derivatives not designated as hedging
instruments (Note 25)
Hedging instruments (Note 25)
Available-for-sale financial assets (Note 13)
Liabilities measured at fair value
Derivatives not designated as hedging
instruments (Note 25)
Hedging instruments (Note 25)
–
–
33
–
–
3
1
–
–
3
–
–
–
–
–
(cid:178)
(cid:178)
3
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
22
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
5
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
274
59
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
237
Consolidated financial statements
Notes 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
2017
2016
2015
Long-term fixed-rate bank loans
Long-term variable-rate bank loans
$ 427
1,668
$ 442
1,665
$ 390
1,516
$ 402
1,528
USD-denominated
7.(cid:23)0% 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
5.375% notes due 2023
Rouble-denominated
8.(cid:23)0% rouble bonds due 2016
12.95% rouble bonds due 2019
12.60% rouble bonds due 2021
–
–
–
–
–
707
774
512
757
–
260
269
–
–
–
–
–
752
873
560
792
–
280
302
(cid:178)
27
126
533
349
1,010
772
515
(cid:178)
(cid:178)
247
255
(cid:178)
26
137
554
359
1,066
856
544
(cid:178)
(cid:178)
260
269
$ 397
1,680
290
195
354
802
347
1,009
746
(cid:178)
(cid:178)
167
205
(cid:178)
$ 385
1,564
299
190
379
804
328
955
747
(cid:178)
(cid:178)
165
208
(cid:178)
$ 5,374
$ 5,666
$ 5,740
$ 6,001
$ 6,192
$ 6,024
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:
C(cid:88)(cid:85)(cid:85)enc(cid:92) in (cid:90)(cid:75)ic(cid:75) financial inst(cid:85)(cid:88)ments a(cid:85)e denominated
2017
2016
2015
USD
EUR
RU(cid:37)
3.6 – 4.5%
1.7 – 3.9%
7.97%
3.7 (cid:178) 6.(cid:23)%
1.8 (cid:178) (cid:23).0%
11.03%
(cid:23).1 (cid:178) 9.8%
1.8 (cid:178) 6.2%
12.77%
238
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
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 (cid:37)oard of Directors reviews the Group’s performance and establishes key performance
indicators. There were no changes in the objectives, policies and processes during 2017.
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
2017
2016
2015
Liabilities for purchases of property, plant and equipment
Loans provided in the form of payments by banks for property, plant and equipment
$ 80
8
$ 71
46
$ 63
(cid:178)
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 political crisis over Ukraine led to 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 in 2014-2015, economic slowdown, deterioration of liquidity in the banking sector,
and tighter credit conditions within Russia and Ukraine. In addition, a significant drop in crude oil prices in 2015 continues to have a negative impact on
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.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
239
Consolidated financial statements
Notes 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. (cid:51)ossible 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 (cid:7)23 million.
Contractual Commitments
At 31 December 2017, the Group had contractual commitments for the purchase of production equipment and construction works for an approximate
amount of $148 million.
In 2010, the Group concluded a contract with (cid:51)raxAir (Note 2, Accounting (cid:45)udgements) 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 (cid:23) (cid:180)Determining whether an Arrangement Contains a Lease(cid:181). At 31 December 2017, the Group has
committed expenditure of $612 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 $33 million under these programmes in 2018.
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 a stage of investigation. Environmental provisions in relation to these
proceedings that were recognised at 31 December 2017 amounted to $21 million. Preliminary estimates available of the incremental costs indicate that
such costs could be up to $186 million. The Group has insurance agreements, which will provide reimbursement of the costs to be actually incurred up to
$228 million, of which $21 million relate to the accrued environmental provisions and have been recognised in non-current receivables at 31 December
2017. Management believes that 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 2018 to 2022, under which the Group
will perform works aimed at reductions in environmental pollution and contamination. As of 31 December 2017, the costs of implementing these
programmes are estimated at $102 million.
240
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
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.
(cid:37)ecause 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 2017, possible legal risks approximate $21 million.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
31. Auditor’s Remuneration
The remuneration of the Group’s auditor in respect of the services provided to the Group was as follows.
US$ million
2017
2016
2015
Audit of the parent company of the Group
Audit of the subsidiaries
Total assurance services
Other services
$ 1
2
3
1
$ 4
$ 2
2
4
(cid:178)
$ 4
32. Material Partly-Owned Subsidiaries
Financial information of subsidiaries that have material non-controlling interests is provided below.
$ 2
3
5
(cid:178)
$ 5
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
Name
Country of incorporation
2017
2016
2015
Non–controlling interests
Raspadskaya
New CF(cid:9)I (subsidiary of EVRAZ Inc NA)
Russia
USA
18.05%
10.00%
18.05%
10.00%
18.05%
10.00%
US$ million
2017
2016
2015
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
Accumulated balances of material non-controlling interest
Raspadskaya
New CF(cid:9)I (subsidiary of EVRAZ Inc NA)
Others
(cid:51)rofit allocated to material non-controlling interest
Raspadskaya
EVRAZ Highveld Steel and Vanadium Limited
New CF(cid:9)I (subsidiary of EVRAZ Inc NA)
Others
$ 149
99
(6)
242
51
–
1
8
$ 60
$ 92
98
((cid:23))
186
23
(cid:178)
(3)
7
$ 27
The summarised financial information regarding these subsidiaries is provided below. This information is based on amounts before inter-company
eliminations.
$ 56
101
(2(cid:23))
133
(32)
1
3
((cid:23)7)
(cid:7) (75)
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
241
Consolidated financial statements
Notes to the consolidated financial statements (continued)
32. Material Partly-Owned Subsidiaries (continued)
(cid:54)(cid:88)mma(cid:85)ised statement o(cid:73) (cid:83)(cid:85)ofit o(cid:85) loss
2017
2016
2015
$ 868
(430)
438
(74)
9
13
386
(21)
365
(75)
$ 290
36
326
56
–
$ 503
(306)
197
(67)
(17)
77
190
(31)
159
(33)
$ 126
90
216
36
(cid:178)
$ 420
(33(cid:23))
86
(79)
(91)
(11(cid:23))
(198)
(2(cid:23))
(222)
44
(cid:7) (178)
(152)
(330)
(51)
(cid:178)
2017
2016
From 1 January
to 14 April 2015
$ –
(cid:7) (cid:178)
–
–
–
–
–
–
–
–
–
$ –
–
–
–
–
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:7) (cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
$ 145
(138)
7
(21)
(cid:178)
(2)
(16)
20
4
(cid:178)
$ 4
(1)
3
(cid:178)
(cid:178)
Raspadskaya
US$ million
Revenue
Cost of revenue
(cid:42)(cid:85)oss (cid:83)(cid:85)ofit(cid:18)(cid:11)loss(cid:12)
Operating costs
Impairment of assets
Foreign exchange gains(cid:18)(losses), net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:73)(cid:85)om o(cid:83)e(cid:85)ations
Non-operating gains(cid:18)(losses)
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:69)e(cid:73)o(cid:85)e ta(cid:91)
Income tax benefit(cid:18)(expense)
(cid:49)et (cid:83)(cid:85)ofit(cid:18)(cid:11)loss(cid:12)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to non-controlling interests
dividends paid to non-controlling interests
EVRAZ Highveld Steel and Vanadium Limited
US$ million
Revenue
Cost of revenue
(cid:42)(cid:85)oss (cid:83)(cid:85)ofit(cid:18)(cid:11)loss(cid:12)
Operating costs
Impairment of assets
Foreign exchange gains(cid:18)(losses), net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:73)(cid:85)om o(cid:83)e(cid:85)ations
Non-operating gains(cid:18)(losses)
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:69)e(cid:73)o(cid:85)e ta(cid:91)
Income tax benefit(cid:18)(expense)
(cid:49)et (cid:83)(cid:85)ofit(cid:18)(cid:11)loss(cid:12)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to non-controlling interests
dividends paid to non-controlling interests
242
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z
a
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
32. Material Partly-Owned Subsidiaries (continued)
(cid:54)(cid:88)mma(cid:85)ised statement o(cid:73) (cid:83)(cid:85)ofit o(cid:85) loss (cid:11)contin(cid:88)ed(cid:12)
New CF&I
US$ million
Revenue
Cost of revenue
(cid:42)(cid:85)oss (cid:83)(cid:85)ofit(cid:18)(cid:11)loss(cid:12)
Operating costs
Impairment of assets
Foreign exchange gains(cid:18)(losses), net
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:73)(cid:85)om o(cid:83)e(cid:85)ations
Non-operating gains(cid:18)(losses)
(cid:51)(cid:85)ofit(cid:18)(cid:11)loss(cid:12) (cid:69)e(cid:73)o(cid:85)e ta(cid:91)
Income tax benefit(cid:18)(expense)
(cid:49)et (cid:83)(cid:85)ofit(cid:18)(cid:11)loss(cid:12)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to non-controlling interests
dividends paid to non-controlling interests
(cid:54)(cid:88)mma(cid:85)ised statement o(cid:73) financial (cid:83)osition as at (cid:22)(cid:20) (cid:39)ecem(cid:69)e(cid:85)
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
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
2017
2016
2015
$ 558
(533)
25
(54)
(2)
–
(31)
18
(13)
21
$ 8
(3)
5
1
–
$ 384
(391)
(7)
((cid:23)8)
(cid:178)
(cid:178)
(55)
21
(3(cid:23))
9
(cid:7) (25)
((cid:23))
(29)
(3)
(cid:178)
2017
2016
2015
$ 1,047
11
590
1,648
72
31
599
702
946
797
149
$ 1,004
30
655
1,689
65
52
952
1,069
620
528
92
2017
2016
2015
$ 167
921
155
1,243
12
89
156
257
986
887
99
$ 184
957
117
1,258
30
81
166
277
981
883
98
$ 635
(565)
70
(52)
(cid:178)
(cid:178)
18
20
38
(12)
$ 26
4
30
3
(cid:178)
$ 883
51
279
1,213
54
507
247
808
405
348
57
$ 214
967
125
1,306
42
81
173
296
1,010
909
101
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
243
Consolidated financial statements
Notes to the consolidated financial statements (continued)
32. Material Partly-Owned Subsidiaries (continued)
(cid:54)(cid:88)mma(cid:85)ised cas(cid:75) (cid:193)o(cid:90) in(cid:73)o(cid:85)mation
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
Dividends
2017
2016
2015
$ 406
19
(413)
$ 176
(100)
(89)
$ 107
(32)
((cid:23)9)
2017
2016
From 1 January to 14 April
2015
$ –
–
–
(cid:7) (cid:178)
(cid:178)
(cid:178)
2017
2016
2015
$ (16)
16
–
$ 5
(5)
(cid:178)
(cid:7) (cid:178)
(5)
(2)
$ 101
(101)
(cid:178)
On 28 February 2018, the (cid:37)oard of directors of EVRAZ plc declared a second interim dividend for 2017 in the amount of (cid:7)(cid:23)29.6 million, which
represents $0.3 per share.
244
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:22)(cid:23)(cid:17) (cid:47)ist of Subsidiaries and (cid:50)t(cid:75)er Significant (cid:43)oldings
Country of
incorporation
Name
Austria
Austria
Canada
Canada
Hochvanadium Handels GmbH
Hochvanadium Holdings AG
Camrose Pipe Corporation
Canadian National Steel Corporation
Relationship
indirect subsidiary
indirect subsidiary
indirect subsidiary
indirect subsidiary
effective
ownership
in 2017, % Registered address
85.11%
85.11%
Renngasse 1, Freyung 1013 Wien
Renngasse 1, Freyung 1013 Wien
100.00%
8735 Harborgate (cid:51)ortland, OR 97203
Notes
liquidated
liquidated
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
100.00%
Canada
Canada
General Scrap Partnership
Genlandco Inc.
indirect subsidiary
indirect subsidiary
100.00%
100.00%
308 Highway 2 East Minot, ND 58702
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%
Canada
Genalta Recycling Inc.
joint venture
50.00%
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%
700 - 9th Avenue S.W. Suite 3000
Calgary, A(cid:37) T2(cid:51) 3V(cid:23)
(cid:23)0 King Street West, Suite 5800,
Toronto, Ontario M5H 3S1
(cid:23)0 King Street West
Suite 5800
Toronto, ON. M5H 3S1
181 (cid:37)ay Street, Suite 2100, Toronto,
Ontario M5J 2T3
2400, 525 8th Avenue SW
Calgary A(cid:37) T2(cid:51) 1G1
360 Main Street 30th FL Winnipeg,
Manitoba R3C 4G1
200-233 Portage Avenue Winnipeg,
Manitoba R3(cid:37) 2A7
30th Floor, 360 Main Street,
Winnipeg, M(cid:37), R3C (cid:23)G1
700 - 9th Avenue S.W.
Suite 3000
Calgary, A(cid:37) T2(cid:51) 3V(cid:23)
Aikins, MacAulay & Thorvaldson LLP
30th Floor, 360 Main Street,
Winnipeg, M(cid:37), R3C (cid:23)G1
387 (cid:37)roadway
Winnipeg M(cid:37) R3C 0V5
55 Market Street
Level 10
Singapore 048941
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Actionfield Limited
indirect subsidiary
100.00%
Crownwing Limited
indirect subsidiary
100.00%
Dashuria Limited
indirect subsidiary
100.00%
Drampisco Limited
indirect subsidiary
100.00%
East Metals Limited
indirect subsidiary
100.00%
Fegilton Limited
Kadish Limited
indirect subsidiary
100.00%
indirect subsidiary
100.00%
Laybridge Limited
indirect subsidiary
100.00%
Malvero
indirect subsidiary
100.00%
Mastercroft Finance Limited
indirect subsidiary
100.00%
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
liquidated
Themistokli Dervi, 3, (cid:45)ulia House, (cid:51).C.
1066, Nicosia, Cyprus
sold
Themistokli Dervi, 3, (cid:45)ulia House, (cid:51).C.
1066, Nicosia, Cyprus
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
sold
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
245
Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:22)(cid:23)(cid:17) (cid:47)ist of Subsidiaries and (cid:50)t(cid:75)er Significant (cid:43)oldings (continued)
Country of
incorporation
Name
Relationship
effective
ownership
in 2017, % Registered address
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Mastercroft Mining Limited
indirect subsidiary
100.00%
Nafkratos Limited
indirect subsidiary
100.00%
RVK Invest Limited
associate
42.61%
Sinano Limited
indirect subsidiary
100.00%
Steeltrade Limited
indirect subsidiary
100.00%
Streamcore Limited
joint venture
50.00%
Tuva Railway Limited
indirect subsidiary
60.02%
Unicroft Limited
indirect subsidiary
100.00%
Vanston Limited
Velcast Limited
indirect subsidiary
100.00%
indirect subsidiary
100.00%
Czech Republic
EVRAZ Nikom, a.s.
indirect subsidiary
100.00%
Italy
Evraz (cid:51)alini e (cid:37)ertoli S.r.l
indirect subsidiary
100.00%
Kazakhstan
Evraz Caspian Steel
indirect subsidiary
65.00%
Kazakhstan
EvrazMetall Kazakhstan
indirect subsidiary
100.00%
Luxembourg
Evraz Group S.A.
direct subsidiary
100.00%
Mexico
Evraz NA Mexico
indirect subsidiary
100.00%
Netherlands
ECS Holdings Europe (cid:37).V.
indirect subsidiary
65.00%
Netherlands
(cid:51)almrose (cid:37).V.
indirect subsidiary
100.00%
Republic of S.Africa Evraz Highveld Steel and Vanadium Limited
indirect subsidiary
85.11%
Republic of S.Africa Evraz Vametco Alloys ((cid:51)T(cid:60)) Ltd
indirect subsidiary
59.07%
Republic of S.Africa Evraz Vametco Holdings ((cid:51)T(cid:60)) Ltd
indirect subsidiary
59.07%
Republic of S.Africa Evraz Vametco (cid:51)roperties ((cid:51)T(cid:60)) Ltd
indirect subsidiary
59.07%
Republic of S.Africa Mapochs Mine ((cid:51)roprietary) Limited
indirect subsidiary
62.98%
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
Themistokli Dervi, 3, (cid:45)ulia House, (cid:51).C.
1066, Nicosia, Cyprus
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
Leoforos Archiepiskopou Makariou lll,
135, EMELLE (cid:37)uilding, flat(cid:18)office 22,
3021, Limassol
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
3 Themistokli Dervi, (cid:45)ulia House,
1066, Nicosia
Czech Republic, Mnisek pod (cid:37)rdy,
Prazska 900, 25210
via E. Fermi 28, 33058 San Giorgio di
Nogaro (UD)
(cid:23)1, ul. (cid:51)romyshlennaya, Kostanai,
110000
office 201, 9, shosse Alash,
Saryarkinskiy raion, Astana
13, avenue Monterey, L2163,
Luxembourg
Frida Kahlo 195-709, Valle (cid:474)rient(cid:497),
San Pedro Garza Carcia, Nuevo Leon,
66269
Hoogoorddreef 15, 1101 (cid:37)A
Amsterdam
Hoogoorddreef 15, 1101 (cid:37)A
Amsterdam
Old Pretoria Road, Portion 93 of
the Farm Schoongezicht 308 (cid:45)S
eMalahleni (Witbank)
Main Motholung Road Extension,
Motholung (cid:37)rits 250
Main Motholung Road Extension,
Motholung (cid:37)rits 250
Main Motholung Road Extension,
Motholung (cid:37)rits 250
Old Pretoria Road, Portion 93 of
the Farm Schoongezicht 308 (cid:45)S
eMalahleni (Witbank)
Notes
liquidated
liquidated
liquidated
deconsolidated
in 2015
sold
sold
sold
deconsolidated
in 2015
Republic of S.Africa Mapochs Mine Community Trust
indirect subsidiary
0.00%
Russia
Aktiv-Media
indirect subsidiary
100.00%
Russia
ATP Evrazruda
indirect subsidiary
100.00%
Russia
ATP Yuzhkuzbassugol
indirect subsidiary
100.00%
Portion 93 of the farm Schoongezicht
No.308 JS, eMalahleni
deconsolidated
in 2015
Office 6, 35, ul. Ordzhonikidze,
Novokuznetsk, Kemerovskaya obl.,
654007
39, ul. Kondomskoe shosse,
Novokuznetsk, Kemerovskaya obl.,
654018
20, Silikatnaya, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)086
merged
246
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Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:22)(cid:23)(cid:17) (cid:47)ist of Subsidiaries and (cid:50)t(cid:75)er Significant (cid:43)oldings (continued)
Relationship
effective
ownership
in 2017, % Registered address
Notes
Country of
incorporation
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Name
AVT-Ural
(cid:37)lagotvoritelniy fond Evraza - Sibir
(cid:37)lagotvoritelniy fond Evraza - Ural
indirect subsidiary
51.00%
indirect subsidiary -
non-commercial
indirect subsidiary -
non-commercial
-
-
(cid:37)riyanskmetallresursy
indirect subsidiary
99.96%
Centr kultury i iskusstva NTMK
Centr podgotovki personala Evraz-Ural
Centr Servisnykh Resheniy
Centralnaya Obogatitelnaya Fabrika
Abashevskaya
Centralnaya Obogatitelnaya Fabrika
Kuznetskaya
indirect subsidiary -
non-commercial
indirect subsidiary
- non-commercial
indirect subsidiary
-
-
100.00%
indirect subsidiary
92.10%
indirect subsidiary
100.00%
Consortium Tuvinskie dorogi
indirect subsidiary
100.00%
Elekrosvyaz (cid:60)KU
indirect subsidiary
87.20%
Evraz Consolidated West-Siberian metallurgical
Plant
indirect subsidiary
100.00%
EVRAZ Kachkanarsky Ore Mining and
Processing Plant
indirect subsidiary
100.00%
Evraz Nakhodka Trade Sea Port
indirect subsidiary
100.00%
Evraz Nizhny Tagil Metallurgical Plant
indirect subsidiary
100.00%
Evrazenergotrans
indirect subsidiary
100.00%
EvrazHolding LLC
indirect subsidiary
100.00%
EvrazHolding-Finance
indirect subsidiary
100.00%
EvrazMetall Sibir
indirect subsidiary
100.00%
Evrazruda
Evraz-Service
Evraztekhnika
indirect subsidiary
100.00%
indirect subsidiary
100.00%
indirect subsidiary
100.00%
Gurievsky rudnik
indirect subsidiary
100.00%
2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624351
1, ul. Ploshad Pobedy, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)010
office (cid:23), 39, ul. Karl Marks, Nizhny
Tagil, Sverdlovskaya obl., 622001
1(cid:23), ul. Staleliteinaya, (cid:37)ryansk,
241035
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
1, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)006
12, Tupik Strelochny, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)086
16, Shosse Severnoe, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)000
(cid:23), ul. (cid:37)elovezhskaya, Moscow,
121353
33, (cid:51)rospect Kurako, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)027
16, ul. Shosse Kosmicheskoe,
Novokuznetsk, Kemerovskaya obl.,
654043
2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624351
22, ul. Portovaya, Nakhodka,
Primorsky krai, 692904
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
sold
2(cid:37), ul. Khlebozavodskaya,
Novokuznetsk, Kemerovskaya obl.,
654006
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)006
(cid:23), ul. (cid:37)elovezhskaya, Moscow,
121353
(cid:23), ul. (cid:37)elovezhskaya, Moscow,
121353
30, Shosse Severnoe, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)0(cid:23)3
21, ul. Lenina, Tashtagol,
Kemerovskaya obl., 652990
(cid:23), ul. (cid:37)elovezhskaya, Moscow,
121353
(cid:23), ul. (cid:37)elovezhskaya, Moscow,
121353
1, ul. Zhdanova, Gurievsk,
Kemerovskaya obl., 652780
EVRAZ Vanady-Tula
EvrazEK
indirect subsidiary
indirect subsidiary
100.00%
100.00%
1, ul. Przhevalskogo, Tula, 300016
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
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R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
247
Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:22)(cid:23)(cid:17) (cid:47)ist of Subsidiaries and (cid:50)t(cid:75)er Significant (cid:43)oldings (continued)
Country of
incorporation
Name
Russia
Russia
Russia
Russia
Relationship
indirect subsidiary
effective
ownership
in 2017, %
100.00%
Industrialnaya Vostochno-Evropeiskaya
company
Evrazmetall Inprom
indirect subsidiary
100.00%
Kachkanarskaya teplosnabzhauschaya
company
Kulturno-sportivniy centr metallurgov
indirect subsidiary
100.00%
indirect subsidiary - non-
commercial
-
Russia
Kuznetskpogruztrans
indirect subsidiary
94.50%
Kuznetskteplosbyt
indirect subsidiary
100.00%
Magnit
indirect subsidiary
-
Management Company EVRAZ
Mezhdurechensk
Medsanchast Vanady
indirect subsidiary
100.00%
indirect subsidiary
100.00%
Mekona
indirect subsidiary
100.00%
Metallenergofinance
indirect subsidiary
100.00%
Metalloservisnie centry
indirect subsidiary
100.00%
Metallurg-Forum
indirect subsidiary
85.23%
Mezhegeyugol Coal Company
indirect subsidiary
100.00%
Mezhegeyugol LLC
indirect subsidiary
60.02%
Mine Abashevskaya
indirect subsidiary
100.00%
Mine Alardinskaya
indirect subsidiary
100.00%
Mine Esaulskaya
indirect subsidiary
100.00%
Mine Kureinskaya
indirect subsidiary
100.00%
Mine Kusheyakovskaya
indirect subsidiary
100.00%
Mine Osinnikovskaya
indirect subsidiary
100.00%
Mine Uskovskaya
indirect subsidiary
100.00%
Mining Metallurgical Company (cid:180)Timir(cid:181)
joint venture
51.00%
Montazhnik Raspadskoy
indirect subsidiary
81.95%
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
248
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Registered address
Notes
3, ul. Khimicheskaya, Taganrog,
Rostovskaya obl., 347913
2-a, ul. Marshala Zhukova, Taganrog,
Rostovskaya obl., 347942
17, 8 microraion, Kachkanar,
Sverdlovskaya obl., 624350
20, Prospect Metallurgov,
Novokuznetsk, Kemerovskaya obl.,
654007
18, ul. Promyshlennaya,
Novokuznetsk, Kemerovskaya obl.,
654029
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)006
1, ul. Turgeneva, Kachkanar,
Sverdlovskaya obl., 624351
69, ul. Kirova, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)080
Zeleniy mys profilaktoriy, Kachkanar,
Sverdlovskaya obl., 624350
22, ul. Portovaya, Nakhodka,
Promorsky krai
sold
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)006
9, ul. Khimicheskaya, Taganrog,
Rostovskaya obl., 347913
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
62, ul. Internationalnaya, Kyzyl, Tyva
Republic, 667000
(cid:23), ul. (cid:37)elovezhskaya, Moscow,
121353
5, ul. Kavkazskaya, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)013
56, ul. Ugolnaya, Malinovka, Kaltan,
Kemerovskaya obl., 652831
33, (cid:51)rospect Kurako, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)027
4, ul. Nevskogo, Novokuznetsk,
Kemerovskaya obl.
5, ul. Kavkazskaya, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)013
3, ul. Shakhtovaya, Osinniki,
Kemerovskaya obl.,
33, (cid:51)rospect Kurako, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)027
4, Prospect Geologov, Neryungri,
Republic of Saha ((cid:60)akutia), 678960
office (cid:23)08(cid:30) 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
merged
liquidated
merged
merged
merged
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:22)(cid:23)(cid:17) (cid:47)ist of Subsidiaries and (cid:50)t(cid:75)er Significant (cid:43)oldings (continued)
Country of
incorporation
Name
Relationship
effective
ownership
in 2017, % Registered address
Russia
Mordovmetallotorg
indirect subsidiary
99.90%
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Notes
merged
Ohothichie hozyaistvo
indirect subsidiary -
non-commercial
-
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
MUK-96
indirect subsidiary
81.95%
Nizhny Tagil Telecompany Telecon
indirect subsidiary
-
Novokuznetskmetallopttorg
associate
48.51%
Obogatitelnaya Fabrika Raspadskaya
indirect subsidiary
81.95%
Olzherasskoye shakhtoprokhodcheskoye
upravlenie
indirect subsidiary
81.95%
Osinnikovsky remontno-mekhanichesky zavod
indirect subsidiary
84.43%
joint venture
50.00%
Parus
Penzametalltorg
Promuglepoject
(cid:51)ublishing House IKaR
indirect subsidiary
-
Raspadskaya
indirect subsidiary
81.95%
Raspadskaya ugolnaya company
indirect subsidiary
81.95%
Raspadskaya-Energo
indirect subsidiary
81.95%
Raspadskaya-Koksovaya
indirect subsidiary
81.95%
indirect subsidiary
indirect subsidiary
100.00%
100, ul. (cid:37)aidukova, (cid:51)enza, (cid:23)(cid:23)0015
merged
100.00%
4, ul. Nevskogo, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)027
39, Aleksandrovskoe Shosse,
Saransk, Respublica Mordovia,
430006
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
74, ul. Industrialnaya, Nizhny Tagil,
Sverdlovskaya obl., 622025
16, ul. Chaikinoi, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)005
office 203(cid:30) 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
office 331(cid:30) 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
130, ul. Lenina, Osinniki,
Kemerovskaya obl., 652810
office 3(cid:30) 51, ul. Industrialnaya, Nizhny
Tagil, Sverdlovskaya obl., 622025
(cid:23), ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624356
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
33, (cid:51)rospect Kurako, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)027
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
office (cid:23)2(cid:23)(cid:30) 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
office 213(cid:30) 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
(cid:23), ul. (cid:37)elovezhskaya, Moscow,
121353
4, ul. Nevskogo, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)027
8, 8 microraion, Kachkanar,
Sverdlovskaya obl., 624351
1A, ul. Groznenskaya, Samara,
443004
merged
merged
Russia
Razrez Raspadskiy
indirect subsidiary
81.95%
Regional Media Company
indirect subsidiary
Regionalniy Centr podgotovki personala
Evraz-Sibir
indirect subsidiary -
non-commercial
-
-
Rembytcomplect
indirect subsidiary
100.00%
Samarskiy mekhanicheskiy zavod
indirect subsidiary
100.00%
Sanatoriy-porfilactory Lenevka
indirect subsidiary -
non-commercial
-
Lenevka, Prigorodny raion,
Sverdlovskaya obl., 622911
Sfera
indirect subsidiary
100.00%
office 315(cid:30) 205, ul. 8 Marta,
Ekaterinburg, Sverdlovskaya obl.,
620085
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
249
Consolidated financial statements
Notes to the consolidated financial statements (continued)
(cid:22)(cid:23)(cid:17) (cid:47)ist of Subsidiaries and (cid:50)t(cid:75)er Significant (cid:43)oldings (continued)
Country of
incorporation
Name
Sibirskaya registratsionnaya company
Sibir-VK
Sibmetinvest
Relationship
investment
joint venture
10.06%
50.00%
indirect subsidiary
100.00%
effective
ownership
in 2017, % Registered address
Notes
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
250
m
o
c
.
z
a
r
v
e
w
w
w
.
Torfagregat
indirect subsidiary
100.00%
1(cid:37), ul. (cid:51)oselok Mekhzavoda, Ryazan,
390007
merged
Specializirovannoye Shakhtomontazhno-
naladochnoye upravlenie
Sportivniy complex Uralets
Sportivno-Ozdorovitelny complex Metallurg-
Forum
indirect subsidiary
79.14%
indirect subsidiary - non-
commercial
indirect subsidiary - non-
commercial
-
-
Tagilteplosbyt
indirect subsidiary
100.00%
Tomusinskoye pogruzochno-transportnoye
upravlenie
indirect subsidiary
48.01%
Trade Company EvrazHolding
indirect subsidiary
100.00%
Trade House EvrazHolding
indirect subsidiary
100.00%
Tulametallopttorg
indirect subsidiary
100.00%
TV-Most
TVN
indirect subsidiary
indirect subsidiary
-
-
Uliyanovskmetall
indirect subsidiary
99.37%
United accounting systems
indirect subsidiary
100.00%
United Coal Company (cid:60)uzhkuzbassugol
indirect subsidiary
100.00%
Upravlenie po montazhu, demontazhu i remontu
gornoshakhtnogo oborudovaniya
indirect subsidiary
100.00%
Vanadyservice
indirect subsidiary
100.00%
Vanady-transport
indirect subsidiary
100.00%
Vladimirmetallopttorg
Vtorresurspererabotka
indirect subsidiary
joint venture
95.63%
50.00%
(cid:60)uzhno-Kuzbasskoye geologorazvedochnoye
upravlenie
indirect subsidiary
100.00%
Yuzhny Stan
indirect subsidiary
100.00%
ZAO Irkutskvtorchermet
ZAO Vtorchermet
Zapsibzhilstroy
associate
associate
42.61%
42.61%
indirect subsidiary
100.00%
57, Prospect Stroiteley, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)005
37A, ul. Kutuzova, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)0(cid:23)1
Office 10(cid:30) 1, 1st km of Rublevo-
Uspenskoye shosse, der. Razdory,
Odintsovo area, Moscow region,
143082
28, proezd Zaschitny, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)03(cid:23)
36, Gvardeisky bulvar, Nizhny Tagil,
622005
office 26(cid:30) 61, ul. Krasnogvardeiskaya,
Nizhny Tagil, Sverdlovskaya obl.,
622013
67, Prospect Lenina, Nizhny Tagil,
Sverdlovskaya obl., 622034
office 209(cid:30) 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
(cid:23), ul. (cid:37)elovezhskaya, Moscow,
121353
(cid:23), ul. (cid:37)elovezhskaya, Moscow,
121353
36, Aleksinskoe shosse, Tula,
300000
office 16(cid:23), 31, Moscovsky prospect,
Kemerovo, 650065
35, ul. Ordzhonikidze, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)007
20, 11 proezd Inzhenerny, Ulyanovsk,
432072
office 205(cid:30) 1, ul. Rudokoprovaya,
Novokuznetsk, Kemerovskaya obl.,
654006
33, (cid:51)rospect Kurako, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)027
130, ul. Lenina, Osinniki,
Kemerovskaya obl., 652810
11a, 10 microraion, Kachkanar,
Sverdlovskaya obl., 624351
2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624351
57, ul. P. Osipenko, Vladimir, 600009
37A, ul. Kutuzova, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)0(cid:23)1
33, (cid:51)rospect Kurako, Novokuznetsk,
Kemerovskaya obl., 65(cid:23)027
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
merged
merged
Russia
Zavod metallurgicheskih reagentov
associate
50.00%
Switzerland
East Metals A.G.
indirect subsidiary
100.00%
(cid:37)aarerstrasse 131, 6300 Zug
Consolidated financial statements
Notes to the consolidated financial statements (continued)
Annual Report & Accounts 2017
(cid:22)(cid:23)(cid:17) (cid:47)ist of Subsidiaries and (cid:50)t(cid:75)er Significant (cid:43)oldings (continued)
Country of
incorporation
Name
Switzerland
East Metals Shipping A.G.
Ukraine
(cid:37)on Life
Relationship
indirect subsidiary
indirect subsidiary
Ukraine
Evraz Dneprovsky Metallurgical Plant
indirect subsidiary
97.73%
effective
ownership
in 2017, % Registered address
100.00%
(cid:37)aarerstrasse 131, 6300 Zug
97.73%
26, ul. Starokazatskaya, Dnepr,
Dnepropetrovskaya obl., 49000
3, ul. Mayakovskogo, Dnepr,
Dnepropetrovskaya obl., 49064
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Notes
sold
Ukraine
Evraz Sukha (cid:37)alka
indirect subsidiary
99.4193% 5, ul. Konstitutsionnaya, Krivoy Rog,
sold
Ukraine
Evraz Ukraine
indirect subsidiary
100.00%
Ukraine
Evraz Yuzhkoks
indirect subsidiary
94.96%
Ukraine
Evraztrans-Ukraine
indirect subsidiary
100.00%
Ukraine
LK Adzhalyk
indirect subsidiary
100.00%
Ukraine
Trade House Evraz Ukraine
indirect subsidiary
97.73%
Ukraine
United accounting systems Ukraine
indirect subsidiary
100.00%
United Kingdom
Evraz North America plc
indirect subsidiary
100.00%
Dnepropetrovskaya obl., 50029
31, ul. Udarnikov, Dnepr,
Dnepropetrovskaya obl., 49064
1, ul. Vyacheslav Chernovil,
Kamenskoye, Dnepropetrovskaya obl.,
51909
sold
3, ul. Mayakovskogo, Dnepr,
Dnepropetrovskaya obl., 49064
kv.97, 1, (cid:51)rospekt (cid:51)ravdy, Kharkov,
61022
31, ul. Udarnikov, Dnepr,
Dnepropetrovskaya obl., 49064
3, ul. Mayakovskogo, Dnepr,
Dnepropetrovskaya obl., 49064
20-22 (cid:37)edford Row
London
England
WC1R 4JS
United Kingdom
Viscaria 2 Limited
indirect subsidiary
100.00%
20 (cid:178) 22 (cid:37)edford Row, London WC1R
4JS
liquidated
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
CF(cid:9)I Steel L(cid:51)
indirect subsidiary
Colorado and Wyoming Railway Company
indirect subsidiary
East Metals North America, LLC
indirect subsidiary
90.00%
90.00%
100.00%
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%
Fremont County Irrigating Ditch Co.
investment
13.80%
1612 E Abriendo Pueblo, CO 81004
2100 S. Freeway (cid:51)ueblo, CO 8100(cid:23)
Corporation Trust Center, 1209
Orange Street, Wilmington, Delaware
200 E. Randolph Drive Suite 7800
Chicago, IL 60601
4001 Philadelphia Pike, Claymont,
Delaware 19703
200 E. Randolph Drive Suite 7800
Chicago, IL 60601
(cid:23)285 Malvern Road, Hot Springs, AR
71901
200 E. Randolph Drive Suite 7800
Chicago, IL 60601
113 W. 5th Street Florence, CO
81226
General Scrap Inc.
New CF(cid:9)I Inc.
Oregon Ferroalloy (cid:51)artners
indirect subsidiary
indirect subsidiary
indirect subsidiary
90.00%
60.00%
100.00%
3101 Valley Street Minot, ND 58702
Oregon Steel Mills Processing Inc.
indirect subsidiary
100.00%
OSM Distribution Inc.
indirect subsidiary
100.00%
Strategic Minerals Corporation
indirect subsidiary
78.76%
Union Ditch and Water Co.
indirect subsidiary
57.59%
US Tungsten
indirect subsidiary
78.76%
1612 E Abriendo Pueblo, CO 81004
1(cid:23)(cid:23)00 Rivergate (cid:37)lvd. (cid:51)ortland, OR
97203
200 East Randolph Drive, #7800
Chicago, IL 60601
200 E. Randolph Drive Suite 7800
Chicago, IL 60601
(cid:23)285 Malvern Road, Hot Springs, AR
71901
sold
113 W. 5th Street Florence, CO
81226
(cid:23)285 Malvern Road, Hot Springs,
Arkansas 71901
sold
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
251
(cid:54)e(cid:83)a(cid:85)ate financial statements
EVRAZ plc
Separate Financial Statements
for the year ended 31 December 2017
Separate Statement of Comprehensive Income
In millions of US dollars
General and administrative expenses
Operating income
Reversal of impairment(cid:18)(impairment) of investments
Foreign exchange losses
Interest expense
Other non-operating losses
Net loss
Total comprehensive loss
Notes
2017
2016
31 December
6
3
3
3,6,7
7
$ (9)
7
6
(1)
(19)
(1)
(17)
(cid:7) (7)
11
(21)
((cid:23))
(1(cid:23))
(39)
(7(cid:23))
$ (17)
(cid:7) (7(cid:23))
252
m
o
c
.
z
a
r
v
e
w
w
w
.
The accompanying notes form an integral part of these separate financial statements.
(cid:54)e(cid:83)a(cid:85)ate financial statements
Annual Report & Accounts 2017
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Separate Statement of Financial Position
I
B
U
S
N
E
S
S
R
E
V
E
W
I
In millions of US dollars
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
Loans payable to related parties
Financial guarantee liabilities
Current liabilities
Trade and other payables
Payables to related parties
Loans payable to related parties
Financial guarantee liabilities
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
The Financial Statements on pages 2(cid:23)(cid:23)(cid:178)255 were approved by the (cid:37)oard of Directors
on 28 February 2018 and signed on its behalf by Alexander Frolov, Chief Executive Officer.
The accompanying notes form an integral part of these separate financial statements.
Notes
2017
2016
31 December
3
3
6
6
4
4
4
4
5
3,7
6
6
3,7
6
6
6
$ 3,182
24
17
3,223
10
–
10
$ 3,165
18
18
3,201
14
2
16
3,233
3,217
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
1,507
(231)
(584)
127
134
1,472
2,425
27
630
17
674
17
1
108
8
134
808
1,507
(270)
(58(cid:23))
127
117
1,958
2,855
41
274
18
333
17
(cid:178)
3
9
29
362
$ 3,233
$ 3,217
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
253
(cid:54)e(cid:83)a(cid:85)ate financial statements
Separate Statement of Cash Flows
In millions of US dollars
Cas(cid:75) (cid:193)o(cid:90)s (cid:73)(cid:85)om o(cid:83)e(cid:85)atin(cid:74) acti(cid:89)ities
Net loss
Adjustments to reconcile net loss to net cash flows from operating activities:
Operating income
(Reversal of impairment)(cid:18)impairment of investments
Foreign exchange losses
Interest expense
Other non-operating losses
Changes in working capital:
Receivables from related parties
Trade and other payables
(cid:49)et cas(cid:75) (cid:193)o(cid:90) (cid:88)sed in o(cid:83)e(cid:85)atin(cid:74) acti(cid:89)ities
Cas(cid:75) (cid:193)o(cid:90)s (cid:73)(cid:85)om in(cid:89)estin(cid:74) acti(cid:89)ities
Investments in subsidiaries
Return of funds by subsidiaries
(cid:49)et cas(cid:75) (cid:193)o(cid:90) (cid:88)sed in in(cid:89)estin(cid:74) acti(cid:89)ities
Cas(cid:75) (cid:193)o(cid:90)s (cid:73)(cid:85)om financin(cid:74) acti(cid:89)ities
Dividends paid to shareholders
Proceeds from loans provided by related parties
Repayment of loans provided by related parties, including interest
Payments for investments on deferred terms, including interest
(cid:49)et cas(cid:75) (cid:193)o(cid:90) (cid:73)(cid:85)om financin(cid:74) acti(cid:89)ities
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
(cid:54)(cid:88)(cid:83)(cid:83)lementa(cid:85)(cid:92) cas(cid:75) (cid:193)o(cid:90) in(cid:73)o(cid:85)mation(cid:29)
Interest paid
Notes
2017
2016
$ (17)
(cid:7) (7(cid:23))
6
3
3
3,6,7
7
6
7
3
3
4
6
6
3
(7)
(6)
1
19
1
(9)
11
(8)
(6)
–
–
–
(430)
662
(217)
(11)
4
(2)
2
$ –
(17)
(11)
21
4
14
39
(7)
11
(8)
((cid:23))
(300)
32
(268)
(cid:178)
305
(39)
(8)
258
(1(cid:23))
16
$ 2
(8)
254
m
o
c
.
z
a
r
v
e
w
w
w
.
The accompanying notes form an integral part of these separate financial statements.
(cid:54)e(cid:83)a(cid:85)ate financial statements
Annual Report & Accounts 2017
Separate Statement of Changes in Equity
In millions of US dollars
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
Notes
Issued
capital
Treasury
shares
Reorganisation
reserve
Merger
reserve
Share-based
payments
Accumulated
(cid:83)(cid:85)ofits
Total
At 31 December 2015
$ 1,507
(cid:7) (305)
(cid:7) (58(cid:23))
$ 127
$ 101
$ 2,067
$ 2,913
Total comprehensive loss for the year
Share-based payments
Transfer of treasury shares to participants
of the Incentive Plans
At 31 December 2016
Total comprehensive loss for the year
Share-based payments
Dividends declared
Transfer of treasury shares to participants
of the Incentive Plans
At 31 December 2017
5
4
5
4
4
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
35
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
16
(cid:178)
(7(cid:23))
(cid:178)
(35)
(7(cid:23))
16
(cid:178)
$ 1,507
$ (270)
$ (584)
$ 127
$ 117
$ 1,958
$ 2,855
–
–
–
–
–
–
–
39
–
–
–
–
–
–
–
–
–
17
–
–
(17)
–
(430)
(39)
(17)
17
(430)
–
$ 1,507
$ (231)
$ (584)
$ 127
$ 134
$ 1,472
$ 2,425
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
255
The accompanying notes form an integral part of these separate financial statements.
(cid:54)e(cid:83)a(cid:85)ate financial statements
Notes to the separate financial statements
EVRAZ plc
Notes to the Separate Financial Statements
For the year ended 31 December 2017
1. Corporate Information
These separate financial statements were authorised for issue by the (cid:37)oard of Directors of EVRAZ plc on 28 February 2018.
EVRAZ plc ((cid:180)EVRAZ plc(cid:181) or (cid:180)the Company(cid:181)) 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 778(cid:23)3(cid:23)2. The Company’s registered
office is at 5th Floor, 6 St. Andrew Street, London, EC(cid:23)A 3AE, United Kingdom.
The Company, together with its subsidiaries (the (cid:180)Group(cid:181)), 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.
(cid:21)(cid:17) Significant Accounting Policies
Basis of Preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards ((cid:180)IFRS(cid:181)), 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 (cid:37)oard ((cid:180)IAS(cid:37)(cid:181)). IFRSs that are mandatory for application
as of 31 December 2017, 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.
256
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o
c
.
z
a
r
v
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w
w
w
.
(cid:54)e(cid:83)a(cid:85)ate financial statements
Notes to the separate financial statements (continued)
Annual Report & Accounts 2017
(cid:21)(cid:17) Significant Accounting Policies (continued)
Investments
Investments in subsidiaries, associates or joint ventures are initially recorded at acquisition cost. Write(cid:178)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(cid:30) these are included in non-current assets unless management has the express intention of holding the investment for
less than 12 months from the end of the reporting period or unless they will need to be sold to raise operating capital, in which case they are included in
current assets. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation
on a regular basis. After initial recognition available-for-sale investments are measured at fair value with gains or losses being recognised as a separate
component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or
loss previously reported in equity is included in the statement of operations. Reversals of impairment losses in respect of equity instruments are not
recognised in the statement of operations. Impairment losses in respect of debt instruments are reversed through profit or loss if the increase in fair
value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the statement of operations.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.
Borrowings
(cid:37)orrowings 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
(cid:51)rovisions 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.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
257
(cid:54)e(cid:83)a(cid:85)ate financial statements
Notes to the separate financial statements (continued)
(cid:21)(cid:17) Significant Accounting Policies (continued)
Financial Guarantee Liabilities
Financial guarantee liabilities issued by the Company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs
because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts
between the Company and banks providing loans to the Company’s subsidiaries are recognised initially as a liability at fair value, being equal to the
estimated future cash inflows receivable from the subsidiaries under the guarantee agreements, with a corresponding recognition of the same amount
as receivables from related parties. Subsequently, the liability is amortised over the lives of the guarantees through the statement of comprehensive
income, unless it is considered probable that a guarantee will be called, in which case it is measured at the value of the guaranteed amount payable, if
higher.
3. Investments in Subsidiaries and Joint Ventures
Investments in subsidiaries and joint ventures consisted of the following as of 31 December:
Subsidiaries
Evraz Group S.A.
Joint Ventures
Ownership interest
Cost, net of impairment
US$ million
2017
2016
2017
2016
100%
100%
3,182
3,165
OJSC Mining and Metallurgical Company Timir
51.00001%
51.00001%
24
18
The movement in investments was as follows:
$US million
31 December 2015
Additional investments
Share-based compensations
Liquidation of investments
Impairment (loss recognition)(cid:18)reversal
31 December 2016
Share-based compensations
Impairment loss (recognition)(cid:18)reversal
31 December 2017
Evraz Group S.A.
EVRAZ
(cid:42)(cid:85)eenfield
Development
S.A.
Evraz Group S.A.
Timir
Total
$ 2,849
$ 31
$ 40
$ 2,920
300
16
(cid:178)
(cid:178)
$ 3,165
17
(cid:178)
$ 3,182
(cid:178)
(cid:178)
(32)
1
$ –
(cid:178)
(cid:178)
$ –
(cid:178)
(cid:178)
(cid:178)
(22)
$ 18
(cid:178)
6
$ 24
300
16
(32)
(21)
$ 3,183
17
6
$ 3,206
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.
258
m
o
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w
w
.
(cid:54)e(cid:83)a(cid:85)ate financial statements
Notes to the separate financial statements (continued)
Annual Report & Accounts 2017
3. Investments in Subsidiaries and Joint Ventures (continued)
Evraz Group S.A. (continued)
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 5). In 2017 and 2016, such share-based compensations amounted to (cid:7)17 million and (cid:7)16 million,
respectively.
EVRAZ Greenfield Development S.A. (“EGD(cid:181))
In 2016, EGD transferred the Mezhegey coal 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.
OJSC Mining and Metallurgical Company Timir
Since 2013 the Company has owned a 51% ownership interest in the joint venture with Alrosa for the development of iron ore deposits in the (cid:60)akutia
region in Russia. The Company’s consideration for this stake of 4,950 million roubles was recognised as $149 million being the present value of the
expected cash outflows at the exchange rate as of the date of the transaction.
In 2017 and 2016, the Company recognised interest charges on deferred installments of $2 million and $3 million, respectively, within interest expense.
In 2017 and 2016, the Company paid 500 million roubles ((cid:7)8 million and (cid:7)7 million, respectively) of purchase consideration and (cid:7)3 million and
$1 million, respectively, of interest charges.
In 2017 and 2016, the Company recognised $1 million and $4 million, respectively, of foreign exchange losses on liabilities for Timir.
At 31 December 2017 and 2016, trade and other accounts payable included liabilities relating to this acquisition in the amount of $19 million and
$27 million, respectively.
At 30 September 2017 and 30 September 2016, the Company assessed the recoverability of its investment in Timir. The recoverable amount of the
asset was its fair value less costs to sell, which was determined using cash flow projections based on 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 11.56% and 11.75% in 2017
and 2016, respectively. As a result, in 2017 the Company recognised an impairment reversal of (cid:7)6 million (2016: impairment losses of (cid:7)22 million).
The major drivers that led to impairment losses in 2016 were the decrease in the expected long-term prices for iron ore, the increase in the amount of
the required capital expenditure to maintain production at budgeted capacities and the postponement of the start of production for 2 years. In 2017,
the long-term prices for iron ore were revised and this led to a partial reversal of impairment.
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 11 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 3(cid:23) of the consolidated financial statements.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
259
(cid:54)e(cid:83)a(cid:85)ate financial statements
Notes to the separate financial statements (continued)
4. Equity
Share Capital
Number of shares
Ordinary shares of $1 each, issued and fully paid
EVRAZ plc does not have an authorised limit on its share capital.
Treasury Shares
Number of shares
Treasury shares
31 December
2017
2016
1,506,527,294
1,506,527,294
31 December
2017
2016
74,474,663
87,015,878
In 2015, EVRAZ plc purchased 108,(cid:23)58,508 of its own shares. These shares are used for the Company’s Incentive (cid:51)lans (Note 21 of the consolidated
financial statements). Under these plans, in 2017 and 2016, the Company transferred to the participants of Incentive (cid:51)lans 12,5(cid:23)1,215 and
11,465,371 shares, respectively.
Reorganisation Reserve
Reorganisation reserve represents the difference between the net assets of Evraz Group S.A. at the date of the Group’s reorganisation
(7 November 2011) and the par value of the issued shares of EVRAZ plc. This charge to equity reduced the amount of distributable reserves.
Merger Reserve
The merger reserve arose in 2013 in connection with the purchase of 50% in Corber Enterprises S.(cid:106) r.l. ((cid:180)Corber(cid:181)) in accordance with section 612 of
the Companies Act 2006. Impairments of the carrying value of this investment were transferred to the merger reserve.
The disposal of the investment in Corber to Evraz Group S.A., the Company’s subsidiary, in 2015 (Note 3) was made for non-cash consideration which
does not meet the criteria for qualifying consideration. The balance of the merger reserve will be presented as a separate component of equity in the
Company’s statement of financial position until such time as Evraz Group S.A. is sold for qualifying consideration, and the merger reserve will be
re-allocated to accumulated profits and become distributable.
Dividends
In 2017, the Company declared dividends:
Interim for 2017
09(cid:18)08(cid:18)2017
18(cid:18)08(cid:18)2017
430
0.30
Date of
declaration
To holders
registered at
Dividends
declared,
US$ million
US$ per share
No dividends were declared in 2016.
Distributable Reserves
$US million
Accumulated profits
Reorganisation reserve
31 December
260
m
o
c
.
z
a
r
v
e
w
w
w
.
2017
2016
1,472
(584)
888
1,958
(58(cid:23))
1,374
(cid:54)e(cid:83)a(cid:85)ate financial statements
Notes to the separate financial statements (continued)
Annual Report & Accounts 2017
5. Share-based Payments
As disclosed in Note 21 of the consolidated financial statements, the Group has incentive plans under which certain employees ((cid:180)participants(cid:181)) can be
gifted shares of the Company.
In 2017 and 2016, the Company recognised share-based compensation expense amounting to $17 million and $16 million, respectively, as a cost of
investment in Evraz Group S.A. with a corresponding increase in equity.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
6. 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 Related Parties
The following movements in loans payable to related parties were in 2016-2017.
Currency
USD
USD
USD
USD
USD
Currency
USD
USD
USD
Interest
rate per
contract
6.31%
3.75%
3.13%
3.32%
2.73%
Interest
rate per
contract
6.31%
3.75%
3.13%
Maturity
Balance at
31 December
2016
Loans
received
from related
parties
Interest
expense
Repayment
of loans
Balance at
31 December
2017
2021
2018
2018
2020
2019
Maturity
2021
2018
2018
$ 203
69
5
(cid:238)
(cid:238)
(cid:7) (cid:238)
(cid:238)
32
200
430
$ 4
$ (207)
3
1
4
4
(6)
(1)
(3)
(cid:238)
(cid:7) (cid:238)
66
37
201
434
$ 277
$ 662
$ 16
$ (217)
$ 738
Balance at
31 December
2015
Loans
received
from related
parties
Interest
expense
Repayment
of loans
Balance at
31 December
2016
(cid:7) (cid:178)
$ 200
(cid:238)
(cid:238)
(cid:7) (cid:238)
100
5
$ 305
$ 9
2
(cid:238)
$ 11
(cid:7) (6)
(33)
(cid:178)
(cid:7) (39)
$ 203
69
5
$ 277
US$ million
Indirect subsidiaries
Evrazholding Finance
East Metals A.G.
East Metals A.G.
East Metals A.G.
East Metals A.G.
US$ million
Indirect subsidiaries
Evrazholding Finance
East Metals A.G.
East Metals A.G.
Guarantees
In 201(cid:23)-2017, 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 (cid:7)1,772 million at 31 December 2017 (2016: (cid:7)1,78(cid:23) million). The loans are due for repayment during
the period from 2020 to 2024. The Company earns guarantee fees in respect of these guarantees and in 2017 it accrued $5 million of such income
(2016: (cid:7)9 million). In 2017, the Company recognised an additional financial guarantee liability of (cid:7)3 million (2016: (cid:7)5 million).
In addition, in 2017 the Company accrued $1 million of guarantee fees for the issued guarantees to East Metals A.G. for liabilities of Evraz Group S.A.,
both indirect subsidiaries of the Company, and (cid:7)1 million of guarantee fees (2016:(cid:7)1 million) for the issued guarantees to several banks for liabilities
of East Metals A.G amounting to (cid:7)66 million as of 31 December 2017 (2016: (cid:7)1(cid:23)1 million).
In 2016, the Company accrued (cid:7)1 million of guarantee fees for the issued guarantees to East Metals A.G. for liabilities of Mastercroft Finance Limited,
both indirect subsidiaries of the Company.
I
B
U
S
N
E
S
S
R
E
V
E
W
I
C
S
R
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
D
D
I
T
I
O
N
A
L
I
N
F
O
R
M
A
T
I
O
N
261
(cid:54)e(cid:83)a(cid:85)ate financial statements
Notes to the separate financial statements (continued)
6. Related Party Transactions (continued)
Other Transactions
In 2017, OOO Evrazholding, an indirect subsidiary of the Company, rendered consulting services in the amount of (cid:7)1 million (2016: (cid:7)1 million).
As of 31 December 2017, the Company owed $1 million to Evraz Inc North America, an indirect subsidiary of the Company.
Other disclosures on directors’ remuneration required by Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts (cid:9) Reports)
regulations 2008 and those specified for audit by the Directors’ Remuneration Report Regulations 2002 are included in the Directors’ Remuneration
Report.
7. Other non-operating loss
In 2017, other non-operating losses represent $1 million of related expenses paid by the Company for the sale of EVRAZ Nakhodka Trade Sea Port, an
indirect subsidiary of the Company.
In 2016, other non-operating losses represent (cid:7)39 million (including (cid:7)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.
In 2017, the Company paid $7 million under the guarantee and recognised interest expense of $1 million. At 31 December 2017 and 2016, trade and
other accounts payable included liabilities relating to this guarantee in the amount of $25 million and $31 million, respectively.
8. Financial Instruments
Liquidity Risk
The following tables summarise the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments, including interest
payments.
On demand
Less than
3 months
3 to 12
months
1 to 2 years
2 to 5 years
After
5 years
Total
$ –
–
–
–
–
–
1
1
$ –
–
12
2
–
14
–
–
$ 102
$ 430
$ 200
$ –
$ 732
7
3
–
8
18
15
1
7
18
15
–
10
120
471
243
–
–
–
–
–
–
–
–
–
–
–
–
–
–
43
45
3
25
848
1
1
$ 1
$ 14
$ 120
$ 471
$ 243
$ –
$ 849
31 December 2017
US$ million
Fixed –rate debt
Loans payable to related parties
Principal
Interest
Trade and other payables
Principal
Interest
Financial guarantees
(cid:55)otal fi(cid:91)ed(cid:16)(cid:85)ate de(cid:69)t
Non-interest bearing debt
Payables to related parties
Total non-interest bearing debt
262
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(cid:54)e(cid:83)a(cid:85)ate financial statements
Notes to the separate financial statements (continued)
Annual Report & Accounts 2017
8. Financial Instruments (continued)
Liquidity Risk (continued)
31 December 2016
US$ million
Fixed –rate debt
Loans payable to related parties
Principal
Interest
Trade and other payables
Principal
Interest
Financial guarantees
(cid:55)otal fi(cid:91)ed(cid:16)(cid:85)ate de(cid:69)t
Fair Value of Financial Instruments
On demand
Less than
3 months
3 to 12
months
1 to 2 years
2 to 5 years
After
5 years
Total
(cid:7) (cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:178)
(cid:7) (cid:178)
(cid:178)
12
3
(cid:178)
15
(cid:7) (cid:178)
3
3
(cid:178)
9
15
(cid:7) (cid:178)
28
15
2
7
52
$ 74
29
25
(cid:178)
10
138
$ 200
28
4
1
1
$ 274
88
59
6
27
234
454
The carrying amounts of financial instruments, such as cash, accounts receivable and payable, loans payable to related parties,
approximate their fair value.
9. Subsequent Events
On 28 February 2018, the (cid:37)oard of directors of EVRAZ plc declared a second interim dividend for 2017 in the amount of (cid:7)(cid:23)29.6 million, which
represents $0.3 per share.
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264
Additional
information
Making the World Strongerwww.evraz.com Additional
information
265
Annual Report & Accounts 2017 Making the World Stronger
Stock performance indicators
and shareholder information
Information about shares
of EVRAZ plc
Shareholder structure
ULTIMATE BENEFICIAL OWNERS,
% of voting rights1
Roman Abramovich3
Alexander Abramov 4
Alexander Frolov 4
Gennady Kozovoy 5
Alexander Vagin5
Eugene Shvidler 3
Other
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.
30.76
21.09
10.53
5.85
5.79
3.06
22.92
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.
1The Group is aware of the following beneficiaries who have an
interest in three percent or more of EVRAZ plc’s share capital
(in each case, except for Gennady Kozovoy, held indirectly).
2The number of shares as per TR-1 Form: Notification of major
interest in shares dated 10 May 2017. Includes pro-rata
shareholding held via (cid:47)anebrook and additional shares held
outside (cid:47)anebrook.
3The number of shares as per PDMRs dealing notification dated
05 September 2017.
4The number of shares is as per TR-1 Form: Notification of major
interest in shares dated 6 February 201(cid:22). For Mr Kozovoy,
includes shares held directly.
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 2017, the number of shares
outstanding was 1,432,053,343, the Company
held 74,473,9511 ordinary shares in treasury.
The total number of voting rights attaching to the
ordinary shares of the Company was therefore
1,432,053,343.
1The number of shares differs from figure in the Financial
statements for the amount of shares held in Trust.
THE SHARES OF EVRAZ PLC TRADES
ON THE MAIN MARKET OF LONDON
STOCK EXCHANGE
EVR LN
SETS
MAIN MARKET
Premium Equity
Commercial Companies
FTSE 100
Industrial Metals & Mining
Iron & Steel
GB
STMM
Regulated Market
B71N6K8
GB00B71N6K86
Ticker (Bloomberg)
Trading service
Market
Listing category
FTSE index
FTSE sector
FTSE sub-sector
Country of share
register
Segment
MiFID Status
SEDOL
ISIN number
Share price
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 relectronic
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.
RELATIVE SHARE PRICE DYNAMICS IN 2017, 52w
160
150
140
130
120
110
100
90
80
70
60
02.01
02.02
02.03
02.04
02.05
02.06
02.07
02.08
02.09
02.10
02.11
02.12
EVRAZ PLC
FTSE 100 INDEX
FTSE 350 MINING INDEX
266
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Annual Report & Accounts 2017
Definitions of selected alternative
performance measures
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The Group uses alternative performance
measures (APMs) to improve comparability
of information between reporting periods
and business units, either by adjusting for
uncontrollable or one-off factors which impact
upon IFRS measures or, by aggregating
measures, to aid the user of the Annual Report in
understanding the activity taking place across the
Group’s portfolio.
(cid:38)as(cid:75) and s(cid:75)ort(cid:16)ter(cid:80) 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.
(cid:55)otal debt
Total debt represents the nominal value of loans
and borrowings plus unpaid interest, finance lease
liabilities, loans of assets classified as held for sale,
and the nominal effect of cross-currency swaps on
principal of rouble-denominated notes. Total debt
is not a measure under IFRS and should not be
considered as an alternative to other measures of
financial position. EVRAZ’ calculation of total debt
may be different from the calculation used by other
companies and therefore comparability may be
limited. The current calculation is different from that
used for covenant compliance calculations.
Net debt
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.
(cid:39)efinition of (cid:41)ree (cid:38)as(cid:75) (cid:41)lo(cid:90)
Free Cash Flow represents EBITDA, net of
noncash 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.
(cid:39)efinition of (cid:40)(cid:37)(cid:44)(cid:55)(cid:39)A
E(cid:37)ITDA is determined as a segment’s profit(cid:18)(loss)
from operations adjusted for social and social
infrastructure maintenance expenses, impairment
of assets, profit(cid:18)(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(cid:18)(loss) from
operations is adjusted for these expenses in
arriving at EBITDA.
See note 3 of the consolidated financial statement
on page 180 for additional information.
Collateral under swaps
Net debt
CASH AND SHORT-TERM BANK DEPOSITS CALCULATION,
US$ million
Cash and cash equivalents
Cash of disposal groups classified as held for sale
Collateral under swaps
31 December
2017
31 December
2016
1,466
1,157
–
–
2
–
Cash and short-term bank deposits
1,466
1,159
CALCULATION OF TOTAL DEBT,
US$ million
Long-term loans, net of current portion
Short-term loans and current portion of long-term loans
Add back: Unamortised debt issue costs and fair value
adjustment to liabilities assumed in business combination
Nominal effect of cross-currency swaps on principal
of rouble-denominated notes
Finance lease liabilities, including current portion
31 December
2017
31 December
2016
5,243
148
5,502
392
28
5
8
43
19
5
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Total debt
5,432
5,961
CALCULATION OF NET DEBT,
US$ million
Total debt
Short-term bank deposits
Cash and cash equivalents
Cash of assets classified as held for sale
31 December
2017
31 December
2016
5,432
5,961
–
–
267
(1,466)
(1,157)
–
–
(2)
–
3,966
4,802
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S
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, $)
V — production volume, tn.
(for steel assets: V — metal products shipped)
(cid:47)(cid:55)(cid:44)(cid:41)(cid:53)
The KPI is calculated on a year-to-date basis
for the company employees only.
LTIFR = X•1000000/Y
X is the total number of occupational injuries
resulted in lost time among the company
employees in the reporting period. Fatalities
are not included.
Y is the actual total number of man-hours
worked by all company employees in the
reporting period.
Se(cid:80)i(cid:16)finis(cid:75)ed products cas(cid:75)
costs, US$/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.
(cid:38)oking coal concentrate cas(cid:75)
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.
(cid:49)u(cid:80)ber of (cid:40)(cid:37)S
transformations
Number of EBS transformations implemented
at the key assets during the reporting year.
Making the World Stronger
Data on mineral reserves
In 2017, EVRAZ conducted valuation of the mineral reserves in compliance with JORC Code.
The valuation was conducted as of 1 July 2017 by IMC Montan.
(cid:38)oal
YUZHKUZBASSUGOL JORC EQUIVALENT COAL PROVED AND PROBABLE RESERVES, kt
Mine
Alardinskaya
Yesaulskaya
Erunakovskaya-8
Osinnikovskaya
Uskovskaya
Total
As of 31 December 2017
89,623
13,558
117,506
75,989
120,160
416,836
RASPADSKAYA JORC EQUIVALENT COAL PROVED AND PROBABLE RESERVES, kt
Mine
Raspadskaya
Raspadskaya Koksovaya (incl. Razrez Koksovy)
MUK-96
Razrez Raspadskiy
Total
As of 31 December 2017
924,637
208,372
113,058
109,357
1,355,424
MEZHEGEYUGOL JORC EQUIVALENT COAL PROVED AND PROBABLE RESERVES, kt
Mine
Mezhegeyugol
Iron ore
As of 31 December 2017
88,026
EVRAZRUDA JORC EQUIVALENT COAL PROVED AND PROBABLE RESERVES, kt
Mine
Kaz
Tashtagol
Sheregesh
Total
As of 31 December 2017
Fe, %
S, %
7,257
66,554
93,200
167,011
31.90
1.39
KACHKANARSKY GOK (EVRAZ KGOK) JORC EQUIVALENT COAL PROVED AND PROBABLE
RESERVES, kt
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(cid:38)usto(cid:80)er focus and cost(cid:16)
cutting effects
Mine
Gusevogorskoe
Kachkanar Proper (Sobstvenno-Kachkanarskoye)
Total
9,879,542
15.9
0.13
As of 31 December 2017
Fe, %
V2O5, %
3,136,320
6,743,222
Each project effect is calculated as an
absolute deviation of targeted metri(cid:509) year to
year multiplied by relevant price or volume
depending on project’s focus.
Data on mineral reserves
Annual Report & Accounts 2017
Short summary of relevant
anti-corruption policies
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(cid:38)ode of (cid:38)onduct
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 corporate intranet and stresses the
ultimate importance of ethical behaviour in all
circumstances. Anti-corruption training and
the tone set from the top of the organisation
emphasise the role of the Code of Conduct in
the Group’s daily life.
Anti(cid:16)corruption polic(cid:92)
EVRAZ’ Anti-corruption Policy establishes and
explains key principles that all assets have
adopted 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 the principles
upheld by EVRAZ.
Anti(cid:16)corruption training polic(cid:92)
Consistent anti-corruption education efforts
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 makers 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.
Sponsorship and charity policy
This policy regulates all aspects of EVRAZ’
sponsorship and charity efforts as necessary.
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 environmental 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 by compliance managers.
This ensures full accountability and strict
adherence of those supported to EVRAZ’ policy
requirements.
Gift and business
entertainment policy
EVRAZ believes that business gifts and
hospitality are accepted ways to demonstrate
and further develop good relationships. At the
same time, adequate and consistent control
over such expenses is highly important and
is one of 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. Corresponding amounts
in U.S. and Canada are US$50 and US$250
respectively. 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.
(cid:43)otline polic(cid:92) and (cid:90)(cid:75)istle(cid:16)
blo(cid:90)ing 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.
(cid:38)andidate background and
cri(cid:80)inal record c(cid:75)ecks
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.
(cid:38)on(cid:193)ict of interest polic(cid:92)
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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 to identify, consider, and
duly take care of situations with signs of such
conflicts. HR together with compliance managers
routinely check whether there are conflicts of
interests in the Group, 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 solution to each individual
situation.
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(cid:38)ontractor(cid:18)supplier due
diligence c(cid:75)ecks
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 the company’s business reputation
and solvency, as well as its top management’s
profile and reputation.
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269
Making the World Stronger
Terms and abbreviations
B
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
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.
Billet
A usually square, semi-finished steel product
obtained by continuous casting or rolling of
blooms. Sections, rails, wire rod and other rolled
products are made from billets.
Blast furnace
The blast furnace is the classic production unit
to reduce iron ore to molten iron, known as hot
metal. It operates as a counter-current shaft
system, where iron ore and coke is charged at
the top. While this charge descends towards
the bottom, ascending carbon containing gases
and coke reduces the iron ore to liquid iron. To
increase efficiency and productivity, hot air (often
enriched with oxygen) is blown into the bottom of
the blast furnace. In order to save coke, coal or
other carbon containing materials are sometimes
injected with this hot air.
By-product
A secondary product which results from a
manufacturing process or chemical reaction.
C
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
Capital expenditure.
270
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CFR
Cost and freight, the seller must pay the costs
and freight to bring the goods to the port of
destination. However, risk is transferred to the
buyer once the goods are loaded on the vessel.
Insurance for the goods is not included.
Channel
U-shaped section for construction.
Coal washing
The process of removing mineral matter from
coal usually through density separation, for
coarser coal and using surface chemistry for
finer particles.
Coke
A product made by baking coal without oxygen at
high temperatures. Unwanted gases are driven
out of the coal. The unwanted gases can be
used as fuels or processed further to recover
valuable chemicals. The resulting material (coke)
has a strong porous structure which makes it
ideal for use in a blast furnace.
Coke battery
A group of coke ovens operating as a unit and
connected by common walls.
Coking coal
Highly volatile coal used to manufacture coke.
Concentrate
A product resulting from iron ore / coal
enrichment, with a high grade of extracted
mineral.
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
(cid:51)rocess whereby molten metal is solidified
into a (cid:5)semi-finished(cid:5) billet, bloom, or slab for
subsequent rolling in the finishing mills.
Crude steel
Steel in its solidified state directly after casting.
This is then further processed by rolling or other
treatments, which can change its properties.
D
Debottlenecking
Increasing capacity of a supply or production
chain through the modification of existing
equipment or infrastructure to improve
efficiency.
Deposit
An area of coal resources or reserves identified
by surface mapping, drilling or development.
E
Electric arc furnace
A furnace used in the steelmaking process
which heats charged material via an electric arc.
F
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.
G
(cid:42)(cid:85)eenfield
The development or exploration of a new project
not previously examined.
Grinding balls
Balls used to grind material by impact and
pressure.
H
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.
Annual Report & Accounts 2017
Longwall
An underground mining process in which
the coal face is dug out by a shearer and
transported above ground by conveyors.
LTIFR
Lost time injury frequency rate, which represents
the number of lost time injuries (1 day or more
of absence) divided by the total number of hours
worked expressed in millions of hours.
Lumpy ore
Iron ore between 6mm and 30mm in size. Lump
is preferred in the blast furnace as its particle
size allows oxygen to circulate around the raw
materials and melt them efficiently.
M
Model line
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.
Mt
Million tonnes.
Mtpa
Million tonnes per annum.
O
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.
R
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
(cid:51)roducts finished in a rolling mill(cid:30) 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.
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Open pit mine
A mine working or excavation open to the
surface where material is not replaced into the
mined out areas.
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SG&A
Selling, General and Administrative Expenses.
OCTG pipe
Oilfield Casing and Tubing Goods or Oil Country
Tubular Goods – pipes used in the oil industry.
Saleable products
Products produced by EVRAZ mines or steel mills
which are suitable for sale to third parties.
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Pellet
An enriched form of iron ore shaped into small
balls or pellets. Pellets are used as raw material
in the steel making process.
Pig iron
The solidified iron produced from a blast furnace
used for steel production. In liquid form, pig iron
is known as hot metal.
Pipe blank
A flat sheet of metal, a semi-finished product,
sold to pipemakers to manufacture pipes.
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.
(cid:54)emi(cid:16)finis(cid:75)ed (cid:83)(cid:85)od(cid:88)cts
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.
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HiPo
High potential employee.
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Iron ore
Chemical compounds of iron with other
elements, mainly oxygen, silicon, sulphur or
carbon. Only extremely pure (rich) iron-oxygen
compounds are used for steelmaking.
ISO 14001
The International Standardisation Organisation’s
standard for environmental management
systems.
ISO 9001:2008
The International Standardisation Organisation’s
standard for a quality management system.
J
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.
K
L
Labour productivity
Labour productivity is defined as labour costs
exclusive of tax divided by production volumes
of steel products. The measurement of
performance enables the Company to monitor
labour efficiency.
Ladle furnace
The secondary metallurgy vessel used between
steelmaking and casting operations to allow the
composition of molten steel to be brought to the
required customer specification.
Lean
Lean is philosophy of managing the business
that is based on a set of principles that define
the way of work.
Long products
Include bars, rods and structural products that
are ‘long’ rather than ‘flat’ and are produced
from blooms or billets.
Making the World Stronger
Sinter
An iron rich clinker formed by heating iron ore
fines and coke in a sinter line. The materials,
in pellet form, combine efficiently in the blast
furnace and allow for more consistent and
controllable iron manufacture.
Slab
A common type of semi-finished steel product
which can be further rolled into sheet and plate
products.
Slag
Slag is a byproduct generated when non-ferrous
substances in iron ore, limestone and coke are
separated from the hot metal in metallurgical
production. Slag is used in cement and fertiliser
production as well as for base course material in
road construction.
Steam coal
All other types of hard coal not classified as
coking coal. Coal of this type is also commonly
referred to as thermal coal.
T
V
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.
Tailings
Also called mine dumps, are the materials left
over after the process of separating the valuable
content from the uneconomic remainder
(gangue) of an ore. These materials can be
reprocessed using new methods to recover
additional minerals.
Tubular products
Include large diameter line pipes, ERW pipes
and casings, seamless pipes and other tubular
products.
U
(cid:56)n(cid:85)ealised (cid:83)(cid:85)ofit (cid:11)(cid:56)(cid:53)(cid:51)(cid:12)
Inter-segment unrealised profit or loss (UR(cid:51)) 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.
Contact details
Registered Name and Number
EVRAZ plc (Company No. 07784342)
Secretary
Prism Cosec
(cid:53)e(cid:74)iste(cid:85)ed (cid:50)(cid:73)fice
5th Floor, 6 St. Andrew Street,
London EC4A 3AE
Investor Relations
Tel. ((cid:47)ondon): +44 (0) 207 832 8990
Tel. (Moscow): +7 (495) 232 1370
E-mail: ir@evraz.com
Directors
Alexander Abramov
Alexander Frolov
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Sir Michael Peat
Eugene Shvidler
Eugene Tenenbaum
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Auditors
Ernst & Young LLP
Solicitors
Linklaters LLP
Registrars
For information about proxy voting,
dividends and to report changes
in personal details, shareholders should
contact the Company’s registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
United Kingdom
Tel.: +44 (0) 870 873 5848
Fax: +44 (0)870 703 6101
E-mail: webqueries@computershare.co.uk