Annual Report & Accounts
2018
Contents
Meet EVRAZ
01
EVRAZ in figures
02
Case study
Case study
Case study
75p.
p. 81
p. 86
Global footprint
Czech Republic
Moscow
Headquarters
Russia
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 2018
Our people
Our customers
Iron ore products
13.5 mt
Raw coking coal
24.2 mt
Crude steel
13.0 mt
Product type
Customer type
Canada
Switzerland
Semi-finished steel products
Steel rolling facilities
USA
Italy
Kazakhstan
Railway products
Railways, rail carriers
Industrial products
Industrial companies
Coking coal concentrate
Steelmaking facilities
Raw coking coal
Steelmaking facilities
Our employees are an integral part of the Group’s
success. We hire the best people, nurture their
development and provide career growth opportunities.
Construction products
Wholesale companies, traders
Tubular products
Energy transmission operators
Leading position
68,379 employees
>70 countries
A LEADER
in construction
and railway
product markets in
Russia.
No. 1 PRODUCER
of rails and large
diameter pipes in
North America
THE LARGEST
coking coal
producer in
Russia
Steel segment
Coal segment
Steel, North America segment
Strategic report
CSR report
Financial statements
06
08
12
14
18
26
28
30
34
Chairman’s introduction
Chief executive officer’s letter
Frequently asked questions
EVRAZ business model
Success factors and KPIs
Market overview
Strategic priorities
Financial review
Principal risks and uncertainties
Business review
42
44
54
62
EVRAZ steel across the globe
Steel segment
Coal segment
Steel, North America segment
72
72
84
96
Our approach
Health, safety and environment
Social policy
Anti-corruption and anti-bribery
136
144
244
Independent Auditor’s report
to members of EVRAZ Plc
Consolidated financial statements with notes
Separate financial statements with notes
Corporate
governance
100
104
106
120
128
133
Board of Directors
Management
Corporate governance report
Remuneration report
Directors’ report
Directors’ responsibility statements
Additional information
260
261
263
264
265
267
Stock performance indicators and shareholder
information
Definitions of selected alternative performance
measures
Data on mineral reserves
Short summary of relevant anti-corruption policies
Terms and abbreviations
Contact details
About the report
Report boundaries
This annual report (“the Report”) presents the results for
EVRAZ plc and its subsidiaries for 2018 divided into segments:
Steel; Steel, North America; and Coal. It details the Group’s
operational and financial results and corporate social
responsibility activities in 2018.
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 sustainability reporting
best practices.
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EVRAZ in figures
Financial highlights
Operating highlights
Consolidated revenues by segment, US$ million
Crude steel output, kt
Iron ore products output, kt
Coking coal concentrate production, kt
8,879
7,743
5,497
2,337
2,214
1,322
2,583
1,864
1,464
472
462
363
(1,435)
(1,456)
(933)
12,836
10,827
7,713
2018
2017
2016
13,019
14,033
13,513
2018
2017
2016
13,515
13,8793
14,7743
2018
14,130
2,057
2017
13,061
2,083
2016
12,492
1,772
16,188
15,143
14,264
Shareholder structure
Ultimate beneficial owners,
% of voting rights6
Roman Abramovich7
Alexander Abramov8
Production
by Coal segment
Production
by Steel segment
Alexander Frolov8
Steel
Coal
Steel, NA
Other
operations
Total
Eliminations
Steel products output1, kt
Raw coking coal production, kt
Gross vanadium slag production,5 kt
2016 2017 2018
Revenue
US$ 12,836 million
18.6% year-on-year
For more information, see Financial
review section on pages 30–33.
2018
2017
2016
12,376
12,5762
12,2882
2018
2017
2016
2018
2017
2016
24,188
23,306
22,257
17,052
18,636
16,886
For more information, see Business review
section on pages 42–69.
5 In tonnes of pure vanadium.
Consolidated EBITDA by segment, US$ million
2,672
1,483
1,004
1,218
1,226
644
14
58
28
18
21
17
(145)
(164)
(151)
3,777
2,624
1,542
CSR highlights
LTIFR (excluding fatalities), per million hours
EVRAZ GHG emissions, MtCO2e
Employees by region in 2018
Steel
Coal
Steel, NA
Other
operations
Total
Eliminations
2018
2017
2016
1.91
1.90
2.36
2018
2017
2016
For more information, see Financial
review section on pages 30–33.
For more information, see page 74.
For more information, see page 79.
2016 2017 2018
EBITDA
US$ 3,777 million
43.9% year-on-year
38.79
41.65
40.83
North
America
6%
Europe
1%
Russia and CIS
93%
68,379
people
Key air emissions, kt
Fresh water consumption, million m3
Diversity, % (number of people)
Net debt
US$
3,571
million
CAPEX4
US$
527
million
Net profit
US$
2,470
million
2018
2017
2016
128.21
137.11
130.68
2018
2017
2016
9.9% year-on-year
12.6% year-on-year
225.4%
For more information, see page 78.
For more information, see page 79.
For definition of this Alternative performance measures (APM)
please see pages 261–262.
2
1 Net of re-rolled volumes.
2 Change to the previously reported figures due to corrections of data.
3 Data for 2017 were amended due to methodology adjustment as it was decided
to disclose the Evrazruda’ iron ore concentrate volumes instead of EVRAZ ZSMK’
sinter volumes.
4 Including payments on deferred terms recognised in financing activities and
non-cash transactions.
226.49
78% (7)
319.43
88% (296)
Board
Senior management
Employees
22% (2)
12% (41)
327.60
73% (49,407)
27% (18,635)
Men
Women
For more information, see on page 84.
30.52
20.69
10.33
5.80
32.66
Gennady Kozovoy9
Free-float
6 The 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).
7 The number of shares as per TR-1 Form: Notification of
major interest in shares dated 4 September 2018.
8 The number of shares as per TR-1 Form: Notification of
major interest in shares dated 24 December 2018.
9 The number of shares is as per TR-1 Form: Notification
of major interest in shares dated 6 February 2013.
For Mr Kozovoy, includes shares held directly.
Geographic dispersion of institutional
shareholders, % of voting rights
United Kingdom
North America
Europe (excl. United
Kingdom, Russia)
Russia
Asia&Pacific
Other
For more information, see Additional
information section on page 260.
9.76
7.30
6.51
2.61
0.19
1.15
3
Annual report& accounts2018 Strategic
report
Chairman’s introduction
I am very proud of EVRAZ
achievements in 2018 and wish
to thank the Group’s customers,
employees, shareholders and local
communities for their loyalty and
support over the past year.
Dear Shareholder,
2018 was a robust year for the business reinforced
by strong global metals markets, EVRAZ efficiency
initiatives and diligent strategic efforts.
For the Board of Directors, 2018 was an important
year with key initiatives implemented across the Group.
These include a major new drive in the area of Health,
Safety and Environment to strengthen the safety culture,
adherence to new UK corporate governance code,
implementation of the new dividend policy and much
more. It was a busy agenda for the Board, and much was
achieved.
Health, safety and the
environment
The absolute priority of the EVRAZ executive management
has always been to achieve and maintain zero injuries
and fatalities in the workplace. However, six of the Group’s
employees and four contractors lost their lives in 2018.
This outcome underscores the view of the Board that
more effort will be needed in this area with a focus
on changing the safety culture. Such change could
be achieved with the involvement of each employee
in the process of identifying and eliminating risks
in the workplace and production process. The Board,
and particularly its Health, Safety and Environment
Committee, under the chairmanship of Karl Gruber, will
continue to engage closely with the management team
to address this challenge.
6
In 2018, the HSE Committee members
reviewed the HSE Policy and Cardinal Safety
Rules and approved new five-year environmental
targets that incorporate the important aim
of maintaining the greenhouse gas intensity
ratio.
Governance
The Board continues to work to ensure that
the Group operates in line with international best
practices so that it complies with the guidelines
laid out in the UK Corporate Governance Code.
During 2018, the UK Financial Reporting Council
published a revised Corporate Governance Code,
which comes into force for the financial year
commencing on 1 January 2019. The Board
has reviewed the updated code and
is introducing several changes in procedures
and practices in order to achieve full compliance
with the updated Corporate Governance Code
for the 2019 financial year.
As part of its commitment to support the interests
of all stakeholders, the Board takes a long-term
view of how the business needs to develop within
its industry and geographical markets. It has
reviewed the latest developments in technology
on the market to ensure that EVRAZ assets
are fully modernised to remain competitive,
while necessary financing is in place to meet
the Group’s requirements over the medium-
to long-term to implement projects with strategic
significance for the business.
At its January 2019 meeting, following the annual
review of Board Performance effectiveness,
the Board agreed an action plan for 2019, which
continued and developed the review and approval
function of the management’s strategy proposals.
Under the plan, the Board will strengthen its focus
on safety, environmental and other CSR issues,
as well as HR policy, in addition to commercial
issues.
In September 2018, Lanebrook Limited, a major
shareholder of the Group and with whom EVRAZ
had previously entered into a relationship
agreement, notified the Group that it had
distributed all of its shares in the Group to its direct
shareholders in proportion to their holdings in joint
controlling of Lanebrook Limited. The relationship
agreement between Lanebrook Limited and the
Group was terminated and, following a detailed
review of the transaction, the Board approved
the entry into new relationship agreements
with its new controlling shareholders, Crosland
Global Limited and Greenleas International
Holdings Ltd, under substantively the same
terms as the previous shareholder. Subsequently,
in December 2018, Crosland Global Limited,
notified it that it had transferred a certain number
of ordinary shares in the Group to Abiglaze Ltd.
Following a detailed review of the transaction,
the Board approved the entry into a revised
relationship agreement with Crosland Global
Limited, Greenleas International Holdings Ltd
and a new relationship agreement with Abiglaze
Ltd under substantively the same terms
as the previous shareholder. In 31 January 2019
the Company entered into above mentioned
relationship agreements with its controlling
shareholders in accordance with the Listing Rules.
See pages 106–107 for details.
Board changes
In August 2018, on the recommendation
of the Nominations Committee, the Board
appointed Laurie Argo, a highly experienced
industry and geographic expert, as an independent
non-executive director. She has also been
appointed as a member of the Audit Committee
in place of Mr. Karl Gruber, who stepped down
from the Audit Committee with immediate effect.
I would like to welcome Laurie Argo to our Board.
Her appointment reflects her invaluable experience
and skill set, but it also underlines the Group’s
commitment to increase the representation
of women across the business.
Our people
The Board pays particular attention
to the development of the Group’s human
resources policies, recognising that people
are our most valuable asset. Ahead
of the introduction of the revised 2018 UK
Corporate Governance Code, which contains
important new provisions concerning
engagement with employees as key stakeholders,
the Board’s Remuneration Committee worked
alongside the human resources function
to implement new policies and procedures
to ensure correct implementation of the letter
and spirit of the revised code. This requires
effective engagement with employees
with the aim of their full participation in the life
of the Group.
Dividends
In 2018, the Board agreed a dividend policy,
whereby EVRAZ aims to declare annual dividends
of at least US$300 million, subject to the financial
performance of the business, to be paid in semi-
annual instalments of at least US$150 million
each, following interim and full-year results. Based
upon the financial performance of the business,
the Board may consider a higher distribution level,
taking into account the outlook for the Group’s
major markets, the Board’s view of the long-term
growth prospects of the business and future capital
investment requirements, as well as the Group’s
commitment to maintain a strong balance sheet.
In line with the Group’s existing capital allocation
policy, no dividends will be paid out if the net debt/
EBITDA ratio exceeds 3.0x.
During the year, the Board also discussed
in detail the proposals to pay: an interim
dividend of US$0.13 per ordinary share, totalling
US$187.6 million, on 22 June 2018; a second
interim dividend of US$0.40 per share, totalling
US$577.34 million, on 6 September 2018;
and a third interim dividend of US$0.25 per share,
totalling US$360.8 million, on 21 December 2018.
In consideration of EVRAZ robust
performance in 2018, EVRAZ has announced
an interim dividend. On 27 February 2019,
the Board of Directors voted to disburse a total
of US$577.34 million, or US$0.40 per share.
The record date is 8 March 2019 and payment
date is 29 March 2019.
Audit Committee
report
Nominations
Committee report
HSE Committee
report
Remuneration
report
See pages 112–115.
See pages 116–117.
See pages 118–119.
See pages 120–127.
Alexander Abramov
Non-Executive
Chairman
7
Annual report& accounts2018www.evraz.comSTRATEGIC REPORTBusiness reviewCSR reportCorporate governanceFinancial statementsAdditional information Chief
executive
officer’s
letter
The Group’s strategic vision
remains unchanged. EVRAZ
is a global steel and mining
company, leading producer
of infrastructure steel
products with low-cost
production along the value
chain.
Dear Shareholder,
In 2018, EVRAZ delivered robust growth amid
favourable market conditions and as a result
of continuing initiatives to improve efficiency
and reduce costs. The Group generated EBITDA
of US$3,777 million during the reporting period,
its highest level since 2008, which made
it possible to pay dividends of US$1.6 billion.
EVRAZ remained focused on implementing its
efficiency improvement programme in the amount
of 3% of the cost base, the effect from which
totalled US$340 million in 2018. Shareholders’
appreciation of these results is evidenced
by the rise in the Group’s average market
capitalisation to US$9.2 billion in 2018, an 197%
increase from that in 2017.
Global markets were supportive in 2018,
driven mainly by developments in China, where
the government finalised its supply-side reform
of the steelmaking industry and enacted winter
output cuts in a number of provinces. These
efforts kept utilisation rates at Chinese steel mills
at a level of more than 87% throughout the year.
In pursuit of better productivity from existing
furnaces, coke and pig iron producers required
higher-grade raw materials. Combined with higher
Financial
review
See pages 30–33.
to constantly adapt to evolving customer needs.
In 2018, EVRAZ launched a project with a key
client, Russian Railways, that included developing
new types of rails and extra services. The Group
continued to execute its programme to promote
the application of beams in construction
and increase the available stock of beams. EVRAZ
also conducted a set of workshops and meetings
with clients at which the Group’s senior
management team sought to better understand
customers’ changing needs and most pressing
issues in order to create additional value for them.
In 2018, the Group continued to implement
EVRAZ Business System (EBS) transformation
projects, the overriding goal of which is to engage
every employee in the process of continuous
improvement and idea generation. These
ideas are the major source of new efficiency
improvement initiatives and EBS transformations
are the projects that create the necessary
infrastructure for this process to continue.
In 2018, the Group successfully completed
24 EBS transformation projects across its steel
and coal assets, and employees generated
a total of 17,732 ideas, 5,985 of which were
implemented. In overall, EBS has already involved
a total of 15,234 people, and its total identified
and potential economic effect equalled US$268
million. EVRAZ aims to reach 100% EBS coverage
at all Russian assets by 2021.
demand from India and South-East Asia, this led
hard coking coal prices to average US$207 per
tonne, higher than had been forecasted. Positive
developments on the vanadium market also
influenced EVRAZ performance in 2018. China’s
new rebar standard requiring higher vanadium
content in products and its ban on vanadium slag
imports, coupled with scarce operating capacity
of vanadium producers globally, created a deficit
for the metal that drove prices up by 150% year-
on-year.
The Group’s strategic vision remains unchanged.
EVRAZ is a global steel and mining company,
leading producer of infrastructure steel products
with low-cost production along the value
chain. The Group focuses on four key strategic
priorities: maintaining a stable dividend payout
and proactively managing maturities; expanding
the CAPEX programme with selective investments
in development projects; continuing to generate
efficiency improvements with an annual
effect of 3% of the cost base; and developing
the product portfolio and customer base across
all assets in Russia and North America.
In terms of debt management, EVRAZ ended 2018
with net debt of US$3,571 million and retains its
medium-term debt target at below US$4 billion.
In the longer-term perspective, the Group
aims to maintain its net debt / EBITDA ratio
at an average level of 2.0x throughout the cycle,
taking into account risks of EBITDA fluctuations.
EVRAZ also established a new dividend policy
in 2018 that envisages paying a minimum
of US$300 million per annum of dividends
provided that the net leverage ratio remains
below 3.0x. The dividend payout may be higher if
the Group’s net debt remains close to the stated
target and the amount of cash flows generated
covers the investment programme needs. Because
such conditions were met in 2018, EVRAZ paid
dividends of $1.6 billion with a dividend yield
of 17%.
In 2018, EVRAZ took further actions to streamline
its operations and divest of non-core assets.
In June, the Group announced the disposal
of a 15% minority stake in Chinese steel producer
Delong Holdings Ltd due to a lack of links
with our core operations. EVRAZ also finalised
its efforts to exit the Ukrainian market by divesting
of EVRAZ DMZ, a decision primarily driven
by the limited growth opportunities in the region.
The Group’s asset optimisation process will allow
it to more fully concentrate on developing its core
assets.
EVRAZ has tailored its CAPEX allocation programme
in a way that it contributes as much as possible
to achieving the stated strategic priorities
and targets. In 2018, the Group presented
an investment programme that envisages annual
total CAPEX spending of US$800-990 million during
2019–22. The expansion is driven by four major
development projects, including constructing a flat-
casting and rolling facility in Siberia, building a new
long rail mill in Colorado, as well as modernising
a rail and beam mill and launching a new
continuous-casting machine in the Urals.
Safety remains the underpinning of EVRAZ
business sustainability. In 2018, the Group
maintained its lost time injury frequency rate
(LTIFR) at the level of 1.9x, focusing on two major
new initiatives: a contractor safety programme
and an HSE performance assessment
for operations managers. However, despite
every effort that was undertaken, EVRAZ was
unable to make substantial progress in reducing
fatal accidents in 2018: there were a total
of 10 fatalities across all Group assets. To achieve
a radical change in its safety culture, in 2019,
EVRAZ is launching an initiative to engage workers
at every level.
In 2018, the Group also devoted special attention
to environmental protection, an important aspect
of sustainable long-term development. During
the reporting period, EVRAZ ZSMK completed
the reconstruction of the gas purifying facilities
at its sinter plants that, together with other
initiatives, has achieved annual reductions
in plant emissions of 16 thousand tonnes
and in wastewater discharge of 6 million cubic
metres. EVRAZ current environmental protection
programme includes 23 projects, five of which
will be included in the federal presidential
ecological programme for 2019–24, driving
a reduction in total annual emissions of another
52 thousand tonnes by 2024.
In terms of human capital management, the Group
believes that motivated, competent and loyal
employees create the foundation for the business.
In 2018, EVRAZ implemented several initiatives
aimed at developing managerial capabilities
and enhancing personnel engagement levels.
One key initiative was the newly launched
“Top-300 programme”, which has been designed
as a transformative set of personal training
sessions and workshops for shop superintendents
and mine directors. The Group also conducted
a series of information days at each production site
to increase employee awareness of EVRAZ strategy
and initiatives and conducted the “We are together”
poll to collect feedback in an effort to further
improve working conditions. Overall, employee
engagement at the Group improved by 1 percentage
point to 53% in 2018, while the average
engagement figure for the Russian metals
and mining industry decreased by 5 percentage
points.
To ensure stable development, EVRAZ aims
to secure leadership in key markets, namely
in long and construction steel products.
To achieve these targets, the Group needs
8
9
Annual report& accounts2018www.evraz.comSTRATEGIC REPORTBusiness reviewCSR reportCorporate governanceFinancial statementsAdditional information COAL SEGMENT
STEEL, NORTH AMERICA SEGMENT
EVRAZ Coal segment is the leading Russian
producer of coking coal.
In 2018, the Group increased coal mining
volumes by 0.9 million tonnes to a total
of 24.2 million tonnes a year. Coal concentrate
production grew by 8% to 14.1 million
tonnes. The Coal segment’s EBITDA equalled
US$1,218 million for the period, remaining
flat compared to 2017. In 2018, the Group
also generated US$70 million from efficiency
improvement initiatives.
The increase in mining volumes was driven
by ramp up of the Raspadskaya-Koksovaya open-
pit project, which added more than 1 million
tonnes a year of premium low-vol coal (OS
grade). It, combined with focus on internal coal
shipments and the disposal of EVRAZ DMZ, led
to the improvement of self-sufficiency in coal
by 19 percentage points to 69%. In addition
to the mining ramp-up, EVRAZ boosted its coal
export shipments to 7.7 million tonnes (up 17%
year-on-year) through such actions as expansion
of its sales geography (up 2.4x times to Europe),
increase in the share of long-term agreements
with railcar operators to 75% and improvements
to the efficiency of operational management
for shipments to Russia’s Far East.
Looking forward, the key goal of EVRAZ Coal
segment is to continue growing coal mining
volumes to 28.4 million tonnes a year by 2021.
To reach this target, the Group plans to further
expand mining of high-vol coal coking coal
grades by 4.1 million tonnes. Major effect
of 2.5 million tonnes will come from such
projects as the development of seam No. 48
at the Uskovskaya mine and seam No. 29
at the Esaulskaya mine. EVRAZ also continues
to increase the supply of low-vol coal grades
through the implementation of its longwall
mining project at the Raspadskaya-Koksovaya
mine. The project will add 0.9 million tonnes
of low-vol coals (K grade) shipped internally,
helping to improve coal the Steel segment’s self-
sufficiency.
of an integrated flat casting and rolling facility
that will help to enter the flat products market
with 2.5 million tonnes of coil a year, including
1.5 million tonnes sold domestically by 2023. The
technology entails continuous casting and rolling
from steel to coil, eliminating the slab stage, which
will significantly lower production costs. Thickness
of produced coils will range from 1.2 millimetres
to 25 millimetres. Total CAPEX for the project
is estimated at US$490 million.
EVRAZ NTMK is considering a product mix
improvement programme that includes investment
projects to update the rail and beam mill
for US$215 million and install a new continuous
casting machine No. 5 for US$120 million. Both
projects will add capacity to produce more value-
added products, including 230 thousand tonnes
a year of beams, 50 thousand tonnes a year
of sheet piles and 460 thousand tonnes a year
of pipe blanks for seamless oil country tubular
good (OCTG) production.
In 2019, for these three projects, the Group
plans to finalise selection of the general
suppliers of equipment, develop project
documentation and conduct engineering works.
It also plans to complete major construction
works for the overhaul of blast furnace No. 6 at
EVRAZ NTMK, after which blast furnace No. 5
will shut down in 2020.
STEEL SEGMENT
The Steel segment remains the core of the EVRAZ
business with a unique mix of transportation
and construction finished steel products.
In 2018, total output of steel products declined
by 5% down to 10.2 million tonnes. Sales
of finished steel products in Russia rose
to 4.6 million tonnes, up 5% from 4.4 million
tonnes in 2017. The segment’s EBITDA surged
to US$2,672 million, including a significant
effect from the vanadium business. Efficiency
improvement initiatives had a total effect
of US$198 million, most of which came
from the launch of investment projects, increased
domestic sales and savings on steelmaking
operations.
One of the most significant events
for the Steel segment was the successful
launch of blast furnace No. 7 at EVRAZ
NTMK. It took only 18 months to complete
construction of the project, which had a total
CAPEX of US$204 million. The furnace has
an annual pig iron output of 2.6 million tonnes
and is considered to be one of the cleanest
in Russia, with an increase in air purification
of 2.5 times and a reduction in coke consumption
of 5 kilogrammes per tonne compared with other
operating furnaces.
EVRAZ also launched several successful
projects during the reporting period, including:
a grinding ball mill at EVRAZ NTMK with CAPEX
of US$17 million, which increased the production
of balls to more than 300 thousand tonnes;
and the launch of a wheels resurfacing line
at EVRAZ NTMK with CAPEX of US$14 million,
which processes premium S-wheels and has
a production capacity of 66 thousand wheels.
Looking ahead, one of the Steel segment’s key
targets is to reach 6.9 million tonnes of finished
steel sales to the Russian market by 2023. To
achieve this target, EVRAZ is considering several
investment projects to enhance the product mix.
EVRAZ ZSMK is considering the construction
10
product mix and streamline the product flows
between Canadian operations.
In 2018, the Group initiated the design
and engineering work on a new rail mill at EVRAZ
Pueblo that is planned to be launched in 2021.
The project entails building a brand-new rolling
mill with annual capacity of 600 thousand
tonnes and will be able to produce rails
with a length of 100 metres. Total investments
required are estimated at US$480 million.
The project will allow EVRAZ North American
operations to maintain technological leadership,
reach a 45% market share in North American
rails and shift to a higher value product mix
in rails.
For 2019, the Group plans to finalise
the selection of general suppliers of main
equipment, complete equipment and plant
engineering and prepare the construction site.
EVRAZ operations in the US and Canada
make it a leader in the North American rail
and large-diameter pipe market.
Total sales of steel products reached 2.2 million
tonnes, up 14% from 1.9 million tonnes in 2017.
The segment’s EBITDA was US$14 million,
down from US$58 million in 2017, mainly due
to the effect of tariffs and duties on Canadian
large-diameter and line pipe sales into the US,
as well to production issues at EVRAZ Regina.
The operational performance at EVRAZ
Pueblo and EVRAZ Portland was strong
and the segment’s efficiency improvement
programme contributed a total of US$72 million.
In 2018, the major focus was set
to achieve the target effect from the two
investment projects implemented in 2016-
17: EVRAZ Regina’s steelmaking upgrade
and the construction of the new large-diameter
pipe mill No. 5. The targets for monthly
slab production, degassing rate and prime
yield for large-diameter pipe were achieved
in the fourth quarter of 2018 and full capacity
should be reached in 2019, supported by solid
demand for energy pipe in Canada.
In addition, most of the construction work
has been finished for two investment projects
focused on electric resistance welded (ERW)
and seamless OCTG operations. The first
project, a threading line with annual capacity
of 110 thousand tonnes at EVRAZ Pueblo, will
contribute savings of US$10 million on third-party
services when it reaches full capacity. The second,
a heat treatment project with annual capacity
of 100 thousand tonnes at EVRAZ Red Deer,
will be launched in 2019 to upgrade the OCTG
OUTLOOK FOR 2019
EVRAZ believes that its strong pipeline
of existing investment projects, the
continued evolution of its efficiency
improvement initiatives and its low net
leverage levels will help the Group to
resist possible market downturns that
could potentially squeeze margins,
thereby ensuring the business’ stable
development.
Alexander Frolov
Chief Executive Officer
11
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ASKED
QUESTIONS
How would you summarise the development of EVRAZ vanadium
business in 2018, as well as its fit into the Group’s overall strategy
and further growth?
What were the main reasons for Russian economy growth issues in
2018 and for underperformance of steel demand, in particular?
The vanadium business’ development was strongly affected by product
prices, which surged from US$16 per kg FeV at the start of 2016
to peak at around US$120 per kg FeV in Q3 2018 amid a gradually
increasing market deficit. On the one hand, the deficit has been
driven by supply limitations, including the closure of EVRAZ Highveld
in 2015 and the imposition of environmental restrictions in China,
which together have reduced global vanadium production by 4 kmtV.
While new capacity launches are expected to add roughly 25 kmtV to
global supply, this will not happen until 2022, when major Australian
projects will be finalised. On the other hand, demand for vanadium
products could grow by some 5 kmtV (5-6% of global demand) due
to China’s new high-strength rebar standard, which was approved
last year and raised the use of vanadium by 0.03 kgV per tonne for
200 million tonnes of rebar production. While vanadium prices settled
at around US$70 per kg FeV by the end of 2018, this price level is still
significantly higher than the historical average and prices are expected
to remain somewhat elevated in the near future.
The positive market dynamics in 2018 led to a strong financial
performance by the vanadium business in the reporting period.
The Group believes that its vanadium assets will also be able to
generate strong results on a longer-term horizon due to the structural
competitive advantages of the business. The vanadium-rich iron ore
mined at EVRAZ KGOK and the proprietary steelmaking technology
used at EVRAZ NTMK combine for one of lowest vanadium production
costs in the world.
In future, the Group plans to achieve a higher level of vertical
integration in the vanadium business and increase vanadium
recovery throughout the production chain, from iron ore processing to
ferrovanadium production.
In 2018, several factors negatively affected steel consumption in
Russia. First, investment inflows into the Russian economy were lower
than expected. Second, over the summer, when the football World Cup
took place, construction work in major Russian cities was suspended.
However, despite the overall market stagnation, EVRAZ domestic steel
product sales climbed by 3% to 4.2 million tonnes in 2018, driven by
growing demand for several key products in the Group’s portfolio. For
example, railcar wheel consumption in Russia climbed by 29% due to
the ongoing major replacement cycle, boosting EVRAZ sales by roughly
40 thousand tonnes. Another example is the beams market, where
despite the decline in demand for this product in Russia, the Group’s
sales increased by around 40 thousand tonnes, driven by EVRAZ
efforts to further improve availability, logistics and shipment terms.
What is the rationale behind the Group’s new investments in Russian
steel assets?
The key rationale behind EVRAZ new investment programme is the
Group’s aim to ensure profitability and achieve more stable long-term
development of its major assets. One way to reach this goal is to
increase sales on the domestic market, where demand is more robust,
being protected from negative global economic trends (such as trade
protectionism and tariffs). This will also provide significant savings on
logistics. Another way to do this is to increase the share of high value-
added products in EVRAZ portfolio, as they are expected to have higher
and more stable margins in the long term.
The flat rolling and casting facility at EVRAZ ZSMK with the capacity of
2.5 million tonnes per annum will substitute slabs and billets that are
currently exported. The spread for hot-rolled coil produced at this facility
is expected to be around US$90 per tonne and should be less volatile in
the long term. Similar changes will take place at EVRAZ NTMK, where the
new rail and beam mill will help to replace semi-finished steel products for
230 thousand tonnes of beams and 50 thousand tonnes of sheet piles.
As a result, plants in Russia will be able to achieve a stronger and more
stable financial performance.
What was the impact of the additional import tariffs, quotas and
duties imposed by the United States and Canada on EVRAZ North
America operations in 2018 and what effect is expected from
them in 2019?
In 2018, EVRAZ North America operations faced tightening U.S. trade
policy and increased trade barriers. Trade measures included tariffs on
steel products imported into the United States (Section 232 tariffs), U.S.
preliminary antidumping duties on imports of large diameter welded
pipe from Canada, and retaliatory tariffs imposed by the government of
Canada on steel imported from the United States.
While EVRAZ North America has worked to minimise tariff exposure,
these policies have posed challenges and created increased costs in the
segment’s cross-border markets in the United States and Canada.
Tariffs on imported slab had a negative impact on EVRAZ Portland’s
flat steel operations. For tubular operations in Canada, trade actions
presented challenges for cross border business with the United States.
Although oil country tubular goods are primarily sold in Canada, large-
diameter and small-diameter line pipe primarily produced in Canada had
significant volumes sold into the United States. Likewise exports from
Portland to Canada were reduced significantly due to retaliatory tariffs
imposed by Canada. The Group has a more positive outlook for 2019 as
its large diameter pipe order book for the year has more sales into the
Canadian market.
What are the risks if the US impose sanctions on EVRAZ or its key
shareholders?
EVRAZ considers the probability of sanctions on its business and
shareholders to be quite low. However, the Group has undertaken
several precautionary measures in terms of cash management,
shareholder ownership structure and contract negotiations that
should help to minimise the potential impact on EVRAZ business in
case any sanctions are imposed.
What dividend payouts can EVRAZ shareholders expect in the
future?
In 2018, the Group established a new dividend policy envisaging a
minimum payout of US$300 million per annum. The total amount of
dividends paid in 2018 reached US$1.6 billion, which is around five times
higher than the minimum. In 2018, net debt was close to the desired level
and the financial performance was strong, which led to a significant surge
in the dividend payout.
Future dividend payouts will depend primarily on three parameters: debt,
CAPEX targets and EBITDA level. In the medium term, EVRAZ will most
likely use the majority of the cash generated in excess of the needs for
the established CAPEX programme to pay dividends. However, the payout
might be lower if the markets experience a significant price correction
that substantially weakens the Group’s EBITDA. In that case, EVRAZ will
prioritise cash management efforts and will seek to keep its net debt/
EBITDA ratio below 2.0. In a stress-case scenario, the Group might even
consider a reduction in capital expenditures.
As ESG related matters is becoming increasingly important, does
EVRAZ have any plans to enhance its disclosure of these aspects?
The Board and the Management acknowledge the increasing importance
of ESG related matters and put a lot of efforts to enhance the EVRAZ
work stream in these aspects. EVRAZ is constantly improving the
corporate social responsibility section of its Annual report, which
provides an overview of the Group’s policies and performance 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 further improve its performance in the
years ahead. See pages 72–97 for details.
Moreover, EVRAZ intends to prepare and publish its first Sustainability
Report in the first half of 2019 in order to increase the disclosure
transparency.
At EVRAZ, we take immense pride in
our leading positions in construction
steel and coking coal in Russia.
Globally, we are first in rails and
second in vanadium.
12
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Business review
CSR report
Corporate governance
Financial statements
Additional Iinformation
EVRAZ business model
OUR VISION
GLOBAL MARKET TRENDS
EVRAZ is a global steel and
mining company, the leading
producer of infrastructure
steel products with low-cost
production along the value chain.
In 2018, global steel and raw materials markets enjoyed favourable
momentum. Rising prices were mainly driven by heightened demand for steel
products, ongoing supply-side reforms and changes to China’s environmental
regulations. In 2019, we believe that the market could cool off somewhat,
however fundamentals mainly remain strong.
For more information, see pages 26–27.
Success
factors
Strategic
priorities
Business
segments
Competitive
advantages
The value
we create
As part of its leadership drive, EVRAZ
is implementing its strategy based on five
success factors:
EVRAZ strategic priorities reflect current focus areas that are driven by market
conditions and business fundamentals.
For more information, see pages 28–29.
Retention
of low-cost
position
Debt
management
and stable
dividends
Development
of product
portfolio
and customer
base
Prudent
CAPEX
Health,
safety and
environment
Human
capital
Customer
focus
Asset
development
EVRAZ
business system
14
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.
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.
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. The Group’s
vanadium business is based on processing
vanadium slag from steelmaking operations.
For more information, see pages 44–53.
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 pages 54–61.
Steel, NA
The Steel, North America segment
focuses on the premium markets
in the Western US and Canada,
offering high value-added products
including infrastructure steel, rails,
large-diameter pipes and oil country
tubular goods.
For more information,
see pages 62–69.
Shareholders
EVRAZ strives to act in shareholders’ best
interest by building an experienced management
team and implementing corporate governance
best practices.
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.
15
Annual report& accounts2018www.evraz.com
Operational
model
See pages 44–53
STEEL
SEGMENT
See pages 54–61
COAL
SEGMENT
See pages 62–69
STEEL, NORTH
AMERICA SEGMENT
INPUT
OPERATIONS
Iron ore products consumption
Internal consumption
3rd parties’ iron ore products purchases
Raw
materials
3rd parties scrap purchases
Coking coal products consumption
Coal segment coal products
3rd parties raw coal
3rd parties concentrate
Pig iron production
Crude steel production
Vanadium slag production
16,048 kt
12,057 kt
3,991 kt
1,816 kt
8,820 kt
6,016 kt
1,254 kt
1,550 kt
9,993 kt
11,121 kt
17,052 mtV
Steelmaking
Rolling
and processing
Steel products production
10,853 kt
Sales to Steel segment
Total raw coking coal mined
1,863 kt
24,188 kt
3rd parties scrap puchases
Slab purchases1
656 kt
700 kt
1 Including 543 kt from Steel segment and 157 kt from 3rd parties.
Raw
materials
Sales to Steel segment
Total coking coal concentrate
production
4,153 kt
14,130 kt
Mining
Coal
washing
EVRAZ unique combination of reserves, operations, product
quality and clients make its Coal segment the one of the key pillar
of its business model. The synergy between the steelmaking and coal
operations, combined with a broad export client base, provides
the opportunity for further development of the coal business.
Steelmaking
Crude steel production
1,898 kt
Steel products production
2,141 kt
SALES
TO 3rd
PARTIES
Steel
products
Iron ore
products
Vanadium products
(alloys and chemicals)
10,980 kt
3,112 kt
12,352 mtV
Coking
coal products
11,048 kt
Rolling
and processing
Steel
products
2,156 kt
Semi-finished products
Construction products
Railway products
Flat-rolled products
Other steel products
4,703
3,697
1,344
617
619
Coking coal concentrate
Raw coal
9,323
1,725
Tubular products
Flat-rolled products
Railway products
Construction products
Semi-finished products
823
568
421
287
57
EBITDA
US$2,672 million
80.2% year-on-year
US$1,218 million
0.7% year-on-year
US$ 14 million
75.9% year-on-year
The Steel segment’s EBITDA rose due to an increase in steel
and vanadium prices; lower expenses in US dollar terms due
to the effect that rouble weakening had on costs; and the impact
of cost-cutting initiatives implemented in the period. This was partly
offset by an increase in prices for raw materials, including scrap,
electrodes and ferroalloys.
The Coal segment’s EBITDA declined slightly year-on-year mainly
due to higher cost per tonne amid more complex geological
conditions, rise in auxiliary materials prices and higher involvement
of contractors. This was partly offset by sales prices rising in line
with global benchmarks; the impact of cost-cutting initiatives;
and lower expenses in US dollar terms as a result of the effect that
rouble weakening had on costs.
The increase in volume and metal spreads of the Steel, North
America segment’s was more than offset by the effect of tariffs
and duties on Canadian large-diameter and line pipe sales into
the US, as well as due to operational challenges at EVRAZ Regina
facility that resulted in lower EBITDA.
17
Proved and probable
reserves
10.0
bln t of iron ore
1.9
bln t of coking coal
Self-coverage1
79%
in iron ore
239%
in coking coal
1 The raw material requirement of EVRAZ
steelmaking facilities compared with coal
product sales or production of iron ore products
from own raw materials.
Number of employees
(as of 31.12.2018)
46,373
in Steel segment
15,540
in Coal segment
3,918
in Steel, NA segment
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Annual report& accounts2018www.evraz.comSTRATEGIC REPORTBusiness reviewCSR reportCorporate governanceFinancial statementsAdditional information
Success factors and KPIs
HEALTH, SAFETY AND ENVIRONMENT
HUMAN CAPITAL
Strategic goal
EVRAZ top priority is the health and safety of its
employees. The Group continues to make progress
towards the goals of achieving and preserving
the lost-time injury frequency rate (LTIFR) below
1.0x by 2021. EVRAZ also strives to protect
the environment in the areas of its operations.
Overview
Following the positive experience of 2017, EVRAZ
continued to expand the practice of behaviour safety
conversations and develop standard safe operating
procedures in 2018. The Group also made efforts
to integrate contractors into its HSE management
system by implementing the contractor safety
programme, which aims to increase contractors’
accountability for HSE performance.
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 72-97 provides an overview
of the Group’s policies and performance in 2018
in key areas of CSR.
For additional information see EVRAZ first
Sustainability Report for 2018, which is to be
published in May 2019.
18
EVRAZ also launched three environmental
projects in 2018, including 21 sub-programmes
designed to improve environmental performance.
LTIFR (excluding fatalities),
per 1 million hours
2018
2017
2016
Outlook
To achieve a step up change in its safety culture,
in 2019, EVRAZ is launching an initiative
to engage shop workers on operational safety.
One of the Group’s highest priorities is implementing
a risk management system, focusing on seven
major risks. After being ranked by risk level,
the types of accidents that cause the most harmful
injuries and fatalities will be addressed first
to reduce the possible danger.
Unfortunately, despite every effort that was
undertaken, EVRAZ experienced 10 fatalities
in 2018 (including six employees and four
contractors). LTIFR remained flat at 1.9x
in 2018.
KPI
1.91
1.90
2.36
Strategic goal
Based on the belief that motivated, competent
and loyal employees create the foundation
for the business, EVRAZ strives to enhance
employee engagement levels.
Overview
In 2018, EVRAZ performed three major
employee development programmes:
the “Top-300 programme”, information days
and the “We are together” campaign. Overall,
employee engagement continued to grow
at the Group, climbing by 1 percentage
point to 53% in 2018, while the average
engagement figure for the industry decreased
by 5 percentage points.
The newly launched “Top-300 programme”
has been designed as a transformative
personal journey for production leaders, such
as shop superintendents and mine directors.
The programme consists of five modules,
two of which were finalised in 2018. The
programme’s inaugural first wave involved
104 employees taking part in various
workshops, follow-up activities, group projects
and sessions with mentors from EVRAZ
top-management team beginning in October
2018. At the end of the programme,
in the middle of 2019, feedback sessions
are planned to better understand the results
and their successful implementation into
practice.
KPI
355
352
327
Information days are held twice a year at every
asset of EVRAZ to communicate the strategy,
performance results and ongoing changes
in the company to the employees.
Labour productivity, steel,
tonnes per person
2018
2017
2016
The “We are together” campaign aims
to measure employee engagement
and to evaluate the most vital issues
that require additional focus. As part
of the campaign, once a year, employees
respond to an anonymous questionnaire
covering working conditions, safety levels,
career development possibilities and other
topics. The questionnaire covers 74%
of the employees.
Outlook
In 2019, EVRAZ will continue to implement
all ongoing programmes. The first wave
of the “Top-300 programme” that started
in 2018 will be complete (three of five
modules in 2019) and new employees
will be engaged in the second wave.
In addition, the Group will implement a new
motivation system for shop superintendents
and project managers. In 2019, EVRAZ
expects headcount to increase, primarily
due to the ramp-up of coal mining volumes
and the implementation of new investment
projects.
The labour productivity of EVRAZ Steel segment
grew by 1% year-on-year to 355 tonnes per
employee. As a result of the labour productivity
improvement and the disposal of EVRAZ DMZ,
the headcount has decreased from 70,184
employees in 2017 to 68,379 in 2018.
Diversity of employees, senior
management and directors,
% (number of people)
78% (7)
88% (296)
Board
Senior management
Employees
22% (2)
12% (41)
73% (49,407)
27% (18,635)
Men
Women
Health and safety
See pages 72–76.
CSR
Environmental matters
See pages 77–78.
Our people
See pages 84–95.
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 90–95.
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 pages 72–73.
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 96–97.
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Success factors and KPIs
CUSTOMER FOCUS
ASSET DEVELOPMENT
STEEL
COAL
STEEL, NORTH AMERICA
STEEL
COAL
STEEL, NORTH AMERICA
Strategic goals
▪ Increase domestic market sales of finished steel
Strategic goals
▪ Reach 100% self-sufficiency in all coal grades
products
at EVRAZ steel plants
Overview 2018
▪ Total internal coal use at EVRAZ steel plants
reached 69%, compared with 50% in 2017,
and EVRAZ self-sufficiency in OS grade coal
rose to 37%, compared with 5% in 2017,
mainly due to the ramp-up of volumes
at the Raspadskaya-Koksovaya open-pit mine
to 1.7 million tonnes from 0.7 million tonnes
in 2017
▪ Expanded export sales volumes by 16%
year-on-year to 7.7 million tonnes due
to geographical diversification (mainly
to Indonesia, Korea, Slovakia and Hungary)
and increased shipments to the Baltic Sea
▪ Increased the load of railcars closer
to the maximum capacity of 70 tonnes per
car (69.1 tonnes per car in 2018, compared
with 68.5 tonnes per car in 2017)
Outlook 2019
▪ Further expand overseas shipments, mainly
to Indonesia, Vietnam and Japan
▪ Continue maintaining product quality,
especially during the winter season
Strategic goals
▪ Increase sales volumes to maintain energy
pipe leadership in large-diameter pipe, line-
pipe and OCTG
▪ Reach a market share of 45% in rails in North
America
Overview 2018
▪ Increased the market share in large-
diameter pipes in North America to 22%, up
by 5 percentage points from 17% in 2017
▪ Increased the market share in rails in North
America to 40%, up by 5 percentage points
from 35% in 2017
▪ Achieved 111 thousand tonnes in seamless
pipe sales, up 46% year-on-year
The total effect of customer focus initiatives
on EBITDA is US$3.9 million
Outlook 2019
▪ Commercialise new products, increase heat-
treated plate sales and increase shipments
to energy transmission and water pipe sectors
at EVRAZ Portland
▪ Launch production of EVRlock connections
at the EVRAZ Pueblo threading line after
finalising the investment project
▪ Maintain focus on the efficiency of logistics
▪ Expand tire cord grade wire shipments made
in the Far East direction
with EVRAZ Pueblo steel
▪ Increase large-diameter pipe sales
from the EVRAZ Regina and Portland facilities
▪ Secure a 70% domestic market share in rails
▪ Develop market leadership in steel products
in Siberia
▪ Increase the share of semi-finished products
with high-premiums
Overview 2018
▪ Developed the pipeline of investment projects
to enhance finished steel products sales, including
modernising the rail and beam mill at EVRAZ
NTMK, constructing the new continuous casting
machine No. 5 at EVRAZ NTMK, and constructing
the new integrated flat casting and rolling complex
at EVRAZ ZSMK
▪ Launched the new ball mill at EVRAZ NTMK
with a capacity of 145 thousand tonnes
▪ Efforts to direct sales towards large infrastructure
projects, improve lead times and expand
the product mix drove beam sales up 7%,
from 572 thousand tonnes in 2017 to 612
thousand tonnes in 2018
▪ Sales of rebar grew by 8%, from 1,629 thousand
tonnes in 2017 to 1,766 thousand tonnes in 2018
▪ The debottlenecking initiatives at the wheel rolling
mill led to 15% growth in wheels sales, from 173
thousand tonnes in 2017 to 199 thousand tonnes
in 2018
▪ Launched a project with a key client, Russian
Railways, including developing new types
of rails (DT350U) and additional services,
driving sales volumes to Russian Railways
up 8%, from 719 thousand tonnes in 2017
to 774 thousand tonnes in 2018
▪ Achieved US$12 million of savings on logistics
for Russian steel plants, mainly due to increased
carloads, better railcar usage terms, and more
efficient dispatching and port haulage
The total effect of customer focus initiatives
on EBITDA is US$63 million
Outlook 2019
▪ Continue working on logistics efficiency by further
increasing railcar loading and improving terms
of shipments
▪ Continue the programme to promote the use
of beams in infrastructure and construction
▪ Optimise the rounds mix and enhance the sales
volumes of balls at EVRAZ NTMK
▪ Adjust the vanadium price formula closer to global
benchmarks
20
Strategic goals
▪ Generate annual improvement initiatives
Strategic goals
▪ Reach a saleable annual product volume
Strategic goals
▪ Increase steelmaking capacity at EVRAZ
in the amount of 3% of the cost base at every
business unit
of 22 million tonnes
Regina and EVRAZ Pueblo
▪ Generate annual cost-reduction initiatives
▪ Achieve full capacity utilisation at EVRAZ
in the amount of 3% of the cost base
and remain in the first quartile of the global
cost curve
Overview 2018
▪ Increased overall mining volumes
to 24.2 million tonnes, up by 4%
from 23.3 million tonnes in 2017, primarily
due to growth of 1 million tonnes
at the Raspadskaya-Koksovaya open-pit mine
▪ Reduced the ash content at the Raspadsky
open-pit mine by 6%, which helped to increase
the washed concentrate production yield
to 76%, up by 7 percentage points from 69%
in 2017
The combined effect from the initiatives equals
US$70 million
Outlook 2019
▪ Implement longwall mining instead of room
Portland with higher-value products
Overview 2018
▪ Reached the targeted parameters of the EVRAZ
Regina steelmaking upgrade and LDP mill no.
5 investment projects by the end of 2018:
monthly slab production was 87.8 thousand
tonnes in Q4 2018, compared with 77.9
thousand tonnes in Q1 2018; the degassing
rate was 89% in Q4 2018, compared
with 36% in Q1 2018; and the prime yield
for large-diameter pipe was 90% in Q4,
compared with 75% in Q1 2018
▪ Launched EVRAZ Pueblo’s threading line
and completed major construction works
for the heat treatment line at EVRAZ Red Deer
▪ Increased productivity and yield savings
at EVRAZ Portland with a total rolling
volume of 605 thousand tonnes, up 15%
from 526 thousand tonnes in 2017
▪ Initiated the design and engineering
and pillar mining at Raspadskaya-Koksovaya,
increasing K grade extraction from the current
0.5 million tonnes to 1.4 million tonnes
work on a new rail mill at EVRAZ Pueblo
with planned capacity of 600 thousand tonnes
per annum to produce 100-metre rails.
▪ Increase the mine drifting speed and the total
boring volume by more than 15%
▪ Launch the flotation process
The combined effect from these initiatives
equals US$68 million
at the Abashevskaya washing plant
to increase concentrate yield by around 2%
▪ Increase productivity at the Raspadskaya,
Abashevskaya and Kuznetskaya washing
plants by improving the technological process
and modernising equipment
Outlook 2019
▪ Continue achieving alloy savings and further
melt shop volume growth at EVRAZ Regina
▪ Ramp up the threading line and billet
production at EVRAZ Pueblo
▪ Launch the heat treatment line at EVRAZ Red
Deer
▪ Decrease the electrode consumption levels
at EVRAZ Regina
Overview 2018
▪ Launched the new blast furnace
No. 7 at EVRAZ NTMK with a capacity
of 2,550 thousand tonnes a year: in 2018,
the furnace produced 1,908 thousand tonnes
of pig iron
▪ Achieved US$23 million of savings at EVRAZ
ZSMK’s steelmaking operations, mainly
by optimising the consumption of ferroalloys,
standardising the scrap blend and improving
lime quality
▪ Enhanced the vanadium recovery at EVRAZ
NTMK’s steelmaking operations by 8.6% year-
on-year by increasing the number of melts
using the duplex process, optimising melt
timing and increasing the number of melting
sessions using bottom blowing
▪ Achieved an effect of US$19 million
from energy efficiency programmes at Russian
steel plants, including from the launch
of boiler unit No. 9 at EVRAZ ZSMK that
recovers secondary gases
The combined effect from these initiatives
equals US$134 million
Outlook 2019
▪ Complete the major construction works
for the blast furnace No. 6 overhaul at EVRAZ
NTMK
▪ Improve the performance of blast furnace
No. 7 to achieve full capacity in 2019
and bring the mill’s total pig iron production
to 4.9 million tonnes
▪ Continue the efficiency efforts at EVRAZ
NTMK to enhance the production of vanadium
slag by further increasing the of melts
and vanadium recovery
▪ Achieve further increases in the productivity
of the coke, sinter and blast furnace
operations at EVRAZ NTMK and EVRAZ ZSMK
For KPIs and detailed tracking, see pages 28–29.
KPI
For KPIs and detailed tracking, see pages 28–29.
KPI
21
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& Accounts
2018
STRATEGIC REPORT
Business Review
CSR Report
Corporate Governance
Financial Statements
Additional Information
Digital
transformation
EVRAZ digital transformation strategically addresses the customer
focus and asset development success factors.
OUR 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.
RESULTS IN 2018
24
16
29
projects
implemented
projects
being implemented
projects
being considered
Main digital transformation initiatives
Predictive
maintenance
Expert
systems
Electronic document
exchange
Other digital
technologies
▪ Machine learning and artificial intelligence systems
▪ Traditional cyber-physical systems
Internal electronic document exchange
▪
▪ Electronic document exchange with customers and suppliers
▪ Digital signatures
Industrial analytics and big data
▪
▪ Unmanned and remotely-controlled vehicles
▪ Mobility
▪
Integrated e-commerce
PLANS AND PRIORITIES FOR 2019
Develop a predictive
Develop
maintenance system
based on vibration
diagnostics data
in the wheel-banding
shop
EVRAZ NTMK
a recommendation
system based
on machine learning
for the steel smelting
shop’s continuous
casting machine
EVRAZ ZSMK
Develop
a recommendation
system based
on machine learning
Raspadskaya washing
plant (Raspadskaya
Coal Company)
Develop
Develop
Develop
an expert system based
on machine learning
in the convertor shop
EVRAZ NTMK
mathematical models
for determining non-
metallic inclusions
while manufacturing rail
products
EVRAZ ZSMK
a programme of projects
for the transition
to electronic document
exchange within
companies (up
to 100,000 documents
a month)
EVRAZ NTMK, EVRAZ
Metall Inprom
KEY PROJECTS IN 2018
Mining and transport equipment control
system
System to optimise the iron smelting
process at blast furnace DP-7
Unmanned aerial vehicle (UAV) system
for automated surveying
Automated process control system for
steel blowing in convertors 4 and 5 of
the steel smelting shop
Electronic document exchange
with Russian Railways using digital
signatures
Mobile apps on explosion-proof tablets
to monitor underground work
Subject (area)
Remotely-controlled operations
Subject (area)
Expert systems
Subject (area)
Remotely-controlled operations
Category
Company
Project status
as of 31.12.2018
Mining
Category
EVRAZ KGOK
Company
Launched
Project status
as of 31.12.2018
Steel
Category
Mining
EVRAZ NTMK
Company
Razrez Raspadsky (Raspadskaya Coal Company)
Launched
Project status
as of 31.12.2018
Launched
Subject (area):
Category:
Company:
Project status
as of 31.12.2018
Expert systems
Subject (area):
Lean and paperless back office
Subject (area):
Steel
Category:
EVRAZ ZSMK
Company:
Launched
Project status
as of 31.12.2018
Sales
Category:
EVRAZ Trading Company
Company:
Raspadskaya Coal Company
Launched
Project status
as of 31.12.2018
Launched
Mobility
Mining
An automated monitoring system for mining
and transport equipment in the quarry has been
implemented, including dump trucks, bulldozers,
excavators, autoloaders and mobile canteens.
The system monitors in real time and displays
information about the location and operating
parameters (speed, mileage, remaining fuel, etc)
of dump trucks, loaded weight and the position
of mobile canteens.
Using a W-Fi network deployed in the quarry, all
data are promptly transmitted to the computers
of the plant’s dispatchers and chief specialists.
The drivers of excavators and dump trucks
also see the data on smart screens in the cabs
of their vehicles.
Implementation effect
The project has improved the productivity
of quarry dump trucks by 10% while reducing ore
loss and stabilising ore quality.
Alexander Trofimov
Сhief mining engineer at EVRAZ KGOK
22
IT solutions aimed at optimising the iron smelting
technological process have been implemented. They
allow to use the following functions:
▪
Information support (analysis of raw materials
and products, history of process parameters)
▪ Process modelling and parameter calculation
▪ Expert system includes process diagnostics,
forecasting and suggesting corrections
The main goals are to stabilise product quality (pig
iron), reduce costs and improve productivity (by
preventing negative deviations).
Implementation effect
The improved optimisation system has made
it possible to reduce fuel consumption, stabilise
the process and standardise the decisions taken
by the technical staff during various shifts, which has
increased overall productivity.
Using the expert system’s functions
at the initial stage of the blast furnace’s
development has significantly reduced
the time needed to reach the design parameters
and improved the process performance metrics.
Konstantin Mironov
Head of the blast furnace shop at EVRAZ NTMK
A UAV system with specialised photo processing and 3D
terrain modelling software has been purchased.
The staff was trained in the operation and maintenance
of the UAV system and new software.
Implementation effect
The more efficient surveying system has reduced
downtime of quarry equipment and increased
the timeliness of taking production decisions.
Mikhail Burenkov
Сhief geologist at Razrez Raspadsky
The system has created significant time
savings for surveying.
Valentina Tarasenko
Сhief surveyor at Razrez Raspadsky
The user-friendly system helps to take
objective managerial decisions.
Igor Osadchy
Director of Razrez Raspadsky
The system optimises smelting in a 350-tonne
automated converter.
The blowing pattern is determined using historical
smelting data. The system forms optimal control
actions in the pattern using three main criteria:
▪ Regulation of oxygen consumption during blowing
▪ Regulation of tuyere position during blowing
▪ Formation and return of part of the loose materials
during blowing
Implementation effect
The introduction of the system has contributed
to the overall effect of the program which aims
to improve the efficiency of steel production at EVRAZ
ZSMK.
Document exchange has been made paperless
with a key customer, Russian Railways, using digital
signatures.
Mobile apps have been developed to collect
information about the status of equipment operating
in the coal mines.
Document exchange previously required printing,
hand-signing and stamping, and then couriering
documents to the customer and archiving paper
documents.
The project has made the process fully paperless.
Employees sign invoices with digital signatures
in the enterprise resource planning system. The
documents are then automatically packaged
with additional attributes, signed and sent online
via the electronic document exchange operator
to the customer. At the customer’s end, documents
are either signed digitally or sent back for correction.
Implementation effect
The project’s implementation has achieved
the quantitative effect of reducing the receivables
turnover ratio by five days for a cost savings
of roughly RUB50 million a year.
The following qualitative effects have also been
achieved:
▪
Increasing productivity thanks to making
documents paperless
▪ Eliminating the risk of document loss
▪
Improving the satisfaction of a key customer
The apps are installed on explosion-proof tablets
and use an underground Wi-Fi network to send
the user all current information about the mine’s
operation, including the location of workers
in the mine tunnels, data about the operation
and condition of the conveyor belt, as well
as the status and sensor readings from the mine gas
monitoring and firefighting water supply systems.
Apps have also been developed to control downtime
in underground conditions and monitor degassing,
including check-lists, control measurements,
patrols, behavioural safety conversations and HSE
regulations. The apps are integrated with the central
control room and include a reporting and monitoring
system.
Implementation effect
The project has made it possible to objectively
monitor mine gas levels, work status and mining
equipment. Instant recording of photos and videos
has improved data accuracy. The efficiency of shift
transfer and reporting has also increased.
23
www.evraz.com
Success factors and KPIs
EVRAZ BUSINESS SYSTEM
Strategic goals
Overview 2018
The EVRAZ Business System (EBS) combines
setting targets, developing staff, providing
management system support, fostering
the corporate culture, and achieving process
and infrastructure improvements. EBS
transformations are the initial projects at every
shop of the plant that create the infrastructure
for the continuous improvement process.
There are two main phases in EBS
transformations: active and maintenance. The
active phase presumes setting goals, planning
and implementing various improvement
initiatives, and the maintenance phase aims
to reach the target effects from initiatives
and further improve the process.
During 2018, 24 active phases of EBS
transformations have been completed across
three divisions, 16 of which were done
at the Siberia division (compared with 6 in 2017),
five in the Urals division and three in the Coal
division, where EBS transformations were
initiated during the reporting period.
EVRAZ employees generated around 17,732
ideas in 2018, 34% of which were implemented.
Overall, EBS transformation has already involved
15,234 employees.
One bottom-up initiative generated by an
employee in 2018 was to reduce water losses
by installing an excess water conduit between
the radial thickeners at the Raspadskaya coal
washing plant, which has an estimated EBITDA
effect of more than US$1 million.
The total potential effect of the EBS initiatives
in 2019-22 is forecasted at more than
US$268 million
Outlook 2019
In 2019, EVRAZ will further expand EBS
transformations by completing 38 active phases
(20 in the Siberia division, 14 in the Urals
division and four in the Coal division) involving
an expected total of 28,156 employees.
EBS TRANSFORMATIONS KPIS
Number of areas
Number of employees involved
Number of initiatives
69
28,156
17,732
31
15,234
7
3,478
1
2016
2017
2018
2019 plan
560
2016
2017
2018
2019 plan
2,935
124
2016
2017
2018
2018 FINANCIAL RESULTS
The cost-cutting and productivity
improvement initiatives generated an EBITDA
effect of US$273 million. Combined
with customer focus efforts totalling US$67
million EBITDA, EVRAZ total EBITDA effect
reached
US$ 340 million
in 2018
In 2018, overall EBITDA reached
US$3,777 million, up 44% year-on-year,
driving the EBITDA margin up to 29.4%
from 24.2% in 2017.
EBITDA, US$ million
EBITDA
2018
2017
2016
Free cash flow, US$ million
FCF
2018
2017
2016
KPI
3,777
2,624
1,542
KPI
1,940
1,322
659
25
24
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GLOBAL PICTURE
In 2018, the steel and bulk commodities markets were buoyed
by moderately stable supply and steadily growing demand for
steel end products and metallurgical coal. A significant deficit
on the vanadium market was a key price driver for the product.
Steel prices, US$ per tonne
600
400
200
0
2012
2017
2018
Slab, FE&SEA, CIF
In 2018, global finished steel consumption
exceeded expectations, growing 2.5% year-
on-year to 1.6 billion tonnes (excluding China,
the growth figure was 1.8% year-on-year).
Demand for steel climbed by 6% in India,
where 99 million tonnes were consumed.
Growth exceeded 4% in developing Asia-
Pacific region, and was a steady 1% in the rest
of the world. Steel use in China’s economy
reached 784 million tonnes in 2018, compared
with 760 million tonnes in 2017, up 3% year-on-
year. Overall, downstream demand held strong
throughout the year, particularly in the long
segment, where more construction projects were
launched towards the end of the year. China’s
gross output value of construction was 268%
higher in Q3 2018 than in Q1 2018 and was up
10% year-on-year in 9M 2018.
On the supply side, the global market benefited
from several trends. In 2018, the Chinese
government reduced the country’s steelmaking
capacity by another 30 million tonnes,
accomplishing its goal of shutting down
150 million tonnes of steelmaking capacity
over 2016-20. China’s environmental regulation
suspending production during the heating
season also played a role in reducing steel
output. China began restricting production
a month earlier in 2018 (in October compared
with November in 2017), expanded the measure
to cover more provinces and switched
from setting output targets to pollution
limits. The country’s steel mills were also
more prepared in 2018 than the year before
26
and hence better anticipated the boundaries.
In 2018, China’s crude steel production totalled
930 million tonnes, up 10% compared with 2017
figure. Overall, China’s net steel export
volumes fell by 12% year-on-year to 55 million
tonnes during the reporting period, compared
with 62 million tonnes in 2017.
Steel prices, based on the CFR slab FE&SEA
benchmark, climbed by 19% year-on-year
to an average of US$532 per tonne in 2018.
In March, prices surged to US$565 per tonne
before gradually returning over the summer
and autumn to US$520 per tonne –
the level seen at the beginning of the year –
and then continued to subside throughout
the rest of the year, reaching US$450 per tonne
in December.
Iron ore prices, US$ per tonne
180
90
0
2012
2017
2018
Iron Ore fines dry, China, CFR
MBIOI – Pellets 65%
In 2018, total consumption
of iron ore products rose by 3% year-on-year
to 2.13 billion tonnes. Consumption in India
and Iran grew by 13% and 15% year-on-year,
respectively, to 148 million tonnes and 38
million tonnes. India nearly tripled its imports
to 15 million tonnes and reduced exports
by 37% to 18 million tonnes. At the same time,
China’s consumption of iron ore increased
slightly to 1.26 billion tonnes (compared
with 1.23 billion tonnes in 2017) and its
imports edged down to 1.06 billion tonnes
in 2018 from 1.07 billion tonnes in 2017.
Moreover, increased scrap usage (134 million
tonnes in 2018 compared with 106 million
tonnes in 2017) helped China’s economy
to sustain the 2017 level of crude steel
production.
Steel producers have switched towards
higher-grade iron ore by virtue of attractive
margins of over 20%, a desire to have a more
sustainable approach and quality concerns
in the steel industry. Moreover, as the “coking
coal to iron ore” price ratio is increasing, so
does the steelmakers’ preference towards
higher ore grades and pellets in order
to increase blast furnace productivity
and reduce the consumption of coke.
Global iron ore production totalled 2.2 billion
tonnes, with declines seen in Africa (down
12% or 12 million tonnes) and the CIS (down
4% or 8 million tonnes) and growth in Brazil
(up 4% or 17 million tonnes) and Australia
(up 3% or 28 million tonnes). International
seaborne supply was reasonably stable,
delivering 1.6 billion tonnes in 2018,
with Australia (up 2% year-on-year) and Brazil
(up 6% year-on-year) being responsible
for more than 80% of total seaborne exports.
However, the supply constraints on the pellet
market remained in place, as LKAB’s
Svappavaara plant in Sweden was closed
in Q4 2018, while in Brazil, the Samarco mine
is still shut down and a pipeline leak forced
the Minas Rio mine out of the pellet feed
market.
In 2018, the price for Fe 62% fines CFR China
saw relatively low volatility, fluctuating within
the range of US$64-77 per tonne. The average
price was US$69 per tonne, down 1% year-
on-year. In contrast to base index dynamics,
the prices surged for premium products,
with the 65% grade premium climbing by 25%
from US$16 per tonne to US$20 per tonne
and the pellet premium surging by 58%
from US$37 per tonne to US$59 per tonne.
Coking coal prices, US$ per tonne
The renewed strength in coking coal prices
at the end of the year was influenced by high
steelmaking margins, combined with stronger
demand for premium coking coal grades,
widening the spread between the hard
and semi-soft coking coal grades. Meanwhile,
the average price for semi-soft coking coal
(SSCC) increased by 14% to US$124 per
tonne.
250
200
150
100
50
0
2012
2017
2018
HCC, FOB Australia, spot price
SSCC, FOB Australia, spot price
In 2018, the global coal market was reasonably
stable: total metallurgical coal consumption
edged up 1% to 1.15 billion tonnes, with growth
of 8% seen in both India and South-East Asia,
while elsewhere it was relatively flat. Another
highlight includes lower imports to China
(down 7% year-on-year to 65 million tonnes),
which was offset by higher demand in India
(57 million tonnes imported in 2018 compared
with 52 million tonnes in 2017). The latter
was caused by robust growth in India’s crude
steel production and insufficient domestic coal
supplies.
Few surprises were brought by suppliers,
as Australian exports rose by 3% to 177 million
tonnes, mainly due to increased shipments
of hard coking coal (HCC), while exports
from the US climbed by 8% to 55 million
tonnes. Overall, global coking coal supply
totalled 1.15 billion tonnes in 2018, up
1% year-on-year. In November 2018, China
implemented more stringent safety standards
after a major mine incident in Shandong
Province, leading to closures of mines
throughout the country for inspection.
The average price for Australian hard coking
coal, spot FOB, was US$208 per tonne, up
10% year-on-year. The peak price during 2018
was recorded in January, at US$240 per
tonne. Since then, prices gradually declined,
albeit within a narrow corridor, until
rebounding to US$228 per tonne in December.
Vanadium prices, US$ per kgV
150
100
50
0
2012
2017
2018
LMB FeV mid
In 2018, global vanadium demand climbed
by 8% year-on-year to 100 thousand tonnes.
Such rapid growth led to increasing scarcity
on global vanadium markets. China’s
decision to implement a new rebar standard
with higher vanadium requirements (0.03%)
was a significant demand driver. At the same
time, the ban that was enacted in 2018
on imports of vanadium scrap, slag and waste
to China limited the supply in the country.
Limited global spare operating capacity among
vanadium producers also drove prices higher.
Ferrovanadium (FeV) prices surged throughout
the year, peaking in November at US$124 per
kilogramme of contained vanadium (kgV),
with average price growth of 150% year-on-year
in 2018.
TRENDS
IN EVRAZ
CORE MARKETS
Steel
Apparent demand for finished steel on
the Russian market did not grow as
expected in 2018 with 41 million tonnes
consumed, largely in line with the figures
seen last year. Construction market
growth was moderate, as some work was
suspended over the summer in the cities
that hosted the World Cup. In terms of the
macroeconomic environment, Russia’s
annual GDP growth projected at 2.3%
in 2018. Oil prices climbed by 29% year-
on-year, averaging US$72 per barrel of
Brent. Capital investments increased by
4% year-on-year, similar to the growth rate
from the previous year. Steel production
in Russia was relatively flat at 72 million
tonnes of crude steel. The price for
rebar in Moscow region was up 12% and
averaged US$495 per tonne.
Coal
In 2018, Russian coking coal consumption
dropped by 4% year-on-year to 37 million
tonnes. Overall, coking coal mining levels
were up 1%, with the highest year-on-year
growth from MMK (39%) and Colmar (32%),
and a major decline from Mechel (minus
7%). Internal sales grew by 6%, leaving the
free market with a 9% year-on-year drop.
Russian exports of coking coal rose by 13%
year-on-year and, while shipments abroad
are attractive, logistical capacities limit the
potential export volumes to Asia. In 2018,
the average price for FCA Zh-grade coal was
US$159 per tonne, down 3% year-on-year.
Steel, North America
In 2018, finished steel consumption in the
US rose 3% year-on-year to 99 million tonnes.
Protective measures implemented by the US
government, including Section 232 tariffs
and other import duties, continue to
have a significant impact on the US steel
market, influencing the import balance and
domestic shipments. Imports of finished
steel were at 23 million tonnes, 10% down
from the previous year. Local producers to
begin increasing their output and bringing
mothballed production capacity back online,
particularly in the flat segment. In 2018, the
output of finished steel products climbed by
5% year-on-year to 83.5 million tonnes. The
domestic FOB Midwest price for hot-rolled
coil (HRC) surged by 35% to an average of
US$915 per tonne.
27
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Debt management and
stable dividends
▪ Dividend payout according to stated dividend policy
▪ Medium-term net debt level below US$4,000 million
▪ Target average net debt/EBITDA at 2.0x throughout the cycle
Retention of low-cost
position
Efficiency and cost-cutting remain EVRAZ primary focus. The Group is on pace to generate
improvements with an annual EBITDA effect of 3% of the cost of goods sold.
Breakdown of cost-cutting programme effect in 2018
Breakdown of cost-cutting programme
effect in 2018, US$ million
Following the successful deleveraging efforts
of recent years, EVRAZ has a renewed focus
on returning value to shareholders and further
managing its debt. In 2018, robust free cash
flow of US$1,940 million allowed the Group
to significantly decrease its net debt.
During the reporting period, EVRAZ returned
a total of US$1.6 billion to its shareholders
in the form of dividends for a dividend yield of 17%,
establishing a new record for the Company.
In 2018, EVRAZ announced an updated dividend
policy envisaging returning at least US$300
million to shareholders each year, provided that
the Group’s net debt/EBITDA ratio remains below
Prudent
CAPEX
The Group’s new investment projects are aimed
at further developing its competitive advantages,
while maintenance investments are focused
on supporting the sustainability of EVRAZ
operations. New investment opportunities
will be focused on the development
and diversification of the steel product portfolio
in Russia and North America.
900
527
603
428
428
Annual CAPEX, US$ million
Average 2019-2022
2018
360
167
2017
367
236
2016
264
164
2015
257
171
Maintenance Development
In 2019-22, EVRAZ expects its annual
investment expenditures to be
in the range of US$800-990 million
28
3.0x. Going forward, the remaining free cash flow
after implementing investment programme can
be distributed as dividends. Even in the events
of a market correction and weaker profitability,
EVRAZ remains committed to its long-term
average net debt/EBITDA at 2.0x , which will allow
the Group to maintain its stated dividend policy.
Dividends and share buybacks, US$ million
Net debt (net debt/EBITDA), US$ million
Coal cash cost, US$/t
Semi-finished product cash cost, US$/t
5,349
(3.7)
4,802
(3.1)
3,966
(1.5)
<4,000
3,571
(0.9)
2015
2016
2017
2018
Mid-term
target
2018
2017
2016
2015
2018
2017
2016
2015
46.9
42
30
31
US$273
million
246
258
185
195
Productivity and
cost effectiveness
Yields and raw
material costs of Urals
and Siberia divisions
Yields and raw
material costs of NA
and Other assets
Energy efficiency
Improvements at
Coal washing
plants & mines
G&A costs and
non-G&A headcount
132
50
43
24
15
9
US$ million
Dividends
Shares buyback
Total
Yield
2018
1,556
0
1,556
17%
2017
430
0
430
9%
2016
0
0
0
0
2015
0
336
336
12%
The Coal segment’s cash cost was US$47
per tonne in 2018, mainly due to geological
conditions, rise in auxiliary materials prices,
and additional involvement of 3rd-party
contractors due to higher volumes.
Cash costs of semi-finished products totalled
US$246 per tonne in 2018, which is largely
in line with the 2017 figure, as efficiency
improvements have offset the growth of prices
for key raw materials.
In 2018, the EBITDA effect from cost-cutting
initiatives totalled US$273 million. The Group
plans to maintain the current pace of improvement
with an annual cost-cutting programme at the level
of at least 3% of the cost base.
Key projects with CAPEX > US$100m
Projects under analysis
Projects on the realisation stage
▪ Increase and diversify steel product sales on the Russian market
▪ Improve large-diameter pipe and rail sales in North America
▪ Expand production volumes of scarce coking coal grades
Development of product
portfolio and customer base
Integrated flat casting and rolling facility
at EVRAZ ZSMK.
2.6 mtpa of premium 1.2mm-25mm flat
products instead of slabs and billets.
TOTAL CAPEX: ~US$490m Term:
2019-2022
Long rail mill at EVRAZ Pueblo.
600 ktpa of 100-metre rails. Current mill shut
down.
TOTAL CAPEX: ~US$480m Term:
2019-2022
Rail and beam mill modernisation
at EVRAZ NTMK.
230 ktpa volumes of beams and 50 ktpa
of sheet pipes, new types of rails instead
of billets.
TOTAL CAPEX: ~US$215m Term:
2019-2021
Continuous casting machine 5
at EVRAZ NTMK.
460 ktpa of cast pipe blanks to domestic market
instead of billets.
TOTAL CAPEX: ~US$120m Term:
2019-2021
Blast furnace No. 6 major overhaul
at EVRAZ NTMK.
Reconstruction of 2.5 mtpa blast furnace 6.
After the project, the blast furnace 5 will shut
down.
TOTAL CAPEX: ~US$150m Term:
2019-2021
Tashtagol iron ore mine upgrade.
Increase Tashtagol mining volumes
to 3.25 mtpa.
TOTAL CAPEX: ~US$108m Term:
2018-2019
Realised projects in 2018
Construction of the blast furnace No. 7
at EVRAZ NTMK.
New 2.5 mtpa blast furnace 7 with better
productivity and energy efficiency. Launched
in Q1 2018.
TOTAL CAPEX: ~US$204m Term:
2016-2018
Coal mining volumes, mt
Steel sales in Russia, mt
Customer focus programme EBITDA effect
in 2018, US$ million
2021e
2018
2017
2023f
2018
2017
28.4
24.2
23.3
6.9
4.2
4.1
US$67
million
Tubular
Wheels
Logistics
Other
21
15
12
19
In 2018, EVRAZ increased its coal mining
volumes by around 5%, primarily driven
by the KS and OS coal grades. By 2023, major
growth will come from the launch of K-grade
longwall mining at the Raspadskaya-
Koksovaya mine and organic growth at mines
producing high-vol coal grades.
In 2018, EVRAZ saw a moderate uptick
in domestic steel sales. The Group expects its
sales of finished steel to climb from 4.2 million
tonnes in 2018 to 6.9 million tonnes
by 2023, mainly due to higher sales of beams
and the launch of a new integrated flat casting
and rolling complex at EVRAZ ZSMK.
Most of the effect came from greater sales
of pipe blanks, wheels, structural products
and beams.
In 2018, the customer focus programme
generated an EBITDA effect of US$67 million.
29
Annual report& accounts2018www.evraz.comSTRATEGIC REPORTBusiness reviewCSR reportCorporate governanceFinancial statementsAdditional information Financial review
Statement of operations
In its full-year financial results for 2018,
EVRAZ reported an increase of 18.6%
year-on-year in consolidated revenues,
which were US$12,836 million compared
with US$10,827 million in 2017.
This performance was driven mostly
by an upswing in prices for vanadium
and steel products amid more favourable
market trends.
EVRAZ consolidated EBITDA amounted
to US$3,777 million in the period, compared
with US$2,624 million in 2017, boosting
the EBITDA margin from 24.2% to 29.4%
and free cash flow to US$1,940 million.
The improvement is primarily attributable
to higher vanadium and steel product
prices, lower expenses in US dollar terms
because of the effect that rouble weakening
had on costs in 2018 versus 2017, as well
as the impact of cost-cutting initiatives
on efficiency. This was partly offset
by an increase in prices for raw and auxilliary
materials, including scrap, electrodes
and ferroalloys.
The Steel segment’s revenues (including
inter-segment) climbed by 14.7% year-on-year
to US$8,879 million, or 62.2% of the Group’s
total before elimination. The growth was
mainly attributable to higher revenues
from sales of vanadium products, which rose
by 111.4% year-on-year, 124.6% increase was
attributed to surges in average sales prices.
Ongoing vanadium production restrictions
together with China’s new high-strength
rebar standard and strong global demand
from steelmakers has severely affected
stockpiles and pushed up price indices. Sales
of steel products also increased by 5.8% due
to higher sales prices, primarily for finished
products.
The Steel, North America segment’s revenues
increased by 38.6% year-on-year. Prices
and volume went up by 22.6% and 14.4%,
respectively. The key drivers of this growth
were improved demand across product
segments, particularly for tubular products
driven by recovery in oil prices and drilling
activity and the start of new major pipelines
construction in Canada and the US.
The Coal segment’s revenues grew by 5.6%
year-on-year, supported largely by higher
sales volumes, which were up 4.8% due
to stable demand and improved productivity
at the Raspadskaya-Koksovaya mine.
30
EVRAZ
consolidated
EBITDA improved
amid higher
vanadium and
steel product
prices, lower
expenses in US
dollar terms as
well as the impact
of cost-cutting
initiatives on
efficiency.
Revenues, US$ million
Segment
Steel
Steel, North America
Coal
Other operations
Eliminations
Total
Revenues by region, US$ million
Region
Russia
Americas
Asia
Europe
CIS (excl. Russia)
Africa and rest of the world
Total
EBITDA, US$ million
Segment
Steel
Steel, North America
Coal
Other operations
Unallocated
Eliminations
Total
2018
8,879
2,583
2,337
472
(1,435)
12,836
2018
4,564
3,009
2,716
1,426
936
185
12,836
2018
2,672
14
1,218
17
(135)
(9)
3,777
2017
7,743
1,864
2,214
462
(1,456)
10,827
2017
4,255
2,201
2,162
1,128
812
269
10,827
2017
1,483
58
1,226
21
(131)
(33)
2,624
Change
1,136
719
123
10
21
2,009
Change, %
14.7
38.6
5.6
2.2
(1.4)
18.6
Change
309
808
554
298
124
(84)
2,009
Change
1,189
(44)
(8)
(4)
(4)
24
1,153
Change, %
7.3
36.7
25.6
26.4
15.3
(31.2)
18.6
Change, %
80.2
(75.9)
(0.7)
(19.0)
3.1
(72.7)
43.9
Nikolay Ivanov
Chief Financial Officer
For the definition of EBITDA, please refer to page 261.
In 2018, the Steel segment’s EBITDA rose due
to an increase in steel and vanadium prices; lower
expenses in US dollar terms due to the effect that
rouble weakening had on costs; and the impact
of cost-cutting initiatives implemented
in the period. This was partly offset by an increase
in prices for raw and auxilliary materials, including
scrap, electrodes and ferroalloys.
The increase in volume and metal spreads
of the Steel, North America segment’s was more
than offset by the effect of tariffs and duties
on Canadian large-diameter and line pipe
sales into the US, as well as due to operational
challenges at EVRAZ Regina facility that resulted
in lower EBITDA.
The Coal segment’s EBITDA declined slightly
year-on-year mainly due to higher cost per tonne
amid more complex geological conditions,
rise in auxiliary materials prices and higher
involvement of contractors. This was partly
offset by sales prices rising in line with global
benchmarks; the impact of cost-cutting initiatives;
and lower expenses in US dollar terms as a result
of the effect that rouble weakening had on costs.
Eliminations mostly reflect unrealised profits
or losses that relate to the inventories produced
by the Steel segment on the Steel, North
America segment’s balance sheet, and coal
inventories produced by the Coal segment
on the Steel segment’s balance sheet.
The following table details the effect of the Group’s cost-cutting initiatives.
Effect of Group’s cost-cutting initiatives in 2018, US$ million
Improving yields and raw material costs, including
Improving yields and raw material costs of Urals and Siberia divisions
Various improvements at coal washing 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
Total
132
74
15
43
132
9
9
273
31
Annual report& accounts2018www.evraz.comSTRATEGIC REPORTBusiness reviewCSR reportCorporate governanceFinancial statementsAdditional information Revenues, cost of sales and gross profit by segment, US$ million
Calculation of free cash flow, US$ million
In 2018, selling and distribution expenses increased
by 41.3%, mostly due to increased freight costs,
tariffs imposed on steel exports to US customers
of EVRAZ North America and higher sales volumes,
partly offset by the weakening of the rouble. General
and administrative expenses edged up by 1.1% due
to wage indexation, partly offset by the effect that
rouble depreciation had on costs.
Foreign exchange gains amounted to US$361 million
and were primarily related to intra-group loans
denominated in roubles payable among Russian
and non-russian subsidiaries. The depreciation
of the Russian rouble against the US dollar
in 2018 led to exchange gains mainly recognised
in the income statements of EVRAZ plc and East
Metals A.G., which were not offset by the exchange
losses recognised in the income statements
or the equity of the Russian subsidiaries.
Interest expenses incurred by the Group decreased,
mainly due to the gradual reduction in total debt
and the refinancing of existing indebtedness
at more favourable terms during the reporting
period. Gains on financial assets and liabilities
amounted to US$13 million and were mostly related
to gains on hedging instruments.
A net loss of US$10 million on disposal
groups classified as held for sale was caused
Steel segment
Revenues
Cost of sales
Gross profit
Steel, North America segment
Revenues
Cost of sales
Gross profit
Coal segment
Revenues
Cost of sales
Gross profit
Other operations – gross profit
Unallocated – gross profit
Eliminations – gross profit
Total
by the disposal in March 2018 of EVRAZ DMZ, which
was sold to a third party for a cash consideration
of US$35 million. The Group recognised
a US$10 million loss on the subsidiary’s sale,
including US$60 million of cumulative exchange
losses reclassified from other comprehensive
income to the consolidated statement of operations.
The result was included as a loss on disposal groups
classified as held for sale on the consolidated
statement of operations.
2018
8,879
(5,613)
3,266
2,583
(2,215)
368
2,337
(1,042)
1,295
15
(8)
(111)
4,825
2017
Change, %
7,743
(5,795)
1,948
1,864
(1,656)
208
2,214
(973)
1,241
104
(8)
(151)
3,342
14.7
(3.1)
67.7
38.6
33.8
76.9
5.6
7.1
4.4
(85.6)
–
(26.5)
44.4
For the reporting period, the Group had a current
income tax expense of US$679 million, compared
with US$484 million a year earlier. The change
reflects the Group’s better operating results
and taxes withheld on dividends distributed within
the Group.
Gross profit, expenses and results, US$ million
Gross profit
Selling and distribution costs
General and administrative expenses
Impairment of assets
Foreign-exchange gains/(losses), net
Other operating income and expenses, net
Profit from operations
Interest expense, net
Share of losses of joint ventures and associates
Gain/(loss) on financial assets or liabilities, net
Loss on disposal groups classified as held for sale, net
Other non-operating gains/(losses), net
Profit before tax
Income tax benefit/(expense)
Net profit
Cash flow, US$ million
Cash flows from operating activities before changes in working capital
Changes in working capital
Net cash flows from operating activities
Short-term deposits at banks, including interest
Purchases of property, plant and equipment and intangible assets
Proceeds from sale of disposal groups classified as held for sale, net of
transaction costs
Other investing activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Including dividends paid
Effect of foreign-exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
32
2018
4,825
(1,013)
(546)
(30)
361
(69)
3,528
(341)
9
13
(10)
2
3,201
(731)
2,470
2018
3,063
(430)
2,633
11
(521)
52
80
(378)
(2,606)
(1,556)
(48)
(399)
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)
(1,479)
(430)
(2)
309
Change
Change, %
1,483
(296)
(6)
(42)
415
(12)
1,542
82
(2)
70
350
4
2,046
(335)
1,711
Change
952
(276)
676
4
74
(360)
71
(211)
(1,127)
(1,126)
(46)
(708)
44.4
41.3
1.1
n/a
n/a
21.1
77.6
(19.4)
(18.2)
n/a
(97.2)
n/a
n/a
84.6
n/a
Change, %
45.1
n/a
34.5
57.1
(12.4)
(87.4)
n/a
n/a
76.2
n/a
n/a
n/a
EBITDA
EBITDA excluding non-cash items
Changes in working capital
Income tax accrued
Social and social infrastructure maintenance expenses
Net cash flows from operating activities
Interest and similar payments
Capital expenditures, including recorded in financing activities and non-cash
transactions
Proceeds from sale of disposal groups classified as held for sale, net of
transaction costs
Other cash flows from investing activities
Free cash flow
2018
3,777
3,773
(430)
(683)
(27)
2,633
(298)
(527)
52
80
1,940
2017
2,624
2,627
(154)
(485)
(31)
1,957
(453)
(603)
412
9
1,322
Change
Change, %
1,153
1,146
(276)
(198)
4
676
155
76
(360)
71
618
43.9
43.6
n/a
40.8
(12.9)
34.5
(34.2)
(12.6)
(87.4)
n/a
46.7
In 2018, net cash flows from operating activities climbed by 34.5% year-on-year. Free cash flow for
the period was US$1,940 million.
For the definition of free cash flow, please refer
to page 261.
CAPEX and key projects
In 2018, EVRAZ capital expenditures fell to US$527
million, compared with US$603 million a year earlier,
as EVRAZ NTMK finished implementing two main
projects, the construction of blast furnace No. 7 (first
pig iron was obtained in Q1 2018) and the grinding
ball mill (first ball was produced in Q1 2018), amid
the weakening of the rouble exchange rate against
the US dollar. EVRAZ North America also started
to implement two projects to reduce costs that
are scheduled to be completed in 2019.
Capital expenditures (including those recognised
in financing activities) for 2018 in millions of US
dollars can be summarised as follows.
Financing and liquidity
EVRAZ began 2018 with total debt of US$5,432
million. The Group used the cash flows it generated
during the period to reduce its debt and completed
several transactions to manage its maturity profile.
In February, EVRAZ repaid US$500 million in loans,
comprising US$200 million from Alfa Bank due
in 2019, US$200 million from Alfa Bank due
in 2023 and US$100 million from Sberbank due
in 2020. The Group financed these repayments
with a combination of its cash balances and a new
five-year, US$300 million term loan from Alfa
Bank. These transactions helped to improve
the repayment schedule in terms of loan tenures
and reduce interest charges.
Between April and June, to reduce its interest
charges, the Group completed an early repayment
of its outstanding loans to VTB with principal
amounts of US$495 million using cash
accumulated on the balance sheet.
These actions, together with scheduled bank loan
repayments and changes in credit line balances,
reduced total debt by US$794 million to US$4,638
million as at 31 December 2018.
Capital expenditures in 2018, US$ million
Steel segment
Blast furnace No. 7 construction at EVRAZ NTMK
The project aim is to maintain stable pig iron production volumes during the capital repair of blast
furnace No. 6 in 2018-19.
Wheel resurfacing capacity expansion at EVRAZ NTMK
The project aim is to expand wheel resurfacing capacity to balance production capacity in 2019-22
and increase production volumes.
Grinding ball mill construction at EVRAZ NTMK
The project aim is to construct a new grinding ball mill that can make the grinding balls of hardness
category five.
Steel, North America segment
EVRAZ Pueblo seamless threading
The project aim is to in-source seamless threading and coupling process from third-party providers
to improve cost competitiveness.
EVRAZ Red Deer heat treatment
The project aim is to develop heat treatment capability to access a higher margin market.
Coal segment
Access and development of reserves in the Uskovskaya mine’s seam No. 48
The project aim is to prepare the reserves in seam No. 48 for mining.
Access and development of reserves in the Esaulskaya mine’s seam No. 29a
The project aim is to relocate mining operations from seam No. 26 to seam No. 29a.
Other development projects
Maintenance
Total
48
10
5
15
13
20
5
51
360
527
In 2018, EVRAZ made four dividend payments to its
shareholders totalling US$1,556 million.
During the reporting period, net debt decreased
by US$395 million to US$3,571 million, compared
with US$3,966 million as at 31 December 2017.
Interest expense accrued in respect of loans, bonds
and notes amounted to US$322 million in 2018,
compared with US$394 million in 2017. The lower
interest expense was mainly due to a reduction
of total debt by early repayments.
The strong market trends seen in 2018 drove
significant growth of EBITDA and free cash flow
generation. This helped to substantially improve
the Group’s major leverage metric, the ratio
of net debt to EBITDA, which fell to 0.9 times
as at 31 December 2018, compared with 1.5 times
as at 31 December 2017.
As at 31 December 2018, debt with financial
maintenance covenants comprised various
bilateral facilities with a total outstanding principal
of around US$1,061 million. Maintenance
covenants under these facilities include two key
ratios calculated using EVRAZ plc’s consolidated
financials: a maximum net leverage and a minimum
EBITDA interest cover. As at 31 December 2018,
EVRAZ was in full compliance with its financial
covenants.
As at 31 December 2018, cash amounted
to US$1,067 million, while short-term loans
and the current portion of long-term loans stood
at US$377 million. Cash-on-hand and committed
credit facilities are sufficient to cover all of EVRAZ
refinancing requirements for 2019 and 2020.
33
Annual report& accounts2018www.evraz.comSTRATEGIC REPORTBusiness reviewCSR reportCorporate governanceFinancial statementsAdditional information Principal risks
and uncertainties
RISK MANAGEMENT SYSTEM
TOP-DOWN APPROACH
Oversight, identification, assessment and management of risks at the corporate level
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 the 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
The risk management process
aims to identify, evaluate and
manage potential and actual
threats to the Group’s ability
to achieve its objectives.
EFFECTIVE
RISK
MANAGEMENT
For more information,
see risk management and
internal control section of
the corporate governance
report on pages 109–111.
Site levels
Identification, assessment and mitigation of risks
Promoting risk awareness and safety culture
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
Identification, assessment and management of risks at regional and site levels and across functions
BOTTOM-UP APPROACH
34
RISK MIGRATION IN 2018 AND ROBUST ASSESSMENT
In 2018, 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 and 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. The management also considered
the speed of impact and volatility of each risk
in their assessment. As a result, the principal risks
have been updated.
International groups operate in the context of tariff
and sanctions regimes and significant changes
could have a material impact on the Group’s
operations. Plans and mitigating measures are put
in place to the extent possible and reasonable
but these matters are largely outside the Group’s
control. The risk of compliance with trade, anti-
monopoly and anti-dumping regulations, as well
as sanctions regimes were reassessed during
2018 to reflect increased government activity
and other external factors on the sector. As
a result this has been classified as a principal
risk. While the Group’s internal compliance
controls address these risks and associated
areas, general uncertainty in the area heightens
the management’s focus on this risk.
While the risk of availability of finance
remains one of the Group’s key focus areas,
after the reassessment in 2018 this is no
longer considered a principal risk as a result
of the Group’s actions to extend its debt maturity
profile.
The assessment included other risks that were
not recognised as principal, eg HR and employee
risks (including the risks of lack of skills, failure
of succession planning, reduced productivity due
to labour unrest or poor job satisfaction), taxation,
compliance risks (including anti-corruption
and anti-bribery matters), social and community
risks, risks of climate change, 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 reputation. EVRAZ activity in many
of these areas is described in greater detail
in the CSR Report section on pages 72–97.
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.
The Group closely monitors the impact of the UK
referendum vote to leave the EU and continues
to believe that it will not significantly affect its
business.
Key developments in 2018
and outlook for 2019
In 2018, the Group analysed the adequacy
of its risk management practices and identified
gaps in key business processes. While
the maturity of EVRAZ risk management
process was generally assessed as fair, there
were areas identified that require additional
management focus and implementation
or improvement of risk management
instruments or practices. An action plan for each
gap was developed and will be introduced.
EVRAZ activity in this area is described in more
detail in the Corporate Governance section
of this report.
Principal risks and uncertainties heat map in 2018
1. Global economic factors,
industry conditions
and cyclicality
6. HSE: environmental
7. HSE: health, safety
2. Product competition
8. Potential government
3. Cost effectiveness
4. Compliance
action
9. Business interruption
with trade regulations
and sanctions regimes
10. Cybersecurity and IT
infrastructure failure
5. Functional currency
devaluation
Risk appetite level
Volatility
Speed of impact
Hight
Hight
Medium
Low
Medium
Low
Risk migration, yoy
5
4
3
2
1
Severity
8
4
9
6
5
2
1
2
3
4
P
r
o
b
a
b
i
l
i
t
y
1
7
35
10
3
5
Annual report& accounts2018www.evraz.comSTRATEGIC REPORTBusiness reviewCSR reportCorporate governanceFinancial statementsAdditional information RISK MIGRATION IN 2018 AND ROBUST ASSESSMENT
Success Factors
Strategic priorities
Health,
safety and
environment
Human
capital
Customer
focus
Asset
development
EVRAZ
business system
Debt management and stable dividends
Prudent CAPEX
Retention of low-cost position
Development of product portfolio
and customer base
Direction of risk change
No changes
Increased
Description and impact
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.
Excessive supply on the global market and
greater competition, mostly in the steel products
market, primarily 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.
Digitalisation is having a significant impact on the
sector, as companies seek to use new technology
to support efforts to improve productivity and
margins across the value chain. Failure to find
digital solutions for the most urgent business
problems could reduce operational flexibility and
cost advantage.
Risks of non-compliance with various trade
regulations, including anti-dumping and anti-
monopoly measures.
Risk of a failure of the Group’s controls, leading
to trading with and shipping to embargoed
destinations.
Risks of the Group’s failure to adapt to new market
conditions and to take losses connected with
existing contracts in case of additional sanctions
implementation.
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.
Risk
1.
Global economic
factors, industry
conditions and
cyclicality
2.
Product competition
3.
Cost effectiveness
4.
Compliance with
trade regulations and
sanctions regimes
5.
Functional currency
devaluation
36
Direction/
reason for change
Mitigating/
risk management actions in 2018
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.
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.
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.
EVRAZ Business System transformation projects
focused on increasing efficiency and effectiveness.
Ongoing control over regulatory compliance, monitoring
of regulatory changes and development of necessary
controls.
Ongoing engagement with governments, coordination
and cooperation with regulatory authorities.
While the Group’s internal compliance controls address
the associated risks, the general uncertainty in the
area increases the management’s focus on this risk.
Increased
due to rising
external pressure on
the sector. Risks of
the Group’s failure
to adapt to new
market conditions or
restrictions.
EVRAZ works to reduce the amount of intergroup loans
denominated in Russian roubles to limit the possible
devaluation effect on its consolidated net income.
Risk
6.
HSE: environmental
7.
HSE: health, safety
8.
Potential government
action
9.
Business interruption
Description and impact
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 reputational
impact and, in the extreme, the withdrawal of
plant environmental licences, which would curtail
operations indefinitely.
Potential danger of fire, explosions and
electrocution, as well as risks specific to individual
mines: methane levels, rock falls and other
accidents could lead to 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.
Risks could be realised through the introduction
of additional sanctions or tariffs on some of the
Group’s products.
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.
10.
Cybersecurity and IT
infrastructure failure
Information technology and information security risks
have the potential to cause prolonged production
delays or shutdowns.
Increased digital transformation and the convergence
of IT and operational technology, which makes
companies more vulnerable.
The level of cybercrime globally is rising simultaneously
with increasing reliance on IT.
Mitigating/
risk management actions in 2018
Direction/
reason for change
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.
Management KPIs 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.
Further 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:
▪
▪ antivirus software systems update;
▪ upgrade and expansion of backup systems;
▪
▪ and other measures.
implementation of incident monitoring systems;
isolation and protection of industrial networks;
Increased
due to rising
government activity
and external
pressure on the
sector in some
countries of
operation.
37
Annual report& accounts2018www.evraz.comSTRATEGIC REPORTBusiness reviewCSR reportCorporate governanceFinancial statementsAdditional information
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 2023 and considers it possible
to form a reasonable expectation of the Group’s
viability over this five-year period.
The assessment included consideration
of the stress-testing detailed below,
with particular attention paid to the forecast
cash position and compliance with financial
maintenance covenants in each scenario,
as well as the mitigation plan developed
by the management.
The assessment was underpinned
by scenarios that encompass a wide spectrum
of potential outcomes. These scenarios
are designed to explore the Group’s resilience
to the significant risks set out on pages 36–37
and combinations of correlated risks. Some risks
are outside the Group’s control and the potential
implications are difficult to predict in the current
environment and considered remote. The key
scenarios tested can be summarised as:
▪ Base scenario:
– The key assumptions as disclosed
in Note 6 to the financial statements
under Impairment of assets on pages 179–
181
– 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 vary from -0.3% to 17.9% compared
with the 2018 level over the five-year period
to December 2023
▪ 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
▪ Appreciation of local operating currencies
▪ Cybersecurity failure resulting in production
delays or shutdowns
▪ Introduction of new tariffs and duties
▪ 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 the Group’s 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 2023.
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
▪ Selling prices remain in line with prevailing
market assumptions.
NON-FINANCIAL REPORTING
EVRAZ aims to comply with the non-financial
reporting requirements contained in sections
414CA and 414CB of the Companies Act 2006.
The table below outlines to stakeholders
the Group’s position, principal policies, main
risks and KPIs on key non-financial areas.
Requirement
Environment
Further
information:
Environment,
see pages
77–82
Energy efficiency,
see page 83
Employees
Further
information:
Our people,
see pages
84–89
Health and safety,
see pages
72–76
Social policy
Further
information:
Community
relations.
see pages
90–95
Respect for
human rights
Further
information:
Our approach,
see pages
72–73
Anti-corruption
and anti-
bribery
Further
information:
Anti-corruption
and anti-bribery,
see pages
96–97
A short summary
of relevant
anti-corruption
policies,
see page 264
The Group’s approach and policies
Steel and mining production carry a high risk of
environmental impact and incidents related to its
production processes. That is why EVRAZ pays the
closest attention to environmental matters in order
to prevent or minimise any adverse impacts.
Documents
EVRAZ HSE Policy
Code of Business Conduct
Related
principal risks
HSE:
environmental
see page 37
Related KPIs
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
EVRAZ strictly complies with national labour laws
and best practices of business ethics concerning
employee management. Discrimination related
to a person’s race, ethnic origin, gender, religion,
political views, nationality, age, sexual orientation,
etc is totally unacceptable throughout the Group, as
well as at its subcontractors and suppliers.
Due to industry-specific issues, EVRAZ employees
and contractors face safety and health risks.
Providing a safe work environment is one of the
Group’s main core values.
EVRAZ strives to make a meaningful contribution
to local economies and to support communities
wherever it operates. The Group supports
infrastructural, sport, educational and cultural
programmes with an aim to improve the quality of
life in local communities.
EVRAZ commitments are based on internationally
recognised standards and respect for all human
rights. Child labour, bonded labour, human trafficking
and other forms of slavery are strictly prohibited at
all Group subsidiaries and their suppliers. EVRAZ
rules also prohibit abusive, harassing, discriminatory,
degrading or aggressive speech or conduct.
In accordance with the Group’s policies and
procedures, compliance managers scrutinise
tender procedures, check potential and existing
business partners, vet prospective new candidates,
and ensure that the principles set forth in the
EVRAZ Anti-corruption Policy and Code of Business
Conduct are adhered to throughout its operations.
EVRAZ HSE Policy
LTIFR (per 1 million hours)
Code of Business Conduct
Labour productivity, steel (tonnes per
person)
HSE: health and
safety
see page 37
Social Investments Guidelines
Fulfilment of the Group’s social
obligations towards its employees,
which were fixed in the collective
agreements.
Global economic
factors, industry
conditions and
cyclicality
Business
interruption
see pages
36–37
None of EVRAZ
current principal
risks relates to
the aspects of
human rights
None of EVRAZ
current principal
risks relate to
the aspects of
anti-corruption.
Interaction with local communities in
the regions of the Group’s presence
during the implementation of various
CSR related projects.
Zero tolerance to violation.
Code of Business Conduct
Modern Slavery Transparency
Statement
Code of Business Conduct
Zero tolerance to violation.
EVRAZ Anti-Corruption Policy:
▪ Anti-corruption training policy
▪ Sponsorship and charity policy
▪ Gifts and business
entertainment policy
▪ Candidate background
and criminal record checks
▪ Conflict of interest policy
▪ Contractor/supplier due
diligence checks
EVRAZ Rules on Securities
Dealings
For EVRAZ business model, relationships
and products, see pages 14–15, 42–69.
For the Group’s related risks and how they
are managed, see the Principal risks section
on pages 24–27.
EVRAZ Strategic Report, as set out
on pages 6–39 inclusive, has been reviewed
and was approved by the Board of Directors
on 27 February 2019.
Alexander
Frolov
Chief Executive Officer
EVRAZ plc
By the order of the Board
27 February 2019
38
39
Annual report& accounts2018www.evraz.comSTRATEGIC REPORTBusiness reviewCSR reportCorporate governanceFinancial statementsAdditional information
Business
review
Pensacola Bay Bridge
(USA)
Egyptian National Railways
(Egypt)
Regio double-decker sleeper trains
(Germany)
Entrance to the metro station
(Baku, Azerbaijan)
Plesetsk Cosmodrome
(Arkhangelsk region, Russia)
Stadium
(Nizhny Novgorod, Russia)
4
1
7
9
6
8
5
10
3
2
EVRAZ
STEEL
ACROSS
THE GLOBE
Beams
Structural shapes
Railway wheels
Rails
LDP
Plate
Rebar
Grinding balls
Wire Rod
37
32
38
18
35
17
36
31
34
27
28
30
14
15
16
22
43
42
33
26
41
23
20
29
25
40
19
21
24
39
13
11
12
EUROPE
RUSSIA
14. Regio double-decker sleeper trains
23. Aircraft plant (Kazan)
33. Metro (Moscow)
(Germany)
24. Zvezda Shipbuilding Complex
34. Boris Eifman Dance Hall
15. Freight cars with 25 t axle load
(Bolshoy Kamen)
(St Petersburg)
(Austria, Germany)
25. Amur Gas Processing Plant
35. Yantar Baltic Shipyard (Kaliningrad)
NORTH AMERICA
1. GE locomotives (US)
Access road reconstruction (Cuba)
Oil and gas pipelines (US)
TransCanada oil pipeline (Canada)
2.
3.
4.
5.
6.
7.
9.
Chase Centre (US)
10. Pensacola Bay Bridge (US)
AFRICA
11. GE locomotives
Offshore Fisheries Science Vessel (Canada)
16. Freight cars with 23.5 t axle load
(Amur region)
36. Zvezdochka Ship Repair Centre
Los Angeles stadiums (US)
Tesla Gigafactory (US)
(Czech Republic)
26. Metro (Nizhny Novgorod)
(Severodvinsk)
17. Railway track reconstruction (Latvia)
27. Mercedes auto plant
37. Shoreline reinforcement in Nadim
8. Marine liquids fuel terminal tank farm (Mexico)
18. Railway track reconstruction
(Moscow region)
(Yamalo-Nenets region)
(Lithuania)
28. Facilities at Tatneft’s Taneko oil refinery
38. Kamchatka Shipping Company
(Nizhnekamsk)
(Kamchatka)
29. Grozny Mall shopping centre
39. Vladivostok Sea Fishing Port
CIS
(Grozny)
(Vladivostok)
19. GE locomotives, LKZ (Kazakhstan)
20. Baku metro (Azerbaijan)
21. UK Turkmengaz plant access roads
30. EXPO Centre (Ekaterinburg)
40. Stadium (Nizhny Novgorod)
31. Pregolskaya TPP (Kaliningrad region)
41. Volgograd Arena (Volgograd)
Plesetsk Cosmodrome
42. Mikhailovsky GOK and Lebedinsky GOK,
(Arkhangelsk region)
Metalloinvest (Kursk, Belgorod)
12. Construction of Mecheria-El Bayadh
(Turkmenistan)
railway line (Algeria)
22. Tram line reconstruction in Kharkiv, Dnipro,
13. Egyptian National Railways (Egypt)
Lviv, and Kyiv (Ukraine)
32. High-speed passenger electric
locomotive (Novocherkassk)
42
43
www.evraz.com
Steel segment
INTRODUCTION AND HIGHLIGHTS
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.
Our Vision:
▪ Be a world leader in rail production
▪ Be a leader on the Russian construction steel market
▪ Be an efficient producer of steel products
for infrastructure projects
Iron ore
Iron ore products
Flat products
Slabs, billets
Construction products
Railway products
Vanadium products
USA
9
Production highlights
Sales highlights1
Crude steel
11,121 kt
Iron ore products
13,515 kt
Steel products
10,853 kt
Vanadium slag
17,052 mtV
Semi-finished products
Finished products
4,703 kt
Iron ore products
1,980 kt
5,377 kt
Vanadium final products
12,352 mtV
Financial highlights
Revenues
US$
8,879
million
EBITDA
US$
2,672
million
EBITDA margin
30.1%
CAPEX
US$
302
million
14.7% year-on-year
80.2% year-on-year
19.2% in 2017
15.6% year-on-year
1
Sales to 3rd parties only.
44
KEY PRODUCTION ASSETS
1. EVRAZ ZSMK
2. Evrazruda
3. EVRAZ KGOK
4. EVRAZ NTMK
5. EVRAZ Vanady-Tula
6. Evraz Caspian Steel
7. EVRAZ Nikom
8. EVRAZ Palini e Bertoli
9. EVRAZ Stratcor
CZECH REPUBLIC
7
ITALY
8
Urals Division
RUSSIA
3
4
Siberia Division
5
1
2
6
KAZAKHSTAN
45
Steel segmentCoal segmentSteel, NA segmentAnnual report& accounts2018www.evraz.comStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional information
STRATEGIC PRIORITIES
PRUDENT CAPEX
RETENTION OF LOW-COST POSITION
KEY INVESTMENT PROJECTS
KEY MAINTENANCE PROJECTS
MAIN COST-REDUCTION PROGRAMMES
Steelmaking
Mining
Blast furnace No. 7 construction
at EVRAZ NTMK
The Tashtagolskaya mine development
at Evrazruda
Blast furnace No. 6 construction major
overhaul at EVRAZ NTMK
Blast furnace coke production development
programme at EVRAZ NTMK
Electric-arc furnace shop optimisation
at EVRAZ ZSMK
Changing wagon loading scheme
at the Siberia division
Status
Reduced the material consumption rate by 4%.
Implemented an initiative to balance the coke
strength after reaction.
Metal charge reduction programme
at EVRAZ ZSMK
Status
Optimised ferroalloy consumption in oxygen
converter shop no 2, increased pig iron
temperature in oxygen converter shop No. 1.
Status
Equipped electric-arc furnace No. 2 with a new
advanced intensification system.
Iron ore product development programme
at EVRAZ KGOK
Status
Increased iron content in sintered ore.
Improved efficiency of kilns.
Brought into operation a mobile tyre changer
for BELAZ machinery.
Status
Applied a new loading scheme, reduced
the number of wagons by increasing the load
capacity.
Launch coke screening of 10-30 fractions
at EVRAZ ZSMK
Status
Increased volume of 10–30 coke nut fractions
for sale instead of using it as a fuel.
The project aim is to maintain stable pig iron
production volumes during the capital repair
of blast furnace No. 6 in 2018–19.
Status
Successfully launched.
CAPEX in 2018
US$48 million
Grinding ball mill construction
at EVRAZ NTMK
The project aim is to increase the Tashtagolskaya
mine production capacity to 3.25 Mtpa
with partial switching to sublevel caving
and using of mobile equipment.
Status
Performed surveying, developed mining
equipment upgrading projects, completed first
stage of mine development for sublevel caving
mining.
The project aim is to reconstruct the 2.5 mtpa
blast furnace 6.
Status
Selected the general designer and the main
equipment suppliers.
CAPEX in 2018
US$7 million
CAPEX in 2018
US$3 million
Tailings facility extension at EVRAZ KGOK
The project aim is to construct a new grinding
ball mill that can make the grinding balls
of hardness category five.
The Sobstvenno-Kachkanarsky deposit
greenfield project at EVRAZ KGOK
The project aim is to build a thickener and a new
damp to maintain processing capacities
at the level of 59 Mt of ore a year.
Status
Installed the hydro-compression system
at the booster. Currently upgrading equipment
at Electric Substation No. 17 and constructing
Electric Substation No. 18.
CAPEX in 2018
US$5 million
The project aim is to support EVRAZ KGOK’s
mining capacity at the level of 59 Mtpa through
access and development of a titanium magnetite
ore deposit.
Status
Developing detailed design for infrastructure
facilities.
Status
Successfully launched.
CAPEX in 2018
US$5 million
Wheel resurfacing capacity expansion
at EVRAZ NTMK
The project aim is to expand wheel resurfacing
capacity to balance production capacity
in 2019–22 and increase production volumes.
Status
Successfully launched.
CAPEX in 2018
US$10 million
CAPEX in 2018
US$0.3 million
Switching the Severny open pit to truck
and rail mining at EVRAZ KGOK
The project aim is to increase ore extraction
capacity to 30 Mtpa through using truck and rail
mining in the Severny open pit with a possibility
for further capacity growth. Part of sub-stage 2.3
in 2018.
Status
Completed the final stage of the project,
acquired two 130-tonne dump trucks.
CAPEX in 2018
US$4 million
46
47
Steel segmentCoal segmentSteel, NA segmentAnnual report& accounts2018www.evraz.comStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional information STRATEGIC PRIORITIES
DEVELOPMENT OF PRODUCT PORTFOLIO AND CUSTOMER BASE
EXPANSION OF RAILWAY PRODUCT PORTFOLIO
IMPROVING BEAM CONSUMPTION
DEVELOPMENT OF THE CONSTRUCTION PRODUCT PORTFOLIO
MARKETING
Key developments in 2018
Developed new structural steel products
and began pilot deliveries, including weather-
resistant steels, bridge steels and high-tensile-
strength steels.
Reaching the target sales of the sheet piles
helped to increase Russian market share
to 82%.
Learned to make one L-angle profile for bridge
building.
Confirmed the capability to produce rebar
at EVRAZ ZSMK meeting the new Russian
government standard 34028-2016 that came
into force in January 2019.
Key developments in 2018
Conducted a global review of the Customer
Focus project, analysing the current status
and devising an improvement plan for 2019.
Outlook for 2019
Develop six new I-beam profiles which meet
the European standards for delivery to clients
in the CIS and Russia working on foreign
projects.
Develop three angled profiles.
Develop two channel profiles.
Created a channel for regular meetings of top
management with customers.
Outlook for 2019
Market new hardness-category-five grinding ball
product.
Implement the Customer Focus project plan.
EXPANSION OF THE CUSTOMER BASE FOR VALUE-ADDED SEMIS
Key developments in 2018
Signed long-term contracts for supplies of round
billets to TMK and Chelyabinsk Pipe Plant.
Outlook for 2019
Learn to make and market square billets
130 mm.
Market square billets 150 mm for use
as electrolyzers in aluminium production.
Railway wheels
Rails
Key developments in 2018
Increased wheel machining capacity, boosting
deliveries by 66,000 wheels a year.
Key developments in 2018
Developed a new RE 90 rail profile for Brazil.
Developed five new wheel profiles and one type
of rim, including:
▪ Freight car wheels for Turkey and Greece
▪ One type of wheel for General Electric (US)
locomotives
▪ Freight car wheels for Deutsche Bahn
Outlook for 2019
Implement investment project to increase wheel
machining and inspection capacity by 78,000
wheels a year (launch in 2020).
Developed a conductor rail for metro
construction in Russia.
Developed special rails DT400IK for high-load
small curves.
Redirected export volumes toward the domestic
and CIS markets.
Outlook for 2019
Develop proprietary RE 136 DT 350 NN low-
temperature rails for an arctic project in Canada.
Develop and certify two types of freight car
wheels for Austrian Railways (ÖBB) and one
proprietary freight car wheel type for Europe.
Develop 60KR and 50N rails for South Korean
market (carried over from 2018 due to increased
mill load by the products for Russian Railways).
Certify three types of wheels for Polish Railways.
Receive the certificate and begin supervised
operation of DT400IK rails.
Field test DT370 rails, the new base product
for Russian Railways.
Railcars
Key developments in 2018
Increased sales of profiles for wagon building
by 16%.
Key developments in 2018
The project sales department boosted sales
to 57 thousand tonnes by marketing beams
for major infrastructure projects and the decision
was taken to develop regional sales using
the Group’s retail network.
Developed 12 new I-beam profiles.
Designed pilot projects in new segments:
parking garages, schools, bridges, prefabricated
buildings and beam-piles systems
Launched a single pricing strategy for the entire
range of I-beams to compete with substitution
materials. A new government standard
for beams has come into force, significantly
expanding range of profiles.
Outlook for 2019
Develop regional project sales to increase sales
volumes to a planned level of 85 thousand
tonnes a year.
Design and construct pilot projects in new
segments: parking garages, schools, logistics
centres and sports facilities.
Implement projects to improve availability
of beams for clients (planned completion in Q1
2020):
▪ Mill stock of beams at EVRAZ NTMK
▪ Metals service centres in Nizhny Tagil
and Moscow
Due to a change in New Products Development
programme priorities, the development of new
railcar profiles was moved to 2019.
Launch a integral IT system to provide
information about beam stocks at the mill
and trader warehouses.
Outlook for 2019
Develop new railcar building sections:
3 channel type
1 special profile for the railcar top cord
48
49
Steel segmentCoal segmentSteel, NA segmentAnnual report& accounts2018www.evraz.comStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional information MARKET REVIEW
Russian steel market
In 2018, Russia’s economy continued
to experience a moderate recovery, recording
2.3% GDP growth. Demand for finished steel
products remained practically unchanged
at 41 million tonnes. Demand climbed by 3%
for long steel, remained stable for flat steel
and fell by 2% for tubular products. In the railway
segment, demand for wheels surged by 29%
due to continued growth in railcar construction
and a higher number of railcar overhauls.
Meanwhile, demand for rails in Russia dropped
by 8%. In construction steel, the beam market
edged down by 4% while demand for rebar
rose by 8%. Demand for structural products
fell by 19% due to greater consumption
of substitutes amid higher prices.
Russian export volumes grew by 3% to 30.4
million tonnes, driven by the weaker rouble
and stronger prices on export markets. Total
crude steel production in Russia rose by 1%
to 72.1 million tonnes.
In 2018, Russian steel prices followed
global benchmarks. The CPT Moscow rebar
price averaged US$493 per tonne, up 11%
from US$445 per tonne in 2017. The price
for channels climbed by 12% to US$698 per
tonne. Hot-rolled coil averaged US$576 per
tonne CPT Moscow, up 2% from US$563 per
tonne in 2017. Plates averaged US$584 per
tonne, up 5% from US$555 per tonne in 2017.
Other steel markets
In Kazakhstan, steel consumption stabilised
at 2.7 million tonnes in 2018, down by 4%
following strong consumption growth in 2017.
Steel product exports dropped by 15% to 3.1
million tonnes, as Kazakh producers reduced
production and refocused on the domestic
market.
Russian steel consumption by product type, mt
41.2
40.9
38.7
40.3
43.7
800
675
550
425
300
16.9
16.4
15.4
16.0
10.2
10.4
10.2
11.3
18.5
11.2
2018
2017
2016
2015
2014
14.0
14.0
13.2
13.0
14.0
Flat
Long
Tubular
Russian steel prices, US$/t
2012
2017
2018
Rebar Channels HRC Plate
50
SALES VOLUMES REVIEW
In 2018 external steel product sales volumes
decreased by 7.6%. The main reasons for this
reduction were: the disposal of Ukrainian
asset EVRAZ DMZ; lower pig iron production
as the new blast furnace No. 7 was launched while
simultaneously shutting down blast furnace No. 6
at EVRAZ NTMK; and the general overhaul of blast
furnace No. 3 at EVRAZ ZSMK. Sales volumes
of semi-finished steel products to third parties
decreased by 18% in 2018. Meanwhile, railway
product sales rose by 5%, buoyed by strong demand.
Overall, EVRAZ sales volumes of key finished
products in Russia mainly increased during
the reporting period. Continued high demand
from freight car building and repairing companies
led to a 28% year-on-year surge in wheel sales. Rail
sales were up 4% amid higher purchases by Russian
Railways. Beam sales in Russia also improved
by 5% thanks to EVRAZ customer focus initiatives
and import displacement. Rebar sales volumes
in Russia increased by 10%. Structural product
shipments were down by 7%.
The Group remains focused on maximising the share
of sales in the long product segment on the local
Siberian market. The market share for beams
in Russia expanded to 63%, compared with 56%
the previous year. Due to the growth of supplies
to Russian Railways, EVRAZ market share in rails
rose from 69% to 77%. In 2018, the Group’s
share on the structural product market was 45%.
The share of the grinding ball market remained
at the level of the previous year at 62%, at the same
time EVRAZ increased sales in a growing market
as EVRAZ NTMK put into operation the new grinding
ball mill.
In 2018, EVRAZ Caspian Steel’s rebar sales
increased by 35% to 176 thousand tonnes
due to higher demand for rebar in Kazakhstan
and the signing of a major contract.
The Group’s finished vanadium product sales
volumes dropped by 19% to 12.4 thousand
tonnes in 2018, compared with 15.2 thousand
tonnes of pure vanadium in 2017. The reduction
is explained by higher sales volumes during 2017
(higher oxide availability resulting from conversion
at third parties of slag stocks and Nitrovan
sales from EVRAZ Vametco deconsolidated
in April 2017), production downtime at the beginning
of the year due to the launch of blast furnace No. 7
and major maintenance work at EVRAZ Vanady-Tula
to reline the roasting kiln refractories and replace
the grinding mill.
The Group sold 2.0 million tonnes of iron ore pellets
to third parties in the year, up 14% year-on-year,
due to increased supplies to export destinations,
in particular Turkey and China.
EVRAZ market shares in Russia by key products, %
Railway
wheels
Rails
Grinding
balls
2018
2017
2018
2017
Structural
shapes
29
29
45
41
Beams
77
69
63
56
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 products2
Iron ore concentrate
Pellets
Other iron ore products
2018
5,043
3,382
1,098
762
695
10,980
2018
10,980
4,703
3,697
1,344
617
619
573
11,553
19,194
6,842
12,352
3,112
8
1,972
1,132
1 There are some differences from the figures for 2017 that were published in the previous annual report due to adjustments in the sales volumes of vanadium products.
2 Other iron ore products include sales of 1,126 kt of sinter from related party to EVRAZ DMZ (by EvrazTransUkraine).
62
62
9
10
Change, %
2.1
1.6
(26.8)
(21.6)
(39.1)
(7.6)
Change, %
(7.6)
(18.0)
(1.4)
4.9
20.7
3.0
(2.4)
(7.3)
(13.2)
(0.8)
(18.8)
6.0
(99.3)
14.3
(4.6)
51
Rebar
2017
4,939
3,328
1,499
972
1,141
11,879
2017
11,879
5,735
3,750
1,281
511
601
587
12,466
22,110
6,897
15,213
2,937
25
1,726
1,186
Steel segmentCoal segmentSteel, NA segmentAnnual report& accounts2018www.evraz.comStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional information FINANCIAL PERFORMANCE
Sales review
In 2018, revenues from the Steel segment
climbed by 14.7% to US$8,879 million,
compared with US$7,743 million a year earlier.
The segment’s revenues were affected by rising
sales prices for vanadium products and steel,
primarily for finished products, which was partly
offset by lower sales volumes of vanadium
products and steel.
Revenues from sales of construction products
to third parties grew by 5.0%: a 6.4% increase
was attributed to surges in average prices which
was partly offset by a 1.4% reduction in sales
volumes amid a slowdown of construction work
in Russia.
Revenues from external sales of railway products
rose due to a 6.9% increase in prices, which
was supported by market upside growth of 4.9%
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 and due to signing a new
five-year contract with Russian Railways.
External revenues from flat-rolled products
jumped by 32.6%, driven by surges of 11.9%
in average prices and 20.7% 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 grew
from 48.4% in 2017 to 49.5% in 2018, mainly
due to a shift from sales to Europe and the CIS.
Steel segment revenues from sales of iron
ore products rose by 32.3%. This was due
to a 26.3% increase in sales price, accompanied
by 6.0% rise in sales volumes. In 2018,
around 70.2% of EVRAZ iron ore consumption
in steelmaking came from the Group’s own
operations, compared with 66.5% a year earlier.
Steel segment revenues from sales of vanadium
products surged by 111.4%. A 124.6% was
attributed to an upswing in sales prices, which
was partly offset by a 13.2% decrease in sales
volumes. Reduction in sales volumes was
caused by a low-base effect from higher oxide
availability in 2017 due to the conversion of slag
stocks at third parties; production downtime due
to the launch of blast furnace No. 7 at EVRAZ
NTMK and maintenance at EVRAZ Vanady-Tula;
and the fact that no Nitrovan sales from EVRAZ
Vametco were being included in the 2018
reporting following its deconsolidation in May 2017.
Geographic breakdown of external steel product sales, US$ million
Russia
Asia
Europe
CIS
Africa, America and rest of the world
Total
2018
3,258
1,810
653
482
377
6,580
2017
3,012
1,492
701
528
486
6,219
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
1 Includes billets, slabs, pig iron, pipe blanks and other semi-finished products
2 Includes rebar, wire rods, wire, beams, channels and angles
3 Includes rail, wheels, tyres and other railway products
4 Includes commodity plate and other flat-rolled products
5 Includes rounds, grinding balls, mine uprights and strips
2018
2017
US$ million % of total segment
revenues
74.1
28.4
25.7
10.9
4.7
4.4
3.8
3.6
2.9
13.0
6.3
100.0
6,580
2,521
2,280
965
415
399
334
321
254
1,152
559
8,879
US$ million % 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
100.0
6,219
2,523
2,171
863
313
349
284
270
192
545
503
7,743
Change, %
8.2
21.3
(6.8)
(8.7)
(22.4)
5.8
Change, %
5.8
(0.1)
5.0
11.8
32.6
14.3
17.6
18.9
32.3
111.4
11.1
14.7
Cost of revenues
In 2018, the Steel segment’s cost of revenues
decreased by 3.1% year-on-year. The main
reasons for the reduction were:
▪ The cost of raw materials fell by 9.5%, mainly
due to reduced costs of iron ore (down
24.0%), coking coal (down 10.8%) and other
raw materials (down 10.5%) following
to the disposal of EVRAZ DMZ in March 2018
and Yuzhkoks in December 2017, as well
as the effect of the weaker rouble. This was
partly offset by higher cost of scrap (up
10.3%) due to higher prices;
▪ Transportation costs dropped by 8.9%,
primarily due to the rouble’s depreciation,
and the disposal of EVRAZ Sukha Balka
in June 2017;
▪ Staff costs were down 7.4%, largely because
of the effect that rouble weakness had
on costs and due to the disposal of EVRAZ
DMZ;
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
Other6
▪ Depreciation and depletion costs decreased
by 7.9%, primarily due to rouble’s depreciation;
▪ Energy costs were lower due to the weaker
rouble and disposal of EVRAZ DMZ;
▪ Other costs increased, primarily due
to changes in goods for resale and semi-
finished products.
Gross profit
The Steel segment’s gross profit surged by 67.7%
year-on-year, driven primarily by higher vanadium
and steel prices, accompanied by the effect
that rouble weakening had on costs. This was
partly offset by a rise in prices for purchased raw
materials (particularly for scrap).
2018
US$ million
% of segment
revenues
2017
US$ million
5,613
2,494
369
1,209
514
402
343
284
409
491
222
429
941
63.2
28.1
4.2
13.6
5.8
4.5
3.9
3.2
4.6
5.5
2.5
4.8
10.6
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
Change, %
(3.1)
(9.5)
(24.0)
(10.8)
10.3
(10.4)
2.7
5.6
(8.9)
(7.4)
(7.9)
(9.5)
26.8
6 Includes 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.
52
53
Steel segmentCoal segmentSteel, NA segmentAnnual report& accounts2018www.evraz.comStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional information Coal segment
INTRODUCTION AND HIGHLIGHTS
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 Europe and Asia.
In 2018, EVRAZ expanded its export geography by sending its
coal shipments to India.
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.
KEY PRODUCTION ASSETS
Raw coking coal
Coking coal concentrate
1. Yuzhkuzbassugol
2. Raspadskaya
3. Mezhegeyugol
RUSSIA
3
1
2
Production highlights
Sales highlights1
Raw coking coal
24,188 kt
Coking coal concentrate
14,130 kt
Raw coking coal
1,690 kt
Coking coal concentrate
9,323 kt
Financial highlights
Revenues
US$
2,337
million
EBITDA
US$
1,218
million
EBITDA margin
52.1%
CAPEX
US$
119
million
5.6% year-on-year
0.7% year-on-year
55.4% in 2017
5.6% year-on-year
1
Sales to 3rd parties only.
54
55
Steel segmentCoal segmentSteel, NA segmentStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com STRATEGIC PRIORITIES
PRUDENT CAPEX
RETENTION OF LOW-COST POSITION
KEY INVESTMENT PROJECTS
KEY MAINTENANCE PROJECTS
MAIN COST-REDUCTION PROGRAMMES
Optimise the production flow at washing
plants
Optimise expenses for auxiliary materials
and industrial services
Optimise saleable product
output
Status
Automated the flotation flows and increased
the feed size at the Raspadskaya washing plant.
Status
Reduced the stripping ratio at Raspadsky Open
Pit by optimising mining operations.
Automated the operation of the screw separators
at section 3 of the Raspadskaya washing plant.
Began using machinery customised for driving
on public roads.
Restored the chamber-membrane filter of the
press at the Abashevskaya washing plant.
Optimised shipping costs and specialised
equipment costs.
Status
Brought in a contractor’s small excavators
for selective, higher-quality coal extraction
with lower ash content at Raspadsky Open Pit,
which made it possible to obtain additional
saleable product by increasing both mining
volumes and yield at washing plants.
Access and development of reserves
in the Uskovskaya mine’s seam No. 48
Access and development of reserves
in the Esaulskaya mine’s seam No. 29a
Upgrade of the mining equipment
at the Raspadskaya and Alardinskaya
mines
The project aim is to prepare the reserves
in seam No. 48 for mining and to maintain
the current coal production level beyond 2020.
Status
Acquired licence for reserves in seam No. 48.
Developed 1,385 metres of stone roadways
using new road headers.
The project aim is to relocate mining operations
from seam No. 26 to seam No. 29a, thereby
increasing annual coal production to 2.5 Mt
beyond 2020.
The project aim is to acquire powered support
units due to the increased longwall length,
replacing shearers and longwall conveyors.
Status
Developed 4,722 metres of roadways, including
an access flank roadway.
Status
In 2018, production from the Raspadskaya
mine’s longwall 4-6-33 totalled 1.9 Mt.
CAPEX in 2018
US$20 million
Installed and assembled a ventilation unit
at seam No. 29a worksite.
Installation of powered support units has begun
at the Alardinskaya mine’s longwall 6-1-20.
CAPEX in 2018
US$5 million
CAPEX in 2018
US$8 million
Longwall mining in the Raspadskaya-
Koksovaya mine’s field No. 2
The project aim is to switch from the board-
and-pillar method to longwall mining, thereby
increasing annual production of the valuable
K-grade coal from 0.7 Mt to 1.4-1.5 Mt.
Status
Prepared for installation of a gas suction unit,
a modular degassing unit and construction
of high-voltage lines therefore.
Acquired a longwall system and upgraded
the mine’s primary transport chain.
CAPEX in 2018
US$4 million
Development of Raspadskaya-Koksovaya
open-pit
Upgarde of the equipment fleet
at Raspadsky open-pit
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
Brought in additional contractors to increase
mining volumes.
CAPEX in 2018
US$2 million
The project aim is to acquire five new dump
trucks, an excavator and a bulldozer; replace
equipment that has exceeded its optimal
operating time; and modernise two dump trucks
to be able to operate on the roads, as well.
Status
In December 2018, the excavator and bulldozer
were received.
CAPEX in 2018
US$0.4 million
Acquirement of the drilling rig to drill large-
diameter boreholes of up to 2.5 m for gas
control in mines
The project aim is to improve ventilation
and degassing in mine roadways.
Status
The equipment has been delivered and drilling
of a 2m diameter borehole has begun
at the Erunakovskaya-8 mine.
CAPEX in 2018
US$0.1 million
56
57
Steel segmentCoal segmentSteel, NA segmentStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com STRATEGIC PRIORITIES
MARKET REVIEW
DEVELOPMENT OF PRODUCT PORTFOLIO AND CUSTOMER BASE
SECURING THE POSITION OF A MAJOR COKING COAL SUPPLIER IN RUSSIA
In 2018, Russian coking coal concentrate
consumption fell by 3% year-on-year to 37.0
million tonnes due to reduced coke demand,
as well as general overhauls of blast furnaces.
Overall, the Russian coking coal market
is stable and no major changes are expected
in 2019. Export shipments rose by 13%
to 25.6 million tonnes, compared with 22.6
million tonnes in 2017, mainly due to higher
shipments to Ukraine amid greater competition
on the Russian market.
Domestic coking coal prices followed global
benchmark trends during the reporting period.
The premium Zh-grade coking coal averaged
US$159 per tonne FCA Kuzbass, up 3%
from US$154 per tonne in 2017, while the GZh-
grade semi-soft coking coal decreased by 1%
year-on-year, averaging US$113 per tonne.
Key developments in 2018
Expanded the product portfolio and learned
to make concentrate mixes to suit the request
of certain clients.
Improved the reliability of deliveries
by putting into operation new warehouses
for concentrate and raw coal at all washing
plants (with the capacity of 15-200 thousand
tonnes).
Increased the production volumes of premium
low-vol. hard coking coal at the new open pit
on the Raspadskaya-Koksovaya mine site.
Boosted raw coking coal production volumes
by 4% year-on-year and coal product sales
volumes by 5% year-on-year.
Improved EVRAZ self-sufficiency in coal to 69%
by increasing production of OS-grade coal
in the the Raspadskaya-Koksovaya open pit.
Focus on degassing and ventilating goafs due
to increasing gas-content of seams.
Improve efficiency and yield at washing plants.
Increased the output of semi-hard GZh-grade
concentrate at the Raspadskaya washing plant
by reducing the ash content in the coal mined
at Raspadsky Open Pit.
Increase premium low-vol. hard coking coal
production volumes by launching longwall
mining in the Raspadskaya-Koksovaya mine.
Outlook for 2019
Maintain leading positions on the Russian
market by keeping product quality consistent.
Boost production volume by 3% year-on-year
to 25 million tonnes and saleable product
volumes to 19.5 million tonnes by increasing
mining efficiency.
EXPANSION OF THE EXPORT PORTFOLIO
Key developments in 2018
EVRAZ achieved its targets for 2018 export
sales by:
▪ Maintaining a flexible sales geography
▪ Export priorities: Japan, South Korea, Vietnam,
Indonesia and countries in Eastern Europe
▪ Entering new markets, like India
▪ Conducting site visits for new clients
Outlook for 2019
▪ Ensure a diverse sales geography by seeking
and regular audits at the request of key
customers from Japan, Brazil and Slovakia
new supply routes from Baltic Sea ports
▪ Increase export sales to South-East Asia
and European countries
58
Domestic coking coal concentrate
consumption, mt
Coal prices, US$/t
2018
2017
2016
2015
2014
37.0
38.5
38.3
38.8
39.6
SALES VOLUMES REVIEW
2012
2017
2018
GZh GZh+Zh Zh (mono-concentrate)
250
200
150
100
50
0
EVRAZ coking coal product sales grew by 5%
to 17.1 million tonnes in 2018, compared
with 16.3 million tonnes in 2017, due to higher
production volumes of the OS and KS coal
grades at the Group’s current mines including
the ramp-up of the open-pit at Raspadskaya-
Koksovaya site.
Intersegment coking coal product sales surged
by 4% to 6.0 million tonnes under the policy
of maximising supplies to EVRAZ. Total external
coking coal product sales increased by 5% year-
on-year to 11 million tonnes.
Coking coal product sales on Russia’s domestic
market decreased by 3% to 9.3 million tonnes,
with more than 60% consumed by EVRAZ
steelmaking facilities.
in 2017. EVRAZ expanded its sales to Europe
by 2.4 times and to Japan and South Korea
by 42%. The Group also began to supply coking
coal products to India.
In 2018, EVRAZ maintained its leading position
on the domestic market with a 22% market
share in all coal grades.
EVRAZ market share of Russia’s high-vol coking coal grades, %
Hard
coking coal
Semi-hard
coking coal
The Group’s coal product export shipments rose
by 17% to 7.7 million tonnes during the reporting
period, compared with 6.6 million tonnes
2018
2017
29
34
Coal segment sales volumes, kt
External sales
Coking coal
Coal concentrate
Steam coal
Inter-segment sales
Coking coal
Coal concentrate
Total, coal products
2018
11,048
1,690
9,323
35
6,016
1,863
4,153
17,064
2017
10,499
2,302
8,197
n/a
5,778
1,160
4,618
16,277
40
44
Change, %
5.2
(26.6)
13.7
n/a
4.1
60.6
(10.1)
4.8
59
Steel segmentCoal segmentSteel, NA segmentStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com Steel segment
Coal segment
Steel, NA segment
Strategic report
BUSINESS REVIEW
CSR report
Corporate governance
Financial statements
Additional information
FINANCIAL PERFORMANCE
Coal segment revenues by product
Sales review
The segment’s overall revenues increased amid
rising sales prices as global market trends
remained favourable. This was driven by supply
disruptions caused by port restrictions in Australia
and by unfavourable weather conditions
in the US.
Revenues from internal sales of coal products were
down, mainly because of an 8.4% decline in prices
and partly offset by a 4.1% increase in sales
volumes.
Revenues from external sales of coal products
rose due to growth of 13.8% in prices and 5.2%
in sales volumes, which was driven by higher
coal production volumes and stable, positive
demand on the domestic and export markets,
including higher shipments to the Southeast Asia
and European countries.
In 2018, the Coal segment’s sales to the Steel
segment amounted to US$779 million (33.3%
of total sales), compared with US$830 million
(37.5%) a year earlier.
During the reporting period, roughly 68.8%
of EVRAZ coking coal consumption in steelmaking
came from the Group’s own operations, compared
with 50.0% in 2017.
a negative impact on trading companies,
as well as an increase in tariffs for the supply
of wagons;
▪ Staff costs were lower, primarily due to the
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 9.7% due to larger resale volumes
of third-party materials, greater consumption
of spare parts due to wear of the main process
equipment and increased longwall repositioning.
This was accompanied by growth in prices
for auxiliary materials (diesel fuel and petrol),
partly offset by the depreciation of the rouble;
▪ Costs for services climbed by 13.2% due
to greater open-pit mining works and higher
costs for overburden removal at the
Raspadskaya-Koksovaya mine, the growth
of service costs for redevelopment and
a longwall move at Yuzhkuzbassugol’s mines;
▪ Transportation costs grew by 23.2% in the
reporting period, primarily due to the higher
share of exports in the sales mix, which had
disposal of EVRAZ Nakhodka Trade Sea Port
and rouble weakening. This was partly offset
by wage indexation, forming and using internal
drift crews, and additional contributions
to the pension fund for underground workers
from 2018;
▪ Depreciation and depletion costs fell, primarily
due to the weaker Russian currency;
▪ Other costs decreased in the reporting period,
mainly due to changes in work in progress
and finished goods, as well as the effect
of the rouble’s depreciation. This was partly
offset by higher taxes after the mineral tax rate
was increased and due to greater production
volumes.
Gross profit
The Coal segment’s gross profit
for 2018 amounted to US$1,295 million, up
from US$1,241 million a year earlier, primarily
due to higher sales prices.
60
2018
2017
US$ million
% of total segment
revenues
US$ million
% of total segment
revenues
Change, %
External sales
Coal products
Coking coal
Coal concentrate
Steam coal
Inter-segment sales
Coal products
Coking coal
Coal concentrate
Other revenues
Total
Coal segment cost of revenues
Cost of revenues
Auxiliary materials
Services
Transportation
Staff costs
Depreciation/depletion
Energy
Other1
1,506
145
1,358
3
776
120
656
55
2,337
64.4
6.2
58.1
0.1
33.2
5.1
28.1
2.4
100.0
1,266
174
1,092
—
811
75
736
137
2,214
57.2
7.9
49.3
—
36.6
3.4
33.2
6.2
100.0
2018
US$ million
1,042
136
129
319
193
155
49
61
% of segment
revenues
44.6
5.8
5.5
13.6
8.3
6.6
2.1
2.7
2017
US$ million
973
124
114
259
198
162
49
67
% of segment
revenues
43.9
5.6
5.1
11.7
8.9
7.3
2.2
3.1
1 Primarily includes goods for resale, certain taxes, changes in work in progress and finished goods, allowance for inventory, raw materials and inter-segment unrealised profit.
19.0
(16.7)
24.4
n/a
(4.3)
60.0
(10.9)
(59.9)
5.6
Change, %
7.1
9.7
13.2
23.2
(2.5)
(4.3)
–
(9.0)
61
Annual report& accounts2018www.evraz.com Steel, North America segment
INTRODUCTION AND HIGHLIGHTS
EVRAZ is a leading North American producer of high-quality,
engineered steel products for the rail, energy, and industrial
end user markets, with a focus on partnering with customers.
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.
EVRAZ is also the largest producer by volume in the North
American rail and large-diameter pipe (LDP) markets.
▪ The long division is the largest domestic producer
of premium rail in the US and the only rail producer
in Western North America.
▪ The tubular division is the largest North American
producer of LDP, which is used for oil and gas pipelines,
and the only supplier of fully “Made in Canada” LDP. It
is also the largest OCTG producer in Western Canada.
▪ The flat division operates the only plate mill
on the US West Coast. In 2018, EVRAZ Portland was
named the number one plate mill in the US.
KEY PRODUCTION ASSETS
Construction products
Railway products
Tubular products
Flat-rolled products
1. EVRAZ Camrose
2. EVRAZ Red Deer
3. EVRAZ Calgary
4. EVRAZ Regina
5. EVRAZ Portland
6. EVRAZ Pueblo
1
2
3
5
CANADA
4
USA
6
Production highlights
Sales highlights1
Crude steel
1,898 kt
Steel products
2,141 kt
Steel products
2,156 kt
Financial highlights
Revenues
US$
2,583
million
EBITDA
EBITDA margin
CAPEX
US$
14
million
0.5%
US$
97
million
38.6% year-on-year
75.9% year-on-year
3.1% in 2017
9.3% year-on-year
1
Sales to 3rd parties only.
62
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Steel segmentCoal segmentSteel, NA segmentAnnual report& accounts2018www.evraz.comStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional information
STRATEGIC PRIORITIES
PRUDENT CAPEX
RETENTION OF LOW-COST POSITION
KEY INVESTMENT PROJECTS
KEY MAINTENANCE PROJECTS
MAIN COST-REDUCTION PROGRAMMES
EVRAZ Pueblo seamless threading
EVRAZ Red Deer heat treatment
The project aim is to in-source seamless
threading and coupling process from third-party
providers to improve cost competitiveness.
The project aim is to develop heat treatment
capability to access a higher margin market.
Status
Equipment installation completed
and commissioning commenced in Q4 2018,
first order shipped in December 2018.
CAPEX in 2018
US$15 million
Status
Launched execution phase of the project.
CAPEX in 2018
US$13 million
During 2018, the Group’s operations completed
important maintenance projects:
▪ At EVRAZ Portland, cooling bed repairs
and mill leveler rebuild were completed;
▪ At EVRAZ Pueblo, installed 2 new scrap
cranes and repaired the furnace roof/hearth
in the Seamless Mill;
▪ At EVRAZ Regina, EVRAZ carried out
installation of a new transformer
for the Steel mill.
Optimisation of consumption of raw materials and basic materials
Alloy savings from EVRAZ Regina
investment project
Flux/powder usage reduction at EVRAZ
Regina’s steel mill
Status
In 2018, additional savings on alloys were
achieved at EVRAZ Regina’s steel mill.
Status
Additional savings from flux consumption were
achieved in 2018.
Graphite electrode consumption reduction
at EVRAZ Regina’s steel mill and EVRAZ
Pueblo
Status
EVRAZ completed benchmarking and gap
analysis for electrodes consumption.
Changes in supplier base and supply
requirements have been made.
Optimisation of yield and productivity
Improve yields at EVRAZ Regina’s steel
and tubular facilities
Increase Alberta OCTG production
throughput
Improve seamless prime yield
Status
Both the steel and tubular mills reached
and exceeded their 2018 productivity targets,
which translated to tangible cost savings.
Status
The heat treatment line in Calgary achieved
a 15.9% increase in throughput of P110 product
in 2018.
Increase productivity of EVRAZ Regina’s
steel facility
Improve EVRAZ Portland plate yield
Status
Both EVRAZ Regina’s meltshop and rolling mill
set new records in 2018 in terms of production
volumes.
Status
Plate yield target achieved by improving slab
ordering practices, better tracking of slab utilisation
and special ordering optimal slab sizes to ensure
better performance.
Status
Seamless prime yield improved throughout 2018
due to mill set up actions and operations crew
training.
Increase EVRAZ Pueblo’s seamless heat
treatment output
Status
Seamless heat treatment output exceeded
the target by 10% in 2018.
Ramp up EVRAZ Pueblo’s threadline
Status
Threadline project completed as expected.
Optimisation of product quality system
Improve forming/welding processes
at EVRAZ Regina’s tubular facility
Reduce customer claims at EVRAZ Red
Deer
Improve controls over key production
processes at EVRAZ Portland
Status
Reduced claims paid by 25% compared with 2017
through the implementation of additional quality
improvements during production and shipping,
as well as through employee training.
Status
Improvements achieved through
the implementation of additional quality control
steps during production and shipping, as well
as through employee training.
Status
Achieved a significant improvement in welding
prime yields, surpassing historical levels
and medium-term goals.
Improve surface defects
Status
Degassing approximately 85% of steel
consumed by EVRAZ Regina’s tubular facility
allowed the Group to produce products with less
hydrogen related slivers.
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Steel segmentCoal segmentSteel, NA segmentAnnual report& accounts2018www.evraz.comStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional information
STRATEGIC PRIORITIES
DEVELOPMENT OF PRODUCT PORTFOLIO AND CUSTOMER BASE
MARKETING AND CUSTOMER FOCUS
NEW PRODUCT DEVELOPMENT AND QUALITY IMPROVEMENT
Tubular division
Key developments in 2018
▪ Maintained the leading market share
in the OCTG market in Western Canada,
supported by strong demand and solid
productivity
▪ Achieved target production and productivity
levels at EVRAZ Regina’s steel and spiral
mills following the upgrade with record steel
performance in Q4 2018 in terms of volume
▪ Secured high capacity utilisation of EVRAZ
Regina’s spiral mills with strong LDP order
book
▪ Produced first thick-wall orders for key LDP
customers using new capabilities of EVRAZ
Regina’s steel and spiral mills
▪ Improved operational efficiency and added
capacity to EVRAZ Regina’s new coating
facility
▪ Increased the utilisation of the facility
supported by strong LD and SD line pipe
demand
▪ Launched the new heat treatment line
investment at EVRAZ Red Deer to meet
increasing demand for heat-treated pipe
in Western Canada
▪ Successfully built a strong LDP order backlog
for 2019, with most new sales in Canada
to mitigate the impact of the US trade
restrictions, such as Section 232 tariffs
and anti-dumping duties on LDP
▪ Restarted the large-diameter spiral pipe mill
at EVRAZ Portland due to increased customer
demand in the US
Outlook for 2019
▪ The large-diameter pipe market in Canada
is expected to grow due to the new pipelines
planned in Western Canada
▪ The strong LDP order book for 2019
with primarily Canadian orders secures high
utilisation of EVRAZ Regina’s mills
▪ OCTG demand in Canada is forecast
to remain flat with some uncertainty driven
by the lack of pipeline infrastructure
in Western Canada
▪ Further increase the productivity at the OCTG
mills, as well as expand the heat treatment
and threading capacity at EVRAZ Red Deer
to enhance the OCTG market share and keep
utilisation of mills at a high level
66
▪ Boost thick-wall LDP volumes at EVRAZ
Regina’s spiral facility to meet customer
demand
▪ Continued uncertainty around US trade
restrictions, which are currently expected
to remain in place, but Canada’s safeguard
measures and focus on the domestic market
create a positive outlook in 2019
▪ Plan to secure new orders for EVRAZ
Portland’s spiral mill to serve the US market
increasing with higher volumes to Canadian
Class I rail customers and additional volumes
to distribution and track work accounts
▪ On track with the new rail mill project, which
will be a key focus for the expected duration
of the process (through 2021)
▪ Achieve planned volumes and production
targets for the seamless threading line
to fully realise the planned benefits
from the investment
Long division
Flat division
Key developments in 2018
▪ Increased rail and rod/bar demand, driven
by the improved economic environment
▪ Achieved full utilisation of steelmaking
and all three product lines, supported
by strong demand and improved markets
in the US
▪ Secured higher shipments to Western US
and Canadian Class I railroads in 2018
and going forward by signing long-term
supply contracts with several key customers
▪ Class I railroads’ preferences
for long rail have increased markedly
in the last five years, becoming a critical
purchasing decision factor. Hence,
the Group has announced the construction
of new 100-metre rail mill at EVRAZ
Pueblo to maintain technical leadership
and continue shifting to a higher-value
product mix. The project has met excellent
support from the governments of Pueblo
and Colorado, as well as from key customers
▪ Built and successfully launched a new
seamless threading line at EVRAZ Pueblo,
bringing the threading process in-house
to significantly reduce costs and improve
customer delivery time
Outlook for 2019
▪ The US trade protection measures
are expected to remain in place, but quotas
and exemptions for foreign steel are possible
and will allow some importers access
to the US market, resulting in potential
softening of rod/bar and seamless pipe
markets
▪ The North American rail market is expected to be
flat year-over-year, with EVRAZ share further
Key developments in 2018
▪ Section 232 tariffs impacted slabs
purchased from Russia, Mexico and Canada
in 2018, but market pricing increased during
the year, allowing the business to maintain
spreads at and above the historical average
▪ Gained a significant market share in the plate
market and grew the heat-treated plate
business through improved on-time delivery
and high-quality products
▪ Retained and strengthened the position
as a leading supplier to one of the largest
wind tower producers in North America
through securing additional volumes
for 2018-19 based on the product quality,
operational performance and customer
service provided by EVRAZ
▪ Continued developing the Group’s presence
on the wind tower plate market by becoming
a qualified supplier for an additional wind
tower fabricator in North America
▪ Grew market share in the armoured vehicle
market by around 10% through increased
volumes
Outlook for 2019
▪ Continue increasing sales of heat-treated
material and growing the wind tower plate
business
▪ Commercialise new products and increase
the market share in the newly entered water
pipe sector
▪ Re-enter the energy transmission market
Tubular division
Long division
Flat division
Key developments in 2018
▪ Finalised development of sour-service line
Key developments in 2018
▪ Apex G2 rail has been installed in track
Key developments in 2018
▪ Developed “TruTank” product to increase
pipe product
▪ Qualified and produced thick-wall pipe (1’’)
at the new LD mill for customer orders
▪ Degassing around 85% of heats at EVRAZ
Regina allowed the Group to produce higher-
quality products with significantly lower
hydrogen levels
Outlook for 2019
▪ Develop larger coupling size production
capability at the coupling facility in Edmonton
▪ Develop larger sizes for OCTG premium
and semi-premium connections driven
by market needs
▪ Continuously improve product quality,
production processes and productivity
by developing a world-class quality system
▪ Finalise development of heavy-gauge pipe
products with improved toughness at -45Cº
with a number of Class I railroads. Product
performance is being closely monitored
by customers and EVRAZ technical team
with very favourable results
▪ Continued cultivating technical partnerships
with key rod customers with a focus
on product innovation led to successful
development of EAF tire cord grade steel
and other promising high-carbon rod
products. In 2018, tire cord steel was
successfully supplied to a customer
participation in the tank market with a plan
to roll out to market and sell volume in 2019
▪ Developed 700bhn product for prototype
armoured vehicles and plan to roll out
to market in 2019
▪ Developed LFQ product for laser cutting
applications and ran successful trials
with internal coil, with next step to trial slabs
from EVRAZ NTMK
▪ Have successfully improved heavy gauge
flatness through operational improvements
Outlook for 2019
▪ Further commercialise Apex G2 rail in 2019
by expanding sales over 2018
▪ Significantly increase tire cord sales year-
over-year in 2019
Outlook for 2019
▪ Commercialise “TruTank” product sales
▪ Improve hardness consistency with AR500/
AR550 plate to be rolled out to Service
Centres for use in civilian armour and other
applications
▪ Branding FlatRX product (flattened plate) to be
rolled out to the market in 2019
▪ Work with EVRAZ NTMK to improve API
capability to reduce metallic inclusions
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Steel segmentCoal segmentSteel, NA segmentAnnual report& accounts2018www.evraz.comStrategic reportBUSINESS REVIEWCSR reportCorporate governanceFinancial statementsAdditional information MARKET REVIEW
In 2018, US steel product consumption rose
by 2.7% to 99 million tonnes, up from 96 million
tonnes in 2017. Demand for flat products
improved by 2.9%, at the same time demand
for tubular products decreased by 2.8%. The
North American rail market remained firm
at the level of 1.0 million tonnes in the period.
The oil country tubular goods (OCTG) market
declined in 2018 with Canadian consumption
estimated at 0.7 million tonnes compared
with 0.8 million tonnes in 2017. The large-
diameter pipe (LDP) market remained stable
at the level of 1 million tonnes.
Imports of finished steel products fell
by 10% year-on-year to 23 million tonnes
as a result of the 25% Section 232 tariffs
enacted by the US. Due to strong demand
and the influence of trading barriers, prices
surged by 36% to US$1004 per tonne for plate,
by 17% to US$765 per tonne for rebar
and by 18% to US$1449 per tonne for OCTG.
North America prices, US$/t
2,000
1,500
1,000
500
0
2012
2017
2018
Plate Price, Domestic US Rebar, Domestic US OCTG Carbon
Steel, North America segment sales volumes, kt
2018
57
287
421
568
823
2,156
2017
Change, %
7
241
376
512
749
1,885
n/a
19.1
12.0
10.9
9.9
14.4
In 2018, tubular product sales picked up by 10%
to 823 thousand tonnes, up from 749 thousand
tonnes in 2017. Large-diameter pipe (LDP) sales
moved up by 19% to 211 thousand tonnes due
to strong demand in both the US and Canada.
Meanwhile, sales of oil country tubular good
(OCTG) products dropped by 7% from 333
thousand tonnes in 2017 to 310 thousand
tonnes in 2018.
EVRAZ North America maintained its leadership
in rails and LDP during 2018 with respective
market shares of roughly 40% and 22%. In
2018, the Group focused on operational
improvements and reaching the targeted LDP
production volumes at the EVRAZ Regina steel
mill in Canada.
Steel products
Semi-finished products
Construction products
Railway products
Flat-rolled products
Tubular products
Total
SALES VOLUMES
REVIEW
In 2018, EVRAZ North America’s steel product
sales climbed by 14% to 2.2 million tonnes,
compared with 1.9 million tonnes in 2017,
as a reduction in imports created additional
demand and overall consumption became
stronger. Construction product sales went
up by 19.3% to 287 thousand tonnes. While
the North American rail market remained flat
in 2018, the Group increased its sales of railway
products during the period by 12% to 421
thousand tonnes, driven by higher volumes
from a number of Class I railroads, as well
as by improved distribution and trackwork. Flat
product volumes rose by 11% to 568 thousand
tonnes in 2018, compared with 512 thousand
tonnes in 2017.
68
US finished steel consumption, mt
2018
26.7
62.2 10.0
2017
25.6
2016
25.9
2015
26.5
60.4
10.3
59.4
5.5
60.8
7.8
2014
28.0
66.5
11.0
Long
Flat
Tubular
98.9
96.3
90.9
95.1
105.5
EVRAZ market shares in North America by
key products, %
OCTG
in Canada
Rails in
North America
LDP in
North America
2018
2017
2018
2017
2018
2017
27
28
40
35
22
17
FINANCIAL PERFORMANCE
Sales review
The segment’s revenues from the sale
of steel products grew significantly due to rises
of 22.6% in prices and 14.4% in volumes.
This was mainly attributable to the improved
productivity at the spiral mill and greater demand
on the tubular market, mostly for line pipe
and large-diameter pipe, as market demand
continued to develop through 1H 2018 in support
of oil price recovery and the recent approval of new
pipelines in Canada and the US pipelines.
Construction products revenues increased
by 55.3% due to an upswing in prices of 36.2%
and sales volumes of 19.1% as a result
of improved demand for concrete reinforcing
bar and wire rod products produced at EVRAZ
Pueblo and Section 232 tariffs. End use demand
improved with increased spending in the energy,
infrastructure and non-residential construction
markets. The Section 232 tariffs implemented
in mid-2018 led to fewer rebar and wire rod
imports to the US market, further increasing
demand for domestic producers.
Railway product revenues increased by 23.0%,
driven by growth in volumes of 12.0%, 11.0%
increase was attributed to surges in average
prices.
Revenues from flat-rolled products climbed due
to an uptick in prices of 28.9% and in sales
volumes of 10.9% primarily at EVRAZ Portland.
The increase was primarily related to commodity
plate sales in the view of the improved demand
for US-produced materials as a result of Section
232 tariffs introduction, which lowered imported
tonnes, and greater demand from wind tower
business.
Revenues from tubular product sales grew
by 33.4% year-on-year due to increases of 9.9%
in volumes and 23.5% in prices. This was driven
by stronger sales of line pipe due to favourable
market conditions and large-diameter pipe due
to new orders achieved during 2017-18, as well
as improved productivity at the spiral mill.
▪ Auxiliary material costs climbed by 66.2%,
driven by increased costs of electrodes
and higher production volumes of crude steel
and finished products;
▪ Service costs went up 57.3%, driven by greater
volumes of coating, outside repair, finishing
and other services, in line with the year-on-year
rise in sales volumes;
▪ Raw material costs rose by 15.7%,
primarily because of higher prices of scrap
and ferroalloys, accompanied by greater
consumption due to increased sales volumes
of tubular products amid the market recovery
seen in the reporting period;
▪ Other costs were down for the reporting period,
primarily due to changes in work in progress
and finished goods.
Cost of revenues
Gross profit
In 2018, the Steel, North America segment’s cost
of revenues surged by 33.8% year-on-year. The
main drivers were:
▪ Cost of semi-finished products was up 87.8%
due to higher prices for purchased materials,
steel import duties and increased sales
volumes of steel products;
The Steel, North America segment’s gross
profit totalled US$368 million for 2018, up
from US$208 million a year earlier. While
the growth was primarily caused by an increase
in revenues due to improving market conditions,
it was partly offset by higher prices for purchased
semi-finished products, auxiliary materials
and scrap.
Steel, North America segment revenues by product
Steel products
Semi-finished products
Construction products1
Railway products2
Flat-rolled products3
Tubular products4
Other revenues5
Total
Steel, North America segment cost of revenues
Cost of revenues
Raw materials
Semi-finished products
Auxiliary materials
Services
Staff costs
Depreciation
Energy
Other6
2018
2017
US$ million % of total segment
revenues
94.1
1.5
9.6
14.7
23.1
45.2
5.9
100.0
2,430
39
247
380
597
1,167
153
2,583
US$ million % of total segment
revenues
95.2
0.2
8.5
16.6
22.9
47.0
4.8
100.0
1,774
4
159
309
427
875
90
1,864
2018
US$ million
2,215
746
569
246
195
286
101
119
(47)
% of segment
revenues
85.8
28.9
22.0
9.5
7.5
11.1
3.9
4.6
(1.7)
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)
Change, %
37.0
n/a
55.3
23.0
39.8
33.4
70.0
38.6
Change, %
33.8
15.7
87.8
66.2
57.3
12.6
6.3
7.2
100.0
1 Includes beams, rebar and structural tubing
2 Includes rails and wheels
3 Includes commodity plate, specialty plate and other flat-rolled
products
4 Includes large-diameter line pipes, ERW pipes and casing, seamless
pipes, casing and tubing, and other tubular products
5 Includes scrap and services
6 Primarily includes transportation, goods for resale, certain taxes,
changes in work in progress and fixed goods, and allowances for
inventories.
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report
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
provides an overview of the Group’s
policies and performance in 2018 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.
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
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.
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
trafficking and other forms of slavery
(known 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,
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
www.evraz.com/governance/documents/
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 covers all levels of EVRAZ
business, from strategic decision making to day-
to-day operations. In 2018, a HSE management
committee was established, consisting of all
CEO-1 level excecutives, which review HSE
issues on a monthly basis. 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’s CEO is the member of the HSE
Committee with ownership and oversight
of the results of the HSE strategy review
that took place in June 2018. Subsequently,
the implementation of the decisions taken
as part of the strategy review was regularly
monitored at HSE Committee meetings.
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 Group has its own HSE function,
72
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
The Group adopted its Health, Safety
and Environment Policy in March 2011 , updated
it in 2016 and reviewed it in February 2018 (no
changes were made).
The primary functions of the HSE system
include identifying potential environmental
pollutants and risks to employees’ health
and 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
to eliminate or reduce risks
▪ Monitor, review, and investigate incidents
to properly learn lessons from them
▪ 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.
EVRAZ main steel mills have been certified
under the ISO 14001 and OHSAS 18001
standards.
Emergency response
Some EVRAZ operations, including the mines
of the Coal division, have auxiliary mine-rescue
teams to act as first responders to incidents
and help to evacuate personnel ahead
of the arrival of professional rescue teams.
Members of the auxiliary teams are specially
selected, trained and regularly re-trained.
In the event of an incident, an emergency
warning system is activated to inform local
HSE corporate management structure
EVRAZ PLC BOARD OF DIRECTORS
HSE COMMITTEE OF THE BOARD OF DIRECTORS
EVRAZ CEO
HSE MANAGEMENT COMMITTEE
VICE PRESIDENT HSE
HEALTH AND SAFETY DIRECTORATE
INDUSTRIAL SAFETY DIRECTORATE
ENVIROMENTAL MANAGEMENT DIRECTORATE
residents and authorities. For example,
Raspadskaya has a commission to prevent
and respond to emergencies and to ensure
fire safety. The commission coordinates
and warns of natural and technological
disasters, manages emergency response
assets and works to reduce the damage
from incidents.
HSE reporting system
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 authorities. The Group conducts
a detailed analysis of any recommendations
resulting from the inspections to ensure that
remedial actions can be taken, where needed.
The Group relies on its HSE reporting system
to collect and share appropriate data throughout
the organisation with an aim to continuously
All EVRAZ facilities review lessons learnt
to improve their own processes. Line managers
form the first level of production control, division
and shop managers form the second level
and senior managers form the third level. This
multi-tiered system helps the Group to ensure
strict compliance with HSE requirements.
In 2018, standard incident reporting rules
were introduced 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.
In addition, measures have also been
introduced to ensure that injuries and incidents
are not hidden to distort the true picture.
Accountability for hiding or distorting information
is one of the cardinal safety rules that can lead
to an employee’s dismissal.
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. The reports also
include an analysis of hazards and risks to focus
efforts on preventing such incidents in the most
critical areas.
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Annual report& accounts2018www.evraz.comStrategic reportBusiness reviewCSR REPORTCorporate governanceFinancial statementsAdditional information HEALTH AND SAFETY
OUR APPROACH
The nature of EVRAZ vertically-integrated
operations entails certain potential
safety and health risks being present in
the environment in which its employees
and contractors work. The risks when
mining coal and iron ore underground
include the potential for a sudden rock
collapse, flooding, exposure to rock
and coal dust, degassing mines and
ventilating methane, as well as using
explosives in the extraction process.
Some of the primary risks inherent
to steelmaking include large moving
machinery, moving material with
high-capacity cranes, excessive heat,
manipulating molten metal and working
in confined spaces. The Group has also
identified certain key risks that exist
across its operations, including working
at height, working with electricity, and
moving or transporting objects.
One of EVRAZ overriding priorities is
to ensure that every employee and
contractor who works in its facilities has
a safe and healthy work environment, so
that they may return home each day to
their loved ones, alive and uninjured. This
process begins with identifying key risks
and investing in engineered solutions to
eliminate them. The Group prioritises this
as part of its ongoing efforts, particularly
where corrective measures are identified
in the wake of incidents. In cases where
engineering controls are not immediately
available, EVRAZ instead implements
organisational controls to mitigate risks.
Another way in which the Group strives
to improve operational safety is by
continuously improving its training
methods for employees and contractors
regarding risks that have been identified,
safety and health regulations, and safe
work practices specific to individual tasks.
Employees are also periodically tested
to ensure that they have retained the
knowledge gained from their training. In
the event that a risk cannot be eliminated,
and as a last resort, EVRAZ constantly
evaluates and issues new personal
protective equipment to guard against
such risks. No effort is spared to identify,
manage and effectively mitigate the risks
typical to the Group’s diverse operations,
including as regards contractors.
Each day, managers, employees and
contractors must make decisions
that will inevitably have an impact
on safe or, in certain cases, unsafe
behaviour. EVRAZ constantly challenges
its management team to lead by
example and hold employees ultimately
accountable for health and safety,
including both their actions and
inactions. The Group seeks to foster
a culture in which all employees and
contractors understand that they must
take personal ownership of their safety.
This includes a targeted communication
programme covering identified risks, as
well as behavioural observations that
are immediately followed up by safety
conversations in which both coaching
and counselling are provided. As the
organisational safety culture improves,
praise and reward for safe actions are
then introduced.
of the incident. The HSE Committee reviews
and approves these plans. The HSE Committee
and other committees of the Board of Directors
monitors the implementation of these
measures and their effectiveness. As necessary,
the committee also ensures that the measures
are implemented at other Group operations.
In June, EVRAZ conducted a strategy session
to assess its HSE management system
and identify development priorities. Safety
leadership and risk management were identified
as the areas where the greatest improvement
could be made, as well as the key channels
through which to engage all employees
in the process of identifying and mitigating
hazardous conditions and actions.
In 2018, the Group used the results of a key risk
assessment as a basis for reviewing and updating
its cardinal safety rules to prevent the most
dangerous types of employee activity. These rules
must be followed by all employees and contractors.
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.
The current cardinal safety rules
It is forbidden to be on the territory of
enterprises in a state of alcoholic and/
or narcotic intoxication
It is forbidden to override protective
interlock equipment and security
systems without prior authorisation
It is forbidden to hide and distort the
circumstances of HSE incidents
When working at heights, it is forbidden
to not use safety systems for work at
height included in the work permit, as
well as personal protective equipment
against falls
It is forbidden to not use a seat belt in
personal transport on the territory of
enterprises and motor vehicles of the
employer
It is forbidden to smoke and/or use
open fire in coal mines and other places
where explosive hazards are present
It is prohibited to use explosive
materials for purposes other than those
specified in the Permit-to-Work, or not to
return to the warehouse the remnants
of explosive materials after blasting
operations, as well as to change the
designs of the detonator
It is prohibited to use machines and
equipment not intended for these
purposes to transport people
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.
In 2018, the number of occupational diseases
registered at EVRAZ facilities worldwide was
256 cases, compared with 256 cases in 2017.
The Group continues to closely examine working
conditions and strives 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.
Employees are compensated in accordance
with legislative requirements. When occupational
illnesses are registered, additional payments
are made from the social security fund,
including pension supplements. Personnel who
are prone to occupational illness also receive
free treatment at therapeutic resorts. The Group
also strives to proactively improve working
conditions in an effort to reduce the likelihood
of occupational illnesses occurring.
Results in 2018
LTIFR
The lost time injury frequency rate (LTIFR)
is a strategic KPI that is cascaded down
throughout the organisation in individual
management performance scorecards. In 2018,
the group did not meet its target of 1.72x,
closing the year with an LTIFR of 1.91x.
However, the Coal division reduced its LTI figure
and delivered an LTIFR reduction of 17% year-on-
year. For more information about EVRAZ efforts
to reduce the LTIFR, see “Key projects” below.
The Group’s main efforts in HSE were
in setting operational managers to lead
the HSE management systems and assess
the safety culture in their divisions. The
Group also implemented a project to improve
the quality of behavioural safety conversations
and reviewed the approach to integrating
contractors into the HSE system by standardising
the performance and planning of high-risk work.
Fatalities
In 2018, EVRAZ experienced six employee
fatalities, as well as four fatal incidents
involving contractors. There were two fatal
74
LTIFR (excluding fatalities),
per 1 million hours
Fatalities
Number of severe injuries
(incl. contractors)
Case study
2018
2017
2016
2015
2014
2018
2017
2016
2015
2014
1.91
1.90
2.36
2.18
1.60
4
4
6
6
6
0
10
3
12
7
10
10
6
13
19
EVRAZ employees Contractors
rock fall incidents involving employees, two
fatal incidents caused by equipment parts
breaking and falling, and two incidents in which
employees became trapped between moving
parts of equipment (violating restrictions against
approaching these moving parts). The main
critical risk categories identified were rock fall,
falling items and impact by moving or rotating
equipment. The group has ongoing focused
fatality prevention campaigns in each of these
critical risks areas to eliminate future repeated
root causes.
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 the corporate team and operational divisions
in 2018, including falling from height prevention,
traffic management and safety routes, gas
safety, contractor management, and electrical
safety, among others.
For each incident, a so-called “90-day plan”
is developed to properly eliminate root causes
2018
2017
2016
2015
2014
Severe injuries (incl. contractors)
AMHW, million (without contractors)
35
115
38
126
45
133
38
148
51
167
MODERNISATION
OF EQUIPMENT
TO IMPROVE
OPERATIONAL SAFETY
EVRAZ is systematically modernising
its primary equipment, which
significantly helps to reduce the
risk of injury to personnel, improve
working conditions and eliminate
negative environmental impacts.
75
Annual report& accounts2018www.evraz.comStrategic reportBusiness reviewCSR REPORTCorporate governanceFinancial statementsAdditional information Key projects
Case study
DIRECTIONAL DRILLING
ENVIRONMENT
Corporate-wide initiatives in 2018 were once
again focused on cultural change through
improving the safety behaviour of employees
and contractors.
Safety conversations
The Group has shifted its focus to the quality
of the behavioural observation and related
safety conversation. This has improved
the documentation of unsafe actions and related
behaviour, helping to correct them before they
lead to incident and injury. In 2018, behavioural
safety conversations were conducted with nearly
all employees.
A key aspect of improving the quality
of behavioural safety conversations is maintaining
a structured approach. This entails holding
the safety conversations after a routine
behavioural observation and subsequent
comparison with step-by-step operations
cards. As these cards are created specifically
for the most dangerous operations (for
example, putting derailed railcars back
on the tracks, or servicing cold-cutting
saws, among others), the observations
and conversations are focused on the primary
risks. In 2018, step-by-step operations cards were
developed for the operations that were identified
as critical risks during the year.
Case study
Hazardous area
ON
The system lock makes it possible to turn
on the machine when only one worker (the
operator) is present in the security perimeter
Hazardous area
OFF
The machine is locked by switching off
the power supply when any employee enters
the security perimeter
Hazardous area
OFF
The machine is locked by switching
off the power supply when the operator
is not present
76
VLD-1000 directional drilling system
Contractor safety
EVRAZ continues to integrate contractors into its
HSE management system. An important aspect
of this integration is increasing the accountability
of contract holders for the HSE performance
of contractors. In addition, the basic principles
of working with and oversight of contractors have
been revised. A vital aspect is ensuring that all
contractors’ safety procedures are monitored
uniformly, both when planning and providing
access to work, as well as during its performance.
Monitoring the safe work of contractors
begins with a method statement reviewed
by a subject matter experts. In the process
of preparing and performing work, contract
holders are required to pay special attention
to permission and performance of work
under a Permit-to-Work.
SYSTEM TO MONITOR
FOR THE PRESENCE
OF PERSONNEL IN
HAZARDOUS AREAS
To prevent injuries from the moving
parts of tunnelling machines, a
system has been developed to lock
the machine when personnel are
present in hazardous areas. System
installation began in 2018 and is
expected to be completed in the
first half of 2019. The system works
by locking out the machine from
being able to operate without the
authorisation of the operator and/
or when unauthorised personnel are
present during tunnelling operations.
In 2018, the introduction of directional
drilling technology made it possible
to increase the volume of methane
extracted to 45 million cubic metres.
Overall, more than 365 kilometres of
degassing holes were drilled.
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 (for example, the risk
of falling from height and LOTO implementation),
but also consider historic trends to prevent
reoccurrence of past incidents.
For additional information, see EVRAZ first
Sustainability Report for 2018, which is to be
published in May 2019.
Objectives for 2019
In 2019, in addition to continuing the division-
specific key risk programmes, EVRAZ plans
to continue implementing the key initiatives
targeted at developing a safety culture.
Risk management
EVRAZ has had a risk-assessment
standard in place for several years that
has helped to create a list of key risks
based on an assessment of their likelihood
and the severity of their consequences. However,
the Group now needs to actively engage its
operational staff more directly in the process
of identifying and mitigating risks. In 2019,
the existing HSE toolkit will be reviewed
and adjusted to ensure maximum employee
engagement in identifying the hazards they face
so as to help foster conscious safe behaviour.
Contractor safety
In 2019, the Group will continue to further
integrate contractors into its HSE management
system. The primary focus will be on fully
implementing the principles for working
with contractors that were developed in 2018,
including planning, controlling access
to and monitoring the performance of work.
Functional cross-audits of contractors’
management processes are planned to ensure
that they meet corporate standards.
OUR APPROACH
EVRAZ prioritises the mitigation of
possible environmental impacts from
its steel and mining operations by
introducing best management practices
and adopting advanced technology.
This helps the Group to prevent or
control any undesired environmental
consequences while consuming less
energy and natural resources.
These operations are subject to strict
environmental legislation requiring
that EVRAZ complies with the terms
of special environmental permits
and licences, which generally entails
certain environmental commitments,
recruiting qualified personnel,
maintaining necessary equipment and
environmental monitoring systems, and
periodically submitting information to
environmental regulators. Failing to
comply with any of these requirements
could potentially lead to the
suspension, amendment, termination
or non-renewal of the environmental
permits and licences. The Group could
also incur significant costs related to
eliminating or remedying any such
violations.
Understanding that its production
processes entail certain environmental
risks and liabilities, EVRAZ is focused
on preventing or minimising of any
potential adverse environmental
consequences from its operations.
The Group’s corporate management
system includes environmental
procedures based on the plan-do-
check-act (PDCA) model. It has
been developed to promote EVRAZ
health, safety and environment (HSE)
policy principles and support its
environmental strategy implementation,
which includes environmental risk
assessment, planning, legal compliance
management, reporting and other
processes.
For all new operations and projects,
the Group performs environmental
and social impact assessments
(ESIAs) that engage with local and
regional governments, businesses
and community members in the
affected area. EVRAZ uses ESIAs to
assess how the new operations might
potentially impact the local community
and surrounding environment, both
directly and indirectly. As part of the
ESIA process, the Group establishes
mitigation plans to minimise and
manage any potential impact and
engages with local communities
throughout the project’s life to discuss
any decisions that may be made.
EVRAZ strictly complies with the
registration, evaluation, authorisation
and restriction of chemicals
(REACH) regulations concerning
various substances supplied to or
manufactured in the EU (European
Economic Area) by the Group’s
assets. EVRAZ 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.
Another aspect of the Group’s
environmental programme is training
courses and seminars to encourage
the exchange of experience by its
specialists in the field.
EVRAZ also employs environmental
audits (due diligence) to perform
environmental liability and risk
assessments of existing sites and
assets being acquired.
Throughout its operations, the Group
has introduced an environmental
management system that it has
developed based on the corporate
approach and prioritises international
certification, which, while not a legal
requirement, has led to seven of the
Group’s sites obtaining ISO 14001
certification, including core operations
like EVRAZ NTMK and EVRAZ ZSMK.
For additional information see EVRAZ first
Sustainability Report for 2018, which is to be
published in May 2019.
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.
EVRAZ has adopted new, five-year environmental
targets (covering 2018–22) aimed at:
▪ Decreasing fresh water consumption by 10%
▪ Recycling 95% of annual non-mining waste
▪ 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 2018–24. As of 31 December 2018,
the estimated cost to implement these
programmes totalled US$121 million.
In 2018, EVRAZ spent US$30.1 million
on measures to ensure environmental
compliance and US$29.8 million on projects
to improve its environmental performance.
Non-compliance-related environmental levies
and penalties were US$2.2 million.
The Group’s assets had no significant
environmental incidents or material
environmental claims during the reporting
period.
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.
The Group’s primary biodiversity efforts include:
▪ Restoring damaged lands and landscaping
▪ Restoring of water biodiversity
▪ Implementing social and environmental
initiatives
77
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3.5 thousand trees
72.3 thousand fry
were released into local rivers in 2018
EVRAZ implements long-term projects aimed
at compensating for its environmental impact.
▪ Since 2011, the Abagursky branch of EVRAZ
ZSMK has been working on the reclamation
of its old tailings storage No. 2. In 2018,
the site completed the dehydration and land
planning stages of the project. The biological
reclamation will begin in 2019.
▪ Since 2015, the Raspadskaya mine has been
implementing a long-term project to recover
land damaged during open-pit mining
(138 hectares).
▪ In 2018, a project for landscaping damaged
lands of the old waste storage section at EVRAZ
ZSMK was completed. Overall, 17.9 hectares
of land were restored and 2,400 pine seedlings
were planted.
▪ Work to landscape industrial sites and sanitary
protection zones at facilities continued in 2018.
As part of EVRAZ environmental initiatives, trees
are planted in parks, public squares, town/city
streets and in the territory around kindergartens.
Young trees brought from mine allotments where
the forest is subject to felling are often used
for planting as part of the “Second Life for Trees”
initiative.
To restore aquatic biodiversity, the Group releases
juvenile fish into the rivers of Kemerovo region
and Sverdlovsk region.
EVRAZ social and environmental initiatives include:
▪ “Environmental Saturday” voluntary work days –
cleaning parks, planting trees and putting up
birdhouses
▪ “Second Life for Trees” initiative – replanting
young trees from mining allotments where
the forest is subject to logging
▪ “Big Green Games” – environmental
competitions among local companies in which
teams choose their own areas to clean up
▪ “Clean Games” environmental quest –
teamwork in collecting and sorting garbage
in parks
▪ “Clean Shore” initiative – helping to clear debris
from the protected watersheds of the Bolshoy
Unzas, Kondoma and Maly Bachat rivers
▪ “Live Spring” initiative – improving natural
springs
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 2018, the key air
emissions dropped by 6.5% year-on-year.
The current strategy for reducing air emissions
envisages upgrading gas treatment systems,
introducing modern technology and eliminating
obsolete equipment.
In 2018, EVRAZ ZSMK completed
the reconstruction of the gas treatment
equipment at its sintering facility and made
several improvements to reduce the plant’s key
air emissions by 6.5 thousand tonnes in 2018.
EVRAZ NTMK brought blast furnace No. 7 online
during the reporting period. Emissions from pig
iron produced in the furnace are captured
and impurities are removed using bag filters,
which minimises atmospheric pollution. The
powerful aspiration system has reduced
the residual dust content of the exhaust
gases by 40%. The technical re-equipment
of the aspiration system for mixers No. 1, 2
and 3 in oxygen converter shop No. 1 is being
completed, and the capital repair programme
for the dust-gas cleaning equipment is being
implemented at the plant’s shops and production
lines. EVRAZ NTMK’s key air emissions have been
reduced by 0.5 thousand tonnes.
Greenhouse gas emissions
EVRAZ 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.
EVRAZ 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,
the Group measures the full GHG emissions at its
facilities and has taken part in the CDP Climate
Change Programme since 2011.
Key air emissions,1 kt
2018
2017
2016
2015
2014
128.21
137.11
130.68
134.17
124.24
A key aspect of EVRAZ strategy is to reduce GHG
emissions by consuming fewer energy resources.
The Group has set a five-year target for its Steel
segment to keep the GHG intensity ratio below
2 tonnes of carbon dioxide (CO2) equivalent (tCO2e)
per tonne of steel cast. In 2018 the target was
almost achieved (2.005).
EVRAZ measures direct (Scope 1) emissions
of all seven “Kyoto” GHGs2 and indirect (Scope 2)
emissions from the use of electricity and heat. The
inventory approach3 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. The
Group reports data in terms of tCO2e, calculated
using the IPCC 2006 global warming potentials.
EVRAZ has collected GHG emissions data for 2018
and compared them with the 2014-17 levels. The
Steel segment continues to generate more than
half of the gross GHG emissions from the Group’s
operations. Nearly 91% 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 2018, the overall GHG emissions from EVRAZ
operations decreased by around 6.9% year-on-
year. Emissions of CO2 fell by 5.3% (or 1.49 million
tCO2e) due to the cease in operations in Ukraine
and lower steel production at EVRAZ NTMK.
In the Coal segment, CH4 emissions reduced
by 7.6% (-625 ths.tCO2e) as a result of lower
volumes of underground mining (-1.4 mln.t)
and higher open pit mining at Raspadskiy Open Pit
and Raspadskaya-Koksovaya (+2.67 mln.t).
In 2018, the Group decreased its
Scope 1 emissions by 6% and brought down its
Scope 2 emissions by 15%. The former was due
to a reduction in both carbon dioxide and methane
1 Air emissions calculation perimeter differs from the calculation perimeter of GHG emissions.
2 Carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC) and perfluorocarbons (PFC), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3)
3 The 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.
2.005
2.02
2.11
2.09
2.18
During the reporting period, the ongoing
programmes to improve the water management
at EVRAZ operations continued to deliver
environmental benefits. In 2018, the Group
consumed 93 million cubic metres less fresh
water than in 2017, for a year-on-year reduction
of 29.1%. Almost 85.3 million cubic metres
have been excluded out of the balance due
to the exclusion of assets in 2018.
The new five-year target is to decrease
fresh water consumption by 10% compared
with the baseline of 2016. The Group has set
2016 (231 million cubic metres) as a new
baseline, taking into account asset exclusion.
While water pumped from mines (dewatering)
is not included in the fresh water consumption
target, pumped water is partly used
for technological needs. In 2018, EVRAZ pumped
out and used 17.36 million cubic metres of mine
water, compared with 21.15 million cubic metres
a year earlier.
Specific Scope 1 and 2 GHG emissions
from Steel segment (incl. NA),
tCO2e per tonne of steel cast
EVRAZ GHG emissions in 2018,
million tCO2e
34.56 4.23
25.47
2.68
0.75 0.64
8.34 0.91
EVRAZ Total
Steel segment
Steel, NA segment
Coal segment
2018
2017
2016
2015
2014
Direct emissions (Scope 1)
Indirect energy emissions (Scope 2)
EVRAZ target
2
emissions, which accounted for some 5% of total
emissions, while the latter was due to lower
energy purchases at EVRAZ ZSMK and the cease
in operations in Ukraine.
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
emissions in the Steel segment per tonne of steel
cast for 2014-18.
Water consumption
and discharge
EVRAZ strives to make efficient use of water
resources and prevent any negative water quality
impacts through environmental incidents.
In 2018, almost 81% of the Group’s total water
intake came from surface sources, including
rivers, lakes and reservoirs, down 4 percentage
points year-on-year.
GHG emissions per net revenue,
kg CO2e/US$
Fresh water intake for production
purposes,4 million cubic metres
EVRAZ
Steel segment
Steel, NA segment
Coal segment
2018
2017
2018
2017
2016
2015
2014
3.0
3.8
3.2
3.9
0.5
0.8
4.0
4.4
Updated target – 207 mln m3
226.49
Target – 295 mln m3
319.43
327.60
340.23
332.13
EVRAZ GHG emissions, million tCO2e
Direct (Scope 1)
CO2
CH4
N2O
PFC and HFC
SF6
NF3
Indirect (Scope 2)
Total GHG emissions
2018
34.56
26.86
7.64
0.06
0.00009
–
–
4.23
38.79
20175
36.68
28.35
8.26
0.06
0.00003
–
–
4.97
41.65
2016
35.81
28.76
6.99
0.07
0.0001
–
–
5.02
40.83
2015
36.87
29.13
7.67
0.07
0.0002
–
–
6.17
43.04
2014
39.05
31.08
7.89
0.08
0.0002
–
–
7.96
47.00
4 Calculation perimeter includes the following subsidiaries: EVRAZ NTMK, EVRAZ KGOK, EVRAZ ZSMK, Evrazruda, EVRAZ DMZ, Raspadskaya Coal Company, EVRAZ Caspian Steel, EVRAZ Palini e Bertoli, EVRAZ
Vanady Tula, EVRAZ Stratcor, EVRAZ Nikom, EVRAZ Calgary, EVRAZ Camrose, EVRAZ Portland, EVRAZ Pueblo, EVRAZ Red Deer, EVRAZ Regina.
5 The results for 2017 were recalculated due to improvements in data quality and several identified inaccuracies regarding material flows, which resulted in a downward correction of 0.017 million tCO2e for
Scope 1 emissions.
78
79
Annual report& accounts2018www.evraz.comStrategic reportBusiness reviewCSR REPORTCorporate governanceFinancial statementsAdditional information
Environment
case studies
WATER USE
BIODIVERSITY
EVRAZ ZSMK
LAUNCHES MODERN
FISH DIVERTER
A fish diverter has been installed at the on-shore
pumping station to help safeguard young fish
in the Tom River water intake.
The on-shore pumping station supplies water
to the West Siberian Thermal Power Plant.
Previously, fish were frequently harmed
in the water intake. Now, a dual-stage fish
diverter helps to prevent this. The first stage
is a fine screen that does not allow large
or medium-sized fish into the pumping
station’s intake chamber. The second stage
is an electronic system to keep young fish away.
An electrical pulse is sent through electrodes
at a certain amplitude, creating an electrical
field that diverts fish from the intake chamber
and back into the river.
EVRAZ ZSMK REDUCES WATER
INTAKE FROM TOM RIVER
EVRAZ ZSMK has launched a new slurry thickening facility for the gas
cleaning equipment at its blast furnaces. The new equipment will reduce
annual wastewater discharge and water intake from the Tom River
by nearly 3 million cubic metres.
Previously, the water that was used to purify blast furnace gases was
sent to the plant’s slurry storage facility. Now, it is sent to a machine
that separates and thickens the slurry. The clarified water is re-used
in production, closing the blast furnace shop’s water supply cycle.
In 2019, EVRAZ ZSMK plans to install similar equipment at its second basic
oxygen furnace shop, which will reduce annual water intake by another
1.5 million cubic metres. This will effectively close the water supply cycle
for the plant’s main metallurgical conversion facility.
RASPADSKAYA GIVES TREES A SECOND LIFE
Employees of Raspadskaya have continued what has become an annual tradition of planting trees
at childcare centres in Mezhdurechensk. In 2018, saplings from a mining allotment where the trees
will be cleared were transplanted at the Kalinka childcare centre. In total, around 100 birch, acacia
and fir saplings were transplanted at the kindergarten.
EVRAZ NTMK’S ECOLOGISTS
PLANT ‘GREEN DOCTORS’
EVRAZ NTMK’s ecologists have planted ‘green doctors’ in the draining pond
of the Vyazovka River and Nizhny Tagil pond, including chlorella algae,
water hyacinth roots and, for the first time, water lettuce plants.
The chlorella algae multiply rapidly in the pond water, absorbing carbon
dioxide and saturating the water with oxygen, which oxidises organic
and inorganic substances.
The root system of the water hyacinth, which closely resembles an orchid,
cleans the water effectively. This year, the ecologists experimented
with water lettuce plants, which originated in Africa. Unlike the water
hyacinth, it takes root in the bottom of the water body, forming a barrier.
Its roots also have an effective cleansing factor.
80
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Annual report& accounts2018www.evraz.comStrategic reportBusiness reviewCSR REPORTCorporate governanceFinancial statementsAdditional information Waste management
AWARDS
Waste recycling rate, %
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.
2018
2017
2016
2015
2014
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 off 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 is forecast to decline going forward. The
management has decided to continue its waste
minimisation efforts and set a target to reuse
or recycle at least 95% of waste.
In 2018, EVRAZ steel mills generated
7.95 million tonnes of metallurgical waste
and by-products, including slag, sludge, scale
and others, and recycled or re-used 8.85 million
tonnes of material. Overall, the Group recycled
or re-used 111.3% of non-mining waste and by-
products in 2018, compared with 104.7% a year
earlier.
Waste management strategy
111.3
104.7
120.1
126.3
110.0
EVRAZ NTMK “Leader in Environmental
Management in Russia – 2018 as the best
environmentally responsible city-forming
enterprise”. Awarding organisation: Russia-wide
Review Competition for Health and Ecology.
EVRAZ ZSMK “Winner of the Ecology
and Environmental Management 2018
competition”. Awarding organisation:
Independent Public Council “100 Best
Organizations of Russia”.
retirement. All the dams have safety zones
now and one village (107 houses) has been
completely resettled by EVRAZ to avoid victims
in case of accident with the EVRAZ ZSMK
dam. The process procedures are controlled
by the operations and audited by the HSE
personal of the sites, the regulator’s inspectors
and the group’s internal auditors. In 2016, two
out of three dams were audited by industrial
safety auditors and the measures to improve
the effectiveness of controls were proposed. All
the measures have been implemented. The next
audit of dams operation will be conducted during
2019. The management review of the issue was
conducted during the HSE Committee of BoD
held on 5 February 2019.
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 2018, 26% or 60.7 million
tonnes of such waste material were re-used,
compared with 29.7% or 50.4 million tonnes
in 2017.
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.
The largest tailings dams of EVRAZ are owned
by EVRAZ ZSMK, EVRAZ KGOK and Evrazruda.
The company has a dam safety management
system in accordance with the current legislative
procedures that cover all stages of dam life
cycle: design, construction, operation and asset
Improve technological processes to enhance product quality.
Secure by-products without generating waste.
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).
MINIMISE AT THE SOURCE
RE-USE
RECYCLE
BURN AS FUEL / GENERATE HEAT
STORE
BURN
e
c
n
e
r
e
f
e
r
p
f
o
r
e
d
r
O
ENERGY EFFICIENCY
The Group strives to minimise the energy
intensity of its operations while increasing
its own capacity to generate electricity.
EVRAZ also constantly optimises
the consumption of resources in its production
process and improves the energy efficiency
of its equipment.
Steel segment
Steelmaking
As the Steel segment’s Russian operations
are the Group’s primary production segment,
EVRAZ pays special attention to the energy
efficiency of its production.
A key driver of the Steel segment’s energy
efficiency improvement efforts is reducing
the energy intensity of production. In 2018,
the Group compared its operations with those
of global peer companies and set a target
of cutting its energy consumption in five years.
The forecast financial effect of this initiative
will be reached as a result of several factors:
▪ Reducing the energy intensity of technological
processes
▪ Optimising the ratio of internally generated
and purchased energy
▪ Eliminating energy losses during transit
▪ Using secondary resources
▪ Selling energy resources to third parties
EVRAZ ZSMK (Russia). In 2018, EVRAZ
ZSMK increased its internal generation
of electricity and of heat while reducing specific
fuel consumption for electricity generation
and for heat generation.
In addition, EVRAZ ZSMK began development
of a risk management program for the main
energy flows, and designed the options to ensure
the independence from the third-party thermal
energy supplier – Central CHP with the aim
to eliminate steam consumption from it in 2023.
Steel, North America
segment
EVRAZ NTMK (Russia). In 2018, EVRAZ
NTMK reduced its electricity consumption
and exceeded its planned volume of internal
generation. Natural gas consumption fell. The
increase in internally generated electricity made
it possible to decrease electricity purchases
during the reporting period.
EVRAZ NTMK also installed more energy efficient
lighting in its workshops, built a converter
steam utilisation station and installed new heat
exchangers to heat the blast furnace gas.
In 2018, EVRAZ North America’s management
focused on negotiations with natural gas
suppliers after the prices for this fuel surged due
to a pipeline incident in October 2018. EVRAZ
North America closely monitors the natural gas
consumption at its facilities.
In 2018, EVRAZ continued to install more energy
efficient lighting at its operations in Canada.
In addition, it replaced the heating furnaces
at EVRAZ Camrose and EVRAZ Edmonton
Coupling Machining with more efficient units.
Iron ore mining
EVRAZ KGOK (Russia). In 2018, EVRAZ KGOK
cut its electricity consumption. To achieve
this, more energy efficient lighting was installed
in the enrichment workshops and an automatic
electricity metering system was installed
in the pellet workshop. The latter will make
it possible to analyse electricity consumption
in real time and take timely decisions to save
resources.
Evrazruda (Russia). In 2018, employees
at Evrazruda facilities analysed energy
consumption at each step of the production
process. Electricity consumption fell as a result
of replacing equipment (switching to modular
compressor stations at the Sheregeshskaya
mine, launching a low-power turbo compressor
at the Tashtagolskaya mine and installing a low-
power boiler at the Abagurskaya plant), among
other measures.
The cost of electricity and steam was reduced
by decommissioning and mothballing the main
ventilation fan at the Sheregeshskaya mine,
as well as installing modular compressor
stations.
Due to the growth in production volumes
in 2018, total electricity consumption
in the segment rose while natural gas
consumption fell.
Coal segment
In 2018, the Coal segment further implemented
its energy efficiency programme. After
updating the operating schedule and reducing
power consumption during the hours when
electricity is purchased from the wholesale
market, the segment achieved its goal
of reducing electricity costs by 3%. Training
employees on the main energy efficiency
goals and objectives as part of the “School
for Young Specialists” played a significant role
in this achievement.
Due to increased production volumes in 2018,
the segment’s total electricity consumption rose.
For additional information see EVRAZ first
Sustainability Report for 2018, which is to be
published in May 2019.
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Annual report& accounts2018www.evraz.comStrategic reportBusiness reviewCSR REPORTCorporate governanceFinancial statementsAdditional information
Social policy
OUR PEOPLE
OUR APPROACH
EVRAZ knows that its success is
predicated on its people and places a
particular emphasis on human capital
development. The Group prioritises
compliance with national legislation
wherever it operates, including
regulations governing labour protections,
minimum wage, annual paid and
parental leave, collective bargaining
agreements, health insurance, pensions,
personal data protection and other
matters.
EVRAZ does not tolerate discrimination
in any form. The Group’s Code of Ethics
and Code of Conduct underpin its
compliance with the requirements of
international human rights laws. These
documents ensure equal opportunity
in hiring and prohibit discrimination on
the basis of race, age, gender, religious
and political beliefs, sexual orientation,
nationality, ethnicity, citizenship,
marital status, disability, etc. During the
onboarding process, all employees are
familiarised with the internal labour and
payroll regulations, as well as EVRAZ
Code of Conduct, Cardinal Safety Rules
and Anti-corruption Policy.
Personnel profile
Headcount
As at 31 December 2018, EVRAZ had
a total of 68,379 employees, a reduction
of 3% year-on-year. In 2018, to better achieve
the Group’s strategy, it divested its assets
in Ukraine and sold EVRAZ DMZ, which was
one of the primary factors that influenced
the headcount reduction in the year.
Diversity
EVRAZ sees diversity as a crucial business
driver and strives to ensure that all employees’
rights receive equal protection, regardless
of race, nationality or sexual orientation.
Diversity improves business efficiency, increases
engagement and stimulates employee
development.
The Group believes that effective decision
making and business management stems
from having a diversity of opinions. In 2018,
84
One of the Group’s core principles
is mutual respect. EVRAZ works in a
multicultural environment where everyone
deserves respect and prohibits the use
of offensive, abusive, discriminatory,
degrading or aggressive speech, in both
oral or written form, as well as verbal or
physical sexual harassment and actions
or expressions that offend a person’s
honour and dignity. Child labour, bonded
labour, human traffcking and other forms
of slavery (known as modern slavery) are
strictly prohibited at all EVRAZ subsidiaries
and their suppliers.
Notably, most of the Group’s full-time
staff (around 94%) are located in Russia
and CIS. The entire Russian labour law
system is based on general international
legal principles and norms, and contains
rules explicitly prohibiting any form of
discrimination based on gender, social
status or class, and any other factors
not directly related to an employee’s
professional qualities. Similar rules
exist in the national legislation of other
countries where EVRAZ operates, and
local governments constantly monitor
compliance with them. In addition, worker
treatment is monitored by public
organisations, including the trade unions
active at the Group’s operations, as
well as regional and federal trade union
associations and representatives of
Russia’s Presidential Council for Civil
Society and Human Rights.
The Group holds its partners to equally
high human rights standards. EVRAZ
policies require that all contracts with
partners include sections governing the
prevention of corruption and human
trafficking.
In 2018, the issue of discrimination
was covered for the first time in the
annual “We are together” employee
engagement survey. Based on the
responses received from employees,
focus groups will be held in 2019 and
an action plan will be developed. At the
year-end, the survey will be repeated to
assess the programme’s effectiveness.
For additional information see EVRAZ first
Sustainability Report for 2018, which is to be
published in May 2019.
Number of employees as of
31 December 2018, thousand people
Breakdown of employees by age as of
31 December 2018, %
2018
2017
2016
2015
2014
68.4
70.2
77.8
84.5
94.8
68,379
employees
Breakdown of employees by region
in 2018, %
68,379
employees
Russia and CIS
Noth America
Europe
Breakdown of permanent
and temporary staff, %
2014
2015
2016
2017
2018
Staff recruitment policy
EVRAZ is focused on identifying and eliminating
risks in the field of human rights, including those
related to hiring staff and working conditions.
Staff recruitment is conducted in full compliance
with the laws of the countries in which the Group
operates. EVRAZ strives to provide opportunities
in hiring and career development for all
candidates and employees, regardless of gender,
age, ethnicity, nationality, religion, etc.
EVRAZ recruitment principles include:
▪ Safety
▪ Respect for people
▪ Performance and responsibility
▪ Customer focus
▪ Effective teamwork
In accordance with the Group’s policy, staff
are recruited under permanent employment
contracts except for certain cases, when fixed-
term contracts are used, including:
▪ University students undergoing practical
training
▪ Interns
▪ Seasonal workers, for example, summer camp
staff and employees hired to unload coal
from railcars in winter
▪ People participating in investment projects,
who are hired for the duration of the project
Staff reduction policy
EVRAZ strives to consistently improve efficiency.
This is a complex task that ultimately leads
to increased labour productivity. In cases
where staff are laid off as a result, the Group
approaches this as responsibly as possible,
guided by its Socially Responsible Layoff
Programme, which it adopted in 2012. The
provisions of this programme are enshrined
in EVRAZ collective agreements. In addition,
the Group’s collective agreements and industry
tariff agreements include detailed employment
sections.
Under Russian law, the following categories
of employees have additional guarantees against
dismissal due to downsizing:
▪ Single mothers raising a child with a disability
under the age of 18
▪ Single mothers raising a child under the age
of 14
▪ Women with children younger than three years
▪ Parents (or other legal guardians) who
are the sole breadwinner for a child
with a disability under the age of 18 if
the other parent is not employed
▪ Parents (or legal guardians) who are the sole
breadwinner for a child younger than three
years in a family raising young children (three
or more) if the other parent is not employed
▪ People hired to cover for employees
▪ Women who are pregnant
on parental leave
93.6
6.0
0.4
100
90
80
Permanent
Temporary
▪ Employees hired with a probationary period
Diversity of employees, senior
management and directors, %
(number of people)
78% (7)
88% (296)
Board
Senior management
Employees
22% (2)
12% (41)
73% (49,407)
27% (18,635)
Men
Women
Compensation does not differ for employees
under fixed-term and permanent contracts
(except for university students undergoing
practical training, as well as internal and external
part-time workers, who do not receive annual
bonuses or vacation travel vouchers). Employees
hired on fixed-term contracts receive hiring
preferences for permanent positions matching
their qualifications, education and work
experience.
In addition, the preferential right to maintain
employment under equal professional qualities
is granted to:
▪ People in families with no other independent
income
▪ Employees with two or more dependents
▪ Employees who suffered an occupational
illness or work-related injury while employed
at the Group
▪ Employees who were sent to employer-
sponsored on-the-job training
the Board of Directors was joined by a new
independent non-executive director, Laurie Argo,
bringing the number of women on the Board
to two of nine seats (22%). In addition, Yanina
Staniulenaite was appointed as vice president
responsible for legal matters, bringing
the number of women on the management team
to two of 16 members (12.5%).
<20
20-29
30-39
40-49
50-59
>60
0.2
14.8
30.5
29.8
20.3
4.4
Employee turnover, %
Region
Russia and CIS
North America
Europe
2018
2017
2016
2015
2014
Overall
Voluntary
Overall
Voluntary
Overall
Voluntary
Overall
Voluntary
Overall
Voluntary
12
20
9
7
13
5
11
23
8
6
14
2
14
26
18
5
15
10
12
20
22
5
12
14
17
20
15
7
14
9
85
Annual report& accounts2018www.evraz.comStrategic reportBusiness reviewCSR REPORTCorporate governanceFinancial statementsAdditional information Beginning in 2019, Russia is introducing
additional protections for employees who have
five or less years remaining to retirement age.
Such employees cannot be dismissed without
cause due to their attainment of pre-retirement
age, nor can employment be denied on such
grounds.
In addition, EVRAZ grants the preferential
right maintain employment to a broader group
of employees than that defined under Russian
law, including:
▪ Single fathers raising a child under the age
of 16
▪ People whose spouse is retired or unemployed
▪ People who were raised in orphanages
and are under the age of 30
▪ College and university graduates within three
years of signing the employment contract
for their first job
▪ People with disabilities who have not reached
retirement age
▪ Spouses, children under 23 years or parents
of an employee who died as a result
of an accident at work
▪ People who became ill due
to the consequences of the accident
at the Chernobyl nuclear power plant
EVRAZ strives to retain its production staff.
During staff reductions, the Group offers all
employees, without exception, existing vacancies
and, if necessary, pays for training in their new
professions. EVRAZ works with employment
centres in the regions where it operates and, if
necessary, arranges the relocation of employees
to the Group’s facilities in other regions. EVRAZ
also provides training and financial assistance
to workers who are laid off and wish to open
their own business.
In the event of temporary staff reductions,
collective agreements contain clearly defined,
specific measures to support workers
and preserve jobs: changing work schedules,
introducing shorter work days or work weeks,
creating temporary jobs, transferring employees
to other jobs, with their consent, etc. Collective
agreements also define the Group’s obligation
to develop a social adaptation programme
for workers with the participation of the trade
union organisation. All decisions regarding staff
reductions are made in dialogue with the trade
union organisation.
Performance management
EVRAZ continues to improve its system
of KPIs. Technical KPIs have been developed
in accordance with best industry practices
(monitored by the Group’s CEO) and are built
into the staff motivation system. Corresponding
KPI targets are included in management’s
scorecards down to the level of shop managers.
86
Case study
MERGER OF
EVRAZ ZSMK
AND EVRAZRUDA
In 2018, two of the Group’s
subsidiaries – EVRAZ ZSMK and
Evrazruda – were merged into a
single legal entity, EVRAZ United
West Siberian Metallurgical Plant.
It was highly difficult to merge
two groups of employees without
problems from subsidiaries located
in distant territories, each with
its own history, traditions and
economics.
The Group prepared carefully in
advance: trade union organisations
were invited to solve problems that
workers encountered and establish
an ongoing dialogue with employees
and local communities. Effective
communication, as well as equalising
social benefits and protections,
helped to ensure that the merger
was closed on time, without any
social upheavals and without the
need to involve additional resources.
Learning and development
EVRAZ believes that by providing employees
every opportunity to grow within the organisation,
it helps to prepare the Group to overcome future
challenges and achieve ambitious goals.
In 2018, the EVRAZ Business System (EBS)
principles and tools played an important role
in employee training. In particular, managers
were trained to promote EBS transformations
and adopt a more challenging management
style.
To this end, the new “Top 300” corporate
programme was launched during the reporting
period. Its participants were taught such
management practices as performance
dialogues in target setting, feedback, delegation,
development of subordinates, among others.
Each programme participant (primarily
shop managers and mine directors) was
mentored by a member of the Group’s senior
management.
Preserving and developing engineering
competencies were a particular focus area,
including through the following events:
▪ A total of 40 people attended 11 programmes
of EVRAZ “Chief Engineer School”, two of which
involved a new format, the interdivisional
“School of Recycling” and “School of Energy
Efficiency”
▪ A total of 230 people attended corporate
scientific and technical youth conferences
in the Urals and Siberia divisions
▪ A total of 65 people attended 11 “Theory
of Inventive Problem Solving” (Russian
abbreviation: TRIZ) workshops
▪ A total of 20 people attended pilot workshops
on engineering analytics
On average, the Group’s employees received
89 hours of training during the year, 42 hours
of which was conducted via distance learning.
In addition, EVRAZ held the “Technology
is Changing. Are We?” corporate scientific
and technical conference, which aimed to create
visions of the future for the Group. After
the conference, a seed group of young engineers
went to work in each division on projects
curated by the technical director of their facility.
In addition, every engineer at EVRAZ received
a special educational resource called
“Engineernik” – a note pad with a problem-
solving algorithm that is useful for self-learning
and practical application.
Standard operating procedures and safe
working practices are key aspects of the Group’s
employee development efforts. EVRAZ
invests in training facilities for practical skill
development, introduces new safe working
methods and improves its production mentoring
system.
The Group is especially proud of its team’s
victory at the WorldSkills championship. In
2018, EVRAZ took part in the competition
for the fifth time, bringing home one gold, three
silver and three bronze medals. The Group was
represented by 15 participants and 28 experts.
Contractors
All of EVRAZ human rights and anti-
discrimination policies apply to suppliers
and contractors, as well. Each contract
with a partner must contain sections governing
the prevention of corruption and human
trafficking. All contractors working at the Group’s
facilities are also required to follow EVRAZ
Cardinal Safety Rules.
Existing outsourcing procedures require
a three-party agreement preserving workers’
social benefits and protections to be
signed between the Group, the outsourcer
and the primary trade union. Trade unions
are full participants in tendering procedures
when a service or deliverable directly concerns
EVRAZ employees (for example, when choosing
a supplier for personal protective equipment
(PPE) and exercising control, selecting
healthcare centres for wellness leave, etc).
Every EVRAZ employee must be familiarised
with the Contractor Auditing Policy as part
of the onboarding process. In 2019, the Group
plans to draft and approve regulations governing
the procurement of goods and services, which
will contain EVRAZ requirements for contractors,
as well as methods for monitoring
their compliance.
Communication with
employees
EVRAZ is committed to regularly engaging
with its workforce and realises the value
in listening to and acting on employee views
across the organisation.
EVRAZ uses a wide range of tools
to communicate with its employees, including
the corporate intranet and website, corporate
publications, social networks and web
conferences, as well as question and answer
sessions or townhalls with members of senior
management. In addition, the Group holds
general meetings and conducts employee
surveys to determine the level of satisfaction
with working conditions (including employee
engagement surveys).
The Board reviews the engagement data
and has appointed in 2018 two non-executive
directors to be envolved in townhall meetings
with employees and is therefore aware of any
trends, comments or concerns.
Work with trade unions
EVRAZ work with the trade unions representing
its workers’ rights is based on the principles
of social partnership. Senior management meets
regularly (at least once a week) with trade union
representatives at all Group facilities. Meetings
between EVRAZ management and trade union
leaders are held at the site of EVRAZ Social
Production Council, a special body created
by the Group to ensure the right of trade unions
to protect workers and receive first-hand
information.
The overall level of unionisation at the Group
is 75%, albeit with significant variations across
operations and countries. In Russia, collective
agreements are required by legislation to cover
all employees of an operating facility regardless
of whether they are union members. The
level of employees covered by the collective
agreements at EVRAZ Russian operations
is 90%. At legal entities that do not have
collective agreements due to the lack of trade
unions, local employer regulations are in place
to provide employees with social benefits,
protections and compensation in accordance
with the Group’s corporate policy.
The trade unions at EVRAZ Russian operations
are part of nationwide industrial unions (including
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. At the industry level, the Group
cooperates with trade unions through industry
employer associations, including the Russian
Coal Mining Industry Employers Association
and the Russian Metallurgists Association.
In 2018, there were no conflicts or collective
labour disputes at the Group’s Russian operating
facilities. All changes and updates of collective
agreements were constructive, in strict
accordance with the law and the principles
of social partnership. At every facility, trade union
conferences were held where the employees
confirmed that the terms of the collective
agreements were complied with in full throughout
the year.
Employee engagement
In 2018, for the third time, EVRAZ conducted
the “We are together” to develop local
and corporate-wide improvement plans. The
focus was on increasing employee awareness
of what is happening at the Group, including its
short- and long-term goals, facility development
plans and working conditions. The study was
conducted from 24 September to 24 October. In
2018, employees of the Shared Service Centre,
EVRAZ Metall Inprom and EvrazTekhnika were
included in the study for the first time.
The “We are together” employee engagement
study gives every employee the opportunity
to express their opinion about working at EVRAZ
and helps the management to understand
people’s concerns. Focus groups are currently
being held, after which each division will develop
a plan to eliminate pain points.
Employee engagement survey response
rate, %
2018
2017
74
76
Performance as an employer
EVRAZ regularly participates in contests that
confirm its status as a socially responsible
employer. In 2018, the Group won awards
for the social performance of its collective
agreements, as well as its HSE efforts,
in the 15th annual metals and mining industry
contest held by the Russian Metallurgists’
Association and the Central Council
of the Russian Mining and Metallurgical Union.
EVRAZ operating facilities have also received
regional awards for human resource
management, including from the city of Nizhny
Tagil and the OEE Award 2018.
87
Annual report& accounts2018www.evraz.comStrategic reportBusiness reviewCSR REPORTCorporate governanceFinancial statementsAdditional information EVRAZ Hotline
The Group uses the EVRAZ Hotline to help
monitor employee satisfaction and record
incidents at its operating facilities. To ensure
the hotline’s effectiveness, it is anonymous,
works 24/7, uses an IT system to handle
enquiries and has a transparent structure
of responsible persons. The process is regulated
by the EVRAZ Hotline Statutes. Enquiries
are broken down by the responsible business
unit (HSE, HR, Security, etc) to be investigated
and responded to. All requests related
to employee persecution are investigated
by the internal audit department. All difficult,
controversial or sensitive cases are reviewed
by members of the Hotline Committee, which
includes the vice president for corporate
communications, internal audit director
and internal and external communications
director. On a quarterly basis, the internal
audit director performs random quality control
reviews.
Breakdown of hotline enquiries
in 2018, %
743
requests
Labour relations
Health and safety
Security
General information
Others
63
15
10
8
4
In 2018, the hotline received 743 requests.
The most frequent issues concerned
labour relations, including the quality
of services for workers (174) and labour
compensation (78).
Case study
Motivation
Financial motivation
EVRAZ strives to look beyond compliance
with minimum wage requirements to ensure that
it compensates its staff adequately.
Since 2017, the Group has used a grading
programme where consultants helped
to evaluate roles within the organisation
and develop remuneration management
principles. The grading system and remuneration
management principles have improved
the transparency of employee remuneration.
In 2018, EVRAZ completed the job evaluations
(grading) for all positions except line workers
at its Moscow assets, regional managing
companies and trading network company,
including: EvrazHolding in Moscow and the Urals,
EVRAZ Trading Company, EvrazTekhnika, EVRAZ
Metall Inprom and EVRAZ Vanady Tula. The
Group’s Grading Committee also met regularly
at the corporate headquarters to evaluate new
jobs and ensure that the grading process is up
to date.
The grading helps to harmonise fixed
and variable compensation, ensure that pay
levels are market competitive and maintain
the proper ratio of fixed and variable
compensation. Based on the grading and market
COAL SEGMENT
RECRUITING CENTRE
High coal prices and an improved
economy have driven rapid growth in
the Coal segment, which has opened
new mines and open-pit operations,
as well as increased production at
existing facilities. This ultimately led
to a lack of both management and
line personnel.
In July 2018, a recruiting centre
began to be created for the Coal
segment. It reached its planned
capacity in September, helping to
significantly increase staffing levels
at the mines. The centre’s employees
are now working to improve the
Group’s brand as an employer and
expand the staff search geography.
EVRAZ collective agreements also provide
additional leave for childbirth, weddings
and funerals of close relatives. There is also
a programme that provides financial assistance
to employees in difficult life situations.
Key projects in 2018
As part of the corporate social policy,
voluntary health insurance programmes were
introduced at EVRAZ Vanady-Tula, EVRAZ Metall
Inprom, Evraz Metall Siberia and the Shared
Services Centre. The programmes were
developed to meet specific conditions (such
as the scattered branches of EVRAZ Metall
Inprom and Evraz Metall Siberia) and workers’
needs (for example, at EVRAZ Vanady-Tula,
employees need access to advanced dentistry,
including services for preparing for dental
prosthetics) while maintaining corporate
principles: availability and reliability of medical
organisations, provision of quality services
and co-financing by the employer. In addition,
telemedicine is now available to the Group’s
employees, providing for remote consultations
with doctors from Moscow, including highly
specialised doctors.
Objectives for 2019
In 2019, the Group plans to launch
a comprehensive health management
programme for its employees. The programme
will integrate all existing medical programmes
into a single IT-based system that will help
to improve employee healthcare. It will also
incorporate new approaches, including
identifying risk groups and offering both group
and individual preventative programmes.
A pilot project is also planned for EVRAZ ZSMK
that will cover all employees. In addition,
the “Top 300” programme will be introduced
for shop managers (mine directors) and higher.
Another priority in 2019 is developing
the production mentorship system for EVRAZ
employees.
Average wage ratio, EVRAZ vs the region
of presence
Kemerovo region
Tula region
Sverdlovsk region
1
1.50
1.62
1.32
practices, in 2018, EVRAZ systematised its
approach to determining the target annual
bonus. The principles governing the annual
merit increase were developed on the basis
of job evaluations and performance appraisals
and were implemented at the headquarters
and Urals managing company (EvrazHolding
in Moscow and the Urals).
In 2018, EVRAZ also launched the grading
program at its production assets, EVRAZ
NTMK and EVRAZ KGOK, to develop a unified
compensation system and remuneration
principles. The aim is to improve internal
fairness, transparency and competitiveness
of employee remuneration at every level. As
part of the EVRAZ Business System (EBS)
transformation process, the Group implemented
an employee motivation system aimed
at encouraging the achievement of ambitious
goals, developing workflow improvement ideas
and engaging employees at EVRAZ ZSMK
(including at the coke and sinter blast furnace
production, converter shops and rolling mill)
and EVRAZ NTMK (at the coke and chemical
production).
Non-financial motivation
As a socially responsible company, EVRAZ
offers its employees a broad non-financial
compensation package that exceeds
the minimal legislative requirements and is part
of total remuneration. The Group’s employees
receive voluntary health insurance, additional
voluntary insurance against accidents at work,
a government pension programme, a programme
that compensates part of the interest
on mortgage loans, free wellness leave vouchers
for employees and their families, etc.
EVRAZ also supports retired former employees
who worked 10 or more years at its facilities.
It has special programmes to support youth
and women that have been united into public
organisations. Cultural and sports events
are held for employees and their families
in the cities where the Group operates.
Children of employees receive gifts for the New
Year holidays and when they start first grade
in school.
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OUR APPROACH
EVRAZ adheres to international
corporate social responsibility
principles by investing in the future
of the regions where it operates.
This includes improving urban
infrastructure, labour conditions and
the lives of its employees and their
families, as well as implementing
various charitable, educational, sport
and environmental projects. The
Group fosters an open and productive
dialogue with all stakeholders,
including local governments, non-
governmental organisations, business
and cultural associations, and
the media. EVRAZ enterprises are
responsible taxpayers, contributing
to regional budgets and promoting
positive social and environmental
policy change in the cities where their
facilities are located.
EVRAZ has two charity funds that
operate in Siberia and the Urals. When
choosing projects to support, the
funds take into consideration EVRAZ
charity policy. This policy defines focus
areas for support, including funding
orphanages and needy families,
sponsoring educational, sport and
cultural projects, and subsidising
medical centres and environmental
programmes.
FEDERAL AND
REGIONAL EVENTS
AWARDS
EVRAZ actively supports social, sport,
environmental and cultural programmes
in the cities where it operates, including
hosting its own events and joining nationwide
initiatives. In 2018, the group was a partner
of the Clean Games in Kachkanar, a nationwide
environmental and educational project aimed
at cleaning up the environment and waste
sorting. In Ekaterinburg, EVRAZ again sponsored
the Grand Slam international judo competition.
The Group supports the Documentary
Film Centre in Moscow, the Yeltsin Centre
in Ekaterinburg and the Novokuznetsk Drama
Theatre.
“Steel Dynasties”, a joint online-project
of EVRAZ and Lenta.ru, won the “Special
Look” award for best internal corporate
communications project at InterComm 2018.
EVRAZ ZSMK and Raspadskaya were
recognised for their EVRAZ for Cities federal
programme with a gold medal “For Innovative
Social Leadership” in the “Corporate Charity
leaders – Siberia” contest, a joint project
of the Donors’ Forum, PwC and Vedomosti
newspaper.
PUBLIC
ORGANISATIONS
AND BUSINESS
ASSOCIATIONS
EVRAZ is a member of important industry
and business associations, including
the Russian Managers’ Association, Russian
Union of Industrialists and Entrepreneurs,
Russian Steel, Russian Metallurgists’
Association, Steel Construction Development
Association, National Association for Subsoil
Examination, Association of Railway Product
Producers and Russian Railways Consumer
Council.
KEY
PROJECTS
Activities
▪ EVRAZ continued to fund rehabilitation programmes for children with cerebral palsy in Nizhny Tagil,
Novokuznetsk, Kachkanar and Mezhdurechensk.
▪ In Tula region, the Group organised a summer outing for children with autism and acquired
equipment, furniture and toys for children with health limitations.
▪ In Novokuznetsk, EVRAZ made charitable donations to the Ostrov Nadezhdy, Orphanage School
No. 95 and Rovesnik orphanages to implement social projects and assist grown children when they
leave the orphanages.
▪ The Group gave holiday presents to disadvantaged children in Tula, Kemerovo and Sverdlovsk
regions.
▪ In Nizhny Tagil, EVRAZ provided equipment for a sport field and playground at School No. 81.
▪ The Group provided funding for laboratory equipment and to improve the facilities and landscaping
at Nizhny Tagil Mining and Metallurgical College.
▪ EVRAZ acquired equipment for the student design bureau at Nizhny Tagil Technical Institute,
a branch of Ural Federal University.
▪ The Group provided funding for workshop equipment and scholarships at Kachkanar Mining
Industry College.
▪ In Kachkanar, EVRAZ arranged roof repairs at the Children’s Art School.
▪ In Texas, EVRAZ North America sponsored the Cherokee Creek Music Festival, the proceeds
from which went to children’s charities.
▪ The Group helped the Novokuznetsk Drama Theatre to equip a children’s theatre workshop
and baby theatre.
▪ EVRAZ provided support for the Rogachev Centre for Paediatric Haematology and Immunology’s
science project aimed to improve the treatment for acute myeloblastic leukaemia in children.
EVRAZ FOR KIDS
Several core aspects of the
Group’s support of children
are sponsoring academic
institutions and programmes,
financing the purchase of
necessary school supplies and
sport equipment, improving the
landscaping around schools
and providing scholarships.
EVRAZ has always placed a high
priority on supporting children
in orphanages and with special
needs, including through ongoing
programmes that provide
assistance and rehabilitation for
children with health limitations
and cerebral palsy.
Case study
In 2018, EVRAZ and the Social Investment
and Innovation Agency held the “Children’s
Foresight” event in the town of Kachkanar
as part of a nationwide social project to engage
schoolchildren in designing their future cities.
More than 65 children aged 12-17 took
part in “Children’s Foresight”. Their projects
were aimed at improving Kachkanar’s public
services and amenities, improving youth
recreation facilities and promoting a healthy
lifestyle. The winners attended a social change
leadership camp organised by the Agency
for Strategic Initiatives that was held at the Artek
international Children’s camp.
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Each year, EVRAZ invests to
improve urban infrastructure in
the regions where it operates.
The Group sponsors medical,
educational and cultural
institutions.
Case study
EVRAZ provided extensive support for various
projects and events for Novokuznetsk’s 400th
anniversary in July 2018. The Group financed
the creation of the only workout stadium
in Kemerovo region, which was opened as part
of Russia’s national street sport festival. EVRAZ
helped to landscape public squares; repaired
an Olympic reserve ski school and the Meridian
centre of technical creation; and rebuilt
the facade of the Metallurg stadium. In addition,
the Group provided equipment to Siberian State
Industrial University for a modern auditorium
that was named for Ivan Bardin, an outstanding
engineer.
Activities
▪ In Kemerovo region, the Group provided donations to help overhaul the municipal heating network
pipes in Tashtagol.
▪ EVRAZ provided donations to improve the municipal infrastructure in Tashtagol district as part
of the Miners’ Day celebrations.
▪ The Group donated equipment and ambulances to medical centres in the Urals and Siberia,
including a fully equipped mobile intensive care unit for the regional clinical centre for miners’
health care in Leninsk-Kuznetsky.
▪ EVRAZ provided donations to the Cozy City charity in Nizhny Tagil. The funds were used to help
the veterans’ council, landscape a city park, acquire books for local residents and other projects.
▪ The Group donated funds to the «Gift of Life» Centre for Protection of Motherhood» and Childhood
to repair the facilities of the «Baby and Mother» crisis shelter in Nizhny Tagil.
▪ In Kachkanar, EVRAZ supported urban beautification efforts, the organisation of public social
and charity holiday events, and the development of the “Club of Humour” movement (Russian
abbreviation: KVN, humour TV show).
▪ The Group helped Kachkanar’s cultural centre to acquire multimedia equipment and a projector
screen, equipment and lighting for an ice park, and to conduct various events for local residents.
▪ EVRAZ assisted with a project to develop a comprehensive traffic plan for Kachkanar.
▪ EVRAZ North America sponsored the Alberta Cancer Foundation’s Enbridge® Alberta Ride
to Conquer Cancer®.
EVRAZ: CITY OF FRIENDS – CITY OF IDEAS
The “EVRAZ: City of Friends –
City of Ideas” grant contest is
a project aimed at engaging
people to improve public spaces,
protect the environment,
develop social initiatives and
increase participation in social
design, urban improvement,
environmental education and
preservation of urban natural
resources.
Since 2017, the contest has been held
in four cities where the Group operates. In
2018, “EVRAZ: City of Friends – City of Ideas”
events took place in summer in Novokuznetsk
and Mezhdurechensk, and in autumn in Nizhny
Tagil and Kachkanar. The contest received
167 applications from Siberia and 187
from the Urals in 2018, of which 51 projects
received grants totalling RUB14.5 million.
Overall, the projects received more than
23,405 votes and the programme’s website had
72,757 visitors.
Case study
Winning projects
Several “EVRAZ: City of Friends – City of Ideas”
projects were implemented in 2018.
Siberia
▪ The “CyberSchool” project in Novokuznetsk is aimed at teaching programming and introducing
Thanks to a grant from EVRAZ, the “Sport
Today – Healthy Generation Tomorrow” project
was implemented. The project entailed creating
a sport field for school students, children
from large or low-income families and at-risk
children. Novokuznetsk’s School No. 12 now
has a universal outdoor sport facility where all
muscle groups can be trained.
A grant from EVRAZ also helped to hold
the Veterans Games, which were dedicated
to Novokuznetsk’s Year of Respect for the Elderly
and the 50th anniversary of the Novokuznetsk
City Veterans Council. A total of 120 veterans
took part in the games, playing football, table
tennis, darts, checkers and chess.
children aged 6-16 to scientific and technical creativity.
▪ The “Sport Today – Healthy Generation Tomorrow” project entailed creating a sport field
for students at Novokuznetsk School No. 12 named for Hero of the USSR Semyon Chernovsky,
as well as children from large or low-income families and at-risk children.
▪ The “Dog as a Social Adaptation Agent” project in Novokuznetsk aims to help with the social
engagement of children with health limitations by working with specially trained dogs.
▪ The “From Life Safety Lessons to a Safe Life” project in Mezhdurechensk seeks to promote
awareness and responsibility among schoolchildren regarding safety in the face of the social,
natural and technogenic threats of the modern world.
▪ The “Healthy Lifestyle for Each Resident of Olzheras Village” project will help to install modern
sports equipment in the village.
▪ The “Film Summer” project aims to create an outdoor cinema for residents of Mezhdurechensk.
Urals
▪ The “At Home in the Forest” project involves creating conditions for sport tourism in the Kachkanar
urban district, including acquiring modern equipment to professionally hold various competitions.
▪ The “Sensory Garden” project at the sole kindergarten in the Valerianovsk village in Sverdlovsk
region aims to create conditions to make up for the lack of emotional and sensory communication
with nature (including for children with health limitations).
▪ The “Reviving Yachting in Nizhny Tagil” project seeks to popularise the sport in the city and ensure
that teenagers and youth have access to yachting. As part of the project, volunteers plan to repair
at least 30 yachts of various classes and prepare them to sail during summer 2019.
▪ The “Fairy Tale Film Workshop” project aims to encourage children and youth to study Russian folk
culture, customs and traditions by creating a fairy tale film at the live film studio in Nizhny Tagil’s
Hall of Child and Youth Creativity.
▪ The “Miracle Pier – children’s playground for special children” project involves equipping
playgrounds at Nizhny Tagil’s boarding school for hearing impaired children.
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EVRAZ supports amateur and
professional sports teams,
as well as individual athletes,
by sponsoring equipment
purchases, training programmes
and competitions.
Case study
For the second consecutive year, EVRAZ
sponsored the prestigious Grand Slam judo
tournament, which is organised by the Russian
Judo Federation and National Judo Union.
Yekaterinburg is the only Russian city where
the competition is held. The remaining four
stages of the Grand Slam tournament in 2018
were Paris, Dusseldorf, Abu Dhabi and Tokyo.
The best athletes from 35 countries took part
in the competition.
EVRAZ VOLUNTEERS
While EVRAZ does not have an official policy
regarding volunteering, for many years
the Group’s employees have been helping
people in difficult situations, supporting
children’s institutions and organising various
sport and social events.
For the second consecutive year, EVRAZ NTMK’s
employees have held the “Relay of Good
Deeds”. It started at the plant in February 2017
and has since had more than 8,000 participants
who have helped 12 educational institutions
in Sverdlovsk region.
In 2018, the following events were held
as part of the “Relay of Good Deeds”:
▪ Helping Kindergarten No. 16 in Novoasbest.
Employees of EVRAZ NTMK helped
the kindergarten to prepare for winter,
including replacing pipes, repairing
the heating and electrical systems,
and improving the playgrounds;
NEW PROJECTS
PROJECT AWARDS
The “Relay of Good Deeds” project has
received the special “Kind Heart” nomination
from KFC in the “Volunteering” programme
of the “Corporate Charity Leaders” federal
competition and won third place in the regional
“Corporate Charity Leaders – Ural” contest.
▪ Helping Kindergarten No. 34 in Pervomaisky.
The Group’s employees acquired kitchenware
and toys, replaced the lighting and electrical
wiring, repaired buildings, improved
playgrounds, organised holiday events
and gave the children books and school
supplies;
▪ Helping Boarding School No. 1 in Nizhny
Tagil. EVRAZ NTMK’s employees donated
an all-in-one printer/scanner/copier
and two televisions. They also repaired
the electrical wiring, as well as the equipment
in the school’s metal and woodworking shops;
▪ Helping the kindergartens in the villages
of Bashkara and Kaigorodskoye. In Bashkara,
EVRAZ NTMK’s employees repaired
the fence, veranda, kindergarten slide,
kitchen equipment and electrical wiring. In
Kaigorosdkoye, they updated the lighting
in the classrooms. They also donated
educational games, construction sets and toys
for the children in both kindergartens.
Activities
▪ As part of EVRAZ fourth-annual “High Five” event, races took place in Novokuznetsk, Nizhny Tagil
and Moscow.
▪ In Tashtagol, the Group held the 15th annual Andrey Sevenyuk corporate ski and snowboard
competition.
▪ EVRAZ equipped a skate park for the Jupiter Olympic reserve sport school in Nizhny Tagil.
▪ The Group helped the Uralochka sport school in Nizhny Tagil to acquire office and sport equipment.
▪ In Kachkanar, EVRAZ helped to repair sport facilities and acquire equipment for hockey players
at the district Sports and Recreation Complex.
▪ The Group provided sponsorship for the Kachkanar municipal district Federation
of Sambo and Judo to organise trips to competitions, as well as to acquire sport equipment
and transportation to get children to competitions.
▪ EVRAZ helped Kachkanar’s Olymp sport school to travel to competitions and provided funding
to hold a football competition.
▪ In Tashtagol district, the Group helped the Shoria hockey team to acquire sport equipment.
▪ EVRAZ helped the Mezhdurechensk sport school that teaches team sports to conduct a streetball
competition for local amateur teams.
▪ In Novokuznetsk, the Group supported Children’s Sport School No. 2 to organise the 33rd annual
City Games and helped to repair a stadium.
▪ EVRAZ installed a modular building on Mount Yugus in Mezhdurechensk for the Khokhrin Olympic
reserve sport school for skiing.
▪ The Group provided assistance to Novokuznetsk’s Metallurg-Zapsib sport school received
to organise their team’s participation in football competitions at the Russian Championship.
In July 2018, EVRAZ and the online publication
Lenta.ru launched the “Steel Dynasties”
digital project: http://evraz.lenta.ru/#/.
“Steel Dynasties” presents the story of five
families of steelmakers and miners from Siberia
and the Urals, where the professions are passed
down from generation to generation. The
combined work experience of the families
exceeds 500 years. The five families represent
the Group’s core operations: EVRAZ NTMK,
EVRAZ ZSMK, Kachkanarsky GOK, Evrazruda
and Raspadskaya. The project team travelled
hundreds of kilometres to put all the stories
together.
In November 2018, EVRAZ
and the Komsomolskaya Pravda newspaper
launched the “Strength of Generations”
digital project: https://www.kp.ru/best/msk/
sila-pokolenij/.
“Strength of Generations” is a project dedicated
to mentoring, passing on professional
experience and production culture. The story
follows six pairs of mentors and their proteges,
describing the growing skills and career paths
of EVRAZ people, who also work at the Group’s
key assets: Kachkanarsky GOK, EVRAZ
NTMK, Raspadskaya and EVRAZ ZSMK. The
project underscores the importance of blue-
collar professions and seeks to increase
their popularity among youth.
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OUR APPROACH
EVRAZ has always striven for
consistency in its 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.
Battling bribery and unethical
practices are core aspects of its anti-
corruption efforts.
The Group has a developed system
of well-documented and adhered to
procedures which define compliance
managers’ routine. Today, compliance
specialists scrutinise all tender
procedures, check potential and
existing business partners, vet
prospective new candidates and
ensure that the principles set forth
in the Anti-corruption Policy, Code of
Conduct and other relevant policies
are followed conscientiously and fully.
Policies and regulations
All EVRAZ subsidiaries comply with the Code
of Conduct and Anti-corruption Policy, the top-
level 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. Employees are consistently
encouraged to seek guidance from 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.
The Group seeks to ensure that compliance
managers are present at every major asset and are
responsible for handling anti-corruption and anti-
bribery matters. 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,
the Group’s compliance manager and specialists
reporting to the senior vice president for business
support. The latter review investigation results
to liaise with senior management as necessary.
The Group’s compliance manager routinely informs
the Audit Committee about the status of ongoing
anti-corruption efforts and prepares memos
at the committee’s request.
Employees have access to a brief summary
of relevant anti-corruption policies as well
as links to the full texts of top-level documents
on the corporate intranet. Where necessary,
the compliance managers discuss the essence
of the adopted rules and procedures with all
interested parties.
Risk analysis
At the end of each calendar year, compliance
managers perform a comprehensive analysis
of potential anti-corruption risks across all assets.
For this purpose, they consider every business
process and redefine key risk areas if necessary.
Each area is then evaluated to see if existing
controls and procedures effectively mitigate
the associated risks. EVRAZ has a declared policy
of zerotolerance for bribery and corruption. The
Group uses every means to investigate carefully
and discretely all signals suggesting potential
violations of applicable law and key internal anti-
corruption policies.
As the Group’s business processes are stable
and consistent year to year, compliance managers
typically examine the same following processes
for signs of risk:
▪ Purchase of goods or services
▪ Payments
▪ Sale of goods, works 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
▪ Group property management
When doing so, managers apply the methodology
developed jointly by the compliance, internal
audit, legal, and business support functions
specifically for this purpose. According
to the methodology, random events (current
and past) are evaluated for signs of predefined
risks. Such events can include tenders, contract
approvals, specific purchases, inventory checks,
charitable donations, etc.
The compliance managers meet with responsible
managers of each asset to inform them
of the revealed risks and discuss threats
to recommend further actions. The compliance
managers then monitor any corrective measures
that are undertaken to mitigate the discussed
risks.
At the beginning of the following year, the Group’s
compliance manager 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 Group policies to regulate anti-corruption and anti-money laundering efforts
CODE OF CONDUCT
ANTI-CORRUPTION POLICY
RULES ON SECURITIES DEALINGS
HOTLINE POLICY AND
WHISTLE-BLOWING PROCEDURES
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 264.
96
Examples of anti-corruption risks tested in the Group’s business processes
In the process “sale of goods, works
and services”, compliance managers defined
risk indicators to look and then test for:
▪ Goods are sold at prices and on terms that
are significantly different from the market
average;
▪ Goods, works and services are sought to be
sold via middlemen and agents when direct
contracts are possible;
▪ There are discounts or mismatched
conditions set in supply contracts that
contradict the Group’s trade policy
requirements.
Other corruption risk indicators here include
unexplained/unjustified bonuses to the buyer
based on the amount of purchased products,
lack of primary and shipping documentation,
and granting a delay in payment that
violates the current internal requirements.
So, random transactions – recent or past
– are singled out and carefully considered
for signs of said risks. Should compliance
managers reveal systemic or significant violations
of anti-corruption procedures, this is drawn
to the attention of the Group’s compliance manager
and the top management, locally or at the Group
level. Compliance managers then ensure that risks
are properly addressed and mitigated.
Similarly, compliance managers further examine
every major process for signs of corruption risks,
unethical practices or bribery. So, in another
example, they consider charity and sponsorship
payments to make sure:
▪ There were no violations of the approval
procedure for charity and sponsorship
projects;
▪ All the required and correct documents were
properly supplied for consideration to decide
if the charity or sponsorship payment can be
made;
▪ Potential recipients of charity or sponsor
support are allowable in accordance
with the internal policy.
Anti-corruption risk management cycle
Determine or update list of risks
for all business processes
Inform senior vice president for business support
and interregional relations
Oct
Input from legal, internal audit
and security departments
Prepare comprehensive
list of risks
Oct-Nov
Check events for signs of risk
Nov-Dec
Input from internal audit
Analyse and draft risk reports
Dec-Jan
COMPLIANCE
TEAM
Mar-Oct
Monitor how risks are being
mitigated
Mar-Oct
Risk owners
Discuss results with risk
owners and top managers
Top managers
Feb
Compliance officer presents reports
to the Audit Committee
to 11,000 licenses to employees whose functions
and areas of responsibility warrant such training.
The programme will continue in 2019. Gradually,
those previously trained will receive invitations
to refresh their active knowledge of anti-corruption
principles and best practices.
This course by Thomson Reuters defines bribery
and corruption and examines the implementation
of anti-bribery legislation in Russia. The training
also covers a business-wide system of controls
aimed at managing and reducing bribery risks.
The key learning objectives are to:
▪ Confirm the Group’s position and full
compliance with applicable anti-corruption laws
▪ Explain the Group’s systems and controls
to manage the risk of bribery and corruption
▪ Help identify the damaging effects of bribery
and corruption
Feb
▪ Highlight red flags, eg warnings about possible
illegal payments or other corrupt activities
Key developments in 2018
The compliance function of EVRAZ did not initiate
any investigations of its own into signs of bribery
in 2018. Meanwhile several signals about potential
collusions between company employees
and vendors came to hotline and were carefully
investigated. Certain suspicions about potential
fraudulent schemes between some unscrupulous
managers and suppliers/providers also led
to investigations initiated by Direction of control
over business procedures. In the past year there
were over twenty such investigations five of which
revealed fraudulent intent. The involved employees
were terminated and necessary measures
to improve controls were taken.
The Group has additional compliance control
measures in place for payments to non-resident
companies (specifically offshore entities), which
have proven their effectiveness.
Following a request from the Board,
the management together with Linklaters have
developed in-person training for the management
team to ensure compliance with the EU Market
Abuse Regulation. The training was delivered
on 25 May 2018 in EVRAZ Moscow office
for a team of 30 managers. It was based
on the topics covered in the EVRAZ Compliance
Manual and was followed by a test. Going forward,
the management will discuss refresher training
as and when required.
The rather low number of such confirmed
violations results from the Group’s ongoing
preventive efforts, the clear tone from the top
and employees’ adherence to the anti-corruption
requirements set forth in its policies.
In addition, about 2,500 more managers
in the whole of EVRAZ Group have completed
online anti-corruption training developed
by Thomson Reuters. Overall, compliance
managers have so far assigned close
The course aims to provide guidance regarding
how to apply anti-bribery laws to relevant business
scenarios.
For additional information, see EVRAZ first
Sustainability Report for 2018, which is to be
published in May 2019.
Outlook for 2019
In 2019, the Group’s compliance managers will
revisit the methodology applied in risk assessment
to analyse its effect year-to-year and will update
it together with internal audit and legal specialists.
The set of anti-corruption policies will be updated
to reflect certain changes that have taken place
within the compliance system since its launch.
Finally, there are plans to design in-house Group-
specific training modules to complement the anti-
corruption course provided by Thomson Reuters
that is currently in use.
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Annual report& accounts2018www.evraz.comStrategic reportBusiness reviewCSR REPORTCorporate governanceFinancial statementsAdditional information Corporate
governance
Board of
Directors
Key to committee
membership
Chairman
Member
Audit Committee
Nominations Committee
Remuneration Committee
HSE Committee
10EVRAZ plc held during 2018
scheduled
Board
meetings
Alexander Abramov
Non-Executive
Chairman
Alexander Frolov
Chief Executive
Officer
Eugene Shvidler
Non-Executive
Director
Eugene Tenenbaum
Non-Executive
Director
APPOINTMENT
APPOINTMENT
APPOINTMENT
APPOINTMENT
Alexander Abramov has been a Board
member since April 2005. He was
CEO and chairman of Evraz Group S.A.
until 1 January 2006, and continued
to serve as chairman until 1 May 2006.
Mr Abramov was a non-executive director
from May 2006 until his re-appointment
as chairman of the Board on 1 December
2008. He was appointed chairman
of EVRAZ plc on 14 October 2011.
COMMITTEE MEMBERSHIP
Mr Abramov is a member
of the Nominations Committee.
SKILLS AND EXPERIENCE
Mr Abramov graduated from the Moscow
Institute of Physics and Technology
with a first-class honours degree
in 1982, and he holds a PhD in Physics
and Mathematics. He founded EvrazMetall
in 1992.
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 Supervisory Board
of the Moscow Institute of Physics
and Technology.
Alexander Frolov has been a Board
member since April 2005. He was
chairman of the Board of Evraz Group
S.A. from May 2006 until December
2008, and was appointed CEO
with effect from January 2007. Mr Frolov
was appointed CEO of EVRAZ plc
on 14 October 2011.
COMMITTEE MEMBERSHIP
Mr Frolov is a member of the Health,
Safety and Environment Committee.
SKILLS AND EXPERIENCE
Mr Frolov graduated from the Moscow
Institute of Physics and Technology
with a first-class honours degree
in 1987 and received a PhD in Physics
and Mathematics in 1991. Prior
to working at EVRAZ, he was a research
fellow at the I.V. Kurchatov Institute
of Atomic Energy. He joined EvrazMetall
in 1994 and served as its chief
financial officer from 2002 to 2004,
then as senior executive vice president
of Evraz Group S.A. from 2004 to April
2006.
OTHER APPOINTMENTS
None.
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.
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
COMMITTEE MEMBERSHIP
Mr Shvidler is a member of the
Nominations Committee.
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.
OTHER APPOINTMENTS
Mr Shvidler currently serves as chairman
of Millhouse LLC and Highland Gold
Mining Ltd.
None.
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 Brothers from 1994 until
1998. Prior to that, he spent five
years in corporate finance with KPMG
in Toronto, Moscow and London, including
three years (1990-1993) as national
director at KPMG International in Moscow.
Mr Tenenbaum was an accountant
in the business advisory group at Price
Waterhouse in Toronto from 1987 until
1989. He is a chartered accountant.
OTHER APPOINTMENTS
Mr Tenenbaum is currently managing
director of MHC (Services) Ltd and serves
on the Board of Chelsea FC Plc.
100
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com Board of
Directors
INDEPENDENT
DIRECTORS
Laurie Argo
Independent
Non-Executive Director
NEW
APPOINTMENT
Deborah Gudgeon
Independent
Non-Executive Director
Karl Gruber
Independent
Non-Executive Director
Alexander Izosimov
Independent
Non-Executive Director
Sir Michael Peat
Senior Independent
Non-Executive Director
APPOINTMENT
APPOINTMENT
APPOINTMENT
APPOINTMENT
APPOINTMENT
Key to committee
membership
Laurie Argo has been appointed to the
EVRAZ plc Board of Directors in August
2018.
COMMITTEE MEMBERSHIP
Ms Argo is a member of the Audit
Committee.
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
SKILLS AND EXPERIENCE
Audit Committee
Nominations Committee
Remuneration Committee
HSE Committee
Ms Argo has over 20 years of experience
in the energy industry. From 2015
to 2017, she served as senior vice
president of Enterprise Products Holdings
LLC, the general partner of Enterprise
Products Partners L.P. From October
2014 to February 2015, Ms Argo was
chief executive officer and president
of OTLP GP LLC, the general partner
of Oiltanking Partners L.P. From January
2014 to January 2015, she served
as vice president, NGL fractionation,
storage and unregulated pipelines, which
included gas gathering and processing
in the Rockies, San Juan and Permian
areas. From 2005 to 2014, she held
various positions in the NGL and natural
gas processing businesses for Enterprise,
where her responsibilities included
the commercial and financial management
of four joint venture companies.
From 2001 to 2004, Ms Argo worked
for San Diego Gas and Electric Company
and from 1997 to 2000 PG&E Gas
Transmission in Houston, Texas.
OTHER APPOINTMENTS
None.
Chairman
Member
102
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. From 1987 to 1995,
Ms Gudgeon served as a finance executive
at Lonrho PLC and was appointed
a member of the Finance Committee
in March 1993. From 1995 to 1998,
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
None.
Ms Gudgeon is currently a Senior Adviser
of Penfida Limited.
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 Nominations Committee, and was
a member of the Audit Committee until
August 2018.
SKILLS AND EXPERIENCE
Mr Gruber has extensive experience
in the international metallurgical
mill business and holds a diploma
in mechanical engineering. He has
held various management positions,
including eight years as a member
of the Managing Board of VOEST-
Alpine Industrieanlagenbau (VAI), first
as executive vice president of VAI and then
as vice chairman of the Managing Board
of Siemens VAI. He also 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.
OTHER APPOINTMENTS
Alexander Izosimov was appointed
to the Board of EVRAZ plc on 28 February
2012.
Sir Michael Peat was appointed
to the Board of EVRAZ plc
on 14 October 2011.
COMMITTEE MEMBERSHIP
COMMITTEE MEMBERSHIP
Mr Izosimov is chairman of the
Remuneration Committee. He is also
a member of the Nominations Committee
and the Audit Committee.
Sir Michael Peat serves as chairman
of the Nominations Committee
and is a member of the Remuneration
Committee.
SKILLS AND EXPERIENCE
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
Alexander Izosimov is an independent non-
executive director of the Moscow Stock
Exchange.
Sir Michael Peat is a qualified chartered
accountant with over 40 years’ experience.
He served as Principal Private Secretary
to HRH The Prince of Wales from 2002
until 2011. Prior to this, he spent nine
years as the Royal Household’s Director
of Finance and Property Services and then
Treasurer to The Queen and Keeper
of the Privy Purse. Sir Michael Peat
was at KPMG from 1972, and became
a partner in 1985. He left KPMG in 1993
to devote himself to his public roles. He
holds an MA and MBA, and is a fellow
of the Institute of Chartered Accountants
in England and Wales. He was the 2018
recipient of the Institute of Chartered
Accountants Outstanding Achievement
Award.
OTHER APPOINTMENTS
Sir Michael Peat is chairman 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,
and chairman of the Regeneration Group
Limited.
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com Management
Alexander Frolov
Chief Executive Officer
Leonid Kachur
Senior Vice President, Business Support
and Interregional Relations
Aleksey Ivanov
Senior Vice President,
Commerce and Business Development
Alexander Erenburg
Vice President,
Vanadium Division
Conrad Winkler
Chief Executive Officer,
EVRAZ North America
Sergey Vasiliev
Vice President, Compliance with Business
Procedures and Asset Protection
NEW
APPOINTMENT
Nikolay Ivanov
Chief Financial Officer
Alexander Kuznetsov
Vice President, Corporate Strategy
and Performance Management
Ilya Shirokobrod
Vice President, Sales
Konstantin Rubin
Vice President,
Health, Safety and Environment
Vsevolod Sementsov
Vice President,
Corporate Communications
Natalia Ionova
Vice President,
Human Resources
Alexey Soldatenkov
Vice President,
Head of the Siberia Division
104
Denis Novozhenov
Vice President,
Head of the Urals Division
Sergey Stepanov
Vice President,
Head of the Coal Division
Artem Natrusov
Vice President,
Information Technologies
Yanina Staniulenaite
Vice President,
Legal
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com 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.
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
2018, the FRC published a revised Corporate
Governance Code, which comes into force
for the financial year commencing on 1 January
2019. The Board has reviewed the updated code
and is introducing various changes of procedure
and practice to be able to report fully on compliance
with the updated Corporate Governance Code
for the 2019 financial year.
During the year to 31 December 2018, EVRAZ
complied with all the principles and provisions
of the 2016 UK Corporate Governance Code (the
Governance Code is available at www.frc.org.uk),
with the following exception: 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.
An explanation for this non-compliance is set out
in the Remuneration Report on
page 120.
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.
106
The EVRAZ Board is responsible for the following
key aspects of governance and performance:
▪ Financial and operational performance
▪ Strategic direction
▪ Major acquisitions and disposals
▪ Overall risk management
▪ Capital expenditure and operational budgeting
▪ Business planning
▪ Approval of internal regulations and policies
During the year to 31 December 2018, the Board
considered a wide range of matters, including:
▪ The critical success factors for strategic
development of the Group’s competitive
advantages
▪ HSE updates, including key initiatives
and responses to significant incidents
▪ 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 2017
annual report
▪ The appropriateness of the going concern basis
of financial reporting
▪ The assumptions, stress-test scenarios
and mitigating actions used in preparing
the Company’s viability statement
▪ A revised dividend policy for the Group,
and approval of three interim dividends during
the year
▪ Investment project reviews
▪ Disposal of non-core businesses
▪ Appointment of a new non-executive director
and changes to the composition of various
Board committees
▪ The length of tenure of the Company’s external
auditor and the Audit Committee’s decision
to retain Ernst & Young as auditor until 2020
▪ Implementation throughout the Group
over the next five years of the EVRAZ Business
System to promote an operational culture
of values and behaviours that support the drive
for continuous improvement and business
change
▪ Linking succession planning to corporate
strategy execution, and the need to look deeper
into the Group for future leaders
▪ Compliance with the Market Abuse Regulation
in relation to managing inside information,
share dealing by insiders and online training
of all insiders
▪ A review of the findings of the internally
facilitated Board evaluation exercises
and action plans resulting therefrom
During the year, the Board agreed a dividend
policy, which aims to declare dividends
of at least US$300 million per annum, subject
to the financial performance of the business,
to be paid in semi-annual instalments of at least
US$150 million each following interim and full year
results. Based upon the financial performance
of the business, the Board may consider a higher
distribution level, taking into account the outlook
for the Group’s 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 the Company’s
existing capital allocation policy, no dividends
will be paid out if Net Debt/EBITDA is above 3.0x.
The Board also discussed the proposals to pay:
an interim dividend of US$0.13 per ordinary
share, totalling US$187.6 million, on 22 June
2018; a second interim dividend of US$0.40 per
share, totalling US$577.34 million, to be paid on 6
September 2018; and a third interim dividend
of US$0.25 per share, totalling US$360.8 million,
to be paid on 21 December 2018. The level
of distributable reserves within the balance sheet
was considered at each distribution, noting that
it was sufficient to enable the dividend to be paid.
The dividends paid were in line with the dividend
policy previously agreed by the Board.
In order to support the dividend policy for future
years and create additional distributable reserves,
the Board recommended to shareholders that
a Court-approved capital reduction be approved
at the annual general meeting held on 19 June
2018 to reduce the Company’s nominal share
capital. Following such shareholder approval
and confirmation by the High Court of England
and Wales, the nominal value of each ordinary
share in the Company was reduced from US$1.00
per share to US$0.05 per share.
In August 2018, following a recommendation
from the Nominations Committee, the Board
appointed Ms Laurie Argo as an independent
non-executive director. Ms Argo’s biographical
details are disclosed
Board was of the opinion that she not only had
sufficient relevant experience to assist the Board
but also that she had sufficient time to devote
to the Board’s duties.
on page 102. The
In December 2017, the Company’s indirect wholly
owned subsidiary, EVRAZ Mezhdurechensk,
entered into management contracts
with nine companies owned by Sibuglemet,
involved in mining, processing and trading
coal. The management contracts required
the Company to enter into a guarantee of EVRAZ
Mezhdurechensk’s obligations and, due to its size,
the proposed guarantee constituted a “class 1
transaction” for the Company under the Listing
Rules. The Board requested shareholders’
approval of the transaction. At a general
meeting of the Company held on 19 June 2018,
shareholder approval was duly given.
In September 2018, the Company was notified
by Lanebrook Limited, a major shareholder
of the Company and with whom the Company had
previously entered into a relationship agreement,
that Lanebrook Limited had distributed all of its
shares in the Company to its direct shareholders
in proportion to their holdings in Lanebrook
Limited. The relationship agreement between
Lanebrook Limited and the Company was
terminated as a result of Lanebrook Limited
no longer being a shareholder of the Company.
Following a detailed review of the transaction,
the independent non-executive directors approved
the entry into new relationship agreements
with its new controlling shareholders (Crosland
Global Limited and Greenleas International
Holdings Ltd.) on terms and conditions that were
substantively the same as those that had been
entered into with Lanebrook Limited.
In December 2018, the Company was notified
by Crosland Global Limited, a major shareholder
of the Company and with whom the Company had
previously entered into a relationship agreement
as described above, that Crosland Global Limited
had transferred a certain number of ordinary
shares in the Company to Abiglaze Ltd. Following
a detailed review of the transaction, in the period
between the end of the 2018 financial year
and the date of this report, independent non-
executive directors approved the entry into
a revised relationship agreement with Crosland
Global Limited and a new relationship agreement
with Abiglaze Ltd on terms and conditions that
were substantively the same as those that had
been entered into with Crosland Global Limited
previously.
Full details of the relationship agreements
currently in place are disclosed on page 131.
In keeping with the requirements of the relationship
agreements in place between the Company
and its major shareholders, the independent non-
executive directors of the Company have conducted
an annual review to consider the continued
good standing of the relationship agreements
and are satisfied that the terms of the relationship
agreements are being fully observed
by all parties. In accordance with LR 9.8.4R (14),
it is confirmed that:
▪ The Company has complied
with the independence provisions
of the relationship agreements;
▪ So far as the Company is aware, Greenleas
International Holdings Ltd., Abiglaze
Ltd and Crosland Global Limited (or
any of their associates) have complied
with the independence provisions
of the relationship agreements; and
▪ So far as the Company is aware, Greenleas
International Holdings Ltd., Abiglaze
Ltd and Crosland Global Limited have
complied with the procurement obligations
in the relationship agreements
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.
Stakeholders
on pages 14 and 15 of this report,
The Board has considered
in detail the Company’s business model
outlined
which identifies the Company’s stakeholders as:
▪ Shareholders
▪ Employees
▪ Customers
▪ Suppliers and business partners
▪ Local communities, and
▪ Government
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 vice president of human resources
is invited to attend Board meetings to present
the outcome of the annual employment
engagement survey, and to discuss the findings
and actions planned as a result. The Board’s
HSE Committee is charged with fostering a safety
culture for employees throughout the Group’s
operations and monitoring the implementation
of the Group’s environmental policy.
In preparation for the introduction of the 2018 UK
Corporate Governance Code (in effect
from 1 January 2019), the Remuneration
Committee has been working alongside
management to develop procedures so that
principle D of the revised code is met, and the views
of employee stakeholders are fully considered.
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
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
EVRAZ plc held 10 scheduled Board meetings
during 2018. In 2019, up to the date
of this report’s publication, two Board meetings
were held.
The chief financial officer and the senior
vice president for 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 on the next page sets out
the attendance of each current director
at scheduled EVRAZ plc Board and Board
committee meetings in 2018.
As at 31 December 2018, the Board comprised
the chairman, one executive director, and seven
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 five non-executive
directors (Laurie Argo, Karl Gruber, Deborah
Gudgeon, Alexander Izosimov, Sir Michael Peat)
are independent in character and judgement,
Board composition
Independent Non-Executive Director
Non-Executive Director
Chairman, Non-Executive
Executive Director
56%
22%
11%
11%
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com 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 Board has also satisfied itself that there
is no compromise to the independence
of, or existence of conflicts of interest for, those
directors who serve together as directors
on the boards of outside entities.
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 to develop strategy
proposals. While most of the directors have
been in post since the incorporation of EVRAZ
plc in October 2011, the recruitment of new
independent non-executive directors in recent
years has strengthened the Board’s technical
expertise and widened the skills base.
Board and AGM attendance by each director1
Total number of meetings
Alexander Abramov
Alexander Frolov
Laurie Argo (appointed 8 August 2018)
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Sir Michael Peat
Eugene Shvidler
Eugene Tenenbaum
Boardroom diversity
EVRAZ recognises the importance of diversity
both at the Board level and organisation-wide.
The Group remains committed to increasing
diversity throughout 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, 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 and the CSR
report. The Company believes that the Board
composition provides an appropriate balance
of skills, knowledge and experience. The Board
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.
Remco
4
HSEco Auditco
8
2
2/2
2/2
2/21
6/61
8/8
8/8
4/4
4/4
4/4
Nomco
4
4/4
4/4
4/4
4/4
4/4
Board
10
10/10
10/10
5/5
10/10
10/10
10/10
10/10
9/102
10/10
AGM
1
1
1
n/a
1
1
1
1
-2
1
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
pages 116–117.
Performance evaluation
In 2017, Lintstock LLP conducted an externally
facilitated annual Board evaluation. Building
on that review, in October 2018, the company
secretary undertook an internally facilitated
review 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) among the members of the Nominations
Committee; (ii) between Sir Michael Peat (as
chairman of the Nominations Committee)
and Alexander Abramov (as chairman
1 On 8 August 2018, Karl Gruber stood down from the Audit Committee and Laurie Argo was appointed in his place.
2 Eugene Shvidler was unable to attend the meeting on the day of the AGM due to a business commitment that arose unexpectedly.
108
of the Board); and (iii) among the members
of the Board as a whole.
Board performance was deemed to be satisfactory.
At its January 2019 meeting, the Board agreed
an action plan for 2019 that would allow the Board
to continue developing 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 and other CSR issues, as well
as on HR policy.
Arising from the 2018 action plan, the Board noted
that its members had been given more exposure
to senior management below Board level. In 2019,
further consideration will be given to succession
planning and ensuring that appropriate induction
programmes are in place for Board members.
The Company will continue to undertake regular
performance evaluations of the Board in line
with the requirements of the UK Corporate
Governance Code.
Board committees
The following principal committees support
the Board in its work: 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. The committees review
their respective terms of reference each
year and submit any recommended changes
to the Board for approval. All terms of reference
for the committees are available on the Group’s
website: www.evraz.com.
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. Specifically, Deborah Gudgeon has
relevant recent financial experience.
Shareholder engagement
The Company continues to encourage
shareholder engagement. The annual
general meeting was held on 19 June 2018
and all directors, with the exception of one
non-executive director, including all committee
chairs, were in attendance. All shareholders
are welcomed to attend, ask questions
and discuss issues with individual directors.
An additional general meeting was held
on 19 June 2018 to approve the issuance
of a guarantee of the obligations of EVRAZ
Mezhdurechensk under management contracts
with nine companies owned by Sibuglemet.
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 2018, 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.
Board composition as of 31 December 2018
Name
Executive director
Alexander Frolov
Non-executive directors
Alexander Abramov
Eugene Shvidler
Eugene Tenenbaum
Independent non-executive directors
Laurie Argo
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Position
CEO
Chairman
Director
Director
Director
Director
Director
Director
Sir Michael Peat
Senior independent director
Role and composition of each committee
Committee name
Audit Committee
Nominations Committee
Function
Audit, financial reporting, risk
management and controls
Selection and nomination of Board
members
Remuneration Committee
HSE Committee
Remuneration of Board members and
top management
HSE issues
Committee Membership
Years of tenure
HSEC - member
NC - member
NC - member
None
AC - member
HSEC – chairman, NC – member
AC – chairman, RC - member
RC – chairman, NC – member,
AC – member
NC – chairman, RC - member
7
7
7
7
Less than 1
7
3
6
7
Composition
All three members are independent
non-executive directors
All five members are non-executive
directors, of which three are
independent
All three members are independent
non-executive directors
Two of the three members are
non-executive with an independent
chairman who is also a non-executive
director of the Company3
Link to committee report
See on pages 112–115
See on pages 116–117
See on pages 120–127
See on pages 118–119
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 2018, 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.
issued in June 2014, and the abovementioned
FRC guidance issued in September 2014.
The EVRAZ’ Enterprise Risk Management
(ERM) process is designed to identify, quantify,
and respond to these threats; and monitor
the Group’s prevention and mitigation system.
Management maintains a risk register that
encompasses both internal and external
threats. The level of risk appetite approved
by the Board is used to identify particular risks
and uncertainties that require specific Board
oversight. In 2018, the process in relation
to principal risks and uncertainties was
consistent with the UK Corporate Governance
Code, the FRC Guidance on the Strategic Report
Executive management is responsible for both
internal controls in place and mitigating
actions related to risk management throughout
EVRAZ business and operations. 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
3 The members of the Health, Safety and Environment Committee at 31 December 2018 were Karl Gruber (chairman), Alexander Frolov and Olga Pokrovskaya, who has continued as a non-executive member of the
HSE Committee following her cessation as a Board member of the Company on 14 March 2016. With more than 50% of EVRAZ operations based in the Russian Federation, the committee continues to value the
contribution she brings in terms of her technical and regional experience.
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com business management team is primarily
responsible for ERM and accountable for all
risks assumed in the operations;
Management Group which consists of all
business unit and function vice-presidents;
▪ All acquired businesses are brought within
▪ 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
and approves risks above the Group’s defined
risk appetite and reviews any significant
internal control weaknesses;
▪ 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
the Group’s system of internal control as soon
as practicable.
The Board has delegated primary oversight
of the Group’s internal control process
to the Audit Committee, which tables any major
internal control findings exceeding the Board’s
risk appetite.
The EVRAZ Business Security department
is headed up by a senior vice president
and has specific responsibility for preventing
and detecting business fraud and malpractice
including fraudulent behaviour by employees,
customers and suppliers. Robust internal
controls help to minimise the risk,
and the EVRAZ Business Security department
ensures that appropriate processes are in place
to protect the Group’s interests.
Internal control
THE BOARD OF DIRECTORS
Ensuring Group’s ongoing
internal control process is
adequate and effective
THE AUDIT COMMITTEE
Primary oversight
of internal control regime
INTERNAL AUDIT
Reviewing
effectiveness of
internal control
For additional information about principal risks
and uncertainties, see the Strategic Report.
INTERNAL CONTROL FRAMEWORK
Supervise
and review
of reports
EVRAZ ASSURANCE FRAMEWORK
(annual management self-assessments)
RISK MANAGEMENT GROUP
Reviews of
reports and
effectiveness
REGIONAL RISK COMMITTEES OR BUSINESS UNITS MANAGEMENT TEAMS
SITE LEVEL MANAGERS
Internal audit
Internal audit is an independent appraisal
function established by the Board to evaluate
the adequacy and effectiveness of controls,
systems and procedures at EVRAZ which helps
reduce business risks to an acceptable level
in a cost-effective manner.
The Board approved the latest version
of the internal audit charter on 27 February
2019.
The internal audit function’s role in the Group
is to provide an independent, objective,
innovative, responsive and effective value-
added internal audit service. This is achieved
through a systematic and disciplined approach
based on assisting management in controlling
risks, monitoring compliance, and improving
the efficiency and effectiveness of internal
control systems and governance processes.
Once a year, the function provides an opinion
of the overall effectiveness of the Group’s
internal controls.
During 2018, 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 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 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 2018, internal audit projects covered
the following Group risks:
▪ Cost effectiveness
▪ Health, safety and environment
▪ Capital projects and expenditure
▪ 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
▪ Fraud, security, bribery and corruption
EVRAZ internal audit function is structured
on a regional basis, reflecting the geographic
Components of the internal control system
Component
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
Basis for assurance
▪ Annual self-assessment by management at all
major operations of the internal control system
using the EVRAZ Assurance Framework
▪ Review of the self-assessment by the internal
audit function
▪ Assessment of effectiveness of internal control
and risk management
Investment project management
▪ Effectiveness of project management
Operating policies and procedures
Operating budgets
Accounting policies and procedures as per the
corporate accounting manual
and management of project risks is monitored
by established management committee and sub-
committees
▪ Reviewed by the internal audit function
▪
Implemented, updated and monitored
by the management
▪ Reviewed by the internal audit function
▪ Approved by the Board
▪ Monitored by the controlling unit
▪ Reviewed by the internal audit function
▪ Developed and updated by the reporting
department
▪ Reviewed by the internal audit function
spread 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.
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 and budgeting cycle, in decision
making and in developing risk management
actions and methods, as well as in identifying
particular risks and uncertainties that
require specific Board oversight. The 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 health & safety, fraud,
security, bribery and corruption) 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 November 2018
and finalised the assessment in January 2019.
Based on the results of the most recent review,
the management concluded that the Group’s
risk-acceptance approach 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 on February 27, 2019.
Objectives for 2019
Further development of the risk management
system and risk management practices
is planned for 2019 based on the analysis
of the adequacy of risk management practices
and the gaps identified for the main business
processes in 2018. While the maturity of EVRAZ
risk management process was generally
assessed as fair, there were areas identified
that require additional management focus
and implementation or improvement of risk
management instruments or practices. An
action plan for each gap was developed
and will be introduced.
In 2018, the Group began to improve
the procedure of identifying, assessing
and mitigating risks within project management
to enhance the depth of risk analysis.
Action in 2018
In 2018, the internal audit function reviewed the
result of the management’s internal control self-
assessment and evaluated the effectiveness of
the internal control system.
In 2018, all major production sites were certified
as having effective internal control.
Continuous enhancement of procedures regarding
quality and reporting control, as well as other
elements of the project oversight process.
Numerous activities were developed in 2018 to
further increase the efficiency and effectiveness
of the project management process.
Operating policies and procedures are
updated as per the internal initiatives by the
operational management and in response to
recommendations from the internal audit function.
Operating budgets are prepared by executive
management and approved by the Board.
Accounting policies and procedures were updated
as part of the standard annual review process.
In 2019, HR risk management practices
will be structured and further improved. The
existing occupational safety risk management
system, which is focused on enhancing
the Group’s safety culture, will be further
developed and implemented in 2019.
In 2018, the Group appointed a data protection
officer to strengthen risk management
practices for personal data protection in 2019
and to address changes in the EU General Data
Protection Regulation.
In early 2019, the Group plans to organise
risk management training as part of its Top-
300 programme. The purpose of this training
session is to increase the management
team’s engagement with and support for risk
identification and management.
Further information regarding EVRAZ’s internal
control and risk management processes can
be found on the Group’s website.
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com Audit Committee report
Deborah Gudgeon
Independent Non-Executive Director,
Chairman of Audit Committee
The role and responsibilities of the Audit
Committee are delegated by the Board and set
out in the written terms of reference
http://www.evraz.com/governance/directors/
committees/.
I am pleased to present the Audit Committee Report for the financial year
ended 31 December 2018.
Following her appointment to the Board, Laurie Argo has joined the Audit
Committee, replacing Karl Gruber. I would like to extend my personal thanks
to Karl for his contribution to the Committee’s work and to welcome Laurie.
During 2018, I visited two of the Group’s steel mills in North America, EVRAZ
Regina in Canada and EVRAZ Pueblo in the US. In 2019, we plan to hold an
Audit Committee meeting at one of our North American operations.
Once again, I would like to extend the thanks of the Committee to the
executive and financial management of the Group the internal audit
department and EY, our external auditor, for their continuing diligence and
valued contributions to the work of the Committee.
ROLE AND
RESPONSIBILITIES OF
THE AUDIT COMMITTEE
The role and responsibilities of the Audit
Committee are delegated by the Board and set out
in the written terms of reference:
http://www.evraz.com/governance/directors/
committees/.
The Audit Committee minutes are tabled
for the Board’s 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.
The Audit Committee reviews the Group’s
risk register and risk appetite proposed
by the management before they are considered
by the Board.
The Committee reviewed the terms of reference
for both the Audit Committee and Risk
112
Management Group and considered them to be
appropriate with no changes deemed necessary.
EVRAZ also confirmed its compliance, during
the financial year commencing 1 January 2018,
with the provisions of the Competition and Markets
Authority Order 2014 on mandatory tendering
and audit committee responsibilities
COMMITTEE MEMBERS
AND ATTENDANCE
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 Alexander Izosimov
provides key strategic experience. Laurie Argo has
extensive commercial and financial experience
in the North American market. As disclosed
in the Corporate Governance Report on page 107,
Olga Pokrovskaya continues to attend Audit
Committee meetings as an observer, providing
additional technical expertise and valuable
regional knowledge.
Senior members of the Group’s finance function,
the head of internal audit (who acts as secretary
to the Audit Committee and Risk Management
Group), and the external auditors also attend
Committee meetings.
Key members of the management team and Risk
Management Group are also invited to attend
Committee meetings when appropriate. In 2018,
these included the CEO and vice presidents
of strategy, steel, IT, security, legal, compliance
and personnel, the CFO of EVRAZ North America
plc (ENA) and the director of investor relations.
Other members of th management team
and internal audit function were also invited
to attend Committee meetings as appropriate.
The Audit Committee met eight times during
2018 and three times in early 2019 before
the publication of this Annual Report.
Details of committee attendance are set out
on page 108.
ACTIVITIES AND WORK
OF THE COMMITTEE
DURING 2018
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, and the Committee
received regular updates from the Group’s
financial and operational management, internal
audit, compliance officer and legal team, as well
as the external auditors.
The Committee monitors the Group’s IT
security on an ongoing basis, including
the results from external audit, mitigation
plans and the level of attempted cyber attacks.
During 2018, the Committee reviewed progress
on the actions set out in the implementation plan
developed for the Russian Federation following
the external information security assessment
and the attack in 2017. These actions were largely
completed by the end of 2018 and a further
round of penetration testing will be undertaken
during 2019. An IT risk assessment of the North
American business was undertaken by EY
in 2018 and a detailed plan is being developed
to upgrade the IT infrastructure and implement
EY’s recommendations. Given the significance of IT
security to the Group’s risk profile and resilience,
this will remain an area of focus for the Audit
Committee in 2019.
Following the financial transformation project
and migration to the shared service centre
at, Novokuznetsk, management commissioned
an external review of the overall finance function
to assess the maturity of the process within EVRAZ
and this was reviewed by the Committee. Based
on the results, a transformation map has been
developed with strategic objectives for each part
of the finance function through to 2020. The Audit
Committee will monitor progress against this plan
during 2019.
The Committee continued to review the procurement
transformation project during the year, as well
as the management plan to improve controls
over contract approval and signing processes. This
plan should be fully implemented during 2019
and the completeness and effectiveness of the new
controls will be reviewed by the Committee.
The Committee also assessed plans developed
by management to improve controls over inventory
and product shipment at one of the plants;
this is a complex process involving several
business functions and the use of innovative
technology solutions. It will remain an area of focus
for the Committee in 2019.
The Committee continued to monitor the process
for identifying and approving related-party
transactions during 2018 together with the accuracy
and completeness of the disclosures in the 2018
financial statements.
The Committee updated its terms of reference,
and undertook a self-assessment to consider
its performance. The internal audit charter
and the Group’s financial reporting procedures
(FRP) manual were also considered and updated.
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 requirements of the FRC’s
Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting.
The Committee also considered the implications
of the new Corporate Governance Code for its
work and reviewed the operation of whistleblowing
procedures to ensure they were appropriately
aligned across the Group and conformed to best
practice.
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. The Audit Committee considered
the updated risk register and the scenarios
tested and the assumptions underpinning
each scenario. Although compliance with trade
regulations and sanctions regimes is now identified
as a principal risk, the Risk Management Group
consider the risk of sanctions being imposed
on EVRAZ to be remote and the potential
implications difficult to predict in the current
environment. The Audit Committee challenged
and then agreed with the Risk Management
Group and, as a result, this scenario has not been
modelled as part of the viability analysis.
SIGNIFICANT
FINANCIAL REPORTING
ISSUES CONSIDERED
BY THE AUDIT
COMMITTEE IN 2018
The Audit Committee’s primary objective
is to support the Board in ensuring the integrity
of the Group’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 Group’s
performance, business model, strategy, principal
risks and uncertainties
against the US dollar, the presentation currency
of the financial statements, as set out in Note 2.
As a result, while challenging the consistency
and comparability of balances in the financial
statements remains difficult, management
separates 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)
EVRAZ is exposed to a wide range
of risks and inherent uncertainties as set out
on pages 35–37, many of which are outside
the control of the Group. In 2018, steel and raw
material pricing remained strong supported
by global demand and supply side reform in China,
but markets were volatile. The Audit Committee
reviewed management’s going concern analysis,
which included both a base case and a flexed
downside scenario based on forward pricing
close to the bottom of the range of current
investment analyst forecasts, as well as a reduction
in the level of budgeted capital expenditure. The
Committee carefully considered the projected
use and sources of funds for the period to June
2020, which includes scheduled loan repayments,
new committed funding, free cash flow after
capital expenditure and the dividend policy. Given
the volatility of the global supply and 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 2018 to the Board.
Financial reporting standards
and governance requirements
The full financial statements can be found
on pages 132–257.
Areas of significant
accounting judgement and
management estimates
Impairment of goodwill and non-current assets
(Notes 5 and 6)
The Audit Committee considered several financial
reporting issues in relation to the interim results
for H1 2018 and the financial statements
for 2018. These included the appropriateness
of accounting policies adopted, disclosures
and management’s estimates and judgements.
The Committee considered papers produced
by management on the key financial reporting
judgements and reviewed reports by the external
auditor on the full-year and half-year results which
highlight any issues with respect to the audit work.
The financial statements continue to be impacted
by fluctuations in the key functional currencies
of the business (primarily the Russian rouble)
The Committee considered management’s
impairment assessment in the context
of the current and future trading environment
for the Group, including assumptions
as to the continuation of tariffs and duties in North
America and their impact on the recoverable
amount of the affected assets. Testing was
undertaken as at 30 September 2018
and reassessed at 31 December 2018 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
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outlook were to deteriorate.
An impairment charge of US$30 million is recorded
in the financial statements for 2018. This primarily
relates to EVRAZ Stratcor Inc, where the full
asset value of US$12 million has been impaired
in anticipation that the entity will enter bankruptcy
proceedings. There was a further impairment
charge of US$6 million at Yuzhkuzbassugol
to reflect an increase in site restoration provisions
at one of the mothballed mines.
The Committee gave particular attention
to the implications of trade barriers
for the businesses in North America
and management’s assumption that these will
end in 2023. Given the inherent uncertainty
around these measures at the current time,
the Committee accepted management’s
assumption on this occasion but will review
it for the interim statements.
Other matters
The Committee reviewed and agreed
with the accounting treatment and disclosure
of several transactions during 2018, including:
▪ The twenty-year contract with Air Liquide
for the supply of oxygen and other gases.
As the Group will not control or manage the air
separation plant and output will also be sold
to unconnected third parties, management has
concluded that this contract does not constitute
a lease as defined by IFRS 16 (Note 30);
▪ A contract with Brunswick Rail for the lease
of gondola cars. This contract was classified
as an operating lease under IAS 17 in 2018
but, following the adoption of IFRS 16 in 2019,
the Group will recognise the right-of-use asset
and related liability of US$60 million in respect
of this contract (Note 30); and
▪ The sale of the 15% interest in Delong
Holdings Limited in June 2018 and recognition
of the US$59 million gain in other
comprehensive income (Note 13).
The Financial Reporting Council (“FRC”) reviewed
the financial statements for the year ending
31st December 2017 and wrote to the Company
in July 2018. The Audit Committee reviewed
the recommendations of the FRC with management
and the external auditor and the majority of these
recommendations where relevant have been
incorporated into the financial statements
for the year ending 31st December 2018.
Fair, balanced and
understandable
In considering whether the Annual Report is fair,
balanced and understandable, the Committee
reviewed the information it had received,
114
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 was undertaken
by the relevant directors and external advisers.
The Committee particularly considered whether
the description of the business, principal risks
and uncertainties, strategy and objectives were
consistent with the understanding of the Board,
and whether the controls over the consistency
and accuracy of the information presented
in the Annual Report are robust.
Taking into account the disclosure implications
of the issues discussed in this report, the Committee
recommended to the Board that, taken as a whole,
it considers the Annual Report to be fair, balanced
and understandable. The Audit Committee
recommended approval of the Group’s 2018
Consolidated Financial Statements by the Board.
Both recommendations were accepted by the Board.
OTHER MATTERS
UK Bribery Act
The Committee continues to monitor the status
of the procedures, controls and data collection
of the Group’s Code of Conduct and Anti-Corruption
Policy. 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 2018 and the results reported
to the Audit Committee in February 2019, indicating
further progress in reducing risk. During 2019,
the methodology and current monitoring framework
will be updated and extended in consultation
with internal audit and legal advisers to reflect
the latest best practice.
Anti-corruption training continued during 2018.
A further 2,500 managers across the business
completed the anti-corruption training programme
developed by Thomson Reuters, bringing the total
number of those trained to 11,000. The training will
continue to be extended to additional staff in 2019
and refresher training will commence. In addition,
specific training modules will be developed in-house
by the management to supplement the Thomson
Reuters programme during 2019.
Sanctions compliance controls
Given the increase in geo-political tension during
2018, compliance with the extended sanctions
regime has been a key focus for the Committee
throughout the year. The Committee received
regular updates from the Group’s external legal
advisers and compliance officer on any extension
or change to the evolving sanctions framework.
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 were 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 pages 109–111.
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 FRP manual.
The manual was updated and reviewed by the Audit
Committee in January 2019.
The Risk Management Group and the Audit
Committee reviewed the Group’s risk profile
in November 2018 and finalised the assessment
in January 2019. The assessment includes
the Risk Management Group’s recommendation
on the level of risk appetite of the Group and how
that appetite is applied to strategic and operational
business decisions. This was 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.
Progress on resolving issues is monitored regularly
by the Committee.
The Audit Committee continues to receive quarterly
updates on whistleblowing reports together
with a bi-annual security report on the progress
of follow-up investigations and resulting actions
in relation to fraud and theft. Any significant
whistleblowing report is reported to the Committee
on an ad hoc basis when it arises.
Assessment of the Group’s risk
profile and control environment
Internal audit reviews the Group’s risk and control
environment annually and this is considered
by the Risk Management Group and the Audit
Committee. The chairman of the Audit Committee
tables the internal audit report assessment of the risk
and control environment with the Board.
The Committee monitors the internal control
environment throughout the year and engages
with executive management on any deficiencies
identified by internal audit and assesses
management’s response. During 2018, the Audit
Committee reviewed the updated assessment
of the information security risks and supporting
analysis and the preliminary risk assessment
of GDPR compliance, and considered the analysis
of issues arising from the current contract approval
process. The Committee also reviewed the results
of the external finance function assessment
and a project to optimise product inventory
and shipment control at one of the plants. The Audit
Committee considered whether any of these matters
had implications for the risk and control environment
of the Group.
The Audit Committee reviewed in detail the Group’s
risk management practices and management’s
self-assessment of the process. While the maturity
of the process was assessed as fair, areas were
identified that require additional management
focus and enhanced risk management
practices. As a result, management developed
a plan to address these gaps, which was reviewed
by the Audit Committee and considered appropriate.
Progress against this plan will be monitored during
2019.
INTERNAL AUDIT
The Audit Committee reviewed the internal audit
plans for 2019 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. During 2018,
the Audit Committee also approved the expansion
of the internal audit function in North America
to increase the geographic coverage of risk areas.
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 charter and key performance indicators
of the internal audit function in early 2019. An annual
assessment of the effectiveness, independence
and quality of the internal audit function was
undertaken by way of a questionnaire to Committee
members, management and the external auditors,
and was again found to be very satisfactory. An
external assessment of the internal audit function
in North America and Canada was undertaken
during 2018 and confirmed that it generally
conforms to the International Standards
for the Professional Practice of Internal Auditing,
Code of Ethics and Definition of Internal Audit
of the Institute of Internal Auditors. The next
scheduled external assessment of the internal
audit function in Russia, the CIS and Europe
will be undertaken in 2020.
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, as well as for making
recommendations to the Board on 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 of the external auditor.
This includes:
▪ 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 June 2018 Quality Inspection
Report 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 2017 audit with management,
consideration of management’s response
and proposed actions, and directing that internal
audit undertake a follow-up audit of key areas
Management and members of the Audit
Committee completed a questionnaire to assess
the effectiveness and independence of the 2017
external audit process during 2018, which was
found to be satisfactory.
The Audit Committee holds regular meetings
with the external auditor at which management
is not present to consider the appropriateness
of the Group’s accounting policies and audit
process. During 2018, 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 website:
www.evraz.com. This policy identifies a range of non-
audit services which are prohibited on the basis
that they might compromise the independence
of the external auditor, 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. This policy was
updated in January 2019 to reflect the latest
guidance http://www.evraz.com/governance/
documents/. Fees in respect of the interim review
are now classified as an audit-related service
and the threshold for audit-related and non-audit
services has been increased. During 2018, non-
audit fees totalled US$1,202,000 and included
US$459,000 in respect of the interim review (2017
US$1,073,000 including US$530,000 in respect
of the interim review. The balance in 2018 primarily
related to work in connection with the EVRAZ plc
guarantee to Sibuglemet, as well as other quality
assurance reviews. Non-audit fees were 41%
of the 2018 audit fee of US$2.9 million, compared
with 35% of the 2017 audit fee. Irrespective of prior
approval by the CFO and Audit Committee chairman,
all fees are reported to the Audit Committee
for noting and comment.
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 ended
31 December 2017 and 2018. After consideration
of the UK Corporate Governance Code, EU
legislation on audit regulation and the performance
of EY, the Committee recommended in 2017 that,
subject to the agreement of appropriate terms,
a further tender to appoint an external auditor
be deferred to 2021. The Committee reviewed
the terms agreed with EY in respect of the financial
years ended 31 December 2019 and 2020,
as well as the performance of EY, and continues
to recommend the deferral of the tender process.
EY was appointed as external auditor of EVRAZ plc
in 2011. The current audit engagement partner,
Steven Dobson, assumed the role for the year
ended 31st December 2016 and will continue up
to and including the audit for the year ended 31st
December 2020.
The Audit Committee continues to consider EY
to be effective and independent in their role
as auditor and has advised the Board that
it should recommend to shareholders that EY be
re-appointed as external auditor for the year ending
31 December 2019.
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com Nominations committee report
Sir Michael Peat
Senior Independent Non-Executive Director,
Chairman of Nominations Committee
The Board delegates the Nominations Committee’s role and responsibilities, which are set
out in written terms of reference
http://www.evraz.com/governance/directors/committees.
The Nominations Committee has continued to monitor the Board’s composition to ensure that it remains
appropriate for the Company and to uphold the integrity of the Company’s corporate governance. As reported
last year, the Nominations Committee considered the range of experience currently on the Board and the need to
widen diversity before commencing a recruitment exercise for an additional non-executive director. With three of
the five independent non-executive directors completing seven years on the Board, this process will continue as
suitable candidates are sought.
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 2018 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.
Three of the five committee members were
independent non-executive directors.
The committee met on four occasions during
2018. As reported
were in attendance for all meetings.
on page 108, all members
The CEO attended all meetings and the company
secretary acted as the committee’s secretary.
116
ACTIVITY DURING
2018
During 2018, the committee considered
the following issues.
Board and committee
composition
The Board agreed that the size of the Board
and its committees was appropriate for
the Group’s ongoing needs. 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.
Succession planning
The committee considered succession planning
for independent non-executive directors,
in the context of the length of service of each
of the current independent non-executive
directors. The committee commenced a search
in 2017 for an additional independent non-
executive director and appointed Heidrick &
Struggles, a firm that has no other relationship
with the business, to undertake the search.
Heidrick & Struggles reviewed a wide range
of candidates in line with the Board’s desire
to enhance gender diversity on the Board where
appropriate. Heidrick & Struggles presented
a number of candidates to the committee, who
reviewed and met with several of the candidates.
Further meetings between the identified
candidate and key executive management were
arranged to ensure that the selected candidate
had a skill set that the Board could benefit
from. The Committee also considered, after
review, that Laurie Argo was fully independent
as defined by the Code and had sufficient time
available to deliver the role. A recommendation
was subsequently made to the Board, which
appointed Laurie Argo as an independent non-
executive director on 8 August 2018. Ms Argo’s
biography is available on page 102. Notably,
she has a wide range of experience, particularly
in the North American energy industry.
The committee also paid close attention to senior
management succession.
Board performance
evaluation
In 2017, as required by the UK Corporate
Governance code, the Company undertook a board
performance evaluation using an external facilitator,
Lintstock LLP. In October 2018, the company
secretary undertook a follow up internal
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. The Board
currently meets these criteria. The committee
continues to review and monitor the Group’s
performance against its diversity policy, including
aspects such as age, gender and educational
and professional backgrounds, as disclosed
in the CSR report
on page 84.
The Nominations Committee and the Board
are committed to meeting best practice
standards in gender diversity. While the nature
of the steel and mining industries makes
this more challenging, it does not diminish
the committee’s and the Board’s commitment.
2019 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.
A review is in progress to confirm compliance
with the revised 2018 UK Governance Code,
which takes effect for the 2019 financial
year. In addition, the committee will continue
to consider development and succession planning
for senior management.
evaluation under the guidance of the Nominations
Committee. Following the 2018 review’s
conclusion, 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 page 108.
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.
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 17 January 2019.
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 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.
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com HSE Committee report
Karl Gruber
Independent Non-Executive Director,
Chairman of Health, Safety and Environment Committee
The Board delegates the HSE Committee’s role and responsibilities, which are set out in written terms
of reference
http://www.evraz.com/governance/directors/committees/.
In 2018, EVRAZ continued the work to streamline its HSE system and developed measures to mitigate key risks.
Unfortunately, the results were unacceptable: six employees and four contractors lost their lives, while only
the number of serious injuries fell by 8%. This again highlights the need to improve the approach and focus
on changing the safety culture by involving each and every employee in the efforts to uncover and eliminate
production risks. To this end, the Group has reviewed its HSE strategy and identified key areas of focus for the
short term.
ROLE AND
RESPONSIBILITIES
The Health, Safety and Environment (HSE)
Committee is responsible for reporting
to the Board on three key areas: employee
wellbeing, occupational safety and protection
of the environment and local communities
where EVRAZ operates. It receives monthly
HSE updates and provides a quarterly report
to the Board, and its tasks include:
▪ Assessing the effects of the Group’s HSE
initiatives on key stakeholder groups,
such as employees and local residents,
and on EVRAZ reputation
▪ Liaising between the management
and the Board when there have been fatalities
or serious incidents in the workplace,
including to ensure that remedial action
is implemented effectively
▪ Reviewing HSE strategy, monitoring pertinent
parts of any independent operational audits
and making recommendations for action
or improvement as deemed necessary
COMMITTEE
MEMBERS AND
ATTENDANCE
As of 31 December 2018, the HSE Committee’s
members were Karl Gruber (chairman),
Alexander Frolov and Olga Pokrovskaya, who
remains in place since leaving the Board
on 14 March 2016.
In 2018, the committee held two meetings,
on 7 February and 2 August, at the headquarters
in Moscow. Both had a necessary quorum
and were convened as required. The meetings
included reviews of current issues and HSE
initiatives at the divisional level. In addition,
in June 2018, the committee chairman
and EVRAZ CEO took part in a HSE strategy
session with 40 top managers. In
September 2018, the same group visited
divisional production sites to review HSE
practices and take part in the EVRAZ Business
System Summit.
ACTIVITY DURING
2018
The following sections summarise how
the HSE Committee fulfilled its duties in 2018.
HSE performance review
Throughout the reporting period, the committee
reviewed EVRAZ HSE performance using
the following criteria:
▪ Fatal incidents
▪ Lost-time injuries (LTI)
▪ Lost-time injury frequency rate (LTIFR),
calculated as the number of injuries resulting
in lost time per 1 million hours worked
▪ Enforcement of cardinal safety rules
▪ Progress of health and safety initiatives
The HSE Committee reviews every fatality, severe
injury and significant damage to property at EVRAZ
to identify the root cause and remedial action.
This involves recording a detailed description
of the scene, the sequence of events, root cause
analysis and corrective measures implemented.
COMMUNITY
RELATIONS
PERFORMANCE
In 2018, the HSE Committee reviewed EVRAZ CSR
initiatives aimed at:
▪ Improving the quality of life in local communities
▪ Developing infrastructure, sports, educational
and cultural programmes
▪ Helping children with special needs
▪ Caring for the environment
▪ Promoting a responsible attitude towards safety
at work and home
In addition, the committee reviewed the results
of the annual reputation audit, engaging
businesses, clients, media, government
representatives and local communities. The
Group’s efforts to build sustainable partnerships
with key stakeholders were rated as satisfactory.
EVRAZ reputation rating continues to increase.
For more details on HSE issues, see
the Corporate Social Responsibility section
on pages 72–82.
The committee evaluates the Group’s
environmental performance using the following
criteria:
▪ 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
▪ Non-compliance related environmental levies
(taxes) and penalties
▪ EVRAZ environmental commitments
and liabilities
▪ Major environmental litigation and claims
▪ Asset coverage with environmental permits/
licences
▪ Public complaints
▪ Material environmental incidents
and preventative measures
▪ Environmental risk assessment
In 2018, the committee reviewed the risks
and opportunities associated with greenhouse gas
(GHG) emissions based on the Group’s production
plans and initiatives. Committee members set
a new environmental target of maintaining
the GHG intensity ratio.
HSE strategy review
In 2018, the committee reviewed EVRAZ HSE
Policy and Cardinal Safety Rules, approving
the annual HSE targets and new five-year
environmental targets. In addition, it supported
management efforts in the following corporate-
level HSE initiatives, finding that the priorities
are generally on track:
▪ Implementation of a lockout-tagout (LOTO)
system
▪ Safety conversations and standard operating
procedures
▪ Assessment of the safety management
system
▪ Review of contractor management
requirements
▪ Divisional health and safety initiatives
▪ Environmental programmes, including air
emission, water consumption and waste
management initiatives
The health and safety initiatives were based
on the results of the HSE strategy session
in June 2018 and aim to address key issues
regarding fatality prevention. The assessment
of the safety management system highlighted
leadership and risk management as the main
areas for improvement.
Indeed, improving both of these were added
to the “HSE performance assessment”
and “safety conversations” objectives.
Leadership plays a vital role in keeping
employees focuses on key risks and instituting
a culture of safety in the workplace,
and there are plans to train 300 top managers
on a dedicated leadership programme.
Meanwhile, effective risk management involves
prioritising appropriately and detecting root
causes with a view to eliminating fatalities.
HSE regulatory changes
In 2018, the HSE Committee evaluated the risks
and opportunities related to the introduction
of new Russian regulations, as well
as the challenges associated with new national
targets to 2024 announced by the government
in May. Over the reporting period, EVRAZ
reviewed 23 drafts of HSE-related legislation
for the Russian Steel Association’s HSE
Committee, helping the regulator to form
definitive positions in various areas, including:
▪ GHG regulation
▪ New national water discharge standards
▪ Online emission and discharge monitoring
▪ Transition to best available techniques (BAT)
The Committee acknowledges the risks involved
and recommended a proactive approach
in alliance with the business community
and steel producers.
HSE audit review
In 2018, state supervisory agencies and internal
HSE auditors conducted compliance inspections
of EVRAZ operations, and the committee reviewed:
▪ The HQ Industrial Safety Department’s audits
of processes and structural units at Group
facilities
▪ Health and safety cross-audits performed
by representatives of similar operations
from other EVRAZ facilities and overseen
by the HQ safety team
▪ The environmental risks identified via the HQ
Environmental Management Directorate’s
internal audit and risk assessment process
▪ The Internal Audit Department’s audits
of the HSE function
▪ External environmental inspections carried
out by the environmental authorities, as well
as the implementation of remedial action
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com Remuneration report
Alexander Izosimov
Independent Non-Executive Director,
Chairman of the Remuneration Committee
I am pleased to present our annual report on directors’ remuneration and to confirm that the Committee has
taken decisions fully in line with our shareholder approved policy. This policy is designed to deliver our sustainable
business objectives and maximise long-term rewards to shareholders. The Committee’s Terms of Reference have
now been updated in line with the UK Corporate Governance Code.
This report has been prepared in
accordance with the Companies Act
2006 and Schedule 8 to the Large and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations
2008 (as amended in 2013; the
“Regulations”). It also meets the
relevant requirements of the Financial
Conduct Authority’s Listing Rules and
describes how the Board has applied
the principles of good governance as
set out in the UK Corporate Governance
Code (April 2016).
This report contains both auditable
and non-auditable information. The
information subject to audit by the
Group’s auditors, Ernst & Young LLP,
is set out in the Annual remuneration
report and has been identified
accordingly.
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 and therefore the next occasion
will be at the AGM in 2020.
Annual remuneration report
The second part of the report, the Annual
Remuneration Report, sets out details
of remuneration paid in 2018 and how the Group
intends to apply its Remuneration Policy
in 2019. This section will be put to an advisory
shareholder vote at the forthcoming AGM.
Key decisions taken during
the year
As the CEO pay has not been changed
since 2008, the Remuneration Committee
conducted a thorough review and decided
to increase the CEO’s salary by 5%. The logic
for this decision stems from the pay dynamics
inside the Company and also an awareness
of the movements over the last 10 years
in FTSE100 directors’ salaries. The benchmark
comparison, conducted by Korn Ferry, indicated
that the median salary of the CEOs of FTSE
100 companies increased by around 15%
over this period. This increase will also be
in line with internal compensation dynamics
in the Company over the last decade. The bonus
opportunity for 2019 will remain unchanged.
The CEO does not participate in the long-term
incentive plan or receive any pension benefits/
allowances.
Based on performance against the pre-determined
KPIs and targets, the CEO’s annual bonus payout
for 2018 was 57.21% of the maximum. Further
details can be found on pages 124-127.
The Remuneration Committee’s
terms of reference were reviewed
in the year and updated for the changes
to the UK Corporate Governance Code.
In line with its commitment to good corporate
governance, the Group 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.
Link with business strategy
EVRAZ fundamental success factors together
with actualised strategic priorities define
the selection of KPI’s for the CEO.
These strategic priorities are reflected
in the Company’s approach to executive
remuneration and a large proportion
of the CEO’s remuneration is linked
to performance through the annual bonus.
Achievement within the annual bonus is based
on the Company’s key quantitative financial,
operational and strategic measures to ensure
focus is spread across the key aspects
of Company performance and strategy. The
exact measures and associated weighting
are determined on an annual basis according
to the Company’s strategic priorities for the year.
For 2018, 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 KPI are specific
and focus on deliverables to support
the Company’s strategy.
How business strategy aligns to overall reward at EVRAZ
SUCCESS FACTORS
CURRENT STRATEGIC PRIORITIES
CEO KPIs
Weighting
Health,
Safety and
Environment
Human
Capital
Customer
Focus
Asset
Development
EVRAZ
Business
System
Debt
Management
and Stable
Dividends
Prudent
CAPEX
Retention
of Low-cost
Position
Development of
product Portfolio
and Customer
Base
LTIFR
EBITDA
FCF
Cash Cost
Index
Strategic
Objectives
20%
20%
20%
20%
20%
X
X
X
X
POLICY REPORT
The main terms of the Remuneration Policy
relating to executive and non-executive directors
are set out in the following section. The full
text of the Policy approved by shareholders
at the 2017 AGM is available at https://ar2017.
evraz.com/en/governance/remuneration-report.
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 Group’s
business objectives, encourages a high level
of performance, and aligns the interests
of management with those of shareholders.
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
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.
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 the UK Corporate Governance Code.
The CEO’s incentive arrangements are subject
to “malus”, under which the Remuneration
Committee may adjust bonus payments
downwards to reflect the Group’s overall
120
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com Operation
Maximum potential value
Performance metrics
Element
Purpose and link to
strategy
Operation
Maximum potential value
Performance metrics
Remuneration Policy
Purpose and link to
strategy
Element
Executive director
Base salary
Provides a level of
base pay to reflect
individual experience
and role to attract
and retain high
calibre talent.
Benefits
To provide a market
level of benefits,
as appropriate
for individual
circumstances, to
recruit and retain
executive 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.
Benefits currently include private healthcare.
Other benefits (including pension benefits)
may be provided if the committee considers
it appropriate. The current CEO does not
participate in any pension scheme 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.
None
None
Generally, the maximum increase
per year will be in line with the
overall level of increases within the
Group.
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.
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.
Annual bonus
To align executive
remuneration to
Group strategy
by rewarding the
achievement of
annual financial and
strategic business
targets.
The Company operates an annual bonus
arrangement under which awards are generally
delivered in cash.
Up to 200% of base salary in
respect of any financial year of the
Group.
Targets are reviewed annually and linked
to corporate performance based on
predetermined targets.
The bonus is based on
achievement of the Group’s key
quantitative financial, operational
and strategic measures in the
year to ensure focus is spread
across the key aspects of Group
performance and strategy.
The exact measures and
associated weighting will be
determined on an annual basis,
according to the Group’s strategic
priorities, however at least 60%
will be based on Group financial
measures.
For achievement of threshold
performance, 0% of maximum
will be paid, rising 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 Group’s overall
performance.
Non-executive directors
Chairman and
non-executive
director
remuneration
To provide
remuneration that is
sufficient to attract
and retain high
calibre non-executive
talent.
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 Board level reflect
the seniority of the role and local market
practices, and therefore the components
and remuneration levels for different employees
may differ in parts from the policy set out above.
For instance, in addition to a base salary,
a performance-related bonus (calculated
by reference to KPIs aligned with the Group’s
strategy) and benefits, senior managers are also
entitled to participate in a long-term incentive
programme. This is designed to align the interests
of these individuals to the delivery of long-
term growth in shareholder value. The current
CEO already holds a substantial shareholding
in the Group and therefore does not participate
in this plan.
Illustration of the application of the
Remuneration Policy
The chart on the right provides an indication
of what could be received by an executive director
under the Remuneration Policy.
Application of the remuneration policy,
US$ thousand
100% 0%
Minimum
50%
50%
In line with expectations
34%
66%
Maximum
2,659
5,284
7,909
Base pay
Annual bonus
Policy on recruitment of
executive directors
In the event of hiring a new executive director,
remuneration would be determined in line
with the recruitment Remuneration Policy.
This part of the Remuneration Policy has been
developed to enable the Company to recruit
the best candidate possible who will be able
to contribute to the Group’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. However, the policy provides additional
flexibility for example to structure pay differently
and to provide compensation for remuneration
that would be forfeit on joining the Company.
Executive
director
Alexander V.
Frolov
Date of
contract
31 December
2016
Notice period
(months)
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.
Executive director’s service
contract and loss of office
policy
The CEO has a service contract with a subsidiary
of EVRAZ plc.
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
122
123
Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com Key terms of non-executive directors’ appointment letters
Non-executive directors
Alexander G. Abramov
Karl Gruber
Alexander Izosimov
Sir Michael Peat
Deborah Gudgeon
Eugene Shvidler
Eugene Tenenbaum
Laurie Argo
Date of contract
14 October 2011
14 October 2011
28 February 2012
14 October 2011
31 March 2015
14 October 2011
14 October 2011
8 August 2018
Notice period
Three months
Three months
Three months
Three months
Three months
Three months
Three months
Three months
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 18 June 2019.
Copies of the directors’ letters of appointment
or, in the case of the CEO, the service contract,
are available for inspection by shareholders
at the Group’s registered office.
Consideration of conditions elsewhere
in the Group
Management prepares details of all employee
pay and conditions, and the 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.
ANNUAL
REMUNERATION
REPORT
This section summarises remuneration paid
out to directors for the 2018 financial year,
and details of how the Remuneration Policy
will be implemented in the 2019 financial year.
Executive director’s
remuneration
In 2018, 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$150,000) and any applicable fees
for participation in the work of the Board
committees as laid out in the section below
on non-executive director remuneration. However,
the Remuneration Committee considers these fees
to be incorporated in his base salary. Alexander
Frolov’s current shareholding (10.33% of issued
share capital as of 24 December 2018) provides
alignment with the delivery of long-term growth
in shareholder value. As such, the committee does
not consider it necessary for the CEO to participate
in any long-term incentive plans or to impose formal
shareholding guidelines. However, the committee
will continue to review this on an ongoing basis.
Single total figure of
remuneration (audited)
Key elements of the CEO’s remuneration
package received in relation to 2018
(compared with the prior year)
Alexander V.
Frolov
Salary and
director fees1
Benefits
Bonus
Total
2018 (US$)
2017 (US$)
2,500,000
2,500,000
33,506
2,860,378
5,393,884
25,803
2,990,750
5,516,553
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).
1 The salary is paid in roubles and the amounts paid in the year are reconciled at the year-end so as to equal US$2,500,000.
124
For 2019, the Remuneration Committee
increased the CEO’s salary by 5%
to $2,625,000.
Pension and benefits
(audited)
The CEO does not currently receive any pension
benefit or allowance. Benefits 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 2018
(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 2018, 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 payout to ensure that
it is appropriate considering the Group’s overall
performance.
In 2018, EVRAZ outperformed each
of its threshold targets, resulting in an annual
bonus payout of 57.21% of the maximum.
Management effectively maximized the benefit
from the positive market trends. Other
contributers to the outperformance included
tight control over operational efficiency
and investments. There was significant
outperformance of the EBITDA and Free
Cash Flow stretch targets notwithstanding
the negative changes in working capital
over the year.
The Remuneration Committee determined that
this level of payout is reflective of the Company’s
overall performance and commensurate
with the shareholder experience.
Details of the targets set for each KPI, the actual achievement in the year, and total
payout level for the 2018 bonus
KPIs
LTIFR
EBITDA
Adjusted FCF
Cash cost index
Discretion
Total
Result measurement
Planned level
(% of target)
1.72x
Threshold
2.06x
Outstanding
1.38x
Actual 2018
1.91x
US$1,747m US$2,184m US$2,621m US$3,777m
US$881m US$1,057m US$1,602m
107%
See comment
below
US$704m
110%
90%
100%
Remunertion Committee assessment
of overall performance against strategic
objectives
Bonus payout
(% of max)
22.4%
100%
100%
13.7%
50%
57.21%
For reference, the fees payable
for the chairmanship of a committee include
the membership fee, and any director elected
as chairman of more than one committee
is generally entitled to receive fees in respect
of one chairmanship only. The fee for the chairman
of the Board amounts to US$750,000
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 2019.
Remuneration Committee
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 his 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
2018 was an exceptionally successful year
and in recognition of this, the CEO received 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 remaining of EVRAZ shares
in the FTSE 100 index;
▪ EBITDA reached the US$3.8 billion level
significantly exceeding the stretch target set,
coupled with strong FCF;
▪ Net Debt / EBITDA <1.0 level achieved,
as of 31.12.2018 it stood at 0.9x;
▪ Significant total shareholder return compared
with the performance of FTSE 350 companies;
▪ Standard & Poor’s credit rating remained at ‘BB’
level;
▪ Optimisation of the asset portfolio through
the successful disposal of Evraz Dneprovsky
Metallurgical and the non-core asset of Delong
Holdings Limited, cost-cutting initiatives that
delivered US$273 million and development
of the EVRAZ Business System transformation.
The resultant bonus was 57.21% of the maximum.
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 payouts may be
adjusted downwards to reflect the Group’s overall
performance.
Aggregate directors’
remuneration
The aggregate amount of directors’ remuneration
payable in respect of qualifying services
for the year ended 31 December 2018 was
US$7,743 thousand (2017: US$7,795 thousand).
Non-executive directors’
remuneration
Share ownership by the
Board of Directors (audited)
Non-executive directors’ remuneration payable
in respect of 2018 and 2017 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$50,000 for other
committees).
As set out earlier in this report, there are no formal
minimum shareholding requirements currently
in place, reflecting the CEO’s current shareholding
in EVRAZ.
The directors’ interests in EVRAZ shares
as of 31 December 2018 were as follows.
There have been no changes in the directors’
interests from 31 December 2018 through
27 February 2019.
Single total figure of remuneration (audited)
2018 (US$ thousand)
2017 (US$ thousand)
Non-executive director
Alexander G. Abramov
Alexander Izosimov
Eugene Shvidler
Eugene Tenenbaum
Karl Gruber
Sir Michael Peat
Deborah Gudgeon
Laurie Argo3
Total fees1
750
248
174
150
238
224
274
69
Admin2
30
30
30
30
30
30
30
12
Total Total fees1
750
780
248
278
174
204
150
180
248
268
224
254
304
274
81
Admin2
30
30
30
30
30
30
30
Total
780
278
204
180
278
254
304
Directors’ interest in EVRAZ shares as of 31 December 2018
Annual bonus for 2019
For 2019, the bonus framework will be in line
with 2018. The Board considers forward-looking
Directors
Alexander Abramov
Alexander Frolov
Eugene Shvidler
Alexander Izosimov
Number of shares
298,625,541
149,118,167
42,877,492
80,000
Total holding, ordinary shares, %
20.69
10.33
2.97
0.01
1 Total fees include annual fees and fees for committee membership or chairmanship (pro rata working days).
2 The Group contributes an annual amount of US$30,000 towards secretarial and administrative expenses of non-executive directors. In addition to the amounts disclosed above, the Group reimburses directors’
travel and accommodation expenses incurred in the discharge of their duties.
3 Appointed on 8 August 2018.
125
Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com 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 Group 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.
Engagement with the
workforce
EVRAZ is committed to regularly engaging
with its workforce and realises the value
in listening to and acting on employee views
across the organisation. These insights are vital
to attracting and retaining employees, which is key
to delivering and executing the Group’s vision
and strategy. It also allows for informative decisions
to be made throughout the business. Considering
the views of the wider workforce has been in place
at the Group for many years. Employees participate
in an annual employee engagement survey aimed
at gathering wider workforce views on a number
of different topics. The survey has historically
been successful in driving a number of employee-
focused initiatives and helps to set key priorities
for the forthcoming year, aimed at improving
the engagement of all employees.
The Board reviews the engagement data (and has
appointed two non-executive directors to be
envolved in town-hall meetings with employees)
and is therefore aware of any trends, comments
or concerns in relation to executive pay. The
Board also receives a quarterly summary report
of complaints made on the EVRAZ employee
telephone hot-line.
by the Remuneration Policy. Variable pay cascades
down through the next tiers of management
with appropriate reductions in opportunity levels
based on seniority. In addition, the Group operates
pension arrangements in some of its businesses
around the world, where this is relevant to the local
conditions. The key element of remuneration
for those below senior management grades is base
salary and the Group’s policy is to ensure that
base salaries are fair and competitive in the local
markets. General pay increases take into account
local salary norms, inflation and business
conditions.
Gender pay gap and CEO pay
ratio
EVRAZ has no UK employees and does
not therefore have any gender pay or CEO
pay ratio to report under the Regulations.
Over the coming year we intend to work out
what method of calculation of employee pay
for the CEO pay ratio would be most sensible
and practical for us to produce and informative
for shareholders to receive.
Relative importance of spend
on pay
The table on the right shows a comparison
of the total cost of remuneration paid to all
employees between current and previous years
and financial metrics in US$ millions. EBITDA was
chosen for the comparison as it is a KPI which
best shows the Group’s financial performance.
Total shareholder return performance, %
US$ million
EBITDA
Shares buyback
Dividends
Total employee pay
2018
3,777
0
1,556
1,326
2017
2,624
0
430
1,364
For more information on the definition
of EBITDA, please see page 261.
Performance graph
The graph below shows the Group’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 below shows as a single figure
the CEO’s total remuneration over the past
six years, along with a comparison of variable
payments as a percentage of the maximum
bonus available.
Percentage change
in remuneration
The table on the next page sets out
the percentage change in the elements
of remuneration for the director undertaking
the role of CEO compared with average figures
200
150
100
50
0
07.11.2011 30.12.2011 31.12.2012 31.12.2013 31.12.2014 31.12.2015 31.12.2016 31.12.2017 31.12.2018
FTSE 350 Basic Resources Index
EVRAZ
CEO’s total remuneration paid in 2013-2018
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.
Percentage change in the elements of
remuneration for the director undertaking the
role of CEO compared with average figures
for Russia-based administrative personnel
Russia-based
administrative
personnel
1%
2%
0%
CEO
0%
30%
(4)%
Salary
Benefits
Annual bonus
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
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.
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,
which were reviewed and updated in the year
to reflect changes made to the UK Corporate
Governance Code. A copy 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 senior
executives
▪ 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
▪ Review and consider remuneration trends
across the Group and the alignment
of incentives and rewards with culture when
setting the Remuneration Policy
▪ Review regularly the Remuneration Policy’s
appropriateness and relevance
▪ Determine the total individual remuneration
package of the chairman of the Board,
the company secretary and other senior
executives, including pension rights, bonuses,
benefits in kind, incentive payments and share
options, or other share-based remuneration
within the terms of the agreed policy
▪ Approve awards for participants where existing
share incentive plans are in place
▪ Review and approve any compensation
payable to executive directors and other 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
▪ Oversee any major changes in employee
benefits structures throughout the Group
and report on what engagement has taken
place with the workforce on executive pay
During 2018, the committee met three times.
The purpose of the meetings was to consider
and make recommendations to the Board
in relation to the remuneration packages
of the executive director and key senior managers;
to approve the annual bonus for the 2017 results;
and to approve the 2018 long-term incentive plan
(LTIP) awards for key senior management.
Advisers
Korn Ferry Hay Group Limited (KFHG)
are appointed by the committee and 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 www.remunerationconsultantsgroup.com.
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 GBP37,660.
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.
Actual voting results from the AGM, which was held, in respect of the previous remuneration report and Remuneration Policy
Number of votes
To receive the Directors’ report and the accounts for the
Company for the year ended 31 December 2017
To approve the Annual Remuneration Report set out on pages
128 to 135 of the Annual Report and Accounts 2017
For
1,275,870,686
(99.83%)1
1,221,719,747
(95.79%)
Against
2,144,970
(0.17%)
53,633,631
(4.21%)
Withheld
391,765
Total votes as % of
issued share capital
88.55%
3,054,043
88.36%
The Remuneration Committee also considers
executive remuneration in the context
of the wider employee population and is kept
regularly updated on pay and conditions across
the Group. The proportion of variable pay
increases with progression through management
levels with the highest proportion of variable
pay at Executive Director level, as defined
(US$)
2018
2017
2016
2015
2014
2013
126
CEO single figure of total
remuneration
5,393,884
5,516,553
4,560,054
3,186,585
5,808,752
4,894,286
Annual bonus payout (as a %
of maximum opportunity)
57.21%
59.82%
40.78%
13.33%
77%
50%
1 Percentage of votes cast.
Signed on behalf of the Board
of Directors,
Alexander Izosimov
Chairman of the Remuneration
Committee
27 February 2019
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Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com Directors report
INTRODUCTION
In accordance with section 415 of the
Companies Act 2006, the Directors
of EVRAZ plc present their report to
shareholders for the financial year
ended 31 December 2018, 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.
see page 28 for details.
The strength of the underlying cash flow generation and continuing success with deleveraging have allowed the Company to continue
to pay dividends in line with its dividend policy. Please
The Company paid an interim dividend of US$0.13 per ordinary share, totalling US$187.6 million, on 22 June 2018 to shareholders
on the register as of 8 June 2018.
The Company paid a second interim dividend of US$0.40 per share, totalling US$577.34 million, on 6 September 2018 to
shareholders on the register as of 17 August 2018.
The Company paid a third interim dividend of US$0.25 per share, totalling US$360.8 million, on 21 December 2018 to shareholders
on the register as of 23 November 2018.
The Board of Directors have declared an interim dividend of US$0.40 per share, totalling US$577.3 million, to be paid on 29 March
2019 to shareholders on the register as of 8 March 2019.
Details of the Company’s share capital are set out
movements in the Company’s issued share capital during the year.
As of 31 December 2018, the Company’s issued share capital consisted of 1,506,527,294 ordinary shares, of which 63,176,475
shares are held in Treasury. Therefore, the total number of voting rights in the Company is 1,443,350,819.
On 10 July 2018, following approval from the Company’s shareholders at a general meeting and subsequent confirmation by the
High Court of England and Wales, the nominal value of each ordinary share in the Company was reduced from US$1.00 per share to
US$0.05 per share.
The Company’s issued ordinary share capital ranks pari passu in all respects and carries the right to receive all dividends and
distributions declared, made or paid on or in respect of the ordinary shares. There are currently no redeemable non-voting preference
shares or subscriber shares of the Company in issue.
Details of 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 4 May 2018, the Company transferred 11,297,476 ordinary shares out of treasury to the Company’s Employee Share Trust, which
represented 0.74% of the Company’s issued share capital.
Details are set out
in Note 20 to the Consolidated Financial Statements, including details on the
in Note 20 to the Consolidated Financial Statements.
on pages 100–103.
Biographies of the directors who served on the Board during the year are provided in the Governance section
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
the continuing directors will stand for re-election at the 2019 AGM to be held on 18 June 2019.
Information on share ownership by directors can be found in this Report and in the Remuneration Report
As at the date of this report, the Company has granted qualifying third-party indemnities to each of its directors against any liability
that attaches to them in defending proceedings brought against them, to the extent permitted by the Companies Act. In addition,
directors and officers of the Company and its subsidiaries have been and continue to be covered by director and officer liability
insurance.
Subject to the Company’s Articles of Association, UK legislation and to any directions given by special resolution, the business of the
Company is managed by the Board, which may exercise all the powers of the Company. The Articles of Association contain specific
provisions concerning the Company’s power to borrow money and provide the power to make purchases of any of its own shares.
The directors have the authority to allot shares or grant rights to subscribe for or to convert any security into shares in the Company.
Further details of the proposed authorities are set out in the Notice of the AGM.
Notifiable major share interests of which the Company has been made aware are set out in this Directors’ Report.
on page 125.
on page 124. All of
Dividends
Share capital
Authority to
purchase own
shares and transfer
of treasury shares
to Company’s
Employee Share
Trust
Directors
Directors’
appointment and
re-election
Directors’ interests
Directors’
indemnities and
director and officer
liability insurance
Powers of directors
Major interests in
shares
128
Research and
development
Sustainable
development
Payments to
governments
Political donations
Greenhouse gas
emissions
Employees
Overseas branches
Financial risk
management
and financial
instruments
Going concern
Auditor
Future
developments
Events since the
reporting date
Annual general
meeting (AGM)
Electronic
communications
Corporate
governance
statement
on pages 72–97.
on pages 42–69.
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
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
EVRAZ published its 2017 report on payments to governments in June 2018. 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 Guidance and Transparency Rules Instrument 2014
“Report on payments to governments”, issued by the UK Financial Conduct Authority.
The report is available on the Company’s website at www.evraz.com.
No political contributions were made in 2018.
In 2018, 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
Information regarding the Company’s employees can be found in the Our People section
EVRAZ does not have any branches. A full list of the Group’s controlled subsidiaries is disclosed
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
Statements, the Corporate Governance, Risk Management and Internal Control section
Review
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
The Audit Committee conducted a tender for the external audit of the Group in July 2016. Ernst & Young LLP were selected to
undertake the audits for the financial years ended 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 re-tender will be taken thereafter.
Ernst & Young LLP have indicated their willingness to continue in office and a resolution seeking to re-appoint them will be proposed
at the forthcoming AGM.
Information on the Group and its subsidiaries’ future developments is provided in the Strategic Report
in Note 28 to the Consolidated Financial
on pages 106–111, and the Financial
in Note 2 to the consolidated financial statements
in Note 34 of the Consolidated
on pages 30–33.
on pages 30–33.
on pages 84–89.
on pages 6–39.
on page 153.
on page 78.
The major events after 31 December 2018 are disclosed
in Note 33 to the Consolidated Financial Statements
on page 236.
The 2019 AGM will be held on 18 June 2019 in London. At the AGM, shareholders will have the opportunity to put questions to the
Board, including the chairmen of the Board committees.
Full details of the AGM, including explanatory notes, are contained in the Notice of the AGM, which will be distributed at least
20 working days before the meeting. The Notice sets out the resolutions to be proposed at the AGM and an explanation of each
resolution.
All documents relating to the AGM are available on the Company’s website at www.evraz.com.
A copy of the 2018 annual report, the Notice of the AGM and other corporate publications, reports and announcements are available
on the Company’s website at the following links:
http://www.evraz.com/investors/information/general_meeting/
http://www.evraz.com/investors/annual_reports/
Shareholders may elect to receive notification by email of the availability of the annual report on the Company’s website instead of
receiving paper copies.
The Disclosure Guidance 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.
129
Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com MAJOR SHAREHOLDINGS
The Company’s issued share capital as of 31 December 2018 and 27 February 2019 was 1,506,527,294 ordinary shares, of which 63,176,4751 shares
are held in Treasury. Therefore, the total number of voting rights in the Company is 1,443,350,819.
As of 31 December 2018 and 27 February 2019, the following significant holdings of voting rights in the Company’s share capital were disclosed
to the Company under Disclosure and Transparency Rule 5.
Greenleas International Holdings Ltd.2
Abiglaze Ltd3
Crosland Global Limited4
Kadre Enterprises Ltd5
Number of ordinary shares
440,528,064
298,625,541
149,118,167
83,751,827
% of voting rights
30.52
20.69
10.33
5.80
1 The number of shares differs from the figure in the Financial statements by the amount of shares held in Trust.
2 The Company understands that Roman Abramovich has an indirect economic interest in the 440,528,064 shares held by Greenleas International Holdings Ltd.
3 The Company understands that Alexander Abramov has an indirect economic interest in the 298,625,541 shares held by Abiglaze Ltd.
4 The Company understands that Alexander Frolov has an indirect economic interest in the 149,118,167 shares held by Crosland Global Limited.
5 Includes shares held by Gennady Kozovoy, Kadre’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 2013.
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 2018 and 27 February 2019:
Roman Abramovich
Alexander Abramov
Alexander Frolov
Gennady Kozovoy
Number of ordinary shares
440,528,064
298,625,541
149,118,167
83,751,827
% of voting rights
30.52
20.69
10.33
5.80
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
Contract of significance in which
a director is interested
None
Shareholder waiver of future
dividends
None
Publication of unaudited financial
information
Not applicable
Non pre-emptive issues of equity
for cash
None
Detail of long-term incentive
schemes
Note 21 to the Consolidated
Financial Statements, Remuneration
Report
Waiver of emoluments by a director
None
Non pre-emptive issues of equity
for cash in relation to major
subsidiary undertakings
None
Parent participation in a placing
by a listed subsidiary
None
Contracts of significance
with a controlling shareholder
Relationship Agreement section
on page 131
Agreements with controlling
shareholder
Relationship Agreement section
below
Provision of services
by a controlling shareholder
None
Shareholder waiver of dividends
None
130
SIGNIFICANT
CONTRACTUAL
ARRANGEMENTS
Relationship agreements
In the period between the end of the 2018
financial year and the date of this report,
the Company has entered into relationship
agreements (the “Relationship Agreements”)
with each of Greenleas International Holdings
Ltd., Abiglaze Ltd and Crosland Global
Limited (the “Controlling Shareholders”) that
regulate the ongoing relationship between
the Controlling Shareholders and the Company.
This 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 Shareholders,
and ensures that any transactions
and relationships between the Company
and the Controlling Shareholders are at arm’s
length and on normal commercial terms. These
Relationship Agreements were last amended
and restated (or, in the case of Abiglaze Ltd, first
entered into) in January 2019 reflecting changes
in the Company’s shareholder structure that
took place in December 2018.
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
Shareholders 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 the UK Corporate
Governance Code (the ‘‘Independent
Committee’’);
▪ The Controlling Shareholders shall, insofar
as it is legally able to do so, exercise
their powers, and shall procure that each
member of the respective 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 Shareholders will, and will
procure (as far as is reasonably possible) that
each member of the respective 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
The Relationship Agreements terminate if
the Controlling Shareholders cease 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).
of information pursuant to the Relationship
Agreements is governed by applicable laws
relating to insider information, including,
without limitation, the Disclosure Guidance
and Transparency Rules;
▪ The Controlling Shareholders shall
not, and shall procure, insofar as they
are legally able to do so, that each member
of the respective 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 Shareholders
or any member of the respective Controlling
Shareholder group;
▪ The quorum for any Board meeting
of the Company shall be three, of which
at least one must be a Shareholder Director
appointed by Greenleas International Holdings
Ltd., at least one must be a Shareholder
Director appointed by Abiglaze Ltd and/or
Crosland Global Limited and at least one must
be a non-executive director whom the Board
considers to be independent in accordance
with the UK Corporate Governance Code;
Under the Relationship Agreements,
the Controlling Shareholders and the Company
agree that:
▪ The Controlling Shareholders have 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 the Controlling Shareholders hold
in aggregate 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 Shareholders and their
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 Guidance
and Transparency Rules;
▪ Neither the Controlling Shareholders nor any
of their associates will propose or procure
the proposal of any shareholder resolution
that is intended or appears to be intended
or breach any of the provisions
of the Relationship Agreements, and will
abstain from voting on, and will procure that
the Controlling Shareholder Directors abstain
from voting on, any resolution to approve
a transaction with a related party (as defined
in the Listing Rules) involving the Controlling
Shareholders or any member of the respective
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 Shareholder
Directors, the Controlling Shareholders
or any member of the respective 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 Greenleas International
Holdings Ltd. (and its affiliates) holds
in aggregate an interest of 25% or more
in the Company, Greenleas International
Holdings Ltd. undertakes that it will
not become, and will use its reasonable
endeavours to procure that no other member
of its group becomes, involved in any
competing business (subject to certain
exceptions) in Russia, Ukraine or the CIS
without giving the Company the opportunity
to participate in the relevant competing
business;
▪ For so long as Abiglaze Ltd and Crosland
Global Limited (and their respective affiliates)
hold in aggregate an interest of 25% or more
in the Company, Abiglaze Ltd and Crosland
Global Ltd undertake that they will
not become, and will use their reasonable
endeavours to procure that no other member
of the respective Controlling Shareholder
group becomes, involved in any competing
business (subject to certain exceptions)
in Russia, Ukraine or the CIS without giving
the Company the opportunity to participate
in the relevant competing business.
The Board is satisfied that the Company
is capable of carrying on its business
independently of the Controlling Shareholders
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 Controlling Shareholders shall
not, and shall procure, insofar as they
are legally able to do so, that each member
of the respective Controlling Shareholder
group shall not, exercise any of their voting
or other rights and powers to procure any
amendment to the Memorandum and Articles
that would be inconsistent with, undermine
The change of control provisions contained
in several loan agreements with a total principal
amount of US$611 million outstanding
as of 31 December 2018 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.
131
Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com 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 2019 AGM.
At a general meeting, subject to any special
rights or restrictions attached to any class
of shares on a poll, every member present
in person or by proxy has one vote for every
share that he or she holds.
A proxy is not entitled to vote where the member
appointing the proxy would not have been
entitled to vote on the resolution had
he or she been present in person. Unless
the directors decide otherwise, no member
shall be entitled to vote either personally
or by proxy or to exercise any other right
in relation to general meetings if any sum due
from him or her to the Company in respect
of that share remains unpaid.
The trustee of the Company’s Employee
Share Trust is entitled, under the terms
of the trust deed, to vote as it sees fit in respect
of the shares held on trust.
TRANSFER OF SHARES
The Company’s Articles provide that transfers
of certificated shares must be effected in writing,
and duly signed by or on behalf of the transferor
and, except in the case of fully paid shares,
by or on behalf of the transferee. The transferor
shall remain the holder of the shares concerned
until the name of the transferee is entered
in the Register of Members in respect of those
shares. Transfers of uncertificated shares
may be effected by means of CREST unless
the CREST Regulations provide otherwise.
The directors may refuse to register an allotment
or transfer of shares in favour of more than four
persons jointly.
AUDIT INFORMATION
Each of the Directors who were members
of the Board at the date of the approval
of this report confirms that:
▪ So far as he or she is aware, there
is no relevant audit information of which
the Company’s auditors are unaware;
▪ He or she has taken all the reasonable
steps that he or she ought to have taken
as a Director to make him or herself
aware of any relevant audit information
and to establish that the Company’s auditors
are aware of the information.
The confirmation is given and should be
interpreted in accordance with the provisions
of section 418 of the Companies Act 2006.
The EVRAZ Directors’ Report has been
prepared in accordance with applicable UK
company law and was approved by the Board
on 27 February 2019.
Alexander
Frolov
Chief Executive Officer
EVRAZ plc
By the order of the Board
27 February 2019
Directors responsibility
statement
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 Guidance and Transparency
Rules of the United Kingdom Listing Authority.
Legislation in the United Kingdom governing
the preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.
By the order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
27 February 2019
Responsibility Statement
under the Disclosure
Guidance and Transparency
Rules
on pages 100–103
Each of the directors whose names
and functions are listed
confirm that to the best of their knowledge:
▪ The consolidated financial statements
of EVRAZ plc, prepared in accordance
with International Financial Reporting
Standards (IFRSs) 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 Act 2006, the directors
must not approve the Group and parent
company financial statements unless they
are satisfied that they give a true and fair view
of the state of affairs of the Group and parent
company and of the profit or loss of the Group
and parent company for that period.
In preparing each of the Group and parent
company financial statements, the directors
are required to:
▪ Present fairly the financial position, financial
performance and cash flows of the Group
and parent company
▪ Select suitable accounting policies
in accordance with 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 and
▪ State that the Group and parent company
financial statements have been prepared
in accordance with IFRSs as adopted
by the European Union, subject to any
material departures discloses and explained
in the financial statements
The directors are responsible
for keeping adequate accounting records
that are sufficient to show and explain
the Group’s and parent company’s transactions
and disclose with reasonable accuracy
at any time the financial position of the Group
and parent company and enable them
to ensure that the financial statements comply
with the Companies Act 2006 and, with respect
to the Group financial statements, Article 4
of the IAS Regulation.
They are also responsible for safeguarding
the assets of the Group and parent company
and hence for taking reasonable steps
for the prevention and detection of fraud
and other irregularities.
132
133
Strategic reportBusiness reviewCSR reportCORPORATE GOVERNANCEFinancial statementsAdditional informationAnnual report& accounts2018www.evraz.com Contents
136 Independent Auditor’s report to the Members of EVRAZ plc
144 EVRAZ plc Consolidated Financial Statements
144
145
146
147
149
152
Consolidated Statement of Operations
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
152
153
170
177
178
179
182
184
187
189
191
193
196
197
197
198
200
200
200
201
202
204
208
217
218
220
220
221
230
230
233
234
236
237
1. Corporate Information
2. Significant Accounting Policies
3. Segment Information
4. Changes in Composition of the Group
5. Goodwill
6. Impairment of Assets
7. Income and Expenses
8. Income Taxes
9. Property, Plant and Equipment
10. Intangible Assets Other Than Goodwill
11. Investments in Joint Ventures and Associates
12. Disposal Groups Held for Sale
13. Other Non-Current Assets
14. Inventories
15. Trade and Other Receivables
16. Related Party Disclosures
17. Other Taxes Recoverable
18. Other Current Financial Assets
19. Cash and Cash Equivalents
20. Equity
21. Share-Based Payments
22. Loans and Borrowings
23. Employee Benefits
24. Provisions
25. Other Long-Term Liabilities
26. Trade and Other Payables
27. Other Taxes Payable
28. Financial Risk Management Objectives and Policies
29. Non-Cash Transactions
30. Commitments and Contingencies
31. Auditor’s Remuneration
32. Material Partly-Owned Subsidiaries
33. Subsequent Events
34. List of Subsidiaries and Other Significant Holdings
244 EVRAZ plc Separate financial statements
244
245
246
247
248
Separate Statement of Comprehensive Income
Separate Statement of Financial Position
Separate Statement of Cash Flow
Separate Statement of Changes in Equity
Notes to the Separate Financial Statements
Financial
statements
Independent Auditor’s report
to the Members of EVRAZ plc
Our opinion on the Financial Statements
In our opinion:
▪ EVRAZ plc’s Group financial statements and Parent Company financial statements (the “Financial Statements”) give a true and fair view of the state
▪
▪
of the Group’s and of the Parent Company’s affairs as at 31 December 2018 and of the Group’s and the Parent Company’s profit for the year then ended;
the Financial Statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union; and
the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Consolidated Financial
Statements, Article 4 of the IAS Regulation.
We have audited the financial statements of EVRAZ plc which 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 Position;
the Consolidated Statement of Cash Flows;
the Consolidated Statement of Changes in Equity; and
the related notes 1 to 34.
the Separate Statement of Financial Position;
the Separate Statement of Cash Flows;
the Separate Statement of Changes in Equity; and
the related notes 1 to 11.
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.
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 34–37 that describe the principal risks and explain how they are being managed or mitigated;
the directors’ confirmation set out on page 35 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 153 in the financial statements about whether they considered it appropriate to adopt the going concern basis
of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least
twelve months from the date of approval of the financial statements;
▪
▪ 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 38 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.
Overview of our audit approach
Key audit matters
▪ Goodwill and non-current asset impairment
▪ Completeness of related party transactions
Audit scope
▪ We performed an audit of the complete financial information of five components and audit procedures on specific balances for a further eight
components.
▪ The 13 reporting components where we performed full or specific audit procedures accounted for 78% of the Group’s EBITDA and 83% of the Group’s
revenue (with 68% and 75% respectively representing five full scope components and 10% and 8% respectively eight specific scope components).
▪ For the remaining 47 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.
Materiality
▪ Overall Group materiality of $110 million (2017: $79 million) which represents approximately 3% (2017: 3%) of EBITDA.
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; 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
of the Consolidated Financial Statements
on page 112, the estimates and judgements
on pages 157-158 and the disclosures of impairment in
note 6
What we reported to the
Audit Committee
Risk direction
At 31 December 2018 the carrying value of goodwill
was US$864 million (2017: US$917 million). The
carrying value of Property, Plant and equipment was
$4,202 million (2017: $4,933 million). The Group
recognised a net impairment charge in respect of items
of PP&E during the year of US$30 million (2017: net
impairment reversal of US$12 million). In addition
to CGUs containing goodwill we focused our work on
areas of increased risk. In spite of the generally positive
price outlook, the continued unstable economic and
geopolitical environment and in particular uncertainty
around the duration and impact of trade disputes
between USA and Canada led us to conclude that risk
had increased in respect of assets located in those
countries.
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 (“CGUs”) involves
significant judgements about the future results of the
business and the discount rates applied to future cash
flow forecasts.
In particular we focused our effort on those CGUs with
the largest carrying values and those with the lowest
headroom (EVRAZ North America CGUs).
Our audit procedures were performed mainly by the Group audit team with the
assistance of our valuation specialists 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;
▪
▪ discount rates; and
▪
increases in production costs;
terminal growth rate.
We corroborated management’s assumptions with reference to historical data and,
where applicable, external benchmarks.
We have reviewed and challenged management’s assumptions that the North
American tariffs will stay in place only until 2022. We assessed external market
information and sought local specialist advice and have not identified evidence to
suggest that management’s assumptions on tariffs are unreasonable.
We tested the integrity of models 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 adequacy of the
disclosures regarding those CGUs with material goodwill balances and where a
reasonably possible change in certain variables could lead to impairment charges.
We consider
management’s estimates
to be reasonable for
the current year with
assumptions within
an acceptable range
where appropriate.
Management has also
reflected known changes
in the circumstances of
each CGU in its forecasts
for forthcoming periods,
including their best
estimate of the North
American tariffs’ impact.
We concluded that the
related disclosures
provided in the
Consolidated Financial
Statements are
appropriate.
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Our audit approach
Completeness of related party transactions
Refer to the Group Audit Committee report
on page 112 and
note 16 of the Consolidated Financial Statements
At the end of 2015, management discovered historic
transactions with a company controlled by a key
management person had been erroneously omitted from
the prior year’s disclosures of related party transactions
in the Consolidated Financial Statements, leading
to us assessing the completeness of related party
transactions as a significant risk.
This view remained unchanged for the current year
audit. We considered the elevated risk to be limited to
the Russian entities within the Group where external
business interests, especially in relation to local product
suppliers, are more common amongst members of key
management.
At both a component team and group level, we have understood and tested
management’s process for identifying related parties, and recording and disclosure
of related party transactions.
Across the Russian components we obtained an understanding of unusual or high
value transactions with new counterparties. We also performed analytical reviews
of transactions and balances with customers and suppliers to assess whether there
are any significant changes in trading activity indicating undisclosed related parties.
We selected all directors together with 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.
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.
What we reported to the
Audit Committee
Risk direction
Based on our
procedures
performed we
have not identified
any related party
transactions or
balances omitted
from disclosure.
We concluded
that the related
disclosures provided
in the Consolidated
Financial Statements
are appropriate.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within
the Group. Taken together, this enable us to form an opinion on the Consolidated Financial Statements. 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 teams on the verification of operational data
and other routine processes.
The 13 reporting components where we performed full or specific scope procedures accounted for 78% (2017: 75%) of the Group EBITDA, 83% (2017: 90%)
of the Group’s revenue and 82% (2017: 82%) of the Group’s total assets. For the current year, the full scope components contributed 68% (2017: 55%)
of the Group EBITDA, 75% (2017: 77%) of the Group’s revenue and 62% (2017: 58%) of the Group’s Total assets. The specific scope components contributed
10% (2017: 20%) of the Group EBITDA, 8% (2017: 13%) of the Group’s revenue and 20% (2017: 24%) 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.
Audit scope
EBITDA
%
Revenue
%
Assets
%
Full
Specific
Other
68
10
22
Full
Specific
Other
75
8
17
Full
Specific
Other
62
20
18
For the remaining 47 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 2017 in terms of overall coverage of the Group and the number of full and specific scope
entities except for Evraz Metal Inprom Group component which was assessed as specific scope in prior year and moved to review scope in the current year
as it is not significant in terms of risk/size and no specific risks allocated to the component in the prior and current years. This led to the decreased revenue
coverage for full and specific scope components as indicated above.
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 13 components covering entities within Russia, Switzerland, Canada, Luxembourg, the UK
and the USA, which represent the principal business units within the Group.
Integrated team structure
Of the 13 components selected, we performed an audit of the complete financial information of five components (full scope components), which were
selected based on their size or risk characteristics. For the remaining eight 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 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 primary audit engagement team or by component auditors from other EY global network firms operating under our instruction. Of the five full scope
components, audit procedures were performed on all of these by the relevant component audit team. Of the eight specific scope components selected, audit
procedures were performed on five of these directly by the primary audit team. For the components where the work was performed by component auditors,
we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion
on the Group as a whole.
During the current year’s audit cycle visits were undertaken by the primary 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 teams and any issues arising from their work.
The primary audit team participated in key discussions, via conference calls with all full and specific scope locations. The primary 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.
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Other information
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
$110 million
Materiality
Performance
materiality
$55 million
Reporting
threshold
$5.5 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 $110.0 million (2017: $79.0 million), which is set at approximately 3.0% (2017: 3%) of EBITDA. 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 Parent Company to be £19.3 million (2017: £36.4 million), which is 2.0% (2017: 1.5%) of Equity. We reverted to using
2% which we had previously used due to the return to a more favourable business environment and the resulting improved strength in the company’s
performance, outlook and financial position.
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. EBITDA is a key performance indicator for the Group and is also a key metric used by the Group
in the assessment of the performance of management. We also noted that market and analyst commentary on the performance of the Group uses
EBITDA as a key metric. We therefore, considered EBITDA to be the most appropriate performance metric on which to base our materiality calculation
as we considered that to be the most relevant performance measure to the stakeholders of the entity.
Performance materiality
The other information comprises the information included in the annual report set out on pages 1 to 133, including the Strategic report, Business review,
CSR report and Corporate Governance sections (including Corporate governance report, Remuneration report, Directors’ Report and Directors’ Responsibility
statement), 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 133 – 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 112 – 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 133 – 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.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
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
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
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% (2017: 50%) of materiality, namely $55.0 million (2017: $39.5 million).
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based
on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk
of the component 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 $11.0 million to $35.8 million.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
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.
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; or
▪ we have not received all the information and explanations we require for our audit.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $5.5 million (2017: $4.0 million), which is set
at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
Responsibilities of directors
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.
As explained more fully in the directors’ responsibilities statement set out on page 133, 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.
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Other matters we are required to address
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.
▪ We were appointed by the company in 2011 to audit the financial statements for the year ended 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 2018.
▪ 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.
Explanation as to what extent the audit was considered capable of detecting irregularities,
including fraud
Use of our report
The objectives of our audit, in respect to fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud;
to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing
appropriate responses; 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.
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.
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.
Steven Dobson (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
27 February 2019
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.
▪ We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by meeting with management
2) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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; 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.
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Consolidated Financial Statements
Year Ended 31 December 2018
Consolidated Statement of Operations
Consolidated Statement of Comprehensive Income
in millions of US dollars, except for per share information
in millions of US dollars
Notes
2018
2017
2016
Year ended 31 December
Continuing operations
Revenue
Sale of goods
Rendering of services
Cost of revenue
Gross profit
Selling and distribution costs
General and administrative expenses
Social and social infrastructure maintenance expenses
Loss on disposal of property, plant and equipment
Impairment of assets
Foreign exchange gains/(losses), net
Other operating income
Other operating expenses
Profit from operations
Interest income
Interest expense
Share of profits/(losses) of joint ventures and associates
Gain/(loss) on financial assets and liabilities, net
Gain/(loss) on disposal groups classified as held for sale, net
Other non-operating gains/(losses), net
Profit/(loss) before tax
Income tax benefit/(expense)
Net profit/(loss)
Attributable to:
Equity holders of the parent entity
Non-controlling interests
Earnings/(losses) per share for profit/(loss) attributable to equity holders
of the parent entity, US dollars:
Basic
Diluted
3
3
7
7
7
6
7
7
7
11
7
12
7
8
20
20
$ 12,525
$ 10,520
311
12,836
(8,011)
4,825
(1,013)
(546)
(27)
(11)
(30)
361
24
(55)
3,528
18
(359)
9
13
(10)
2
3,201
(731)
$ 2,470
$ 2,406
64
$ 2,470
$ 1.67
$ 1.65
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)
(469)
(23)
(22)
(465)
(48)
22
(101)
463
10
(481)
(23)
(9)
–
(52)
(92)
(96)
$ (188)
$ (215)
27
$ (188)
$ (0.15)
$ (0.15)
Net profit/(loss)
Other comprehensive income/(loss)
Year ended 31 December
Notes
2018
$ 2,470
2017
$ 759
2016
$ (188)
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/(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
Net gains/(losses) on equity instruments at fair value through other comprehensive
income*
Gains/(losses) on re-measurement of net defined benefit liability
Income tax effect
4,12
25
11
13
23
8
Total other comprehensive income/(loss)
Total comprehensive income/(loss), net of tax
Attributable to:
Equity holders of the parent entity
Non-controlling interests
(1,120)
63
(3)
(1,060)
(13)
(13)
59
28
(6)
22
(992)
$ 1,478
$ 1,441
37
$ 1,478
266
747
9
1,022
4
4
30
26
(15)
11
1,067
$ 1,826
$ 1,762
64
$ 1,826
543
–
–
543
13
13
–
11
–
11
567
$ 379
$ 341
38
$ 379
* In connection with the adoption of IFRS 9 (Note 2) net gains/(losses) on available-for-sale financial assets, which were previously presented as reclassified to profit or loss in subsequent periods, were transferred to
net gains/(losses) on equity instruments at fair value through other comprehensive income within Items not to be reclassified to profit or loss in subsequent periods.
The accompanying notes form an integral part of these consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial Statements
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
in millions of US dollars
in millions of US dollars
The financial statements of EVRAZ plc (registered number 7784342) on pages 144–243 were approved by the Board of Directors on 27 February 2019
and signed on its behalf by Alexander Frolov, Chief Executive Officer.
Notes
2018
2017
2016
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
Contract liabilities
Short-term loans and current portion of long-term loans
Payables to related parties
Income tax payable
Other taxes payable
Provisions
Amounts payable under put options for shares in subsidiaries
Liabilities directly associated with disposal groups classified as held for sale
Total equity and liabilities
The accompanying notes form an integral part of these consolidated financial statements.
146
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
4
12
$ 4,202
206
864
74
92
91
44
5,573
1,474
835
113
29
11
35
201
35
1,067
3,800
–
3,800
$ 9,373
$ 75
(196)
2,480
110
6
3,026
(3,820)
1,681
257
1,938
4,186
258
226
222
38
–
4,930
1,216
320
377
122
104
266
35
65
2,505
–
2,505
$ 9,373
$ 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
$ 10,380
$ 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
$ 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
$ 9,204
$ 1,507
(270)
2,517
112
–
415
(3,790)
491
186
677
5,502
348
317
205
94
–
6,466
935
266
392
226
39
169
26
–
2,053
8
2,061
$ 9,204
Cash flows from operating activities
Net profit/(loss)
Adjustments to reconcile net profit/(loss) to net cash flows from operating activities:
Deferred income tax (benefit)/expense (Note 8)
Depreciation, depletion and amortisation (Note 7)
Loss on disposal of property, plant and equipment
Impairment of assets
Foreign exchange (gains)/losses, net
Interest income
Interest expense
Share of (profits)/losses of associates and joint ventures
(Gain)/loss on financial assets and liabilities, net
(Gain)/loss on disposal groups classified as held for sale, net
Other non-operating (gains)/losses, net
Allowance for expected credit losses
Changes in provisions, employee benefits and other long-term assets and liabilities
Expense arising from equity-settled awards (Note 21)
Other
Changes in working capital:
Inventories
Trade and other receivables
Prepayments
Receivables from/payables to related parties
Taxes recoverable
Other assets
Trade and other payables
Contract liabilities
Taxes payable
Other liabilities
Net cash flows from operating activities
Cash flows from investing activities
Issuance of loans receivable to related parties
Issuance of loans receivable
Proceeds from repayment of loans receivable, including interest
Purchases of subsidiaries, net of cash acquired (Note 4)
Proceeds from sale of other investments (Note 13)
Restricted deposits at banks in respect of investing activities
Short-term deposits at banks, including interest
Purchases of property, plant and equipment and intangible assets
Proceeds from disposal of property, plant and equipment
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs (Note 12)
Dividends received
Other investing activities, net
Net cash flows used in investing activities
Continued on the next page
Year ended 31 December
2017
2018
$ 2,470
$ 759
2016
$ (188)
48
542
11
30
(361)
(18)
359
(9)
(13)
10
(2)
(1)
(16)
15
(2)
3,063
(482)
(128)
(48)
(58)
(24)
–
108
63
148
(9)
2,633
(1)
(1)
2
–
92
–
11
(521)
4
52
6
(22)
(378)
(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)
1,957
(2)
(2)
4
(5)
–
(1)
7
(595)
15
412
1
(1)
(167)
(87)
521
22
465
48
(10)
481
23
9
–
52
1
(7)
16
(3)
1,343
(17)
(38)
(1)
136
(32)
(3)
40
20
62
(7)
1,503
(1)
–
2
–
–
1
4
(382)
7
27
1
1
(340)
147
www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial Statements
Consolidated Statement of Cash Flows (continued)
Consolidated Statement of Changes in Equity
in millions of US dollars
in millions of US dollars
Year ended 31 December
Attributable to equity holders of the parent entity
Cash flows from financing activities
Purchases of non-controlling interests (Note 4)
Contributions of non-controlling shareholders to the Group’s subsidiaries
Payments for investments on deferred terms (Note 11)
Dividends paid by the parent entity to its shareholders (Note 20)
Dividends paid by the Group’s subsidiaries to non-controlling shareholders
Proceeds from bank loans and notes
Repayment of bank loans and notes, including interest
Net proceeds from/(repayment of) bank overdrafts and credit lines, including interest
Payments under covenants reset
Restricted deposits at banks in respect of financing activities
Realised gains/(losses) on derivatives not designated as hedging instruments (Note 25)
Realised gains/(losses) on hedging instruments (Note 25)
Payments under finance leases, including interest
Other financing activities, net
Net cash flows used in financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Decrease/(increase) in cash of disposal groups classified as assets held for sale (Note 12)
2018
$ (24)
–
(11)
(1,556)
(1)
1,412
(2,459)
–
–
12
11
11
(1)
–
(2,606)
(48)
(399)
1,466
–
2017
$ –
2
(11)
(430)
–
2,441
(3,344)
(139)
–
(13)
2
14
(2)
1
2016
$ –
13
(8)
–
–
1,301
(2,428)
(5)
(4)
–
(250)
14
(1)
(1)
(1,479)
(1,369)
(2)
309
1,157
–
(10)
(216)
1,375
(2)
Cash and cash equivalents at the end of the year
$ 1,067
$ 1,466
$ 1,157
Supplementary cash flow information:
Cash flows during the year:
Interest paid
Interest received
Income taxes paid by the Group
$ (320)
9
(623)
$ (405)
8
(427)
$ (413)
6
(149)
Issued
capital
Treasury
shares
Additional
paid-in
capital
Revaluation
surplus
Unrealised
gains
and losses
Accumu-
lated
profits
Translation
difference
Non-
controlling
interests
Total
Total
equity
At 31 December 2017
$ 1,507
$ (231)
$ 2,500
$ 111
$ 39
$ 635
$ (2,777)
$ 1,784
$ 242
$ 2,026
–
56
2,406
22
–
(1,043)
2,406
(965)
64
(27)
2,470
(992)
Net profit
Other comprehensive income/(loss)
Transfer of realised gains
on sold equity instruments
to accumulated profits (Note 13)
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/(loss)
for the period
Reduction in par value of shares
–
–
–
–
–
–
(Note 20)
(1,432)
Acquisition of non-controlling
interests in subsidiaries (Note 4)
Transfer of treasury shares
to participants of the Incentive
Plans (Notes 20 and 21)
Share-based payments (Note 21)
Dividends declared by the parent
entity to its shareholders
(Note 20)
Dividends declared by the Group’s
subsidiaries to non-controlling
shareholders
–
–
–
–
–
–
–
–
–
–
–
–
–
35
–
–
–
–
–
–
–
(35)
(35)
–
–
–
15
–
–
–
–
–
(1)
–
(1)
–
–
–
–
–
–
(89)
89
–
–
1
35
–
–
–
–
–
–
(33)
2,553
(1,043)
1,441
–
–
–
–
–
–
1,432
(3)
(35)
–
(1,556)
–
–
–
–
–
–
–
–
(3)
–
15
(1,556)
–
–
–
37
–
–
–
–
1,478
–
(21)
(24)
–
–
–
–
15
(1,556)
–
(1)
(1)
At 31 December 2018
$ 75
$ (196)
$ 2,480
$ 110
$ 6
$ 3,026
$ (3,820)
$ 1,681
$ 257
$ 1,938
The accompanying notes form an integral part of these consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial Statements Consolidated Statement of Changes in Equity (continued)
Consolidated Statement of Changes in Equity (continued)
in millions of US dollars
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
Accumu-
lated
profits
Translation
difference
$ –
–
39
$ 415
$ (3,790)
699
11
–
1,013
Non-
controlling
interests
$ 186
60
4
Total
$ 491
699
1,063
At 31 December 2016
$ 1,507
$ (270)
$ 2,517
$ 112
Net profit
Other comprehensive income/(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/(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)
–
–
–
–
–
–
Total
equity
$ 677
759
1,067
–
–
–
–
1
34
–
–
–
–
–
–
39
745
1,013
1,762
64
1,826
–
–
–
–
–
–
–
(56)
–
(39)
–
(430)
–
–
–
–
–
–
–
(56)
–
–
17
(430)
(6)
(4)
2
–
–
–
(6)
(60)
2
–
17
(430)
Attributable to equity holders of the parent entity
Issued
capital
Treasury
shares
Additional
paid-in
capital
Revaluation
surplus
Unrealised
gains and
losses
Accumu-
lated
profits
Translation
difference
Non-
controlling
interests
Total
Total
equity
At 31 December 2015
$ 1,507
$ (305)
$ 2,501
$ 124
$ –
$ 644 $ (4,335)
$ 136
$ 133
$ 269
Net loss
Other comprehensive income/(loss)
Reclassification of revaluation
surplus to accumulated profits
in respect of the disposed items
of property, plant and equipment
Total comprehensive income/(loss)
for the period
Acquisition of non-controlling
interests in subsidiaries
Contribution of a non-controlling
shareholder to share capital
of the Group’s subsidiary
Transfer of treasury shares
to participants of the Incentive
Plans (Notes 20 and 21)
Share-based payments (Note 21)
At 31 December 2016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
35
–
–
16
–
–
(12)
(12)
–
–
–
–
–
–
–
–
–
–
–
–
(215)
11
–
545
(215)
556
12
–
(192)
545
(2)
–
(35)
–
–
–
–
–
–
341
(2)
–
–
16
27
11
–
38
2
13
–
–
(188)
567
–
379
–
13
–
16
$ 1,507
$ (270)
$ 2,517
$ 112
$ –
$ 415 $ (3,790)
$ 491
$ 186
$ 677
At 31 December 2017
$ 1,507
$ (231)
$ 2,500
$ 111
$ 39
$ 635
$ (2,777)
$ 1,784
$ 242
$ 2,026
The accompanying notes form an integral part of these consolidated financial statements.
The accompanying notes form an integral part of these consolidated financial statements.
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial Statements Notes to the consolidated financial statements
Notes to the Consolidated Financial Statements Year ended
31 December 2018
1. Corporate Information
2. Significant Accounting Policies
These consolidated financial statements were authorised for issue by the Board of Directors of EVRAZ plc on 27 February 2019.
Basis of Preparation
EVRAZ plc (“EVRAZ plc” or “the Company”) was incorporated on 23 September 2011 as a public company limited by shares under the laws of the United
Kingdom with the registered number in England of 7784342. The Company’s registered office is at 5th Floor, 6 St. Andrew Street, London, EC4A 3AE, United
Kingdom.
The Company is a parent entity of Evraz Group S.A. (Luxembourg), a holding company which owns steel production, mining and trading companies.
The Company, together with its subsidiaries (the “Group”), is involved in the production and distribution of steel and related products, vanadium products
and coal and iron ore mining. The Group is one of the largest steel producers globally.
Until 3 September 2018 Lanebrook Limited (“Lanebrook”) registered in Cyprus was the ultimate controlling party of the Group. On that date Lanebrook
distributed all its ownership interest in EVRAZ plc to its direct shareholders in proportion to their holdings in Lanebrook. At 31 December 2018, EVRAZ plc
is jointly controlled by a group of 3 shareholders: Greenleas International Holdings Limited (BVI), Abiglaze Limited (Cyprus) and Crosland Global Limited
(Cyprus).
The major subsidiaries included in the consolidated financial statements of the Group were as follows at 31 December:
Subsidiary
2018
2017
2016
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-Processing Integrated Works
Evrazruda (in 2018 merged with EVRAZ Consolidated West-Siberian Metallurgical Plant)
EVRAZ Sukha Balka
100.00
100.00
–
100.00
100.00
83.84
100.00
100.00
–
–
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
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 2018 is presented in Note 34.
These consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRS”),
as adopted by the European Union.
International Financial Reporting Standards are issued by the International Accounting Standard Board (“IASB”). IFRSs that are mandatory for application
for the annual periods beginning on or after 1 January 2018, but not adopted by the European Union, do not have any significant impact on the Group’s
consolidated financial statements.
The consolidated financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below.
Exceptions include, but are not limited to, property, plant and equipment at the date of transition to IFRS accounted for at deemed cost, equity instruments
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.
Changes in Accounting Policies
New/Revised Standards and Interpretations Adopted in 2018:
▪
IFRS 9 “Financial Instruments”
Starting from 2018, the Group applies IFRS 9 “Financial Instruments” that replaced IAS 39 “Financial Instruments: Recognition and Measurement”.
The impact of the adoption of IFRS 9 to the Group’s consolidated financial statements was 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.
The Group continued measuring all financial assets, which were previously 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 at 31 December 2017 (Note 13). At 1 January 2018, the Group
has irrevocably designated these investments as measured at fair value through other comprehensive income. For such financial instruments all subsequent
changes in fair value are reported in other comprehensive income, no impairment losses are recognised in profit or loss and no gains or losses are 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 was 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 requires judgement about how changes in economic
factors affect expected credit losses, which is determined on a probability-weighted basis.
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Changes in Accounting Policies (continued)
New/Revised Standards and Interpretations Adopted in 2018 (continued)
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
(b) Advances received from customers
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.
▪
This did not impact on 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 1 January 2018 in connection with the adoption of the new impairment model under IFRS 9.
Under certain contracts, the Group produces steel products specifically for the needs of some customers. 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 control. The Group analysed whether these contracts require the recognition of revenue over the period of manufacturing
the products and concluded that the performance obligation under these contracts does not meet criteria for the recognition over time. The Group concluded
that the customers do not simultaneously receive and consume the benefits provided by the Group’s performance nor do the customers control the assets
as it is created or enhanced. Also despite the steel products are manufactured under customer specifications, they can be sold to another customer without
any rework at a market price or with a discount.
The Group receives only short-term advances from its customers. 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.
(c) Hedge accounting
(c) Principal versus agent considerations
The Group made a choice to continue applying IAS 39 “Financial Instruments: Recognition and Measurement” to all existing hedge contracts.
The Group has elected the modified retrospective approach for IFRS 9, but it did not record the cumulative impact of the new standard upon initial application
due to its immateriality.
▪
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
superseded all previous revenue recognition requirements under IFRS. The Group analysed the impacts of IFRS 15 on its consolidated financial statements
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 had no any impact on the Group’s revenue and profit or loss. The Group continued to recognise the revenue 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. 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 price concessions, 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 application of the constraint did not result in any effects as the Group applied similar
principles.
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.
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. Therefore, the Group continued to recognise these services at the moment when control over the goods is passed
to the customers.
With respect to the contracts when the Group provides transportation and handling services after obtaining control over the goods by the customers,
the Group concluded that these services represent a separate performance obligation and the Group acts as a principal rather than an agent. Consequently,
the control over its services is transferred over time. This change in the accounting policies had no significant impact on the Group’s consolidated financial
statements and, therefore, the Group did not adjust its consolidated financial statements or the comparative amounts at the date of initial recognition
of IFRS 15.
(d) Presentation and disclosure requirements
For the performance obligations under transportation and handling services rendered by the Group in contracts in which it acts as a principal, it was decided
to continue presenting revenues from these services within the caption ”Sales of goods” in the consolidated statement of operations.
(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. There
were no such transactions in the reporting period.
The Group has elected the modified retrospective approach for IFRS 15, but it did not record the cumulative impact of the new standard upon initial
application due to its immateriality.
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Changes in Accounting Policies (continued)
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
▪ Amendments to IFRS 2 – Classification and Measurement of Share-based Payment Transactions
Standards Issued But Not Yet Effective in the European Union (continued)
The IASB issued amendments to IFRS 2 “Share-based Payment” that address three main areas: the effects of vesting conditions on the measurement
of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax
obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash
settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted
if elected for all three amendments and other criteria are met. These amendments do not have any impact on the Group’s consolidated financial statements.
▪ Amendments to IAS 40 – Transfers of Investment Property
The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property.
The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence
of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. These amendments
do not have any impact on the Group’s consolidated financial statements.
▪
IFRIC 22 “Foreign Currency Transactions and Advance Consideration”
The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it)
on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which
an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments
or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. This Interpretation
does not have any impact on the Group’s consolidated financial statements as the Group applies the same accounting practice.
Other amendments, clarifications and improvements, which became effective from 1 January 2018, had no impact on the financial position and performance
of the Group or the disclosures in the consolidated financial statements.
The Group expects that the adoption of the pronouncements listed above, except for IFRS 16, 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 16 “Leases” from 1 January 2019 using the modified retrospective approach, i.e. the comparative information will not be
restated. Under this approach both lease liabilities and right-of-use assets will be recognised at the date of transition to IFRS 16 in the same amount.
The Group has completed the analysis of possible impact of the application of this standard on its consolidated financial statements. Main categories
of contracts, which will be affected by the requirements of IFRS 16, are operating leases of gondola cars, land under production facilities and land used
for mining, and certain items of machinery and equipment. The Group expects to recognise approximately $200 million of lease liabilities as a result
of application of the new standard.
The Group will not apply IFRS 16 for the leases to explore for or use coal, iron ore and similar non-regenerative resources. Currently the Group is reviewing
its lease portfolio to determine which leases will not be subject to IFRS 16.
The Group has elected to use the following practical expedients proposed by the standard:
▪ on initial application initial direct costs will be excluded from the measurement of the right-of-use asset;
▪ on initial application IFRS 16 will only be applied to contracts that were previously classified as leases;
▪
▪
for all classes of underlying assets each lease component and any associated non-lease components will be accounted as a single lease component;
lease payments for contracts with a duration of 12 months or less or leases for which the underlying assets are of low value will continue to be expensed
to the statement of profit or loss on a straight-line basis over the lease term.
In previous years and in 2018, the majority of the Group’s outstanding short and long-term lease agreements were cancellable. IAS 17 requires disclosing
operating lease commitments only for non-cancellable leases, while under IFRS 16 the Group is also required to include in lease liabilities the payments
relating to the term periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.
The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
Significant Accounting Judgements and Estimates
Standards Issued But Not Yet Effective in the European Union
Accounting Judgements
Standards not yet effective for the financial statements for the year ended 31 December 2018
Effective for annual periods beginning
on or after
▪
IFRS 16 “Leases”
▪ Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures
▪ Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement
▪ Amendments to IFRS 9 – Prepayment Features with Negative Compensation
▪
IFRIC 23 “Uncertainty over Income Tax Treatments”
▪ Annual Improvements to IFRSs 2015-2017 Cycle
▪ Amendment to IFRS 3 – Definition of Business
▪ Amendments to IAS 1 and IAS 8 – Definition of Materiality
▪ Amendments to References to the Conceptual Framework in IFRS Standards
▪
IFRS 17 “Insurance Contracts”
* Subject to EU endorsement
1 January 2019
1 January 2019
1 January 2019*
1 January 2019
1 January 2019
1 January 2019*
1 January 2020*
1 January 2020*
1 January 2020*
1 January 2021*
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, following the placement of Highveld Steel and Vanadium Limited under the business rescue procedures, the Group lost control over the subsidiary
and it is not expected that it will re-obtain control in the future. As a result, the Group ceased to consolidate this entity starting 14 April 2015.
▪ The Group determined based on the criteria in IFRIC 4 “Determining whether an Arrangement Contains a Lease” that the supply contracts with PraxAir and Air
Liquide do not contain a lease. These contracts included the construction of air separation plants by PraxAir and Air Liquide to be owned and operated
by them and the supply of oxygen and other industrial gases produced by the enities to the Group’s steel plants for a long-term period on a take or pay
basis. Management believes that these arrangements do not convey a right to the Group to use the assets as the Group does not have an ability to operate
the assets or to direct other parties to operate the assets; it does not control physical access to the assets; and it is expected that more than an insignificant
amount of the assets’ output will be sold to the parties unrelated to the Group. The commitments under the contracts are disclosed in Note 30.
Estimation Uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Impairment of Property, Plant and Equipment
The Group assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the Group makes
an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs
to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those
from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written
down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessment of the time value of money and the risks specific to the assets. In 2018, 2017 and 2016, the Group recognised a net
impairment reversal/(loss) of $(30) million, $20 million and $(151) million, respectively (Notes 6 and 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. In 2018, the impairment test models take into account the tariffs
imposed by the US and Canada against each other on import of steel and steel products, whose effect is assumed to last until 2022 (Note 6).
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Significant Accounting Judgements and Estimates (continued)
Estimation Uncertainty (continued)
Impairment of Property, Plant and Equipment (continued)
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.
Impairment of Goodwill
2. Significant Accounting Policies (continued)
Foreign Currency Transactions (continued)
The following exchange rates were used in the consolidated financial statements:
USD/RUB
EUR/RUB
EUR/USD
USD/CAD
USD/UAH
2018
31 December
69.4706
79.4605
1.1450
1.3658
27.6880
average
62.7078
73.9546
1.1810
1.2962
27.2029
2017
31 December
57.6002
68.8668
1.1993
1.2530
28.0672
average
58.3529
65.9014
1.1297
1.2979
26.5947
2016
31 December
60.6569
63.8111
1.0541
1.3427
27.1909
average
67.0349
74.2336
1.1069
1.3248
25.5458
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 2018, 2017 and 2016 was $864 million, $917 million and $880 million, respectively. In 2018, 2017
and 2016, the Group recognised an impairment loss in respect of goodwill in the amount of $Nil, $Nil and $316 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.
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.
Mineral Reserves
Mineral reserves and the associated mine plans are a material factor in the Group’s computation of a depletion charge. The Group estimates its
mineral reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”).
Estimation of reserves in accordance with the JORC Code involves some degree of uncertainty. The uncertainty depends mainly on the amount of reliable
geological and engineering data available at the time of the estimate and the interpretation of this data, which also requires use of subjective judgement
and development of assumptions.
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), 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.
Basis of Consolidation
Subsidiaries
Subsidiaries, which are those entities in which the Group has an interest of more than 50% of the voting rights and over which the Group has control,
or otherwise has power to exercise control over their operations, are consolidated. Subsidiaries are consolidated from the date on which control is transferred
to the Group and are no longer consolidated from the date that control ceases.
All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, accounting policies for subsidiaries have been changed
to ensure consistency with the policies adopted by the Group.
Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests are presented
in the consolidated statement of financial position within equity, separately from the parent’s shareholders’ equity.
Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests
having a deficit balance.
Acquisition of Subsidiaries
Business combinations are accounted for using the acquisition method.
The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any
non-controlling interest in the acquiree. For each business combination, the Group measures the non-controlling interest in the acquiree either at fair value
or at the proportionate share of the acquiree’s identifiable net assets.
Acquisition costs incurred are expensed and included in administrative expenses.
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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 IFRS 9 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 “Predecessor”). Related goodwill inherent in the Predecessor’s original acquisition is also recorded in the financial statements. Any difference
between the total book value of net assets, including the Predecessor’s goodwill, and the consideration paid is accounted for in the consolidated financial
statements as an adjustment to the shareholders’ equity.
These financial statements, including corresponding figures, are presented as if a subsidiary had been acquired by the Group on the date it was originally
acquired by the Predecessor.
Put Options over Non-controlling Interests
The Group derecognises non-controlling interests if non-controlling shareholders have a put option over their holdings. The difference between the amount
of the liability recognised in the statement of financial position over the carrying value of the derecognised non-controlling interests is charged to accumulated
profits.
2. 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; 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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Property, Plant and Equipment (continued)
The table below presents the useful lives of items of property, plant and equipment.
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Other assets
Useful lives (years)
Weighted average remaining useful life
(years)
15–60
4–45
7–20
3–15
19
10
8
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.
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.
2. Significant Accounting Policies (continued)
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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Intangible Assets Other Than Goodwill (continued)
The table below presents the useful lives of intangible assets.
2. Significant Accounting Policies (continued)
Financial Assets (continued)
Trade and Other Accounts Receivable
Useful lives (years)
Weighted average
remaining useful life (years)
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less
an allowance for any amounts of the expected credit losses.
Customer relationships
Contract terms
Other
1–15
10
5–19
5
5
6
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
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income, and fair
value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics
and the Group’s business model for managing them, i.e. how the Group manages its financial assets in order to generate cash flows. The business model
determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
For trade and other receivables, the Group applies a simplified approach for calculating the expected credit losses. Therefore, the Group does not track
changes in credit risk, but, instead, it recognises a loss allowance based on the lifetime expected credit losses at each reporting date. The Group separately
determines the expected credit losses for individually significant balances or collectively for trade and other receivables that are not individually significant.
The expected credit losses for individually significant balances are estimated using debtors’ historical credit loss experience adjusted for forward-looking
factors specific to the debtors and economic environment.
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.
With the exception of trade and other receivables that do not contain a significant financing component or for which the Group has applied the practical
expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction
costs.
Value Added Tax
The Group measures financial assets at amortised cost if both of the following conditions are met:
▪ The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows and
▪ The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.
Financial assets at amortised cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses
are recognised in profit or loss when the asset is derecognised, modified or impaired.
The tax authorities permit the settlement of sales and purchases value added tax (“VAT”) on a net basis.
The Group’s subsidiaries apply the accrual method for VAT recognition, under which VAT becomes payable upon invoicing and delivery of goods or rendering
services as well upon receipt of prepayments from customers. VAT on purchases, even if not settled at the end of the reporting period, is deducted
from the amount of VAT payable.
Where provision has been made for impairment of receivables, an impairment loss is recorded for the gross amount of the debtor, including VAT.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash at bank and in hand and deposits with an original maturity of three months or less.
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2. Significant Accounting Policies (continued)
Borrowings
Borrowings are initially recognised at fair value, net of directly attributable transaction costs. After initial recognition, borrowings are measured at amortised
cost using the effective interest rate method; any difference between the amount initially recognised and the redemption amount is recognised as interest
expense over the period of the borrowings.
Borrowing costs relating to qualifying assets are capitalised (Note 9).
Equity
Share Capital
Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are shown as a deduction in equity from the proceeds.
Any excess of the fair value of consideration received over the par value of shares issued is recognised as additional paid-in capital.
Employee Benefits
Social and Pension Contributions
Defined contributions are made by the Group to the Russian and Ukrainian state pension, social insurance and medical insurance funds at the statutory rates
in force based on gross salary payments. The Group has no legal or constructive obligation to pay further contributions in respect of those benefits. Its only
obligation is to pay contributions as they fall due. These contributions are expensed as incurred.
Defined Benefit Plans
The Group companies provide pensions and other benefits to their employees (Note 23). The entitlement to these benefits is usually conditional
on the completion of a minimum service period. Certain benefit plans require the employee to remain in service up to retirement age. Other employee
benefits consist of various compensations and non-monetary benefits. The amounts of benefits are stipulated in the collective bargaining agreements and/or
in the plan documents.
Treasury Shares
The Group involves independent qualified actuaries in the measurement of employee benefit obligations.
Own equity instruments which are acquired by the Group (treasury shares) are deducted from equity. No gain or loss is recognised in statement of operations
on the purchase, sale, issue or cancellation of the treasury shares.
Dividends
Dividends are recognised as a liability and deducted from equity only if they are declared before the end of the reporting period. Dividends are disclosed when
they are proposed before the end of the reporting period or proposed or declared after the end of the reporting period but before the financial statements
are authorised for issue.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group
expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when
the reimbursement is virtually certain.
If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects
current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase
in the provision due to the passage of time is recognised as an interest expense.
Site Restoration Provisions
The Group reviews site restoration provisions at each reporting date and adjusts them to reflect the current best estimate in accordance with IFRIC 1 “Changes
in Existing Decommissioning, Restoration and Similar Liabilities”.
Provisions for site restoration costs are capitalised within property, plant and equipment.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Re-measurements, comprising of actuarial
gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets (excluding net interest), are recognised immediately
in the statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income in the period in which they
occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
Past service costs are recognised in profit or loss on the earlier of the date of the plan amendment or curtailment, and the date that the Group recognises
restructuring-related costs.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. It is recorded within interest expense in the consolidated
statement of operations.
The Group recognises current service costs, past-service costs, gains and losses on curtailments and non-routine settlements in the consolidated statement
of operations within “cost of sales”, “general and administrative expenses” and “selling and distribution expenses”.
Other Costs
The Group incurs employee costs related to the provision of benefits such as health services, kindergartens and other services. These amounts principally
represent an implicit cost of employment and, accordingly, have been charged to cost of sales.
Share-based Payments
The Group has management compensation schemes (Note 21), under which certain senior executives and employees of the Group receive remuneration
in the form of share-based payment transactions, whereby they render services as consideration for equity instruments (“equity-settled transactions”).
The cost of equity-settled transactions with grantees is measured by reference to the fair value of the Company’s shares at the date on which they are granted.
The fair value is determined using the Black-Scholes-Merton model. In valuing equity-settled transactions, no account is taken of any conditions, other than
market conditions.
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Share-based Payments (continued)
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity (additional paid-in capital), over the period in which
service conditions are fulfilled, ending on the date on which the relevant persons become fully entitled to the award (“the vesting date”). The cumulative
expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired
and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit in the statement of operations for a period
represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards if EBITDA-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 Incentive Plans adopted in 2017 and 2018 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 EBITDA 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.
2. Significant Accounting Policies (continued)
Revenue (continued)
Rendering of Services
The Group’s revenues from rendering of services include electricity, transportation, port and other services. The pattern of revenue recognition reflects
the transfer of services to customers and may occur at a point in time or over 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.
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.
Current Income Tax
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).
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.
Revenue
Deferred Income Tax
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 control over the goods has passed to the buyer and it is probable that the amount of consideration is collectible. The moment
of transfer of control is determined by the contract terms and usually occurs at the date of shipment. Sale of goods includes the transportation and handling
costs incurred.
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.
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3. Segment Information (continued)
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 Port (sold in June 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.
The following tables present measures of segment profit or loss based on management accounts.
Year ended 31 December 2018
US$ million
Revenue
Steel
Steel,
North America
Coal
Other
operations
Eliminations
Total
Sales to external customers
$ 8,373
$ 2,593
$ 1,533
$
Inter-segment sales
Total revenue
343
8,716
–
2,593
1,322
2,855
214
279
493
$
–
(1,944)
(1,944)
$ 12,713
–
12,713
Segment result – EBITDA
$ 2,701
$
18
$ 1,180
$
17
$
(14)
$ 3,902
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
Year ended 31 December 2017
Management monitors the results of the operating segments separately for the purpose of making decisions about resource allocation and performance
assessment. Segment performance is evaluated based on EBITDA (see below). This performance indicator is calculated based on management accounts that
differ from the IFRS consolidated financial statements for the following reasons:
1) for the last month of the reporting period, the management accounts for each operating segment are prepared using a forecast for that month;
2) the statement of operations is based on local GAAP figures with the exception of depreciation and repair expenses which are adjusted to approximate the
amount under IFRS;
3) in case of volatility of functional currencies the IFRS statements of operations are translated at the exchange rates that approximate the exchange rates at
the dates of the transactions (quarterly, semi-annual averages, etc.) while in management accounts simple average for the whole accounting period is used.
Segment revenue is revenue reported in the Group’s statement of operations that is directly attributable to a segment and the relevant portion of the Group’s
revenue that can be allocated to it on a reasonable basis, whether from sales to external customers or from transactions with other segments.
Segment expense is expense resulting from the operating activities of a segment that is directly attributable to the segment and the relevant portion
of an expense that can be allocated to it on a reasonable basis, including expenses relating to external counterparties and expenses relating to transactions
with other segments. Segment expense does not include social and social infrastructure maintenance expenses.
Segment result is segment revenue less segment expense that is equal to earnings before interest, tax, depreciation and amortisation (“EBITDA”) for that
segment.
Segment EBITDA is determined as a segment’s profit/(loss) from operations adjusted for social and social infrastructure maintenance expenses, impairment
of assets, profit/(loss) on disposal of property, plant and equipment and intangible assets, foreign exchange gains/(losses) and depreciation, depletion
and amortisation expense. Management believes that this measure is more useful and relevant for the users and is more comparable with the Russian steel
peers.
US$ million
Revenue
Steel
Steel,
North America
Coal
Other
operations
Eliminations
Total
Sales to external customers
$ 8,093
$ 1,868
$
796
$
87
$
–
$ 10,844
Inter-segment sales
Total revenue
295
8,388
–
1,868
1,142
1,938
301
388
(1,738)
(1,738)
–
10,844
Segment result – EBITDA
$ 1,567
$
77
$ 1,164
$
20
$
(24)
$ 2,804
Year ended 31 December 2016
US$ million
Revenue
Steel
Steel,
North America
Coal
Other
operations
Eliminations
Total
Sales to external customers
$ 5,528
$ 1,464
$
484
$
63
$
–
$ 7,539
Inter-segment sales
Total revenue
194
5,722
–
1,464
676
1,160
233
296
(1,103)
(1,103)
–
7,539
Segment result – EBITDA
$
986
$
22
$
613
$
15
$
(44)
$ 1,592
170
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3. Segment Information (continued)
3. Segment Information (continued)
The following table shows a reconciliation of revenue and EBITDA used by management for decision making and revenue and profit or loss before tax per
the consolidated financial statements prepared under IFRS.
Year ended 31 December 2018
US$ million
Revenue
Reclassifications and other adjustments
Revenue per IFRS financial statements
EBITDA
Unrealised profits adjustment
Reclassifications and other adjustments
EBITDA based on IFRS financial statements
Unallocated subsidiaries
Social and social infrastructure maintenance
expenses
Depreciation, depletion and amortisation
expense
Impairment of assets
Loss on disposal of property, plant and
equipment and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
Profit/(loss) from operations
Interest income/(expense), net
Share of profits/(losses) of joint ventures
and associates
Gain/(loss) on financial assets and liabilities
Gain/(loss) on disposal groups classified
as held for sale
Other non-operating gains/(losses), net
Profit/(loss) before tax
Steel
8,716
163
8,879
2,701
(46)
17
(29)
2,672
$
$
$
$
(25)
(239)
(18)
(3)
31
2,418
$
Steel,
North America
$
$
$
$
2,593
(10)
2,583
18
–
(4)
(4)
14
–
(137)
(2)
(2)
(72)
(199)
$
Coal
2,855
(518)
2,337
1,180
(25)
63
38
1,218
$
$
$
$
(2)
(158)
(10)
(6)
30
1,072
$
Other
operations
Eliminations
$
$
$
$
$
493
(21)
472
17
–
–
–
17
–
(3)
–
–
(2)
12
$
$
$
$
(1,944)
509
(1,435)
(14)
4
1
5
(9)
–
–
–
–
–
(9)
$
Total
$ 12,713
123
$ 12,836
$
3,902
(67)
77
10
$
3,912
(135)
$
3,777
(27)
(537)
(30)
(11)
(13)
$
3,159
369
$
3,528
(341)
9
13
(10)
2
$
3,201
Year ended 31 December 2017
US$ million
Revenue
Reclassifications and other adjustments
Revenue per IFRS financial statements
EBITDA
Unrealised profits adjustment
Reclassifications and other adjustments
Steel
Steel,
North America
Coal
Other
operations
$
8,388
$
1,868
$
1,938
$
$
(645)
7,743
1,567
(49)
(35)
(84)
$
$
(4)
1,864
77
–
(19)
(19)
276
2,214
1,164
$
$
(4)
66
62
$
$
$
388
74
462
20
–
1
1
Eliminations
Total
$
(1,738)
$ 10,844
282
(1,456)
(17)
$ 10,827
(24)
$
2,804
$
$
(9)
–
(9)
(62)
13
(49)
EBITDA based on IFRS financial statements
$
1,483
$
58
$
1,226
$
21
$
(33)
$
2,755
Unallocated subsidiaries
Social and social infrastructure maintenance
expenses
Depreciation, depletion and amortisation
expense
Impairment of assets
Loss on disposal of property, plant
and equipment and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
Profit/(loss) from operations
Interest income/(expense), net
Share of profits/(losses) of joint ventures
and associates
Gain/(loss) on financial assets and liabilities
Gain/(loss) on disposal groups classified
as held for sale
Other non-operating gains/(losses), net
Profit/(loss) before tax
(29)
(255)
31
4
(31)
–
(132)
(19)
–
25
(1)
(167)
–
(7)
20
–
(3)
–
(1)
–
(131)
$
2,624
(30)
(557)
12
(4)
14
–
–
–
–
–
$
1,203
$
(68)
$
1,071
$
17
$
(33)
$
2,059
(73)
$
1,986
(423)
11
(57)
(360)
(2)
$
1,155
172
173
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3. Segment Information (continued)
3. Segment Information (continued)
Year ended 31 December 2016
US$ million
Revenue
Steel
Steel,
North America
Coal
Other
operations
$
5,722
$
1,464
$
1,160
Reclassifications and other adjustments
(225)
–
162
Revenue per IFRS financial statements
$
5,497
$
1,464
$
1,322
EBITDA
Unrealised profits adjustment
Reclassifications and other adjustments
$
986
(11)
29
18
$
22
$
613
–
6
6
(3)
34
31
$
$
$
296
67
363
15
–
2
2
Eliminations
Total
$
(1,103)
$
7,539
170
(933)
174
$
7,713
(44)
$
1,592
$
$
2
–
2
(12)
71
59
EBITDA based on IFRS financial statements
$
1,004
$
28
$
644
$
17
$
(42)
$
1,651
Unallocated subsidiaries
Social and social infrastructure maintenance
expenses
Depreciation, depletion and amortisation
expense
Impairment of assets
Loss on disposal of property, plant
and equipment and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
Profit/(loss) from operations
Interest income/(expense), net
Share of profits/(losses) of joint ventures
and associates
Gain/(loss) on financial assets and liabilities
Other non-operating gains/(losses), net
Profit/(loss) before tax
(21)
(219)
(11)
(8)
(43)
–
(155)
(430)
(5)
14
(2)
(141)
(24)
(9)
107
–
(3)
–
–
–
–
–
–
–
–
$
702
$
(548)
$
575
$
14
$
(42)
(109)
$
1,542
(23)
(518)
(465)
(22)
78
592
(129)
463
(471)
(23)
(9)
(52)
(92)
$
$
$
The revenues from external customers for each group of similar products and services are presented in the following table:
US$ million
Steel
Construction products
Flat-rolled products
Railway products
Semi-finished products
Other steel products
Other products
Iron ore
Vanadium in slag
Vanadium in alloys and chemicals
Rendering of services
Steel, North America
Construction products
Flat-rolled products
Railway products
Tubular products
Other products
Rendering of services
Coal
Coal
Other products
Rendering of services
Other operations
Rendering of services
2018
2017
2016
$ 2,280
$ 2,171
$ 1,783
415
965
2,521
399
545
158
228
922
71
8,504
247
597
380
1,167
168
24
2,583
1,506
27
25
1,558
191
191
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
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
$ 12,836
$ 10,827
$ 7,713
174
175
www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued)
3. Segment Information (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:
Non-current assets other than financial instruments, deferred tax assets and post-employment benefit assets were located in the following countries
at 31 December:
US$ million
CIS
Russia
Ukraine
Kazakhstan
Belarus
Kyrgyzstan
Others
America
USA
Canada
Mexico
Others
Asia
Philippines
Taiwan
Republic of Korea
Indonesia
Thailand
Japan
Singapore
China
India
Mongolia
Others
Europe
European Union
Turkey
Others
Africa
Egypt
Kenya
Others
Other countries
2018
2017
2016
$ 4,564
$ 4,255
$ 3,080
480
237
72
50
97
5,500
2,226
537
154
92
3,009
631
433
409
346
225
186
133
114
60
58
121
2,716
1,146
254
26
1,426
86
77
16
179
6
368
254
62
36
92
5,067
1,465
546
156
34
2,201
345
468
321
330
189
149
41
145
19
28
127
2,162
775
328
25
1,128
100
106
58
264
5
296
184
45
12
93
3,710
826
682
192
22
1,722
65
376
123
195
138
117
66
67
8
10
207
1,372
390
213
37
640
138
78
49
265
4
None of the Group’s customers amounts to 10% or more of the consolidated revenues.
$ 12,836
$ 10,827
$ 7,713
US$ million
Russia
Canada
USA
Ukraine
Kazakhstan
Czech Republic
Italy
Republic of South Africa
Other countries
2018
$ 3,258
1,221
791
–
41
35
41
–
3
2017
$ 3,879
1,332
818
61
51
37
45
–
4
2016
$ 3,553
1,233
877
144
53
31
22
17
8
$ 5,390
$ 6,227
$ 5,938
4. Changes in the Composition of the Group
Business Combinations
In June 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
Raspadskaya
In 2018, the Group acquired an additional 1.89% ownership interest in Raspadskaya for cash consideration of $24 million. The excess of consideration
over the carrying values of non-controlling interests acquired amounting to $3 million was charged to accumulated profits.
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
(39.9841%) for $39 million and to settle the loan payable to the Group for $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
($60 million) and the carrying value of non-controlling interest in the amount of $56 million was charged to the accumulated profits of the Group. In 2018
and 2017, the Group accrued $4 million and $1 million interest on this liability.
Sale of Subsidiaries
In 2018, the group sold Dneprovsk Metallurgical Plant (Note 12).
176
177
www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 5. Goodwill
Goodwill relates to the assembled workforce and synergy from integration of the acquired subsidiaries into the Group. The table below presents movements
in the carrying amount of goodwill.
6. Impairment of Assets
A summary of impairment losses recognition and reversals is presented below.
US$ million
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
Sale of subsidiaries (Note 12)
Translation difference
At 31 December 2018
Gross amount
Impairment losses
Carrying amount
$ 2,392
$ (1,216)
$ 1,176
–
–
–
–
(28)
3
$ 2,367
(22)
58
$ 2,403
(112)
(70)
$ 2,221
(316)
(188)
(111)
(17)
28
17
$ (1,487)
16
(15)
$ (1,486)
112
17
$ (1,357)
2017
$ 843
381
146
316
35
–
35
4
(316)
(188)
(111)
(17)
–
20
$ 880
(6)
43
$ 917
–
(53)
$ 864
2016
$ 808
355
137
316
33
6
29
4
The carrying amount of goodwill was allocated among cash-generating units as follows at 31 December:
US$ million
EVRAZ Inc. NA/EVRAZ Inc. NA Canada
Large diameter pipes
Oil Country Tubular Goods
Long products
EVRAZ Vanady-Tula
EVRAZ Vametco Holdings
EVRAZ Nikom, a.s.
Others
2018
$ 799
349
134
316
29
–
33
3
$ 864
$ 917
$ 880
178
Year ended 31 December 2018
US$ million
EVRAZ Stratcor Inc.
Yuzhkuzbassugol
Evrazruda
Others, net
Recognised in profit or loss
Year ended 31 December 2017
US$ million
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya
EVRAZ Palini e Bertoli
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 Palini e Bertoli
Yuzhny Stan
Evrazruda
Others, net
Recognised in profit or loss
Goodwill and
intangible assets
Property, plant and
equipment
Taxes receivable
$ –
–
–
–
$ –
–
$ (12)
(6)
(4)
(8)
$ (30)
(30)
$ –
–
–
–
$ –
–
Goodwill and
intangible assets
Property, plant and
equipment
Taxes receivable
$ (13)
–
–
–
–
–
–
$ (13)
(13)
$ 6
(12)
9
20
(9)
8
(2)
$ 20
20
$ –
–
–
–
–
–
5
$ 5
5
Goodwill and
intangible assets
Property, plant and
equipment
Taxes receivable
$ (88)
$ –
$ (299)
(17)
–
–
–
–
–
–
(26)
(17)
(16)
19
(5)
(10)
(8)
$ (316)
(316)
$ (151)
(151)
–
–
–
–
–
–
2
$ 2
2
Total
$ (12)
(6)
(4)
(8)
$ (30)
(30)
Total
$ (7)
(12)
9
20
(9)
8
3
$ 12
12
Total
$ (387)
(43)
(17)
(16)
19
(5)
(10)
(6)
$ (465)
(465)
179
www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 6. Impairment of Assets (continued)
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. In addition, in 2016 and 2017, the Group recognised impairment losses as a result of the impairment testing at the level of cash-generating
units.
6. Impairment of Assets (continued)
The estimations of value in use are most sensitive to the following assumptions:
Discount Rates
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. In 2016-2018, the impairment tests were performed as of 30 September, the conclusions were reassessed
at 31 December and no further impairment triggers were identified.
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 impairment EVRAZ Nikom, Large
diameter pipes, Flat rolled products and Long products. If discount rates were 10% higher, this would lead to an impairment of $184 million.
The recoverable amounts have been determined based on the calculation of value-in-use. This valuation technique uses cash flow projections based
on the actual operating results and business plans approved by management and appropriate discount rates reflecting the time value of money and risks
associated with respective cash-generating units. For the periods not covered by management business plans, cash flow projections have been estimated
by extrapolating the results of the respective business plans using a zero real growth rate.
The key assumptions used by management in the value-in-use calculations with respect to the cash-generating units to which the goodwill was allocated
or units containing intangible assets with indefinite useful lives are presented in the table below.
Commodity
Period of forecast,
years
Pre-tax discount
rate, %
Average price
of commodity per
tonne in the next
reporting year
Recoverable amount
of CGU, US$ million
Carrying amount
of CGU before
impairment,
US$ million
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Steel North America
Large diameter pipes
steel products
Oil Country Tubular Goods
steel products
Long products
steel products
EVRAZ Vanady-Tula
EVRAZ Nikom, a.s.
vanadium
products
ferrovanadium
products
5
5
5
5
5
5
5
5
5
5
9.37
9.96
9.26
11.23
10.85
11.02
$1,129
$1,245
$745
$913
$1,121
$647
903
441
582
1,074
547
591
12.74
13.03
$46,494
$23,403
1,140
986
10.45
11.00
$48,991
$26,576
40
47
900
365
501
57
36
938
383
520
61
34
In addition, the Group determined that there were indicators of impairment in other cash generating units, which do not contain goodwill or intangible assets
with indefinite useful lives, and tested them for impairment using the following assumptions.
Steel North America
Flat rolled products
Seamless pipes
Period of forecast,
years
Pre-tax discount
rate, %
Commodity
Average price
of commodity per
tonne in the next
reporting year
5
5
9.30
10.04
steel products
steel products
$855
$1,396
The impairment test models take into account the tariffs imposed by the US and Canada against each other on import of steel and steel products, whose
effect is expected to last until 2022 (Note 30). The models include the assumption that the tariffs will be removed starting from 2023 and are assumed
not to re-occur going forward. This assumption is particularly sensitive for the recoverable amount of Large diameter pipes.
As a result of impairment testing, the Group did not recognise any impairment loss or reversal of previous charges. However, in 2018, the Group recognised
a $12 million impairment loss with respect to EVRAZ Stratcor Inc. due to its potential bankruptcy. In 2017, the value in use of this cash-generating unit was
$18 million.
Sales Prices
The price assumptions for the products sold by the Group were estimated based on industry research using analysts’ views published by Citi, CRU, Goldman
Sachs, Morgan Stanley, Renaissance Capital, UBS, VTB Capital, WSD during the period from August to December 2018. The Group expects that the nominal
prices will fluctuate with a compound annual growth rate of (14.3)%-4.0% in 2019 – 2023, 2.5% in 2024 and thereafter. Reasonably possible changes in sales
prices could lead to impairment at EVRAZ Nikom and Large diameter pipes. If the prices assumed for 2019 and 2020 in the impairment test were 10% lower,
this would lead to an impairment of $46 million.
Sales Volumes
Management assumed that the sales volumes of steel products in 2019 will increase by 7-13% 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 impairment at EVRAZ Nikom and Large diameter
pipes. If the sales volumes were 10% lower than those assumed for 2019 and 2020 in the impairment test, this would lead to an impairment of $19 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 impairment at EVRAZ Nikom, Large diameter pipes, Long products and Flat rolled products. If the actual costs were 10% higher
than those assumed for 2019 and 2020 in the impairment test, this would lead to an impairment of $228 million.
Terminal Growth Rate
The recoverable amounts of cash-generating units are based on the terminal growth rate of 2.5% representing a forecast of long-term US CPI rate.
A reasonably possible deviation in this rate could lead to impairment at Large diameter pipes. If the terminal growth rate was 10% lower than the rate
assumed for 2024 and thereafter in the impairment test, this would lead to an impairment of $46 million.
Sensitivity Analysis
For the cash-generating units, which were not impaired in the reporting period and for which the reasonably possible changes could lead to impairment,
the recoverable amounts would become equal to their carrying amounts if the assumptions used to measure the recoverable amounts changed
by the following percentages:
EVRAZ Nikom
EVRAZ Inc NA – Large diameter pipes
EVRAZ Inc NA – Long products
EVRAZ Inc NA – Flat rolled products
Discount
rates
5.9%
0.2%
8.7%
9.0%
Sales
prices
(4.9)%
(0.7)%
–
–
Sales
volumes
Cost control
measures
Terminal
growth rate
(6.0)%
(1.6)%
–
–
1.3%
0.2%
8.6%
4.9%
–
(0.6)%
–
–
180
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 7. Income and Expenses
7. Income and Expenses (continued)
Cost of revenues, selling and distribution costs, general and administrative expenses include the following for the years ended 31 December:
Interest expense consisted of the following for the years ended 31 December:
US$ million
Cost of inventories recognised as expense
Staff costs, including social security taxes
Depreciation, depletion and amortisation
2018
$ (4,580)
(1,326)
(542)
2017
$ (4,181)
(1,364)
(561)
2016
$ (2,761)
(1,200)
(521)
In 2018, 2017 and 2016, the Group recognised (expense)/income on allowance or net reversal of the allowance for net realisable value in the amount of $Nil,
$(4) million and $2 million, respectively.
US$ million
Bank interest
Interest on bonds and notes
Net interest expense on employee benefits obligations (Note 23)
Discount adjustment on provisions (Note 24)
Other
2018
$ (74)
(248)
(13)
(16)
(8)
2017
$ (115)
(279)
(19)
(16)
(8)
2016
$ (133)
(306)
(22)
(14)
(6)
$ (359)
$ (437)
$ (481)
Staff costs include the following:
US$ million
Wages and salaries
Social security costs
Net benefit expense
Share-based awards
Other compensations
2018
$ 968
245
38
15
60
2017
$ 1,000
246
42
17
59
2016
$ 864
212
43
16
65
$ 1,326
$ 1,364
$ 1,200
Interest income consisted of the following for the years ended 31 December:
US$ million
Interest on bank accounts and deposits
Interest on loans and accounts receivable
Other
2018
$ 9
7
2
$ 18
The average number of staff employed under contracts of service was as follows:
Gain/(loss) on financial assets and liabilities included the following for the years ended 31 December:
2017
$ 8
6
–
$ 14
2017
$ (78)
4
14
3
2016
$ 6
2
2
$ 10
2016
$ (50)
23
14
4
$ (57)
$ (9)
US$ million
Loss on extinguishment of debts (Note 22)
Gain/(loss) on derivatives not designated as hedging instruments (Note 25)
Gain/(loss) on hedging instruments (Note 25)
Other
2018
$ (1)
3
11
–
$ 13
In 2016, other non-operating losses included $39 million relating to the settlement of the Group’s guarantee under a long-term take-or-pay supply contract
of the Group’s former subsidiary.
Steel
Steel, North America
Coal
Other operations
Unallocated
The major components of other operating expenses were as follows:
US$ million
Idling, reduction and stoppage of production, including termination benefits
Restoration works and casualty compensations in connection with accidents
Other
2018
45,282
3,877
13,505
882
2,344
2017
54,737
3,395
14,629
523
2,736
2016
56,974
3,193
14,808
896
2,080
65,890
76,020
77,951
2018
$ (17)
(3)
(35)
$ (55)
2017
$ (26)
(2)
(33)
$ (61)
2016
$ (81)
(1)
(19)
$ (101)
182
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued)
2017
2016
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:
8. Income Taxes (continued)
US$ million
Profit/(loss) before income tax
At the Russian statutory income tax rate of 20%
Adjustment in respect of income tax of previous years
Current income tax benefit from investment tax credit
Deferred income tax expense resulting from the changes in tax rates and laws
Tax on dividends distributed by the Group’s subsidiaries
Tax on undistributed earnings of 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/reversal
Effect of the difference in tax rates in countries other than the Russian Federation
Share of profits in joint ventures and associates
2018
$ 3,201
(640)
(4)
37
–
(53)
(35)
–
(37)
(58)
57
2
2017
$ 1,155
(231)
(1)
–
(6)
(26)
–
–
(254)
100
20
2
2016
$ (92)
18
2
–
–
–
–
(2)
(63)
(157)
110
(4)
Income tax (expense)/benefit reported in the consolidated statement of operations
$ (731)
$ (396)
$ (96)
In 2017, the increase in the amount of non-deductible expenses and unrecognised temporary differences was mostly caused by the significant losses on sale
of subsidiaries (Note 12), which either cannot be utilised or cannot be deductible for tax purposes.
8. Income Taxes
The Group’s income was subject to tax at the following tax rates:
Russia
Canada
Cyprus
Czech Republic
Italy
Switzerland
Ukraine
United Kingdom
USA
2018
20.00%
and 16.50%
26.32%
12.50%
19.00%
27.90%
9.18%
18.00%
19.00%
24.69%
20.00%
26.25%
12.50%
19.00%
27.90%
9.43%
18.00%
–
37.83%
20.00%
26.06%
12.50%
19.00%
31.40%
9.09%
18.00%
–
37.72%
In 2018, Nizhny Tagil Metallurgical Plant completed capital construction works, which make it eligible for investment tax credit from the regional government.
Income tax rate was reduced from 20% to 16.5% for a period from 2018 to 2022. The Group determined that the investment tax credit is in the scope
of IAS 12 “Income taxes”. As a result, in 2018, Nizhny Tagil Metallurgical Plant and other subsidiaries included in the group of consolidated taxpayers received
a current income tax benefit amounting to $37 million.
In December 2017, new tax legislation has been adopted in the USA, which introduced a reduction in federal income tax rate from 35% to 21% starting
from 1 January 2018. The Group’s subsidiaries measured the respective deferred tax assets and liabilities at 31 December 2017 using the enacted tax rates.
As a result of the enactment of the Tax Cuts and Jobs Act (“TCJA”) in the USA, at 31 December 2017 uncertainty existed as to whether certain unutilised
interest expenses incurred on intra-group loans would be deductible against future taxable earnings under the new tax law and, therefore, whether
the deferred tax asset would be recoverable. The Group’s interpretation of the new legislation at 31 December 2017 was that the deferred tax asset would
be recoverable and, consequently, the Group did not create an allowance against this balance. In April 2018, the US Department of Treasury and the Internal
Revenue Service released Notice 2018-28, which clarified that the unutilised interest expenses can be carried forward indefinitely.
Major components of income tax expense for the years ended 31 December were as follows:
US$ million
Current income tax expense
Adjustment in respect of income tax of previous years
Deferred income tax benefit/(expense) relating to origination and reversal
of temporary differences
Deferred income tax recognised directly in other comprehensive income
2018
$ (679)
(4)
(54)
6
2017
$ (484)
(1)
74
15
2016
$ (185)
2
87
–
Income tax (expense)/benefit reported in the consolidated statement of operations
$ (731)
$ (396)
$ (96)
184
185
www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 8. Income Taxes (continued)
8. Income Taxes (continued)
Deferred income tax assets and liabilities and their movements for the years ended 31 December were as follows:
Year ended 31 December 2018
US$ million
Deferred income tax liabilities:
Change
recognised in
statement of
operations
Change
recognised
in other com-
prehensive
income
2018
Change due
to disposal of
subsidiaries
Transfer to
disposal
groups
classified as
held for sale
Translation
difference
Valuation and depreciation of property, plant and equipment
$ 469
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 2017
US$ million
Deferred income tax liabilities:
Valuation and amortisation of intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
Net deferred income tax liability
Year ended 31 December 2016
US$ million
Deferred income tax liabilities:
Valuation and amortisation of intangible assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
Net deferred income tax liability
186
Valuation and depreciation of property, plant and equipment
$ 546
Valuation and depreciation of property, plant and equipment
$ 567
50
96
615
199
95
3
152
449
92
$ 258
62
80
688
267
126
12
128
533
173
$ 328
81
58
706
226
138
10
140
514
156
(4)
(8)
27
15
(42)
(15)
(7)
31
(33)
(65)
(17)
–
–
–
–
–
(6)
–
–
(6)
(4)
2
–
–
–
(1)
–
–
–
(1)
(1)
–
–
–
–
–
–
–
–
–
–
–
–
(73)
(4)
(11)
(88)
(25)
(10)
(2)
(7)
(44)
(11)
(55)
Change
recognised in
statement of
operations
Change
recognised
in other com-
prehensive
income
2017
Change due
to disposal of
subsidiaries
Transfer to
disposal
groups
classified as
held for sale
Translation
difference
(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
Change
recognised in
statement of
operations
Change
recognised
in other com-
prehensive
income
2016
Change due
to disposal of
subsidiaries
Transfer to
disposal
groups
classified as
held for sale
Translation
difference
(62)
(11)
5
(68)
(5)
4
(1)
21
19
28
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
–
(2)
(3)
(3)
–
66
3
5
74
23
8
2
(2)
31
12
55
$ 348
(59)
As of 31 December 2018, the Group accrued deferred income taxes in respect of undistributed earnings of the Group’s subsidiaries in the amount
of $35 million (2017 and 2016: $Nil). 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. At 31 December 2018, the aggregate amount of such temporary differences, for which deferred tax
liabilities have not been recognised, amounted to $101 million (2017: $1,439 million, 2016: $898 million). The decrease in these temporary differences
in 2018 was caused by the changes in the Russian tax regulations, which modified the rules for using zero tax rate in relation to capital gains of the Russian
parent entities, if certain conditions are met.
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 2018, the unused tax losses carried forward approximated $9,321 million
(2017: $9,893 million, 2016: $9,729 million). The Group recognised deferred tax assets of $199 million (2017: $267 million, 2016: $226 million)
in respect of unused tax losses. Deferred tax assets in the amount of $2,287 million (2017: $2,339 million, 2016: $2,329 million) have not been
recorded as it is not probable that sufficient taxable profits will be available in the foreseeable future to offset these losses. Tax losses of $8,492 million
(2017: $8,711 million, 2016: $8,593 million) for which deferred tax assets were not recognised arose in companies registered in Canada, Cyprus,
Italy, Kazakhstan, Luxembourg, Russia, Ukraine, the United Kingdom and the USA. Losses in the amount of $8,399 million (2017: $8,664 million,
2016: $8,549 million) are available indefinitely for offset against future taxable profits of the companies in which the losses arose and $93 million will expire
within 10 years (2017: $47 million, 2016: $44 million).
2017
$ 546
62
80
688
267
126
12
128
533
173
$ 328
9. Property, Plant and Equipment
Property, plant and equipment consisted of the following as of 31 December:
2016
$ 567
81
58
706
226
138
10
140
514
156
$ 348
2015
$ 563
89
48
700
208
127
9
123
467
119
$ 352
US$ million
Cost:
Land
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Mining assets
Other assets
Assets under construction
Accumulated depreciation, depletion and impairment losses:
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Mining assets
Other assets
2018
2017
2016
$ 100
1,752
4,302
226
2,084
35
378
8,877
(857)
(2,647)
(145)
(998)
(28)
(4,675)
$ 4,202
$ 107
1,894
4,812
255
2,461
37
549
10,115
(968)
(2,906)
(168)
(1,112)
(28)
(5,182)
$ 100
1,755
4,446
223
2,440
38
424
9,426
(872)
(2,637)
(144)
(1,093)
(28)
(4,774)
$ 4,933
$ 4,652
187
www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 9. Property, Plant and Equipment (continued)
9. Property, Plant and Equipment (continued)
The movement in property, plant and equipment for the year ended 31 December 2018 was as follows:
The movement in property, plant and equipment for the year ended 31 December 2016 was as follows:
US$ million
At 31 December 2017, 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 2018, cost, net
of accumulated depreciation
Buildings
and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
Land
Mining
assets
Other
assets
Assets under
construction
Total
$ 107
$ 926
$ 1,906
$ 87
$ 1,349
$ 9
$ 549
$ 4,933
–
–
–
–
–
(7)
–
224
(1)
(80)
(4)
(20)
(5)
(145)
350
(15)
(313)
(10)
1
(35)
1
(230)
–
31
(1)
(23)
–
–
–
–
(13)
–
58
(2)
(82)
(15)
6
–
(1)
(227)
–
2
–
(3)
–
–
–
–
(1)
579
(665)
–
–
(8)
–
(10)
–
(67)
579
–
(19)
(501)
(37)
7
(65)
(5)
(690)
$ 100
$ 895
$ 1,655
$ 81
$ 1,086
$ 7
$ 378
$ 4,202
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
Buildings
and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
Land
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
188
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
Buildings
and
constructions
Machinery
and
equipment
Transport
and motor
vehicles
Land
Mining
assets
Other
assets
Assets under
construction
Total
$ 97
$ 822
$ 1,798
$ 79
$ 1,192
$ 12
$ 302
$ 4,302
–
–
(1)
–
(4)
2
–
–
6
1
64
(5)
(72)
(42)
5
(4)
–
114
5
209
(12)
(309)
(90)
17
(10)
(3)
204
–
14
(2)
(21)
(2)
–
–
–
11
–
43
(9)
(79)
(30)
3
–
20
207
2
3
(4)
(4)
–
–
–
–
1
442
(333)
–
–
(11)
1
(10)
–
33
450
–
(33)
(485)
(179)
28
(24)
17
576
$ 100
$ 883
$ 1,809
$ 79
$ 1,347
$ 10
$ 424
$ 4,652
Assets under construction include prepayments to constructors and suppliers of property, plant and equipment in the amount of $36 million, $60 million
and $34 million as of 31 December 2018, 2017 and 2016, 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 2018 was $1 million (2017: $6 million, 2016: $9 million).
10. Intangible Assets Other Than Goodwill
Intangible assets consisted of the following as of 31 December:
US$ 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
2018
2017
2016
$ 656
$ 693
$ 663
57
21
64
798
(525)
(13)
(11)
(43)
(592)
$ 206
57
26
65
841
(513)
(13)
(11)
(45)
(582)
$ 259
57
25
90
835
(460)
–
(8)
(70)
(538)
$ 297
189
www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 10. Intangible Assets Other Than Goodwill (continued)
11. Investments in Joint Ventures and Associates
As of 31 December 2018, 2017 and 2016, water rights and environmental permits with a carrying value of $44 million, $44 million and $57 million,
respectively, had an indefinite useful life.
The movement in intangible assets for the year ended 31 December 2018 was as follows:
US$ million
Customer
relationships
Water rights
and environ-
mental permits
At 31 December 2017, cost, net of accumulated amortisation
$ 180
$ 44
Additions
Amortisation charge
Translation difference
–
(36)
(13)
–
–
–
Contract
terms
$ 15
–
(2)
(3)
Other
$ 20
10
(6)
(3)
Total
$ 259
10
(44)
(19)
At 31 December 2018, cost, net of accumulated amortisation
$ 131
$ 44
$ 10
$ 21
$ 206
The movement in intangible assets for the year ended 31 December 2017 was as follows:
US$ million
Customer
relationships
Water rights
and environ-
mental permits
At 31 December 2016, cost, net of accumulated amortisation
$ 203
$ 57
Additions
Amortisation charge
Impairment losses recognised in statement of operations
Translation difference
–
(36)
–
13
–
–
(13)
–
Contract
terms
$ 17
–
(3)
–
1
Other
$ 20
5
(5)
–
–
Total
$ 297
5
(44)
(13)
14
At 31 December 2017, cost, net of accumulated amortisation
$ 180
$ 44
$ 15
$ 20
$ 259
The movement in intangible assets for the year ended 31 December 2016 was as follows:
US$ million
Customer
relationships
Water rights
and environ-
mental permits
At 31 December 2015, cost, net of accumulated amortisation
$ 232
$ 57
Additions
Amortisation charge
Translation difference
–
(35)
6
–
–
–
Contract
terms
$ 16
–
(2)
3
Other
$ 19
3
(4)
2
Total
$ 324
3
(41)
11
At 31 December 2016, cost, net of accumulated amortisation
$ 203
$ 57
$ 17
$ 20
$ 297
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 2015
Share of profit/(loss)
Impairment of investments
Translation difference
Investment at 31 December 2016
Additional investments
Share of profit/(loss)
Dividends paid
Translation difference
Investment at 31 December 2017
Share of profit/(loss)
Dividends paid
Translation difference
Investment at 31 December 2018
Timir
$ 40
(2)
(26)
7
$ 19
–
1
–
1
$ 21
(1)
–
(3)
$ 17
Streamcore
Other associates
$ 26
5
–
6
$ 37
–
8
–
2
$ 47
9
–
(9)
$ 47
$ 8
–
–
–
$ 8
1
2
(1)
1
$ 11
1
(1)
(1)
$ 10
Share of profit/(loss) of joint ventures and associates which is reported in the statement of operations comprised the following:
US$ million
Share of profit/(loss), net
Impairment of investments
Share of profits/(losses) of joint ventures and associates recognised
in the consolidated statement of operations
Timir Iron Ore Project
2018
$ 9
–
$ 9
2017
$ 11
–
$ 11
Total
$ 74
3
(26)
13
$ 64
1
11
(1)
4
$ 79
9
(1)
(13)
$ 74
2016
$ 3
(26)
$ (23)
In April 2013, the Group acquired a 51% ownership interest in the joint venture with Alrosa for the development of 4 iron ore deposits in the southern part
of the Yakutia region in Russia. Under the joint venture agreement major operating and financial decisions are made by unanimous consent of the Group
and Alrosa, and no single venturer is in a position to control the activity unilaterally. Consequently, the Group accounts for its interest in Timir under the equity
method.
The Group’s consideration for this stake amounted to 4,950 million roubles ($159 million at the exchange rate as of the date of the transaction) payable
in instalments to 15 July 2014. The consideration was measured as the present value of the expected cash outflows.
In 2014 and 2015, the parties amended the payment schedule. The latest schedule provides for an execution of payments of 500 million roubles in each
of January 2017 and 2018 and 480 million roubles in 2019. From the dates of the amendments the Group incurs interest charges on the unpaid liability.
In 2018, 2017 and 2016, the Group paid 500 million roubles ($9 million), 500 million roubles ($8 million) and 500 million roubles ($7 million), respectively,
of purchase consideration. Previously, the Group paid the principal of 2,970 million roubles ($89 million) in total. In addition, the Group paid interest charges
on the liability.
At 31 December 2018, 2017 and 2016, trade and other accounts payable included liabilities relating to this acquisition in the amount of $8 million,
$19 million and $27 million, respectively. In January 2019, the liability was fully settled.
190
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) Streamcore
The Group owns a 50% interest in Streamcore (Cyprus), a joint venture established for the purpose of exercising joint control over facilities for scrap
procurement and processing in Siberia, Russia.
The table below sets out Streamcore’s assets and liabilities as of 31 December:
11. Investments in Joint Ventures and Associates (continued)
11. Investments in Joint Ventures and Associates (continued)
Timir Iron Ore Project (continued)
The table below sets out Timir’s assets and liabilities as of 31 December:
US$ million
Mineral reserves and property, plant and equipment
Other non-current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net assets
2018
$ 48
6
54
–
21
21
33
2017
$ 58
7
65
23
–
23
42
2016
$ 55
8
63
–
25
25
38
Net assets attributable to 51% ownership interest
$ 17
$ 21
$ 19
US$ million
Property, plant and equipment
Inventories
Accounts receivable
Total assets
Deferred income tax liabilities
Current liabilities
Total liabilities
Net assets
In 2018, 2017 and 2016, Timir’s statement of operations included only other income and expenses amounting to $(2) million, $2 million and $(4) million,
respectively.
Net assets attributable to 50% ownership interest
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
(in 2018 there were no indicators of impairment). 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% and 11.75% in 2017 and 2016, respectively. As a result, in 2016,
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.
At 31 December 2018, 2017 and 2016 Timir owed to the Group $7 million, $8 million and $7 million, respectively, which were included in other non-current
financial assets in 2017 and in the receivables from related parties caption in 2018 and 2016. The amounts represent a loan bearing interest of 6.45% per
annum (in 2017 and 2016 the interest rate was 0.5% per annum).
The table below sets out Streamcore’s income and expenses:
US$ million
Revenue
Cost of revenue
Other expenses, including income taxes
Net profit
Group’s share of profit of the joint venture
12. Disposal Groups Held for Sale
2018
$ 21
9
151
181
1
86
87
$ 94
$ 47
2018
$ 579
(553)
(8)
$ 18
$ 9
2017
$ 24
60
104
188
2
92
94
$ 94
$ 47
2017
$ 458
(432)
(9)
$ 17
$ 8
2016
$ 24
4
91
119
1
44
45
$ 74
$ 37
2016
$ 286
(270)
(6)
$ 10
$ 5
The major classes of assets and liabilities of the disposal groups measured at the lower of carrying amount and fair value less costs to sell were as follows
as of 31 December:
US$ million
Property, plant and equipment
Other non-current assets
Inventories
Accounts receivable
Cash and cash equivalents
Assets classified as held for sale
Non-current liabilities
Current liabilities
Liabilities directly associated with assets classified as held for sale
2018
$ –
–
–
–
–
–
–
–
–
2017
$ –
–
–
–
–
–
–
–
–
2016
$ 15
3
1
6
2
27
5
3
8
Net assets classified as held for sale
$ –
$ –
$ 19
192
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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:
The disposal groups sold during 2016–2018 are described below.
US$ million
Assets classified as held for sale
Steel production
Liabilities directly associated with assets classified as held for sale
Steel production
2018
$ –
–
–
–
2017
$ –
–
–
–
2016
$ 27
27
8
8
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 2016–2018.
Dneprovsk Metallurgical Plant
On 6 March 2018, the Group sold Dneprovsk Metallurgical plant (Ukraine), in which it had a 97.73% ownership interest, to a third party for cash consideration
of $35 million. The consideration was payable in 2 instalments: $25 million was received upon signing of the transaction documents and the rest was settled
in December 2018. The Group received interest income on deferred consideration in the amount of $1 million.
Prior to disposal the subsidiary was included in the steel segment. The Group recognised a $(10) million loss on sale of the subsidiary, including $(60) million
of cumulative exchange losses reclassified from other comprehensive income to the consolidated statement of operations. The result was included
in the Gain/(loss) on disposal groups classified as held for sale caption of the consolidated statement of operations. Cash disposed with the subsidiary
amounted to $2 million.
US$ 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
$ 119
2016
$ 9
Yuzhkoks
2018
$ 65
–
2
38
46
2
153
21
–
147
168
–
6
34
27
38
12
236
23
35
38
96
6
–
–
–
–
–
9
–
–
–
–
–
$ (15)
$ 134
$ 9
The net assets of disposal groups sold in 2016–2018 related to the following reportable segments:
US$ million
Assets classified as held for sale
Steel
Coal
Liabilities directly associated with assets classified as held for sale
Steel
Coal
Non-controlling interests
Steel
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
Net cash inflow
2018
$ 153
153
–
168
168
–
–
–
2018
$ (2)
54
–
$ 52
2017
$ 236
196
40
96
79
17
6
6
2017
$ (12)
489
(65)
$ 412
2016
$ 9
9
–
–
–
–
–
–
2016
$ –
27
–
$ 27
On 19 December 2017, the Group sold a Ukrainian coking plant Yuzhkoks, in which it had a 94.96% 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.
Prior to disposal the subsidiary was included in the steel segment. The Group recognised a $(91) million loss on sale of the subsidiary, including $(132) million
of cumulative exchange losses reclassified from other comprehensive income to the consolidated statement of operations. The result was included
in the Gain/(loss) 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 June 2017, the Group sold its wholly-owned subsidiary EVRAZ Nakhodka Trade Sea Port (“NMTP”) to a wholly-owned subsidiary of Lanebrook Limited
(the ultimate controlling shareholder of the Group) for cash consideration of $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 $8 million in respect
of the transshipment agreement, which was recognised as deferred income with a 5-year period of amortisation.
Prior to disposal the subsidiary was included in the coal segment. The Group recognised a $284 million gain on sale of the subsidiary, including $(5) million
of transaction costs and $(20) million of cumulative exchange losses reclassified from other comprehensive income to the consolidated statement
of operations. The result was included in the Gain/(loss) 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 June 2017, the Group sold a Ukrainian iron ore mine Sukha Balka, in which it had a 99.42% 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
relating to the sale of Sukha Balka. This amount was fully received in the first half of 2018.
Prior to disposal the subsidiary was included in the steel segment. The Group recognised a $(555) million loss on sale of the subsidiary, including
$(586) million of cumulative exchange losses reclassified from other comprehensive income to the consolidated statement of operations. The result
was included in the Gain/(loss) on disposal groups classified as held for sale caption of the consolidated statement of operations. Cash disposed
with the subsidiary amounted to $Nil.
194
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13. Other Non-current Assets (continued)
Strategic Minerals Corporation
Financial Assets Measured at Fair Value Through Other Comprehensive Income (continued)
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 $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 $2 million gain on sale of the subsidiary, including $(3) million of cumulative exchange losses reclassified from other comprehensive
income to the consolidated statement of operations. The result was included in the Gain/(loss) on disposal groups classified as held for sale caption
of the consolidated statement of operations. Cash disposed with the subsidiary amounted to $12 million.
In June 2018, the Group sold its ownership interest in Delong to the major shareholder of the entity for cash consideration of $92 million. According
to the agreement, if within 12 months from the completion date the purchaser makes an offer to acquire all the remaining shares of Delong on the open
market, the Group will be entitled to an additional consideration in the amount of excess of the offer price over $5.283 per share. This additional
consideration has not been recognised, as the Group considers such event to be very unlikely.
Market value of the equity instruments at the date of sale was $71 million. Total gain, comprising the change in market value until the sale and the excess
of the sale price over the market value of the investments at the sale date, amounting to $59 million was recognised in other comprehensive income. Upon
sale the Group transferred the realised gains accumulated in other comprehensive income ($89 million) to accumulated profits.
13. Other Non-current Assets
Other non-current assets consisted of the following as of 31 December:
Non-current Financial Assets
US$ million
Financial assets measured at fair value through other comprehensive income
Hedging instruments (Note 25)
Restricted deposits
Receivables from related parties
Loans receivable
Trade and other receivables
Other
Other Non-current Assets
US$ million
Safety stock inventories
Defined benefit asset (Note 23)
Income tax receivable
Input VAT
Other
2018
$ –
–
6
1
1
17
66
2017
$ 33
4
6
8
20
23
57
2016
$ 3
–
11
–
21
4
52
$ 91
$ 151
$ 91
2018
$ 24
3
8
1
8
2017
$ 28
–
2
1
8
2016
$ 24
–
7
2
12
$ 44
$ 39
$ 45
Financial Assets Measured at Fair Value Through Other Comprehensive Income
At 31 December 2017 the Group held approximately 15% in Delong Holdings Limited (“Delong”), a flat steel producer headquartered in Beijing (China). At that
date the investments in Delong were classified as available-for-sale and measured at fair value based on market quotations of the Singapore Exchange. At 31
December 2017, the carrying value of these investments amounted to $33 million, including a $30 million increase in the fair value recognised in other
comprehensive income in 2017. At 31 December 2017, the carrying value was $3 million.
At 1 January 2018, the Group irrevocably designated these investments as measured at fair value through other comprehensive income. For such financial
instruments all subsequent changes in fair value are reported in other comprehensive income, no impairment losses are recognised in profit or loss and no
gains or losses are recycled to profit or loss upon derecognition.
14. Inventories
Inventories consisted of the following as of 31 December:
US$ million
Raw materials and spare parts
Work-in-progress
Finished goods
2018
$ 737
292
445
2017
$ 548
245
405
$ 1,474
$ 1,198
2016
$ 434
173
377
$ 984
As of 31 December 2018, 2017 and 2016, the net realisable value allowance was $34 million, $40 million and $34 million, respectively.
As of 31 December 2018, 2017 and 2016, certain items of inventory with an approximate carrying amount of $629 million, $438 million and $315 million,
respectively, were pledged to banks as collateral against loans provided to the Group (Note 22).
15. Trade and Other Receivables
Trade and other receivables consisted of the following as of 31 December:
US$ million
Trade accounts receivable
Other receivables
Allowance for expected credit losses
Ageing analysis and movement in allowance for expected credit losses are provided in Note 28.
2018
$ 806
71
877
(42)
$ 835
2017
$ 722
63
785
(54)
$ 731
2016
$ 518
31
549
(47)
$ 502
196
197
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16. Related Party Disclosures (continued)
Related parties of the Group include associates and joint venture partners, key management personnel and other entities that are under the control
or significant influence of the key management personnel, the Group’s ultimate parent or its shareholders. In considering each possible related party
relationship, attention is directed to the substance of the relationship, not merely the legal form.
Amounts owed by/to related parties at 31 December were as follows:
Amounts due from related parties
Amounts due torelated parties
2017
2016
$ –
$ 7
2018
$ –
2017
2016
$ –
$ –
Nakhodka Trade Sea Port (“NTSP”) was the Group’s subsidiary sold in 2017 (Note 12) and is an entity under common control with the Group. NTSP 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 2018, 2017 and 2016, the purchases of scrap metal from Vtorresource-Pererabotka amounted to $494 million
(1,821,380 tonnes), $422 million (1,601,320 tonnes) and $256 million (1,437,411 tonnes), respectively.
Yuzhny GOK, an ore mining and processing plant, is an associate of an entity, which is under common control with one of the major shareholders of EVRAZ plc.
The Group sold steel products to Yuzhny GOK and purchased sinter from the entity. In 2018, 2017 and 2016, the volume of purchases was 1,344,277 tonnes,
1,639,306 tonnes and 1,619,745 tonnes, respectively. In 2018 and 2017, the Group recognised dividend income from Yuzhny GOK in the amount
of $4 million and $6 million, respectively, within the other non-operating gains/(losses) caption in the consolidated statement of operations. The dividends
declared by Yuzhny GOK in 2017 were received in 2018, the rest was unpaid at 31 December 2018.
US$ million
Loans
Timir (Note 11)
Dividends receivable
Yuzhny GOK
Trade balances
Nakhodka Trade Sea Port
Vtorresource-Pererabotka
Yuzhny GOK
Other entities
Less: allowance for expected credit losses
2018
$ 7
4
–
–
–
–
11
–
6
–
2
4
–
12
–
–
–
1
–
–
8
–
–
–
–
The transactions with related parties were based on prevailing market terms.
10
95
15
2
122
–
6
52
195
3
256
–
–
39
185
2
226
–
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.
$ 11
$ 12
$ 8
$ 122
$ 256
$ 226
In 2018, 2017 and 2016, key management personnel totalled 32, 30 and 34 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:
At 31 December 2017, the loan receivable from Timir (Note 11) amounting to $8 million, was classified as a non-current financial asset (Note 13).
In 2016–2018, the Group did not recognise any expense or income in relation to the expected credit losses of related parties.
Transactions with related parties were as follows for the years ended 31 December:
US$ million
Genalta Recycling Inc.
Interlock Security Services
Nakhodka Trade Sea Port
Vtorresource-Pererabotka
Yuzhny GOK
Other entities
Sales to related parties
Purchases from related parties
2018
$ –
–
–
6
32
1
2017
$ –
–
–
8
37
–
2016
$ –
–
–
7
25
–
2018
$ 15
3
73
569
104
1
2017
$ 14
11
36
452
107
1
2016
$ 8
19
–
281
77
11
$ 39
$ 45
$ 32
$ 765
$ 621
$ 396
In addition to the disclosures presented in this note, some of the balances and transactions with related parties are disclosed in Notes 11, 12, 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 (“Lanebrook”) was a controlling shareholder of the Company. After the transfer of ownership interests in EVRAZ plc to the shareholders
of Lanebrook (Note 1), it represents an entity under common control by the shareholder. At 31 December 2018, the Group had other receivables
from Lanebrook, amounting to $32 million, in connection with the acquisition of a 1% ownership interest in Yuzhny GOK in 2008 (Note 18).
US$ million
Salary
Performance bonuses
Social security taxes
Share-based payments (Note 21)
Termination benefits
2018
$ 14
13
4
8
–
2017
$ 15
14
3
9
1
2016
$ 14
9
3
8
–
$ 39
$ 42
$ 34
Other disclosures on directors’ remuneration required by Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts & Reports) regulations
2008 are included in the Directors’ Remuneration Report.
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17. Other Taxes Recoverable
Taxes recoverable consisted of the following as of 31 December:
US$ million
Input VAT
Other taxes
2018
$ 78
123
$ 201
2017
$ 140
85
$ 225
2016
$ 89
103
$ 192
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
Other receivables from Lanebrook (Note 16)
Restricted deposits at banks
19. Cash and Cash Equivalents
2018
$ 32
3
$ 35
2017
$ 32
15
$ 47
Cash and cash equivalents, mainly consisting of cash at banks, were denominated in the following currencies as of 31 December:
US$ million
Euro
US dollar
Russian rouble
Ukrainian hryvnia
Other
2018
$ 540
273
215
24
15
2017
$ 31
1,253
163
7
12
2016
$ 32
1
$ 33
2016
$ 14
1,058
71
2
12
At 31 December 2018, 2017 and 2016, the assets of disposal groups classified as held for sale included cash amounting to $Nil, $Nil and $2 million,
respectively.
$ 1,067
$ 1,466
$ 1,157
20. Equity
Share Capital
Number of shares
31 December
2018
2017
2016
Ordinary shares, issued and fully paid
1,506,527,294
1,506,527,294
1,506,527,294
On 10 July 2018, EVRAZ plc reduced the nominal value of its shares from $1 to $0.05 each. The amount of the cancelled share capital ($1,432 million)
became distributable reserves.
Treasury Shares
31 December
2018
2017
2016
Number of treasury shares
63,177,187
74,474,663
87,015,878
On 31 March 2015, the Board resolved to announce a return of capital to be effected by a tender offer to shareholders at $3.10 per share in the amount of up
to $375 million. In April 2015, EVRAZ plc repurchased 108,458,508 of its own shares ($336 million). The Company incurred $3 million of transaction costs,
which were charged to accumulated profits.
Subsequently, in 2018, 2017 and 2016, 11,297,476 shares, 12,541,215 shares and 11,465,371 shares, respectively, were transferred to the participants
of Incentive Plans. The cost of treasury shares transferred to the participants of Incentive Plans, amounted to $35 million, $39 million and $35 million
in 2018, 2017 and 2016, respectively.
Earnings per Share
Earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted average number of ordinary shares in issue
during the period. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders by the weighted average
number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all
the potential dilutive ordinary shares into ordinary shares.
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Weighted average number of ordinary shares outstanding during the period
Effect of dilution: share options
Weighted average number of ordinary shares adjusted for the effect of dilution
Profit/(loss) for the year attributable to equity holders of the parent, US$ million
Basic earnings/(losses) per share
Diluted earnings/(losses) per share
2018
2017
2016
1,439,326,349
19,462,750
1,458,789,099
$ 2,406
$ 1.67
$ 1.65
1,427,585,897
26,974,433
1,454,560,330
$ 699
$ 0.49
$ 0.48
1,414,906,412
–
1,414,906,412
$ (215)
$ (0.15)
$ (0.15)
In 2016, share-based awards (Note 21) were antidilutive as the Group reported net losses.
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Dividends
Dividends declared by EVRAZ plc during 2016–2018 were as follows:
Interim for 2017
Second Interim for 2017
Interim for 2018
Second Interim for 2018
Third Interim for 2018
Date of declaration
To holders registered at
Dividends declared,
US$ million
US$ per share
09/08/2017
28/02/2018
24/05/2018
08/08/2018
15/11/2018
18/08/2017
09/03/2018
08/06/2018
17/08/2018
23/11/2018
430
429.6
187.6
577.3
361
0.30
0.30
0.13
0.40
0.25
21. Share-based Payments (continued)
The Group accounted for share-based compensation at fair value pursuant to the requirements of IFRS 2 “Share-based Payment”. The weighted average
fair value of share-based awards granted in 2018, 2017 and 2016 was $5.27, $2.54 and $1.73 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 2016-2018:
Dividend yield (%)
Expected life (years)
Market prices of the shares of EVRAZ plc at the grant
Incentive Plan
2018
Incentive Plan
2017
Incentive Plan
2016
Incentive Plan
2015
Incentive Plan
2014
Incentive Plan
2013
1.8 – 2.3
0.5 – 3.5
2.1 – 2.9
0.5 – 3.5
n/a
0.5 – 3.5
7.3 – 9.1
0.6 – 3.6
3.6 – 4.8
0.6 – 3.6
4.0 – 8.8
0.6 – 3.6
dates
$7.36
$3.86
$1.73
$1.36
$1.68
$2.13
21. Share-based Payments
The following table illustrates the number of, and movements in, share-based awards during the years.
In 2016-2018, the Group had several Incentive Plans under which certain senior executives and employees (“participants”) could be gifted shares
of the parent company upon vesting. These plans were adopted on 24 September 2013, 8 August 2014, 26 October 2015, 15 September 2016,
25 September 2017 and 26 September 2018.
The vesting under Incentive Plans adopted before 2017 does not depend on the achievement of any performance conditions. The new Plans adopted
in 2017 and 2018 provide that the number of shares transferred to participants upon vesting is dependent on the Group’s performance versus the selected
group of peers. EBITDA and total shareholder return (“TSR”) are used as the key performance indicators. If the Group’s EBITDA 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, EBITDA can become the only metric in the performance evaluation (in case if the net debt to EBITDA ratio is equal to 3
or higher). The TSR-related vesting condition of the Incentive Plans 2017 and 2018 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 EBITDA 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.
Outstanding at 1 January
Granted during the year
Forfeited during the year
Vested during the year
Outstanding at 31 December
2018
2017
2016
27,912,610
3,143,865
(2,003,022)
(11,297,476)
17,755,977
34,581,349
7,361,166
(1,488,690)
(12,541,215)
27,912,610
43,767,553
10,383,528
(8,104,361)
(11,465,371)
34,581,349
The weighted average share price at the dates of exercise was $6.82, $2.62 and $1.78 in 2018, 2017 and 2016, respectively.
The weighted average remaining contractual life of the share-based awards outstanding as of 31 December 2018, 2017 and 2016 was 1, 1.2 and 1.2 years,
respectively.
In the years ended 31 December 2018, 2017 and 2016, the expense arising from the equity-settled share-based compensations was as follows:
The vesting date for each tranche occurs within the 90-day period after announcement of the annual results. The expected vesting dates of the awards
outstanding at 31 December 2018 are presented below:
US$ million
Expense arising from equity-settled share-based payment transactions
2018
$ 15
2017
$ 17
2016
$ 16
Number of Shares of EVRAZ plc
Total
Incentive Plan 2018
Incentive Plan 2017
Incentive Plan 2016
Incentive Plan 2015
March 2019
March 2020
March 2021
March 2022
8,562,791
5,287,949
2,961,995
943,242
17,755,977
628,747
628,747
943,129
943,242
3,143,865
1,345,901
2,018,840
2,018,866
–
5,383,607
2,640,256
2,640,362
–
–
5,280,618
3,947,887
–
–
–
3,947,887
The plans are administered by the Board of Directors of EVRAZ plc. The Board of Directors has the right to accelerate vesting of the grant. In the event
of a participant’s employment termination, unless otherwise determined by the Board or by a decision of the authorised person, a participant loses
the entitlement for the shares that were not gifted up to the date of termination.
There have been no modifications or cancellations to the plans during 2016–2018.
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Short-term and long-term loans and borrowings were as follows as of 31 December:
US$ million
Bank loans
US dollar-denominated
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
12.95% rouble bonds due 2019
12.60% rouble bonds due 2021
Fair value adjustment to liabilities assumed
in business combination
Unamortised debt issue costs
Interest payable
2018 Non-current
Current
2017 Non-current
Current
2016 Non-current
Current
$ 1,370
$ 1,290
$ 80
$ 2,113
$ 2,051
$ 62
$ 2,067
$ 1,799
$ 268
–
–
–
–
700
750
500
750
216
216
–
(20)
81
–
–
–
–
700
750
500
750
–
216
–
(20)
–
–
–
–
–
–
–
–
–
216
–
–
–
81
–
–
–
–
700
750
500
750
260
260
–
(28)
86
–
–
–
–
700
750
500
750
260
260
–
(28)
–
–
–
–
–
–
–
–
–
–
–
–
–
86
26
125
528
350
–
125
528
350
1,000
1,000
750
500
–
247
247
1
(44)
97
750
500
–
247
247
–
(44)
–
26
–
–
–
–
–
–
–
–
–
1
–
97
$ 4,563
$ 4,186
$ 377
$ 5,391
$ 5,243
$ 148
$ 5,894
$ 5,502
$ 392
The average effective annual interest rates were as follows at 31 December:
Long-term borrowings
Short-term borrowings
US dollar
Russian rouble
Euro
Canadian dollars
2018
6.13%
12.84%
3.47%
3.87%
2017
6.00%
12.78%
3.77%
3.29%
The liabilities are denominated in the following currencies at 31 December:
US$ million
US dollar
Russian rouble
Euro
Canadian dollars
Other
Unamortised debt issue costs
2016
6.85%
12.71%
3.94%
2.88%
2018
$ 3,758
440
238
144
3
(20)
2018
–
–
0.74%
–
2017
1.85%
–
–
–
2017
$ 4,604
530
242
43
–
(28)
2016
3.31%
–
–
–
2016
$ 4,911
809
217
1
–
(44)
$ 4,563
$ 5,391
$ 5,894
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/(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
2018
$ 5,391
1,412
(2,459)
–
–
–
6
322
1
1
–
(111)
2017
$ 5,894
2,441
(3,344)
(139)
–
(1)
8
394
6
78
(6)
60
2016
$ 6,347
1,301
(2,428)
(5)
(4)
7
46
439
9
50
–
132
$ 4,563
$ 5,391
$ 5,894
At 31 December 2016, a 100% ownership interest in EVRAZ Inc NA and 51% in EVRAZ Inc NA Canada were pledged against a $350 million liability
under 7.5% senior secured notes due 2019. In addition, at 31 December 2016, property, plant and equipment and inventory of these subsidiaries amounting
to $1,013 million and $315 million, respectively, were pledged as collateral under the notes. In 2017, these notes were fully repaid (Repurchase of Notes
and Bonds).
The Group’s pledged assets at carrying value included the following at 31 December:
US$ million
Property, plant and equipment
Inventory
2018
$ 67
629
2017
$ 66
438
2016
$ 1,013
315
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Issue of Notes and Bonds
22. Loans and Borrowings (continued)
Compliance with Financial Covenants
In March 2017, the Group issued 5.375% notes due 2023 in the amount of $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 June 2016, the Group issued 6.75% notes due 2022 in the amount of $500 million. The proceeds from the issue of the notes were used to finance
the purchase of 7.40% notes due 2017, 9.50% notes due 2018, 6.75% notes due 2018 and 7.75% bonds due 2017 at the tender offer settled
on 17 June 2016 and to refinance other current indebtedness of the Group.
In March 2016, the Group completed a placement of bonds in the total amount of 15,000 million Russian roubles ($247 million at 31 December 2016), which
bear interest of 12.60% per annum and mature on 23 March 2021. The currency risk exposure of these bonds was not hedged.
Repurchase of Rouble-Denominated Bonds
In 2016, the Group fully settled its 8.40% rouble bonds due 2016, there was no gain or loss on this transaction.
Repurchase of US Dollar-Denominated Notes
In 2017, the Group partially repurchased 9.50% notes due 2018 ($125 million), 6.75% notes due 2018 ($528 million) and 6.50% bonds due 2020
($300 million). The premium over the carrying value on the repurchase and other costs relating to the transaction in the total amount of $8 million,
$23 million and $23 million, respectively, were charged to the Gain/(loss) on financial assets and liabilities caption of the consolidated statement
of operations.
In 2017, the Group also fully settled $350 million under 7.5% senior secured notes due 2019. Loss on this transaction amounted to $17 million, including
$13 million of premium.
In addition, the Group fully settled its 7.75% bonds due 2017 issued by Raspadskaya ($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 $7 million was credited to the Gain/(loss) on financial assets and liabilities caption of the consolidated
statement of operations.
In 2016, the Group partially repurchased 9.50% notes due 2018 ($228 million), 6.75% notes due 2018 ($268 million) and 7.75% bonds due 2017
($160 million). The premium over carrying value on the repurchase in the amount of $20 million, $7 million and $5 million, respectively, was charged
to the Gain/(loss) on financial assets and liabilities caption of the consolidated statement of operations.
In 2016, the Group fully repurchased 7.40% notes due 2017 ($286 million) paying a premium over the carrying value of $14 million.
Some of the loan agreements and terms and conditions of notes provide for certain covenants in respect of EVRAZ plc and its subsidiaries. The covenants
impose restrictions in respect of certain transactions and financial ratios, including restrictions in respect of indebtedness and profitability. EBITDA
used for covenants compliance calculations is determined based on the definitions of the respective loan agreements and may differ from that used
by management for evaluation of performance.
Several bank credit facilities totalling $1,061 million contain certain financial maintenance covenants. These covenants require EVRAZ plc to maintain two
key ratios, consolidated net indebtedness to 12month consolidated EBITDA and 12-month consolidated EBITDA to adjusted 12-month consolidated interest
expense, within certain limits. 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.
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 2018, gross leverage ratio for Evraz Group S.A. was below 3.5.
Several bank credit facilities totalling $293 million provide for certain covenants restricting the incurrence of indebtedness by Evraz North America plc
and its subsidiaries conditional on a fixed charge ratio. Once the threshold for the ratio is exceeded, it triggers restrictions on incurrence of additional
indebtedness by Evraz North America plc and its subsidiaries.
The incurrence covenants are in line with the Group’s financial strategy and, therefore, do not constitute any excessive restriction on its operations.
During 2018 the Group was in compliance with all financial and non-financial covenants.
Unamortised Debt Issue Costs
Unamortised debt issue costs represent agent commission and transaction costs paid by the Group in relation to the arrangement and reset of loans
and notes.
Unutilised Borrowing Facilities
The Group had the following unutilised borrowing facilities as of 31 December:
US$ million
Committed
Uncommitted
Total unutilised borrowing facilities
2018
$ 377
1,434
$ 1,811
2017
$ 131
1,251
$ 1,382
2016
$ 187
883
$ 1,070
206
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Russian Plans
23. Employee Benefits (continued)
US and Canadian Plans
Certain Russian subsidiaries of the Group provide regular lifetime pension payments and lump-sum amounts payable at retirement date. These benefits
generally depend on years of service, level of remuneration and amount of pension payment under the collective bargaining agreements. Other post-
employment benefits consist of various compensations and certain non-cash benefits. The Group funds the benefits when the amounts of benefits fall due
for payment.
In addition, some subsidiaries have defined benefit plans under which contributions are made to a separately administered non-state pension fund. The Group
matches 100% of the employees’ contributions to the fund up to 4% of their monthly salary. The Group’s contributions become payable at the participants’
retirement dates. 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.
In October 2018, the Russian pension law was amended introducing a higher retirement age from 1 January 2019. During 2019 – 2023 the retirement age
will be gradually increased for women from 55 to 60 and for men from 60 to 65. The Group has accounted for these amendments, when measuring the post-
employment benefit obligations as of 31 December 2018 and has recorded the resulting decrease in the obligations in the amount of $2 million as a part
of past service costs.
The Group’s subsidiaries in the USA and Canada have defined benefit pension plans that cover specified eligible employees. Benefits are based
on pensionable years of service, pensionable compensation, or a combination of both depending on the individual plan. The subsidiaries also have U.S.
and Canadian supplemental retirement plans (“SERP’s”), which are non-qualified plans designed to maintain benefits for eligible employees at the plan
formula level. The subsidiaries provide other unfunded post-retirement medical and life insurance plans (“OPEB’s”) for certain of their eligible employees upon
retirement after completion of a specified number of years of service. For the pension plans, SERP’s and OPEB’s, the subsidiaries use a measurement date
for plan assets and obligations of 31 December.
Certain employees that were hired after specified dates are no longer eligible to participate in the defined benefit pension plans. Those employees are instead
enrolled in defined contribution plans and receive a contribution funded by the Group’s subsidiaries equal to 3–7% of annual wages, including applicable
bonuses. The defined contribution plans are funded 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.
Other Plans
Ukrainian Plans
Defined benefit pension plans and defined contribution plans are maintained by the subsidiaries located in Europe.
The Ukrainian companies make regular contributions to the State Pension Fund thereby compensating 100% of preferential pensions paid by the fund
to employees who worked under harmful and hard conditions. The amount of such pension depends on years of service and salary. In addition, employees
receive lump-sum payments on retirement and other benefits under collective labour agreements. These benefits are based on years of service and level
of compensation. All these payments are considered as defined benefit plans.
The Ukrainian pension legislation provides for annual indexation of pensions, at least up to the level of CPI. Starting from 2018 the minimum annual
indexation of pensions, which takes into account 50% of CPI 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 Group’s Ukrainian subsidiaries were 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.
Defined Contribution Plans
The Group’s expenses under defined contribution plans were as follows:
US$ million
Expense under defined contribution plans
Defined Benefit Plans
2018
$ 245
2017
$ 246
2016
$ 212
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 2018 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.
208
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The components of net benefit expense recognised in the consolidated statement of operations for the years ended 31 December 2018, 2017 and 2016
and amounts recognised in the consolidated statement of financial position as of 31 December 2018, 2017 and 2016 for the defined benefit plans were
as follows:
Net benefit expense (recognised in the statement of operations within cost of sales and selling, general and administrative expenses and interest
expense)
Year ended 31 December 2018
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term employee benefits obligation
Past service cost
Curtailment/settlement gain
Other
Net benefit expense
Year ended 31 December 2017
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term employee benefits obligation
Past service cost
Curtailment/settlement gain
Other
Net benefit expense
Year ended 31 December 2016
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term employee benefits obligation
Past service cost
Curtailment/settlement gain
Net benefit expense
Russian
plans
Ukrainian
plans
US & Canadian
plans
$ (2)
$ –
$ (19)
(8)
(1)
–
1
–
–
–
–
–
–
(5)
–
(1)
–
(3)
Other
plans
$ –
–
–
–
–
–
Total
$ (21)
(13)
(1)
(1)
1
(3)
$ (10)
$ –
$ (28)
$ –
$ (38)
Russian
plans
$ (2)
(9)
2
(3)
–
–
Ukrainian
plans
US & Canadian
plans
$ (1)
(4)
–
3
–
–
$ (18)
(6)
–
(3)
2
(3)
Other
plans
$ –
–
–
–
–
–
Total
$ (21)
(19)
2
(3)
2
(3)
$ (12)
$ (2)
$ (28)
$ –
$ (42)
Russian
plans
Ukrainian
plans
US & Canadian
plans
$ (2)
$ (2)
$ (19)
(9)
1
(1)
1
(5)
–
1
–
(8)
–
–
–
Other
plans
$ –
–
–
–
–
Total
$ (23)
(22)
1
–
1
$ (10)
$ (6)
$ (27)
$ –
$ (43)
23. Employee Benefits (continued)
Gains/(losses) recognised in other comprehensive income
Year ended 31 December 2018
US$ million
Return on plan assets, excluding amounts included in net interest expense
Net actuarial gains/(losses) on post-employment benefit obligation
Year ended 31 December 2017
US$ million
Return on plan assets, excluding amounts included in net interest expense
Net actuarial gains/(losses) on post-employment benefit obligation
Russian
plans
Ukrainian
plans
US & Canadian
plans
$ –
2
$ 2
$ –
–
$ –
$ (30)
56
$ 26
Russian
plans
Ukrainian
plans
US & Canadian
plans
$ –
6
$ 6
$ –
(4)
$ (4)
$ 48
(23)
$ 25
Other
plans
$ –
–
$ –
Other
plans
$ –
–
$ –
Total
$ (30)
58
$ 28
Total
$ 48
(21)
$ 27
In addition to the amounts presented in the table above, actuarial gains/(losses) recognised in other comprehensive income include $(1) million relating
to a subsidiary classified as a disposal group held for sale.
Year ended 31 December 2016
US$ million
Return on plan assets, excluding amounts included in net interest expense
Net actuarial gains/(losses) on post-employment benefit obligation
Russian
plans
Ukrainian
plans
US & Canadian
plans
$ (1)
3
$ 2
$ –
8
$ 8
$ 7
(6)
$ 1
Other
plans
$ –
–
$ –
Total
$ 6
5
$ 11
210
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 23. Employee Benefits (continued)
Actual return on plan assets was as follows:
US$ million
Actual return on plan assets
including:
US & Canadian plans
Russian plans
Net defined benefit liability
31 December 2018
US$ million
Benefit obligation
Plan assets
Net defined benefit asset
Net defined benefit liability
31 December 2017
US$ million
Benefit obligation
Plan assets
31 December 2016
US$ million
Benefit obligation
Plan assets
2018
$ (10)
(10)
–
2017
$ 66
66
–
Russian
Plans
$ 91
–
–
91
Russian
Plans
$ 111
–
111
Russian
Plans
$ 108
–
108
Ukrainian
plans
US & Canadian
plans
$ –
–
–
–
$ 687
(555)
3
135
Ukrainian
plans
US & Canadian
plans
$ 19
–
19
$ 765
(611)
154
Ukrainian
plans
US & Canadian
plans
$ 31
–
31
$ 711
(535)
176
Other
plans
$ –
–
–
–
Other
plans
$ –
–
–
Other
plans
$ 2
–
2
2016
$ 25
26
(1)
Total
$ 778
(555)
3
226
Total
$ 895
(611)
284
Total
$ 852
(535)
317
23. Employee Benefits (continued)
Movements in net defined benefit liability/(asset)
US$ million
At 31 December 2015
Russian
plans
Ukrainian
plans
US & Canadian
plans
$ 89
$ 45
$ 165
Net benefit expense recognised in the statement of operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Reclassification to liabilities directly associated with disposal groups classified as held
for sale
Translation difference
At 31 December 2016
Net benefit expense recognised in the statement of operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Reclassification to liabilities directly associated with disposal groups classified as held
for sale
Translation difference
At 31 December 2017
Net benefit expense recognised in the statement of operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Reclassification to liabilities directly associated with disposal groups classified as held
for sale
Translation difference
At 31 December 2018
10
(7)
(2)
–
18
$ 108
12
(8)
(6)
–
5
$ 111
10
(8)
(2)
–
(20)
$ 91
6
(3)
(8)
(4)
(5)
$ 31
2
(2)
4
(16)
–
$ 19
–
–
–
(20)
1
$ –
27
(17)
(1)
–
2
$ 176
28
(27)
(25)
–
2
$ 154
28
(24)
(26)
–
Other
plans
$ 2
–
–
–
–
–
$ 2
–
–
–
(2)
–
$ –
–
–
–
–
Total
$ 301
43
(27)
(11)
(4)
15
$ 317
42
(37)
(27)
(18)
7
$ 284
38
(32)
(28)
(20)
–
$ 132
–
$ –
(19)
$ 223
212
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 23. Employee Benefits (continued)
Movements in benefit obligation
US$ million
At 31 December 2015
Interest cost on benefit obligation
Current service cost
Past service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation related to changes in demographic
assumptions
Actuarial (gains)/losses on benefit obligation related to changes in financial
assumptions
Actuarial (gains)/losses on benefit obligation related to experience adjustments
Curtailment/settlement gain
Reclassification to liabilities directly associated with disposal groups classified as held
for sale
Translation difference
At 31 December 2016
Interest cost on benefit obligation
Current service cost
Past service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation related to changes in demographic
assumptions
Actuarial (gains)/losses on benefit obligation related to changes in financial
assumptions
Actuarial (gains)/losses on benefit obligation related to experience adjustments
Curtailment/settlement gain
Reclassification to liabilities directly associated with disposal groups classified as held
for sale
Translation difference
At 31 December 2017
Interest cost on benefit obligation
Current service cost
Past service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation related to changes in demographic
assumptions
Actuarial (gains)/losses on benefit obligation related to changes in financial
assumptions
Actuarial (gains)/losses on benefit obligation related to experience adjustments
Curtailment/settlement gain
Reclassification to liabilities directly associated with disposal groups classified as held
for sale
Translation difference
At 31 December 2018
Russian
plans
Ukrainian
plans
US & Canadian
plans
$ 90
$ 45
$ 691
Other
plans
$ 2
Total
$ 828
9
2
1
(7)
–
(1)
(3)
(1)
–
5
2
(1)
(3)
–
(6)
(2)
–
(4)
27
19
–
(43)
(10)
14
2
–
–
–
–
–
–
–
–
–
–
–
41
23
–
(53)
(10)
7
(3)
(1)
(4)
18
$ 108
(5)
$ 31
11
$ 711
–
$ 2
24
$ 852
9
2
3
(8)
–
(11)
3
–
–
5
$ 111
8
2
–
(8)
–
(6)
5
(1)
–
(20)
$ 91
4
1
(3)
(2)
–
4
–
–
(16)
–
$ 19
–
–
–
–
–
–
–
–
(20)
1
$ –
24
18
3
(37)
(19)
48
(6)
(2)
–
25
$ 765
25
19
1
(36)
(7)
(49)
–
–
–
–
–
–
–
–
–
–
–
37
21
3
(47)
(19)
41
(3)
(2)
(2)
–
$ –
(18)
30
$ 895
–
–
–
–
–
–
–
–
–
33
21
1
(44)
(7)
(55)
5
(1)
(20)
(31)
$ 687
–
$ –
(50)
$ 778
23. Employee Benefits (continued)
The weighted average duration of the defined benefit obligation was as follows:
Years
Russian plans
Ukrainian plans
US & Canadian plans
Other plans
Changes in the fair value of plan assets
US$ million
At 31 December 2015
Interest income on plan assets
Return on plan assets (excluding amounts included in net interest expense)
Contributions of employer
Benefits paid
Translation difference
At 31 December 2016
Interest income on plan assets
Return on plan assets (excluding amounts included in net interest expense)
Contributions of employer
Benefits paid
Other
Translation difference
At 31 December 2017
Interest income on plan assets
Return on plan assets (excluding amounts included in net interest expense)
Contributions of employer
Benefits paid
Other
Translation difference
At 31 December 2018
2018
9.82
8.00
13.48
7.46
2017
10.11
8.00
13.09
7.46
Russian
plans
Ukrainian
plans
US & Canadian
plans
$ 1
$ –
$ 526
2016
11.21
8.26
13.79
9.12
Total
$ 527
19
6
27
(53)
Other
plans
$ –
–
–
–
–
–
$ –
9
$ 535
–
–
–
–
–
18
48
37
(47)
(3)
19
7
17
(43)
9
$ 535
18
48
27
(37)
(3)
–
–
3
(3)
–
$ –
–
–
2
(2)
–
–
$ –
–
–
–
–
–
23
$ 611
–
$ –
23
$ 611
20
(30)
24
(36)
(3)
–
–
–
–
–
20
(30)
32
(44)
(3)
–
$ –
(31)
$ 555
–
$ –
(31)
$ 555
–
(1)
7
(7)
–
$ –
–
–
8
(8)
–
–
$ –
–
–
8
(8)
–
–
$ –
The amount of contributions expected to be paid to the defined benefit plans during 2019 approximates $41 million.
The major categories of plan assets as a percentage of total plan assets were as follows at 31 December:
US & Canadian plans:
Equity funds and investment trusts
Corporate bonds and notes
Property
Cash
2018
2017
2016
Quoted
Unquoted
Quoted
Unquoted
Quoted
Unquoted
51%
12%
–
2%
65%
35%
–
–
–
35%
47%
12%
–
2%
61%
39%
–
–
–
39%
45%
13%
–
2%
60%
40%
–
–
–
40%
214
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 23. Employee Benefits (continued)
24. Provisions
The principal assumptions used in determining pension obligations for the Group’s plans are shown below:
At 31 December the provisions were as follows:
2017
2016
2018
2017
2016
US$ million
Non-current
Current
Non-current
Current
Non-current
Current
2018
US &
Canadian
plans
Russian
plans
8.6%
3.3-4.3%
5%-9%
5%-9%
69
–
3%
86
79
88-89
–
5-7%
Discount rate
Future benefits
increases
Future salary
increase
Average life
expectation, male,
years
Average life
expectation,
female, years
Healthcare costs
increase rate
Other
plans
Russian
plans
Ukrainian
plans
US &
Canadian
plans
Other
plans
Russian
plans
Ukrainian
plans
US &
Canadian
plans
Other
plans
3%
3%
–
81
87
–
7.6%
11.6%
3.6-4.0%
5%
5%
69
79
–
6%
6%
–
3%
65
85-87
75
88-89
–
6.7%
3%
3%
–
81
87
–
8.2%
17.5%
3.9-4.2%
2.8-9.1%
7%
7%
69
79
–
11%
11%
–
3%
3%
–
66
86-87
77-81
76
–
89
77-87
5-7%
8.6%
The following table demonstrates the sensitivity analysis of reasonable changes in the significant assumptions used for the measurement of the defined
benefit obligations, with all other variables held constant.
Impact on the defined benefit
obligation at 31 December 2018,
US$ million
Impact on the defined benefit obligation
at 31 December 2017, US$ million
Impact on the defined benefit obligation
at 31 December 2016, US$ million
Discount rate
Future benefits
increases
Future salary
increase
Average life
expectation,
male, years
Average life
expectation,
female, years
Healthcare costs
increase rate
Reasonable
change in
assumption
10%
(10%)
10%
(10%)
10%
(10%)
1
(1)
1
(1)
10%
(10%)
Russian
plans
$(7)
8
US &
Canadian
plans
$(38)
40
5
(4)
1
(1)
–
(2)
–
(2)
–
–
–
–
1
(1)
11
(11)
6
(6)
1
(1)
Other
plans
Russian
plans
Ukrainian
plans
$–
–
$(7)
8
–
–
–
–
–
–
–
–
–
–
5
(4)
–
–
1
(1)
1
(1)
–
–
$(2)
2
–
–
1
(1)
–
–
–
–
–
–
US &
Canadian
plans
$(37)
40
Other
plans
Russian
plans
Ukrainian
plans
US &
Canadian
plans
$–
–
$(8)
10
$(4)
5
$(41)
44
Other
plans
$–
–
–
–
1
(1)
12
(12)
6
(6)
1
(1)
–
–
–
–
–
–
–
–
–
–
7
(7)
1
(1)
1
(1)
1
(1)
–
–
1
(1)
1
(1)
–
–
–
–
–
–
–
–
1
(1)
13
(13)
5
(5)
1
(1)
–
–
–
–
–
–
–
–
–
–
Site restoration and decommissioning costs
Other provisions
$ 221
1
$ 222
$ 23
12
$ 35
$ 260
9
$ 269
$ 29
3
$ 32
$ 204
1
$ 205
In the years ended 31 December 2018, 2017 and 2016, the movement in provisions was as follows:
US$ million
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
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
Reclassification to liabilities directly associated with disposal groups classified as held
for sale
Translation difference
At 31 December 2018
Site restoration and
decommissioning costs
Other provisions
$ 165
15
14
17
5
(9)
(9)
26
$ 224
11
16
33
15
(11)
(1)
(9)
11
$ 289
4
16
(38)
29
(13)
(1)
(42)
$ 4
13
–
–
–
(6)
(4)
–
$ 7
14
–
–
–
(5)
(4)
–
–
$ 12
14
–
–
–
(12)
–
(1)
$ 20
6
$ 26
Total
$ 169
28
14
17
5
(15)
(13)
26
$ 231
25
16
33
15
(16)
(5)
(9)
11
$ 301
18
16
(38)
29
(25)
(1)
(43)
$ 244
$ 13
$ 257
216
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 24. Provisions (continued)
Site Restoration Costs
25. Other Long-Term Liabilities (continued)
Derivatives Not Designated as Hedging Instruments (continued)
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.
In 2017, one of the swaps with a notional amount of $26 million did not meet the criteria for hedging and ceased to be classified as a hedging instrument.
This swap was reclassified into Derivatives Not Designated as Hedging Instruments.
At 31 December the respective liabilities were measured based on estimates of restoration costs, which are expected to be incurred in the future discounted
at the following annual rates:
The aggregate amounts under swap contracts translated at the year end exchange rates are summarised in the table below.
Russia
Ukraine
USA
Others
25. Other Long-Term Liabilities
Other long-term liabilities consisted of the following as of 31 December:
US$ million
Financial liabilities
Derivatives not designated as hedging instruments
Hedging instruments
Long-term trade and other payables
Long-term accounts payable to related parties
Finance lease liabilities
Dividends payable under cumulative preference shares of a subsidiary to a related
party
Less: current portion (Note 26)
Non-financial liabilities
Employee income participation plans and compensations
Tax liabilities
Other non-financial liabilities
Less: current portion (Note 26)
Derivatives Not Designated as Hedging Instruments
2018
9%
13.2%
3.0%
4.7%
2018
$ 5
46
30
2
6
–
89
(68)
21
6
8
6
20
(3)
17
2017
8%
13.2%
2.2%
5%
2017
$ –
3
45
1
8
–
57
(18)
39
5
1
11
17
(2)
15
2016
9%
13.2%
1.5%
4.9-7.4%
2016
$ –
22
62
1
5
18
108
(22)
86
5
3
4
12
(4)
8
$ 38
$ 54
$ 94
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 2016, are summarised in the table below.
8.40 per cent bonds due 2016
2011
20,000
19,996
711
4.45% – 4.60%
Year
of issue
Bonds principal,
millions of roubles
Hedged amount,
millions of roubles
Swap amount,
US$ million
Interest rates
on the swap amount
US$ million
Bonds principal
Hedged amount
Swap amount
2018
$ 24
24
26
2017
$ 28
28
26
2016
$ –
–
–
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/RUB implied yield forward curve. The discount rates used in the valuation were the non-deliverable forward rate curve and the interest rate swap
curve for US dollar at the reporting dates.
In 2018, 2017 and 2016, a change in fair value of the derivatives of $(6) million, $2 million and $273 million, respectively, together with a realised gain/
(loss) on the swap transactions, amounting to $2 million, $2 million and $(250) million, respectively, was recognised within gain/(loss) on financial assets
and liabilities in the consolidated statement of operations (Note 7).
In 2016, upon repayment of the 8.40% bonds, the related swap contracts matured.
In 2018, the Group concluded EUR/USD forward contracts, which were accounted for at fair value. The change in fair value of the derivatives $(2) million,
together with a realised gain/(loss) on the currency forward transactions, amounting to $9 million, was recognised within gain/(loss) on financial assets
and liabilities in the consolidated statement of operations (Note 7).
Hedging Instruments
In July 2015, the Group completed a placement of bonds in the total amount of 15,000 million Russian roubles ($216 million at 31 December 2018),
which bear interest of 12.95% per annum and have the next put date on 26 June 2019. The Group used an intercompany loan to transfer the proceeds
from the bonds within the Group. To manage the currency exposure, the Group entered into a series of cross currency swap contracts with several banks
under which it agreed to deliver US-dollar denominated interest payments at rates ranging from 5.90% to 6.55% per annum plus the notional amount, totaling
approximately $265 million, in exchange for rouble-denominated interest payments at the rate of 12.95% per annum plus notional, totaling 14,948 million
roubles ($215 million at 31 December 2018).
12.95 per cent bonds due 2019
2015
15,000
13,310
239
5.90% – 6.55%
Year
of issue
Bonds principal,
millions of roubles
Hedged amount,
millions of roubles
Swap amount,
US$ million
Interest rates
on the swap amount
The Group accounted for these swap contracts as cash flow hedges. In 2017, one of these swap contracts with the notional amount of $26 million did
not meet the criteria for efficiency and ceased to be classified as hedging instruments. In 2018, 2017 and 2016, the change in fair value of these derivatives
amounted to $(44) million, $20 million and $37 million, respectively. The realised gain on the swap transactions amounting to $11 million, $14 million
and $14 million, respectively, was related to the interest portion of the change in fair value of the swap.
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Hedging Instruments (continued)
28. Financial Risk Management Objectives and Policies
Credit Risk
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 2018, 2017 and 2016, the Group recognised a gain/(loss) in other
comprehensive income amounting to $(3) million, $9 million and $Nil, respectively. 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 2018, 2017 and 2016, $(41) million, $11 million and $37 million,
respectively, were recorded in the Foreign exchange gains/(losses) caption in the consolidated statement of operations.
26. Trade and Other Payables
Trade and other payables consisted of the following as of 31 December:
US$ million
Trade accounts payable
Liabilities for purchases of property, plant and equipment, including VAT
Accrued payroll
Other payables
Other long-term obligations with current maturities (Note 25)
2018
$ 877
98
140
30
71
2017
$ 822
89
158
39
20
2016
$ 664
73
134
38
26
$ 1,216
$ 1,128
$ 935
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 and euros, 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 2018, the major
customers were Russian Railways (3.8% of total sales), Sibuglemet Trading (2.1%), Steel Asia Manufacturing Corporation (1.8%) and Treibacher Industrie AG
(1.8%).
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 allowance for expected credit losses 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.
The maturity profile of the accounts payable is shown in Note 28.
At 31 December the maximum exposure to credit risk is equal to the carrying amount of financial assets, which is disclosed below.
27. Other Taxes Payable
Taxes payable were mainly denominated in roubles and consisted of the following as of 31 December:
US$ million
VAT
Social insurance taxes
Property tax
Land tax
Personal income tax
Import/export tariffs
Other taxes, fines and penalties
2018
$ 124
40
10
5
6
74
7
2017
$ 129
42
12
6
7
–
16
2016
$ 104
39
9
4
7
–
6
$ 266
$ 212
$ 169
US$ million
Restricted deposits at banks (Notes 13 and 18)
Financial instruments included in other non-current and current assets (Notes 13 and 18)
Long-term and short-term investments (Notes 13 and 18)
Trade and other receivables (Notes 13 and 15)
Loans receivable
Receivables from related parties (Notes 13 and 16)
Cash and cash equivalents (Note 19)
2018
$ 9
66
32
852
30
12
1,067
$ 2,068
2017
$ 21
61
65
754
31
19
1,466
$ 2,417
2016
$ 12
52
35
506
34
8
1,157
$ 1,804
Receivables from related parties in the table above do not include prepayments in the amount of $Nil, $1 million and $Nil as of 31 December 2018, 2017
and 2016, respectively.
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28. Financial Risk Management Objectives and Policies (continued)
Credit Risk (continued)
Liquidity Risk (continued)
The ageing analysis of trade and other receivables, loans receivable and receivables from related parties at 31 December is presented in the table below.
US$ million
Not past due
Past due
less than six months
between six months and one year
over one year
2018
2017
2016
Gross amount
Impairment
Gross amount
Impairment
Gross amount
Impairment
$ 770
166
109
9
48
$ (1)
(41)
–
–
(41)
$ 671
187
114
20
53
$ (1)
(53)
(2)
(10)
(41)
$ 408
187
130
7
50
$ (1)
(46)
(2)
(2)
(42)
$ 936
$ (42)
$ 858
$ (54)
$ 595
$ (47)
In the years ended 31 December 2018, 2017 and 2016, the movement in allowance for expected credit losses was as follows:
US$ million
At 1 January
Charge for the year
Utilised
Disposal of subsidiaries
Translation difference
At 31 December
Liquidity Risk
2018
$ (54)
1
3
–
8
2017
$ (47)
(10)
4
1
(2)
2016
$ (48)
(1)
5
5
(8)
$ (42)
$ (54)
$ (47)
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure
that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses
or risking damage to the Group’s reputation.
The Group manages liquidity risk by maintaining adequate cash reserves and borrowing facilities, by continuously monitoring forecast and actual cash flows
and matching the maturity profiles of financial assets and liabilities.
The Group prepares a rolling 12-month financial plan which ensures that the Group has sufficient cash on demand to meet expected operational expenses,
financial obligations and investing activities as they arise. The Group exercises a daily monitoring of cash proceeds and payments. The Group maintains credit
lines and overdraft facilities that can be drawn down to meet short-term financing needs. If necessary, the Group refinances its short-term debt by long-term
borrowings. The Group also uses forecasts to monitor potential and actual financial covenants compliance issues (Note 22). Where compliance is at risk,
the Group considers options including debt repayment, refinancing or covenant reset. The Group has developed standard payment periods in respect of trade
accounts payable and monitors the timeliness of payments to its suppliers and contractors.
The following tables summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments, including interest
payments.
31 December 2018
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
Total fixed-rate debt
Variable-rate debt
Loans and borrowings
Principal
Interest
Total variable-rate debt
Non-interest bearing debt
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
$ –
$ –
$ 226
–
–
–
–
–
–
3
–
3
129
94
223
84
–
13
–
–
97
2
15
17
864
26
890
148
3
53
60
9
499
65
45
110
12
–
12
$ 710
194
$ 2,452
211
–
9
–
–
1
8
–
–
$ 17
$ 3,405
–
5
3
–
–
637
9
86
60
9
913
2,672
25
4,206
13
59
72
–
–
–
1,014
107
1,121
–
–
–
–
–
–
–
–
–
1,097
226
1,323
1,005
120
1,125
$ 226
$ 1,004
$ 621
$ 985
$ 3,793
$ 25
$ 6,654
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28. Financial Risk Management Objectives and Policies (continued)
Liquidity Risk (continued)
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
Total fixed-rate debt
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
$ 799
$ 3,652
252
4
20
60
4
609
408
64
472
–
–
–
–
416
1
15
–
–
22
6
4
–
–
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
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
Total fixed-rate debt
Variable-rate debt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Total variable-rate debt
Non-interest bearing debt
Financial instruments included in other liabilities
Trade and other payables
Payables to related parties
Total non-interest bearing debt
On demand
Less than
3 months
3 to
12 months
1 to 2 years
2 to 5 years
After 5 years
Total
$ –
$ –
–
–
–
–
142
1
–
143
2
118
209
329
74
–
17
91
12
25
–
37
–
650
13
663
$ 26
250
–
5
281
114
74
1
189
–
7
–
7
$ 656
$ 2,763
$ 726
$ 4,171
295
–
19
970
196
91
–
287
1
–
–
1
563
1
58
3,385
893
154
–
1,047
1
–
–
1
28
5
19
778
312
21
–
333
1
–
–
1
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
$ 380
$ 912
$ 339
$ 1,081
$ 4,139
$ 1,037
$ 7,888
Payables to related parties in the tables above do not include contract liabilities in the amount of $2 million, $1 million and $4 million as of 31 December
2018, 2017 and 2016, respectively.
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28. Financial Risk Management Objectives and Policies (continued)
28. Financial Risk Management Objectives and Policies (continued)
Market Risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s income
or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures, while
optimising the return on risk.
Interest Rate Risk
The Group borrows on both a fixed and variable rate basis and has other interest-bearing liabilities, such as finance lease liabilities and other obligations.
The Group incurs interest rate risk on liabilities with variable interest rates. The Group’s treasury function performs analysis of current interest rates. In case
of changes in market fixed or variable interest rates management may consider the refinancing of a particular debt on more favourable terms.
The Group does not have any financial assets with variable interest rates.
Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Group does not account for any fixed rate financial assets or liabilities at fair value through profit or loss. Therefore, a change in interest rates
at the reporting date would not affect the Group’s profits.
Market Risk (continued)
Currency Risk (continued)
The Group’s exposure to currency risk determined as the net monetary position in the respective currencies was as follows at 31 December:
US$ million
USD/RUB
EUR/RUB
CAD/RUB
EUR/USD
USD/CAD
EUR/CZK
USD/CZK
USD/ZAR
USD/UAH
RUB/UAH
USD/KZT
2018
$ 2,886
265
–
7
(723)
(12)
(20)
–
(119)
–
(170)
2017
$ 2,589
(276)
–
(11)
(892)
(6)
5
–
(199)
(4)
(163)
2016
$ 1,242
(75)
335
(116)
(672)
(1)
6
(4)
(136)
4
(161)
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.
Sensitivity Analysis
Cash Flow Sensitivity Analysis for Variable Rate Instruments
Based on the analysis of exposure during the years presented, reasonably possible changes in floating interest rates at the reporting date would affect profit
before tax (“PBT”) by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
In estimating reasonably possible changes the Group assessed the volatility of interest rates during the reporting periods.
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.
2018
2017
2016
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
2018
2017
2016
Basis points
Effect on PBT
Basis points
Effect on PBT
Basis points
Effect on PBT
US$ millions
US$ millions
US$ millions
(17)
17
(1)
1
(100)
50
$ 2
(2)
–
$ –
–
$ –
(11)
11
(1)
1
(225)
300
$ 2
(2)
–
$ –
–
$ –
(11)
11
(4)
4
(200)
700
$ 1
(1)
–
$ –
6
$ (21)
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.
USD/RUB
EUR/RUB
CAD/RUB
EUR/USD
USD/CAD
EUR/CZK
USD/CZK
USD/ZAR
EUR/ZAR
USD/UAH
RUB/UAH
USD/KZT
(13.87)
13.87
(13.54)
13.54
(16.08)
16.08
(7.35)
7.35
(6.76)
6.76
(2.96)
2.96
(8.54)
8.54
–
–
–
–
(5.86)
5.86
(15.04)
15.04
(8.43)
8.43
(468)
350
(36)
36
–
–
(1)
1
49
(49)
–
–
2
(2)
–
–
–
–
7
(7)
–
–
14
(14)
(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
226
(325)
198
16
(16)
(75)
75
10
(11)
62
(61)
–
–
(1)
1
1
(1)
–
–
13
(13)
(1)
1
20
(20)
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Consolidated Financial StatementsEVRAZ plc Consolidated Financial StatementsNotes to the consolidated financial statements (continued)Notes to the consolidated financial statements (continued) 28. Financial Risk Management Objectives and Policies (continued)
28. Financial Risk Management Objectives and Policies (continued)
Market Risk (continued)
Currency Risk (continued)
Sensitivity Analysis (continued)
In addition to the effects of changes in the exchange rates disclosed above, the Group is exposed to currency risk on derivatives (Note 25). The impact
of currency risk on the fair value of these derivatives is disclosed below.
2018
2017
2016
Change in
exchange rate
Effect on PBT
Change in
exchange rate
Effect on PBT
Change in
exchange rate
Effect on PBT
%
US$ millions
%
US$ millions
%
US$ millions
USD/RUB
(13.87)
13.87
36
(27)
(10.01)
10.01
66
(49)
(20.02)
20.02
65
(43)
Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
▪ Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
▪ Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
▪ Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data (unobservable
inputs).
The carrying amounts of financial instruments, such as cash, short-term and long-term investments, short-term accounts receivable and payable, short-term
loans receivable and payable and promissory notes, approximate their fair value.
At 31 December the Group held the following financial instruments measured at fair value:
US$ million
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
2018
2017
2016
Assets measured at fair value
Derivatives not designated as hedging
instruments (Note 25)
Hedging instruments (Note 25)
Financial assets measured at fair value through
other comprehensive income (Note 13)
Liabilities measured at fair value
Derivatives not designated as hedging
instruments (Note 25)
Hedging instruments (Note 25)
–
–
–
–
–
–
–
–
5
46
–
–
–
–
–
–
–
33
–
–
3
1
–
–
3
–
–
–
–
–
–
–
3
–
–
–
–
–
–
22
–
–
–
–
–
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
2018
2017
2016
Long-term fixed-rate bank loans
Long-term variable-rate bank loans
$ 269
1,084
$ 266
1,092
$ 427
1,668
$ 442
1,665
USD-denominated
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
12.95% rouble bonds due 2019
12.60% rouble bonds due 2021
–
–
–
–
708
777
513
759
216
223
–
–
–
–
–
723
826
535
754
222
241
–
–
–
–
–
707
774
512
757
260
269
–
–
–
–
–
752
873
560
792
280
302
–
$ 390
1,516
27
126
533
349
1,010
772
515
–
247
255
–
$ 402
1,528
26
137
554
359
1,066
856
544
–
260
269
–
$ 4,549
$ 4,659
$ 5,374
$ 5,666
$ 5,740
$ 6,001
The fair value of the non-convertible bonds and notes was determined based on market quotations (Level 1). The fair value of long-term bank loans was
calculated based on the present value of future principal and interest cash flows, discounted at the Group’s market rates of interest at the reporting dates
(Level 3). The discount rates used for valuation of financial instruments were as follows:
Currency in which financial instruments
are denominated
USD
EUR
RUB
2018
4.9 – 5.7%
1.7 – 3.4%
8.13%
2017
3.6 – 4.5%
1.7 – 3.9%
7.97%
2016
3.7 – 6.4%
1.8 – 4.0%
11.03%
228
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30. Commitments and Contingencies (continued)
Capital Management
Operating Environment of the Group (continued)
Capital includes equity attributable to the equity holders of the parent entity. Revaluation surplus which is included in capital is not subject to capital
management because of its nature.
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support
its business and maximise the return to shareholders. The Board of Directors reviews the Group’s performance and establishes key performance indicators.
There were no changes in the objectives, policies and processes during 2018.
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.
The Group has cross-border transactions between U.S. and Canadian subsidiaries. The entities of the Steel North America segment import steel for further
processing and final products for selling to domestic customers. After the introduction of the tariffs, U.S. and Canadian subsidiaries must pay tariffs
on imported steel and final products. The Group has applied for “product exclusions” for imports to exempt from tariffs with the governments of the United
States and Canada where justified and possible. The Group has received an exclusion from the Canadian retaliatory tariffs for one of the products.
No outcomes have been decided on for other product exclusions by either government as of the date of authorisation of these consolidated financial
statements for issue.
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.
29. Non-cash Transactions
Taxation
Transactions that did not require the use of cash or cash equivalents, not disclosed in the notes above, were as follows in the years ended 31 December:
US$ million
Liabilities for purchases of property, plant and equipment, excluding VAT
Loans provided in the form of payments by banks for property, plant and equipment
2018
$ 92
6
2017
$ 80
8
2016
$ 71
46
30. Commitments and Contingencies
Operating Environment of the Group
Russian and Ukrainian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Further,
the interpretation of tax legislation by tax authorities as applied to the transactions and activity of the Group’s entities may not coincide with that
of management. As a result, tax authorities may challenge transactions and the Group’s entities may be assessed for additional taxes, penalties and interest.
In Russia and Ukraine the periods remain open to review by the tax and customs authorities with respect to tax liabilities for three calendar years preceding
the year of review. Under certain circumstances reviews may cover longer periods.
Management believes that it has paid or accrued all taxes that are applicable. Where uncertainty exists, the Group has accrued tax liabilities based on its best
estimate of the probable outflow of resources embodying economic benefits, which will be required to settle these liabilities. Possible liabilities which were
identified by management at the end of the reporting period as those that can be subject to different interpretations of the tax laws and other regulations
and are not accrued in these financial statements could be up to approximately $58 million.
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, the USA and Canada. Russia is considered to be a developing market with higher economic and political risks.
Contractual Commitments
The unrest in the Southeastern region of Ukraine and the economic sanctions imposed by the USA and the European Union on Russia in 2014 and later
on caused economic slowdown in Russia and reduced access to international capital markets. Further sanctions imposed on Russia could have an adverse
impact on the Group’s business.
Steel consumption is affected by the cyclical nature of demand for steel products and the sensitivity of that demand to worldwide general economic
conditions. During the first half of 2018, growing global demand and supply optimisation in China supported positive steel and raw material price growth
but markets remain volatile.
In March 2018 the United States placed 25% tariffs on imports of most steel products from several countries, including Russia, while granting temporary
exemptions for others, including Canada, Mexico, and the European Union. On 31 May 2018, the U.S. announced the end of temporary exemptions
for Canada, Mexico, and the European Union, putting 25% tariffs on imports from those jurisdictions effective 1 June 2018. In response, the government
of Canada introduced 25% tariffs effective 1 July 2018 on selected steel products from the U.S., but not including rail steel. In addition, effective 25 October
2018, the Canadian government imposed provisional safeguard measures on certain categories of steel products by adding a 25% surtax in cases, where
the level of imports from trading partners exceeds historical norms. The provisional safeguards will be in place for 200 days, during which the Canadian
International Trade Tribunal will conduct an inquiry and determine whether final safeguards are warranted.
At 31 December 2018, the Group had contractual commitments for the purchase of production equipment and construction works for an approximate amount
of $250 million.
In 2010, the Group concluded a contract with PraxAir (Note 2, Accounting Judgements) for the construction of an air separation plant and for the supply
of oxygen and other gases produced by PraxAir at this plant for a period of 20 years (extended to 25 years in 2015, when the construction was completed).
This supply contract does not fall within the scope of IFRIC 4 “Determining whether an Arrangement Contains a Lease”. At 31 December 2018, the Group has
committed expenditure of $530 million over the life of the contract.
230
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30. Commitments and Contingencies (continued)
Contractual Commitments (continued)
Legal Proceedings
In 2018, the Group concluded a contract with Air Liquide for the construction of an air separation plant and for the supply of oxygen and other gases
produced by Air Liquide at this plant for a period of 20 years. The contractual price comprises a fixed component and a variable component. The total amount
of the fixed component approximates $373 million, which is payable within 20 years starting upon commencement of production in 2021 in proportion
to the amounts of the variable component. The variable component is determined based on the actual purchase of gases and is estimated at $339 million
during the life of the contract. Based on management’s assessment this supply contract does not fall within the scope of IFRIC 4 “Determining whether
an Arrangement Contains a Lease” as the Group has no access to the equipment and has no rights either to operate the assets, or to design them in order
to predetermine the way of their usage. Also it is expected that more than an insignificant amount of the assets’ output will be sold to the parties unrelated
to the Group. In addition, Air Liquide will construct the system of trunk and auxiliary pipelines, distribution stations and other equipment for products
delivery, which will be leased by the Group for a period of 20 years and accounted for under IFRS 16. The cost of construction of the products delivery system
is estimated at $102 million.
In 2018, the Group entered into an agreement with Brunswick Rail, according to which it will lease gondola cars for 4 years. The Group classified this contract
as an operating lease under IAS 17. In 2019, upon adoption of IFRS 16, the Group will recognise a right-of-use asset and the related lease liabilities amounting
to $60 million in respect of this contract.
Social Commitments
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 its operations or financial position.
The Group exercises judgement in measuring and recognising provisions and the exposure to contingent liabilities related to pending litigations or other
outstanding claims subject to negotiated settlement, mediation, arbitration or government regulation, as well as other contingent liabilities. Judgement
is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of the final settlement.
Because of the inherent uncertainties in this evaluation process, actual losses may be different from the originally estimated provision. These estimates
are subject to change as new information becomes available, primarily with the support of internal specialists or with the support of outside consultants.
As of 31 December 2018, possible legal risks approximate $20 million.
Issued Guarantees
In June 2018, EVRAZ plc and EVRAZ West-Siberian Metallurgical Plant issued a joint guarantee in the amount of up to 30 billion roubles ($432 million
at the exchange rate as of 31 December 2018) to nine companies owned by Sibuglemet to compensate any direct losses caused by the failure to perform
the agreed management services provided by one the Group’s subsidiaries to these entities. Sibuglemet is a producer of coking coal and operator of coal
refineries in the Kemerovo region of Russia.
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 $27 million under these programmes in 2019.
The management company committed to perform all management functions including, inter alia, all the decisions required to carry out the day-to-day
operations of these coal companies, their investment and procurement activities. The guarantee expires on 31 December 2025.
Environmental Protection
In the course of its 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 2018 amounted to $18 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 $18 million relate to the accrued environmental provisions and have been recognised in receivables at 31 December 2018.
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 2019 to 2024, under which the Group will
perform works aimed at reductions in environmental pollution and contamination. As of 31 December 2018, the costs of implementing these programmes
are estimated at $121 million.
31. Auditor’s Remuneration
The remuneration of the Group’s auditor in respect of the services provided to the Group was as follows.
US$ million
Audit of the parent company of the Group
Audit of the subsidiaries
Total audit fees
Other services
2018
$ 1
2
3
1
$ 4
2017
$ 1
2
3
1
$ 4
232
2016
$ 2
2
4
–
$ 4
233
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32. Material Partly-Owned Subsidiaries (continued)
Financial information of subsidiaries that have material non-controlling interests is provided below.
Summarised statement of profit or loss (continued)
Subsidiary
Raspadskaya
New CF&I (subsidiary of EVRAZ Inc NA)
Country of incorporation
Russia
USA
Non-controlling interests
2018
16.16%
10.00%
2017
18.05%
10.00%
US$ million
2018
2017
Accumulated balances of material non-controlling interests
Raspadskaya
New CF&I (subsidiary of EVRAZ Inc NA)
Others
Profit allocated to material non-controlling interests
Raspadskaya
New CF&I (subsidiary of EVRAZ Inc NA)
Others
$ 170
$ 149
103
(16)
257
74
4
(14)
99
(6)
242
51
1
8
2016
18.05%
10.00%
2016
$ 92
98
(4)
186
23
(3)
7
New CF&I
US$ million
Revenue
Cost of revenue
Gross profit/(loss)
Operating costs
Impairment of assets
Profit/(loss) from operations
Non-operating gains/(losses)
Profit/(loss) before tax
Income tax benefit/(expense)
Net profit/(loss)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to non-controlling interests
dividends paid to non-controlling interests
$ 64
$ 60
$ 27
Summarised statement of financial position as at 31 December
Raspadskaya
US$ million
Property, plant and equipment
Other non-current assets
Current assets
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Total equity
attributable to:
equity holders of parent
non-controlling interests
The summarised financial information regarding these subsidiaries is provided below. This information is based on amounts before inter-company
eliminations.
2018
$ 1,086
(493)
593
(76)
(4)
23
536
5
541
(113)
$ 428
(204)
224
42
–
2017
$ 868
(430)
438
(74)
9
13
386
(21)
365
(75)
2016
$ 503
(306)
197
(67)
(17)
77
190
(31)
159
(33)
$ 290
$ 126
36
326
57
–
90
216
36
–
Summarised statement of profit or loss
Raspadskaya
US$ million
Revenue
Cost of revenue
Gross profit/(loss)
Operating costs
Impairment of assets
Foreign exchange gains/(losses), net
Profit/(loss) from operations
Non-operating gains/(losses)
Profit/(loss) before tax
Income tax benefit/(expense)
Net profit/(loss)
Other comprehensive income/(loss)
Total comprehensive income/(loss)
attributable to non-controlling interests
dividends paid to non-controlling interests
234
2018
$ 808
(690)
118
(88)
(1)
29
19
48
(11)
$ 37
7
44
4
–
2018
$ 831
113
858
1,802
71
23
545
639
1,163
993
170
2017
$ 558
(533)
25
(54)
(2)
(31)
18
(13)
21
$ 8
(3)
5
1
–
2017
$ 1,047
11
590
1,648
72
31
599
702
946
797
149
2016
$ 384
(391)
(7)
(48)
–
(55)
21
(34)
9
$ (25)
(4)
(29)
(3)
–
2016
$ 1,004
30
655
1,689
65
52
952
1,069
620
528
92
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34. List of Subsidiaries and Other Significant Holdings
Summarised statement of financial position as at 31 December (continued)
New CF&I
US$ million
Property, plant and equipment
Other non-current assets
Current assets
Total assets
Deferred income tax liabilities
Non-current liabilities
Current liabilities
Total liabilities
Total equity
attributable to:
equity holders of parent
non-controlling interests
Summarised cash flow information
Raspadskaya
US$ million
Operating activities
Investing activities
Financing activities
New CF&I
US$ million
Operating activities
Investing activities
Financing activities
33. Subsequent Events
Dividends
2018
$ 173
982
199
1,354
12
81
231
324
1,030
927
103
2018
$ 345
(285)
(37)
2018
$ 80
(80)
–
2017
$ 167
921
155
1,243
12
89
156
257
986
887
99
2017
$ 406
19
(413)
2017
$ (16)
16
–
2016
$ 184
957
117
1,258
30
81
166
277
981
883
98
2016
$ 176
(100)
(89)
2016
$ 5
(5)
–
On 27 February 2019, the Board of directors of EVRAZ plc declared an interim dividend for 2019 in the amount of $577 million, which represents $0.40 per
share.
Country
of incorporation
Name
Relationship
effective
ownership
in 2018, % Registered address
Notes
Canada
Canadian National Steel Corporation
indirect subsidiary
100.00%
Canada
Evraz Inc. NA Canada
indirect subsidiary
100.00%
Canada
EVRAZ Materials Recycling Inc.
indirect subsidiary
100.00%
Canada
General Scrap Partnership
indirect subsidiary
100.00%
Canada
Genlandco Inc.
indirect subsidiary
100.00%
Canada
Kar-basher of Alberta Ltd
indirect subsidiary
100.00%
Canada
New Gensubco Inc.
indirect subsidiary
100.00%
Canada
Sametco Auto Inc.
indirect subsidiary
100.00%
Canada
Evraz Wasco Pipe Protection Corporation
indirect subsidiary
51.00%
Canada
Genalta Recycling Inc.
Canada
Kar-basher Manitoba Ltd
Canada
King Crusher Inc.
joint venture
joint venture
joint venture
50.00%
50.00%
50.00%
Actionfield Limited
indirect subsidiary
100.00%
3300 TD Canada Trust Tower, 421-7
Avenue SW, Calgary Alberta T2P 4K9
160 Elgin Street, Suite 2600, Ottawa,
Ontario K1P 1C3
160 Elgin Street, Suite 2600, Ottawa,
Ontario K1P 1C3
387 Broadway, Winnipeg, Manitoba
R3C 0V5
387 Broadway, Winnipeg, Manitoba
R3C 0V5
3300 TD Canada Trust Tower, 421-7
Avenue SW, Calgary, Alberta T2P 4K9
387 Broadway, Winnipeg, Manitoba
R3C 0V5
160 Elgin Street, Suite 2600, Ottawa,
Ontario K1P 1C3
181 Bay Street, Suite 2100, Toronto,
Ontario M5J 2T3
2400, 525 8th Avenue SW
Calgary, Alberta T2P 1G1
387 Broadway, Winnipeg, Manitoba
R3C 0V5
3300 TD Canada Trust Tower, 421-7
Avenue SW, Calgary, Alberta T2P 4K9
3 Themistokli Dervi, Julia House, 1066,
Nicosia
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Drampisco Limited
indirect subsidiary
100.00%
Themistokli Dervi, 3, Julia House, P.C.
1066, Nicosia, Cyprus
sold
East Metals (Cyprus) Limited
indirect subsidiary
100.00%
Fegilton Limited
indirect subsidiary
100.00%
Laybridge Limited
indirect subsidiary
100.00%
Malvero Holdings Limited
indirect subsidiary
–
Mastercroft Finance Limited
indirect subsidiary
100.00%
Nafkratos Limited
indirect subsidiary
100.00%
Sinano Shipmanagement Limited
indirect subsidiary
100.00%
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
Themistokli Dervi, 3, Julia House, P.C.
1066, Nicosia, Cyprus
3 Themistokli Dervi, Julia House, 1066,
Nicosia
100% controlled
through put option
for the purchase
of shares
236
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34. List of Subsidiaries and Other Significant Holdings (continued)
Country
of incorporation
Name
Steeltrade Limited
Relationship
indirect subsidiary
effective
ownership
in 2018, %
100.00%
Registered address
Notes
Country
of incorporation
Name
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Unicroft Limited
indirect subsidiary
100.00%
Velcast Limited
indirect subsidiary
100.00%
Streamcore Limited
RVK Invest Limited
joint venture
associate
50.00%
42.61%
Czech Republic
EVRAZ Nikom, a.s.
indirect subsidiary
100.00%
Italy
Evraz Palini e Bertoli S.r.l
indirect subsidiary
100.00%
Kazakhstan
EvrazMetall Kazakhstan
indirect subsidiary
100.00%
Kazakhstan
Evraz Caspian Steel
indirect subsidiary
65.00%
Luxembourg
Evraz Group S.A.
direct subsidiary
100.00%
Mexico
Evraz NA Mexico
indirect subsidiary
100.00%
3 Themistokli Dervi, Julia House, 1066,
Nicosia
Leoforos Archiepiskopou Makariou lll,
135, EMELLE Building, flat/office 22,
3021, Limassol
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
Czech Republic, Mnisek pod Brdy,
Prazska 900, 25210
via E. Fermi 28, 33058 San Giorgio di
Nogaro (UD)
office 201, 9, shosse Alash,
Saryarkinskiy raion, Astana
41, ul. Promyshlennaya, Kostanai,
110000
13, avenue Monterey, L2163,
Luxembourg
Frida Kahlo 195-709, Valle Оrientе,
San Pedro Garza Garcia, Nuevo Leon,
66269
Netherlands
Netherlands
Palmrose B.V.i.l.
ECS Holdings Europe B.V.
indirect subsidiary
indirect subsidiary
Republic of S.Africa
Evraz Highveld Steel and Vanadium Limited
indirect subsidiary
65.00%
85.11%
100.00%
Hoogoorddreef 15, 1101 BA Amsterdam liquidated
Hoogoorddreef 15, 1101 BA Amsterdam
Old Pretoria Road, Portion 93 of the
Farm Schoongezicht 308 JS eMalahleni
(Witbank)
Old Pretoria Road, Portion 93 of the
Farm Schoongezicht 308 JS eMalahleni
(Witbank)
deconsolidated
in 2015
deconsolidated
in 2015
Portion 93 of the farm Schoongezicht
No.308 JS, eMalahleni
deconsolidated
in 2015
1, ul. Ploshad Pobedy, Novokuznetsk,
Kemerovskaya obl., 654010
office 4, 39, ul. Karl Marks, Nizhny Tagil,
Sverdlovskaya obl., 622001
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
20, Prospect Metallurgov,
Novokuznetsk, Kemerovskaya obl.,
654007
1, ul. Turgeneva, Kachkanar,
Sverdlovskaya obl., 624351
74, ul. Industrialnaya, Nizhny Tagil,
Sverdlovskaya obl., 622025
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
Republic of S.Africa Mapochs Mine (Proprietary) Limited
indirect subsidiary
62.98%
–
–
–
–
–
–
–
–
–
Republic of S.Africa Mapochs Mine Community Trust
indirect subsidiary
Blagotvoritelniy fond Evraza - Sibir
Blagotvoritelniy fond Evraza - Ural
Centr kultury i iskusstva NTMK
Centr podgotovki personala Evraz-Ural
Kulturno-sportivniy centr metallurgov
indirect subsidiary –
non-commercial
indirect subsidiary –
non-commercial
indirect subsidiary –
non-commercial
indirect subsidiary –
non-commercial
indirect subsidiary –
non-commercial
Magnit
indirect subsidiary
Nizhny Tagil Telecompany Telecon
indirect subsidiary
Ohothichie hozyaistvo
indirect subsidiary –
non-commercial
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
238
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Relationship
indirect subsidiary
Regional Media Company
Regionalniy Centr podgotovki personala Evraz-
Sibir
indirect subsidiary - non-
commercial
Sanatoriy-porfilactory Lenevka
Sportivniy complex Uralets
indirect subsidiary - non-
commercial
indirect subsidiary - non-
commercial
Sportivno-Ozdorovitelny complex Metallurg-Forum indirect subsidiary - non-
effective
ownership
in 2018, %
–
–
–
–
–
–
–
commercial
indirect subsidiary
indirect subsidiary
indirect subsidiary
100.00%
TV-Most
TVN
Aktiv-Media
ATP Yuzhkuzbassugol
indirect subsidiary
100.00%
Centr Servisnykh Resheniy
indirect subsidiary
100.00%
Centralnaya Obogatitelnaya Fabrika Kuznetskaya indirect subsidiary
100.00%
Registered address
Notes
4, ul. Belovezhskaya, Moscow, 121353
4, ul. Nevskogo, Novokuznetsk,
Kemerovskaya obl., 654006
Lenevka, Prigorodny raion,
Sverdlovskaya obl., 622911
36, Gvardeisky bulvar, Nizhny Tagil,
Sverdlovskaya obl, 622005
office 26; 61, ul. Krasnogvardeiskaya,
Nizhny Tagil, Sverdlovskaya obl.,
622013
office 164, 31, Moscovsky prospect,
Kemerovo, 650065
35, ul. Ordzhonikidze, Novokuznetsk,
Kemerovskaya obl., 654007
Office 6, 35, ul. Ordzhonikidze,
Novokuznetsk, Kemerovskaya obl.,
654007
20, Silikatnaya, Novokuznetsk,
Kemerovskaya obl., 654086
1, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
16, Shosse Severnoe, Novokuznetsk,
Kemerovskaya obl., 654000
16, ul. Shosse Kosmicheskoe,
Novokuznetsk, Kemerovskaya obl.,
654043
2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624351
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
4, ul.Entuziastov, kvartal 5 Pyatiletka,
Uzlovaya, Tulskaya obl., 301600
2B, ul. Khlebozavodskaya,
Novokuznetsk, Kemerovskaya obl.,
654006
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
controlled through
put option for
the purchase of
shares of Malvero
Holdings Limited
Consortium Tuvinskie dorogi
Evraz Consolidated West-Siberian metallurgical
Plant
indirect subsidiary
indirect subsidiary
100.00%
100.00%
4, ul. Belovezhskaya, Moscow, 121353
merged
EVRAZ Kachkanarsky Ore Mining and Processing
Plant
indirect subsidiary
100.00%
Evraz Nizhny Tagil Metallurgical Plant
indirect subsidiary
100.00%
EVRAZ Uzlovaya
indirect subsidiary
100.00%
EVRAZ Vanady Tula
EvrazEK
indirect subsidiary
indirect subsidiary
100.00%
100.00%
1, ul. Przhevalskogo, Tula, 300016
Russia
Evrazenergotrans
indirect subsidiary
50.00%
Russia
Russia
Russia
Russia
EvrazHolding Finance
indirect subsidiary
100.00%
62, ul. Internationalnaya, Kyzyl, Tyva
Republic, 667000
EvrazHolding LLC
EvrazMetall Sibir
Evrazruda
indirect subsidiary
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
100.00%
30, Shosse Severnoe, Novokuznetsk,
Kemerovskaya obl., 654043
indirect subsidiary
100.00%
21, ul. Lenina, Tashtagol, Kemerovskaya
obl., 652990
merged
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34. List of Subsidiaries and Other Significant Holdings (continued)
Country
of incorporation
Name
EvrazService
Evraztekhnika
Gurievsky rudnik
Relationship
indirect subsidiary
indirect subsidiary
indirect subsidiary
effective
ownership
in 2018, %
Registered address
Notes
100.00%
4, ul. Belovezhskaya, Moscow, 121353
100.00%
4, ul. Belovezhskaya, Moscow, 121353
100.00%
1, ul. Zhdanova, Gurievsk,
Kemerovskaya obl., 652780
Country
of incorporation
Name
Trade Company EvrazHolding
Trade House EvrazHolding
United accounting systems
Relationship
indirect subsidiary
indirect subsidiary
indirect subsidiary
effective
ownership
in 2018, %
Registered address
Notes
100.00%
4, ul. Belovezhskaya, Moscow, 121353
100.00%
4, ul. Belovezhskaya, Moscow, 121353
merged
100.00%
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Industrialnaya Vostochno-Evropeiskaya company
indirect subsidiary
100.00%
Kachkanarskaya teplosnabzhauschaya company
indirect subsidiary
100.00%
Kuznetskteplosbyt
indirect subsidiary
100.00%
Managing Company EVRAZ Mezhdurechensk
indirect subsidiary
100.00%
Medsanchast Vanady
indirect subsidiary
100.00%
Metallenergofinance
indirect subsidiary
100.00%
Mezhegeyugol Coal Company
indirect subsidiary
100.00%
Mine Abashevskaya
indirect subsidiary
100.00%
Mine Alardinskaya
indirect subsidiary
100.00%
Mine Esaulskaya
indirect subsidiary
100.00%
Mine Osinnikovskaya
indirect subsidiary
100.00%
Mine Uskovskaya
indirect subsidiary
100.00%
Parus
Promuglepoject
Rembytcomplex
Sfera
indirect subsidiary
100.00%
indirect subsidiary
100.00%
indirect subsidiary
100.00%
indirect subsidiary
100.00%
9, ul. Khimicheskaya, Taganrog,
Rostovskaya obl., 347913
17, 8 microraion, Kachkanar,
Sverdlovskaya obl., 624350
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
69, ul. Kirova, Novokuznetsk,
Kemerovskaya obl., 654080
1, Zeleny Mys district, Kachkanar,
Sverdlovskaya obl., 624350
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
62, ul. Internationalnaya, Kyzyl, Tyva
Republic, 667000
5, ul. Kavkazskaya, Novokuznetsk,
Kemerovskaya obl., 654013
56, ul. Ugolnaya, Malinovka, Kaltan,
Kemerovskaya obl., 652831
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654006
3, ul. Shakhtovaya, Osinniki,
Kemerovskaya obl., 654006
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654006
office 3; 51, ul. Industrialnaya, Nizhny
Tagil, Sverdlovskaya obl., 622025
4, ul. Nevskogo, Novokuznetsk,
Kemerovskaya obl., 654006
8, 8 microraion, Kachkanar,
Sverdlovskaya obl., 624351
office 315; 205, ul. 8 Marta,
Ekaterinburg, Sverdlovskaya obl.,
620085
Office 10; 1, 1st km of Rublevo-
Uspenskoye shosse, der. Razdory,
Odintsovo area, Moscow region,
143082
67, Prospect Lenina, Nizhny Tagil,
Sverdlovskaya obl., 622034
Russia
Sibmetinvest
indirect subsidiary
100.00%
Russia
Tagilteplosbyt
indirect subsidiary
100.00%
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
United Coal Company Yuzhkuzbassugol
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%
Yuzhno-Kuzbasskoye geologorazvedochnoye
upravlenie
indirect subsidiary
100.00%
Evraz Yuzhny Stan
indirect subsidiary
100.00%
Evraz Metall Inprom
indirect subsidiary
100.00%
Brianskmetallresursy
Mordovmetallotorg
indirect subsidiary
indirect subsidiary
99.96%
99.90%
Uliyanovskmetall
indirect subsidiary
99.37%
Vladimirmetallopttorg
Kuznetskpogruztrans
indirect subsidiary
indirect subsidiary
95.63%
94.50%
Centralnaya Obogatitelnaya Fabrika
Abashevskaya
Elekrosvyaz YKU
Metallurg-Forum
indirect subsidiary
92.10%
indirect subsidiary
87.20%
indirect subsidiary
85.23%
Osinnikovsky remontno-mekhanichesky zavod
indirect subsidiary
84.43%
Montazhnik Raspadskoy
indirect subsidiary
83.84%
Olzherasskoye shakhtoprokhodcheskoye
upravlenie
indirect subsidiary
83.84%
office 205; 1, ul. Rudokoprovaya,
Novokuznetsk, Kemerovskaya obl.,
654006
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654006
3, ul. Shakhtovaya, Osinniki,
Kemerovskaya obl., 652807
11a, 10 microraion, Kachkanar,
Sverdlovskaya obl., 624351
2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624351
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654006
1, ul. Zarechnaya, rabochy poselok
Ust-Donetsky, Ust-Donetsky raion,
Rostovskaya obl., 346550
2-a, ul. Marshala Zhukova, Taganrog,
Rostovskaya obl., 347942
14, ul. Staleliteinaya, Bryansk, 241035
39, Aleksandrovskoe Shosse, Saransk,
Respublica Mordovia, 430006
20, 11 proezd Inzhenerny, Ulyanovsk,
432072
57, ul. P. Osipenko, Vladimir, 600009
18, ul. Promyshlennaya, Novokuznetsk,
Kemerovskaya obl., 654029
12, Tupik Strelochny, Novokuznetsk,
Kemerovskaya obl., 654086
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654006
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
1/2, ul. Pervogornaya, Osinniki,
Kemerovskaya obl., 652804
office 408; 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
office 331; 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
liquidated
240
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34. List of Subsidiaries and Other Significant Holdings (continued)
Country
of incorporation
Russia
Russia
Name
Raspadskaya
Relationship
indirect subsidiary
effective
ownership
in 2018, %
83.84%
Raspadskaya Coal Company
indirect subsidiary
83.84%
Russia
Raspadskaya Preparation Plant
indirect subsidiary
83.84%
Russia
Raspadskaya-Koksovaya
indirect subsidiary
83.84%
Russia
Razrez Raspadskiy
indirect subsidiary
83.84%
Specializirovannoye Shakhtomontazhno-
naladochnoye upravlenie
indirect subsidiary
49.64%
Mining Metallurgical Company “Timir”
joint venture
51.00%
AVT-Ural
Sibir-VK
Vtorresurs-Pererabotka
indirect subsidiary
51.00%
joint venture
joint venture
Zavod metallurgicheskih reagentov
associate
Novokuznetskmetallopttorg
associate
Tomusinskoye pogruzochno-transportnoye
upravlenie
indirect subsidiary
49.12%
ZAO Irkutskvtorchermet
ZAO Vtorchermet
associate
associate
Sibirskaya registratsionnaya company
investment
Singapore
Delong Holdings Limited
investment
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Registered address
Notes
106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
office 201; 33, Prospect Kurako,
Novokuznetsk, Kemerovskaya obl.,
654006
office 203; 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
office 424; 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
office 213; 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
28, proezd Zaschitny, Novokuznetsk,
Kemerovskaya obl., 654034
4, Prospect Geologov, Neryungri,
Republic of Saha (Yakutia), 678960
2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624351
37A, ul. Kutuzova, Novokuznetsk,
Kemerovskaya obl., 654041
37A, ul. Kutuzova, Novokuznetsk,
Kemerovskaya obl., 654041
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
16, ul. Chaikinoi, Novokuznetsk,
Kemerovskaya obl., 654005
office 209; 106, ul. Mira,
Mezhdurechensk, Kemerovskaya
obl.,652870
office 212, bld. ZAO Vtorchermet, ul.
Severny Promuzel, Irkutsk, 664053
office 211, bld. ZAO Vtorchermet, ul.
Severny promuzel, Irkutsk, 664053
57, Prospect Stroiteley, Novokuznetsk,
Kemerovskaya obl., 654005
55 Market Street
Level 10
Singapore 048941
controlled through
put option for the
purchase of shares
of Malvero
Holdings Limited
sold
50.00%
50.00%
50.00%
48.51%
42.61%
42.61%
10.30%
15.04%
Switzerland
Switzerland
Ukraine
East Metals A.G.
East Metals Shipping A.G.
Evraz Ukraine
indirect subsidiary
indirect subsidiary
indirect subsidiary
100.00%
Baarerstrasse 131, 6300 Zug
100.00%
Baarerstrasse 131, 6300 Zug
100.00%
31, ul. Udarnikov, Dnepr,
Dnepropetrovskaya obl., 49064
Ukraine
Evraztrans Ukraine
indirect subsidiary
100.00%
Ukraine
LK Adzhalyk
indirect subsidiary
100.00%
Ukraine
United accounting systems Ukraine
indirect subsidiary
100.00%
office 512, 93, ul. Yavornitskogo, Dnepr,
Dnepropetrovskaya obl., 49000
kv.97, 1, Prospekt Pravdy, Kharkov,
61022
sold
3, ul. Mayakovskogo, Dnepr,
Dnepropetrovskaya obl., 49064
Country
of incorporation
Name
Relationship
Ukraine
Evraz Dneprovsky Metallurgical Plant
indirect subsidiary
effective
ownership
in 2018, %
97.73%
Ukraine
Trade House Evraz Ukraine
indirect subsidiary
97.73%
United Kingdom
Evraz North America plc
indirect subsidiary
100.00%
Camrose Pipe Corporation
indirect subsidiary
100.00%
East Metals North America, LLC
indirect subsidiary
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%
Notes
sold
sold
Registered address
3, ul. Mayakovskogo, Dnepr,
Dnepropetrovskaya obl., 49064
31, ul. Udarnikov, Dnepr,
Dnepropetrovskaya obl., 49064
Suite 1, 3rd Floor,
11-12 St James’s Square
London
SW1 4LB
9040 N.Burgard Way, Portland,
OR 97203
200 East Randolph Drive
Suite 7800
Chicago, IL 60601
200 East Randolph Drive
Suite 7800
Chicago, IL 60601
200 East Randolph Drive
Suite 7800
Chicago, IL 60601
200 East Randolph Drive
Suite 7800
Chicago, IL 60601
4285 Malvern Road, Hot Springs, AR
71901
200 East Randolph Drive
Suite 7800
Chicago, IL 60601
200 East Randolph Drive
Suite 7800
Chicago, IL 60601
200 East Randolph Drive
Suite 7800
Chicago, IL 60601
General Scrap Inc.
Oregon Steel Mills Processing Inc.
indirect subsidiary
indirect subsidiary
100.00%
100.00%
3101 Valley Street Minot, ND 58702
OSM Distribution Inc.
indirect subsidiary
100.00%
CF&I Steel LP
Palmer North America LLC
indirect subsidiary
indirect subsidiary
Colorado and Wyoming Railway Company
New CF&I Inc.
Oregon Ferroalloy Partners
indirect subsidiary
indirect subsidiary
indirect subsidiary
Union Ditch and Water Co.
indirect subsidiary
Fremont County Irrigating Ditch Co.
investment
90.00%
90.00%
90.00%
90.00%
60.00%
57.59%
13.50%
1612 E Abriendo Pueblo, CO 81004
200 East Randolph Drive
Suite 7800
Chicago, IL 60601
2100 S. Freeway Pueblo, CO 81004
1612 E Abriendo Pueblo, CO 81004
14400 Rivergate Blvd. Portland, OR
97203
113 W. 5th Street Florence, CO 81226
113 W. 5th Street Florence, CO 81226
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
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Separate Financial Statements for
the year ended 31 December 2018
Separate Statement of Comprehensive Income
Separate Statement of Financial Position
In millions of US dollars
In millions of US dollars
General and administrative expenses
Operating income
Reversal of impairment of investments
Foreign exchange gains/(losses)
Interest expense
Other non-operating losses
Profit/(loss) before tax
Current income tax expense
Net profit/(loss)
Total comprehensive income/(loss)
Notes
6
3
3,4,6
3,6,7
9
8
31 December
2018
$ (10)
6
–
164
(66)
–
94
(14)
80
$ 80
2017
$ (9)
7
6
(1)
(19)
(1)
(17)
–
(17)
$ (17)
ASSETS
Non–current assets
Investments in subsidiaries
Investments in joint ventures
Receivables from related parties
Current assets
Receivables from related parties
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
Income tax payable
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Notes
31 December
2018
3
3
6
6
4
4
4
4
5
7
6
6
3,7
6
6
6
8
$ 3,197
24
21
3,242
12
3,254
75
(196)
(584)
127
149
1,393
964
14
724
21
759
14
–
1,493
10
14
1,531
2,290
2017
$ 3,182
24
17
3,223
10
3,233
1,507
(231)
(584)
127
134
1,472
2,425
27
630
17
674
17
1
108
8
–
134
808
$ 3,254
$ 3,233
The Financial Statements on pages 244–257 were approved by the Board of Directors on 27 February 2019 and signed on its behalf by Alexander Frolov,
Chief Executive Officer.
The accompanying notes form an integral part of these separate financial statements.
The accompanying notes form an integral part of these separate financial statements.
244
245
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In millions of US dollars
Cash flows from operating activities
Net profit/(loss)
Adjustments to reconcile net loss to net cash flows from operating activities:
Operating income
Reversal of impairment
Foreign exchange (gains)/losses
Interest expense
Other non-operating losses
Changes in working capital:
Receivables from related parties
Trade and other payables
Tax payable
Net cash flow used in operating activities
Cash flows from financing activities
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
Net cash flow from financing activities
Effect of foreign exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Supplementary cash flow information:
Interest paid
Notes
6
3
3,4,6
3,6,7
9
6
7
4
6
6
3
2018
$ 80
(6)
–
(164)
66
–
(24)
5
(6)
14
(11)
(1,556)
2,976
(1,396)
(11)
13
(2)
–
–
$ –
(34)
2017
$ (17)
(7)
(6)
1
19
1
(9)
11
(8)
–
(6)
(430)
662
(217)
(11)
4
–
(2)
2
$ –
(17)
Separate Statement of Changes in Equity
In millions of US dollars
At 31 December 2016
$ 1,507
$ (270)
$ (584)
$ 127
$ 117
$ 1,958
$ 2,855
Notes
Issued
capital
Treasury
shares
Reorganisation
reserve
Merger
reserve
Share-based
payments
Accumulated
profits
Total
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
Total comprehensive income
for the year
Share-based payments
Dividends declared
Reduction of share capital
Transfer of treasury shares to
participants of the Incentive Plans
5
4
4
5
4
4
4
–
–
–
–
–
–
–
39
–
–
–
–
–
–
–
–
–
17
–
–
(17)
–
(430)
(39)
(17)
17
(430)
–
$ 1,507
$ (231)
$ (584)
$ 127
$ 134
$ 1,472
$ 2,425
–
–
–
(1,432)
–
–
–
–
–
35
–
–
–
–
–
–
–
–
–
–
–
15
–
–
–
80
–
(1,556)
1,432
(35)
80
15
(1,556)
–
–
At 31 December 2018
$ 75
$ (196)
$ (584)
$ 127
$ 149
$ 1,393
$ 964
The accompanying notes form an integral part of these separate financial statements.
The accompanying notes form an integral part of these separate financial statements.
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Notes to the separate financial statements
EVRAZ plc Notes to the Separate Financial Statements
For the year ended 31 December 2018
1. Corporate Information
2. Significant Accounting Policies (continued)
These separate financial statements were authorised for issue by the Board of Directors of EVRAZ plc on 27 February 2019.
Investments
EVRAZ plc (“EVRAZ plc” or “the Company”) was incorporated on 23 September 2011 as a public company limited by shares under the laws of the United
Kingdom. The Company was incorporated under the Companies Act 2006 with the registered number in England 7784342. The Company’s registered office
is at 5th Floor, 6 St. Andrew Street, London, EC4A 3AE, United Kingdom.
The Company, together with its subsidiaries (the “Group”), is involved in the production and distribution of steel and related products, vanadium products
and coal and iron ore mining. The Group is one of the largest steel producers globally.
Until 3 September 2018 Lanebrook Limited (“Lanebrook”) registered in Cyprus was the ultimate controlling party of the Group. On that date Lanebrook
distributed all its ownership interest in EVRAZ plc to its direct shareholders in proportion to their holdings in Lanebrook. At 31 December 2018, EVRAZ plc
is jointly controlled by a group of 3 shareholders: Greenleas International Holdings Limited (BVI), Abiglaze Limited (Cyprus) and Crosland Global Limited
(Cyprus).
2. Significant Accounting Policies
Basis of Preparation
Investments in subsidiaries, associates or joint ventures are initially recorded at acquisition cost. Write–downs are recorded if, in the opinion
of the management, there is any impairment in value.
The initial cost of the investment in Evraz Group S.A. was measured at the carrying amount of the equity items of Evraz Group S.A. as a separate legal entity
at the date of the reorganisation (Note 3).
Dividend income is recognised as revenue when the Company’s right to receive the payment is established.
All purchases and sales of investments are recognised on the settlement date, which is the date when the investment is delivered to or by the Company.
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
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the European Union
and in accordance with the Companies Act 2006.
Borrowings are initially recognised at fair value, net of directly attributable transaction costs. After initial recognition, borrowings are measured at amortised
cost using the effective interest rate method; any difference between the amount initially recognised and the redemption amount is recognised as interest
expense over the period of the borrowings.
International Financial Reporting Standards are issued by the International Accounting Standard Board (“IASB”). IFRSs that are mandatory for application
as of 31 December 2018, but not adopted by the European Union, are not expected to have a significant impact on the Company’s financial statements.
Provisions
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.
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, and when it is probable that
an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount
of the obligation. Where the Company expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised
as a separate asset but only when the reimbursement is virtually certain.
Financial Guarantee Liabilities
Financial guarantee liabilities issued by the Company are those contracts that require a payment to be made to reimburse the incurred losses because
the specified debtor or counterparty to a contract fails to make payments or to perform the agreed terms of a contract. Financial guarantees issued
by the Company 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.
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3. Investments in Subsidiaries and Joint Ventures (continued)
Investments in subsidiaries and joint ventures consisted of the following as of 31 December:
OJSC Mining and Metallurgical Company Timir (continued)
Subsidiaries
Evraz Group S.A.
Joint Ventures
Timir
The movement in investments was as follows:
$US million
31 December 2016
Share-based compensations
Impairment loss (recognition)/reversal
31 December 2017
Share-based compensations
31 December 2018
Evraz Group S.A.
Ownership interest
Cost, net of impairment US$ million
2018
100%
2017
100%
51.00001%
51.00001%
2018
3,197
24
Evraz Group S.A.
$ 3,165
17
–
$ 3,182
15
$ 3,197
Timir
$ 18
–
6
$ 24
–
$ 24
2017
3,182
24
Total
$ 3,183
17
6
$ 3,206
15
$ 3,221
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.
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 2018 and 2017, such share-based compensations amounted to $15 million and $17 million, respectively.
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 Yakutia 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 2018 and 2017, the Company recognised interest charges on deferred installments of $1 million and $2 million, respectively, within interest expense.
In 2018 and 2017, the Company paid 500 million roubles ($9 million and $8 million, respectively) of purchase consideration and $2 million and $3 million,
respectively, of interest charges.
At 31 December 2018 and 2017, trade and other accounts payable included liabilities relating to this acquisition in the amount of $8 million and $19 million,
respectively.
Due to the postponement of the major project activities, the Company assessed the recoverability of its investment in Timir at 30 September 2017 (in 2018
there were no indicators of impairment). 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 rate was 11.56%. In 2017, the long-term prices for iron ore were revised and this led to a partial reversal of impairment
of $6 million.
Additional information regarding Timir is provided in 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 34 of the consolidated financial statements.
4. Equity
Share Capital
Number of shares
Ordinary shares of $0.05 each, issued and fully paid
Ordinary shares of $1.00 each, issued and fully paid
EVRAZ plc does not have an authorised limit on its share capital.
31 December
2018
1,506,527,294
2017
–
–
1,506,527,294
On 10 July 2018 the High Court of England and Wales approved the reduction of the nominal value of each share from $1.00 to $0.05. The amount
of the cancelled share capital amounting to $1,432 million increased the Company’s distributable reserves.
Treasury Shares
Number of shares
Treasury shares
31 December
2018
2017
63,177,187
74,474,663
In 2015, EVRAZ plc purchased 108,458,508 of its own shares. These shares are used for the Company’s Incentive Plans (Note 21 of the consolidated
financial statements). Under these plans, in 2018 and 2017, the Company transferred to the participants of Incentive Plans 11,297,476
and 12,541,215 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.
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Merger Reserve
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.
The merger reserve arose in 2013 in connection with the purchase of 50% in Corber Enterprises S.à r.l. (“Corber”) in accordance with section 612
of the Companies Act 2006. Impairments of the carrying value of this investment were transferred to the merger reserve.
Loans received from Related Parties
In 2015, the disposal of the investment in Corber to Evraz Group S.A. (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 2018 and 2017, the Company declared dividends in the amount of $1,556 million and $430 million, respectively (Note 20 of the consolidated financial
statements).
Distributable Reserves
$US million
Accumulated profits
Reorganisation reserve
31 December
5. Share-based Payments
2018
1,393
(584)
809
2017
1,472
(584)
888
As disclosed in Note 21 of the consolidated financial statements, the Group has incentive plans under which certain employees (“participants”) can be gifted
shares of the Company.
In 2018 and 2017, the Company recognised share-based compensation expense amounting to $15 million and $17 million, respectively, as a cost
of investment in Evraz Group S.A. with a corresponding increase in equity.
The following movements in loans payable to related parties were in 2017-2018.
US$ million
Currency
Interest rate
Maturity
Balance at
31 December
2017
Loans received
from related
parties
Interest
expense
Repayment
of loans
Forex (gain)/
loss
Balance at
31 December
2018
Direct subsidiary
Evraz Group S.A.
Indirect subsidiaries
East Metals A.G
EVRAZ KGOK
EVRAZ Vanady Tula
EVRAZ ZSMK
USD
USD
RUB
RUB
RUB
3.50%
2020
2.73-5.06%
2018-2020
5.89%
2019-2020
5.51-5.89%
2019
5.51-5.89%
2019-2021
$ −
738
−
−
−
$ 738
$ 92
$ 1
$ (93)
552
664
257
1,411
$ 2,976
16
10
4
33
(1,244)
−
(1)
(58)
$ 64
$ (1,396)
$ −
−
(26)
(16)
$ −
62
648
244
(123)
$ (165)
1,263
$ 2,217
US$ million
Currency
Interest rate
Maturity
Balance at
31 December
2016
Loans received
from related
parties
Interest
expense
Repayment of
loans
Forex (gain)/
loss
Balance at
31 December
2017
Indirect subsidiaries
Evrazholding Finance
East Metals A.G.
USD
USD
6.31%
2021
$ 203
2.73-3.75%
2018-2020
74
$ −
662
$ 277
$ 662
$ 4
12
$ 16
$ (207)
(10)
$ (217)
$ −
−
$ −
738
$ −
$ $ 738
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Separate Financial StatementsEVRAZ plc Separate Financial StatementsNotes to the separate financial statements (continued)Notes to the separate financial statements (continued) 6. Related Party Transactions (continued)
Guarantees
In 2014-2017, 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 $1,061 million at 31 December 2018 (2017: $1,772 million). The loans are due for repayment during the period
from 2021 to 2023. The Company earns guarantee fees in respect of these guarantees and in 2018 it accrued $3 million of such income (2017: $5 million).
In addition, in 2018 the Company accrued $1 million of guarantee fees (2017: $1 million) for the issued guarantees to several banks for liabilities of East
Metals A.G amounting to $86 million as of 31 December 2018 (2017: $66 million).
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.
In 2018, the Company issued a guarantee to nine companies owned by Sibuglemet to compensate any direct losses caused by the failure to perform
the agreed management services provided by Management Company Mezhdurechensk, an indirect subsidiary of the Company, to these entities (Note 30
of the consolidated financial statements). The Company accrued $2 million income in respect of this guarantee. In 2018 the Company recognised financial
guarantee liability of $18 million.
The above guarantees are recognised at fair value in the statement of financial position of the Company. The guarantee fees are recorded within the Operating
income caption of the Company’s income statement.
Other Transactions
In 2018, OOO Evrazholding, an indirect subsidiary of the Company, rendered consulting services to the Company in the amount of $1 million
(2017: $1 million).
At 31 December 2017, the Company owed $1 million to Evraz Inc North America, an indirect subsidiary of the Company. This balance was fully settled in 2018.
Other disclosures on directors’ remuneration required by Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts & Reports) regulations
2008 and those specified for audit by the Directors’ Remuneration Report Regulations 2002 are included in the Directors’ Remuneration Report.
7. Trade and other payables
Trade and other accounts payable included the following at 31 December:
US$ million
Liability relating to a settlement of guarantee
Payables for the acquisition of Timir (Note 3)
2018
2017
Non-current
Current
Non-current
Current
$ 14
–
$ 14
$ 6
8
$ 14
$ 19
8
$ 27
$ 6
11
$ 17
At 31 December 2018 and 2017, trade and other accounts payable included liabilities 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 2018, the Company paid $6 million (2017: $7 million) in respect
of this liability and recognised interest expense of $1 million (2017: $1 million).
8. Income Taxes
A reconciliation of income tax expense applicable to profit before income tax using the statutory tax rate to income tax expense as reported in the Company’s
financial statements for the years ended 31 December is as follows:
US$ million
Profit/(loss) before income tax
At the statutory income tax rate of 19%
Allowance for deferred tax asset
Benefit arising from a previously unrecognised tax loss of a prior period that is used
to reduce current tax expense
Current income tax expense
9. Other Non-operating Losses
2018
$ 94
(18)
–
4
$ (14)
2017
$ (17)
3
(3)
–
$ –
In 2017, other non-operating expenses represented $1 million of transaction costs paid by the Company for the sale of EVRAZ Nakhodka Trade Sea Port,
an indirect subsidiary of the Company.
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Separate Financial StatementsEVRAZ plc Separate Financial StatementsNotes to the separate financial statements (continued)Notes to the separate financial statements (continued) 10. Financial Instruments
Liquidity Risk
The following tables summarise the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments, including interest
payments.
10. Financial Instruments (continued)
Market Risk
Currency Risk
31 December 2018
US$ million
Fixed-rate debt
Loans payable to related parties
Principal
Interest
Trade and other payables
Principal
Interest
Financial guarantees
Total fixed-rate debt
31 December 2017
US$ million
Fixed-rate debt
Loans payable to related parties
Principal
Interest
Trade and other payables
Principal
Interest
Financial guarantees
Total fixed-rate debt
Non-interest bearing debt
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
$ –
$ 251
$ 1,209
–
–
–
–
7
10
1
–
103
3
–
10
$ 557
23
7
–
7
$ 167
$ –
$ 2,184
7
8
–
10
–
–
–
4
140
28
1
31
$ –
$ 269
$ 1,325
$ 594
$ 192
$ 4
$ 2,384
The Company’s exposure to currency risk determined as the net monetary position in the respective currencies was as follows at 31 December:
US$ million
USD/RUB
Sensitivity Analysis
2018
$ 2,162
2017
$ 19
The following table demonstrates the sensitivity to reasonably possible changes in the respective currencies, with all other variables held constant,
of the Company’s profit before tax. In estimating reasonably possible changes the Company assessed the volatility of foreign exchange rates during
the reporting periods.
2018
2017
Change in exchange
rate
Effect on PBT
Change in exchange
rate
Effect on PBT
%
US$ millions
%
US$ millions
(13.87)
13.87
(348)
263
(10.01)
10.01
(2)
2
On demand
Less than
3 months
3 to
12 months
1 to 2 years
2 to 5 years
After 5 years
Total
USD/RUB
Fair Value of Financial Instruments
$ –
–
–
–
–
–
1
1
$ –
–
12
2
–
14
–
–
$ 102
$ 430
$ 200
$ –
$ 732
The carrying amounts of financial instruments, such as cash, accounts receivable and payable, loans payable to related parties, approximate their fair value.
7
3
–
8
120
–
–
18
15
1
7
471
–
–
18
14
–
10
242
–
–
–
–
–
–
–
–
–
–
43
44
3
25
847
1
1
11. Subsequent Events
Material events after the reporting year are disclosed in Note 33 of the consolidated financial statements.
$ 1
$ 14
$ 120
$ 471
$ 242
$ –
$ 848
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www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFINANCIAL STATEMENTSAdditional informationEVRAZ plc Separate Financial StatementsEVRAZ plc Separate Financial StatementsNotes to the separate financial statements (continued)Notes to the separate financial statements (continued) Additional
information
Stock performance indicators and
shareholder information
Definitions of selected alternative
performance measures
Shareholder structure
Ultimate beneficial owners,
% of voting rights2
Roman Abramovich3
Alexander Abramov4
Alexander Frolov4
Gennady Kozovoy5
Free-float
30.52
20.69
10.33
5.80
32.66
2 The 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).
2 The number of shares as per TR-1 Form: Notification of major
interest in shares dated 4 September 2018.
2 The number of shares as per TR-1 Form: Notification of major
interest in shares dated 24 December 2018.
2 The number of shares is as per TR-1 Form: Notification of major
interest in shares dated 6 February 2013. For Mr Kozovoy, includes
shares held directly.
Information about shares of
EVRAZ plc
The Company’s issued share capital
as of 31 December 2018 and 27 February 2019
was 1,506,527,294 ordinary shares, of which
63,176,4751 shares are held in Treasury.
Therefore, the total number of voting rightsin
the Company is 1,443,350,819.
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
Relative share price dynamics in 2018, 52w
200
150
100
50
02.01.2018 02.02.2018 02.03.2018 02.04.2018 02.05.2018 02.06.2018 02.07.2018 02.08.2018 02.09.2018 02.10.2018 02.11.2018 02.12.2018
EVRAZ PLC
FTSE 350 MINING INDEX
FTSE 100 INDEX
Unsolicited telephone calls
and correspondence
Shareholders are advised to be wary
of any unsolicited advice, offers to buy
shares at a discount, or offers of free reports
about the Company. These are typically
from overseas-based ‘brokers’ who target US
or UK shareholders, offering to sell them what
often turns out to be worthless or high risk
shares.
These operations are commonly known as ‘boiler
rooms’ and the ‘brokers’ can be very persistent
and extremely persuasive.
If you receive any unsolicited investment advice:
▪ Make sure you get the correct name
of the person and organisation
▪ Check that they are properly authorised
by the FSA before getting involved by visiting
www.fsa.gov.uk/fsaregister and contacting
the firm using the details on the register
▪ Report the matter to the FSA either by calling
0845 606 1234 or visiting www.fsa.gov.uk/
scams
▪ If the calls persist, hang up
Details of any share dealing facilities that
the company endorses will be included
in Company mailings.
Electronic shareholder
communications
EVRAZ uses its website www.evraz.com as its
primary means of communication with its
shareholders provided that the shareholder
has agreed or is deemed to have agreed that
communications may be sent or supplied in that
manner in accordance with the Companies
Act 2006. Electronic communications allow
shareholders to access information instantly
as well as helping EVRAZ reduce its costs and its
impact on the environment. Shareholders
can sign up for electronic communications
via Computershare’s Investor Centre website
at www.investorcentre.co.uk. Shareholders
that have consented or are deemed to have
consented to electronic communications can
revoke their consent at any time by contacting
the Company’s registrar, Computershare.
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 this report in understanding the activity taking
place across the Group’s portfolio.
EBITDA
EBITDA is determined as a segment’s profit/(loss)
from operations adjusted for social and social
infrastructure maintenance expenses, impairment
of assets, profit/(loss) on disposal of property,
plant and equipment and intangible assets,
foreign exchange gains/(losses) and depreciation,
depletion and amortisation expense.
See Note 3 of the consolidated financial
statement for additional information
and reconciliation with IFRS financial statements.
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.
Total debt
Total debt represents the nominal value of loans
and borrowings plus unpaid interest, finance
lease liabilities, loans of assets classified as held
for sale, and the nominal effect of cross-currency
swaps on principal of rouble-denominated
notes. Total debt is not a measure under IFRS
and should not be considered as an alternative
to other measures of financial position. EVRAZ
calculation of total debt may be different
from the calculation used by other companies
and therefore comparability may be limited. The
current calculation is different from that used
for covenant compliance calculations.
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.
Cash and short-term bank deposits calculation, US$ million
Free Cash Flow
Cash and cash equivalents
Cash and short-term bank deposits
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.
Calculation of total debt, US$ million
Long-term loans, net of current portion
Short-term loans and current portion of
long-term loans
Add back: Unamortised debt issue costs
and fair value adjustment to liabilities
assumed in business combination
Nominal effect of cross-currency swaps
on principal of rouble-denominated notes
Finance lease liabilities, including current
portion
Total debt
Calculation of net debt, US$ million
Cash and short-term bank
deposits
Cash and short-term bank deposits
is not a measure under IFRS and should not be
Total debt
Cash and cash equivalents
Net debt
31 December
2018
1,067
1,067
31 December
2017
1,466
1,466
Change
(399)
(399)
Change, %
(27.2)
(27.2)
31 December
2018
4,186
377
31 December
2017
5,243
148
Change
(1,057)
229
Change, %
(20.2)
n/a
20
49
6
28
5
8
(8)
44
(2)
(28.6)
n/a
(25.0)
4,638
5,432
(794)
(14.6)
31 December
2018
4,638
(1,067)
3,571
31 December
2017
5,432
(1,466)
3,966
Change
(794)
399
(395)
Change, %
(14.6)
(27.2)
(10.0)
1 The number of shares differs from the figure in the Financial statements by the amount of shares held in Trust.
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Annual report& accounts2018www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFinancial statementsADDITIONAL INFORMATION CAPEX
Capital expenditure (CAPEX) is cash expenditure
on property, plant and equipment. For internal
reporting and analysis, CAPEX includes non-cash
transactions related to CAPEX.
Labor productivity, US$/t
P=S/V
S — Labor Costs (asset and A-category
subsidiaries), exclusive of tax, local currency
(on Division consolidation sites with different
currencies, $)
V — production volume, tn. (for steel assets:
V — metal products shipped)
LTIFR
The KPI is calculated on a year-to-date basis
for the company employees only.
LTIFR = X•1000000/Y
X is the total number of occupational injuries
resulted in lost time among the company
employees in the reporting period. Fatalities
are not included.
Y is the actual total number of man-
hours worked by all company employees
in the reporting period.
Semi-finished products cash
costs, US$/t
Cash cost of semi-finished products is defined
as the production cost less depreciation,
Calculation of CAPEX, US$ million
Purchases of property, plant and
equipment and intangible assets
Non-cash purchases (Note 12)
CAPEX
31 December
2018
521
31 December
2017
595
6
527
8
603
Change
Change, %
(75)
(2)
(76)
(12.6)
(25.0)
(12.6)
the result is divided by production volumes
of steel semi-products. Raw materials
from EVRAZ coal and iron ore producers
are accounted for on at-cost-basis. Costs
of semi-finished steel products of EVRAZ NTMK,
EVRAZ ZSMK are then weighted averaged
by the total saleable semi-finished products
production volume.
Coking coal concentrate cash
cost, US$/t
Cash cost of coking coal concentrate is defined
as cost of revenues less depreciation and SG&A,
the result is divided by sales volumes.
Iron ore products cash cost,
US$/t
Cash cost of iron ore products is defined
as cost of revenues less depreciation and SG&A,
the result is divided by sales volumes.
Number of EBS
transformations
Number of EBS transformations implemented
at the key assets during the reporting year.
Customer focus and
cost-cutting effects
Each project effect is calculated as an absolute
deviation of targeted metriс year to year
multiplied by relevant price or volume depending
on project’s focus.
EVRAZ cash cost index
EVRAZ cash cost index – weighted average
of production assets’ ratio between actual
and budgeted cash / conversion cost nominated
in USD.
Weight attribution to each production asset
is based on its total cash/conversion cost weight
in a given year and re-calculated annually:
▪ % for cash cost production assets: (Sales
volumes•cash cost/t) / (sum of all production
assets’ cash/conversion costs)
▪ % for conversion cost production assets:
(Production volumes•conversion cost/t)
/ (sum of all production assets’ cash/
conversion costs)
Data on mineral reserves
COAL
Yuzhkuzbassugol JORC equivalent coal proved and probable reserves, kt
Mine
Alardinskaya
Yesaulskaya
Erunakovskaya-8
Osinnikovskaya
Uskovskaya
Total
Raspadskaya JORC equivalent coal proved and probable reserves, kt
Mine
Raspadskaya
Raspadskaya Koksovaya (incl. Razrez Koksovy)
MUK-96
Razrez Raspadskiy
Total
Mezhegeyugol JORC equivalent coal proved and probable reserves, kt
Mine
Mezhegeyugol
IRON ORE
As of 31 December 2018
87,644
13,725
114,526
70,362
166,142
452,399
As of 31 December 2018
918,806
210,516
113,058
104,860
1,347,240
As of 31 December 2018
86,945
Evrazruda JORC equivalent coal proved and probable reserves, kt
Mine
Kaz
Tashtagol
Sheregesh
Total
As of 31 December 2018
Fe, %
S, %
5,759
64,581
89,317
159,657
31.90
1.39
Kachkanarsky GOK (EVRAZ KGOK) JORC equivalent coal proved and probable reserves, kt
Mine
Gusevogorskoe
Kachkanar Proper (Sobstvenno-Kachkanarskoye)
Total
As of 31 December 2018
Fe, %
V2O5, %
3,108,182
6,743,222
9,851,404
15.9
0.13
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Annual report& accounts2018www.evraz.comStrategic reportBusiness reviewCSR reportCorporate governanceFinancial statementsADDITIONAL INFORMATION Short summary of relevant
anti-corruption policies
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.
Candidate background
and criminal record checks
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.
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.
Hotline policy and whistle-
blowing procedures
EVRAZ encourages employees to raise
concerns to their line managers if they believe
the company’s policies or cardinal principles
are somehow violated. If employees, clients,
or contractors feel unable to do so via other
means and procedures, a confidential hotline
is available 24/7.
Conflict of interest policy
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.
Contractor/supplier due
diligence checks
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.
Code of Conduct
The Code of Conduct is the key document
that all employees are requested to adhere
to and act in full accordance with. Every new
employee is trained on the Code of Conduct
on their first day of work. The document
is available on the 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-corruption policy
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-corruption training
policy
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,
264
Terms and abbreviations
B
CAPEX
Capital expenditure.
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.
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.
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.
Concentrate
A product resulting from iron ore / coal
enrichment, with a high grade of extracted
mineral.
Finished products
Products that have completed
the manufacturing process but have not yet
been sold or distributed to the end user.
Construction products
Include beams, channels, angles, rebars, wire
rods, wire and other goods.
Converter
A type of furnace that uses pure oxygen
in the process of producing steel from cast iron
or dry mix.
Conversion costs
Conversion costs is defined as production costs
without raw materials and depreciation, incl.
SG&A and Maintenance CAPEX. This measure
is used to monitor segment competitiveness
improvement.
Continuous casting machine
Process whereby molten metal is solidified
into a “semi-finished” billet, bloom, or slab
for subsequent rolling in the finishing mills.
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
Greenfield
The development or exploration of a new project
not previously examined.
Grinding balls
Balls used to grind material by impact
and pressure.
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Head-hardened rails
High strength rails with head hardened by heat
treatment.
Heat-treatment
A group of industrial and metalworking
processes used to alter the physical,
and sometimes chemical, properties
of a material.
HiPo
High potential employee.
I
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.
266
Lean
Lean is philosophy of managing the business
that is based on a set of principles that define
the way of work.
Pig iron
The solidified iron produced from a blast furnace
used for steel production. In liquid form, pig iron
is known as hot metal.
Scrap
Iron containing recyclable materials (mainly
industrial or household waste) that is generally
remelted and processed into new steel.
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.
Long products
Include bars, rods and structural products that
are ‘long’ rather than ‘flat’ and are produced
from blooms or billets.
Longwall
An underground mining process
in which the coal face is dug out by a shearer
and transported above ground by conveyors.
LTIFR
Lost time injury frequency rate, which represents
the number of lost time injuries (1 day or more
of absence) divided by the total number of hours
worked expressed in millions of hours.
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
Pipe blank
A flat sheet of metal, a semi-finished product,
sold to pipemakers to manufacture pipes.
Plate
A long thin square shaped construction element
made from slabs.
Pulverised coal injection (PCI)
A cost-reducing technique in iron-making, where
cheaper coal is prepared to replace normal
coking coal in the blast furnace. The coal
is pulverised into very small particles before
injection into the furnace.
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
Products finished in a rolling mill; these include
bars, rods, plate, beams etc.
Rolling mill
A machine which converts semi-finished steel
into finished steel products by passing them
through sets of rotating cylinders which form
the steel into finished products.
Open pit mine
A mine working or excavation open
to the surface where material is not replaced
into the mined out areas.
S
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.
P
Pellet
An enriched form of iron ore shaped into small
balls or pellets. Pellets are used as raw material
in the steel making process.
Self-coverage
The raw material requirement of EVRAZ
steelmaking facilities compared with coal
product sales or production of iron ore products
from own raw materials.
Semi-finished products
The initial product forms in the steel making
process including slabs, blooms, billets and pipe
blanks that are further processed into more
finished products such as beams, bars, sheets,
tubing etc.
Sinter
An iron rich clinker formed by heating iron
ore fines and coke in a sinter line. The
materials, in pellet form, combine efficiently
in the blast furnace and allow for more
consistent and controllable iron manufacture.
Slab
A common type of semi-finished steel product
which can be further rolled into sheet and plate
products.
T
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
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.
Unrealised profit (URP)
Inter-segment unrealised profit or loss (URP)
is a change in the sales margin included
in balances of inventories purchased
from segments other than the reportable
segment between the end and the beginning
of the reporting period.
Contact details
Registered Name and Number
EVRAZ plc (Company No. 07784342)
Secretary
Prism Cosec
Registered Office
5th Floor, 6 St. Andrew Street,
London EC4A 3AE
Investor Relations
Tel. (London): +44 (0) 207 832 8990
Tel. (Moscow): +7 (495) 232 1370
E-mail: ir@evraz.com
Directors
Alexander Abramov
Alexander Frolov
Laurie Argo
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Sir Michael Peat
Eugene Shvidler
Eugene Tenenbaum
Auditors
Ernst & Young LLP
Solicitors
Linklaters LLP
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.
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
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