ANNUAL REPORT
& ACCOUNTS
2019
Meet
EVRAZ
For our
PARTNERS
For our
PEOPLE
13.2 mt
71,223 employees
STEEL PRODUCTS OUTPUT
AS OF 31 DECEMBER 2019
GLOBAL
FOOTPRINT
Canada USA
Switzerland
London
Office
Czech
Republic
Moscow
Office
Kazakhstan
Russia
Steel segment
Steel, North America segment
Coal segment
Annual report & accounts 2019
Leader
in construction
and railway
product
markets in
Russia
in production
of rails and
large diameter
pipes in North
America
the largest
coking coal
producer
in Russia
For our
COMMUNITY
US$ 26 million
SOCIAL AND SOCIAL INFRASTRUCTURE
MAINTENANCE EXPENSES
REPORT BOUNDARIES
This annual report (“the Report”) presents the results for EVRAZ plc and its subsidiaries for 2019
divided into segments: Steel; Steel, North America; and Coal. It details the Group’s operational
and financial results and corporate social responsibility activities in 2019.
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 Guidance 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.
www.evraz.com
CONTENTS
Meet EVRAZ
EVRAZ in figures
Strategic report
Chairman’s introduction
Chief Executive Officer’s letter
EVRAZ business model
Operational model
Sustainable development
EVRAZ Business System
Market overview
Strategic priorities
Key performance indicators
Financial review
Principal risks and uncertainties
Viability statement
Statement in accordance with S172 of the
Companies Act
Non-financial reporting
Business review
Steel segment
EVRAZ steel across the globe
Coal segment
Resilient R&D
Steel, North America segment
Digital transformation
CSR report
Our approach
Health, safety and environment
Environment case studies
Using renewable energy
Social policy
Anti-corruption and anti-bribery
Corporate governance
Board of Directors
Management
Corporate governance report
Stakeholder engagement
Remuneration report
Directors report
Directors responsibility statement
Financial statements
Independent Auditor’s report
to members of EVRAZ Plc
4
6
8
12
14
16
18
20
22
26
28
34
40
41
42
44
46
54
56
62
64
70
74
76
76
86
88
90
102
104
106
110
112
118
130
140
145
146
148
EVRAZ plc Consolidated Financial Statements
for the year ended 31 December 2019
156
EVRAZ plc Separate Financial Statements
Additional information
Stock performance indicators
and shareholder information
Definitions of selected alternative
performance measures
Data on mineral reserves
Terms and abbreviations
Short summary of relevant
anti-corruption policies
Contact details
240
248
250
251
253
254
257
258
EVRAZ in figures
Financial highlights
Consolidated revenues by segment, US$ million
Consolidated EBITDA by segment, US$ million
Revenue
US$ 11,905 million
7.3% year-on-year
9
7
8
,
8
3
4
1
,
8
3
4
7
,
7
4
1
2
,
2
7
3
3
,
2
1
2
0
,
2
3
8
5
,
2
0
0
5
,
2
4
6
8
,
1
2
6
4
2
7
4
3
8
4
)
6
5
4
,
1
(
)
5
3
4
,
1
(
)
2
4
2
,
1
(
6
3
8
,
2
1
5
0
9
,
1
1
7
2
8
,
0
1
EBITDA
US$ 2,601 million
31.1% year-on-year
2
7
6
,
3 2
8
4
,
1
5
9
7
,
1
6
2
2
,
1
8
1
2
,
1
3
4
8
8
5
4
1
8
3
1
2
7
1
8
1
7
7
7
,
4 3
2
6
,
2
1
0
6
,
2
)
5
4
1
(
)
3
9
(
)
4
6
1
(
Steel
Coal
Steel, NA
Other
operations
Eliminations TOTAL
Steel
Coal
Steel, NA
Other
operations
Eliminations TOTAL
2017
2018
2019
2017
2018
2019
For more information, read Financial review section on pages 28–29.
For more information, read Financial review section on pages 28–29.
Operating highlights
Crude steel output, kt
Steel products output1, kt
Iron ore products output, kt
2019
2018
2017
13,814
13,019
14,033
2019
2018
2017
13,230
12,376
12,576
2019
2018
2017
13,765
13,515
13,879
1.
2.
Net of re-rolled volumes.
Including payments on deferred terms recognised in financing
activities.
CSR highlights
LTIFR (excluding fatalities),
per million hours
Key air emissions, kt
EVRAZ GHG emissions, MtCO2e
2019
2018
2017
2.04
1.91
1.90
2019
2018
2017
127.69
128.24
137.11
2019
2018
2017
43.38
38.79
41.65
Read more on page 78
Read more on page 82
Read more on page 82
SHAREHOLDER
STRUCTURE
Geographic dispersion of institutional shareholders, % of voting rights
United Kingdom
8.79%
North America
10.58%
2
Russia
2.05%
Europe (excl. UK, Russia)
6.83%
Asia&Pacific
1.46%
Other
1.54%
Annual report & Accounts 2019
Net debt
US$
3,445
million
3.5% year-on-year
CAPEX
US$
762
million
44.6% year-on-year
Net profit
US$
365
million
85.2% year-on-year
For more information, read Financial review section on pages 28–29.
For definition of Alternative performance measures (APM) please see pages 251–252
Raw coking coal production, kt
Coking coal concentrate production, kt
Gross vanadium slag production,3 mtV
2019
2018
2017
26,140
24,188
23,306
13,975
14,130
13,061
2019
2018
2017
1,947
2,057
15,923
16,188
2,083
15,143
2019
2018
2017
18,380
17,052
18,636
Production by Coal segment
Production by Steel segment
3.
In tonnes of pure vanadium.
Fresh water consumption, million m3
Diversity, % (number of people)
Employees by region
2019
2018
2017
205.8
226.49
319.43
78% (7)
82% (323)
72% (51,101)
Men
Women
Board
Senior
Management
Employees
22% (2)
18% (71)
28% (19,728)
Europe
0.2%
North America
6.0%
71,223
people
Russia and CIS
93.8%
Read more on page 83
Read more on page 91
Read more on page 91
Ultimate beneficial owners, % of voting rights4
28.77
ROMAN
ABRAMOVICH4
19.41
ALEXANDER
ABRAMOV4
9.69
ALEXANDER
FROLOV4
5.77
GENNADY
KOZOVOY5
33.56
FREE-FLOAT
4.
5.
The number of shares as per dealing notification dated 20 June 2019.
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.
www.evraz.com
3
Strategic report
Setting
right goals
for a Better
Future
Setting
right goals
Abu Dhabi Plaza
Nur-Sultan, Kazakhstan
Chairman’s introduction
Key factors that are not within the Group’s control are, of course,
the markets, but the Board and I are quietly confident that whatever
the markets hold in store, EVRAZ is well prepared.
Dear shareholder,
Last year was not easy, as EVRAZ
and the broader industry faced complex market
headwinds. However, thanks to efficiency
initiatives, diligent strategic efforts and the hard
work of each employee, the Group was able
to overcome all the difficulties and achieve
resilient results.
For the Board of Directors, 2019 was a year
of numerous critical initiatives in the Group.
These included a major health, safety
and the environment (HSE) drive to implement
a new approach to safety by engaging
employees more in risk identification
and mitigation.
HSE
The overriding priority of the EVRAZ Board
of Directors has been and continues
to be achieving and maintaining zero injuries
and fatalities in the workplace. Despite
the Group’s efforts, however, there was
a substantial increase in fatalities during
the reporting period. Half of these occurred
in a single February 2019 incident that caused
the death of eight employees and the serious
injury of another 16 people. Overall, as a result
of occupational safety and risk management
shortcomings, the EVRAZ team suffered the loss
of 12 employees and four contractors during
2019. To avoid a repeat of these tragedies,
the Group is placing paramount importance
on undertaking measures to improve its safety
culture, beginning with improved employee
engagement in identifying and mitigating risks.
Please, read CSR report on page 78 for more
details.
To spearhead the efforts to improve safety
performance, we decided to conduct
the safety culture assessment and develop
a roadmap for its improvement. Recognising
the urgency of climate change, it also tasked
the committee with identifying possible
ways to reduce the Group’s greenhouse gas
Audit Committee report
Read more on 120-125.
HSE Committee report
Read more on 128-129.
Nominations Committee report
Read more on 126-127.
6
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
the economic, social and environmental
aspects of the company’s operations
and reporting.
as satisfactory. EVRAZ reputation index shows
sustainably high performance over the last three
years.
Dividends
In 2019, the Board approved the payments of:
an interim dividend of US$0.40 per ordinary
share, totalling US$577.3 million, on 29 March
2019; and an interim dividend of US$0.35
per share, totalling US$508.2 million,
on 5 September 2019.
In consideration of EVRAZ performance in 2019,
the Group has announced an interim dividend.
On 26 February 2020, the Board of Directors
voted to disburse a total of US$580.8 million,
or US$0.40 per share. The record date
is 6 March 2020 and payment date is 27 March
2020.
Alexander Abramov
Non-Executive Chairman
At its January 2020 meeting, following
the annual review of Board Performance
effectiveness, the Board agreed on an action
plan for 2020, which continued and developed
the review and approval function
of the management’s strategy proposals.
Our people
EVRAZ understands the vital importance
of regular employee engagement, which allows
the Group to hear and incorporate employee
opinions throughout the organisation. This
invaluable bottom-up insight helps to attract
and retain impactful employees, who in turn
play critical roles in ensuring that the Group
achieves its vision and strategy. This workforce
feedback loop, which EVRAZ has practiced
for many years, also helps to foster informative
decision taking in all aspects of the business.
One important employee engagement effort
is an annual survey that seeks to take the pulse
of the workforce as a whole on various matters.
In previous years, this survey helped to generate
numerous initiatives focused on employees,
as well as to determine ways to improve
overall employee engagement going forward.
Following each annual survey, the Board
reviews the results to ensure that it is informed
of important trends, comments and concerns.
During 2019, two Board members met with
employees and learned what is important
to them. Alexander Izosimov visited Raspadskaya
Coal Company in Novokuznetsk, Russia,
and Laurie Argo visited EVRAZ Portland’s rolling
mill in North America for town-hall meetings.
In addition, Board members 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
7
emissions and develop an implementation
strategy. In addition, the Board requested
that the HSE Committee review the control
measures that EVRAZ uses to mitigate
the risks associated with its largest tailing
dams. The information on dam safety issues
has been publicly disclosed on EVRAZ website
at the following link: https://www. evraz. com/
en/sustainability/tailings-storage-facilities/
Governance
The Board continues to work to ensure that
the Group operates in accordance with
international best practices and complies with
the guidelines laid out in the UK Corporate
Governance Code. The only non-compliances
reported are related to EVRAZ particular
situation, they were as follows:
• The Company does not operate clawback
arrangements on bonus payments
on the basis that such arrangements would
not be enforceable under the Russian Labour
Code. A further explanation for this non-
compliance is set out in the Remuneration
Report on page 131.
• The 2018 Code now treats individuals
such as myself, a significant shareholder,
as no longer independent on appointment
as chairman.
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. The EVRAZ
business and operational model, which are
explained in detail on pages 12-15, shows
how value is created for all stakeholders;
and the Governance report demonstrates
how this important engagement is monitored.
Please read Statement in accordance with
S172 of the Companies Act on page 41.
In April 2019, EVRAZ published its first
comprehensive report on sustainability
performance, making a logical step
in the Group’s continuous efforts to improve
Remuneration report
Read more on 130-139.
Annual report & accounts 2019 Chief Executive
Officer’s letter
EVRAZ works hard to create environmental improvements
in every aspect of its operations. In 2019, the Group’s
greenhouse gas (GHG) intensity ratio dropped below
the target of less than 2.0 tonnes of carbon dioxide
equivalent (tCO2e) per tonne of crude steel.
Dear shareholder,
Last year, the global metals and mining
industry faced renewed market headwinds,
growing demand from society for sustainable
development and accelerated digital
transformation. EVRAZ is prepared
to meet these new challenges and seize
the opportunities that arise.
In 2019, global steel and commodity markets
were not as favourable as they were in 2018.
Steel prices have fallen as a result of excess
supply in an environment of limited end-use
demand. Global coal and vanadium markets
returned to supply-demand equilibrium.
However, during the reporting period, EVRAZ
benefited from an upswing on the Russian steel
market amid increased demand for housing
construction that is expected to continue,
supported by government spending on national
projects.
Focus on sustainability
EVRAZ always strives to adhere to the strictest
safety standards. Unfortunately, in February 2019,
the Group lost eight employees and another
16 people were injured in an incident involving
Financial review
Read more on pages 28-33.
8
The “Top-300” leadership programme for mine
directors and shop heads aims to involve
them in implementing EVRAZ Business
System transformation projects and searching
for development opportunities. The first wave
of the “Top-300” programme, in which 97
production facility managers participated,
finished in July 2019 and the second wave, with
96 managers involved, started in October 2019.
Investing in development
In 2019, EVRAZ announced an investment
programme with total annual CAPEX averaging
US$1.0 billion over 2020–23. Half of this yearly
amount will be spent on development projects,
of which US$335 million will be allocated
to three major development projects and around
US$165 million will be used to finance
small and medium-sized projects, focusing
primarily on energy efficiency, debottlenecking
and various operational improvements.
The other roughly US$500 million per year
will be spent on maintenance projects.
One of EVRAZ major current projects is the new
long rail mill in Colorado, which will have total
CAPEX of US$512 million. The project is aimed
at producing long rails, including 100-metre
rails, to meet customer needs and sustain
the Group’s leadership position in the US rail
market. As of the end of 2019, the Group was
completing the engineering and design stage
of the project.
Another major project, the rail and beam
mill modernisation at EVRAZ NTMK, seeks
to maintain the Group’s leadership in long
products and will help to meet increased future
beam demand as a result of the “Construction
from Steel” promotion programme. Project
investments amounted to US$205 million.
In 2019, the Group entered the design
and engineering stage, and selected the main
equipment supplier and engineering works
partner.
a crew bus at the Raspadsky open pit mine.
The management has undertaken numerous
measures to prevent similar accidents, including
purchasing crew vehicles with reinforced safety
cages, installing video recorders in all crew
vehicles and upgrading the automated dispatch
control system.
Overall, this isolated case shows how vitally
important it is to predict all possible risks
at every stage of the production process,
as well as to increase employee awareness
and engagement in risk analysis. To this end,
in 2019, EVRAZ began to implement a new risk
management system that applies a balanced
approach to engage every worker in risk
identification and mitigation. As a part of this
new system, at the end of 2019, more than
200 key managers of different levels (from vice
presidents to line managers) in the Siberia,
Urals and Coal divisions attended training
to learn how to apply this new approach
in theory and practice.
EVRAZ works hard to create environmental
improvements in every aspect of its operations.
In 2019, the Group’s greenhouse gas (GHG)
intensity ratio dropped below the target of less
than 2.0 tonnes of carbon dioxide equivalent
(tCO2e) per tonne of crude steel to 1.97 tCO2e
per tonne of crude steel.
To further minimise EVRAZ environmental
footprint, in 2019, the Group began
to implement projects aimed at reducing
the atmospheric emissions at its Russian
steel assets. EVRAZ has also cut freshwater
consumption by 38% over the last five years
and this progress is expected to continue
going forward. In 2019, the Group finished
implementing three water treatment projects
in the Coal segment and launched major water
treatment programmes in the Urals and Siberia
divisions.
EVRAZ believes that its people are
the cornerstone of its strategy implementation
and remains focused on attracting
and developing the best talent. The Group
expends substantial efforts to develop its
managers, which in 2019 included major
educational events such as the “EVRAZ New
Leaders” programme and new “Top-300”
development programme.
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
The third major project is the construction
of a 2.5 million tonne integrated flat casting
and rolling facility at EVRAZ ZSMK, which will
have CAPEX of US$647 million. The project
will help to improve the product portfolio,
penetrate the highly concentrated plate
market and enhance the Group’s presence
in the Siberian region. At the end of 2019,
the project specification was agreed, equipment
suppliers were chosen, and the decision was
approved to enter the design and engineering
phase.
EVRAZ is taking a staged approach
to these three major projects to maintain
maximum flexibility. The execution decisions
on the projects should be made in 2020.
EBITDA effect of
US$407million
from the efficiency
improvement
programme in 2019
9
Annual report & accounts 2019 Сontinuous operational
improvements
Retaining a low-cost position and maintaining
market leadership positions remain very
important for the Group, which has invested
significant time and managerial efforts
to develop the EVRAZ Business System. EVRAZ
Business system is a combined approach
founded on a culture of continuous improvement
and currently covers nearly all the Group’s main
operations. It is based on five key elements:
ambitious target setting, EVRAZ principles,
employee development, efficient management
and process improvement. The overall target
of the EVRAZ Business System is to enhance
employee engagement in the idea generation
process. These ideas are the major source
of new efficiency improvement initiatives within
the Group. In 2019, a total of 22,083 employees
were involved and around 44,596 ideas were
generated, 36% of which were implemented.
Technology is an additional resource that
makes it possible to improve operational
efficiency. Last year, EVRAZ continued to develop
the competencies and organisational system
needed to scale up its digital transformation
efforts. The Group primarily focused
on innovative technologies to improve production
efficiency, including yields and process quality.
Overall, in 2019, 32 digital transformation
projects were implemented.
For example, EVRAZ ZSMK introduced
mathematical models for all production stages
that make it possible to calculate the end-to-end
economic effect and, on that basis, optimise
raw material consumption and the semi-finished
product mix. In 2019, the total economic effect
of this project was around US$20 million.
The efficiency improvement programme
is a performance monitoring system that aims
to generate and implement initiatives with
an annual EBITDA effect of US$300 million.
During the reporting period, the efficiency
improvement programme delivered
an EBITDA effect of US$407 million from
customer focus and cost-cutting initiatives.
The Steel segment remains the core of EVRAZ
business model, allowing the Group to maintain
leadership positions in the railway product
and infrastructure steel markets. In 2019,
total pig iron production increased by 10.2%
to 11,016 thousand tonnes after the new
blast furnace No. 7 reached its full capacity
of 2,550 thousand tonnes a year. Efficiency
improvement initiatives had a total effect
of US$284 million, most of which came from
respective increases in wheel production
and beam sales of 6% and 18%, as well as from
a programme to optimise coke, sinter and blast
furnace operations at EVRAZ ZSMK.
The Coal business continues to generate
very strong results. In 2019, the Group
increased coal mining volumes by 8% to a total
10
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
of 26.1 million tonnes following efficiency
improvements at the Uskovskaya
and Alardinskaya mines. The growth of mining
volumes made it possible to expand export
supplies to Asia by 12% to 5.6 million tonnes
in 2019. EVRAZ self-sufficiency in all coal grades
rose from 69% in 2018 to 74% in 2019 due
to metal charge changes at the Group’s steel
mills and higher production of K-grade coal
amid a ramp-up of volumes at the Raspadskaya-
Koksovaya mine. During the reporting period,
the Coal segment generated US$76 million
from efficiency improvement initiatives,
primarily due to increasing the production yield
and implementing measures to enhance product
quality.
EVRAZ North America is a strategic business
that benefits from healthy demand in railway
product markets in the US and Canada. Sales
of rails rose by 7% to 438 thousand tonnes,
which allowed EVRAZ to improve its rail market
share in North America to 42% in the period.
The segment’s efficiency improvement
programme contributed a total of US$46 million
from customer focus and cost-cutting initiatives
during the year.
In August 2019, James “Skip” Herald joined
EVRAZ as the president and CEO of EVRAZ North
America. Mr Herald has more than 35 years
of experience in the oil and gas and energy pipe
industries. The Group is confident that his solid
experience and outstanding professional skills
will bring additional momentum to its core
tubular business in North America and will help
to achieve an EBITDA margin position in line with
peers.
Consistent with the Group’s vision and focusing
on key markets in Russia and North America,
EVRAZ continued to divest non-core assets
during the reporting period. In August, the Group
announced the disposal of EVRAZ Stratcor,
a US-based vanadium oxides producer, due
to high operational costs. In December,
EVRAZ sold the Palini e Bertoli steel mill
in Italy, a decision that was primarily driven
by the unfavourable market environment
and limited growth opportunities.
In 2019, EVRAZ reported total EBITDA
of US$2,601 million. The Steel segment’s EBITDA
fell by 32.8% to US$1,795 million as a result
of challenging global steel and vanadium
market conditions. Despite price fluctuations,
the Coal segment managed to generate
EBITDA of US$843 million. During the reporting
period, EVRAZ North America delivered
a better financial performance in year-on-year
terms with EBITDA of US$38 million, up from
US$14 million in 2018. EBITDA remains at low
levels due to weak OCTG market and tariffs
on slab consumed by Portland operations
in North America. Overall, EVRAZ maintained
its low net leverage level and ended 2019 with
net debt of US$3,445 million (net debt/EBITDA
of 1.3x), in line with the medium-term net debt
target of below US$4 billion. In 2019, the Group
was able to generate strong free cash flow
of US$1,456 million, which made it possible
to pay dividends of US$1,086 million.
Alexander Frolov
Chief Executive Officer
EVRAZ plc
Outlook for 2020
In 2020, EVRAZ will continue to make
significant efforts to improve safety
and other vitally important areas
of sustainable development. The Group
has also set ambitious production targets
for the year that should help it to reach
solid results despite potential market
headwinds.
11
Annual report & accounts 2019 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 2019, global steel and raw materials markets remained strong despite the
pressure as steel prices corrected from the high levels seen in 2018. Meanwhile,
iron ore and coal prices experienced different dynamics. Iron ore prices peaked
in July, balancing by the end of the year. Conversely, coal prices were lower amid
increased supplies as a result of elevated Asian production and import restrictions in
China. In 2020, we expect stable market conditions and reduced price volatility.
OUR BASIS
STRATEGIC PRIORITIES
BUSINESS SEGMENTS
EVRAZ strategic priorities reflect current focus
areas that are driven by market conditions
and business fundamentals.
Sustainable
development
DEBT MANAGEMENT
AND STABLE
DIVIDENDS
EVRAZ
Business
System
PRUDENT
CAPEX
RETENTION
OF LOW-COST
POSITION
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.
Read more on page 46
Coal
EVRAZ Coal segment provides raw materials for
the Group’s steel mills, supplies coking coal to
major domestic coke and steel producers, and
exports its products to foreign customers.
Read more on page 56
DEVELOPMENT
OF PRODUCT
PORTFOLIO
AND CUSTOMER BASE
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.
Read more on page 22
Read more on page 64
For additional information, read
the EVRAZ Sustainability Report
for 2019, which is to be published
in May 2020
12
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
The value we create
for stakeholders
COMPETITIVE ADVANTAGES
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.
Shareholders and investors
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 contractors
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 and regulatory
authorities
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.
Media
EVRAZ proactive engagement with the media
boosts the quality and transparency of
information about the Group.
Industry organisations
EVRAZ cooperates and supports various
industry organisations through joint initiatives
and proactivly participates in conferences and
forums.
The section 172(1) statement, describing how the directors have had regard
to the matters set out in section 172(1)(a) to (f) when performing their duty
under section 172, is on page 41.
13
Annual report & accounts 2019 Operational
model
Steel
segment
Read more on page 46
INPUT
OPERATIONS
Raw materials
Proved and probable
reserves
9.9
bln t of iron ore
1.9
bln t of coking coal
Iron ore products consumption
• Internal consumption
• 3rd parties’ iron ore products purchases
3rd parties scrap purchases
Coking coal products consumption
• Coal segment coal products
• 3rd parties raw coal
• 3rd parties concentrate
18,363 kt
13,624 kt
4,739 kt
1,674 kt
8,408 kt
6,569 kt
935 kt
904 kt
Steelmaking
Pig iron production
Crude steel production
Vanadium slag production
11,016 kt
11,953 kt
18,380 mtV
Rolling and processing
Steel products production
11,018 kt
Self-coverage1
70%
of iron ore
221%
of coking coal
SALES
TO 3rd
PARTIES
1.
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
Construction products
Railway products
Flat-rolled products
Other steel products
5,636
3,800
1,393
622
624
Steel
products
12,075 kt
Iron ore
products
1,893 kt
Vanadium products
(alloys and chemicals)
12,858 kt
Number of employees
46,175
in Steel segment
16,133
in Coal segment
4,302
in Steel, NA segment
14
EBITDA
US$ 1,795 million
32.8% year-on-year
The Steel segment’s EBITDA dropped amid lower steel and vanadium prices,
as well as higher expenses due to increased prices for raw and auxiliary
materials, including iron ore, scrap and refractories. This was partly offset
by lower coking coal prices.
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Corporate governance
Financial statements
Additional information
Coal
segment
Read more on page 56
Steel, North America
segment
Read more on page 64
Mining
Raw materials
Total raw coking coal mined
Sales to Steel segment
26,140 kt
2,044 kt
3rd parties scrap puchases
Slab purchases
1,222 kt
508 kt
Coal washing
Total coking coal concentrate production
13,975 kt
Sales to Steel segment
4,525 kt
EVRAZ unique combination of reserves, operations,
product quality and clients makes its Coal
segment one of the key pillars of its operational
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
1,861 kt
Rolling and processing
Steel products production
2,212 kt
Coking coal concentrate
Raw coal
8,841
2,211
Coking
coal products
11,053 kt
Steel
products
2,207 kt
Tubular products
Flat-rolled products
Railway products
Construction products
Semi-finished products
795
523
441
256
192
US$ 843 million
30.8% year-on-year
The Coal segment’s EBITDA decreased year-on-year, mainly due to sales
prices trending lower in line with global benchmarks.
US$ 38 million
171.4% year-on-year
The Steel, North America segment’s EBITDA rose, driven mainly
by the decline of Section 232 duties on sales to the US, which were included
in 2018 expenses. EBITDA remains at low levels due to the weak OCTG
market and tariff on slab supply to Portland operations in North America.
15
Vanadium products
(alloys and chemicals)
12,858 kt
Annual report & accounts 2019 Sustainable
development
Acknowledgment
of Sustainable Development Goals
EVRAZ believes that the Sustainable Development Goals
(SDG) adopted by the United Nations General Assembly
in 2015 are of vital importance to the global mission
of addressing significant economic, environmental
and social challenges.
To help achieve these global
goals, the Group implements
fair and transparent
business practices, reduces
its operational impact
on the environment and local
communities, and seeks
to maximise the positive
values that it can bring
to society.
For additional
information, read the
EVRAZ Sustainability
Report for 2019,
which is to be
published
in May 2020.
Governance
Read more on page 106
Health and safety
Read more on page 76
Environmental matters
Read more on page 81
Social and community matters
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.
Our people
Read more on page 90
Read more on page 96
CSR
16
Annual report & Accounts 2019
Annual report & Accounts 2019
Our approach
Strategic report
Business review
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Corporate governance
Financial statements
Additional information
EVRAZ understands the responsibility inherent in its position as one of the world’s leading steelmakers and, as such, is committed
to integrating sustainable development principles and values into its daily operations. The Group believes that sustainable development will
help it to maintain the long-term stability of its business, retain a competitive market position and create value for its stakeholders.
EVRAZ sustainable development initiatives adhere to the OECD’s Guidelines for Multinational Enterprises to apply a consistent approach
and adopt best practices across its global operations.
The Group bases these commitments on the best international standards and practices, fully endorsing the United Nations Universal
Declaration of Human Rights provisions and respecting people’s civil, political, economic, social and cultural rights.
CSR highlights
LTIFR (excluding fatalities),
per million hours
Key air emissions, kt
EVRAZ GHG emissions, MtCO2e
2019
2018
2017
2.04
1.91
1.90
2019
2018
2017
127.67
128.24
137.11
2019
2018
2017
43.38
38.79
41.65
Read more on page 78
Read more on page 83
Read more on page 83
Fresh water consumption, million m3
Diversity, % (number of people)
Employees by region
2019
2018
2017
205.8
226.49
319.43
78% (7)
82% (323)
72% (51,101)
Men
Women
Board
Senior
Management
22% (2)
18% (71)
Employees
28% (19,728)
Europe
0.2%
North America
6.0%
71,223
people
Russia and CIS
93.8%
Read more on page 83
Read more on page 91
Read more on page 91
Human rights
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.
Anti-corruption and anti-bribery
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.
Read more on page 76
Read more on page 102
17
EVRAZ
Business
System
EVRAZ Business System
(EBS) is a combined
approach founded on
a culture of continuous
improvement which
currently covers nearly
all the Group’s main
operations.
EBS targeted to enhance employee engagement in the continuous improvement process through key elements of the EVRAZ Business System, such
as ambitious target setting, EVRAZ principles, employee development, efficient management and process improvement.
EVRAZ
principles
The basic working principles
are safety, respect, performance
and responsibility, customer focus
and effective teamwork.
Process
improvement
Each employee views finding
and implementing improvements
as part of their daily work.
In 2019, EVRAZ launched
an ambitious target-
setting process as a source
of new efficiency improvement
initiatives.
In line with this process, 30 shops
and segments in the Urals, Siberia, Coal
and Vanadium divisions were analysed. Key
technical drivers were identified for every
shop and segment, and targets were set
for each key technical driver based on global
benchmarking.
18
Ambitious
target setting
Each employee
understands why
they must improve
their work.
Employee
development
Employees have opportunities for training
and development, as well as access
to the tools and knowledge needed
to achieve the target.
Efficient
management
Managers support the continuous
improvement process by acting
in accordance with EVRAZ principles, as well
as training and encouraging their employees.
Outlook 2020
In 2020, a total of 24 EBS
transformations will be implemented
in three divisions (4 in the Siberia division,
15 in the Urals division and 5 in the Coal
division). The key focus for the year
will be on rolling out EBS transformations
in the Steel, North America segment.
Additionally, the EVRAZ Business System
will focus on digital solutions in production
and implementing an agile approach
to improve processes.
45231 Annual report & Accounts 2019
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, while the maintenance
phase aims to reach the target effects from
initiatives and further improve the process.
During 2019, a total of 43 active EBS
transformation phases were completed across
four divisions (23 in the Siberia division, 14
in the Urals division, 4 in the Coal division
and 2 in the Vanadium division). EVRAZ
employees generated 44,596 ideas, 36%
of which were implemented. Overall, a total
of 22,083 employees were involved in EBS
transformations in 2019.
KEY EBS TOOLS AT WORK
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Additional information
Number of initiatives
44,596
2,935
2017
14,275
2018
2019
Number of employees involved
22,083
9,608
2018
2019
5,250
2017
VANADIUM
DIVISIONS
URALS
SIBERIA
COAL
Idea Factory
Each employee can suggest ideas to improve a production process, workplace safety or labour conditions.
10,110
6,012
3,599
424
206
136
30,890
16,111
12,072
Ideas submitted
Ideas accepted
Ideas implemented
3,172
736
375
Problem-Solving Board
This is a tool that allows each employee to openly discuss any production problem and be sure that it will be solved.
Problems discussed
Problems solved
230
198
4,692
3,548
24
days
average solution time
32
days
average solution time
18,368
17,347
35
days
average solution time
2,670
2,585
6
days
average solution time
19
Market overview
GLOBAL PICTURE
In 2019, the pressure on the steel and raw materials market increased. Despite the economic
and political uncertainty, by the end of the year, there was a positive trend in prices and steel
demand from end user’s sectors in key markets.
Steel, US$/t
Iron ore, US$/t
Coal, US$/t
600
400
200
0
150
120
90
60
30
0
250
200
150
100
50
0
2013
2018
2019
2013
2018
2019
2013
2018
2019
Slab, FE&SEA, CIF
2019 average
Iron ore 62% Fe fines, China, CFR
2019 average
Premium Hard coking coal, FOB Australia
2019 average
In 2019, global finished steel consumption
increased by 3.2% to 1,774 million tonnes,
compared with 1,719 million tonnes in 2018.
Asia remained the key source of global
demand with growth of 5.5% and consumption
of 1,276 million tonnes. China’s total
consumption climbed by 7.2% to 928 million
tonnes in the period. Global demand excluding
Asia fell by 2.3% to 497.3 million tonnes, versus
508.9 million tonnes in 2018. Consumption
in the EU dropped by 4.9% due to lower demand
for vehicles and equipment.
Global crude steel production in the year
grew by just 2.3% to 1,886 million tonnes,
along with multidirectional trends diversified
by regions. Chinese production totalled
1,009 million tonnes, up 6.3% year-on-
year, compared with 4.0% in 2018. India
demonstrated moderate growth of 1.0%
to 111.1 million tonnes, driven by the expansion
of government support efforts. Crude steel
production in the EU fell by a further 4.9%
as a result of blast furnace closures due
to low demand and stronger environmental
requirements.
In 2019, steel prices based on the CIF slab
FE&SEA benchmark decelerated, especially
in the second half of the year. The downturn
in prices took place amid slower steel
consumption growth, prompting manufacturers
to protect their market share. By the end of year,
prices rebounded from US$385 per tonne
in November to US$415 per tonne in December.
Thus, the average price in 2019 was US$445
per tonne, down 16% year-on-year from US$532
per tonne in 2018.
20
Iron ore apparent consumption continued
to grow smoothly in 2019, rising by 3.0%
to 2,221 million tonnes. Additional demand was
supported by strong steel production growth
in China and other Asian countries. Iron ore
demand rose by 4.6% to 1,348 million tonnes
in China, by 3.4% to 76 million tonnes in South
Korea and by 9.0% to 163 million tonnes in India.
Europe and US market showed reductions
of 3.4% and 3.8%, respectively, due to low steel
production.
Total iron ore production increased by 1.1%
to 2,294 million tonnes in 2019, compared
with 2,270 million tonnes in 2018. Reduction
of iron ore production in Brazil by 12% following
Vale’s tragic dam accident was compensated
by production growth in China and India. Iron
ore production in China surged by 11.7%
to cover supply shortages from external
suppliers, exceeding 348 million tonnes
for the year. India is also on track to increase
production, achieving iron ore output growth
of 21.8% to 182 million tonnes in 2019.
In 2019, prices for Fe 62% fines CFR China
breached US$120 per tonne in July for the first
time since 2014 following Vale’s dam accident,
as well as supply disruptions from Australia
and Brazil due to unfavourable weather.
By the end of the year, prices normalised
at US$86–100 per tonne amid improved
supplies from these countries and a strong
supply response from India and China.
The average iron ore prices climbed by 35%
to US$93 per tonne in 2019, compared with
US$69 per tonne in 2018.
In 2019, global metallurgical coal consumption
grew by 2.2% year-on-year to exceed
1,146 million tonnes with the Asian market
as a key driver. In China, consumption
climbed by 3.0% to 766.7 million tonnes
due to the increase in crude steel output.
In the second half of 2019, China implemented
import restrictions to support domestic
producers, resulting in an import reduction
of 2.1%. However, coking coal imports to India
increased by 2.8% to 60.6 million tonnes
amid high steelmaking activity. Following
the steel demand decline, metallurgical coal
consumption in Europe also fell by 3.3%
and imports dropped by 4.0%.
Total coking coal production rose by 2.0%
year-on-year to 1,147 million tonnes during
the period. The major upward trends
were formed in China with 3.7% growth
(697 million tonnes) and Australia with 2.5%
growth (186.9 million tonnes). Australia also
demonstrated export growth of 2.7% in 2019.
During the year, metallurgical coal prices based
on the HCC, FOB Australia benchmark fell from
the highs of 2018. The second half of 2019 was
accompanied by Chinese import restrictions
on coal at major ports, combined with
uncertainty around a trade deal with the US,
which led to weak interest in buying seaborne
coking coal. As a result, the average price was
US$178 per tonne in 2019, down 14% from
US$206 per tonne in the previous year.
Vanadium
90
80
70
60
50
40
30
20
10
0
2013
2018
2019
MB EU FeV Mid, $/kgV
2019 average
Global vanadium demand jumped by 11% year-
on-year to 102,000 tonnes in 2019, mainly
as a result of China’s HS rebar standard
implementation and rising steel demand.
However, the supply response was quicker than
expected as Chinese steelmakers reoriented
their facilities for vanadium slag production.
Vanadium demand outside China was stagnant
due to weakening steel markets, especially
in the automotive sector, which together
with substitution led the market to surplus.
Ferrovanadium prices decreased continuously
throughout 2019, reaching bottom in November
at US$22 per kgV, with an average price drop
of 49% year-on-year in 2019.
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Additional information
TRENDS AT EVRAZ
CORE MARKETS
Steel
In 2019, Russian apparent steel consumption surged by 8% year-on-year to 44.9 million tonnes,
with respective growth of 8% in long, 8% in plate and 10% in tubular products. The strong
demand for long products was supported by additional activity in the construction sector amid
the implementation of new financing rules for developers. Crude steel production remained
unchanged at 72.0 million tonnes. Export dropped by 12% to 27.1 million tonnes due to high steel
demand on the domestic market and trade barriers around the world. In 2019, the average price
for rebar in the Moscow region fell by 5% to US$469 per tonne.
Coal
Russian coking coal consumption remained relatively flat year-on-year, at 36.9 million tonnes
in 2019. Coking coal mining volumes rose by 8% to 94.9 million tonnes, mainly due to production
growth from EVRAZ and Colmar. Amid stable domestic demand, exports grew by 7% year-on-
year to 27 million tonnes, and the additional output went primarily to Asian markets. Following
the downward global trend, the average price for FCA Zh-grade fell by 14% to US$137 per tonne
during the period.
Steel, North America
During the reporting period, finished steel consumption in the US edged down by 2% year-on-year
to 97.0 million tonnes amid a slower US manufacturing. Meanwhile US finished steel production
increased by 2% to 85.3 million tonnes. As Section 232 tariffs and other trade barriers
continued to limit steel supplies to the US, imports of finished steel products decreased by 16%
to 18.8 million tonnes in 2019. The average domestic FOB Midwest price for hot-rolled coil (HRC)
fell by 27% to US$670 per tonne due to weaker demand from end users and sufficient supply.
21
Annual report & accounts 2019 Strategic priorities
DEBT MANAGEMENT AND STABLE DIVIDENDS
EVRAZ remains focused on medium-term debt
management and maintaining a stable dividend
payout:
• Dividend payout according to stated dividend
policy: a minimum of US$300 million
to shareholders annually provided that the net
leverage ratio remains below 3.0x
• Medium-term net debt level below
US$4,000 million
• Target average net debt/EBITDA at 2.0x
throughout the cycle
In 2019, EVRAZ net debt amounted
to US$3,445 million and remained comfortably
below the medium-term target of US$4 billion.
The average net debt/EBITDA ratio was 1.3x. Even
in the case of market volatility, EVRAZ will remain
committed to maintaining its long-term average
net debt/EBITDA at 2.0x.
In 2019, EVRAZ generated strong free cash flow
of US$1,456 million, which is higher than its
average free cash flow since 2014. Robust free
cash flow and a net debt/EBITDA ratio below 2.0x
made it possible for the Group to return US$1,086
million to its shareholders in the form of dividends
with a dividend yield of 11%.
Net debt (net debt/EBITDA), US$ million
3,966
(1.5)
<4,000
3,571
(0.9)
3,445
(1.3)
2017
2018
2019
Medium-term
target
Dividends, US$ million
Dividends
Yield
2019
1,086
11%
2018
1,556
17%
2017
430
9%
22
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Additional information
PRUDENT CAPEX
According to the current investment programme,
EVRAZ total annual capital expenditures are
expected to be on average US$1.0 billion during
2020-23, including:
• Three major development projects around
US$335 million a year (2020-23 total capex
around US$1,340 million)
• Small and middle-sized development projects
roughly US$165 million a year
• Maintenance CAPEX around US$500 million
a year
Key projects
In 2019, EVRAZ CAPEX totalled US$762
million, of which US$581 million was spent
on maintenance projects and US$181 million
on development projects. Maintenance
investments grew by 61%, mainly due
to the execution of Blast furnace No. 6 major
overhaul at EVRAZ NTMK, projects in the Coal
segment linked with higher production volumes.
Major development projects – such as the long
rail mill at EVRAZ Pueblo, rail and beam mill
modernisation at EVRAZ NTMK and integrated
flat casting and rolling facility at EVRAZ ZSMK –
are currently in the equipment supplier selection
stage or the engineering phase.
Annual CAPEX, US$ million
Average
2020-23
2019
2018
2017
2016
1,000
581
181
360
167
367
236
264
164
Maintenance
Development
Projects under review
Projects in execution stage
Integrated flat casting and rolling facility at EVRAZ ZSMK
Incremental effect: 2.5 mtpa of premium 0.8–16 mm flat products instead
of slabs and billets
Execution decision: October 2020
Blast furnace No. 6 major overhaul at EVRAZ NTMK
Reconstruction of blast furnace No. 6 with a planned capacity of 2.5 mtpa;
after the project is launched, blast furnace No. 5 with a current capacity
of 2.3 mtpa will be shut down
CAPEX: ~US$647 million
Launch date: 2023
CAPEX: ~US$187 million
Launch date: 2020
Long rail mill at EVRAZ Pueblo
630 ktpa of rails with a maximum length of 100 metres
Execution decision: Beginning of 2020
Tashtagol iron ore mine upgrade
Increase Tashtagol mining volumes to 3.25 mtpa
CAPEX: ~US$512 million
Launch date: 2022
CAPEX: ~US$108 million
Launch date: 2021
Rail and beam mill modernisation at EVRAZ NTMK
Incremental effect: 481 ktpa of high value-added products (H-beams,sheet
piles and HH rails) instead of semi-finished products
Execution decision: October 2020
CAPEX: ~US$205 million
Launch date: 2022
23
Annual report & accounts 2019
RETENTION OF LOW-COST POSITION
Efficiency and cost-cutting remain Group’s
primary focus. EVRAZ is on pace to generate
improvements with an annual EBITDA effect
of 3% of the cost of goods sold.
In 2019, the EBITDA effect from cost-cutting
initiatives totalled US$284 million.
Breakdown of cost-cutting programme effect in 2019, US$ million
Increasing productivity
and cost effiectiveness
Auxilary materials and
services
Yields and raw material costs
in Urals and Siberia
Energy efficiency
G&A costs and non-G&A
headcount
Yields and raw material
costs of North American
and other assets
167
46
47
16
4
3
Steel segment
Coal segment
Steel, North America segment
175
72
37
Steel
Coal
Steel,
North America
2019 key initiatives and results
• Pig iron production at EVRAZ NTMK rose
by 6% to 4.9 million tonnes due to the new
blast furnace No. 7 reaching full capacity
of 2.5 million tonnes a year in 2019
• Wheel production climbed by 6%
2019 key initiatives and results
• Mining volumes grew by 8% to 26.1 million
tonnes in 2019 due to increased efficiency
(reduced the number and amount of longwall
moves) at the Uskovskaya and Alardinskaya
mines
to 210 thousand tonnes in 2019 as the wheel
resurfacing line at EVRAZ NTMK reached full
capacity
• Launched flotation at the Abashevskaya
washing plant to increase concentrate
production yield by 1.3% and improve quality
• Vanadium slag production grew by 8%
• Installed chamber filter presses
to 18,380 mtV amid higher vanadium content
in the pig iron and an increased number
of duplex melts
• Achieved a US$38 million EBITDA effect
at EVRAZ ZSMK from an optimisation
programme of coke, sinter and blast furnace
operations mainly aimed at increasing
productivity and improving yields
2020 key initiatives
• Launch blast furnace No. 6 at EVRAZ NTMK
after overhaul
• Reduce consumption rates of metal
charge, rolled metal, electrodes and energy
in the Siberia division
• Increase productivity of wheels and reduce
downtime of discontinuous production line
at EVRAZ NTMK
• Improve steel production at continuous
casting machine No. 1 at EVRAZ NTMK
at the Raspadskaya (third section)
and Kuznetskaya washing plants
to increase the concentrate production yield
by a respective 2% and 0.2%
2020 key initiatives
• Launch the first longwall in the Uskovskaya
mine’s seam No. 48
• Launch the first longwall in the Esaulskaya
mine’s seam No. 29a and increase coal
mining to 2.4 million tonnes a year
• Optimise the production flow
at the Abashevskaya and Kuznetskaya
washing plants
• Optimise expenses for auxiliary materials
and industrial services at the Raspadskaya-
Koksovaya mine and Raspadskaya-Koksovaya
open-pit
2019 key initiatives and results
• Electrode consumption was improved
at EVRAZ Regina and EVRAZ Pueblo
• API threading line at EVRAZ Pueblo was
commissioned to fully replace threading
suppliers and reduce cost
• Started construction work under
the EAF repowering project at EVRAZ
Regina to increase coil and plate production
by 90 thousand tonnes to 1,250 thousand
tonnes, reduce electrode consumption
and maintain current electric rate
2020 key initiatives
• Focus on operational improvements
and reaching production performance targets
at EVRAZ Canada
• Further optimise electrode, alloy
and refractory consumption at EVRAZ Regina
• Increase steelmaking and billet productivity
at EVRAZ Pueblo
24
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Additional information
DEVELOPMENT OF PRODUCT PORTFOLIO AND CUSTOMER BASE
EVRAZ remains focused on executing its
development projects aimed at diversifying its
product portfolio.
In 2019, the customer focus programme
generated an EBITDA effect of US$123 million.
Customer focus programme EBITDA effect in 2019, US$ million
Railway products
Beams
Grinding balls
Logisticts
Other
33
26
12
14
38
Steel segment
Coal segment
Steel, North America segment
110
4
9
Steel
Coal
Steel,
North America
2019 key initiatives and results
• The Steel segment’s total sales of railway
products rose by 4% to 1.4 million tonnes
• The availability of beams improved due
to the organisation of regional hubs in Moscow,
Kazan and Novosibirsk, as well as direct sales
to infrastructure projects, driving beam sales up
18% to 724 thousand tonnes in 2019
• Sales of grinding balls climbed by 7% to 305
thousand tonnes in 2019 due to higher
demand from key clients
• More efficient dispatching made it possible
to achieve a US$14 million effect on logistics
in 2019
2020 key initiatives
• Complete the construction of the new hub
in Nizhny Tagil and launch the beam service
centre in Noginsk, Moscow region
2019 initiatives and results
• Implemented longwall mining instead of room
and pillar mining at Raspadskaya-Koksovaya,
increasing K-grade coal extraction from
0.5 million tonnes to 0.8 million tonnes
• EVRAZ self-sufficiency in all coal grades grew
by 5 percentage points to 74% in 2019 due
to charge changes at EVRAZ mills and higher
production of K-grade coal
• The growth of mining volumes made
it possible to expand export supplies to Asia
by 12% in 2019
2020 key initiatives
• Maximise internal coal supplies
to EVRAZ operations
• Maintain Russian market share at 22%
• Maintain sales to key clients in Eastern Europe
and Turkey
• Increase sales of rails to Russian Railways
• Increase shipments through ports in Asia,
2019 key initiatives and results
• Sales of large-diameter pipes surged by 64%
to 346 thousand tonnes as all major available
LDP projects in Canada were secured
• Improved the rail market share in North
America by 3 percentage points to 42%
in 2019
• Launched the heat treatment line at EVRAZ
Red Deer with a total annual capacity
of 110 thousand tonnes
• EVRAZ Portland restarted its spiral mill with
a capacity of 130 thousand tonnes
2020 key initiatives
• Increase OCTG sales and expand product
mix of OCTG products, produce EVRlock
connections
• Grow rail market share, and further
commercialise APEX G2 rail and rubber
reinforcement products
by improving product quality and expand export
sales by reducing downtime
as China and India continue to have the most
growth opportunities
• Commercialise new EVRAZ Portland products
including laser flat quality products
• Boost sales of grinding balls of the fifth
hardness group
• Introduce new profiles in the structural product
range at EVRAZ ZSMK
25
Annual report & accounts 2019 Key performance indicators
EVRAZ performance is assessed against several key performance indicators (KPIs),
which are linked to our strategic priorities.
FINANCIAL
KPI
Data
EBITDA,
US$ million
Free cash flow,
US$ million
Effect from efficiency
improvement programme,
US$ million (cost cutting +
customer focus)
Cash cost of slab,
US$ per tonne
2019
2018
2017
2,601
3,777
2,624
2019
2018
2017
1,456
1,940
1,322
2019
2018
2017
407
340
267
2019
2018
2017
236
225
247
What does
it mean?
Our financial
performance
Our ability to generate
free cash flow
from the current
business
The effect of our efforts
to generate and implement
efficiency improvements
initiatives
Our integrated cash-
cost per tonne of slab
for Russian steel plants
How did
we perform
in 2019?
The decline comparing to 2018
is primarily attributable to lower
vanadium and coal product
sales prices, as well as higher
expenses for raw materials
(mainly increased iron ore
prices)
The decline comparing to 2018
is primarily attributable to lower
EBITDA and increased capital
expenditures
The efficiency programme generated
its additional effect mostly
through productivity growth, yield
improvements and numerous savings
projects. Customer focus initiatives
generated additional effect a result
of sales efforts in wheels, beams,
grinding balls and large diameter
pipes as well as to improvements
in logistics efficiency
Cash cost of slab increased
following change in blast furnace
charge as higher percentage
of more expensive pellets were
added in the mix at EVRAZ ZSMK
as well as due to the higher
prices for raw materials
and increased salary expenses
Relevance
to strategic
priorities or basis
• Retention of low cost
position
• Development of product
portfolio and customer
base
• Debt management
and stable dividend
• Prudent CAPEX
• Retention of low cost
position
• Development of product
portfolio and customer base
• Retention of low-cost
• Retention of low-cost
position
• Development of product
portfolio and customer
base
position
• Development of product
portfolio and customer
base
• EVRAZ business system
Further details
Read more on page 251
Read more on page 251
Read more on page 251
Read more on page 251
26
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Financial statements
Additional information
NON-FINANCIAL
Cash cost of coal
concentrate,
US$ per tonne
Labour productivity,
steel, tonnes per person
LTIFR
(excluding fatalities),
per 1 million hours
GHG intensity ratio,
tCO2e per tonne
of crude steel
2019
2018
2017
35
47
42
2019
2018
2017
392
355
352
2019
2018
2017
2.04
1.91
1.90
2019
2018
2017
1.97
2.01
2.02
Our cash-costs per tonne
of washed coal products
Productivity of our workforce
Key indicator
of the Group’s health
and safety performance
The effect of our efforts
to reduce the carbon footprint
of our production
Coking coal concentrate
cash cost decreased
as a result of increased
mining volumes
Labour productivity
increased as a result
of higher production
volumes at EVRAZ steel
mills
The increase in this key
metric was primarily caused
by an incident involving
a crew bus in February 2019
in which eight colleagues
lost their lives and 16 people
were seriously injured
Intensity ratio decreased
due to more effcient
operation of Blast Furnace
shop at EVRAZ ZSMK
in 2019 and exclusion
of EVRAZ DMZ (cease
of operations in Ukraine)
as from Q1 2018
• Retention of low cost
• Retention of low-cost
• Sustainable development
• Sustainable development
position
• Development of product
portfolio and customer
base
position
Read more on page 251
Read more on page 251
Read more on page 251
Read more on page 251
27
Annual report & accounts 2019 Financial
review
The decline in EVRAZ consolidated EBITDA year on year
is primarily attributable to lower vanadium and coal product
sales prices, as well as higher expenses for raw materials.
Statement of operations
In its full-year financial results for 2019,
EVRAZ reported a decrease of 7.3% year-
on-year in consolidated revenues, which
totalled US$11,905 million compared with
US$12,836 million in 2018. The reduction
mainly resulted from a drop in the sales prices
for vanadium and coal products amid less
favourable market trends.
28
EVRAZ consolidated EBITDA amounted
to US$2,601 million in the period, compared with
US$3,777 million in 2018, bringing the EBITDA
margin down from 29.4% to 21.8%. The decline
is primarily attributable to lower vanadium and coal
product sales prices, as well as higher expenses
for raw materials (mainly increased iron ore prices).
Free cash flow declined by 24.9% year-on-year
and amounted to US$1,456 million. The decline
was attributable to lower EBITDA and higher capital
expenditures in 2019 compared to 2018.
The Steel segment’s revenues (including
inter-segment) dropped by 8.3% year-on-year
to US$8,143 million, or 61.9% of the Group’s total
before elimination. This was mainly attributable
to lower revenues from the sale of vanadium
products, which declined by 43.8% year-on-year,
45.1% revenue fall resulted from lower vanadium
prices. Steel product sales edged up by 0.9%
year-on-year due to higher sales prices for railway
products, albeit partly offset by lower prices
for construction, flat-rolled and other steel products.
The Steel, North America segment’s revenues
decreased by 3.2% year-on-year. Prices went
down by 5.6%, partially offset by a 2.4% uptick
in sales volumes. The key drivers were weaker
demand across product segments, particularly
for construction and flat-rolled products, amid
reduced demand for concrete reinforcing bar
caused by inclement weather in the beginning
of 2019 and softer market demand as customers
managed inventory levels.
The Coal segment’s revenues fell by 13.5% year-
on-year, driven largely by lower sales prices for coal
concentrate to third parties, which were down
13.6% due to lower market demand from Russia,
CIS and European countries.
In 2019, the Steel segment’s EBITDA dropped
amid lower steel and vanadium prices, as well
as higher expenses due to increased prices for raw
and auxiliary materials, including iron ore, scrap
and refractories. This was partly offset by lower
coking coal prices.
The Steel, North America segment’s EBITDA
rose, driven mainly by the decline of Section 232
duties on sales to the US, which were included
in 2018 expenses. EBITDA remains at low levels
due to the weak OCTG market and tariffs on slab
consumed by Portland operations in North America.
The Coal segment’s EBITDA decreased year-on-
year, mainly due to sales prices trending lower
in line with global benchmarks.
Eliminations mostly reflect the change in 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.
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Financial statements
Additional information
2019
2018
Change Change, %
8,143
2,500
2,021
483
(1,242)
11,905
8,879
2,583
2,337
472
(1,435)
12,836
(736)
(83)
(316)
11
193
(931)
(8.3)
(3.2)
(13.5)
2.3
(13.4)
(7.3)
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 the rest of the world
Total
2019
4,373
2,709
2,893
956
865
109
11,905
2018
Change Change, %
4,564
3,009
2,716
1,426
936
185
12,836
(191)
(300)
177
(470)
(71)
(76)
(931)
(4.2)
(10.0)
6.5
(33.0)
(7.6)
(41.1)
(7.3)
EBITDA, US$ million
Segment
Steel
Steel, North America
Coal
Other operations
Unallocated
Eliminations
Total
2019
1,795
38
843
18
(141)
48
2,601
2018
2,672
14
1,218
17
(135)
(9)
3,777
Change Change, %
(877)
24
(375)
1
(6)
57
(1,176)
(32.8)
n/a
(30.8)
5.9
4.4
n/a
(31.1)
For the definition
of EBITDA, please refer to page 251
of the Annual Report 2019
The following table details the effect of the Group’s cost-cutting initiatives.
Effect of Group’s cost-cutting initiatives in 2019, 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
Total
113
69
32
12
167
4
284
29
Annual report & accounts 2019 Revenues, cost of revenues and gross profit of segments, US$ million
Steel segment
Revenues
Cost of revenues
Gross profit
Steel, North America segment
Revenues
Cost of revenues
Gross profit
Coal segment
Revenues
Cost of revenues
Gross profit
Other operations – gross profit
Unallocated – gross profit
Eliminations – gross profit
Total
Gross profit, expenses and results, US$ million
Gross profit
Selling and distribution costs
General and administrative expenses
Impairment of non-financial assets
Foreign exchange gains/(losses), net
Other operating income and expenses, net
Profit from operations
Interest expense, net
Share of profits/(losses) of joint ventures and associates
Impairment of non-current financial assets
Gain/(loss) on financial assets and liabilities, net
Gain/(loss) on disposal groups classified as held for sale, net
Other non-operating losses, net
Profit before tax
Income tax expense
Net profit
2019
2018
Change Change, %
8,143
(5,836)
2,307
2,500
(2,204)
296
2,021
(1,046)
975
116
(4)
(58)
3,632
2019
3,632
(966)
(611)
(442)
(341)
(55)
1,217
(328)
9
(56)
17
29
14
902
(537)
365
8,879
(5,613)
3,266
2,583
(2,215)
368
2,337
(1,042)
1,295
15
(8)
(111)
4,825
(736)
(223)
(959)
(83)
11
(72)
(316)
(4)
(320)
101
4
53
(1,193)
(8.3)
4.0
(29.4)
(3.2)
(0.5)
(19.6)
(13.5)
0.4
(24.7)
n/a
50.0
47.7
(24.7)
2018
Change Change,%
4,825
(1,013)
(546)
(30)
361
(69)
3,528
(341)
9
-
13
(10)
2
3,201
(731)
2,470
(1,193)
47
(65)
(412)
(702)
14
(2,311)
13
-
(56)
4
39
12
(2,299)
194
(2,105)
(24.7)
(4.6)
11.9
n/a
n/a
(20.3)
(65.5)
(3.8)
-
n/a
30.8
n/a
n/a
(71.8)
(26.5)
(85.2)
In 2019, selling and distribution expenses fell
by 4.6%, mostly due to the removal of tariffs
imposed on steel exports to US customers
of EVRAZ North America in 2018, albeit partly
offset by increased freight costs and port
charges. General and administrative expenses
climbed by 11.9% due to implementation
of projects for productivity increase (EVRAZ
Business System - Transformation, SAP
implementation, legal and IT) and consulting
services for these projects, a headcount increase
which was driven by the above mentioned
projects accompanied by wage indexation. This
was partly offset by the effect that depreciation
of the average rouble exchange rate had
on costs.
In 2019, EVRAZ recognised a US$442 million
impairment loss. As a result of impairment
testing at the level of cash-generating units,
EVRAZ recognised an impairment of goodwill
of US$300 million attributable to large diameter
pipes cash generating unit in the Steel, North
America segment. The impairment was caused
by a change to a more conservative fair value
model of valuation in recognition of an increase
in current market volatility. EVRAZ also decided
during 2019 to postpone the reopening of the
MUK-96 coal mine, a subsidiary of Raspadskaya
and, as a result, fully impaired the mining
assets of this mine. Additionally, EVRAZ wrote
off certain functionally obsolete property, plant
and equipment in 2019.
Foreign exchange losses amounted
to US$341 million and were primarily related
to intra-group loans denominated in roubles
payable by EVRAZ plc and Evraz Group S.A.,
US dollar functional currency companies,
to the Russian subsidiaries that have rouble
as a functional currency.
The year end appreciation of the Russian rouble
against the US dollar led to exchange losses
recognised in the income statements of non-
Russian subsidiaries, which were not offset
by exchange gains recognised in the income
statements of Russian subsidiaries.
Net interest expense incurred by the Group
fell to US$328 million in 2019, compared with
US$341 million in 2018. This was mainly due
to the management’s efforts to refinance existing
indebtedness at more favourable terms during
the reporting period.
30
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Additional information
In the first half of 2019 EVRAZ recognised
a partial impairment loss US$56 million
in relation to non-current financial assets of steel-
rolling mill located in Yartsevo, a town in Smolensk
region of Russia.
A net gain on disposal groups classified
as held for sale in the amount of US$29 million
arose on the disposal of three subsidiaries
and the non-current assets of a Yartsevo
rolling mill which were held for sale. The total
Cash flow, US$ million
consideration amounted to US$110 million,
while net assets disposed of were
US$38 million. In addition, US$42 million
of cumulative exchange losses were recycled
from other comprehensive income in equity
to the consolidated statement of operations
on disposal of foreign operations and transaction
costs amounted to US$1 million. For more details
please read Note 12 of the financial statements
at page 198.
During the reporting period, the Group had a current
income tax expense of US$540 million, compared
with US$679 million in 2018. This expense
included taxes withheld on dividends distributed
within the Group, which were US$178 million
in 2019 and US$53 million in 2018. The decrease
in the current income tax expense reflects the lower
operating results as compared with the previous
year.
Cash flows from operating activities before changes in working capital
Changes in working capital
Net cash flows from operating activities
Short-term deposits at banks, including interest
Purchases of property, plant and equipment and intangible assets
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs
Other investing activities
Net cash flows used in investing activities
Net cash flows used in financing activities
including dividends paid
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
Calculation of free cash flow, US$ million
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
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs
Other cash flows from investing activities
Free cash flow
2019
2,057
373
2,430
7
(762)
44
46
(665)
(1,415)
(1,086)
6
356
2019
2,601
2,615
373
(532)
(26)
2,430
(302)
(762)
44
46
1,456
2018
Change Change,%
3,063
(430)
2,633
11
(521)
52
80
(378)
(2,606)
(1,556)
(48)
(399)
(1,006)
803
(203)
(4)
(241)
(8)
(34)
(287)
1,191
470
54
755
(32.8)
n/a
(7.7)
(36.4)
46.3
(15.4)
(42.5)
75.9
(45.7)
(30.2)
n/a
n/a
2018
Change Change,%
3,777
3,773
(430)
(683)
(27)
2,633
(298)
(527)
52
80
1,940
(1,176)
(1,158)
803
151
1
(203)
(4)
(235)
(8)
(34)
(484)
(31.1)
(30.7)
n/a
(22.1)
(3.7)
(7.7)
1.3
44.6
(15.4)
(42.5)
(24.9)
In 2019, net cash flows from operating activities
decreased by 7.7% year-on-year. Free cash flow
for the period was US$1,456 million.
Increase of interest and similar payments by 1.3%
is mainly driven by premium on early repurchase
of bonds in 2019, partly offset by decrease
of interest paid on loans year-on-year.
For the definition of free cash flow,
please refer to page 251 of the Annual
Report 2019.
31
Annual report & accounts 2019 CAPEX and key projects
Capital expenditures in 2019, US$ million
In 2019, EVRAZ capital expenditure
increased to US$762 million, compared
with US$527 million a year earlier. Capital
expenditures for 2019 in millions of US dollars
can be summarised as follows.
Financing and liquidity
EVRAZ began 2019 with total debt
of US$4,638 million. By the end of the year,
the Group had completed several transactions
to extend its maturity profile and build up
a liquidity cushion in view of coming maturities
through 2021.
In March, EVRAZ completed an issuer
substitution, a capital markets transaction
intended to substitute EVRAZ plc
in place of Evraz Group S.A. as the issuer
of the outstanding Eurobonds in accordance
with their terms. Upon substitution, three major
international rating agencies assigned EVRAZ
plc and its notes credit ratings in line with those
of Evraz Group S.A. prior to the transaction.
In April, EVRAZ plc issued a US$700 million
Eurobond due in 2024 with a semi-annual
coupon of 5.25%. The proceeds were used
to fund the tender offer for the Eurobonds
due in 2020 that was completed in April
and the make whole call for the residual
outstanding balance of these notes that
was completed in May. As a result of these
transactions, EVRAZ effectively shifted 2020
maturities to 2024.
In April, EVRAZ repaid US$50 million in loans
from Sberbank due in 2019.
In June, the Group repaid RUB15,000 million
of 12.95% rouble bonds due in 2019
and respective cross-currency swaps, which
economically hedged the Group’s exposure
to currency risk.
DEVELOPMENT PROJECTS
Steel segment
Tashtagol iron ore mine upgrade at EVRAZ ZSMK mining site
The project aim is to increase annual ore production of Tashtakolsky deposit with partial
switch to sublevel caving using mobile equipment
Sobstvenno-Kachkanarsky deposit greenfield project
The project aim is to maintain raw ore production
Integrated flat casting and rolling facility at EVRAZ ZSMK
The project aim is to improve the profitability of EVRAZ product portfolio by replacing
semi-finished products with hot-rolled sheets and coils
Rail and beam mill modernisation at EVRAZ NTMK
The project aim is to increase production of beams and of sheet piles
Steel, North America segment
Long rail mill at EVRAZ Pueblo
The project aim is to replace the existing rail facility and meet customers’ interest
in long rail
Electric arc furnace (EAF) repowering at EVRAZ Regina
The project aim is to increase EVRAZ Regina’s prime coil and plate production
and reduce electrode consumption
Heat treatment at EVRAZ Red Deer
The project aim is to develop heat treatment capability to access a higher margin
market
Seamless threading at EVRAZ Pueblo
The project aim is to in-source seamless threading and coupling process from third-
party providers to improve cost competitiveness
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 PROJECTS
Steel segment
Blast furnace No. 6 major overhaul at EVRAZ NTMK
Converter No.4 technical performance improvement at EVRAZ ZSMK
Steel, North America segment
Steel reheat furnace at EVRAZ Regina
Other maintenance projects
Total
21
2
0.6
0.5
19
15
6
2
30
10
75
74
6
4
497
762
32
In August, EvrazHolding Finance LLC,
a finance subsidiary of the Group, issued
RUB20,000 million (around US$317 million
at the exchange rate on the transaction date)
in five-year, exchange-traded bonds due in 2024
with a 7.95% coupon payable semi-annually.
To manage the currency exposure on the rouble-
denominated bonds, the Group was able
to economically hedge these transactions using
cross-currency interest rate swaps, effectively
converting the liability exposure to US dollars.
In October and November, EVRAZ
raised two term loans of US$85 million
and US$265 million from Sberbank, both
due in 2025. Part of the proceeds were used
to refinance an existing US$85 million loan from
Alfa Bank.
Further, in November, EVRAZ obtained a new
loan from Alfa Bank of US$535 million due
in 2025. The Group used some of the proceeds
from this borrowing to refinance an existing
US$300 million loan from the same bank with
maturity in 2023.
At 1 January 2019, as a result of the application
of a new accounting standard, the Group
recognised US$118 million of lease liabilities,
which at recognition increased total debt
of the Group. Under the previous accounting
standard, these contracts were accounted
for as operating leases and were not recognised
as either assets or liabilities in the Group’s
Statement of Financial Position.
These transactions and accounting change,
together with several less significant borrowings,
resulted in an increase of total debt in 2019
by US$230 million to US$4,868 million.
During the reporting period, EVRAZ paid
an interim dividend to its shareholders
in the amount of US$577 million (US$0.40
per share) in H1 2019 and an interim dividend
in the amount of US$508 million (US$0.35 per
share) in H2 2019.
Despite the increase in total debt, net debt
decreased in 2019 by US$126 million
to US$3,445 million, compared with
US$3,571 million as at 31 December 2018.
Interest expense accrued in respect of loans,
bonds and notes amounted to US$231 million
in the period, compared with US$248 million
in 2018. The lower interest expense was mainly
due to the management’s efforts to refinance
existing indebtedness at more favourable terms
amid a strong performance of the debt markets.
The reduction of EBITDA in 2019 resulted
in a slight increase of the Group’s major
leverage metric, the ratio of net debt to EBITDA,
which was 1.3 times as at 31 December 2019,
compared with 0.9 times as at 31 December
2018.
As at 31 December 2019, debt with financial
maintenance covenants comprised various
bilateral facilities with a total outstanding
principal of around US$1,191 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 2019, EVRAZ was in full
compliance with its financial covenants.
As at 31 December 2019, cash amounted
to US$1,423 million, while short-term loans
and the current portion of long-term loans
stood at US$140 million. Total scheduled
debt maturities during 2020 do not exceed
US$52 million. The first sizeable maturities are
due in Q1 2021 and are comfortably covered
by cash balances.
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33
Annual report & accounts 2019 Principal risks and uncertainties
RISK MANAGEMENT SYSTEM
CEO
Board of Directors
Has ultimate responsibility for risk
management, ensuring that it is in place
and effectively functioning
• Has an oversight role
• Ensures that risk management processes are in place, adequate, effective
• Approves the risk appetite in accordance with the risk management methodology adopted
by EVRAZ
Risk Management Group
Audit Committee
Internal audit
Identifies, assesses and monitors Group-
wide risks and mitigation actions
• Supports the board in monitoring risk
exposure against risk appetite
• Reviews the effectiveness of risk
management and internal control systems
Supports the Audit Committee
in reviewing the effectiveness of risk
management and internal control
systems
TOP-DOWN APPROACH
Oversight, identification, assessment and management of risks at the corporate level
Effective risk
management
The risk management process aims to identify, evaluate
and manage potential and actual threats to the Group’s
ability to achieve its objectives
For more information,
read risk management
and internal control section
of the corporate governance
report on pages 116-117.
BOTTOM-UP APPROACH
Identification, assessment and management of risks at regional and site levels and across functions
Site levels
Regional business unit management teams
• Identification, assessment and mitigation of risks
• Promoting risk awareness and safety culture
• 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
34
RISKS MIGRATION
IN 2019 AND ROBUST
ASSESSMENT
In 2019, the 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 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.
The Group’s development plans are focused
on capital projects and depend on its
economic viability, efficiency and effectiveness
of execution, as well as availability
and cost of capital to finance the Group’s capital
expenditure. This risk was reassessed during
2019 to reflect the expanded portfolio of capital
projects being executed by the Group. As a result,
this has been classified as a principal risk. While
the Group’s internal controls address the risk,
additional control measures were adopted
to ensure the risk remained within the risk
appetite level.
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 related to 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.
In order to enhance its focus and control over
the Environmental, Social and Governance risks,
in 2020, the Group plans to initiate development
of the related strategies and policies:
Environmental and Climate Change Strategies,
and Human Rights and Diversity Policy. This will
provide more transparency on how the Group
addresses the related risks.
While the composition of the Group’s principal
risks has not changed substantially compared
with the previous year, a detailed analysis
of their impact and probability of negative
consequences for the Group has led
to a recalibration in the assessment of some
of the risks.
The UK formally left the EU on 31 January
2020 and now in the transition period until
end of 2020. The Group closely monitors
the situation and continues to believe that it will
not significantly affect its business.
Principal risks and uncertainties heat map in 2019
1. Global economic factors, industry
5. Functional currency devaluation
conditions and cyclicality
2. Product competition
3. Cost effectiveness
4. Potential regulatory actions
by Governments, incl. trade,
anti-monopoly, anti-dumping
regulation, sanctions regimes,
and other laws and regulations
Risk appetite level
6. HSE: environmental
7. HSE: health, safety
8. Business interruption
9. Digital effectiveness, effective,
efficient and continued IT service
10. Capital projects and expenditure
High
Medium
Low
Volatility
Speed of impact
Risk migration, yoy
5
4
3
2
1
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Key developments in 2019
and outlook for 2020
In 2019, the Group was focused on enhancing its
health and safety risk management methodology,
and this work will continue in 2020.
During the reporting period, there were various
initiatives implemented in the IT process focused
on improving risk management. For example, an IT
Security Operation Centre was created to process
IT security events. The process of managing risks
related to personal data protection has been
improved, strengthening the data protection
control system.
In 2020, in addition to continuing to implement
ongoing initiatives focused on risk management
improvement (in HSE, equipment maintenance
and repairs, procurement and other processes),
the Group plans to focus more on addressing
climate-related risks. The Group intends to begin
developing a climate change policy and strategy.
This will bring more transparency regarding how
the Group identifies, assesses and addresses
climate-related risks.
Environmental risk has always been a topic
of focus for the management and is recognised
as a principal risk for the Group. EVRAZ mitigates
it by implementing air emission reduction
programmes at plants, participating in developing
greenhouse gas emission regulations in Russia,
implementing energy efficiency projects
and, as a result, reducing greenhouse gas
emissions.
Read more in the CSR Report section
on pages 76-103 for more details.
SEVERITY
8
6
9
2
5
3
10
4
1
2
3
4
5
P
R
O
B
A
B
I
L
I
T
Y
1
7
35
Annual report & accounts 2019
PRINCIPAL RISKS AND UNCERTAINTIES
OUR BASIS
Strategic priorities
Sustainable 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
Decreased
Description and impact
Risk owner(s)
Mitigating/risk management actions
in 2019
Direction/ reason
for change
The risk is monitored
at the level of CEO,
as well as by the Strategy
Committee, Management
Committee, Budgeting
Committee and at other
levels
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, reducing and managing
the cost base with the objective of being
among the sector’s lowest-cost producers,
and balance sheet/gearing improvement.
In 2019, there were noted indictors
of risk realisation. At the same time,
the management actions noted reduced
the impact of the risk on the Company’s
business and operations.
VP Sales
Expand product portfolio and penetrate new
geographic and product markets.
Develop and improve loyalty and customer
focus programmes and initiatives.
Quality improvement initiatives.
Expand the share of value-added products.
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.
Risk
1.
Global economic
factors, industry
conditions
and cyclicality
2.
Product competition
36
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Corporate governance
Financial statements
Additional information
Risk
3.
Cost effectiveness
Description and impact
Risk owner(s)
Mitigating/risk management actions
in 2019
Direction/ reason
for change
Most of the Group’s steel production
remains sensitive to costs
and prices.
VPs of business
units, VP Commerce
and Business
Development
For both the mining and steelmaking
operations, the Group is implementing
cost-reduction projects to increase asset
competitiveness.
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.
New laws, regulations or other
requirements and regimes could
limit the Group’s ability to obtain
financing on international markets,
sell its products and purchase
equipment.
EVRAZ may also be adversely
affected by government sanctions
against Russian businesses
or otherwise reducing its
ability to conduct business
with counterparties.
Risk of adverse geopolitical
situations in countries of operation.
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.
4.
Potential
regulatory actions
by governments,
incl. trade, anti-
monopoly, anti-
dumping regulation,
sanctions regimes,
and other laws
and regulations
Focused investment policy aimed at reducing
and managing the cost base.
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.
VP Compliance
and Security, VP Legal,
VP Sales, VP Strategy
and others
Decreased due
to enhancement
of internal
compliance control
in 2019 to address
the associated
risks
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.
Ongoing control over regulatory
compliance, monitoring regulatory changes
and developing necessary controls.
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.
5.
Functional currency
devaluation
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.
The risk is monitored
at the level of the CFO
EVRAZ works to reduce the amount
of intergroup loans denominated in Russian
roubles to limit the possible devaluation
effect on its consolidated net income.
37
Annual report & accounts 2019 Description and impact
Risk owner(s)
Mitigating/risk management actions
in 2019
Direction/ reason
for change
Risk
6.
HSE: environmental
HSE Committee
at the Board
of Directors level, as well
as at the management
level
The environmental risk matrix is monitored
on a regular basis. Respective mitigation
activity is developed and performed
in response to the risks. Increased focus
of the top management on monthly
monitoring of environmental risk trends
and factors.
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.
Globally, there is an increase
in regulatory scrutiny and pressure,
as well as investor and customer
expectations.
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.
While there was a noted increase
in regulatory scrutiny and pressure resulting
in a heightened risk impact in 2019,
the management focus and mitigation
activity keeps the risk level unchanged.
Read pages 81 for more details.
Management KPIs place significant
emphasis on safety performance
and the standardisation of critical safety
programmes.
Implementation of 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.
In 2019, there were noted cases indicating
risk realisation. However, the management
focus on measures addressing the risk
is especially high.
Read pages 78 for more details.
7.
HSE: health, safety
HSE Committee
at the Board
of Directors level, as well
as at the management
level
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.
38
Risk
8.
Business
interruption
9.
Digital
effectiveness,
effective, efficient
and continued IT
service
10.
Capital projects
and expenditure
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Description and impact
Risk owner(s)
Mitigating/risk management actions
in 2019
Direction/ reason
for change
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, any long-term business
interruption may result in a loss
of customers and competitive
advantage, as well as damage
to the Group’s reputation.
A failure to proactively use
IT opportunities to increase
the efficiency of business operations
can result in a loss of competitive
advantage and margins.
Information technology
and information security risks have
the potential to cause prolonged
production delays or shutdowns.
At the same time, increased digital
transformation and the convergence
of IT and operational technology
makes companies more vulnerable.
The Group’s development plans
largely rely on capital projects
and depend on its economic
viability, efficiency and effectiveness
of execution, as well
as the availability and cost of capital
to finance the Group’s capital
expenditure.
Economic issues outside those
factored into the Group’s business
plans including regulatory approvals,
also may negatively impact
the Group’s anticipated free cash
flow and cause certain elements
of the planned capital expenditure
to be re-phased, deferred
or abandoned with consequential
impact on the Group’s planned
future performance.
In addition, the profitability of new
projects could be impacted by higher
than expected operating and life
of mine costs due to variables
such as lower than expected coal
and iron ore quality, coal seam
economics, and technical processing
and engineering factors.
VPs of business units
VPs of business units,
VP IT, IT Architecture
Committee
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.
Digital Transformation is a part of the IT
strategy.
Assessment and monitoring of risks
of information security, implementation
of related mitigation activity. Implementation
of mitigation measures upon completion
of external assessment by independent
advisor.
IT continuity regular testing for the most
critically important IT systems.
IT Security Operation Centre launched.
Decreased due
to enhancement
of information
security controls
in 2019.
In addition,
a Digital
Transformation
strategy was
developed
and made a part
of the IT strategy.
CFO, Strategy
Committee, Investment
Committee, VPs
of business units
Review all proposed capital projects
on a risk return basis.
Each project is presented for approval
against the Group’s risk matrix to assess
the downside in respect of each project
and any potential mitigating actions.
Increased to reflect
expanded portfolio
of capital projects
being executed
by the Group
Project delivery is closely monitored against
project plans resulting in high-level action
to manage project investment for both timely
delivery and planned project expenditure.
New mine development and definition
of feasibility plans are reviewed and signed
off by independent mining engineers.
Regularly revisit key assumptions of the main
investment projects and perform scenario
analysis, which may result in the suspension
and/or postponement of certain projects.
Financial modelling to define the strategy
of each individual asset and the enterprise
in general for the purpose of long-term FCF
forecasting, including investment projects.
The project management system’s
transformation is ongoing.
39
Annual report & accounts 2019 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 31 of the UK
Corporate Governance Code 2018, the Board
has assessed the Group’s prospects over
the period of the current strategic plan
to December 2024 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 Group’s resilience to the significant risks
set out on pages 34-39 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 186–188
– 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 -3.7% to 6.3% compared
with the 2019 level over the five-year
period to December 2024
• Global economic decline:
– Steel and raw material prices
and exchange rates during 2020
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
• Increased CAPEX
• Potential changes in HSE requirements
and standards
The assessment was underpinned by scenarios
that encompass a wide spectrum of potential
events. These scenarios are designed to explore
• 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 2024.
In making this statement, the directors have
made the following key assumptions:
• Funding or refinancing, by way of capital
markets, bank debt and asset financing,
continues to be available
• Selling prices remain in line with prevailing
market assumptions
40
Strategic report
Business review
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Corporate governance
Financial statements
Additional information
Statement in accordance with S172
of the Companies Act
The Board has considered in detail
the Company’s business model outlined
on pages 12-15 of this report, which identifies
the Company’s stakeholders as:
• Shareholders and investors
• Employees
• Customers
• Suppliers and contractors
• Local communities
• Government and regulatory authorities
• Media
• Industry organisations
The Board of EVRAZ recognises the benefit
of clear and precise engagement with
the Group’s stakeholders. Value is generated
through the Group’s core activities as outlined
in the discussion of its business model
on page 13.
The Group’s dividend policy anticipates dividend
payments to shareholders of US$300 million
per annum, provided that the Group’s net debt/
EBITDA ratio remains below 3x. In addition,
the Board may consider further distributions
of free cash flow available after implementing
its investment programme to support
the business.
The Group has an active IR programme
to enable shareholders to engage with
the Company and the Board, not only
on businesses issues but also any governance
concerns that they might have.
A capital markets day is also held each year
for the investment community, which covers
both the current performance and future plans,
as well as governance issues. Sir Michael Peat,
the senior independent non-executive director
and chairman of the Nominations Committee,
attended Capital Markets Day in October 2019
and presented on the Company’s corporate
governance structure as well as meeting with
investors; other independent non-executive
directors were in attendance. All shareholders
are welcomed at the AGM where all directors
are available to discuss any issues that they
might raise. The CEO, supported by the CFO,
held conference calls and briefed analysts
and institutional investors fully after
the publication of the Company’s half-year
and full-year results. Additionally, the CFO,
supported by the director for investor relations,
held a series of in-person meetings with
institutional investors during the year.
Engagement with employees remains key,
and the Board closely monitors the results
of the annual engagement survey which has
seen satisfactory levels of improvement.
Two independent non-executive directors
have taken responsibility for engaging with
employees in our businesses in North America
and Russia, respectively, and this is undertaken
by their attendance at key staff briefing events
and town hall meetings. Throughout the year,
senior management attend the Group’s board
meetings to present the annual budget for their
respective business units, and to present key
investment projects which require the Board
to approve significant capital expenditure
sums. All presentations made to the board
consider both the benefit to shareholders
of the proposal and the impact on other key
stakeholders. The Remuneration Committee
receives a detailed presentation from the Vice
President of HR, which outlines remuneration
and incentive plans across the whole business
at each level. A whistleblowing arrangement
is in place which allows staff to raise issues
in confidence, and the responses to the issues
are routinely monitored by the Audit Committee
who escalate key issues to the Board.
The Board established a Health, Safety
and Environment Committee in 2011 to help
it to monitor the Group’s Health, Safety
and Environment performance, as well
as the initiatives designed by management
to improve the Group’s performance in that
area. In addition, it considers the planned
actions that are necessary to reduce
the Group’s impact on the environment,
including the reduction of greenhouse
gas emissions. More details are available
on pages 81-87.
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.
All suppliers are treated in line with agreed
contract terms, and when new opportunities
come available then the Group has transparent
tendering procedures, to ensure new contracts
are awarded on a fair basis. The Board
is introducing a stakeholder impact analysis
for all proposals brought to its attention and will
include an analysis in the annual strategy
plan. The full range of EVRAZ Stakeholder
engagement is detailed on pages 118–119.
These actions assist the directors in performing
their duties under S172 of the Companies
Act 2006 and the analysis will confirm
to the Board that the impact of business
plans on all stakeholders is being considered
by management when developing initiatives
for Board approval.
41
Annual report & accounts 2019 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 The Group’s approach and policies
Documents
Related KPIs
Related
principal risks
HSE:
environmental
read more
on page 38
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.
EVRAZ HSE Policy
Code of Business Conduct
EVRAZ have adopted 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 crude steel
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 HSE Policy
LTIFR (per 1 million hours)
Code of Business Conduct
Labour productivity, steel (tonnes per
person)
HSE: health
and safety
read more
on page 38
Social Investments Guidelines
Fulfilment of the Group’s social
obligations towards its employees, which
were fixed in the collective agreements.
Interaction with local communities
in the regions of the Group’s presence
during the implementation of various
CSR related projects.
Global economic
factors, industry
conditions
and cyclicality
Business
interruption
read more
on pages 36, 39
Environment
Further
information:
Environment,
read more
on pages
81–87
Employees
Further
information:
Our people,
read more
on pages
90–95
Health
and safety,
read more
on pages
78–80
Social policy
Further
information:
Community
relations.
read more
on pages
96-101
42
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Requirement The Group’s approach and policies
Documents
Related KPIs
Respect
for human
rights
Further
information:
Our approach,
read more on
pages 76-77
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.
Code of Business Conduct
Zero tolerance to violation.
Modern Slavery Transparency
Statement
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.
Anti-
corruption
and anti-
bribery
Further
information:
Anti-corruption
and anti-bribery,
read more
on pages
102-103
A short
summary
of relevant
anti-corruption
policies,
read more
on page 257
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
Related
principal risks
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.
For EVRAZ business model,
relationships and products,
Read more on pages 12-13, 46-69.
For the Group’s related risks and how
they are managed, read the Principal
risks section on pages 34-39.
EVRAZ Strategic Report, as set out on pages 6-
43 inclusive, has been reviewed and was
approved by the Board of Directors on 26
February 2020.
Alexander Frolov
Chief Executive Officer
EVRAZ plc
By the order of the Board
26 February 2020
43
Annual report & accounts 2019 Business review
Focusing on
efficiency
for a Better
Future
Bugrinsky Road bridge
Novosibirsk, Russia
Focusing on
efficiency
Steel
segment
Introduction
and highlights
EVRAZ
Nikom
CZECH
REPUBLIC
Our goals
• Be a leader on the Russian construction
steel market
• Secure a leadership position on the Russian
rail market
• Be an efficient producer of steel products
for infrastructure projects
EVRAZ is No. 1
among rail suppliers
and the leader in the
construction steel
market in Russia.
The Steel segment’s
primary focus is
producing steel in
the CIS from closely
located raw materials
to serve the domestic
infrastructure and
construction market
while maintaining
export flexibility.
46
EVRAZ
Vanady-Tula
EVRAZ
ZSMK
EVRAZ
NTMK
EVRAZ
Caspian
Steel
EVRAZ
KGOK
Urals Division
Siberia Division
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Iron ore
Iron ore products
Slabs, billets
Construction products
Railway products
Vanadium products
KAZAKHSTAN
Production highlights
Sales highlights1
Crude steel
11,953 kt
Steel products
11,018 kt
Finished products
6,439 kt
Iron ore products
1,895 kt
Iron ore products
13,765 kt
Vanadium slag
18,380 kt
Semi-finished
products
5,636 kt
Vanadium final
products
12,883 kt
Financial highlights
Revenues
US$
8,143
million
1.
Sales to third parties only.
EBITDA
US$
1,795
million
EBITDA margin
22.0%
CAPEX
US$
395
million
47
Annual report & accounts 2019
STRATEGIC PRIORITIES
PRUDENT CAPEX
KEY INVESTMENT PROJECTS
Steelmaking
Mining
Rail and beam mill modernisation
at EVRAZ NTMK
Increase production of beams, sheet piles
and HH rails.
Key developments in 2019
Mill equipment supplier selected, ‘Define’ phase
approved and contract signed.
CAPEX in 2019: US$0.5m
Integrated flat casting and rolling facility
at EVRAZ ZSMK
Improve the profitability of EVRAZ’ product
portfolio by replacing semi-finished products
with hot-rolled sheets and coils a year.
Key developments in 2019
Technical proposals developed for engineering
and equipment supply.
Budget and project scope clarified based
on proposals from equipment suppliers.
Sobstvenno-Kachkanarsky deposit
greenfield project
Maintain raw ore production.
Key developments in 2019
Working documentation developed, land lease
issued.
CAPEX in 2019: US$2 million
Tashtagolsky deposit reconstruction
at EVRAZ ZSMK mining site
Increase annual ore production of Tashtakolsky
deposit with partial switch to sublevel caving
using mobile equipment.
Key developments in 2019
Subsoil use licence acquired to explore
and mine iron ore.
Design documentation developed
and submitted to relevant government agencies
for consideration.
Main technical and economic indicators
developed for production of flat products with
potential technology suppliers.
Basic technological equipment supplied.
CAPEX in 2019: US$21m
CAPEX in 2019: US$0.6m
KEY MAINTENANCE PROJECTS
Blast furnace No. 6 major overhaul
at EVRAZ NTMK
Maintain pig iron production volumes.
Key developments in 2019
Strengthened foundation of axial cyclone
and central hub, installed furnace shell and air
heaters.
CAPEX in 2019: US$74.0 million
Read more on page 23
48
Converter No. 4 technical performance
improvement at EVRAZ ZSMK
Extend operations of converter No. 4
and improve technical and economic
performance with replacement of drive, waste
heat boiler, gas purification and upgrade of gas
exhaust path.
Key developments in 2019
Selected main equipment suppliers.
Received equipment for waste heat boiler, has
purification and gas exhaust at warehouse.
Selected contractor to replace waste heat boiler
and gas exhaust.
Started top assembly of waste heat boiler.
CAPEX in 2019: US$6 million
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
RETENTION
OF LOW-COST
POSITION
DEVELOPMENT
OF PRODUCT PORTFOLIO
AND CUSTOMER BASE
During the year, our operations focused
on adjusting controllable costs.
Rails
EXPANSION OF RAILWAY PRODUCT PORTFOLIO
These programmes delivered
US$
175
million
in benefit in 2019
Key developments in 2019
Developed premium hardness innovative G2HH
steel for RE136 and 60E1 rails.
Outlook for 2020
Plan to develop R75 DT 350 rail profile
for Russian Railways.
Received Railway Equipment Registry
certification for R65 DT 400 IK rails.
IMPROVING BEAM CONSUMPTION
Key developments in 2019
Developed production of H-beams to EN
standards for customers in Russia (180HE,
200HE).
Outlook for 2020
Plan to expand product portfolio in the small
beams with several new profiles for Russian
market.
Launched regional beam storage hubs
to significantly improve market availability
of profiles.
Launched IT resource for online tracking of beam
availability in hubs and dealers warehouses.
Plan to launch hub at EVRAZ NTMK and Service
Metal Centre in Moscow.
INDUSTRIAL PRODUCT PORTFOLIO EXPANSION
Key developments in 2019
Developed 20x180 mm and 25x200 mm metal
strips.
Expanded range of structural circles and squares
to include 12 new profiles.
Outlook for 2020
Plan to develop SVP-33 mine column profile.
Plan to start commercial sales of grinding ball
of fifth hardness group, including entrance
to export markets.
Obtained grinding ball of fifth hardness group
in production and sent to customer for tests.
Read more on page 24
Read more on page 25
49
Annual report & accounts 2019 MARKET REVIEW
Russian Steel market
While the Russian economy demonstrated
moderate 1.3% GDP growth in 2019,
the government’s national projects are expected
to foster economic growth in the country
in the coming years. The domestic steel
market expanded by 8% to 44.9 million tonnes.
Consumption of long products climbed
by 8% to 18.2 million tonnes, driven
by higher construction activity amid changes
in the financing of real estate. Developers
have accelerated the implementation
of existing projects to complete them before
the new rules come into force. Demand for flat
and tubular products grew by a respective
8% to 15.2 million tonnes and 10%
to 11.5 million tonnes. In the railway segment,
wheel consumption surged by 22%, supported
by continued strong demand from railcar
producers and repair companies. The rail
market rose by 3% due to higher demand from
both Russian Railways and other consumers.
In the construction segment, demand
for beam and rebar climbed by 16% and 13%
respectively, while the consumption of structural
products was down by 3%.
In 2019, strong domestic consumption
and widespread trade barriers in foreign steel
markets pushed export sales down by 12%
to 27.1 million tonnes.
Total crude steel production in Russia remained
at the level of 72.0 million tonnes in 2019.
During the period, steel prices in Russia
followed global trends with average levels than
in 2018. The CPT Moscow rebar benchmark
was down by 5%, averaging US$469 per tonne
versus US$493 per tonne in 2018. Channel
prices dropped by 17% to US$582 per tonne
in 2019, compared with US$698 per tonne
the previous year. Prices for HRC and plate also
fell by a respective 4% to US$553 per tonne
and 4% to US$561 per tonne.
Other steel markets
Steel consumption in Kazakhstan edged
down by 13% to 3.2 million tonnes.
Exports from the country plunged by 15%
to 2.7 million tonnes due to the reduction
of output by Kazakhstan’s leading producer,
ArcelorMittal Temirtau.
50
Russian steel consumption by product type, mt
2019
2018
2017
2016
2015
15.2
18.2
14.0
14.1
13.2
13.0
16.9
16.4
15.4
16.0
44.9
10.5
10.6
11.5
41.1
40.8
10.2
11.3
38.8
40.3
Flat
Long
Tubular
Russian steel prices, US$/t
800
700
600
500
400
300
2012
2018
2019
Rebar
HRC
Plate
Channels
SALES VOLUMES
REVIEW
In 2019, the external sales of the Group’s Steel
segment climbed by 10% to 12.1 million tonnes.
This growth is explained by higher pig iron
production as blast furnace No. 7, launched
in 2018 at EVRAZ NTMK, reached its target
production volumes. Sales of semi-finished
products to third parties soared by 20%. During
the period, sales of railway products grew by 4%,
supported by stronger demand in both the wheel
and rail markets. External sales of construction
products increased by 3% due to the higher
domestic demand.
Most of Steel segment’s key products sales
in Russia strengthened in 2019, buoyed by solid
domestic demand. As result of continued elevated
railcar production and a number of overhauls,
railway wheel sales rose by 16%. Rail sales
climbed by 4%, mainly due to higher supplies
to Russian Railways. The Group’s customer
focus efforts aimed to promote the use of beams
by improving their availability for clients and selling
directly to large infrastructure projects, driving
beam sales up 21% in 2019. Rebar sales slightly
corrected by 1%. Structural products sales
edged down by 1% due to heightened market
competition.
EVRAZ aims to maintain and develop leading
positions on the Russian rail market and in steel
products in Siberia. In 2019, competition
increased for the Steel segment’s key products.
The Group’s market share in rails corrected
to 76%, compared with 77% in the previous
year and the market share for rail wheels edged
down by 1 percentage point to 28% during
the period. Meanwhile, the market share in beams
surged by 5 percentage points to 68% in 2019.
In structural products, the market share dropped
from 42% to 40% in 2019. Meanwhile, the market
share in grinding balls rose from 62% to 63%.
In 2019, EVRAZ Caspian Steel’s rebar sales
jumped by 65% to 290 thousand tonnes amid
dwindling shipments from its main competitor.
The Group’s finished vanadium product sales
volumes climbed by 4% to 12.9 thousand tonnes
in 2019, compared with 12.4 thousand tonnes
of pure vanadium in 2018, mainly as a result
of customer base expansion and moderately
strong demand on Asian markets in H2 2019,
while vanadium consumption in the EU, North
America and the CIS was stagnant.
As a vertically integrated group, EVRAZ focuses
on the internal consumption of its own iron ore
products. In 2019, total iron ore product sales
dropped by 5% to 1.9 million tonnes due to higher
pig iron production at EVRAZ steel assets.
Strategic report
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Corporate governance
Financial statements
Additional information
EVRAZ market shares in Russia by key products, %
Railway
wheels
Rails
Grinding
balls
2019
2018
28%
29%
2019
2018
76%
77%
2019
2018
63%
62%
Structural
shapes
Beams
Rebar
2019
2018
40%
42%
2019
2018
68%
63%
2019
2018
9%
9%
Sales volumes of Steel segment, ‘000 tonnes
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
Iron ore products1
Sinter
Pellets
Other iron ore products
Vanadium products (tonnes of pure vanadium)1
Vanadium in slag
Vanadium in alloys and chemicals
2019
12,075
5,636
3,800
1,393
622
624
318
12,393
1,895
759
1,134
2
19,334
6,451
12,883
2018
10,980
4,703
3,697
1,344
617
619
573
11,553
1,986
8
1,972
6
19,053
6,701
12,352
1.
There are some differences from the figures for 2018 that were published in the previous annual report due to adjustments in the sales volumes.
Change, %
10.0
19.8
2.8
3.6
0.8
0.8
(44.5)
7.3
(4.6)
n/a
(42.5)
(66.7)
1.5
(3.7)
4.3
51
Annual report & accounts 2019
FINANCIAL PERFORMANCE
Sales review
In 2019, revenues from the Steel segment
dropped by 8.3% to US$8,143 million,
compared with US$8,879 million a year earlier.
The segment’s revenues were impacted
by a sharp reduction in sales prices for vanadium
products, as well as a slight dip in construction
and flat-rolled sales prices, which was partly offset
by higher sales prices for railway products.
External revenues from flat-rolled products
fell by 7.0%. A 7.7% decrease was attributed
to a drop in average prices, which was partly offset
by a 0.8% increase due to sales volumes amid
lower market demand.
The share of sales to the Russian market grew
from 49.5% in 2018 to 50.6% in 2019, mainly due
to a decline of sales to Europe and Africa, America
and the rest of the world.
Revenues from sales of construction products
to third parties fell by 5.0%: a 7.8% decrease was
attributed to a reduction in average prices, which
was partly offset by a 2.8% increase due to higher
sales volumes amid active construction in Russia
and CIS.
Steel segment revenues from sales of iron
ore products dropped by 25.2%. This was due
to a 20.6% decrease in sales prices, as well
as 4.6% sales volumes reduction, primarily
as a result of higher internal consumption
of pellets in 2019 by EVRAZ NTMK after
the launch of blast furnace No. 7 in Q2 2018
and by EVRAZ ZSMK amid higher pig iron
production. In 2019, around 66.6% of EVRAZ
iron ore consumption in steelmaking came from
the Group’s own operations, compared with
70.2% a year earlier.
Steel segment revenues from sales of vanadium
products dropped by 43.8%, primarily due
to a 45.1% downturn in sales prices in line with
market trends. Ferrovanadium prices dropped
along with the London Metal Bulletin and Ryan’s
Notes quotations, while vanadium slag prices fell
along with vanadium pentoxide (V2О5) quotations.
Prices for oxides plunged by 67% (more than
the average quotations), as the majority of sales
took place in H2 2019, when quotations were
lower than the average for the full year.
Revenues from external sales of railway products
rose due to an 18.8% increase in prices,
which was supported by sales volume growth
of 3.6%. A key driver of higher railway product
prices and sales volumes during the reporting
period was greater demand for rails and wheels
on the Russian market and better demand for rails
in Asian and African markets, albeit partly offset
by lower rail export volumes to the US market.
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
Geographic breakdown of external steel product sales, US$ million
Russia
Asia
Europe
CIS
Africa, America and rest of the world
Total
2019
3,358
2,028
492
565
195
6,638
2018
3,258
1,810
653
482
377
6,580
Change,%
3.1
12.0
(24.7)
17.2
(48.3)
0.9
2019
2018
US$ million % of total segment
revenues
US$ million % of total segment
revenues
Change,%
6,638
2,528
2,166
1,181
386
377
168
154
190
648
499
8,143
81.5
31.0
26.6
14.5
4.7
4.7
2.1
1.9
2.3
8.0
6.1
100.0
6,580
2,521
2,280
965
415
399
334
321
254
1,152
559
8,879
74.1
28.4
25.7
10.9
4.7
4.4
3.8
3.6
2.9
13.0
6.3
100.0
0.9
0.3
(5.0)
22.4
(7.0)
(5.5)
(49.7)
(52.0)
(25.2)
(43.8)
(10.7)
(8.3)
Includes billets, slabs, pig iron, pipe blanks and other semi-finished products.
Includes rebar, wire rods, wire, beams, channels and angles.
Includes rails, wheels, tyres and other railway products.
Includes commodity plate and other flat-rolled products.
Includes rounds, grinding balls, mine uprights and strips.
1.
2.
3.
4.
5.
52
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Steel segment cost of revenues
• Transportation costs climbed by 11.7%,
In 2019, the Steel segment’s cost of revenues
increased by 4.0% year-on-year. The main
reasons for the increase were:
• The cost of raw materials rose by 3.3%,
mainly due to higher costs of iron ore (up
46.3%) due to price increases, higher pig
iron production volumes and a greater share
of more expensive pellets, which was partly
offset by lower use of purchased iron ore.
• Scrap costs climbed by 5.5% due to higher
steel production volumes and higher prices
for scrap, which was partly offset by lower
use of scrap and increased use of pig iron.
• 10.5% reduction in coking coal costs resulted
from improvements in the coal structure
(a smaller share of the more expensive coal
concentrate) and lower prices.
• Costs for auxiliary materials grew by 6.7%,
mainly due to higher refractories price
and volumes of consumption amid increase
of EVRAZ NTMK’s coke and blast-furnace
shops production.
Steel segment cost of revenues
Cost of revenues
Raw materials
Iron ore
Coking coal
Scrap
Other raw materials
Auxiliary materials
Services
Transportation
Staff costs
Depreciation
Energy
Other1
primarily due to increase in average railway
tariffs and increased rail transportation amid
higher primary and secondary concentrate
production at EVRAZ ZSMK.
• Other costs were up 5.4%, largely because
of a decrease of the work in progress balance
compared with 2018 amid lower steel prices
and scrap stock.
Steel segment gross profit
The Steel segment’s gross profit declined
by 29.4% year-on-year, to US$2,307 million,
primarily due to lower vanadium and steel
prices.
2019
US$ million
% of segment
revenue
2018
US$ million
% of segment
revenue
Change,%
5,836
2,577
540
1,082
542
413
366
277
457
501
227
439
992
71.7
31.6
6.6
13.3
6.7
5.0
4.5
3.4
5.6
6.2
2.8
5.4
12.2
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
1.
Includes goods for resale, changes in work in progress and finished goods, taxes in cost of revenues, semi-finished products, allowance for inventory and intersegment unrealised profit.
4.0
3.3
46.3
(10.5)
5.5
3.0
6.7
(2.5)
11.7
2.0
2.3
2.3
5.4
53
Annual report & accounts 2019 EVRAZ steel
across
the globe
14
15
13
7
10
1
8
12
9
5.0
6 11
2
5
4
3
North America
BART high-speed t rain system (Bay Area Rapid Transit)
1 BART high-speed t rain system (Bay Area Rapid Transit)
(San Francisco, US)
(San Francisco, US)
2 RTD regional road network (Denver, US)
3 Texas Capital metro (Texas, US)
4 Enbridge Flanagan South oil pipeline (From Illinois to Oklahoma, US)
5 Kinder Morgan Rockies Express gas pipeline (From Colorado to Ohio, US)
6 Dakota Access oil pipeline (North Dakota, South Dakota and Illinois, US)
7 Seattle-Portland passenger rail Point Defiance Bypass Project
(Lakewood, Washington, US)
8 Water supply pipe, AMERON project (Southern California, US)
9 Apple headquarters (California, US)
10 Barges at the Gunderson Marine Shipyard (Portland, US)
11 250,000 barrel oil tanks, Great Basin Industrial project (North
Dakota, US)
12 Wilshire Tower high-rise (Los Angeles, US)
13 Southwest Light Rail Transit Minnesota
14 Oil tank floating roof (Calgary Cove, Alberta, Canada)
15 TC Energy pipeline (Canada)
54
South America
16 Vli Rail Operator (Brazil)
17 Rumo ALL Railway (Brazil)
18 Road for Klabin pulp and paper company (Brazil)
17
16
18
34
54
45
62
59
53
60
50
46
47
35
52
38
48
43
63
56
23 25
20
21
42
39
40
49
55
65
41
58
57
61
33
32
51
44
64
36
37
68
19
30
31
27
29
26
24
28
22
69
71
70
66
67
14
15
13
7
10
1
8
12
9
5.0
6 11
2
5
4
3
Annual report & Accounts 2019
Europe
19 Turkish State Railway (TCDD) (Turkey)
20 Deutsche Bahn (Germany)
21 Czech Railways (České dráhy) (Czech Republic)
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Additional information
Russia
32 Pella Shipyard (Leningrad region)
33 October Railways (Moscow, St Petersburg)
34 Sabetta Airport (Yamal)
35 KAMAZ Corporation (Naberezhnye Chelny)
36 Sports facilities of the XII Winter Olympics (Sochi)
37 Adler-Krasnaya Polyana Railway (Sochi)
38 Burginsky bridge (Novosibirsk)
39 Seversk NPP (Tomsk region)
40 West Siberian and Far Eastern Railways (Siberia, Russian Far East)
41 Vostochny Cosmodrome (Amursk region)
42 Universiade 2019 sports facilities (Krasnoyarsk)
43 Novovoronezh NPP (Voronezh)
44 Petersburg metro (St Petersburg)
45 Yekaterinburg metro (Ekaterinburg)
46 Kazan metro (Kazan)
47 Samara metro (Samara)
48 Novosibirsk metro (Novosibirsk)
49 Baikal-Amur Railway (Siberia, Russian Far East)
50 Jubilee Stadium, 2018 FIFA World Cup (Saransk)
51 Lakhta Centre (St Petersburg)
52 Omsk Oil Refinery (Omsk)
53 Moscow Oil Refinery (Moscow)
54 Gross Gold Mine (Yakutia)
55 Airport (Sakhalin)
56 Airport (Saratov)
57 Mirny Cosmodrome (Plesetsk)
58 Kola Shipyard (Murmansk)
59 Terminal C, Sheremetyevo Airport (Moscow)
60 Kstovo Refinery (Kstovo)
61 Blast furnace (Cherepovets)
62 FOK Skolkovo (Moscow)
63 Kursk NPP (Kursk region)
64 Ice Palace (Astrakhan)
65 Warehouse complex for Sakhalin Energy (Sakhalin)
58
61
33
32
51
44
57
45
62
59
53
60
50
46
47
35
34
42
39
40
49
52
38
48
43
63
56
23 25
64
36
37
19
30
31
27
29
26
24
28
20
21
22
69
68
54
71
55
65
41
17
16
18
Africa
22 INFRAFER railway company (Algeria)
CIS
23 Abu Dhabi Plaza Complex (Astana, Kazakhstan)
24 Diar-Dushanbe Tourist Information Center (Dushanbe, Tajikistan)
25 Cote d’Azur residential complex (Astana, Kazakhstan)
26 Dushanbe-2 CHP (Dushanbe, Tajikistan)
27 Natural gas processing plant (Ashgabat, Turkmenistan)
28 Rogun Hydroelectric Station (Tajikistan)
29 Tashkent metro (Tashkent, Uzbekistan)
30 Floating platforms at the Bank of Darwin field in the Caspian Sea
(Azerbaijan)
31 Polyethylene and polypropene production plant (Turkmenistan)
Asia
66 Sultan Abdul Aziz Shah Airport SkyPark Terminal (Kuala Lumpur,
Malaysia)
67 Railway construction project in Pare-Pare (Indonesia)
68 Riyadh metro (Saudi Arabia)
69 Delhi metro (DMRC) (India)
70 Reconstruction of the Hanoi-Ho Chi Minh Railway (Vietnam)
71 Taipei LRT (light rail) (Taiwan)
70
66
67
55
Coal
segment
Introduction
and highlights
Product portfolio
The product portfolio comprises a wide range of coking coal
blends, including hard, semi-hard and semi-soft
Our goals
• Work safely and ensure growth by using innovative
technology and methods
• Achieve 100% self-sufficiency in all coal grades and expand
the product portfolio in insufficient grades
• Maintain cash costs in the first quartile of the cost curve
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
Asia and Europe.
56
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Business review
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Financial statements
Additional information
Mezhegeyugol
Raspadskaya
RUSSIA
Yuzhkuzbassugol
Raw coking coal
Coking coal concentrate
Production highlights
Sales highlights1
Raw coking
coal
26,140 kt
Coking coal
concentrate
13,975 kt
Raw coking
coal
2,211 kt
Coking coal
concentrate
8,841 kt
Financial highlights
Revenues
US$
2,021
million
1.
Sales to third parties only.
EBITDA
US$
843
million
EBITDA margin
41.7%
CAPEX
US$
226
million
57
Annual report & accounts 2019
STRATEGIC PRIORITIES
PRUDENT CAPEX
RETENTION
OF LOW-COST
POSITION
KEY INVESTMENT PROJECTS
MAIN COST-REDUCTION PROGRAMMES
ACCESS AND DEVELOPMENT
OF RESERVES IN USKOVSKAYA
MINE’S SEAM NO. 48
Preparation of reserves in seam No. 48
to maintain current coal production level beyond
2020.
Key developments in 2019
The begining of preparation of longwall 48-08.
The contract for supplying of the mechanised
complex is signed.
ACCESS AND DEVELOPMENT
OF RESERVES IN ESAULSKAYA
MINE’S SEAM NO. 29A
Switch from mining reserves on seam No. 26
to seam No. 29a.
Increase annual coal production to 2.5 mt after
2020.
Key developments in 2019
The main volume of development works
to launch the longwall 29-37 was complited.
CAPEX in 2019: US$30 million
CAPEX in 2019: US$10 million
OPTIMISATION OF PRODUCTION FLOW
AT WASHING PLANTS
Key developments in 2019
Installation of chamber filter press
at Kuznetskaya washing plant provided
the increasing of concentrate yield by 0.2%.
Launching of flotation at Abashevskaya washing
plant provided increasing concentrate yield
by 1.3%.
Improving of productivity of Raspadskaya
washing plant through EBS efforts
and by eliminating logistical bottlenecks
(additional warehouses and shipment capacity).
REDUCTION OF LONG-WALL MOVE
PERIOD
Key developments in 2019
Using of Pettito mules to reduce the long-wall
removement period at Raspadskaya mine
by 11 days.
Using of substitute mechanised complex JOY-1
at Erunakovskaya mine to reduce the long-wall
removement period by 30 days.
Read more on page 23
Read more on page 24
58
Strategic report
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Additional information
DEVELOPMENT
OF PRODUCT PORTFOLIO
AND CUSTOMER BASE
MAIN COST-REDUCTION PROGRAMMES
MAINTAINING THE POSITION OF THE LARGEST COAL SUPPLIER IN RUSSIA
OPTIMISATION OF EXPENSES
FOR AUXILIARY MATERIALS
AND INDUSTRIAL SERVICES
Key developments in 2019
Substitution of contractors at open-pit mining
by improving productivity of own equipment
fleet.
Optimising of usage rate of auxiliary materials
at production processes and improving
the share of recycling.
Reducing the costs of equipment repairs
and technical services by controlling of the work
of organisations, performing repairs, as well
as by increasing the duration of daily scheduled
preventative maintenance done in-house.
IMPROVEMENT OF DEVELOPMENT
WORK RATE
Key developments in 2019
Improving the development work rate
by 10% overall at the Group by upgrading
the development equipment.
These programmes have resulted
in approximately
US$
72
million
in benefit in 2019
Key developments in 2019
Boosted raw coking coal production volumes
by 8.1% and coal product sales volumes
by 3.1%.
Outlook for 2020
Achieve total production volumes
of c. 24 million tonnes.
Reach total commercial product sales of more
than 20 million tonnes.
Increase shipments to EVRAZ steelmaking
production facilities.
Improve EVRAZ self-sufficiency in coal.
Outlook for 2020
Increase export sales to Southeast Asia.
Partnerships development with key customers
in China and India.
Maintain shipments to key customers in Eastern
Europe and Turkey.
Improved efficiency and yield at washing plants
(flotation at Abashevskaya washing plant).
Modernised washing plants to improve
concentrate quality.
Increased premium. hard coking coal
production volumes by launching longwall
mining at Raspadskaya-Koksovaya mine.
Improved EVRAZ self-sufficiency in coal
to 74% after expanding production of K-grade
coal at Raspadskaya-Koksovaya mine
by 66% and increasing share of KS-grade coal
in EVRAZ NTMK’s charge.
EXPANSION OF THE EXPORT PORTFOLIO
Key developments in 2019
EVRAZ achieved its targets for 2019 export
sales by:
• Maintaining flexible sales geography
• Prioritising export routes to: Japan, South
Korea, Vietnam, Indonesia and countries
in Eastern Europe.
Exports to Asia grew by 12%.
Organised a stable access to the Baltic ports
for coal products transshipment.
Signed agreements with ports in Russia’s
Far East in addition to Nakhodka Trade Sea Port
for 2020.
Read more on page 25
59
Annual report & accounts 2019 MARKET REVIEW
SALES VOLUMES REVIEW
In 2019, Russian coking coal concentrate
consumption remained mostly at the level
of 36.9 million tonnes. Russian coal exports
climbed by 7% to 27.0 million tonnes due
to favourable conditions on Asian steel markets.
During the period, Russian domestic prices
followed the downward trend on the global
coking coal market. As result, the premium
Zh-grade coking coal dropped by 14%
and averaged US$137 per tonne. Prices
for GZh-grade coking coal fell by 12%
to US$100 per tonne.
Domestic coking coal concentrate
consumption, mt
In 2019, the Group’s coal products sales rose
by 3% to 17.6 million tonnes, mainly due to higher
production volumes at the Raspadskaya-
Koksovaya, Uskovskaya and Alardinskaya mines.
Inter-segment coal products sales increased
by 8% to 6.6 million tonnes, as EVRAZ focuses
on maximising supplies to the Group. Total
external coal products sales remained at the level
of the previous year of 11.1 million tonnes.
Export sales moved up just by 1% to 7.7 million
tonnes in 2019. EVRAZ significantly rose its
supplies to Asian countries by 12%, meanwhile this
growth was offset by lower sales to Europe.
On the domestic market, EVRAZ remains
the leading coking coal producer with an average
22% market share in all coal grades.
2019
2018
2017
2016
2015
Coal prices, US$/t
36.9
37.0
38.5
38.3
38.8
200
150
100
50
2013
2018
2019
GZh
Zh (mono-concentrate)
GZh+Zh
Sales volumes of Coal segment, ‘000 tonnes
Coal products, external sales
Coking coal
Coal concentrate and other products
Steam coal
Coal products, inter-segment sales
Coking coal
Coal concentrate
Total, coal products
2019
11,053
2,211
8,841
1
6,569
2,044
4,525
17,622
2018
Change, %
11,048
1,690
9,323
35
6,016
1,863
4,153
17,064
0.0
30.8
(5.2)
(97.1)
9.2
9.7
9.0
3.3
EVRAZ market share in Russia’s
high-vol coking coal grades, %
HCC
SHCC
Average
2019
2018
2019
2018
2019
2018
27%
29%
31%
40%
22%
22%
60
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Additional information
FINANCIAL PERFORMANCE
Sales review
The segment’s overall revenues decreased due
to falling sales prices as global market trends
remained weak. This was driven by soft demand
for coal and declining prices amid over supply.
A reduction in revenues from inter-segment
sales of coal products was primarily caused
by a 15.1% drop in prices, albeit partly offset
by a 9.2% rise in sales volumes. Coking coal sales
rose by 3.3% due to higher sales of the K grade
to EVRAZ ZSMK, driven by the switch to a new
mining method (longwall) for this grade. Coal
concentrate volumes grew by 9.0% due to greater
sales of the OS, K and KS grades to EVRAZ NTMK,
driven by the policy of coal self-sufficiency.
The latter was partly offset by a 16.5% drop
in prices in line with global trends.
Revenues from external sales of coal products
fell by 16.9% due to a drop in prices, mostly
attributable to lower demand for coal concentrate
in Russia, CIS and European countries amid
reduced steel production.
In 2019, the Coal segment’s sales to the Steel
segment amounted to US$730 million (36.1%
Coal segment revenues by product
of total sales), compared with US$776 million
(33.2%) a year earlier.
During the reporting period, roughly 74.1%
of EVRAZ coking coal consumption in steelmaking
came from the Group’s own operations, compared
with 68.8% in 2018.
Coal segment cost of revenues
The main drivers of the year-on-year increase
in the Coal segment’s cost of revenues were
as follows:
• The consumption of auxiliary materials rose
by 16.9% due to increased purchases amid
higher coal production at Raspadskaya.
• Costs for services dropped by 24.8% due
to a reclassification of transportation
costs related to overburden removal
at the Raspadsky open pit to transportation
costs in 2019. Such costs were separated
from other transportation costs accounting
for the use of economic analysis.
• Transportation costs grew by 10.0%
in the reporting period, primarily due
to the reclassification of overburden removal
at the Raspadsky open pit costs from services
to transportation, as well as the organisation
and maintenance of temporary sites
for warehousing and storing coal
at Raspadskaya.
• Staff costs climbed by 15.5%, mainly due
to headcount growth driven by higher
production volumes and wage indexation.
• Depreciation and depletion costs rose,
primarily due to higher production volumes
at Raspadskaya, Uskovskaya, Alardinskaya,
Erunakovskaya and Osinnikovskaya
mines and increase of capital expenditure
at Osinnikovskaya and Raspadskaya mines
started from Q4 2018, as well as the effect
of the rouble depreciation.
• Other costs decreased in the reporting period,
mainly due to lower use of in-house raw
materials and goods for resale amid weak coal
consumption, soft demand and pricing.
Coal segment gross profit
In 2019, the Coal segment’s gross profit was
US$975 million, down from US$1,295 million
a year earlier, primarily due to lower sales prices.
External sales
Coal products
Coking coal
Coal concentrate
Steam coal
Inter-segment sales
Coal products
Coking coal
Coal concentrate
Other revenues
Total
Coal segment cost of revenues
2019
US$ million
% of total segment
revenue
2018
US$ million
% of total segment
revenue
Change, %
1,251
148
1,103
–
730
124
606
40
2,021
61.9
7.3
54.6
–
36.1
6.1
30.0
2.0
100.0
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
(16.9)
2.1
(18.8)
n/a
(5.9)
3.3
(7.6)
(27.3)
(13.5)
2019
US$ million
% of segment
revenue
2018
US$ million % of segment revenue
Change, %
Cost of revenues
Auxiliary materials
Services
Transportation
Staff costs
Depreciation/depletion
Energy
Other1
1,046
159
97
351
223
171
51
(6)
51.8
7.9
4.8
17.4
11.0
8.5
2.5
(0.3)
1,042
136
129
319
193
155
49
61
44.6
5.8
5.5
13.6
8.3
6.6
2.1
2.7
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.
0.4
16.9
(24.8)
10.0
15.5
10.3
4.1
n/a
61
Annual report & accounts 2019 Resilient
R&D
EVRAZ concentrates on product innovation for rail, wheels,
beams, plates, tubular goods and vanadium to enhance
the Group’s capabilities and strengthen its market position. Until
now, the research and development (R&D) process at EVRAZ was
driven by several engaged teams working largely independently
at the production sites and in the corporate headquarters.
To maximise our expertise and strengthen the Group’s
competitiveness, we are developing a new comprehensive
integrated R&D system that will unite existing R&D centres and
help to unlock the full potential of EVRAZ innovative thinking.
R&D teams provide engineering and metallurgical expertise to our production and quality teams to offer
innovative solutions and develop new products. An integrated R&D function will harmonise the overall
R&D strategy, goals and KPIs. It will also improve the sharing of knowledge and experience, support the
execution of highly specialised tasks and promote R&D work across production units globally.
Three phases of R&D system development
Fact-finding phase:
2019
Collect data and generate ideas
Definition phase:
2019–2020
Assess the goals and resources of the Group’s existing R&D centres; define the target state
of the organisation, resources and infrastructure; and assign roles and responsibilities
62
Annual report & Accounts 2019
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Additional information
Plates, tubular goods
Vanadium
Wheels
Rails
• Develop new products and
processes for increasingly
specialised, high-quality large-
diameter welded pipes
• Fill gaps in evolving portfolio of
tubular goods, including OCTG
for unconventional market
• Develop specialty plates for
various steel applications such
as defence, construction,
shipbuilding, mining,
transportation and energy
• Build strategic and technical
partnerships with customers and
operators in the development and
testing of new products
• Conduct physical testing
to demonstrate products’
performance and reliability for
customer quality tests
Technological R&D centre (Tula, Russia)
• Supporting the continuous technical
improvement process
• Developing new products and technologies
• Deep processing of EVRAZ raw materials
Marketing R&D centre (Zug, Switzerland)
• Developing a network of marketing, R&D
institutions and technology enablers
• Promoting the development of new
vanadium-alloyed steel applications
• Deploying technical assistance on
vanadium usage for customers and EVRAZ
operations
• Exploiting opportunities arising from
regional gaps in vanadium consumption
caused by different standards or
technological habits
• Enriching EVRAZ steel product portfolio in
connection with vanadium usage
EVRAZ
Regina
EVRAZ
Portland
EVRAZ
Pueblo
• Creating a larger variety
of rails, including rails for
high-speed mixed traffic
and high-load small curve
tracks
• Developing rails for
heavy haul freight trains
• Increasing the production
lifespan, wear and
temperature resistance
of the Group’s premium
products
• Creating a larger variety of
wheels, including wheels for
heavy haul freight trains and
high-speed traffic
• Improving strength and
corrosion resistance
• Strengthening rolling fatigue
resistance
Beams
• Creating new architectural
solutions based on beams
• Improving beam properties in
terms of strength and corrosion
resistance
• Developing in-demand new
profiles
MSK
OFFICE
EVRAZ
ZSMK
EMAG
EVRAZ
Tula
EVRAZ
NMTK
Our goals
Rails
Tubular goods, Plate
Beams, Wheels
Vanadium
General
• EVRAZ is building a resilient R&D system to develop innovative new
products and solutions that will benefit all the Group’s customers and
leverage its long-term competitiveness;
• This will give EVRAZ more flexibility to utilise all of its production
capacity by balancing volumes within different markets, strengthening
the Group’s position as a premium producer able to provide prime
service to our customers.
2020–2021
Execution phase:
Establish an expert network to execute R&D projects; define
a medium- to long-term R&D strategy; use R&D infrastructure
efficiently; define cross-location R&D projects; and foster
knowledge management
Benefits of a comprehensive new R&D system
• Satisfy market and customer demands through better product
efficiency and services
• Develop new and innovative products and solutions to satisfy
current and upcoming customer needs
• Leverage EVRAZ vast global experience and know-how, and
promote product innovation and knowledge management
63
Steel,
North America
segment
Introduction
and highlights
EVRAZ is a leading North American
producer of high-quality, engineered steel
for rail, energy and industrial end user
markets, with a focus on manufacturing
products with unmatched quality for
the Group’s customers. The segment is
the largest producer of rail and large-
diameter pipe (LDP) in North America.
EVRAZ also 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.
In December 2019, EVRAZ North America implemented a reorganisation
of business units to strengthen focus on safety, quality and operational
excellence across the Steel, North America segment. The business
units are now organised by three geographic locations: Canada, Pueblo
and Portland, replacing the previous product group structure. Each
of the new business units has product portfolios based on product mix
at operating facilities.
64
Our goals
• Grow leadership position in North
American energy pipe market
• Maintain leading position in the
Western region plate market
• Expand leading position in the rail
market
Strategic report
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Additional information
Construction products
Railway products
Tubular products
Flat-rolled products
EVRAZ
Portland
CANADA
EVRAZ
Pueblo
EVRAZ
Red Deer
EVRAZ
Regina
USA
EVRAZ
Camrose
EVRAZ
Calgary
Production highlights
Sales highlights1
Crude steel
1,861 kt
Steel products
2,212 kt
Steel products
2,207 kt
Financial highlights
Revenues
US$
2,500
million
1.
Sales to third parties only.
EBITDA
US$
38
million
EBITDA margin
1.5%
CAPEX
US$
128
million
65
Annual report & accounts 2019
STRATEGIC PRIORITIES
PRUDENT CAPEX
KEY INVESTMENT PROJECTS
KEY MAINTENANCE PROJECTS
LONG RAIL MILL AT EVRAZ PUEBLO
The project involves designing, installing
and commissioning a long rail mill and weld
plant to replace the existing rail facility
and meet customers’ interest in long rail.
Key developments in 2019
Completed first level of engineering (60%)
and pre-awarded contracts for all major
equipment, engineering and construction.
HEAT TREAT AT EVRAZ RED DEER
Expands annual heat treat capacity in Alberta
to defend and increase market share
and reduce logistics costs.
Key developments in 2019
Installation completed, commissioning
advanced with production started in Q4 2019.
CAPEX in 2019: US$6 million
Steel reheat furnace low NOx
at EVRAZ Regina
Reduce emissions of oxides of nitrogen (NOx)
to comply with more stringent government
environmental standards, and increase furnace
throughput and production of flat-rolled products.
Key developments in 2019
Engineering phase and pre-installation work
completed.
CAPEX in 2019: US$19 million
CAPEX in 2019: US$4 million
ELECTRIC ARC FURNACE (EAF)
REPOWERING AT EVRAZ REGINA
The repowering will increase EVRAZ
Regina’s prime coil and plate production
and reduce electrode consumption. This project
is supported by the Government of Canada's
Strategic Innovation Fund (SIF).
THREADING AT EVRAZ PUEBLO
Install equipment for an API threading line
at EVRAZ Pueblo to vertically integrate, fully
replace threading suppliers, and reduce cost.
Key developments in 2019
Completed commissioning and fully operational.
Key developments in 2019
Completed engineering and ordered major
equipment.
CAPEX in 2019: US$15 million
CAPEX in 2019: US$2 million
Read more on page 23
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Additional information
RETENTION
OF LOW-COST
POSITION
DEVELOPMENT
OF PRODUCT PORTFOLIO
AND CUSTOMER BASE
During the year, the segment continued
to focus on improving operational performance
and tightly managing controllable costs across
the board.
These programmes have resulted
in approximately
US$
37
million
in benefit in 2019.
MARKET AND CUSTOMER FOCUS
Key developments in 2019
Secured all major Canadian LDP projects
available and significantly increased production
of thick-wall LDP using new production
capabilities.
Achieved target production and productivity
levels at the EVRAZ Regina steel mill following
the upgrade programme.
Regina coating facility recovered from Q1 2019
facility fire to reach full operations.
EVRAZ share of the North American rail market
increased in 2019, reaching 42%.
Announced partnership with Xcel Energy
and Lightsource BP for long-term electricity
supply contract, backed by solar power.
Ramp-up of large diameter spiral pipe mill
at EVRAZ Portland was completed with new
orders in the domestic market.
Outlook for 2020
Order book for LDP in Canada is full in 2020
for EVRAZ Regina’s mills.
EVRAZ rail market share to increase further with
new Class I railroads contracts and expanded
customer base.
EVRAZ Portland’s flat division has a renewed
focus on increasing market share in Western
Canada to historical levels following
the elimination of trade restrictions between
the US and Canada. US trade restrictions
(Section 232 tariffs) aimed at other nations,
including Brazil and Russia, remain, which
continue to impact slab purchases.
NEW PRODUCT DEVELOPMENT AND QUALITY INCREASES
Key developments in 2019
Developed larger sizes for OCTG premium
and semi-premium connections driven
by market needs.
Outlook for 2020
Cost reduction and productivity improvement
programmes focused on yield, quality
enhancements and operational excellence.
Finalised development of heavy gauge pipe
products with improved toughness at extreme
temperatures and of sour-service line pipe
product.
Successful ramp up of EVRAZ Red Deer heat
treat to full production levels.
EVRAZ Portland to commercialise new products,
including laser flat quality products, with
expected launch in Q2 2020.
Read more on page 24
Read more on page 25
67
Annual report & accounts 2019 MARKET REVIEW
US steel product consumption went down by 2%
to 97.0 million tonnes in 2019, compared with
98.4 million tonnes the previous year. Consumption
of flat and tubular products edged down by 5%
and 7%, respectively, while demand for long
products climbed by 8%.
In 2019, the North American rail market
remained solid at the level of 1.1 million tonnes
as the investment programmes of Class I
railways held stable. Demand for oil country
tubular goods (OCTG) in Canada dropped
by 27% to 0.5 million tonnes, compared with
0.7 million tonnes in 2018, amid slower drilling
activity. At the same time, large-diameter pipe
North America prices, US$/t
(LDP) consumption in North America surged
by 47% to 1.4 million tonnes in 2019 versus
0.9 million tonnes in 2018, mainly due to the record
high pipeline demand in US, which corresponds
to high oil and natural gas production.
Imports of finished steel products fell by 16%
year-on-year to 18.8 million tonnes in 2019 due
to the ongoing impact of the Section 232 tariffs
introduced by the US in 2018.
Weaker demand and high inventory levels pushed
prices down in 2019. During the period, prices
dropped by 13% to US$876 per tonne for plate,
by 4% to US$733 per tonne for rebar and by 5%
to US$1377 per tonne for OCTG.
US finished steel consumption, mt
29.1
58.7
27.0
61.6
25.6
25.9
26.5
60.4
59.4
60.8
2019
2018
2017
2016
2015
9.2
9.9
10.3
5.5
7.8
97.0
98.4
96.3
90.9
95.1
Long
Flat
Tubular
EVRAZ market shares in North
America by key products, %
OCTG
in Canada
2,000
1,500
1,000
500
2013
2018
2019
Rebar, Domestic US
Plate Price - Domestic US
OCTG Carbon
Sales volumes of Steel North America segment, ‘000 tonnes
Steel products, external sales
Semi-finished products
Construction products
Railway products
Flat-rolled products
Tubular products
Total steel products
2019
2,207
192
256
441
523
795
2,207
2018
2,156
57
287
421
568
823
2,156
Change, %
2.4
n/a
(10.8)
4.8
(7.9)
(3.3)
2.4
SALES VOLUMES
REVIEW
Despite softer demand in 2019, EVRAZ North
America’s steel product sales inched up by 2%
to 2.2 million tonnes. This trend was mainly
supported by strong sales growth of LDP
and railway products. EVRAZ North America
moved up its sales of railway products during
the period by 5% to 441 thousand tonnes.
Meanwhile, construction product sales declined
by 11% to 256 thousand tonnes and flat product
sales went down by 8% to 523 thousand tonnes
in 2019 due to slower year-on-year production
growth in the construction, manufacturing
and mechanical engineering sectors.
Tubular product sales fell by 3%
to 795 thousand tonnes, down from
823 thousand tonnes in 2018. Sales
of LDP soared by 64% to 346 thousand tonnes
in 2019 compared to 211 thousand tonnes
the previous year, driven by favourable US
and Canadian LDP markets, as well as EVRAZ
North America’s customer focus efforts.
By contrast, sales of OCTG products dropped
by 21% to 245 thousand tonnes, versus
310 thousand tonnes in 2018, due to multiple
factors that suppressed drilling activity in Canada.
In 2019, EVRAZ North America strengthened its
leading position in the rail market by 3 percentage
points, reaching a market share of 42%, mainly
thanks to higher sales to Canadian Class I
railroads. The Group also expanded its LDP market
share by 3 percentage points to 26% by achieving
the target production level at the Regina steel mill
and securing all major Canadian LDP projects.
2019
2018
2019
2018
2019
2018
68
29%
29%
42%
39%
26%
23%
Rails
in North America
LDP
in North America
FINANCIAL PERFORMANCE
Sales review
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CSR report
Corporate governance
Financial statements
Additional information
The segment’s revenues from the sale of steel
products slightly dropped due to a decrease
of 4.8% in prices, offset by an increase of 2.4%
in volumes. This was mainly attributable to lower
demand on the flat-rolled and construction
market, partly offset by higher revenues for semi-
finished products.
Revenues from the sale of semi-finished products
jumped by 210.2% due to a surge in sales volumes
of 236.8%, albeit offset by a drop in prices
of 26.6%. The sales of semi-finished products only
commenced in Q4 2018, hence, the strong YoY
volume growth in this product category.
Construction product revenues fell by 19.2% due
to reductions of 8.4% in prices and of 10.8%
in sales volumes as a result of lower demand
for concrete reinforcing bar. The downward
trend was caused by inclement weather
at the beginning of 2019 and softer market
demand as customers managed inventory levels.
Railway product revenues rose by 6.6%, driven
by growth in volumes of 4.8% due to increased
demand and market share growth, along with
greater sales volumes of the super-premium
APEX G2 rails, while a 1.8% uptick was attributed
to surges in average prices.
Revenues from flat-rolled products decreased due
to declines of 5.3% in prices and of 7.9% in sales
volumes as a result of weakening market demand.
Revenues from tubular product sales edged
down by 3.3% year-on-year due to a drop of 3.4%
in volumes and an uptick of 0.1% in prices. This
was driven by a significant reduction in demand
for oil country tubular goods and line pipe, albeit
partly offset by increased sales of large-diameter
pipe carried over from 2018 and new orders.
Steel, North America segment revenues by product
2019
US$ million
Steel products
Semi-finished products
Construction products1
Railway products2
Flat-rolled products3
Tubular products4
Other revenues5
Total
2,372
121
200
405
518
1,128
128
2,500
% of total
segment
revenue
94.8
4.8
8.0
16.2
20.7
45.1
5.1
100.0
2018
US$ million
2,430
39
247
380
597
1,167
153
2,583
% of total
segment
revenue
94.1
1.5
9.6
14.7
23.1
45.2
5.9
100.0
Change, %
(2.4)
n/a
(19.2)
6.6
(13.2)
(3.3)
(16.3)
(3.2)
Steel, North America segment
gross profit
The Steel, North America segment’s gross profit
totalled US$296 million for 2019, down from
US$369 million a year earlier. While the decrease
was primarily caused by a decline in revenues
due to a deterioration in market conditions, it was
partly offset by lower prices for purchased semi-
finished products, auxiliary materials and raw
materials.
at EVRAZ Portland, coil at EVRAZ Camrose
and billets at EVRAZ Pueblo.
• Auxiliary material costs fell by 9.8%, driven
by a decrease in electrode costs.
• Staff costs went up 11.5% following an increase
in headcount, which occurred mostly at EVRAZ
Portland due to the restart of tubular
operations, as well as higher payroll taxes
and insurance.
• Depreciation grew by 8.0% due the adoption
of the IFRS 16.
• Other costs were up for the reporting period,
primarily due to a decrease of the work
in progress balance compared with 2018
due to a reduction of slab purchases, lower
purchases of billets at EVRAZ Pueblo that were
replaced with billets produced in-house.
Steel, North America segment cost of revenues
Steel, North America segment
cost of revenues
In 2019, the Steel, North America segment’s cost
of revenues was almost flat year-on-year. The main
changes related to:
• Raw material costs fell by 8.0%, primarily
because of a decrease in scrap prices.
• The cost of semi-finished products was down
30.4% due to lower purchases of slabs
Cost of revenues
Raw materials
Semi-finished products
Auxiliary materials
Services
Staff costs
Depreciation
Energy
Other6
2019
2018
US$ million
2,204
686
396
222
190
319
109
117
165
%
of segment
revenue
88.1
27.4
15.8
8.9
7.6
12.8
4.4
4.7
6.6
US$ million
2,215
746
569
246
195
286
101
119
(47)
%
of segment
revenue
85.8
28.9
22.0
9.5
7.5
11.1
3.9
4.6
(1.7)
Change, %
(0.5)
(8.0)
(30.4)
(9.8)
(2.6)
11.5
8.0
(1.7)
n/a
1.
2.
3.
4.
5.
6.
Includes beams, rebar and structural tubing.
Includes rails and wheels.
Includes commodity plate, specialty plate and other flat-rolled products.
Includes large-diameter line pipes, ERW pipes and casing, seamless pipes, casing and tubing and other products.
Includes scrap and services.
Primarily includes transportation, goods for resale, certain taxes, changes in work in progress and fixed goods, and allowances for inventories.
69
Annual report & accounts 2019 Digital
transformation
EVRAZ digital transformation
strategically addresses customer focus
and asset development
2019
initiatives
MAIN DIGITAL
TRANSFORMATION INITIATIVES
Digital transformation: priorities
Ideation sessions
Advanced
analytics
Expert
systems
Production
reporting
Production
control rooms
Digital asset
management
EDI and paperless
workflow
Mobile
solutions
Video
analysis
Through-process
quality control
Autonomous
equipment
Production
planning
To search for innovative technology-based
solutions, EVRAZ employs ‘design thinking’,
a core element of which is ideation sessions.
During these, teams of various employees work
to find solutions to current tasks, including
by harnessing digital technologies. In 2019,
the Group conducted 10 such sessions: in all
Russian divisions, the trading unit and several
subdivisions. From them, new ideas were
prioritised and plans to develop and implement
them were devised, and some projects are
already under way.
Results in 2019
Primary priorities
Secondary priorities
The foundation for applying contemporary digital
technologies is the high-quality basic automation
of technological processes. At its production
facilities EVRAZ is implementing a programme
of projects to increase the level of basic
automation and make its production capacity
digital ready.
70
implemented
32 projects
15 projects
63 projects
being considered
under way
Annual report & Accounts 2019
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CSR Report
Corporate governance
Financial statements
Additional information
2020
Plans and priorities
Agile approach
Advanced analytics
In 2019, EVRAZ made a major leap forward
in using flexible methodologies for developing
software and executing IT projects. Such
approaches aim to increase internal customer
satisfaction and reduce project delivery time.
Within the Group, the ‘agile’ culture is promoted
among both IT specialists and people
in business subdivisions, and its effectiveness
is clear from the results delivered by combined
project teams encompassing product owners,
‘scrum masters’ and experts in various
areas. Over the last year, 10 initiatives
were implemented in accordance with agile
principles.
In 2020, EVRAZ is planning to launch a range
of advanced analytical projects that are
expected to have an overall effect of US$10-
12 million. The aim is to optimise technological
processes in all production areas using expert
systems based on machine learning models.
Each system is designed to improve product
quality and quantity.
In addition, as part of the programme, a Data
Science competence centre and a technological
IT platform will be established to process data.
New digital solution
development centre
The Group is also planning to open
an additional digital competence centre
in Novosibirsk. When choosing the location
for the new facility, the main factors were
considered: maturity of the IT personnel
market, number of quality higher educational
institutions, convenience of location
and transport links to EVRAZ main production
units. Among other things, the centre will focus
on advanced analytical and machine learning
technologies.
Read additional
information on key projects
in 2019 on the next page.
Our goal
As part of its digital transformation drive, EVRAZ is positioning
itself as a company that plays a more active role as a catalyst
for digital innovation. This goal foresees implementing digital
transformation programmes and creating innovative ecosystems
that bring together external partners and internal resources.
71
Annual report & accounts 2019 KEY DIGITAL TRANSFORMATION PROJECTS IN 2019
Siberia division (EVRAZ ZSMK)
Theme (area) Machine learning
Expert system
based on machine
learning
Category
Project status
on 31.12.2019
Effect
Steel
Launched
• Lower production costs
• Higher productivity
• Reduced labour expenses
Theme (area) Mathematical optimisation
Category
Steel
Project status
on 31.12.2019
Launched
Effect
•
In 2019, the overall economic effect
was more than RUB1.4 billion
System
for mathematically
modelling
production
Products high in rhomboidity from continuous casting machines
are rejected, or they need to be processed further (grinding, etc)
before being dispatched to the customer. A visual inspection
for rhomboidity is conducted at the final stage of casting, when
it is too late to rectify.
Inbuilt machine-learning algorithms analyse the array of operational
data collected to identify hidden patterns indicating rhomboidity.
Software predicts existing rhomboidity in real time in the casting
mould (where the shape of the final cast is formed). The system
informs the continuous casting machine operator of the optimal
casting speed needed to keep rhomboidity within acceptable limits.
A system has been developed and implemented to optimise all
metal production units with a view to maximising EBITDA.
The system uses mathematical models for all facilities
and calculates the end-to-end economic effect given existing
restrictions and possibilities for changing the composition of raw
materials and semi-finished products. It uses non-linear optimisation
methods and GAMS modelling system to identify the global optimum
based on 79,000 variables that occur monthly.
Theme (area)
Predictive maintenance
Category
Project status
on 31.12.2019
Effect
Monitoring
and diagnostic
system for rolling
mill equipment
Steel
Pilot project completed
• The upgrades have confirmed the feasi-
bility of using modern equipment moni-
toring and diagnostic systems
• They have also created a foundation
for establishing information exchange
with enterprise asset management
systems
In the testing zone of EVRAZ ZSMK’s rail and beam shop, in the hot-
rolling mill, the existing automated process control systems have
been upgraded to the level of an equipment control system:
a monitoring and diagnostic system. The aim is to transform
the company's asset maintenance function from a reactive
model to a preventive (giving the possibility of planning servicing)
and predictive (giving the possibility of forecasting condition) one.
Additional functionality has also been introduced:
• Monitoring equipment operation data
• Monitoring images and operator actions by camera
• Digitalising specialist experience and knowledge
Coal division (Raspadskaya coal company)
Theme (area)
Data collection and visualisation
systems
Category
Project status
on 31.12.2019
Effect
Mining
Launched
• The new display presents all
•
of the required information in a full
and digestible manner
It gives the option of viewing data
from previous shifts
It also enables management
decisions to be taken more quickly
• Productivity is increasing as a result
•
In the control room at Raspadskaya, the video display wall, featuring
19 video panels with analytical information, has been upgraded.
It gives information about the air and gas monitoring equipment
(data about methane levels in mines); longwall operations (data
about the position of mining equipment and reasons for downtime);
the positioning system in mines; a summary of the planned
and actual mining, throughput and shipment; efficiency indicators;
conveyor belts (data about downtime); and the Kuznetskaya
beneficiation plant. Videos of shipments and data from underground
cameras can be viewed. Executives and managers have
access to a web portal and mobile application that enable them
to efficiently monitor key occupational safety and production
indicators.
Production
and occupational
safety
management
centre
72
Annual report & Accounts 2019
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Corporate governance
Financial statements
Additional information
Theme (area)
Data collection and visualisation
systems
Category
Project status
on 31.12.2019
Effect
Tagging system
for personnel
identification
and tracking
in underground
coal mines
Sales
Launched
The introduction of the tracking stations
has made it possible to positively identify
our miners. We can track personnel
movements underground in real
time. This also provides an additional
inspection point to ensure that miners
have duly received PPE and undergone
medical examinations.
Alexey Chervyakov,
HSE Director at Raspadskaya
After the pilot project was completed at the Osinnikovskaya mine in 2018,
the system was rolled out to all of Raspadskaya’s other underground
mining operations.
The system consists of specially designed stands containing readers:
• Access card reader (for descent and ascension)
• Cap lamp tag reader
• Portable gas analyser reader
• Control unit, computer and monitor to visualise tagging process
This allows the employee to independently link their cap lamp tag
to their data (from their access card). In the future, without this linked tag,
access to the mineshaft will be blocked for the employee.
In addition, miners are checked to ensure that they have personal
protective equipment (PPE) and have undergone a medical examination.
This system is integrated with the access control and underground
personnel positioning system.
Urals division (EVRAZ NTMK)
Theme (area)
Predictive maintenance
Category
Project status
on 31.12.2019
Effect
Predictive
maintenance
system using
vibration
diagnostics data
Steel
Pilot project completed
“The installation of the condition
monitoring system in the testing zone
paves the way for reducing labour
spending on diagnostics and integrating
with the EAM system as part
of the transformation of maintenance
services under way at the company.”
Andrey Ermakov,
Head of the Central Electrotechnical
Laboratory
In the testing zone of EVRAZ NTMK’s wheel and tyre shop,
an automated system for monitoring equipment condition has been
introduced. It creates a single IT environment for maintenance teams
and a foundation for transitioning predictive equipment maintenance.
A permanent vibration diagnostics system has been installed that:
• monitors and diagnoses defects in the main production equipment
in real time
• conducts continuous diagnostics of equipment in various
technological regimes under loading conditions
• provides remote access to diagnostic information to several
specialists simultaneously in real time removing the need
for inspections and checks
Model
for calculating
optimal steel
temperature
Transition
to paperless
document
processing
at companies
Theme (area)
Machine learning
Category
Project status
on 31.12.2019
Effect
Steel
Launched
• The model has increased
productivity by boosting output
by 47,152 tonnes a year
Theme (area)
Electronic document processing
Category
Project status
on 31.12.2019
Effect
Sales
Four projects launched
• Labour expenses have been
reduced by 4.7% of the worktime
fund of production personnel
• Document processing time
has been decreased to 80%
of the previous level
• Monitoring procedures have been
streamlined, while transparency
has increased and the number
of errors has been reduced
Before the introduction of the system, to ensure an effective temperature
for secondary steel processing, operators in the continuous casting
plants nos. 1-4, used the maximum permissible temperature given
in the technological manuals, as well as experience gained from previous
runs. This was insufficient for casting steel at maximum permissible speeds.
As a deliverable of this project, a model was built to calculate the optimal
production temperature for the casting ladle from the secondary steel
processing section . The model was developed based on a production
efficiency audit.
HR directives regarding employee transfers and appointments
are now created using a master template in a single web system
(instead of three information systems previously).
Both inventory ordering for production and quality certificates
for end products have been moved to electronic format, with digital
signatures and storage in an electronic archive.
A digital version of the labour safety manual has been created.
To introduce electronic signatures of users, a EVRAZ corporate
registration centre has been established. Another 10 types
of documents are being developed. The ultimate aim is to end the use
of paper documents in full.
73
CSR report
Acting
responsibly
for a Better
Future
Acting
responsibly
Wilshire
Grand Center
LA, United States
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 2019 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.
Health, safety and environment
Governance
A core part of the Group’s sustainability activities
and long-term success is occupational health
and safety (OHS).
Employee safety is a key priority of the business
principles that EVRAZ adheres to, and every
practicable effort is undertaken to continuously
improve in this area.
The Group has implemented a multi-stage health,
safety and environment (HSE) management system
that encompasses everything from strategic
decisions down to daily operations. The HSE
Committee of the Board of Directors is responsible
for coordinating HSE policies and monitoring
the implementation of strategic HSE initiatives.
The EVRAZ HSE Management Committee consists
of the CEO and vice presidents. Its remit includes
approving annual HSE KPIs, goals and initiatives,
as well as considering all serious incidents
and corrective actions on a monthly basis.
Each of the Group’s divisions also has monthly
HSE Committee meetings to review HSE incidents
and approve corrective actions to prevent them
from reoccurring in future.
A three-stage HSE management system is in place
at EVRAZ enterprises in accordance with the OHS
Management System that covers all management
levels, from line managers to enterprise managers.
This multi-tiered system helps the Group to ensure
strict compliance with HSE requirements.
76
EVRAZ is also 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.
The Group’s HSE management system consists
of the following phases:
• Identify and assess risks
• Develop and implement HSE risk management
initiatives
• Investigate incidents and identify systemic
causes to prevent future reoccurrence
• Analyse HSE metrics, update and set new safety
HSE system
The Group adopted its HSE Policy in March
2011 and has updated it regularly since then,
most recently in February 2018. The HSE Policy
enshrines five basic safety principles:
• All incidents are preventable
• Do not start work if it cannot be performed safely
• EVRAZ managers at all levels are directly
responsible for the safety of employees, as well
as contractors and visitors
• EVRAZ managers at all levels should be
an example and role model for compliance with
all HSE rules and principles
• All EVRAZ employees are personally
responsible for complying with HSE standards
and regulations
The HSE management system’s most important
function is to identify potential environmental
hazards and risks to employees’ life and health
in the production process, from planning
and procurement to the sale of finished products
to customers.
targets
The HSE management system at EVRAZ
metallurgical plants is certified in accordance
with the OHSAS18001 international standard
and is being prepared for recertification
in accordance with ISO 45001 in 2020.
Emergency response
All EVRAZ enterprises have action plans in place
to respond to emergencies and accidents.
The plans are coordinated with local emergency
response units and are regularly inspected
during joint exercises to develop procedures
for the localisation of and response to accidents
and incidents.
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.
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Additional information
in which the Group operates, all cultures
must be treated with respect. EVRAZ rules
prohibit the use of abusive, harassing,
discriminatory, degrading or aggressive
speech or written comments, verbal
or physical demonstrations of a sexual
nature, and actions or speech that insult
the honour or dignity of an individual.
The Group’s commitments are based
on internationally recognised standards
and respect for all human rights, including
civil, political, economic, social and cultural
rights. EVRAZ fully endorses the provisions
of the United Nations’ Universal Declaration
of Human Rights.
In accordance with its internal Code
of Business Conduct, EVRAZ seeks
to develop and maintain a work environment
that is free from discrimination. The Group
is committed to providing every employee
with equal opportunities. All personnel
and applicants are assessed according
to their professional skills, qualities,
experience and abilities. Decisions made
on grounds unrelated to an individual’s job
performance (eg related to the person’s
race, ethnic origin, sex, religion, political
views, nationality, age, sexual orientation,
citizenship status, marital status or disability)
are discriminatory and prohibited by the law
and the principles accepted in the Group.
Child labour, bonded labour, human
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 the event of an incident, an emergency warning
system is activated to inform local 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
The Group has developed and adheres
to an Incident Management Standard, part
of which is a system for instantly reporting all
incidents. Within 24 hours from the moment
of an incident, the HSE Information System sends
a Flash Report describing the circumstances
of the incident and rapid response measures
to ensure that other departments are prepared
to prevent such incidents.
Data from the HSE Information System are also
used to analyse HSE performance. The Group
relies on its HSE reporting system to collect
and share appropriate data throughout
the organisation with an aim to continuously
improve the process. The corporate HSE functions
monitor subsidiaries using monthly, quarterly
and annual HSE performance reporting.
Internal audit specialists perform regular
audits of all EVRAZ enterprises. In addition,
the Group’s operations are continuously
monitored by government regulators.
Committees at the appropriate levels review all
recommendations received as a result of audits
and measures are implemented in accordance
In recent years, EVRAZ has been consistently
implementing measures to prevent
the concealment of the circumstances of all
incidents and to ensure maximum transparency
of the information system, including by creating
a hotline via which employees can anonymously
report any HSE problems.
The Group’s incident reporting transparency
policy has created a system to receive reliable
information, including potential incidents
and dangerous actions, and to use this
information to implement preventative measures.
EVRAZ distributes a monthly report that includes
HSE results and KPI performance, including LTIFR.
with these recommendations to improve
the effectiveness of controls.
The internal audit function regularly assesses
EVRAZ compliance with HSE policies, which
is supplemented by external monitoring from
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.
In addition, the “A3 problem solving” tool is used
for all incident and injury investigations to identify
systemic causes and develop all possible
measures to prevent the recurrence of such
incidents. Each month, the HSE Committee
reviews such events and approve reports on all
fatalities and severe injuries. The Committee also
monitors the implementation of preventative
measures and their effectiveness.
HSE corporate management structure
EVRAZ PLC BOARD OF DIRECTORS
HSE Committee of the Board of Directors
EVRAZ CEO
HSE management committee
Vice President HSE
Industrial Safety Directorate
Health and Safety Directorate
Enviromental Management Directorate
77
Annual report & accounts 2019 HEALTH AND SAFETY
Our approach
While performing technological
operations, EVRAZ employees are exposed
to various risks inherent to the working
environment. Potential risks when mining
for coal and ore underground include
rock collapse, flooding, explosion of dust
and gas, and others. Employees engaged
in steel production are exposed to risks
associated with movement of machinery,
transportation of materials, lifting,
temperature and harmful gases, among
many others. In addition, the Group’s
enterprises have common risks, including
working at height, transportation,
electricity, etc.
Results in 2019
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 2019, the group did not meet its target
of 1.67, closing the year with an LTIFR of 2.04.
The increase in this key metric was primarily
caused by an incident involving a crew bus
in February 2019 in which eight colleagues lost
their lives and 16 people were seriously injured.
The root cause investigation into this
incident has resulted in significant revisions
in the permit-to-work system for employees
and drivers, including pre-trip medical
examinations, work order release, and GPS
tracking of vehicles on haul roads. In addition,
a programme is being implemented to replace
buses carrying workers with structurally
reinforced, rollover-resistant crew vehicles.
These measures are being introduced
at all open pit mines operated by EVRAZ.
As part of an existing initiative, the Group
also continues to implement the Safe Driving
Programme, which is a project to train all drivers
involved in employee transportation.
While efforts to reduce injuries in Q2
and Q3 2019 were quite successful, seasonal
Slip-Trip-Fall risks led to an increase in minor
injuries in November and December, which
made it impossible to a lower LTIFR than
in the previous year.
78
To prevent possible incidents associated
with these risks, EVRAZ identifies
the working operations where these risks
are present and implements technical
solutions to serve as a reliable barrier
and mitigate the risks. Where technical
solutions are not available, EVRAZ applies
organisational controls to manage
the risks and reduce their likelihood
and possible consequences.
One such solution is a system for teaching
workers and contractors safe working
methods in the face of inherent risks.
The system also includes regular testing
of knowledge and skills at training sites.
In addition, the Group continuously
reviews the personal protective equipment
(PPE) available and ensures that all
employees have the necessary PPE.
EVRAZ has set a goal of improving
the safety culture of its employees
and contractors by making them
personally responsibility for safe behaviour
and compliance with the necessary
rules, as well as engaging each
employee in identifying hazards and risks
at their workplaces. To this end, the Group
has developed a risk management
project and started to implement it at its
operations.
LTIFR (excluding fatalities),
per 1 million hours
2019
2018
2017
2016
2015
2.04
1.91
1.90
2.36
2.18
Fatalities
In 2019, EVRAZ lost a total of 16 colleagues:
• Eight employees died in the incident involving
a crew bus at an open pit coal mine
• Four employees died in incidents associated
with exposure to moving equipment, rock
caving and falling loads
• Four contractors were fatally injured due
to falling from height, a railway accident
and a falling load while preparing for lifting
operations
Fatalities
2019
2018
2017
2016
2015
6
6
6
12
4
16
10
10
4
4
6
10
3
13
EVRAZ employees
Contractors
Each month, the HSE Committee reviews
and approves preventative measures as a result
of all fatalities and serious injuries, and then
monitors the implementation and effectiveness
of these measures. For each incident,
a so-called “90-day plan” is developed
to properly eliminate root causes of the incident.
In 2019, 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.
Number of severe injuries
(incl. contractors)
2019
2018
2017
2016
2015
38
35
38
45
38
115
115
126
133
148
Severe injuries (incl. contractors)
AMHW, million (without contractors)
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
Treatment of occupational diseases
Consistent with all applicable legislation, EVRAZ
provides all its employees with insurance
against work-related injuries and illnesses.
A system of regular medical check-ups helps
to identify potential occupational diseases
and undergo timely treatment.
Mobile app for mine safety
Fighting fires in virtual reality
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In 2019, EVRAZ NTMK and EVRAZ KGOK,
both of which are part of the Urals
division, began to use a virtual reality
firefighting trainer. It was built to order
for EVRAZ, and the Group’s employees
helped to design it.
By putting on a 3D helmet, an employee
finds themselves in a virtual office
or production facility where a fire has
broken out. Using a pair of joysticks,
they learn how to act in the presence
of heavy smoke, as well as burning fuels,
lubricants and electrical appliances.
In virtual reality, they can move, pick up
items they need and rescue unconscious
people. The simulator helps to teach
employees to take the right decisions
during emergency situations.
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 2019, a total of 237 cases of occupational
diseases were registered at EVRAZ facilities
worldwide, compared with 256 cases in 2018.
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 at all
EVRAZ 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.
In 2019, the IT department
at Raspadskaya updated the RUK
MPU mobile app, which works on both
the Android and iOS platforms, and is also
available online.
First launched in 2018, the initial
version of the app made it possible
to monitor targeted versus actual figures
for mining, tunnelling and loading work,
as well as key performance metrics
for the mine and processing plants,
coalface performance and methane
content.
The updated app includes information
about the causes of downtimes.
With a current sensor, employees can
monitor the work of tunnelling machines.
Users can also receive warnings when
methane content exceeds safe levels.
In addition, they can view online footage
from the underground surveillance
cameras at all Raspadskaya operations.
79
Annual report & accounts 2019 Key projects in 2019
and objectives for 2020
Corporate-wide initiatives in 2019 were
mainly focused on cultural change through
improving the safety behaviour of employees
and contractors.
Contractor safety
EVRAZ continues to integrate contractors
into its HSE management system. In 2019,
the Contractor Management Standard
was revised. This resulted in clarifications
to the contractor pre-qualification requirements
for work at the Group’s enterprises, the system
of motivation and fines to incentivise rapid
adjustments to the organisation of work,
the requirements for planning safety measures
and the permit-to-work system.
Further improvements to the contractor
management system in 2020 will include
rating contractors on their HSE performance,
which aims to increase responsibility for failing
to organise safe working conditions, as well
as motivate compliance with the EVRAZ HSE
system requirements.
Risk management
In 2019, EVRAZ reviewed its risk management
system to maximise employee engagement
in the process of identifying and mitigating
risks.
The Group’s enterprises have been assessed
using the existing risk management system
to identify areas for improvement. As a result
Defensive driving training
Hazardous area warnings
Lock-out systems are being installed
to protect people from moving equipment
and tunnelling faces at the Mezhegeyugol
mine and other EVRAZ mines. The main
component of the STRATA Hazard Alert
system is a magnetic field generator,
which is installed on a piece of equipment
and creates an electromagnetic field
around it. Before entering the mine,
employees receive a personal signalling
device that detects these fields.
If an employee comes within three metres
of the equipment, it slows down, and light
and siren alarms warn of the danger.
When a person enters a hazardous area,
the equipment shuts down completely.
of this assessment, senior management
has held a session to review the EVRAZ HSE
management system and found that the main
elements of the system requiring development
were Leadership and Risk Management.
and implement measures to stop work that
threatens life and health, or to mitigate
the risks. The risk assessment matrix was
also revised and a risk passport form was
developed.
To improve these elements, the Group has
decided to implement a Risk Management
project and, during the year, developed a set
of risk management tools. These simple
but effective methods for determining
hazardous conditions and actions have been
tested in pilot workshops and mines. The Risk
Hunting and Dynamic Risk Assessment tools
help to determine “What could go wrong?”
To implement the project, teams of risk
managers and internal trainers were created
in the Group’s divisions, and the standard work
of line managers and enterprise managers
was revised. The project’s tools have been
integrated into the existing HSE documentation
and work schedules.
In 2020, implementing this project
will be EVRAZ primary HSE initiative.
As part of these efforts, all Group employees
will be trained to use the risk identification,
assessment and mitigation tools. The plan
includes creating a system to receive risk
warnings from employees, as well as to improve
behavioural safety conversations between line
managers and employees so that the workforce
is more engaged in the routine dynamic risk
assessment process on the job.
The goals that EVRAZ has set for the Risk
Management project in 2020 include engaging
employees and receiving at least one risk
warning for every two employees who received
training. The project’s other goal is to create
“red risk passports” based on the key risk
management barriers identified while compiling
comprehensive maps of the risks present
at our employees’ workplaces.
In 2019, EVRAZ KGOK held a defensive driving training programme for 155 drivers
of passenger transport convoys that aimed to teach them a new way to assess risks
on the road. After years of driving on the same route, drivers can stop regarding traffic
as a potential threat. The training helped drivers to reconsider their usual approach,
focusing on maximum safety.
The defensive driving style is a model that makes it possible to prevent an accident
regardless of the actions of other road users, as well as road and weather conditions.
As part of the training process, attendees comment about the situation on the road
and their actions, predict where danger might come from and explain how they might
react. The primary aim is to develop skills to ensure complete control of the situation
on the road. After the 10-day training programme, most participants felt that their ability
to predict traffic situations had grown markedly. Maintaining a level of concentration that
gives a margin of time for manoeuvre helps to minimise risks.
80
ENVIRONMENT
Our approach
One of EVRAZ overriding priorities
is to mitigate the potential environmental
impacts of its steel and mining operations
through best management practices
and advanced technology.
This approach aims to help the Group
to prevent or control any undesired
environmental consequences, as well
as to reduce its consumption of energy
and natural resources.
Strict environmental legislation governs
these operations, requiring EVRAZ
to comply 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. Non-compliance
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.
EVRAZ recognises that its production
processes entail certain environmental
risks and liabilities and, as such,
is focused on preventing or minimising
any potential adverse environmental
consequences from its operations.
The Group employs a corporate
management system that bases
environmental procedures on the plan-
do-check-act (PDCA) model. EVRAZ
has developed it to promote its 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 the new operations
potential direct and indirect impacts
on the local community and surrounding
environment. 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.
The Group’s environmental programme
also features training courses
and seminars that encourage its
specialists in the field to exchange
experience.
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, read
the EVRAZ Sustainability Report
for 2019, which is to be published
in May 2020.
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
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 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 2020–
25. As of 31 December 2019, the estimated
cost to implement these programmes totalled
US$198.6 million, compared with US$121 million
as of 31 December 2018. The rising environmental
commitments is the result of agreements signed
with the Russian government regarding the “Clean
Air” National Project in June 2019.
In 2019, EVRAZ spent US$30.3 million
on measures to ensure environmental compliance
and US$28.8 million on projects to improve its
environmental performance. Non-compliance-
related environmental levies and penalties totalled
US$5 million.
There were no significant environmental incidents
or material environmental claims involving
the Group’s assets during the reporting period.
Biodiversity
EVRAZ understands that it has a 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 water biodiversity
• Implementing social and environmental
initiatives
81
Annual report & accounts 2019 EVRAZ implements long-term projects aimed
at compensating for its environmental impact.
• Since 2011, the Abagursky branch of EVRAZ
ZSMK has been working to reclaim the old
tailings storage No. 2. During 2012–18, the site
completed the dehydration and land planning
stages of the project. In 2019, the site started
the final phase, which entails biological
reclamation, including planting 64,830 trees
during the year.
• Since 2015, the Raspadskaya mine has been
implementing a long-term project to recover land
damaged during open-pit mining (138 hectares).
• Work to landscape industrial sites and sanitary
protection zones at facilities continued in 2019.
As part of a programme to restore aquatic
bioresources, the Group’s enterprises released
more than 379,000 juvenile fish into local rivers
of Kemerovo region and Sverdlovsk region.
The Group’s environmental initiatives include
planting trees in parks and public squares, along
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.
The list of EVRAZ social and environmental initiatives
include:“Environmental Saturday” voluntary
workdays: 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
One of EVRAZ foremost environmental priorities
is to reduce air emissions. The key air emissions
comprise nitrogen oxides (NOx), sulphur oxides
(SOx), dust and volatile organic compounds (VOC).
In 2019, the key air emissions decreased by 0.4%
year-on-year.
The current strategy for reducing air emissions
envisages upgrading gas treatment systems,
introducing modern technology and eliminating
obsolete equipment.
In June 2019, EVRAZ signed agreements with
the Russian government to implement the “Clean
Air” National Project. According to the agreements
reached, the Group will continue to introduce
the best available technologies at its metallurgical
plants to reduce its environmental impact.
In particular, EVRAZ NTMK and EVRAZ ZSMK are
implementing projects to switch to a technology that
uses final cooling of coke oven gas in closed heat-
exchange equipment, which will reduce emissions
from coke production. To address sulphur dioxide
emissions from iron ore processing at EVRAZ ZSMK,
a desulphurisation system will be built at its sinter
plant. The reconstruction of blast furnace No. 6
at EVRAZ NTMK will include modern dust and gas
treatment plants similar to the equipment used
in the plant’s newest blast furnace No. 7.
The Group targets reducing total air emissions
during the period of 2017–24 by 22%
at EVRAZ ZSMK and by 10% at EVRAZ NTMK.
Key air emissions 1, kt
2019
2018
2017
2016
2015
127.69
128.24
137.11
130.68
134.17
GHG emissions
EVRAZ operations generate carbon dioxide
and other greenhouse gas (GHG) emissions.
The Group recognises 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.
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 crude dioxide (CO2) equivalent (tCO2e)
per tonne of crude steel cast. In 2019, the intensity
reached the level below the target and amounted
to 1.97 tCO2e/tcs.
EVRAZ measures direct (Scope 1) emissions
of all seven “Kyoto” GHGs 2 and indirect
(Scope 2) emissions from the use of electricity
and heat. The inventory approach 3 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 2019
and compared them with the 2014–18 levels.
The Steel segment continues to generate more than
half of the gross GHG emissions from the Group’s
operations. Nearly 93% of the Coal segment’s
full emissions come from fugitive methane (CH4)
leakage, which is caused by methane ventilation
from underground mines and post-mining emissions
from coal.
In 2019, the overall GHG emissions from
EVRAZ operations increased by around 11.8%
(or 4.58 mln. tCO2e) year-on-year. The Group’s Scope
1 emissions rose by 13.1% and Scope 2 emissions
slightly increased by 1.2%.
The major contribution came from coal mining
(3.26 mln. tCO2e) as a result of higher volumes
of underground mining (2.81 mln. tonnes of coal)
and due to factors which are beyond our control
such as increase of methane content in deeper
coal seams being developed. Moreover, we had
to intensify preliminary methane drainage (by 27%
vs 2018) in order to improve safety conditions
for employees at some mines. With this in mind,
we are developing a project on utilisation of methane
emitted from mines after drainage to decrease
our full carbon emissions in 2020 and further.
Emissions of CO2 grew by 4.20% (or 1.13 million
tCO2e) as a result of higher steel production
at main steelmaking mills in Russia (+ 6% of crude
steel cast). Although absolute emissions in Steel
sector increased by 4%, the specific intensity
ratio decreased due to more efficient operation
of Blast Furnace shop at EVRAZ ZSMK in 2019
and exclusion of EVRAZ DMZ (cease of operations
in Ukraine) as from Q1 2018.
In addition to the specific intensity ratio in the Steel
segment EVRAZ also reports an intensity ratio
relating its annual Scope 1 and 2 GHG emissions
to consolidated revenue for the Group. This
ratio increased due to lower revenue in 2019
on the background of overall GHG emissions growth.
Air emissions calculation perimeter differs from the calculation perimeter of GHG emissions.
Carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC) and perfluorocarbons (PFC), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3)
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 IPCC2006 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.
1.
2.
3.
82
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Additional information
EVRAZ GHG emissions
in 2019, million tCO2e
Specific Scope 1 and 2 GHG emissions
from Steel segment (incl. NA),
tCO2e per tonne of crude steel cast1
Fresh water intake for production
purposes 2, million cubic metres
39.09
4.28
26.57
2.74
EVRAZ Total
Steel segment
Steel,
NA segment
Coal segment
0.76
0.65
11.76
0.89
Direct emissions (Scope 1)
Indirect energy emissions (Scope 2)
2019
2018
2017
2016
2015
GHG emissions per revenue, kg CO2e/US$
1.97
2.01
2.02
2.11
2.09
2019
2018
2017
2016
2015
EVRAZ target 2
205.8
226.49
319.43
327.60
340.23
3.6
3
3.6
3.2
6.3
4
EVRAZ Total
Steel segment
Steel,
NA segment
0.6
0.5
Coal segment
2019
2018
Water consumption
and discharge
EVRAZ aims to efficiently use water resources
and prevent any negative water quality impacts
through environmental incidents.
In 2019, almost 77% of the Group’s total water
intake came from surface sources, including
rivers, lakes and reservoirs, 3% percentage
points year-on-year.
During the reporting period, the ongoing
programmes to improve the water management
EVRAZ GHG emissions, million tCO2e
Direct (Scope 1)
Consisting of:
CO2
CH4
N2O
PFC and HFC
SF6
NF3
Indirect (Scope 2)
Total GHG emissions
at EVRAZ operations continued to deliver
environmental benefits. In 2019, the Group
consumed 205.8 million cubic metres. That
is 20.7 million cubic metres less fresh water
than in 2018, for a year-on-year reduction
of 9.2%. Almost 15.1 million cubic metres
have been excluded out of the balance due
to the exclusion of assets in 2018–2019,
including 14.5 million cubic metres
of water intake of Ukrainian assets reported
in the first quarter of 2018.
The Group’s five-year target is to decrease
fresh water consumption by 10% compared
with the baseline of 2016 (231 million cubic
metres). In 2019 the Group has re-estimated
the baseline, taking into account asset
exclusion, and set updated target 207 million
cubic metres.
While water pumped from mines (dewatering)
is not included in the fresh water consumption
target, pumped water is partly used
for technological needs. In 2019, EVRAZ
pumped out and used 21.2 million cubic metres
of mine water, compared with 17.36 million
cubic metres a year earlier.
Waste management
Mining and steelmaking operations generate
significant amounts of waste, including the surplus
rock, spent ore and tailings left over after
processing ore and concentrates. EVRAZ aims
to reduce the amount of waste that it produces,
re-use natural resources where possible
and dispose of waste in a manner that minimises
the environmental impact and maximises
operational and financial efficiency.
In line with the Group’s strategy to reduce waste
storage volumes and enhance waste disposal,
it regularly reviews opportunities to recycle
and re-use waste at its operations.
The main waste by-product that gets recycled
is metallurgical slag, which includes materials
that previously had been disposed of in dumps.
Processing this waste has allowed EVRAZ
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
2015
36.87
29.13
7.67
0.07
0.0002
—
—
6.17
43.04
2016
35.81
28.76
6.99
0.07
0.0001
—
—
5.02
40.83
2017
36.68
28.35
8.26
0.06
0.00003
—
—
4.97
41.65
2018
34.56
26.86
7.64
0.06
0.00009
—
—
4.23
38.79
2019
39.09
27.99
11.04
0.06
0.00002
—
—
4.28
43.38
1.
2.
Calculation perimeter includes the following subsidiaries: EVRAZ NTMK, EVRAZ ZSMK, EVRAZ Calgary, EVRAZ Camrose, EVRAZ Portland, EVRAZ Red Deer, EVRAZ Regina, EVRAZ Pueblo.
Calculation perimeter includes the following subsidiaries: EVRAZ NTMK, EVRAZ KGOK, EVRAZ ZSMK, Evrazruda, RaspadskayaCoal Company, EVRAZ Caspian Steel, EVRAZ Palini e Bertoli, EVRAZ Vanady Tula,
EVRAZ Nikom, EVRAZ Calgary, EVRAZ Camrose, EVRAZ Portland, EVRAZ Red Deer, EVRAZ Regina.
83
Annual report & accounts 2019
waste minimisation efforts and set a target
to reuse or recycle at least 95% of waste.
In 2019, the Group’s steel mills generated
8.45 million tonnes of metallurgical waste
and by-products, including slag, sludge, scale
and others, and recycled or re-used 8.88 million
tonnes of material. Overall, EVRAZ recycled
or re-used 105.1% of non-mining waste
and by-products in 2019, compared with 111.3%
a year earlier.
The Group’s strategy for dealing with non-
hazardous mining wastes, such as depleted
rock, tailings and overburden, is to use
them where possible for land rehabilitation
and the construction of dams or roads. In 2019,
38% or 75.47 million tonnes of such waste
material were re-used, compared with 26.7%
or 62.05 million tonnes in 2018.
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. The Group’s
largest tailings dams are owned by EVRAZ
ZSMK and EVRAZ KGOK. Safety at such facilities
is monitored extremely closely and all necessary
steps have been taken to mitigate any danger
as far as possible.
Tailings storage facilities disclosure
EVRAZ has a dam safety management system
in accordance with the current legislative
procedures that cover all stages of life cycle:
design, construction, operation and asset
retirement. All dams have safety zones where
no residential houses and civilian infrastructure
is allowed. The processes and procedures are
controlled by operations and audited by the HSE
personnel of the sites, the regulator’s inspectors
and the Group’s internal industrial safety auditors.
Measures to improve the effectiveness of controls
have been implemented consistently. The internal
industrial safety auditors at EVRAZ performed
an operational audit of all active tailings storage
facilities (TSFs) during 2019.
Waste recycling rate,%
2019
2018
2017
2016
2015
105.1
111.3
104.7
120.1
126.3
To build greater levels of trust
with all stakeholders, the Group discloses
detailed information about its TSFs
at the following link:
https://www. evraz. com/en/
sustainability/tailings-storage-facilities/
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Waste management strategy
Improve technological processes to enhance product quality
Secure by-products without generating waste
MINIMISE AT THE SOURCE
Re-use the main types of waste from metals production: slag, clinker
and tailings, including from old dumps
RE-USE
Develop new products that feature various types of waste
Use inert waste to reshape land plots and build dams or roads
RECYCLE
Generate heat from hot slag
Use waste for heating (local boilers)
BURN AS FUEL / GENERATE HEAT
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)
STORE
BURN
e
c
n
e
r
e
f
e
r
p
f
o
r
e
d
r
O
85
Annual report & accounts 2019
Environment case studies
WATER
AIR
UPGRADE
OF ELECTROSTATIC
PRECIPITATORS
ON BOILER NO. 8
COMPLETE AT WEST
SIBERIAN THERMAL
POWER PLANT
At West Siberian Thermal Power Plant, ash
and soot are formed when burning solid
fuel. The previous air treatment equipment
did not meet new environmental standards.
In 2015, the electrostatic precipitators
at the began to be gradually upgraded.
Their principle of operation is simple: under
the influence of an electromagnetic field, ash
and soot settle on special electrodes, are
shaken off and fall into a hopper.
NEW MINE WATER TREATMENT FACILITY
LAUNCHED AT RASPADSKAYA MINE
Since 2012, Raspadskaya has been
implementing a long-term water protection
programme at its facilities, which entails
building and reconstructing treatment facilities
for mine, quarry, household and industrial
wastewater to reduce the impact on water
bodies. Over nine years, eight projects have
been implemented with a total CAPEX of more
than US$20 million.
In 2019, the modernisation of mine water
treatment facilities at the Raspadskaya mine
was completed, doubling the treatment capacity,
as well as reducing the discharge of suspended
solids by 62% and of oil by 65%. Most
of the treated water is now reused for the needs
of the mine and the processing plant, while
the remaining water is discharged into the river
in accordance with all environmental requirements.
Overall, from 2020 to 2024, another six projects
will be implemented with a total CAPEX of more
than US$20 million and the launch of three
more wastewater treatment plants is planned
in 2020.
The modernisation of mine water
treatment facilities at the Raspadskaya
mine reducing the discharge
of suspended solids by
62%
New electrostatic precipitators at West
Siberian Thermal Power Plant
Over 2015–18, the programme implementation
helped to reduce annual emissions by 8.2kt.
The filter upgrade on boiler No. 8 has made
it possible to reduce annual atmospheric
emissions by more than 2.9 kt. The last project
under the programme is upgrading the filters
on boiler No. 10, which will be completed
in 2020.
New mine water treatment facility
at Raspadskaya mine
86
BIODIVERSITY
EVRAZ continues to work together with
the municipal administrations of the cities
where it operates to organise environmental
and social campaigns involving volunteers from
among the Group’s employees and their families.
For example, as part of the environmental
campaigns in 2019, a total of 920 trees were
planted in parks and squares, including as part
of the “Second Life to Trees” initiative, which
seeks to transplant young trees from sites where
mining will be carried out into city parks.
Other events include the “Environmental
Saturday” clean-up days, “Clean Games”
environmental quest, and “Clean Shore”
and “Live Spring” initiatives. These efforts
help to unite all EVRAZ employees and family
members, as well as ordinary people who care
about nature in the cities where the Group
operates.
In 2019, work continued to reclaim old Tailing
Storage Facility No. 2 at EVRAZ ZSMK. During
the reporting period, 64,800 trees were planted
at the reclaimed site.
As part of a programme to restore water
bioresources, the Group’s enterprises released
more than 379,000 young fish into local rivers
and lakes.
64,800
trees
were planted at the reclaimed site
during the reporting period
AWARDS
In 2019, EVRAZ NMTK won the award for “Most
environmentally responsible enterprise in the field
of ferrous metallurgy” at the XV annual “Leader
of Environmental Activities in Russia – 2019”
competition.
EVRAZ ZSMK won the annual regional “Ecoleader”
contest. During the official closing ceremony
at the Kemerovo region administration, the plant
received the award for the “Enterprise” category.
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Outlook for 2020
OUTLOOK FOR 2020
In 2020 the Group plans to review
and update its Environmental strategy
taking into consideration all challenges
that the company face now and will face
in the nearest future, including the climate
risks and other issues related with
stakeholders’ expectations.
As the key priority the Group set
implementation of its commitments
within the National Project “Clean Air”
and achieving the National Environmental
Targets for air emission reduction
in Novokuznetsk and Nizhny Tagil.
EVRAZ Air Emission reduction programme
includes:
EVRAZ ZSMK:
1. Coke gas cooling system upgrade. 2020
task – to start construction works.
2. Off Gas Desulfurisation Installation.
2020 task – to complete design stage
3. Electric precipitator restoration (HPS).
2020 task – to upgrade the filters
on boiler No. 10
EVRAZ NTMK:
1. Coke gas direction to by-product
recovery plant № 3. 2020 task – to start
construction works
2. Off-gas cleaning units efficiency
upgrade. 2020 task – to complete
upgrade of gas cleaning units at oxygen
converter shop
3. New off-gas cleaning installation at blast
furnace #6. 2020 task – to complete
construction
EVRAZ Vanady-Tula:
Kiln off gas system upgrade. 2020 task –
to complete commissioning of the new off
gas cleaning unit.
EVRAZ North America:
Regina Reheat Furnace NOx Reduction
& Upgrade. 2020 task – to complete
installation of low NOx burners.
Water management programmes launched
in the previous year will be continued
at EVRAZ operations: EVRAZ ZSMK,
EVRAZ NTMK, Raspadskaya and EVRAZ
Vanady-Tula.
87
Annual report & accounts 2019 Using
renewable
energy
to produce
the greenest steel
EVRAZ North America with Xcel Energy
and Lightsource BP will develop a new solar
energy facility in Pueblo
Read more
about long rail mill
project at EVRAZ
Pueblo on page 23
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Financial statements
Additional information
EVRAZ Pueblo
will be the
first steel
mill in North
America to rely
on solar power
2021
LAUNCH
The project is expected to go online by the end of 2021. It will be located
on EVRAZ Rocky Mountain Steel property in Pueblo, making it the largest
on-site solar facility dedicated to a single customer in the United States.
89
Annual report & accounts 2019 Social policy
OUR PEOPLE
Our approach
EVRAZ recognises that its people are
the backbone of its achievements
and, as such, strongly emphasises human
capital development. Within this area,
the Group’s priorities are to comply 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
based on 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 the EVRAZ Code of Conduct, Cardinal Safety
Rules and Anti-corruption Policy.
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
trafficking 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.
For additional information, read the EVRAZ Sustainability
Report for 2019, which is to be published in May 2020.
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Breakdown of permanent
and temporary staff, %
100
90
80
2015
2016
2017
2018
2019
Permanent
Temporary
Diversity of employees, senior
management and directors, %
78% (7)
82% (323)
72% (51,101)
Men
Women
Board
Senior
Management
22% (2)
18% (71)
Employees
28% (19,728)
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 adheres to the following recruitment
principles:
• 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
• People hired to cover for employees
on parental leave
• Employees hired with a probationary period
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.
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
• Women who are pregnant
Personnel profile
Headcount
As at 31 December 2019, EVRAZ had a total
of 71,223 employees, an increase of 2.2%
year-on-year.
An increase in headcount was mainly caused
by realisation of numerous corporate projects,
including EBS Transformation, Procurement
Transformation as well as due to the production
increase.
Number of employees
as of 31 December,
thousand people
2019
2018
2017
2016
2015
71.2
XX% (XX)
69.7
68.5
77.8
84.5
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.
Breakdown of employees by age
as of 31 December 2019, %
<20
20–29
30–39
40–49
50–59
>60
0.4
14.3
30.3
29.9
20.0
5.1
Breakdown of employees by region
in 2019, %
Russia and CIS
North America
Europe
93.8
6
0.2
91
Annual report & accounts 2019
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.
covering the basic EBS tools. This programme
aims to foster a culture of continuous
improvement and includes such courses
as “What everyone can do”, “Linear approach”
and “Feedback”.
• 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 dependants
– 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
In 2019, Russia introduced additional
protections for employees who have five
or fewer 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
to 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
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 workdays
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
scorecards down to the level of shop managers.
• 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
Learning and development
In 2019, EVRAZ continued its initiative to teach
EVRAZ Business System (EBS) transformation
tools to managers, as well as leadership
and management practices that will support
these transformations.
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
During the year, the second wave of the “Top
300” corporate management programme
was launched. A total of 102 people took
part in the first wave (September 2018 to July
2019) and another 97 people are enrolled
in the second wave. Every programme
participant is mentored by one of the Group’s
senior executives.
More than 9,000 employees of production
divisions (workers, shift supervisors
and craftsmen) have attended training sessions
EVRAZ approves human capital development strategy
One priority for EVRAZ is to develop engineering
skills, to which end employees were trained
in the following areas:
• 139 people attended Chief Engineer School
programmes, such as the Rail Production
School, Project Management School, etc
• 407 people took part in professional
retraining programmes covering various
areas, including blast furnace production
(18 people), thermal power (26 people), etc
In addition to developing engineering skills,
the Group launched several professional
development programmes in 2019
for employees of functional units to support
the transformation of their functions, including
IT, legal, procurement and finance. Overall, 152
people took part in these programmes.
During the reporting period, EVRAZ started
to deploy a production mentorship system
aimed at improving training quality and helping
new employees to adapt to their jobs more
quickly. For example, more than 200 people
were trained in the Pro Mentor programme:
more than 50 mentor-protégé teams were
formed and a corporate mentorship forum was
held.
The Group continues to participate
in the WorldSkills Hi-Tech national
championship. In 2019, the EVRAZ team
competed in 12 skillsets and won 18 medals –
four golds, 10 silvers and four bronzes –
including in the employees older than 50 years
and junior categories.
Contractors
EVRAZ extends its human rights and anti-
discrimination policies to also apply to its
suppliers and contractors. Each contract
with a partner must contain sections
governing the prevention of corruption
In 2019, EVRAZ approved its human
capital development strategy, which
focuses on the management’s
responsibility for staff development
and motivation. The strategy also aims
to help managers to engage employees
in achieving the Group’s goals.
The primary targets of the human capital
development strategy are as follows:
1. Employees share EVRAZ’ principles
and apply the EVRAZ Business System
in their work
2. Employees have the necessary skill
set and are prepared to increase
their qualifications, retrain or change
professions
3. Employees work efficiently
To successfully implement this strategy,
EVRAZ is fostering a consistent
management culture. Key aspects
of this approach are the introduction
of standard management practices
and the “Top-300” training programme
for shop managers and mine directors.
In 2020, the Group plans to launch
the “Top-1,000” programme for site
managers.
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Additional information
agreements at the Russian operations of EVRAZ
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 the Russian operations
of EVRAZ 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 2019, 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.
In 2019, the Social Production Council met two
times to discuss ambitious goal-setting, the target
pay system and the EVRAZ Business System.
Employee engagement
During the reporting period, EVRAZ conducted its
fourth “We are together” employee engagement
survey 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
9 September to 30 September. The survey
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, %
2019
2018
80
74
93
and human trafficking. All contractors working
at the Group’s facilities are also required
to follow the EVRAZ Cardinal Safety Rules.
Existing outsourcing procedures require
the Group, the outsourcer and the primary
trade union to sign a three-party agreement
preserving workers’ social benefits
and protections. 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.
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.
The Group 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
on a regular basis and in 2018 appointed
two non-executive directors to be involved
in townhall meetings with employees to ensure
that it is aware of any trends, comments
or concerns. During 2019, two Board
members met with employees and learned
what is important to them. As part of this
workforce outreach, Alexander Izosimov
visited Raspadskaya in Novokuznetsk, Russia
and Laurie Argo visited EVRAZ Portland’s rolling
mill in North America for townhall meetings.
Work with trade unions
EVRAZ bases its work with the trade unions
representing its workers’ rights 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 the 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
Annual report & accounts 2019 Motivation
Financial motivation
EVRAZ strives to ensure that the remuneration
system at the Group’s enterprises is transparent
and easily understandable for employees,
consistent with the principles of internal
fairness and external competitiveness.
EVRAZ began to build an integrated grading-
based remuneration system in 2017
at the management company in Moscow.
The remuneration system for management
and administrative staff provides for uniform
principles to managing employees’ fixed
and variable income. Salary is determined
on the basis of a market range for each grade.
An annual salary review is performed following
the employee performance assessment.
An employee’s annual bonus amount is also
determined by the grade of the position.
In 2018, the system was introduced
for personnel at the management company,
trading company, EvrazMetallInprom, and Urals
and Vanadium divisions. In 2019, it was
expanded to include the Siberia division.
When new positions appear or the functions
of existing positions change, they are quickly
evaluated by the evaluation committees
at the management company in Moscow
and at the division.
The Group also began to introduce the system
at production enterprises during the reporting
period. This included evaluating positions
and setting remuneration for shop heads
at steelmaking enterprises and mine directors.
The system has also begun to be rolled out
for employees of engineering departments.
In addition, EVRAZ launched a project
in 2019 to create a target pay system based
on the uniform grading structure for employees
of production assets below the level of shop
head and mine director. The aim of the project
is to develop and implement a uniform set
of fair and transparent rules and principles
for setting remuneration across the Group’s
enterprises, harmonising the fixed and variable
pay so that the amount and growth trend
depended on the performance of the employee,
team and department. This ensures
a focus on continuous process improvement
and achieving the ambitious goals that have
been set for the department and enterprise
as a whole.
In 2019, a pilot project was introduced
at certain departments in the Steel segment
of EVRAZ, including four at EVRAZ NTMK,
two at EVRAZ KGOK and six at EVRAZ ZSMK.
In addition, positions at the Group’s energy
assets and EVRAZ Vanady Tula were fully
evaluated. Overall, more than 20% of the total
Performance as an employer
EVRAZ regularly participates in contests that
confirm its status as a socially responsible
employer. In 2019, the Group won awards
for the social performance of its collective
agreements, as well as its HSE efforts,
in the 16th 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.
EVRAZ Hotline
The Group uses the EVRAZ Hotline as a way
to 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 2019, %
General
Labour relations
Health and safety
Security
Others
5
68
15
9
3
In 2019, the hotline received 912 requests.
The most frequent issues concerned labour
relations, including the quality of labour
relations (357), worker transportation (80)
and labour compensation (56).
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Additional information
number of employees of the Steel segment work
at the departments included in the pilot project.
Key projects in 2019
in the target pay system and finish the transfer
to the target system in the Siberia division.
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.
EVRAZ collective agreements also provide
additional leave for childbirth, as well as weddings
and funerals of close relatives. There is also
a programme that provides financial assistance
to employees in difficult life situations.
In 2019, a corporate discount programme was
introduced for employees of the Moscow office
in conjunction with the provider PrimeZone.
During the reporting period, the EvrazHolding
management company (Moscow) implemented
a project aimed at helping employees to adapt
called “Buddy”. Each new employee who joins
the company is assigned their own person,
a “buddy” who can help them out, discuss
professional matters and ensure that they adapt
to their new job.
In 2019, the “Benefit cafeteria” flexible
benefit system was developed and introduced
for employees of the Urals and Siberia divisions.
The amount of the benefit is determined based
on management assessments for previous
work periods and employees can use a “wallet”
to pay for training, sports and/or recreation
for themselves or their minor children.
In December 2019, a project was launched
to automate the recruitment process
in the divisions. The introduction of the Huntflow
cloud solution has increased transparency
for both recruiters and customers. The process
was launched in the Siberia, Urals and Coal
divisions.
Objectives for 2020
In 2020, EVRAZ will continue to expand its
new financial motivation system to cover
the production assets. The plan is to introduce
the grading process in the Coal segment, include
the main departments of the Urals division
The Group also plans to launch a comprehensive
health management programme for its
employees that will incorporate new approaches,
including identifying risk groups and offering both
group and individual preventative programmes.
A pilot project will be launched in 2020
at EVRAZ NTMK together with the Tetyukhin Urals
Rehabilitation and Clinical Centre. At the centre,
employees will receive check-ups as well as year-
round medical care.
Another initiative planned for 2020 is the “Health
and wellness days” at the Moscow office.
The programme envisions arranging lectures
about physical and mental health, as well
as organising interactive events with the help
of specialised providers.
The “Top 1000” programme is also slated
to launch in 2020. The programme aims to align
the managerial skills of all managers at a given
management level.
Developing and training a succession pool
is also a priority. The Group aims to understand
the strengths and weaknesses of all “Top 300”
participants, set up individual development plans
for them and determine which of them are ready
to take the next step up the career ladder.
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RELATIONS
FEDERAL AND REGIONAL
EVENTS
EVRAZ organises events to support sports,
the environment, and the social and cultural
development of cities. It also participates
in national programmes, as well as federal
and international forums.
At the 2019 St Petersburg International
Economic Forum, EVRAZ signed
an agreement regarding participation
in the federal “Clean Air” project, a part
of the “Ecology” National Project. EVRAZ was
the general partner of the forum “The Role
of Women in the Development of Industrial
Regions”, which was held in Novokuznetsk
and has become an important
platform for international discussion
with women leaders in various fields.
The Group participated in the “Innosocium”
nationwide competition of social projects
and the WorldSkills Hi-Tech national
championship of working professions. It was
also a strategic partner of the INNOPROM
International Industrial Fair. EVRAZ supports
the Novokuznetsk Drama Theatre, the Yeltsin
Centre in Yekaterinburg, the Arkhangelskoye
Estate Museum, the Documentary Film
Centre and the Garage Museum of Modern
Art in Moscow. The Group also assists
the “Connection” Deaf-Blind Support
Foundation, as well as local charitable
organisations.
AWARDS
The video series “What choice would you make?”,
which is dedicated to the personal responsibility
of EVRAZ employees for safety in their lives
and work, was shortlisted at the Cannes Corporate
Media and TW Awards. The three short stories,
which the Group created in partnership
with Freemotion Group, equate knowingly violating
safety rules with deciding to take your own life.
EVRAZ “Power of Generations”
and “Steel Dynasties” digital projects, which were
collaborations with Lenta.ru and Komsomolskaya
Pravda, received the “Best content
solution” and “Employer and brand” awards
at the Digital Communications Awards 2019, held
by the Association of Directors for Communication
and Corporate Media of Russia.
The “High Five!” corporate race, which is held
in the cities where EVRAZ operates, took first place
in the “Sport – Inhouse” award at the international
IPRA Golden World Awards 2019.
The short film “Stronger than Steel”, a joint project
with the renowned Russian actor and director
Vladimir Mashkov dedicated to the 55th
anniversary of EVRAZ ZSMK, won the grand
prize for best sound engineering in the Metal-
Vision 2019 competition at the Metall-Expo 2019
international exhibition.
The “EVRAZ News – COAL” newspaper, which
has been in publication since August 2019, was
recognised as the best publication by a mining
company in the corporate media competition
of “Metal Supply and Sales” magazine.
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. In 2019, EVRAZ
became a member of the Donor’s Forum,
the largest association of grant-making
organisations operating in Russia.
Our approach
Following the international principles
of corporate social responsibility, EVRAZ
plays an active role in developing
the regions where it operates. In the major
cities where the Group works, such
as Kachkanar, Mezhdurechensk,
Nizhny Tagil, Novokuznetsk, Tula
and their satellite towns, EVRAZ
supports various educational, sports
and environmental projects, performs
charitable work, improves the labour
and living conditions of employees
and their families, and promotes
the development of urban spaces.
The Group’s enterprises are responsible
taxpayers and comply with federal
and regional laws. EVRAZ strives
to maintain a productive and open
dialogue with all stakeholders, including
local authorities, non-governmental
organisations, the business and cultural
communities, and the media. Among
other things, this cooperation helps EVRAZ
to gain an understanding of the socially
significant projects in which the Group can
take part.
The Group’s charity funds in the Urals
and Siberia select projects based
on the EVRAZ Social Investments
Guidelines. Priorities include supporting
families in need, orphanages, veterans
and victims of disasters, financing
educational, sports and cultural projects,
as well as subsidising health care
activities and environmental protection
programmes.
96
KEY PROJECTS
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Additional information
EVRAZ for kids
EVRAZ participates in various federal
youth programmes and works closely with
academic institutions, financing the purchase
of necessary school supplies and sports
equipment, granting scholarships, providing
vocational guidance for students, offering
training in accordance with WorldSkills
methodology, and arranging work study
for students and internships for graduates.
The Group places 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: Children’s foresight
Building on the success of the “Children’s
Foresight” event held in the town of Kachkanar
in 2018 – part of a federal programme aimed
at engaging schoolchildren in designing
and developing their cities – EVRAZ
and the Social Investments and Initiatives
Agency significantly increased the scale
of the programme in 2019. During the reporting
period, more than 200 schoolchildren and 60
teacher-mentors from Kachkanar, Nizhny Tagil
and Mezhdurechensk took part in “Children’s
Foresight”. They took part in strategy sessions
to design their desired future city and develop
project ideas, as well as master classes
on social technology and personal effectiveness.
As a result, 26 projects have already launched.
More information about EVRAZ
activities in 2019 could be found
in the Sustainability Report 2019
which is to be published in May 2020.
97
Annual report & accounts 2019 EVRAZ City of friends – City of ideas
The grant repaired the pier and purchased sails
for yachts.
In Novokuznetsk and Mezhdurechensk, with
EVRAZ support, multimedia devices were
purchased and computer literacy training courses
for the elderly were launched. Retirees were
introduced to the possibilities of the internet
that help to make everyday life easier and more
eventful, including online payments for utilities
and basic goods, as well as the public services
portal, e-mail and social networking.
With grant funds from EVRAZ, Nizhny Tagil’s
Puppet Theatre staged a new performance
for young spectators called “The Singing Whale:
Underwater Stories”. Together with the actors,
children study the underwater world and its
inhabitants, pretend to be pearl gatherers, learn
how to get to know each other and make friends,
come to the rescue, be surprised and look
for adventure. Actors regularly hold charity
performances for children from orphanages
and kindergartens in Nizhny Tagil and Kachkanar.
This is the third baby performance for viewers
in the 0+ age group that has been staged with
the Group’s support.
More information about EVRAZ
activities in 2019 could be found
in the Sustainability Report 2019
which is to be published in May 2020.
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. As part of the project,
potential grant recipients attend seminars
and business planning training.
Since 2017, the contest has been held in four
cities where the Group operates. In 2019,
the contest received 210 applications from Siberia
and 133 from the Urals, of which 54 projects
received grants totalling RUB14.5 million. Overall,
the projects received more than 28,700 votes
and the programme’s website had 139,550
visitors.
Case study
Several “EVRAZ: City of Friends – City of Ideas”
projects were implemented in 2019.
EVRAZ helped to revive the sport of sailing
in Nizhny Tagil. The Group’s grant funds were
used to upgrade the Spartak boating club. So
that sailing enthusiasts could practice year-round,
the club was repaired, insulated and equipped
with the necessary furniture for a classroom.
EVRAZ for cities
EVRAZ invests to improve urban infrastructure
in cities and towns in the regions where
it operates. The Group sponsors medical,
educational and cultural institutions and projects.
Case study
To celebrate the 90th anniversary of Siberian
State Industrial University, EVRAZ financed major
repairs of an auditorium that has been named
“Raspadskaya” in appreciation. The Group also
installed new furniture and modern multimedia
equipment in the auditorium, which was
designed by specialists from the university,
who used aspects of mining professions
to influence the style of the academic space.
The university traditionally hosts public lectures
by representatives of Raspadskaya, which
manages the coal assets of EVRAZ, and also
conducts joint specialised training and master
classes. The “Raspadskaya” auditorium
is the second one that EVRAZ has donated: a year
ago, an auditorium named after the metallurgy
professor Ivan Bardin was opened at Siberian
State Industrial University.
98
More information about EVRAZ
activities in 2019 could be found
in the Sustainability Report 2019
which is to be published in May 2020.
EVRAZ for sport
EVRAZ develops sports infrastructure
in the cities where it operates, supports
amateur and professional sports teams,
sponsors federal and regional competitions,
and works to popularise sports and healthy
lifestyles among its employees and their family
members.
Case study
In November 2019, the EVRAZ Olymp Arena
and skiing track were opened in Kachkanar.
The Group donated around RUB350 million
towards its construction. The sports
complex is designed for football, basketball
and volleyball. One of the arena’s two sports
facilities is multifunctional and the other
is reserved for indoor football. In addition,
two football fields were built near the arena.
The length of the skiing track is more than
2 kilometres. The arena’s facilities will host
competitions and practices, as well as public
skiing sessions. In 2020, a ski lodge will be built
next to the track.
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 example, employees of EVRAZ ZSMK
have been sponsoring two orphanages
for more than 70 years: Orphanage No. 95
and “Island of Hope”. In 2019, the women’s
public organisation of the plant, together with
the management and primary labour union,
continued to work on the social adaptation
of orphans and children left without parental
care. The children are taught independent
housekeeping, cooking, cutting and sewing
skills, attend vocational guidance classes,
play in sports and competitions and visit
cultural events. Material aid is also provided
to orphanages.
Since 2017, EVRAZ NTMK employees have
been holding the “Relay of Good Deeds”
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Additional information
More information about EVRAZ
activities in 2019 could be found
in the Sustainability Report 2019
which is to be published in May 2020.
to help educational institutions in Sverdlovsk
region. In 2019, they brought gifts to children
from the social rehabilitation centres Rainbow
and No. 6, and also helped the Kolosok
kindergarten in the village of Novopanshino
to remove fire-hazardous coatings on the ground
floor of the building, install six new doors
on emergency exits, and rebuild three gazebos
and three sandboxes.
A team of volunteers at the EVRAZ Moscow
office painted the corridors of the Children’s
Rehabilitation Centre in partnership
with the Fun Corridor fund, which asked
professional artists to prepare sketches
of paintings in advance. In addition, employees
and their families went to the bison nursery
of the Prioksko-Terrasny Nature Reserve,
where the men unloaded several tonnes
of beets for the bison would eat in winter,
while the women and children performed site
clean-up.
99
Annual report & accounts 2019 New projects
DIGITAL projects
In 2019, EVRAZ prioritised the development
of digital projects. The Group launched
communities on the Vkontakte, Odnoklassniki,
Facebook, Instagram and YouTube social
networks, as well as updated the corporate
portal and launched the EVRAZ TV corporate
television project.
The updated version of the portal includes new
services and functionality for users, as well
as a more modern design. In 2019, the portal
had a total of 9,000 unique users and 120,000
page views.
EVRAZ social networking community has
become a full-fledged communication channel
with more than 15,000 subscribers in just
a year. The Group published 1,054 posts
and received 65,012 positive reactions from
users.
EVRAZ TV
EVRAZ TV was launched on 1 December 2019.
Today, it has 70 broadcast points (televisions)
in five cities. The total broadcast time is 351
hours. In addition, it can be streamed directly
via the Group’s corporate web portal.
Safety challenge: “Zero is also
a record”
On 11–23 November 2019, EVRAZ conducted
the “Zero is also a record” safety challenge at its
enterprises and on social media. Steelmakers
and miners from the Group’s Urals and Siberian
operations, as well as employees of the Moscow
office, showed that they want to work without
injuries and achieve an LTIFR of zero. The project
was supported by EVRAZ vice president for HSE,
Konstantin Rubin, the managing director
of EVRAZ NTMK and EVRAZ KGOK, Alexey
Kushnarev, and more than 40 of the Group’s
managers. The challenge also went outside
the enterprise. The participants included
the EVRAZ-supported Mettalurg and Raspadskiye
Panthers hockey clubs, Uralochka
volleyball team, Nizhny Tagil Drama Theatre
and Novokuznetsk Drama Theatre, as well
as journalists and television anchors.
100
“Continuity” project
2,707
social media posts
using the hashtag #нольтожерекорд
(zero is also a record)
622,000
views of a video
about the challenge
~3,000
participants
1,624
positive reactions
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Viral videos about industrial safety
regulations
The “Rules are for wimps?” video series was
about how blind faith in one’s invulnerability
can cause truly unfortunate incidents. The mini-
series about animals who ignore safety rules
had more than 1 million views in just a month.
The cartoon format also helped to convey
the importance of safe behaviour to the children
of Group employees.
Online premiere of the film “Stronger
than steel”
In the short film “Stronger than steel”, which
was made in honour of the 55th anniversary
of EVRAZ ZSMK, the renowned Russian
actor and director Vladimir Mashkov talked
about Novokuznetsk, with which the fate
of generations of metallurgists is closely
connected and in which he grew up.
The film was posted on EVRAZ social networks
and, in just a week, had more than 1 million
views, 15,000 positive reactions from viewers
and 72 references in regional and federal media.
More than 80 % of the audience was residents
of Novokuznetsk and Kemerovo region.
The film made it into the top search results
for key queries, including the Russian terms
for “Mashkov”, “Novokuznetsk”, “ZSMK”
and “Stronger than steel”. This had a positive
effect on the EVRAZ brand and helped
to minimise the cost of promoting the film.
“Steel Irony”: joint photo project
of EVRAZ and artist Anton Gudim
In a joint project with the popular internet
artist Anton Gudim, EVRAZ prepared a series
of illustrations called Steel Irony, hashtag
#СтальнаяИрония. The project is dedicated
to teaching how to protect personal data
and remain safe online, and how to behave
on social networks to avoid reputational damage.
The project had more than 100,000 views
and 1,200 positive reactions on social media.
Livestream of NLE2019
To maximise the number of Group employees who
could be immersed in the atmosphere and feel
part of the New Leaders EVRAZ (NLE) 2019
corporate educational programme, a livestream
of the speeches from the SKOLKOVO Business
School was set up. The total coverage of three
livestreams on Vkontakte, Facebook and YouTube
had more than 6,000 views and around 2,500
unique viewers.
“EVRAZ Football Cup” with MATCH
TV anchors
On 18 August 2019, the finals of the VIII EVRAZ
Football Cup took place at Kachkanar’s Gornyak
stadium. The online broadcast featuring
commentary of the renowned sports journalist
Nobel Arustamyan was watched by 30,000
viewers, including residents of Nizhny Tagil,
Kachkanar, Novokuznetsk and Mezhdurechensk.
“Continuity”: joint photo project
of EVRAZ and Yury Borsch
EVRAZ’ enterprises in Russia are separated
by thousands of kilometres. Despite
the distance, though, all operations and people
work in unison. This was the underlying
idea for the “CONTINUITY” photo project,
which the Group implemented together with
the renowned Russian aerial photographer Yury
Borsch, who has been ranked among the world’s
20 best aerial photographers by Drone
Multimedia magazine.
Lines of light were traced by flying a quadcopter
above plants and quarries in the photos.
Since the drone’s flight path could not be
programmed, it took three to five hours to take
each photo with the intended linear shape.
The photos were used in the corporate calendar
for 2020, as well as the new concept for EVRAZ
Instagram account. The total number of views
of publications about the project is estimated
at 1.5 million.
“Steel Irony” project
101
Annual report & accounts 2019 Anti-corruption and anti-bribery
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 that define day-to-day
routine of managers appointed to monitor
compliance with applicable anti-corruption
laws. 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 internal
regulations are followed conscientiously
and fully.
POLICIES
AND REGULATIONS
In 2019, EVRAZ reviewed its top-level documents
that define the norms of ethical and responsible
behaviour for employees in all circumstances:
the Code of Conduct and Anti-corruption Policy.
The updates reflect changes in processes
that the Group has made since the previous
edition. They enable compliance managers
to refer to clearer definitions and a wider
range of recommended patterns to avoid
risks of corruption. These and other relevant
policies are available on the corporate intranet
and employees bear personal responsibility for full
compliance with them.
of Conduct and the Anti-corruption Policy on their
first day of work. They are also briefed about other
relevant internal documents and procedures that
pertain to the Group’s anti-corruption efforts.
All internal policies and procedures related to anti-
corruption compliance consistently encourage
employees to seek guidance from compliance
managers whenever they have questions
about the expected course of action in difficult
situations. The Group urges everyone to voice
concerns about any known violations.
Today, managers responsible for monitoring
compliance with applicable anti-corruption laws
are present at every major asset and responsible
for controlling risks and handling anti-bribery
matters. They ensure that all possible non-
compliance with policies receive proper
attention immediately; 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. New employees are
obliged to familiarise themselves with the Code
RISK ANALYSIS
At the end of each calendar year, compliance
managers perform 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. In its Anti-corruption Policy, EVRAZ declares
zero tolerance for bribery and corruption.
The Group investigates carefully and discreetly
all signals suggesting potential violations
of applicable law and internal anti-corruption
policies.
As the Group’s business processes are stable
and consistent from 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
• Vetting contractors or customers
• Contract approval
• Group property management
In 2019, the compliance managers involved
in the abovementioned processes assessed
the risks based on their own statistics from
checking tenders, approving contracts, monitoring
purchases, conducting inventory checks, etc.
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
102
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Additional information
Examples of anti-corruption risks tested in the Group’s business processes
In the process “sale of goods, works
and services”, compliance managers define
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
includeunexplained/unjustified bonuses
to the buyerbased 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 consideredfor signs
of said risks. Should compliance managers
reveal systemic or significant violations
of anti-corruption procedures, this is drawnto
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
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
Inform senior vice president
for business support
and interregional relations
Mar-Oct
Monitor how risks
are being mitigated
Mar-Oct
Risk owners
Discuss results with risk
owners and top managers
Top managers
Compliance officer presents
reports to the Audit Committee
The compliance managers routinely meet
with the managers responsible for each asset
to inform them of known or newly revealed risks
and threats and to recommend further actions.
The compliance managers then monitor any
corrective measures undertaken to mitigate
the risks discussed. Should there be that
the necessary follow-up is lacking or inadequate,
the matter is presented to the senior vice-
president for business support for consideration.
In early January 2020, the compliance officer
presented to the Audit Committee the analysis
for 2019, which revealed no significant violations
of anti-corruption statutes or cases of non-
compliance with Group policies.
KEY DEVELOPMENTS
IN 2019
In 2019, EVRAZ compliance function did
not initiate any investigations into signs of corrupt
practices involving state or public officials.
However, there were signs of potential collusion
between Group employees and vendors,
and all of these were carefully investigated.
In addition, compliance managers’ own leads
regarding potential fraudulent schemes between
unscrupulous managers and suppliers/providers
also led to investigations. In the past year, there
were four cases of fraudulent intent, namely
lobbying for money, kickbacks. The employees
involved were dismissed and vendors banned.
Compliance considers ongoing preventive efforts,
effective existing controls, the tone from the top
and employees’ adherence to the anti-corruption
requirements as effective and adequate
for the existing risks.
In 2019 alone, over 2,000 more managers
throughout the Group have completed online
anti-corruption training developed by a leading
international provider in the field. Overall, close
to 13,000 licences have been used so far
by the Company employees to undergo online
training. The programme will continue in 2020.
Those previously trained receive invitations
to refresh their active knowledge of anti-corruption
principles and best practices.
This course 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 remain to:
• Confirm the Group’s position and full
compliance with applicable anti-corruption laws
• Explain existing controls to manage the risk
of bribery and corruption
• Raise awareness about the damaging effects
of bribery and corruption
• Draw attention to red flags and warnings about
possible illegal payments or other corrupt
activities
For additional information, see EVRAZ
Sustainability Report for 2019, which
is to be published in May 2020.
OUTLOOK FOR 2020
In 2020, more anti-corruption policies
(for example, on conflict of interests
and on sponsorship) will be updated to reflect
existing and best practice as well as the changes
implemented within the compliance system since
its launch. There are plans to launch own Group-
specific training modules and tests to complement
the current anti-corruption course. Other new
online options will also be considered in further
search for the optimum system of ongoing
training.
103
Annual report & accounts 2019 Corporate governance
Using high
standards
for a Better
Future
Apple Park
CA, United States
Using high
standards
Board
of Directors
Key to committee
membership
Audit Committee
Nominations Committee
Remuneration Committee
HSE Committee
Chairman
Member
106
Alexander Abramov
Non-Executive Chairman
Alexander Frolov
Chief Executive Officer
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
Non-Executive Director
Eugene Tenenbaum
Non-Executive Director
Appointment
Appointment
Eugene Shvidler has been a Board member
of Evraz Group S.A. since August 2006. He
was appointed to the Board of EVRAZ plc
on 14 October 2011.
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.
None.
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.
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 (1990–93) 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.
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Additional information
10
scheduled Board
meetings
EVRAZ plc held during 2019
107
Annual report & accounts 2019 Board
of Directors
INDEPENDENT
DIRECTORS
Laurie Argo
Independent
Non-Executive Director
Deborah Gudgeon
Independent
Non-Executive Director
Key to committee
membership
Appointment
Appointment
Laurie Argo has been a Board member of EVRAZ
plc since August 2018.
Deborah Gudgeon has been a Board member
of EVRAZ plc since May 2015.
Audit Committee
Nominations Committee
Remuneration Committee
HSE Committee
Chairman
Member
108
Committee Membership
Committee Membership
Ms Argo is a member of the Audit Committee
and the Remuneration Committee.
Ms Gudgeon serves as chairman
of the Audit Committee and is a member
of the Remuneration Committee.
Skills and Experience
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
Ms Argo is currently an independent non-
executive director of the general partner
of Rattler Midstream LP.
Skills and Experience
Ms Gudgeon is a qualified chartered
accountant with 30 years experience. She
started her career with Coopers and Lybrand,
and in 1987 became a senior accountant
for Salomon Brothers International. 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
Ms Gudgeon is currently a Senior Adviser
of Penfida Limited. She is also an independent
non-executive director of Highland Gold
Mining Ltd.
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Additional information
Karl Gruber
Independent
Non-Executive Director
Alexander Izosimov
Independent
Non-Executive Director
Sir Michael Peat
Senior Independent
Non-Executive Director
Appointment
Appointment
Appointment
Karl Gruber has been a Board member of Evraz
Group S.A. since May 2010. He was appointed
to the Board of EVRAZ plc on 14 October 2011.
Committee Membership
Mr Gruber serves as chairman of the Health,
Safety and Environment Committee. He is also
a member of the Nominations Committee.
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 memberships
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 Nominations Committee and member
of Remuneration
Skills and Experience
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
None.
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; 1991–96)
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 Exchange.
Skills and Experience
Sir Michael Peat is a qualified chartered
accountant with over 40 years’ experience. He
served as Principal Private Secretary to HRH
The Prince of Wales from 2002 until 2011.
Prior to this, he spent nine years as the Royal
Household’s Director of Finance and Property
Services and then Treasurer to The Queen
and Keeper of the Privy Purse. Sir Michael
Peat was at KPMG from 1972, and became
a partner in 1985. He left KPMG in 1993
to devote himself to his public roles. 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 & Co Limited, a non-executive
director of Architekton Limited, and chairman
of the Regeneration Group Limited.
109
Annual report & accounts 2019 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
Nikolay Ivanov
Chief Financial Officer
Alexander Kuznetsov
Vice President, Corporate Strategy
and Performance Management
Ilya Shirokobrod
Vice President, Sales
Alexey Soldatenkov
Vice President,
Head of the Siberia Division
110
Denis Novozhenov
Vice President,
Head of the Urals Division
Sergey Stepanov
Vice President,
Head of the Coal Division
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
NEW
APPOINTMENT
Alexander Erenburg
Vice President,
Vanadium Division
James Skip Herald
Chief Executive Officer,
EVRAZ North America
Sergey Vasiliev
Vice President, Compliance with Business
Procedures and Asset Protection
Konstantin Rubin
Vice President,
Health, Safety and Environment
Vsevolod Sementsov
Vice President,
Corporate Communications
Natalia Ionova
Vice President,
Human Resources
Artem Natrusov
Vice President,
Information Technologies
Yanina Staniulenaite
Vice President,
Legal
111
Annual report & accounts 2019 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 based on the UK Corporate Governance
Code published by the Financial Reporting
Council (FRC) in July 2018 and the Listing Rules
of the UK Listing Authority.
During the year to 31 December 2019, EVRAZ
complied with all the principles and provisions
of the 2018 UK Corporate Governance Code (the
Governance Code is available at www.frc.org.uk),
with the following exceptions:
• Provision 9: The chairman was non-
independent on appointment, as he was
and remains a significant shareholder,
and had previously served as a CEO
and chairman of the Group prior to listing
in 2011. The Board considers that he brings
independence of judgement to the Group’s
activities, as well as extensive experience
and expertise of the Group’s key markets.
The Board also considers that the current
Board structure provides a suitable level
of protection for minority shareholders,
as it operates in accordance with
the Relationship Agreement currently in place
(read page 143).
• Provision 37: The Company does not operate
clawback arrangements. An explanation
for this non-compliance is set out
in the Remuneration Report on page 131.
An explanation of how the Company has
complied with the UK Corporate Governance
Code is given on the following pages:
• Board Leadership and Company Purpose –
please read at Corporate Governance
Statement on pages 112-115
• Division of Responsibilities - please read
at Corporate Governance statement
on pages 112-115
112
• Composition, Succession and Evaluation –
please read at Nominations Committee
Report on pages 126-127
• Audit, Risk and internal control - please read
at Audit Committee Report on page 123,
internal controls on page 116 and Review
of principal risks on pages 34-39
• Remuneration - please read at Remuneration
Committee report on pages 130-139
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.
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 2019,
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 2018 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
• Approval of two interim dividends during
the year
• Investment project reviews
• Disposal of non-core businesses
• 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
The Board discussed the proposals to pay:
an interim dividend of US$0.40 per ordinary
share, totalling US$577.3 million, paid
on 29 March 2019; and an interim dividend
of US$0.35 per share, totalling US$508.7
million, paid on 5 September 2019. 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 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 LR9.8.4R (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.
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Principal decisions
Decision:
Context
Stakeholder
considerations
Strategic Actions
Supported by the Board
Impact of these actions
on the long-term
success of the Company
Outcome
2020 Business Plan and Budget
The Business Plan and Budget sets the annual targets and the costs of the necessary resources to achieve these targets. It is
developed considering in line with the overall strategy of the Group and considers any specific challenges faced by each division
and its underlying business units, this includes any stakeholder related considerations. The Chief Executive supported by key
members of the management presents the Plan and Budget for the Board’s challenge and approval. All executive management
responsible for the key business units attend and present their budget to the Board.
In reviewing the Business Plan and Budget, the Board considered the potential impact that each operation and project might
have on its stakeholders (employees, local communities, government and regulators, contractors & suppliers, shareholders
and customers) and the environment.
The strategic actions of the Business Plan and Budget supported by the Board to generate value for stakeholders are:
• Further HSE initiatives, which will be monitored by the HSE Committee, to improve performance and are detailed in the HSE
Committee report on pages 128-129
• Approval of investment plans to further reduce Greenhouse Gas emissions, supporting government regulations
• Continuing high standards of corporate governance and adherence to regulations
• Approval of maintenance CAPEX to both improve business efficiency increasing value and improving working conditions for staff
• Approval of investment plans, generating new projects that provide additional employment opportunities and supplier lines.
The Business Plan and Budget creates a balance between current operating performance and considerations that matter to all
stakeholders in the short and long-term such as health & safety, environmental performance and community relations.
In December 2019 the Board discussed and approved the 2020 Business Plan and Budget.
Decision:
Context
Stakeholder
considerations
Approval of various investment projects
The business plan for each financial year contains a number of investment projects, involving sizeable capital expenditure
amounts. These can be for a variety of different types of projects, including the replacement of time expired plant in existing
facilities, or the construction of new plant to take advantage of new market opportunities.
Shareholders
• New plant to improve production efficiency and access markets for new products thereby improving shareholder value.
Employees
• Safer working conditions with modern plant in a better working environment
Environment
• Reduced Greenhouse gas emissions
• Better waste water control
• Improved energy efficiency.
Impact of these actions
on the long-term
success of the Company
Strategic Actions
Supported by the Board
Outcome
The decision to invest demonstrates confidence in the long-term outlook for iron and steel products in the markets served
by these production facilities; and Evraz commitment to sustainable growth for the benefit of all stakeholders.
The strategic actions of the investment projects supported by the Board to generate value for stakeholders are:
• Improved Health and Safety working conditions for staff
• Reduced Greenhouse Gas emissions in line with government regulation
• Improved operational efficiency increasing shareholder value
• Supply opportunities for national and international contractors tendered for in a transparent manner.
A number of investment projects were approved during the year.
Chairman and chief executive
The Board determines the division
of responsibilities between the chairman
and the chief executive officer (CEO).
The chairman’s principal responsibility
is the effective running of the Board, ensuring
that the Board as a whole plays a full
and constructive part in the development
and determination of the Group’s strategy
and overall commercial objectives. The Board
is chaired by Alexander Abramov.
The CEO is responsible for leading the Group’s
operating performance, as well as for the day-
to-day management of the Company and its
subsidiaries. The Group’s CEO is Alexander
Frolov.
The CEO is supported by the executive team.
113
Annual report & accounts 2019 Board meetings
and composition
EVRAZ plc held 10 scheduled Board meetings
during 2019. In 2020, 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 2019.
As at 31 December 2019, 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, and Sir
Michael Peat) are independent in character
and judgement, and free from any business
or other relationship that could materially
interfere with the exercise of their independent
judgement, in compliance with the UK Corporate
Governance Code. In November 2019,
Ms Gudgeon was appointed an independent non-
executive director of Highland Gold Mining Ltd,
Board composition
Independent Non-Executive Director
Non-Executive Director
Chairman, Non-Executive
Executive Director
56%
22%
11%
11%
Board and AGM attendance by each director
Total number of meetings
Alexander Abramov
Alexander Frolov
Laurie Argo
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Sir Michael Peat
Eugene Shvidler
Eugene Tenenbaum
HSE
2
2/2
2/2
Remco
4
4/4
4/4
4/4
Board
10
8/101
10/10
10/10
10/10
10/10
10/10
9/102
9/103
9/103
Audit
Nomco
AGM
10
10/10
10/10
9/10
3
3/3
3/3
3/3
3/3
3/3
1
1
1
1
1
1
1
1
1
1
a company that is partly owned by some
of the significant shareholders of the Company.
The Board has considered this appointment,
and has concluded that as Highland Gold
Mining Ltd operates in a different market
from the Company and the remuneration
received for the appointment is non-material,
Ms Gudgeon’s independence is not compromised
as a result.
The independent non-executive directors
comprise the majority (excluding the Health,
Safety and Environment Committee)
on and chair all Board Committees.
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, read
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.
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. The Nominations
Committee will commence a process in early
2020 to identify suitable candidates for the role
of independent non-executive director to replace
those directors who will be required to stand
down at the 2021 and 2022 AGM, having
completed their nine-year terms.
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, read the Nominations
Committee report on pages 126-127.
1.
2.
3.
Alexander Abramov was unable to attend one board meeting and conference call due to business travel and time zone clashes.
Sir Michael Peat was unable to attend one conference call meeting as a result of being called overseas.
Eugene Shvidler and Eugene Tenenbaum were unable to attend one conference call meeting due to a business commitment that arose unexpectedly.
114
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Performance evaluation
An internally facilitated annual Board evaluation
was conducted in 2019, following an externally
evaluated review undertaken in 2017.
The review was carried out at the initiative
and with the participation of the Company’s
Nominations Committee. Questionnaires were
distributed to all Board directors for their
response and comment.
The results were discussed at three levels:
(i) among the members of the Nominations
Committee; (ii) between Sir Michael Peat
(as chairman of the Nominations Committee)
and Alexander Abramov (as chairman
of the Board); and (iii) among the members
of the Board as a whole.
Board performance was deemed to be
satisfactory. At its January 2020 meeting,
the Board agreed an action plan for 2020
that would allow the Board to continue
developing its involvement in reviewing
and considering the management’s
strategy proposals and to take into account
stakeholder considerations, 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 2019 action plan, the Board
noted that its members had spent more
time considering the Group’s strategy
plan and investment proposal arising from
it. There has been more focus on succession
planning for senior executives and significant
changes in the North American business had
been implemented. In addition the Board had
been fully updated by the HSE Committee
Chairman and the Vice President HSE
on the new initiatives being implemented
across the Group.
The Company undertakes regular
performance evaluations of the Board in line
with the requirements of the UK Corporate
Governance Code. An externally facilitated
review is planned for 2020.
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.
Board composition as at 31 December 2019
Name
Executive director
Alexander Frolov
Non-executive directors
Position
CEO
Alexander Abramov
Eugene Shvidler
Eugene Tenenbaum
Chairman
Director
Director
Independent non-executive directors
Director
Director
Director
Director
Senior independent director
Laurie Argo
Karl Gruber
Deborah Gudgeon
Alexander Izosimov
Sir Michael Peat
Committee Membership
Year of tenure
HSEC – member
NC – member
NC – member
None
AC – member, RC – member
HSEC – chairman, NC – member
AC – chairman, RC – member
RC – chairman, NC – member, AC – member
NC – chairman, RC – member
8
8
8
8
1
8
4
7
8
Role and composition of each committee
Committee name
Audit Committee
Nominations Committee
Remuneration Committee
HSE Committee
Function
Composition
Audit, financial reporting, risk
management and controls
Selection and nomination of Board
members
Remuneration of Board members
and top management
HSE issues
All four members are independent non-executive
directors
All five members are non-executive directors,
of which three are independent
All four 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 Company1
Link to committee report
Read on pages
Read on pages
Read on pages
Read on pages
1.
The members of the Health, Safety and Environment Committee at 31 December 2019 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.
115
Annual report & accounts 2019 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 November 2019, 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.
The EVRAZ Enterprise Risk Management
(ERM) process is designed to identify,
quantify and respond to these threats,
as well as to monitor the Group’s prevention
and mitigation system. The 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 2019,
the process in relation to principal risks
and uncertainties was consistent with the UK
Corporate Governance Code, the FRC Guidance
on the Strategic Report issued in July 2018
and the abovementioned FRC guidance issued
in September 2014.
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 business management team is primarily
responsible for ERM and accountable for all
risks assumed in the operations.
• The Board is responsible for assessing
the optimum balance of risk (risk appetite)
through the alignment of business strategy
and risk tolerance on an enterprise-wide
basis. In addition, the Board oversees
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 Management Group which
consists of business unit and function
vice-presidents.
• All acquired businesses are brought within
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 discuss any
major internal control findings exceeding
the Board’s risk appetite.
The EVRAZ Business Security department
is led 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 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
to 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 the management
in controlling risks and monitoring
compliance, as well as 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 2019, 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’s 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 2019, internal audit projects covered
the following Group risks:
• Cost effectiveness
• Health, safety and environment
• Capital projects and expenditure
• Human resources
• Compliance laws and regulations
• Business interruption, and equipment
and infrastructure downtime management
• Transportation, sourcing, raw materials
and energy supply
• Digital effectiveness, and effective, efficient
and continued IT service
• Fraud, security, bribery and corruption
• Quality
EVRAZ internal audit function is structured
on a regional basis, reflecting the geographic
spread of the Group’s operations. The internal
audit function aligns common internal audit
practices throughout the Group via quality
assurance and improvement programmes.
Benchmarking with the leading internal audit
functions in other companies is also being
done in order to improve internal audit efficiency,
effectiveness and value for the Group.
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Business review
CSR report
Corporate governance
Financial statements
Additional information
Components of the internal control system
Component
Basis for assurance
Action in 2019
Assurance framework – principal entity-level
controls to prevent and detect error or material
fraud, as well as to ensure effectiveness
of operations and compliance with principal
external and internal regulations
• 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 the overall effectiveness
of the governance, and risk and control
framework
In 2019, the internal audit function reviewed
the result of the management’s internal control self-
assessment and evaluated the overall effectiveness
of the governance, risk management and internal
control system. All major production sites were
certified as having overall effective governance, risk
management and internal control.
Investment project management
• Effectiveness of project management
and management of project risks is monitored
by established management committee
and subcommittees
• Reviewed by the internal audit function
Operating policies and procedures
• Implemented, updated and monitored
by the management
• Reviewed by the internal audit function
Operating budgets
Accounting policies and procedures as per
the corporate accounting manual
• 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
Continuous enhancement of procedures regarding
quality and reporting control, as well as other elements
of the project oversight process. In 2019, various
activities were implemented in order to further
increase the efficiency and effectiveness of the project
management process, for example by including
functional experts (HR, legal, procurement, IT, etc)
in the project management teams.
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. The process of improving the internal
regulation framework has been started in 2019
and continue in 2020.
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.
Approach to risk appetite
Risk appetite is an important part
of the risk management process that
serves as a measure of the risks that
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 and 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 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 26 February 2020.
Objectives for 2020
Further development of the risk management
system and risk management practices
is planned for 2020.
In 2019, the Group was focused on enhancing
its health and safety risk management
methodology; this work will continue in 2020.
In 2020, in addition to continuing to implement
ongoing initiatives focused on improving risk
management (in HSE, equipment maintenance
and repairs, procurement and other
processes), the Group plans to focus more
on addressing climate-related risks. While
environmental risk has always been a topic
of focus for the management and is recognised
as a principal risk for the Group,
the management plans to increase its focus
on the climate-related aspects of this risk.
In order to enhance its focus and control over
the Environmental, Social and Governance
risks, in 2020, the Group plans to initiate
development of the related strategies
and policies: Sustainability Strategy, Climate
Change Strategy, Human Rights and Diversity
Policy. This will provide more transparency
on how the Group addresses the related risks.
Further information regarding EVRAZ
internal control and risk management
processes can be found on the Group’s
website.
117
Annual report & accounts 2019 Stakeholder
engagement
Shareholders
and investors
• Disclosure of relevant financial and non-
financial information
• Participation in Russian and international
investment conferences
• Regularly hosting Capital Markets Days
• Organising site visits
• Day-to-day and ad-hoc engagement
Employees
• Direct engagement of dedicated Board members
• Development of safety culture
• Regular educational programmes to develop
employees’ professional skills
Internal portal for employees
• Regular interaction with trade unions
•
• Annual employee engagement survey
• Corporate newspapers
• Hotline
Read more on page 22
Read more on pages 77, 90
Customers
• Regularly monitoring customer satisfaction
levels
• Meetings and feedback sessions with clients
and EVRAZ management
• Electronic platform for clients
• Site visits to production assets
Read more on pages 46, 54, 56, 64
Suppliers
and contractors
• Discussions with potential suppliers
• Electronic platform for suppliers
• Educational programmes for contractors to
ensure high level of workplace safety
Read more at p. 49, 59, 67
EVRAZ uses various
communication channels
in order to be sure that our
stakeholder engagement
approach covers all the
stakeholder groups and
facilitates two-way
communication and
feedback
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Additional information
Our goal
To build honest and supportive relationships with all stakeholders on our path
towards sustainable development
Local
communities
•
Implementing various social, infrastructural
and environmental projects based on local
communities’ needs
• Organising social events for populations of
regions where EVRAZ operates
• Holding direct dialogues with local
communities
Media
• Hosting regular press conferences
• Supporting and initiating mutual
communication projects
• Supporting regional TV channels and
newspapers
• Organising site visits
• Day-to-day and ad-hoc engagement
Read more on page 96
Read more on page 101
Government and
regulatory authorities
• Regular meetings with representatives of
government and regulatory authorities at federal,
regional and local levels
• Disclosure of information concerning EVRAZ
social, economic and environmental performance
• Agreements on regional socio-economic
Industry
organisations
• Organising and participating in conferences
•
as well as other industry events
Initiating and supporting various social,
economic, educational and environmental
projects
development
Read more on page 96
Read more on page 96
119
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
https://www.evraz.com/en/company/governance/policies/#reference
Dear shareholders,
I am pleased to present the Audit Committee Report for the financial year ended 31 December 2019.
As part of the Group’s efforts to increase engagement across the business, the Audit Committee held one of its meetings
at EVRAZ Pueblo during 2019 and we plan to meet at another operation during 2020. In addition, I visited the Group’s steel mills
at EVRAZ NTMK and the iron ore operations at Kachkanar.
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 Audit Committee minutes are tabled
at Board meetings 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 management before they are considered
by the Board.
The Committee reviewed and updated its terms
of reference in November 2019.
I confirm on behalf of the Company its
compliance, during the financial year
commencing 1 January 2019, 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 114, 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.
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Additional information
Key members of the management team
and Risk Management Group are also
invited to attend Committee meetings when
appropriate. In 2019, these included the CEO
and vice presidents of strategy, steel, HSE,
IT, security, legal, compliance and personnel,
the CEO and CFO of EVRAZ North America plc
(ENA) and the director of investor relations.
Other members of the management team
and internal audit function were also invited
to attend Committee meetings as appropriate.
The Audit Committee met ten times during
2019 and four times in early 2020 before
the publication of this Annual Report. Two
of the meetings in 2019 focused on the Group
reorganisation as detailed on page 114. Most
of the meetings are in person and attended
by all the members of the Audit Committee.
Details of committee attendance
are set out on page 114.
ACTIVITIES AND WORK
OF THE COMMITTEE
DURING 2019
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 IT security of the Group was monitored
by the Committee on an ongoing basis
during 2019, including the results of external
audit reviews, mitigation plans and the level
of attempted attacks. A new information
security assessment of the Russian business
was undertaken by EY in November 2019
to test the effectiveness of the updated
procedures and risk mitigation actions that
had been implemented following the 2017
attack, and concluded that information security
has improved. The Committee reviewed
the detailed mitigation plan developed
by the North American business following the IT
risk assessment undertaken by EY in 2018
and will monitor progress in this area during
2020. Given the significance of IT security
to the Group’s risk profile and resilience,
and the level of digital transformation across
the business, this will remain an area of focus
for the Audit Committee in 2020 and beyond.
The Audit Committee received regular
updates from the vice-president of HSE
on the development of the updated health
and safety risk management methodology
and significant findings from the industrial
safety audit team. The new processes
will be tested by internal audit in 2020
and the Committee will consider and monitor
the mitigation of any findings.
At the request of the Board, the Committee
reviewed the reorganisation the group undertook
during 2019 to streamline the corporate
structure and optimise the capital efficiency
of the business Note 3 of separate financial
statements on page 241.
In 2019, the Committee also received regular
reports on a number of ongoing projects
and monitored progress against objectives.
These included the finance transformation
project initiated in 2018, the procurement
contract process and the plan to improve
inventory and product shipment controls at one
of the plants using innovative technology
solutions. The repairs and maintenance
transformation project developed
by management in 2019 was also considered.
These projects will remain an area of focus
for the Committee in 2020.
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.
At the request of the Board, the Audit
Committee reviewed the proforma Viability
Statement and supporting analysis
produced by management and reviewed
by the Risk Management Group. The Audit
Committee considered the scenarios being
tested in the context of the updated risk
register, the assumptions and mitigating
actions underpinning each scenario
and the capital required for the effective
operation of the business. Capital projects
and expenditure are now classified
as a principal risk as the Group moves into
a major investment cycle. Compliance with
trade regulations and sanctions regimes
remains a principal risk for the business.
As in 2018, 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 reviewed
this position again and agreed with the Risk
Management Group. As a result, this scenario
has not been modelled as part of the viability
analysis in 2019.
SIGNIFICANT
FINANCIAL REPORTING
ISSUES CONSIDERED
BY THE AUDIT
COMMITTEE IN 2019
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
121
Annual report & accounts 2019 Financial reporting standards
and governance requirements
The full financial statements can be
found on pages 156-247.
The Audit Committee considered
several financial reporting issues
in relation to the interim results
for H1 2019 and the financial statements
for 2019. 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) against
the US dollar, the presentation currency
of the financial statements, as set out in Note 2.
As a result, the analysis of balance movements
in the financial statements between reporting
periods can be difficult although management
although management separately reports
the forex impact for key movements.
Going concern (Note 2)
EVRAZ is exposed to a wide range
of risks and inherent uncertainties as set
out on pages 34-39, many of which are
outside the control of the Group. Market
conditions were challenging in 2019 as steel
margins narrowed and global metallurgical
and vanadium supply/demand dynamics
stabilised but there was a positive trend
in pricing and demand in the Group’s key
markets in the final quarter of the year.
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 current
impact of the COVID – 19 virus outbreak
on steel and raw material supply and demand
was considered together with the potential
longer term implications for the Group’s
market. The Committee carefully considered
the projected use and sources of funds
for the period to June 2021, which includes
scheduled loan repayments, new committed
funding, free cash flow after committed 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 for 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
2019 to the Board.
An impairment charge of US$442 million
is recorded in the financial statements for 2019.
This primarily relates to the large diameter pipe
business in Canada where a goodwill impairment
charge of $300 million has been recorded. This
goodwill arose on the acquisition of the business
in 2008. The Committee considered the continuing
implications of trade barriers and the long
term outlook for this business segment, as well
as the growth achieved in 2019 and the strong
order pipeline for 2020. Given the existence
of a recent relevant market transaction,
the Committee accepted management’s
assumption that the value of the large
diameter pipeline business be determined
on the basis of fair value less cost of disposal
and an impairment recognised. During 2019,
management decided to postpone the reopening
of the MUK-96 mine at Raspadskaya. Given
the future uncertainty, the value of the mining
assets relating to this mine was re-assessed
and a fully impaired, with a charge of $84 million.
Areas of significant accounting
judgement and management
estimates
Impairment of goodwill and non-
current assets (Notes 5 and 6)
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
2019 and reassessed at 31 December
2019 when no further impairment triggers
were identified. With the exception of large
diameter pipes, the recoverable amounts
for all cash generating units in 2019 were
determined on the basis of their value-in-use.
The recoverable amount for large diameter
pipes was determined on the basis of fair value
less cost of disposal (see below). The continued
weakness of the rouble means that the carrying
values of Russian cash-generating units
remain low in US dollar terms and are largely
not challenged by the value in use comparisons
used to determine impairment, even if the pricing
outlook were to deteriorate.
Other matters
The Committee reviewed, challenged
and ultimately agreed with the accounting
treatment and disclosure of several
transactions during 2019, including:
• the sale of property, plant and equipment
and inventory of the Yartsevo rolling mill.
The Group provided loans to Yartsevo in 2012
ahead of the privatisation of the mill. Due
to the continuing bankruptcy proceedings
at the mill, an impairment of $56 million
was recognised in the 2019 interim
financial statements to reduce the carrying
value of this asset to the likely recoverable
value from the liquidation. In November
2019, Evraz acquired the property, plant
and equipment and inventory of Yartsevo
for $22 million in the bankruptcy auction,
the proceeds of which were used to partially
repay the creditors of the mill, including
Evraz Upon acquisition, the Yartsevo mill was
classified as an asset held for sale. The assets
of the Yartsevo mill were subsequently
sold to a third party for $66 million
and a gain of $40 million was recognised upon
the disposal. At the moment of the acquisition,
the Group did not have any arrangement
for the sale of the Yartsevo mill so the purchase
and sale arrangements are not treated
as linked in the financial statements;
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Additional information
• the new trading agreement for the supply
of slab between EVRAZ North America
and an independent supplier. Historically,
the Group has been the major supplier
of slab to the North American business;
but to ensure the most competitive pricing
and logistic and operational efficiency,
management have been purchasing more
actively in the market and have entered into
an agreement with an independent supplier.
This supplier contracts with both the Group
as a supplier and ENA as a customer.
There is no tri-partite agreement, put or call
option which would require consideration
of the supply and purchase as one
transaction and the supplier carries the full
inventory risk with each contract priced
separately. On this basis, the contracts
for the supply and purchase have been
considered separately and no unrealised
profit has been recognised by the Group
on ENA stock of slab even if some of that slab
was produced by other parts of the Group;
• the sales of Stratcor Inc, Evraztrans Ukraine
and Palini e Bertoli and the respective
gains and losses on disposal as disclosed
in Note 12;
• the contract with Xcel Energy Inc
for the construction of a solar power plant
for the long term supply of electricity
to EVRAZ Pueblo on a take-or-pay basis.
The solar power plant will be owned
and operated by a third party. The contract
does not give the Group the right to use
or operate the assets and the output will
also be sold to unconnected third parties.
On this basis, management concluded that
this contract does not constitute a lease
as defined by IFRS16 (Note 30); and
• the contracts with Air Liquide and Praxair
for the long-term supply of oxygen and other
gases to the Group’s steel operations.
As the Group does not control or manage
the air separation plant and output will
also be sold to unconnected third parties,
management has concluded that neither
of these contracts constitute a lease
(Note 30).
Fair, balanced
and understandable
In considering whether the Annual Report
is fair, balanced and understandable,
the Committee reviewed the information it had
received, discussions held with management
throughout the year and the preparation
process adopted. Management
agreed on 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 should conclude
that the Annual Report is fair, balanced
and understandable. The Audit Committee
recommended approval of the Group’s
2019 Consolidated Financial Statements
by the Board. Both also recommended were
accepted by the Board.
OTHER MATTERS
UK Bribery Act
The Group’s Code of Conduct and Anti-
Corruption Policy was updated during 2019
as set out on page 103. This was reviewed
by the Audit Committee and approved
by the Board in December 2019. The existing
framework for monitoring compliance
with EVRAZ anti-corruption policies
and identifying risk was updated early in 2019
by the compliance, legal and internal audit
teams to reflect the latest best practice.
Using this framework, compliance was
tested in late 2019 and the results reported
to the Audit Committee in January 2020.
Although the testing indicated further
progress in reducing risk, the Committee
asked the compliance team to provide further
analysis of one specific risk area. Additional
anti-corruption policies will be updated in 2020
to reflect best practice and the evolving
compliance system.
Anti-corruption training continued during
2019. Further 2,000 managers across
the business completed the anti-corruption
training programme developed by Thomson
Reuters, bringing the total number of those
trained to 13,000. The training will be extended
to additional staff in 2020 and refresher
training will continue. In addition, specific
training modules will be developed in-house
by management to supplement the Thomson
Reuters programme during 2020.
Sanctions compliance controls
Compliance with the extended sanctions
regime remained a key focus for the Committee
throughout 2019. 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.
There is a process of continuing education
for 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 116–117.
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
123
Annual report & accounts 2019 systems and activities are documented
in a comprehensive FRP manual. The manual
was updated and reviewed by the Audit
Committee in November 2019.
The Risk Management Group
and the Audit Committee reviewed
the Group’s risk profile in November 2019
and finalised the assessment in January 2020.
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 the timely and effective
resolution of 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 evaluates the overall
effectiveness of the Group’s governance, 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 governance, risk
and control environment with the Board.
The Audit Committee monitors the internal
control environment throughout the year
and engages with management to ensure
the resolution of any deficiencies identified
by internal audit.
A particular area of focus during 2019 was
the mitigation of health and safety risks across
the business. The Committee reviewed reports
from both internal audit and the industrial
safety team on deficiencies and mitigation
plans, as well as receiving regular updates from
management. The Audit Committee continued
to review the information security risks across
the business by way of updated annual
assessments and consideration of initiatives
to mitigate the evolving risk environment.
Progress on GDPR compliance, the process
to standardise procurement contract
documentation and the finance function
development plan were also considered.
Other areas reviewed were the repairs
and maintenance transformation project across
the Russian assets and the ongoing 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.
INTERNAL AUDIT
The Audit Committee receives quarterly internal
audit reports detailing significant findings,
progress on the timely and effective resolution
of outstanding findings, the status of ad hoc
projects and any revisions to the current year
audit plan. The internal audit plan for 2020 was
reviewed by the Audit Committee and certain
revisions were recommended to reflect
the updated risk profile of the business
and to prioritise key business cycles
and controls from a risk perspective. Overall,
the Committee considers the current internal
audit resource to be adequate for the internal
control and risk management assurance
requirements.
The Audit Committee reviewed and updated
the Internal Audit Charter and key performance
indicators of the internal audit function
in January 2020. 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. A 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. These include:
• Review and approval of the external audit
plan for the interim review and year-end
audit, including consideration of the audit
scope, key audit risks and audit materiality
measures, and compliance with best practice
• Review and approval of the external auditor’s
engagement letter
• Review of the FRC’s Quality Inspection Report
July 2019 and EY’s response
• Consideration of the external auditor’s
report on the interim review, annual report
and representation letters and
• Review of the external auditor’s management
letter on the 2018 audit with management,
consideration of management’s response
and proposed actions.
The Audit Committee has monitored
the enquiries into the independence of audit
firms and effectiveness of the audit process
during 2019 and noted the recommendations.
The Revised Ethical Standard 2019
issued by the Financial Reporting Council
in December 2019 has also been considered.
There has been a constructive engagement
with the external auditor to determine
the implications of these recommendations
on the EVRAZ audit process both in current
and future years. The Audit Committee
will review the process for monitoring
the independence and effectiveness
124
Re-appointment of the external
auditor
Following a tender process
in 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
has considered the latest regulatory
guidance together with the terms agreed
with EY in respect of the financial year ended
31 December 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 31 December
2020.
The Audit Committee continues to consider EY
to be effective and independent in their role
as auditor and has provided the Board with its
recommendation to the shareholders that EY
be re-appointed as external auditor for the year
ending 31 December 2020.
of the external auditor to ensure it reflects
the Revised Ethical Standard and finalised
guidance from the other reviews.
Management and members of the Audit
Committee completed a questionnaire
to assess the effectiveness and independence
of the 2018 external audit process during 2019,
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 2019, 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 currently 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 and will be further
updated in the first quarter of 2020 to reflect
the FRC Revised Ethical Standard 2019. During
2019, non-audit fees totalled $1,178,000
and included $543,000 in respect of the interim
review (2018 $1,202,000 including $459,000
in respect of the interim review). The balance
in 2019 related to the Eurobond issue
in March 2019 ($330,000) together with
a number of assurance projects, ISO 27001 GAP
analysis and penetration testing and vendor due
diligence services in connection with the sale
of Palini e Bertoli Srl. Non-audit fees were 40%
of the 2019 audit fee of $3.0 million, compared
with 41% of the 2018 audit fee. Irrespective
of prior approval of the CFO and Audit Committee
chairman, all fees are reported to the Audit
Committee for noting and comment.
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125
Annual report & accounts 2019 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
https://www.evraz.com/en/company/governance/policies/#reference
The Nominations Committee has continued to review developments in Corporate Governance and to ensure that the Group adheres
to best practice. It monitors the Board’s composition to ensure that it remains appropriate for the Company. Currently, two
of the Board’s nine members are female, which is below the Hampton-Alexander review recommended level. This will be taken into
account when the next director appointment is made. With three of the five independent non-executive directors likely to retire
at the 2021 or 2022 AGM, having completed nine years on the Board, a search process will commence in 2020.
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 2019 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 three occasions during
2019. As reported on page 114, all members
were in attendance for all meetings.
The CEO attended all meetings and the company
secretary acted as the committee’s secretary.
ACTIVITY DURING
2019
During 2019, 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. With three of the five independent
non-executive directors due to retire
at the 2021 or 2022 AGMs, it was agreed that
a search process for replacement non-executive
directors would commence in 2020.
The committee also paid close attention
to senior management succession.
Currently the Committee has not engaged
any external search consultancies to assist
in recruitment.
Board performance evaluation
In 2017, as required by the UK Corporate
Governance code in effect at the time,
the Company undertook a Board performance
evaluation using an external facilitator,
Lintstock LLP. In October 2019, the company
secretary undertook a follow up internal
evaluation under the guidance of the Nominations
Committee. Following the 2019 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 continuing improvements to the Board
process, information flow and induction.
The outcome of the review and the action plan are
described in the Corporate Governance section
on page 115.
126
Independence of non-executive
directors
and educational and professional backgrounds,
as disclosed in the CSR report on page 91.
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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.
2020 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.
The Committee will commence a search
programme to ensure that it can replace those
independent non-executive directors who will
need to stand down at the 2021 or 2022 AGMs,
having completed nine years as a director.
In addition, the committee will continue
to consider development and succession
planning for senior management.
The committee undertook a review
of the independent status of the non-executive
directors based on the provisions in the UK
Corporate Governance Code. It confirmed
the appropriateness of the independent
status of each of the independent non-
executive directors. The Committee noted
that Ms Gudgeon had been appointed
an independent non-executive director
of Highland Gold Mining Ltd, the shareholders
of which include some of the Group’s
significant shareholders. It considered
that as the companies operate in different
markets and that as the level of remuneration
is not material, the appointment does
not compromise Ms Gudgeon’s independence.
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 12 December 2019.
It was concluded, as previously, that the chairman
continues to make an important contribution
to the Group, including through his knowledge
and experience of, and contacts in, the industry. It
was noted that the chairman was not independent
on appointment as required by Provision 9
of the UK Corporate Governance Code,
but that in view of his experience and knowledge
it was not considered that his independence
of judgement would be impaired.
The chairman of the Group and the chairman
of the Nominations Committee discussed
the performance of the individual directors,
including time available to devote to the Group’s
business, and noted no concerns.
Diversity policy
The Board’s diversity policy is to have Board
membership that reflects the international
nature of the Group’s operations and includes
at least two women as board members.
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
127
Annual report & accounts 2019 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
https://www.evraz.com/en/company/governance/policies/#reference.
In 2019, EVRAZ faced a sharp rise in the number of fatalities, primarily due to an incident involving a crew bus that happened
in February 2019 in which eight employees were fatally injured and another 16 people were seriously wounded. In total, 12 EVRAZ
employees and four contractors lost their lives during 2019; most of the fatalities were caused by unsafe actions and risk identification
failures during the stage of work planning. To improve the situation, EVRAZ launched a project aimed at implementing a new approach
to safety culture improvement by engaging employees in the risk identification and mitigation process. The main idea is to switch
the general attitude regarding shop floor workers from being subordinates to equal partners in the risk management process. Together
with the HSE best practice initiatives launched in the previous years, we believe that this approach will yield good results in the future
and will monitor the results to ensure that it is effective.
ROLE
AND RESPONSIBILITIES
The Health, Safety and Environment (HSE)
Committee reports to the Board of Directors
on matters concerning employee wellbeing
and occupational safety, as well as protecting
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
128
COMMITTEE MEMBERS
AND ATTENDANCE
As of 31 December 2019, the members
of the HSE Committee included chairman
Karl Gruber, as well as Alexander Frolov
and Olga Pokrovskaya, who has been asked
to continue serving on the Committee since
leaving the Board on 14 March 2016 due
to her technical and regional experience.
In 2019, the Committee held three meetings:
regular meetings on 5 February and 30 July
at the headquarters in Moscow, as well
as one additional meeting on 16 October
in London to review the Risk Management
project implementation. All Committee
meetings had a necessary quorum and were
convened as required. The meetings included
reviews of current issues and HSE initiatives
at the divisional level.
ACTIVITIES DURING
2019
Below is a summary of the HSE Committee’s
performance of its duties in 2019.
HSE performance review
Throughout the year, the Committee applied
the following criteria to review the HSE
performance of EVRAZ operations:
• 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
• Industrial safety risk assessment
In addition, in September 2019, the Committee
members took part in the EVRAZ HSE
management committee and visited Urals
production sites to review HSE practices and take
part in the “HSE Risk Hunting” session.
In the aftermath of every fatality, severe injury
and incident involving significant damage
to property at EVRAZ, the HSE Committee conducts
an investigation to determine the root cause,
as well as to establish courses of remedial action.
This involves recording a detailed description
of the scene, the sequence of events, root cause
analysis and corrective measures implemented.
The Committee applies the following criteria
to evaluate the Group’s environmental
performance:
• Key air emissions, including nitrogen oxides
(NOx), sulphur oxides (SOx), dust and volatile
organic compounds
• Carbon dioxide (CO2) equivalent (tCO2e)
emission
The Committee approved a new corporate HSE
initiative called “Risk Management Project”.
The project methodology consists of a set
of existing, known HSE tools and best practices,
which were tested during 2019. Additionally,
the project’s approach fosters more intensive
interaction among workers and their supervisors
by means of health and safety training, safety
conversations and using the motivational tools
applied within the EVRAZ Business System.
• Carbon dioxide (CO2) equivalent (tCO2e) per
tonne of crude steel cast.
• Non-mining waste and by-product generation,
recycling and re-use
• Fresh water intake and water management
In addition, the Committee supported
the management’s efforts in the following
HSE initiatives, finding that the priorities are
generally on track:
• Implementation of a lockout-tagout (LOTO)
aspects
system
• Non-compliance related environmental levies
• Safety conversations and standard operating
(taxes) and penalties
procedures
• EVRAZ environmental commitments
• Assessment of the safety management
and liabilities
system
• Major environmental litigation and claims
• Asset coverage with environmental permits/
• Review of contractor management
requirements
licences
• Public complaints
• Material environmental incidents
and preventative measures
• Environmental risk assessment
Additionally in 2019, the Committee reviewed
the risks and control measures associated with
the largest dams of EVRAZ. The information
on dam safety issues has been publicly
disclosed within the Investor Mining and Tailings
Safety Initiative.
HSE strategy review
In 2019, the Committee reviewed the result
of the diagnostic audit provided by external
consultants in order to set the key areas
for improvement of the safety culture. Based
on these diagnostics, EVRAZ described its
HSE Management system as consisting of six
elements:
• Policy, goals and programs
• Leadership, engagement and responsibility
• Risk management
• Process management and compliance with
standards
• Trainings and competencies
• Control and continuous improvements
Every element is described as “where we are”
and “where we want to be”, and then assessed
based on the established criteria. The assessment
of the safety management system highlighted
leadership and risk management as the main
areas for improvement.
• Divisional health and safety initiatives
• Environmental programmes, including air
emission, water consumption and waste
management initiatives
The Committee discussed the challenges
posed by global climate change and agreed
that the Group should more deeply investigate
possible ways to reduce greenhouse gas
emissions and establish a corresponding
strategy. EVRAZ experts participate
in discussions of respective emissions
regulations (including related legal acts)
to develop emissions regulations in line with
the Paris Agreement 2°C pathway. They
also provide their professional opinions
within respective working groups of various
business associations, including the Russian
Steel Association and the Russian Union
of Industrialists and Entrepreneurs. These
associations, in turn, aggregate the opinions
held by industry representatives and provide
them to the government and respective
ministries.
HSE regulatory changes
In 2019, the HSE Committee evaluated the risks
and opportunities related to the introduction
of new regulation. Over the reporting period,
EVRAZ reviewed drafts of HSE-related legislation
for the Russian Steel Association’s HSE
Committee, helping the steel industry to form
positions in various areas, including:
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• Russian and Canadian greenhouse gas
regulations
• The ResponsibleSteel Standard Initiative
• Online emission and discharge monitoring
• Transition to best available techniques (BAT)
• Integrated Environmental Permit (IEP)
The Committee acknowledges the risks involved
and recommended a proactive approach
in alliance with the business community
and steel producers.
HSE audit review
In 2019, EVRAZ operations underwent
compliance inspections of state supervisory
agencies and internal HSE auditors,
and the Committee reviewed:
• The HQ Industrial Safety Department’s audits
of processes and structural units at Group
facilities
• 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
CSR review
The HSE Committee’s CSR review for 2018–19
covered social programmes with the following
priorities:
• Local community quality of life
• Initiatives supporting infrastructure, sports,
education and culture
• Special needs children
• Environmental protection
• Safety in the workplace and at home
Following an annual reputation audit
that engaged key stakeholders, including
representatives of the business
community, customers, media, government
and local communities, the Committee
rated the sustainability efforts of EVRAZ
as satisfactory. Over the past three years,
the Group’s score on the reputation index has
indicated a sustainably high performance.
For more details on HSE issues, read
the Corporate Social Responsibility
section on pages 76-103.
129
Annual report & accounts 2019 Remuneration report
Alexander Izosimov
Independent Non-Executive Director,
Chairman of the Remuneration Committee
I am pleased to present EVRAZ annual report on directors’ remuneration and to confirm that the Committee has taken decisions fully
in line with the shareholder-approved policy. This policy is designed to help to deliver the Group’s sustainable business objectives
and maximise long-term rewards to shareholders. The Committee’s Terms of Reference have now been updated in line with the 2018
UK Corporate Governance Code.
I would like to welcome Laurie Argo, who joined the Committee as a member on 13 December 2019.
INTRODUCTION
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 (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 2018
UK Corporate Governance Code (July 2018).
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.
This policy is broadly the same as the previous
version as, following a review by the Committee,
it was felt to still be appropriate for the Group’s
requirements.
Annual remuneration report
The second part of the report,
the Annual Remuneration Report, sets
out details of remuneration paid in 2019
and how the Group intends to apply its
Remuneration Policy in 2020. This section
will be put to an advisory shareholder vote
at the forthcoming AGM.
Key decisions taken during
the year
During the year, the Committee reviewed
the suitability of the current policy, reflecting
on how it had operated in the past and what
was needed for the future. While the updated
UK Corporate Governance Code required certain
changes to be made, these are fairly minor
in nature. The Committee operated under its
terms of reference (as described on page 138)
without conflicts of interest and having sought
advice to determine the future policy.
The Committee assessed performance
of the CEO against predetermined KPIs
and targets as well as the overall performance
of the Group. From an operational and financial
perspective the performance of the Group
has been strong, meeting most of the set
targets and showing good progress on strategic
projects. During the year the Group significantly
increased its focus on health and safety, placing
the paramount importance on the measures
aimed to improve the safety culture.
However, taking into account the increase
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in fatalities in 2019, driven by the crew
bus accident at Raspadskaya mine, after
the discussion with and with the agreement
of the CEO, the Committee decided not to award
the CEO bonus. Although changes in behavior
and practices take time to achieve improved
safety figures, the CEO considers the increase
in the number of fatalities unacceptable.
Through the ongoing dialog with the management,
the Committee maintained its thorough
understanding of the operation of remuneration
arrangements throughout the Group and under
its amended terms of reference approved
the remuneration of the senior executives
operating immediately below the CEO.
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 actualised strategic priorities define
the selection of KPIs for the CEO.
These strategic priorities are reflected
in the Group’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 Group’s key quantitative
financial, operational and strategic measures
to ensure focus is spread across the key
aspects of Group’s 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 2019, 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), Cash Cost Index
and the Committee’s assessment of overall
performance against strategic objectives.
The KPIs are specific and focus on deliverables
to support the Group’s strategy.
How business strategic priorities align to overall reward at EVRAZ
CEO KPIs
Weighting
Sustainable
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
Adjusted FCF
Cash Cost Index
20%
20%
20%
20%
Strategic Objectives
20%
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
POLICY REPORT
Shareholder approval is to be sought
at the 2020 AGM for an updated policy (which
is outlined on pages 131-135) which will,
subject to that shareholder approval.
This updated policy contains the following
key changes to the policy approved
in 2017 by shareholders (which is available
at https://ar2017.evraz.com/en/governance/
remuneration-report):
• Future executive directors will receive
a pension benefit no higher than that
provided (as a percentage of salary)
to the workforce level
• Introduction of formal shareholding
guidelines requiring any future executive
director to build over time and then retain
shares worth at least 200% of salary
normally for the period of two years after
ceasing to be an executive director
• The ability for the Committee to reduce
bonus payments to reflect EVRAZ overall
performance, as well as safety record
and procedures
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.
The Committee reserves the right to make
any remuneration payments and payments
for loss of office that are not in line with
the policy set out below where the terms
of the payment were agreed before the policy
came into effect or at a time when the relevant
individual was not a director of the Company
and, in the opinion of the Committee, the payment
was not in consideration of the individual
becoming a director of the Company.
The CEO’s incentive arrangements are subject
to “malus”, under which the Committee may
adjust bonus payments downwards to reflect
the Group’s overall performance including safety
underlying practices and resulting 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 2018 UK Corporate
Governance Code.
The Committee may make minor amendments
to the Remuneration Policy set out below
(for regulatory, exchange control, tax
or administrative purposes, or to take account
of a change in legislation) without obtaining
shareholder approval for that amendment.
131
Annual report & accounts 2019 Remuneration Policy
Element
Purpose and
link to strategy
Operation
Executive director
Maximum potential value
Performance metrics
Base salary
Provides a level
of base pay
to reflect individual
experience
and role to attract
and retain high
calibre talent.
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.
Generally, the maximum
increase per year will be in line
with the overall level of increases
within the Group.
None
However, there is no overall
maximum opportunity as increases
may be made above this level
at the Committee’s discretion,
to take account of individual
circumstances such as increases
in scope and responsibility
and to reflect the individual’s
development and performance
in the role.
None
The cost of benefits will generally
be in line with that for the senior
management team. However,
the cost of insurance benefits may
vary from year to year depending
on the individual’s circumstances.
In the event that an executive director
is required by the Group to relocate,
or following recruitment, benefits may
include but are not limited to a relocation,
housing, travel and education allowance.
The overall benefit value will be set
at a level the Committee considers
proportionate and appropriate
to reflect individual circumstances,
in line with market practices.
Annual bonus
To align executive
remuneration
to Group strategy
by rewarding
the achievement
of annual financial
and strategic
business targets.
The Group operates an annual bonus
arrangement under which awards
are generally delivered in cash.
Targets are reviewed annually and linked
to corporate performance based
on predetermined targets.
There is no total maximum
opportunity.
Up to 200% of base salary in respect
of any financial year of the Group.
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 no more than 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.
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Element
Purpose and
link to strategy
Operation
Non-executive directors
Maximum potential value
Performance metrics
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 following chart provides an indication
of what could be received by an executive
director under the Remuneration Policy.
In relation to any pension benefits, these
will not exceed the percentage of salary
earned by the majority of the workforce
(either of the Group or the county in which
the executive director works).
Notwithstanding this, the Committee
recognises that the Remuneration Policy
set out above is tailored towards the only
current executive director, the CEO, who has
a significant shareholding in the Company.
Any new executive director is likely to have
a different fact-pattern to the current CEO,
and thus the Committee believes it is important
to retain the flexibility to be able to offer other
elements, namely market-competitive, share-
based incentive programmes, which are linked
to the Group’s performance and designed
to align the executive director’s interests
to the delivery of growth in shareholder value.
The maximum level of variable remuneration
which may be granted in respect of recruitment
(excluding any buyouts) will not exceed
the ongoing policy of more than 200% of base
salary, as described in the policy table above.
This additional headroom has been capped
at a level comparable with maximum award
levels seen in conventional long-term incentive
plans used in the wider UK-listed market.
Application of the remuneration
policy, US$ thousand
Minimum
100%
In line with expectations
50%
Maximum
33%
0%
50%
67%
2,658
5,283
7,908
Base pay
Annual bonus
Policy on recruitment
of executive directors
This part of the Remuneration Policy has
been developed to enable the Group to recruit
the best candidate possible who will be able
to contribute to the Group’s performance
and will help to reach its goals.
In the event of hiring a new executive director,
remuneration would be determined in line with
the following Remuneration Policy.
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.
133
Annual report & accounts 2019 The Committee’s intention would be for any
share-based incentive awards to be subject
to performance conditions. Where the intention
is to grant regular long-term incentive awards
to a candidate, the Committee would seek
appropriate shareholder approval for a new
share plan in accordance with the Listing Rules.
When setting salaries for new hires,
the Committee will consider all relevant
factors, including the skills and experience
of the individual, the market from which they
are recruited, and the market rate for the role.
For interim positions, a cash supplement may
be paid rather than salary (for example, a non-
executive director taking on an executive
function on a short-term basis).
To facilitate recruitment, the Committee may
need to compensate an executive director
for the loss of remuneration arrangements
forfeited on joining the Company. In granting
any buyout award, the Committee will consider
relevant factors, including any performance
conditions attached to the awards forfeited,
the form in which they were granted (eg cash
or shares) and the timeframe of the awards.
The Committee will generally seek to structure
the buyout on a comparable basis to awards
forfeited. The overriding principle is that
any buyout award would be at or below
the commercial value of remuneration
forfeited.
The Committee retains the flexibility to alter
the performance measures of the annual bonus
for the first year of appointment, if it determines
that the circumstances of the recruitment merit
such alteration.
Where an executive director is appointed from
within the organisation, the normal policy is that
any legacy arrangements would be honoured
in line with the original terms and conditions.
Similarly, if an executive director is appointed
following an acquisition of, or merger with
another company, legacy terms and conditions
will be honoured.
On the appointment of a new chairman or non-
executive director, their remuneration will
typically be in line with the Remuneration Policy
as set out above. Any specific cash or share
arrangements delivered to the chairman
or non-executive directors will not include
share options or any other performance-related
elements.
Policy on shareholdings
of executive directors
The Company’s policy is that executive
directors should hold shares in the Company
and any new executive director will be required
to build and retain a level of shareholding
in the Company. The application
of this will be contained from time
to time in the Annual Remuneration Report
and is currently set at 200% of salary. This
level of shareholding (or the actual level
on departure if it is lower) will normally have
to be retained for two years following ceasing
to be an executive director. As the current
executive director, the CEO, has a holding
in excess of 9.69% of the Company and does
not participate in share plans, this guideline
does not apply to him.
Executive director’s service
contract and loss of office
policy
The CEO has a service contract with
a subsidiary of EVRAZ plc. The CEO’s service
contract does not provide for any specific
notice period and therefore, in the event
of termination, the applicable notice period
will be as provided for in the Russian Labour
Code from time to time (where the termination
is at the Company’s initiative, the entitlement
to pay in lieu of notice is currently limited
to three months’ base salary). The Committee
may determine that a termination payment
of up to 12 months’ base salary should be paid,
taking into consideration the circumstances
Key terms of non-executive directors’ appointment letters
of departure. Going forward, all new executive
directors’ contracts will normally provide
for a notice period of no more than 12 months
and for any compensation provisions
for termination without notice to be capped
at 12 months’ base salary and contractual
benefits.
There is no automatic entitlement to annual
bonus and executive directors would
not normally receive a bonus in respect
of the financial year of their cessation. However,
where an executive director leaves by reason
of death, disability, ill-health, or other reasons
that the Committee may determine, a bonus
may be awarded. Any such bonus would
normally be subject to performance and time
pro-rating, unless the Committee determines
otherwise.
Executive
director
Alexander V.
Frolov
Date
of contract
31 December
2019
Notice period
(months)
N/A
Non-executive directors’ letters
of appointment
Each non-executive director has
a letter of appointment setting out the terms
and conditions covering their appointment.
They are required to stand for election
at the first AGM following their appointment
and, subject to the outcome of the AGM,
the appointment is for a further one-year
term. Over and above this arrangement,
the appointment may be terminated
by the director giving three months’
notice or in accordance with the Articles
of Association. Letters of appointment do
not provide for any payments in the event
of loss of office.
All directors are subject to annual
reappointment and, accordingly, each non-
executive director will stand for re-election
at the AGM on 16 June 2020.
Non-executive directors
Alexander G. Abramov
Karl Gruber
Alexander Izosimov
Sir Michael Peat
Deborah Gudgeon
Eugene Shvidler
Eugene Tenenbaum
Laurie Argo
134
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
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Copies of the directors’ letters of appointment
or, in the case of the CEO, the service contract,
are available for inspection by shareholders
at the Group’s registered office.
Consideration of conditions elsewhere
in the Group
Management prepares details of all employee
pay and conditions, and the Committee
considers them on an annual basis.
The Committee takes this into account when
setting the CEO’s remuneration.
However, 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 2019 financial year,
and details of how the Remuneration Policy
will be implemented in the 2020 financial year.
Executive director’s
remuneration
In 2019, 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 director’s
fee (US$150,000) and any applicable fees
for participation in the work of the Board
committees as laid out in the section below
on non-executive director remuneration.
However, the Committee considers these fees
to be incorporated in his base salary. Alexander
Frolov’s current shareholding (9.69% of issued
share capital as of 31.12.2019) provides
alignment with the delivery of long-term growth
in shareholder value. As such, the Committee
does not consider it necessary for the CEO
to participate in any long-term incentive plans
or to impose formal shareholding guidelines.
However, the Committee will continue to review
this on an ongoing basis.
Annual bonus
The CEO is eligible for a performance-related
bonus that is paid in cash following the year-
end, subject to the Committee’s agreement
and the Board of Directors’ approval.
The bonus is linked to achieving performance
conditions based on predetermined targets
set by the Board of Directors. The target
bonus is 100% of base salary with a maximum
potential of 200% of base salary.
Single total figure
of remuneration (audited)
Annual bonus for 2019
(audited)
Key elements of the CEO’s
remuneration package received
in relation to 2019 (compared
with the prior year)
Alexander V.
Frolov
Salary
and director fees1
Benefits
Bonus
Total
Base salary
2019 (US$)
2018 (US$)
2,625,000
2,500,000
32,970
0
2,657,970
33,506
2,860,378
5,393,884
The Committee approved the CEO’s current salary
on 1 January 2019 at the level of US$2,625,000
(which includes, for the avoidance of doubt,
the director’s fee, fees paid for committee
membership and any salary from subsidiaries
of EVRAZ plc).
Pension and benefits (audited)
The CEO does not currently receive any pension
benefit or allowance. Benefits consist principally
of private healthcare.
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 2019, 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), Cash Cost Index and committee
assessment of overall performance against
strategic objectives.
The Committee reviews the resulting bonus
payout to ensure that it is appropriate
considering the Group’s overall performance,
as well as safety record and procedures.
In 2019, EVRAZ reached or outperformed
the threshold target for all of its operational
and financial KPIs with the exception
of LTIFR. Management has delivered
a robust set of financial and operational
results and continued to advance core
strategic projects according to plan.
In normal circumstances, such performance
would warrant a payout ratio of 24.47%
of the maximum possible payout.
Details of the targets set for each KPI, the actual achievement in the year, and total payout level for the 2019 bonus
KPIs
Result measurement
LTIFR
EBITDA
Adjusted FCF
Cash cost index
Discretion
Total
Threshold
2.0
US$2,574m
US$1,426m
110%
Planned level
(% of target)
1.67
US$3,217m
US$1,783m
100%
Outstanding
1.34
US$3,860m
US$2,140m
90%
Remuneration Committee assessment of overall performance against
strategic objectives
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$2,625,000.
Actual 2019
Bonus payout
(% of max)
2.04
US$2,601m
US$1,549m
99%
0%
2.1%
17.3%
53%
50%
24.47%
135
Annual report & accounts 2019 Notwithstanding the significantly increased
focus on health and safety in the year,
the gravity of the increase in the number
of fatalities, driven by the crew bus accident
at Raspadskaya mine, required the Committee
to reassess the overall performance. Whilst
changes in behavior and practices take
time to flow through to the achievement
of improved safety figures, the CEO considers
the increase in the number of fatalities
unacceptable. After an extended deliberation,
which included taking into account the CEO’s
focus and expectations around safety,
the Committee none the less decided
not to award the CEO bonus.
Annual bonus for 2020
For 2020, the bonus framework will be in line
with 2019. The Board considers forward-
looking targets to be commercially sensitive;
however, they will generally be disclosed
in the subsequent year. In line with previous
years, a malus arrangement will apply under
which bonus payouts may be adjusted
downwards to reflect the Group’s overall
performance including safety underlying
practices and resulting performance.
Non-executive directors’
remuneration
Non-executive directors’ remuneration payable
in respect of 2019 and 2018 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). The fee for employee engagement
responsibilities is also set at US$24,000.
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, director’s fees and fees paid
for committee membership).
Fees will remain unchanged for 2020.
Aggregate
directors’
remuneration
The aggregate amount of directors’ remuneration
payable in respect of qualifying services
for the year ended 31 December 2019 was
US$5,116 thousand (2018: US$7,743 thousand).
Share ownership
by the Board of Directors
(audited)
There were no formal minimum shareholding
requirements in place, reflecting the CEO’s
current shareholding in EVRAZ. However,
the proposed policy includes these in relation
to any future appointments.
The directors’ interests in EVRAZ shares as of 31
December 2019 were as follows.
There have been no changes in the directors’
interests from 31 December 2019 through
26 February 2020.
Single total figure of remuneration (audited)
Non-executive director
2019 (US$ thousand)
2018 (US$ thousand)
Total fees1
Admin2
Total
Total fees1
Admin2
Alexander G. Abramov
Alexander Izosimov
Eugene Shvidler
Eugene Tenenbaum
Karl Gruber
Sir Michael Peat
Deborah Gudgeon
Laurie Argo
750
248
174
150
224
224
274
174
30
30
30
30
30
30
30
30
780
278
204
180
254
254
304
204
750
248
174
150
238
224
274
51
30
30
30
30
30
30
30
30
Total
780
278
204
180
268
254
304
81
1.
2.
Total fees include annual fees and fees for committee membership or chairmanship (pro rata working days).
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.
136
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
The CEO holds shares to the value of 287 times
his salary as at 31 December 2019.
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 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 various topics.
The survey has historically been successful
in driving numerous employee-focused
initiatives and helps to set key priorities
for the forthcoming year, aimed at improving
the engagement of all employees.
Directors’ interest in EVRAZ shares as of 31 December 2019
Directors
Alexander Abramov
Alexander Frolov
Eugene Shvidler
Alexander Izosimov
Number of shares
Total holding, ordinary shares, %
281,870,003
140,723,705
40,488,242
80,000
19.41
9.69
2.79
0.01
The Board reviews the engagement data
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 hotline.
In 2018 the Board has appointed two non-
executive directors to be involved in town-
hall meetings with employees. During 2019,
Alexander Izosimov visited Raspadskaya Coal
Company in Novokuznetsk, Russia and Laurie
Argo visited EVRAZ Portland’s rolling mill
in North America for town-hall meetings
with employees. During these visits, the two
directors met with employees and learned
what is important to them. This information
was shared with the Committee and discussed.
The 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 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 had less than 10 UK employees during
the year and does not therefore have any
gender pay or CEO pay ratio to report under
the Regulations.
Relative importance of spend
on pay
The following table 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 the KPI that best shows the Group’s
financial performance.
US$ million
EBITDA
Shares buyback
Dividends
Total employee pay
2019
2,601
0
1,086
1,464
2018
3,777
0
1,556
1,326
For more information on the definition
of EBITDA, please read page 251.
Performance graph
The following graph 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.
137
Annual report & accounts 2019 The following table shows as a single
figure the CEO’s total remuneration over
the past seven years, along with a comparison
of variable payments as a percentage
of the maximum bonus available.
Percentage change
in remuneration
The following table sets out the percentage
change in the elements of remuneration
for the director undertaking the role
of CEO compared with average figures
for Russia-based administrative personnel.
This group of employees has been
selected as an appropriate comparator,
as they are based in the same geographic
market as the CEO, and so are subject
to a similar external environment
and pressures.
Total shareholder return performance, %
The population of employees
the calculation has been performed
for includes the administrative personnel
in Head Office and the Ural and Siberia
management companies. This provides
a more representative calculation across
the Russian businesses than in previous
years.
Percentage change in the elements
of remuneration for the director
undertaking the role of CEO
compared with average figures
for Russia-based administrative
personnel
CEO
Russia-based
administrative
personnel
Salary
Benefits
Annual bonus
5%
2%
(100%)
5%
21%
0%
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 31.12.2019
FTSE 350 Basic Resources Index
EVRAZ
CEO’s total remuneration paid in 2013–2019
CEO single figure of total
remuneration
Annual bonus payout (as a %
of maximum opportunity)
2,657,970
5,393,884
5,516,553
4,560,054
3,186,585
5,808,752
4,894,286
0%
57,21%
59,82%
40,78%
13,33%
77,00%
50,00%
(US$)
2019
2018
2017
2016
2015
2014
2013
138
Committee composition
This section details the Remuneration
Committee’s composition and activities
undertaken over the past year.
Committee members
The Committee’s composition was changed
during the year with the appointment of Laurie
Argo as a member on 13 December 2019
and its current members are:
• Alexander Izosimov
• Deborah Gudgeon
• Sir Michael Peat
• Laurie Argo
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 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 2018 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 2019, the Committee met four times.
The main 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 2018 results; to approve the 2019 long-
term incentive plan (LTIP) awards for key senior
management; and to agree the proposed new
directors’ remuneration policy.
Advisers
The Committee has appointed Korn
Ferry (UK) Limited (Korn Ferry) to provide
independent remuneration consultancy
services to the Group. Korn Ferry 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, Korn Ferry principally
advised the Committee on developments
in the regulatory environment and market
practice, on the development and disclosure
of the Group’s pay arrangements
and on the proposed new policy. The total fee
for advice provided to the Committee during
the year was £36,527.
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
For
Against
Withheld Total votes as %
of issued share
capital
To receive the Directors’ report
and the accounts for the Company
for the year ended 31 December
2018
To approve the Annual
Remuneration Report set out
on pages 120–127 of the Annual
Report and Accounts 2018
1,179,677,802
1,644,619
347,138
81.36%
(99.86%)1
(0.14%)
1,128,595,317
53,060,034
14,208
81.39%
(95.51%)
(4.49%)
1.
Percentage of votes cast.
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Signed on behalf of the Board
of Directors,
Alexander Izosimov
Chairman of the
Remuneration Committee
26 February 2020
139
Annual report & accounts 2019 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 2019, 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.
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 read page 22 for details.
The Company paid an interim dividend of US$0.40 per ordinary share, totalling US$577.34 million, on 29 March 2019
to shareholders on the register as of 8 March 2019.
The Company paid an interim dividend of US$0.35 per ordinary share, totalling US$508.7 million, on 5 September 2019
to shareholders on the register as of 16 August 2019.
The Board of Directors have declared an interim dividend of US$0.40 per share, totalling US$580.8 million, to be paid on 27 March
2020 to shareholders on the register as of 6 March 2020.
During February 2020 the directors became aware that certain dividends paid in 2018 and 2019 totalling $1,447 million had
been made otherwise than in accordance with the Companies Act 2006. The directors duly checked the sufficiency of distributable
reserves before each distribution, but due to an administrative error the interim accounts were not filed at Companies House prior
to payment.
To rectify these breaches, in February 2020 the Company filed the interim accounts in respect of each dividend payment.
A special resolution will be proposed at the Annual General Meeting of the Company’s shareholders in June 2020 to authorise
the appropriation of distributable profits to the payment of the relevant dividends and remove any right for the Company to pursue
shareholders or directors (the ‘Director Release’) for repayment. The Director Release will constitute a related party transaction
under the Listing Rules of the UK Listing Authority and under IFRS. The overall effect of the special resolution being passed
will be to return all parties to the position they would have been in had the relevant dividends been made in full compliance
with the Companies Act 2006.
Details of the Company’s share capital are set out in Note 20 to the Consolidated Financial Statements, including details
on the movements in the Company’s issued share capital during the year.
As of 31 December 2019, the Company’s issued share capital consisted of 1,506,527,294 ordinary shares, of which 54,619,521
shares are held in Treasury. Therefore, the total number of voting rights in the Company is 1,451,907,773.
The Company’s issued ordinary share capital ranks pari passu in all respects and carries the right to receive all dividends
and distributions declared, made or paid on or in respect of the ordinary shares. There are currently no redeemable non-voting
preference shares or subscriber shares of the Company in issue.
The authority given at the 2019 AGM for the Company to make market purchases of 144,355,081 of its shares, representing 10%
of the issued share capital (excluding shares held in treasury), expires on the earlier of the 2020 AGM or 30 June 2020. We will ask
shareholders to give a similar authority at the 2020 AGM. During 2019, no shares were purchased under this authority.
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 30 April 2019, the Company transferred 8,556,954 ordinary shares out of treasury to the Company’s Employee Share Trust.
Details are set out in Note 20 to the Consolidated Financial Statements.
Biographies of the directors who served on the Board during the year are provided in the Governance section on pages 106–109.
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, read the Corporate Remuneration on page 134.
All of the continuing directors intend to stand for re-election at the 2020 AGM to be held later this year.
Information on share ownership by directors can be found in this Report and in the Remuneration Report on page 137.
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.
Dividends
Distributions
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
140
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Major interests in shares
Research and development EVRAZ is constantly engaged in process and product innovation. EVRAZ research and development centres located at the Company’s
Notifiable major share interests of which the Company has been made aware are set out in this Directors’ Report.
production sites improve and develop high-quality steel products to better meet customers’ needs and to ensure that the Company
remains competitive in the global and local markets.
For examples of the Company’s efforts in research and development in different operations, please refer to the Business Review
on pages 62–63.
The Corporate Social Responsibility section of this report focuses on the health and safety, environmental and employment
performance of the Company’s operations, and outlines the Company’s core values and commitment to the principles of sustainable
development and development of community relations programmes.
Details of the Company’s policies and performance are provided in the Corporate Social Responsibility section on pages 76–103.
EVRAZ published its 2018 report on payments to governments in June 2019. 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 2019.
Sustainable development
Payments to governments
Political donations
Greenhouse gas emissions In 2019, in accordance with the requirements of the Companies Act 2006 (Strategic and Directors’ Report) Regulations 2013,
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
Section 172 Statement
Employee engagement
Stakeholder engagement
on key decisions
EVRAZ undertook to assess full emissions of greenhouse gases (GHGs) from facilities under its control.
Details can be found in the Corporate Social Responsibility section on page 83.
Information regarding the Company’s employees can be found in the Our People section on pages 90–95.
EVRAZ does not have any branches. A full list of the Group’s controlled subsidiaries is disclosed in Note 34 of the Consolidated
Financial Statements.
Information regarding the financial risk management and internal control processes and policies, as well as details of hedging policy
and exposure to the risks associated with financial instruments, can be found in Note 28 to the Consolidated Financial Statements,
the Corporate Governance, Risk Management and Internal Control section on pages 112–117 and the Financial Review section
on pages 28–33.
The financial position and performance of the Group and its cash flows are set out in the Financial Review section of the report
on pages 28–33.
Based on the currently available facts and circumstances, the directors and management have a reasonable expectation that
the Group has adequate resources to continue in operational existence for the foreseeable future.
More details are provided in Note 2 to the consolidated financial statements on page 164.
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 on pages 6-43.
The major events after 31 December 2019 are disclosed in Note 33 to the Consolidated Financial Statements on page 230.
The 2020 AGM will be held later this year 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 will be available on the Company’s website at www.evraz.com.
A copy of the 2019 annual report, the Notice of the AGM and other corporate publications, reports and announcements
will be available on the Company’s website at the following link:
https://www.evraz.com/en/investors/
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 (DTR7.2) 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 DTR7.2 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 DTR7.2.6, which is located in this Directors’ Report.
The Company’s Section 172 Statement can be found in the Strategic Report on page 41.
Details of how the Company engages with its workforce can be found in the Strategic Report on page 41.
Details of the key decisions and discussions of the Board during the year and the main stakeholder inputs into those decision are set
out in the Corporate Governance Report on page 112-113.
141
Annual report & accounts 2019 MAJOR SHAREHOLDINGS
The Company’s issued share capital as of 31 December 2019 was 1,506,527,294 ordinary shares, of which 54,619,5211 shares are held in Treasury.
Therefore, the total number of voting rights in the Company is 1,451,907,773.
As of 31 December 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
% of voting rights
417,767,314
281,870,003
140,723,705
83,751,827
28.77
19.41
9.69
5.77
1.
2.
3.
4.
5.
The number of shares differs from the figure in the Financial statements by the amount of shares held in Trust.
The Company understands that Roman Abramovich has an indirect economic interest in the 417,767,314 shares held by Greenleas International Holdings Ltd.
The Company understands that Alexander Abramov has an indirect economic interest in the 281,870,003 shares held by Abiglaze Ltd.
The Company understands that Alexander Frolov has an indirect economic interest in the 140,723,705 shares held by Crosland Global Limited.
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 2019:
Roman Abramovich
Alexander Abramov
Alexander Frolov
Gennady Kozovoy
Number of ordinary shares
% of voting rights
417,767,314
281,870,003
140,723,705
83,751,827
28.77
19.41
9.69
5.77
There have been no changes in the Company’s issued share capital and the Company has not received any notifications under Disclosure Guidance
and Transparency Rule 5, from 31 December 2019 through 26 February 2020.
LISTING RULE DISCLOSURES
For the purposes of LR9.8.4CR, the information required to be disclosed by LR9.8.4R can be found in the following locations:
Interest capitalised
Note 9 to the Consolidated Financial
Statements
Non pre-emptive issues of equityfor
cash
None
Contracts of significance
with a controlling shareholder
Relationship Agreement section
Publication of unaudited financial
information
Not applicable
Detail of long-term incentive schemes
Note 21 to the Consolidated Financial
Statements, Remuneration Report
Waiver of emoluments by a director
None
Waiver of future 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
Contract of significance in which
a director is interested
None
Provision of services by a controlling
shareholder
None
Shareholder waiver of dividends
None
Shareholder waiver of future dividends
None
Agreements with controlling
shareholder
Relationship Agreement section below
142
SIGNIFICANT
CONTRACTUAL
ARRANGEMENTS
Relationship agreements
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.
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).
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
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
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.
• 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 or breach any of the provisions
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
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 change of control provisions contained
in several loan agreements with a total principal
amount of US$789 million outstanding
as of 31 December 2019 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.
143
Annual report & accounts 2019 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 2020 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.
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.
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 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 26 February
2020.
By the order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
26 February 2020
144
Directors responsibility statement
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Responsibility Statement
under the Disclosure Guidance
and Transparency Rules
Each of the directors whose names
and functions are listed on pages 106–109
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 IAS8 (Accounting Policies,
Changes in Accounting Estimates and Errors)
and then apply them consistently
• Present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information
• Make judgements and estimates that are
reasonable
• Provide additional disclosures when
compliance with the specific requirements
in IFRSs as adopted by the European Union
is insufficient to enable users to understand
the impact of particular transactions, other
events and conditions on the Group’s
and parent company’s financial position
and financial performance and
• State that the Group and parent company
financial statements have been prepared
in accordance with IFRSs as adopted
by the European Union, subject to any
material departures discloses and explained
in the financial statements
The directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Group’s and parent
company’s transactions and disclose with
reasonable accuracy at any time the financial
position of the Group and parent company
and enable them to ensure that the financial
statements comply with the Companies Act
2006 and, with respect to the Group financial
statements, Article 4 of the IAS Regulation.
They are also responsible for safeguarding
the assets of the Group and parent company
and hence for taking reasonable steps
for the prevention and detection of fraud
and other irregularities.
The directors are also responsible for preparing
the 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
26 February 2020
145
Annual report & accounts 2019 Financial
statements
Cosmodrome
“Vostochniy”
Amur region, Russia
CONTENTS
Independent auditor’s report
to the members of EVRAZ PLC
EVRAZ plc Consolidated Financial Statements
for the year ended 31 December 2019
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
Corporate Information
Significant Accounting Policies
Segment Information
Changes in the Composition of the Group
Goodwill
Impairment of Assets
Income and Expenses
Income Taxes
Property, Plant and Equipment
Intangible Assets Other Than Goodwill
Investments in Joint Ventures and Associates
Disposal Groups Held for Sale
Other Non-Current Assets
Inventories
Trade and Other Receivables
Related Party Disclosures
Other Taxes Recoverable
Other Current Financial Assets
Cash and Cash Equivalents
Equity
Share-Based Payments
Loans and Borrowings
Employee Benefits
Provisions
Lease and Other Long-Term Liabilities
Trade and Other Payables
Other Taxes Payable
Financial Risk Management Objectives and Policies
Non-Cash Transactions
Commitments and Contingencies
Auditor’s Remuneration
Material Partly-Owned Subsidiaries
Subsequent Events
List of Subsidiaries and Other Significant Holdings
EVRAZ plc Separate Financial Statements
Separate Statement of Comprehensive Income
Separate Statement of Financial Position
Separate Statement of Cash Flows
Separate Statement of Changes in Equity
EVRAZ plc Notes to the separate financial statements
148
156
156
157
158
159
161
164
164
164
177
184
185
186
188
190
192
195
198
197
200
200
201
201
203
203
203
204
205
206
208
216
217
219
219
219
226
226
228
228
230
231
236
236
237
238
239
240
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 2019 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 34-39 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 164 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 40 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.
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Additional information
Overview of our audit approach
Key audit
matters
• Goodwill and non-current asset impairment
• Completeness of related party transactions
• Parent company – Investment in subsidiaries impairment considerations and determination of distributable reserves
Audit scope
• We performed an audit of the complete financial information of seven components, audit procedures on specific balances for a further two components, review
procedures on two components and specified procedures on four components.
• The nine reporting components where we performed full or specific audit procedures accounted for 72% of the Group’s EBITDA and 84% of the Group’s revenue (with
53% and 83% respectively representing seven full scope components and 19% and 1% respectively two specific scope components).
• For the remaining 43 reporting components of the Group representing 28% of the Group’s EBITDA and 16% of the Group’s revenue we have performed other
procedures appropriate to respond to the risk of material misstatement.
• We have obtained an understanding of the entity-level controls of the Group which assisted us in identifying and assessing risks of material misstatement due to fraud
Materiality
What has
changed
or error, as well as assisting us in determining the most appropriate audit strategy.
• Overall Group materiality of $75 million (2018: $110 million), which represents approximately 3% (2018: 3%) of EBITDA.
• Due to a Group reorganisation and related transactions in the year there is increased judgement in respect of parent company investment impairment considerations.
This restructure resulted in an increase in the amount of the parent company investment in subsidiaries. Because of this increase and the reduction in distributable
reserves as a result of distributions made in the year, we consider the risk in this area to have increased. We have therefore included impairment considerations for
parent company investments in subsidiaries and determination of distributable reserves as a Key Audit Matter for the first time.
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
What we reported to the Audit
Committee
Goodwill and non-current asset impairment
Refer to the Group Audit Committee report on page 122, the estimates and judgements on pages 167-168 and the disclosures of impairment in note 6
of the Consolidated Financial Statements
Risk direction
At 31 December 2019 the carrying value of goodwill was
$594 million (2018: $864 million). The Group recognised
a net impairment charge in respect of Goodwill of
$300 million (2018: $Nil) and $142 million in respect
of items of PP&E during the year (2018: $30 million).
In addition to CGUs containing goodwill, we focused our
work on areas of increased risk. In spite of the generally
positive price outlook and removal of US import tariffs
in May 2019 the continued unstable economic and
geopolitical environment and in particular uncertainty
around the duration and impact of anti-dumping duties
between USA and Canada led us to conclude that risk
had remained at the same level 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, would
not lead to impairments in 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).
Due to challenges raised through our
audit process management changed
a number of their assumptions
resulting in the recognition of an
impairment in the Large Diameter
Pipe CGU of $300 million and the
modification of certain sensitivity
disclosures for other CGUs.
We consider management’s final
estimates to be reasonable for
the current year with assumptions
within an acceptable range where
appropriate.
Management has 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.
After modifications were made as a
result of our challenges we concluded
that the related disclosures provided
in the Consolidated Financial
Statements are appropriate.
Given the inherent uncertainty of
management’s assumptions on anti-
dumping duties (especially for Large
Diameter Pipe CGU), we ensured
that the importance of anti-dumping
duties is appropriately disclosed.
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;
• increases in production costs;
• discount rates;
• capex;
• sales volumes and
• terminal growth rate.
We challenged management’s assumptions with reference to historical data and, where
applicable, external benchmarks. In instances where management’s assumptions fell
outside an acceptable range we considered the impact on headroom in the models and
disclosures ensuring adjustments were made where necessary.
We performed an independent estimate of key assumptions and in some instances
applied our own valuation methodology to determine our own range of potential
recoverable values of the North American CGUs comparing to management’s
assumptions and making adjustments when appropriate.
We have discussed, tested and corroborated management’s assumptions that the
North American anti-dumping duties will stay in place until 2024 and the resultant
impact on other key assumptions in the model noted above. For external market
information, we compared management’s assumptions to those of our local specialists
and have not identified evidence to suggest that management’s assumptions on anti-
dumping duties are unreasonable.
We tested the integrity of management’s models, recalculated their sensitivity
calculations and with the help of our specialists ran our own sensitivity calculations.
We compared the historical accuracy of management’s budgets and forecasts to actual
results, sought appropriate evidence for any anticipated improvements and considered
the presence of any contrary evidence in major assumptions such as production
volumes, EBITDA per ton, CAPEX assumptions 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.
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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.
Risk direction
As noted above, due to challenges
raised through our audit process
management recognized an
additional goodwill impairment. This
additionally resulted in an impairment
of the parent company investment
in EGSA and subsequent impact on
distributable reserves of $316 million.
Following the recorded adjustment,
we consider management’s estimate
of the recoverable amount of its
investments in subsidiaries to be
reasonable and the impairment
recognized in EGSA to be appropriate.
We consider the impact of the
various transactions during the
year on distributable reserves to be
appropriately considered and the
reserves available to be satisfactorily
disclosed.
We considered disclosures made in
respect of the failure to file relevant
accounts for the interim dividend
distributions and concluded these are
appropriate.
Area of focus
Our audit approach
Completeness of related party transactions
Refer to note 16 of the Consolidated Financial Statements
During 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.
There have been no misstatements of related party
transactions/disclosures since 2015, and therefore we
have deemed completeness of related party transactions
to no longer be an area of significant risk. It remains,
however a key audit matter due to the sensitivity of
this matter and we believe that it requires special audit
consideration.
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 for 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 based
on the risk assessment 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 the related party listing provided to us
by management and investigated the differences between the listings.
We assessed management’s evaluation that the transactions were on an arm’s length
basis by reviewing a sample of agreements and comparing the related party transaction
prices to those quoted by comparable unrelated companies.
Investment in subsidiaries impairment considerations and determination of distributable reserves
Refer to notes 3 and 4 of the Separate Financial Statements
This Key Audit Matter relates to the parent company
only.
Our audit procedures were performed mainly by the Group audit team with the
assistance of our valuation specialists.
Investment impairment considerations
Investment impairment considerations
We assessed the investments in NTMK and Raspadskaya for impairment indicators
including reference to external data.
For the investment in EGSA, we tested the integrity of management’s models and with
the help of our specialists ran our own sensitivity calculations.
We challenged management on their calculation of the recoverable amount of the
investment in EGSA by incorporating the results of our work on the North American
CGUs from our Group impairment work.
Distributable reserves
We analysed transactions that impacted significantly the retained earnings of the
parent company and subsidiary entities paying significant dividends and considered
whether any of these transactions did not meet the criteria of distributable profits or
losses.
We have reviewed the accounting entries recorded for the distribution of dividends from
EGSA and agreed with management that the income does not represent ‘qualifying
consideration’ under the meaning of the Companies Act. These have therefore been
appropriately treated and disclosed as an unrealised profit within EVRAZ plc.
We compared the dividends distributed throughout the year with the available
distributable reserves at the date of declaration and are satisfied the reserves were
sufficient at the dates of distribution.
In respect of the interim dividend distributed during the year we identified that
management had declared a dividend without complying with the Companies Act
requirement to file relevant accounts filed with the registrar. This issue was also noted
in respect of interim dividends declared in August and November 2018. We reviewed
disclosures made in respect of this matter for appropriateness.
We reviewed management’s analysis of profits available for distribution in the parent
company comparing this to the proposed year end dividend declaration and agree the
dividend is permissible.
We also reperformed the calculation of parent company distributable profits available
for distribution and audited the roll-forward of profits available for distribution from
1 January to 31 December 2019. We were satisfied that the impairment of the
investment in EGSA was appropriately recognised within this calculation.
At 31 December 2019 the carrying value of
investments in subsidiaries was $15,095 million (2018:
$3,197 million).
The Group has undertaken a reorganisation during the
year to move the ownership of Raspadskaya and NTMK
from EVRAZ Group S.A (“EGSA”) to EVRAZ plc. EGSA
made a gain on this transaction which was passed onto
EVRAZ plc in the form of a dividend.
Following the transfer of the NTMK and Raspadskaya
groups and subsequent declaration of the dividends,
management assessed the recoverable amount of
EVRAZ plc’s investment in EGSA based on an aggregation
of the fair values of the various business units owned by
EGSA, including those within the Group’s North American
Business.
Distributable reserves
At 31 December 2019, EVRAZ plc had $386 million
of distributable profits (2018: $809 million). In 2019,
EVRAZ distributed $1,086 million of dividends.
The Group introduced its current dividend policy in 2018
and although annual profits have been made by the
Group since 2017, the Company needs to ensure it has
sufficient distributable reserves within the stand-alone
parent to declare dividends in accordance with the policy.
The legal framework applicable to UK companies for
determining profits available for distribution is contained
in both the Companies Act 2006 and complementary
technical guidance. Under this framework, distributions
are made by individual companies and not by groups.
The EVRAZ consolidated financial statements are
therefore not relevant for the purposes of determining
EVRAZ’s profits available for distribution. Whether or
not a distribution may be made should be determined
by reference to EVRAZ’s ‘relevant accounts’, being the
parent company financial statements.
Given the judgements in respect of impairment
considerations and the reduction in distributable
reserves as a result of distributions made in the year we
consider the risk in this area to have increased and have
therefore included this as a Key Audit Matter for the first
time.
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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.
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 52 reporting components of the Group we selected 15 components covering entities within Russia, Switzerland, Canada,
Luxembourg, the UK and the USA, which represent the principal business units within the Group.
Of the 15 components selected, we performed an audit of the complete financial information of seven components (full scope components), which
were selected based on their size or risk characteristics. For the two 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. For the two review scope components, the primary team performed analytical review procedures to obtain an understanding
of the business, the industry and the environment in which the components operate sufficient to identify the risks of material misstatement. This included
considering the component’s organization, its accounting systems and other matters relevant to the financial data presented in the reporting package.
For the remaining four components (“specified procedures”), the primary team performed procedures directly focussing on the specific accounts.
The nine reporting components where we performed full or specific scope procedures accounted for 72% (2018: 78%) of the Group EBITDA, 84% (2018:
83%) of the Group’s revenue and 84% (2018: 82%) of the Group’s total assets. For the current year, the full scope components contributed 53% (2018:
68%) of the Group EBITDA, 83% (2018: 75%) of the Group’s revenue and 80% (2018: 62%) of the Group’s total assets. The specific scope components
contributed 19% (2018: 10%) of the Group EBITDA, 1% (2018: 8%) of the Group’s revenue and 4% (2018: 20%) of the Group’s total assets. The audit
scope of these components may not have included testing of all significant accounts of the component but will have contributed to the coverage
of significant accounts tested for the Group. A further breakdown of the size of these components compared to key metrics of the Group is provided below.
EBITDA
Revenue
Total assets
Full
Specific
Specified Procedures
Review
Other
53%
19%
0%
18%
10%
Full
Specific
Specified Procedures
Review
Other
83%
1%
1%
1%
14%
Full
Specific
Specified Procedures
Review
Other
80%
4%
0%
3%
13%
For the remaining 43 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.
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Annual report & Accounts 2019 Changes from the prior year
Our scope allocation in the current year is broadly consistent with 2018 in terms of overall coverage of the Group and the number of full and specific scope
entities except for the following changes:
• Sibmetinvest component for which specified procedures were performed last year was moved to other scope in the current year as it is not significant
in terms of risk/size and no specific risks are associated with the component in the current year;
• Metallenergofinance moved from other scope to specified procedures scope in the current year due to an increase of revenue from rendering
of services;
• EVRAZ plc and EICA Group assessed as full scope components in the current year (specific scope last year) as we planned to perform the same extent
of procedures for these components as for full scope components, given the requirement for EVRAZ plc standalone audit and ENA Consolidated
Financial Statements respectively; and
• EMNA and KGOK components that were assessed as other scope last year were moved to review scope this year (KGOK - due to an increase in its share
of the Group’s EBITDA, EMNA – as required for EVRAZ North America Consolidated Financial Statements, a subgroup of EVRAZ plc).
This led to the increased revenue coverage for full and specific scope components as indicated above.
Integrated team structure
The overall audit strategy is determined by the senior statutory auditor. The senior statutory auditor is based in the UK but, since Group management
and many operations reside in Russia, the Group audit team includes members from both the UK and Russia. The senior statutory auditor visited Russia
five times during the current year’s audit and members of the Group audit team in both jurisdictions work together as an integrated team throughout
the audit process. Whilst in Russia, he focused his time on the significant risks and judgemental areas of the audit. He attended management’s going
concern, impairment and significant estimates and judgements presentations to the Audit Committee. During the current year’s audit he reviewed
key working papers and met, or held conference calls, with representatives of the component audit team for all Russian based full scope components
including internal valuation specialists used in the audit to discuss the audit approach and issues arising from their work.
Involvement with component teams
In establishing our overall approach to the Group audit we determined the type of work that needed to be undertaken at each of the components
by us, as the primary audit engagement team or by component auditors from other EY global network firms operating under our instruction. Of the seven
full scope components, audit procedures were performed on all of these by the relevant component audit teams. Of the two specific scope components
selected, audit procedures were performed on one 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.
Our application of 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
$75 million
Performance materiality
$37.5 million
Reporting threshold
$3.8 million
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate could reasonably be expected to influence the economic decisions
of the users of the Financial Statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be $75.0 million (2018: $110.0 million), which is set at approximately 3.0% (2018: 3.0%) 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.
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We determined materiality for the Parent Company to be $8.7 million (2018: $19.3 million), which is 1.5% (2018: 2.0%) of Equity adjusted for the impact
of the reorganisation of Raspadskaya and NTMK investments which are considered to be one-off items. We reverted to using 1.5% which we had
previously used due to the issuance of bonds with covenants listed on ISE by the Parent Company during the year.
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
before tax due to the historic volatility of this metric. EBITDA is a key performance indicator for the Group and is also a key metric used by the Group
in the assessment of the performance of management. We also noted that market and analyst commentary on the performance of the Group uses
EBITDA as a key metric. We therefore, considered EBITDA to be the most appropriate performance metric on which to base our materiality calculation
as we considered that to be the most relevant performance measure to the stakeholders of the entity.
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that
the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessment, together with our assessment of the Group’s overall control environment, our judgment was that 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% (2018: 50%) of materiality, namely $37.5 million (2018: $55.0 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 $7.5 million to $24.4 million.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $3.8 million (2018: $5.5 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.
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.
Other information
The other information comprises the information included in the annual report set out on pages 1 to 145, 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 145 – the statement given by the directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the group’s
performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit committee reporting set out on page 120 – 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 145 – the parts of the directors’ statement required
under the Listing Rules relating to the company’s compliance with the UK Corporate Governance Code containing provisions specified for review
by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance
Code.
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Annual report & Accounts 2019 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.
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.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 145, 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.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are; 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.
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
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and papers provided to the Audit Committee We reviewed legal advice obtained by the Company in respect of the impact of the dividends made
otherwise than in accordance with the Companies Act (see note 4 to the separate financial statements) and considered the issue appropriately
disclosed.
• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by meeting with
management from various parts of the business to understand where it is considered there was a susceptibility of fraud. We also considered
performance targets and their propensity to influence on efforts made by management to manage earnings. We considered the programs and controls
that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors
those programs and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk. These
procedures included testing manual journals and were designed to provide reasonable assurance that the financial statements were free of fraud
or error.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Other matters we are required to address
• We were appointed by the company in 2011 to audit the financial statements for the year ended 31 December 2011 and subsequent financial
periods. The period of total uninterrupted engagement including previous renewals and reappointments is nine years, covering periods from our initial
appointment in 2011 through to the year ended 31 December 2019.
• 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.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members
as a body, for our audit work, for this report, or for the opinions we have formed.
Steven Dobson
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
London
26 February 2020
Notes:
1. The maintenance and integrity of the EVRAZ plc web site is the responsibility of the directors; the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements
since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
155
Annual report & Accounts 2019 EVRAZ plc Consolidated Financial Statements
for the year ended 31 December 2019
Сonsolidated statement of operations
(in millions of US dollars, except for per share information)
CCoonnttiinnuuiinngg ooppeerraattiioonnss
RReevveennuuee
Sale of goods
Rendering of services
Cost of revenue
GGrroossss pprrooffiitt
Selling and distribution costs
General and administrative expenses
Social and social infrastructure maintenance expenses
Gain/(loss) on disposal of property, plant and equipment, net
Impairment of non-financial assets
Foreign exchange gains/(losses), net
Other operating income
Other operating expenses
PPrrooffiitt ffrroomm ooppeerraattiioonnss
Interest income
Interest expense
Share of profits/(losses) of joint ventures and associates
Impairment of non-current financial assets
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
PPrrooffiitt bbeeffoorree ttaaxx
Income tax expense
NNeett pprrooffiitt
Attributable to:
Equity holders of the parent entity
Non-controlling interests
EEaarrnniinnggss ppeerr sshhaarree ffoorr pprrooffiitt aattttrriibbuuttaabbllee ttoo eeqquuiittyy hhoollddeerrss ooff tthhee ppaarreenntt eennttiittyy,,
UUSS ddoollllaarrss::
Basic
Diluted
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr
NNootteess
22001199
22001188
22001177
33
33
77
77
77
66
77
77
77
1111
1133
77
1122
88
2200
2200
$$ 1111,,556699
333366
1111,,990055
((88,,227733))
33,,663322
((996666))
((661111))
((2266))
33
((444422))
((334411))
2222
((5544))
$ 12,525
311
12,836
(8,011)
4,825
(1,013)
(546)
(27)
(11)
(30)
361
24
(55)
$ 10,520
307
10,827
(7,485)
3,342
(717)
(540)
(31)
(4)
12
(54)
39
(61)
11,,221177
3,528
1,986
88
((333366))
99
((5566))
1177
2299
1144
990022
((553377))
$$ 336655
$$ 332266
3399
$$ 336655
$$00..2233
$$00..2222
18
(359)
9
–
13
(10)
2
14
(437)
11
–
(57)
(360)
(2)
3,201
1,155
(731)
$ 2,470
(396)
$ 759
$ 2,406
64
$ 2,470
$ 1.67
$ 1.65
$ 699
60
$ 759
$ 0.49
$ 0.48
The accompanying notes form an integral part of these consolidated financial statements.
156
10
Strategic report
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Financial statements
Additional information
Сonsolidated statement of comprehensive income
(in millions of US dollars)
NNeett pprrooffiitt
OOtthheerr ccoommpprreehheennssiivvee iinnccoommee//((lloossss))
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr
NNootteess
22001199
$$ 336655
22001188
$ 2,470
22001177
$ 759
OOtthheerr ccoommpprreehheennssiivvee iinnccoommee ttoo bbee rreeccllaassssiiffiieedd ttoo pprrooffiitt oorr lloossss iinn ssuubbsseeqquueenntt
ppeerriiooddss
Exchange differences on translation of foreign operations into presentation
currency
Exchange differences recycled to profit or loss on disposal of foreign operations
Net gains/(losses) on cash flow hedges
Net (gains)/losses on cash flow hedges recycled to profit or loss
Effect of translation to presentation currency of the Group’s joint ventures and
associates
IItteemmss nnoott ttoo bbee rreeccllaassssiiffiieedd ttoo pprrooffiitt oorr lloossss iinn ssuubbsseeqquueenntt ppeerriiooddss
Net gains/(losses) on equity instruments at fair value through other
comprehensive income
Gains/(losses) on re-measurement of net defined benefit liability
Income tax effect
44,,1122
2255
77,, 2255
1111
1133
2233
88
775577
3311
2277
((3333))
778822
88
88
––
((1155))
((11))
((1166))
TToottaall ootthheerr ccoommpprreehheennssiivvee iinnccoommee//((lloossss))
TToottaall ccoommpprreehheennssiivvee iinnccoommee,, nneett ooff ttaaxx
Attributable to:
Equity holders of the parent entity
Non-controlling interests
777744
(992)
$$ 11,,113399
$ 1,478
$$ 11,,007788
6611
$$ 11,,113399
$ 1,441
37
$ 1,478
The accompanying notes form an integral part of these consolidated financial statements.
11
(1,120)
63
(3)
–
266
747
9
–
(1,060)
1,022
(13)
(13)
59
28
(6)
22
4
4
30
26
(15)
11
1,067
$ 1,826
$ 1,762
64
$ 1,826
157
Annual report & Accounts 2019
Сonsolidated statement of financial position
(in millions of US dollars)
The financial statements of EVRAZ plc (registered number 7784342) on pages 156-235 were approved by the Board of Directors on 26 February
2020 and signed on its behalf by Alexander Frolov, Chief Executive Officer.
NNootteess
22001199
22001188
22001177
3311 DDeecceemmbbeerr
AASSSSEETTSS
NNoonn--ccuurrrreenntt aasssseettss
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
CCuurrrreenntt aasssseettss
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
TToottaall aasssseettss
EEQQUUIITTYY AANNDD LLIIAABBIILLIITTIIEESS
EEqquuiittyy
EEqquuiittyy aattttrriibbuuttaabbllee ttoo eeqquuiittyy hhoollddeerrss ooff tthhee ppaarreenntt eennttiittyy
Issued capital
Treasury shares
Additional paid-in capital
Revaluation surplus
Unrealised gains and losses
Accumulated profits
Translation difference
NNoonn--ccoonnttrroolllliinngg iinntteerreessttss
NNoonn--ccuurrrreenntt lliiaabbiilliittiieess
Long-term loans
Deferred income tax liabilities
Employee benefits
Provisions
Lease liabilities
Other long-term liabilities
Amounts payable under put options for shares in subsidiaries
CCuurrrreenntt lliiaabbiilliittiieess
Trade and other payables
Contract liabilities
Short-term loans and current portion of long-term loans
Lease liabilities
Payables to related parties
Income tax payable
Other taxes payable
Provisions
Amounts payable under put options for shares in subsidiaries
TToottaall eeqquuiittyy aanndd lliiaabbiilliittiieess
99
1100
55
1111
88
1133
1133
1144
1155
1166
1177
1188
1199
2200
2200
1133,,2255
3322
2222
88
2233
2244
2255
2255
44
2266
2222
2255
1166
2277
2244
44
$$ 44,,992255
$ 4,202
$ 4,933
118855
559944
9922
115522
4400
5555
66,,004433
11,,448800
553344
9933
3322
1100
5533
117755
44
11,,442233
33,,880044
$$ 99,,884477
$$ 7755
((116699))
22,,449922
110099
––
22,,221177
((33,,004488))
11,,667766
225522
11,,992288
206
864
74
92
91
44
5,573
1,474
835
113
29
11
35
201
35
1,067
3,800
$ 9,373
$ 75
(196)
2,480
110
6
3,026
(3,820)
1,681
257
1,938
259
917
79
173
151
39
6,551
1,198
731
89
11
12
50
225
47
1,466
3,829
$ 10,380
$ 1,507
(231)
2,500
111
39
635
(2,777)
1,784
242
2,026
44,,559999
4,186
5,243
335522
227711
332211
8833
4400
––
55,,666666
11,,337788
334488
114400
3344
1199
7799
115533
3333
6699
258
226
222
–
38
–
4,930
1,216
320
377
–
122
104
266
35
65
328
284
269
–
54
61
6,239
1,128
272
148
–
256
67
212
32
–
22,,225533
$$ 99,,884477
2,505
$ 9,373
2,115
$ 10,380
The accompanying notes form an integral part of these consolidated financial statements.
158
12
Сonsolidated statement of cash flows
(in millions of US dollars)
CCaasshh fflloowwss ffrroomm ooppeerraattiinngg aaccttiivviittiieess
Net profit
Adjustments to reconcile net profit to net cash flows from operating activities:
Deferred income tax (benefit)/expense (Note 8)
Depreciation, depletion and amortisation (Note 7)
(Gain)/loss on disposal of property, plant and equipment, net
Impairment of non-financial assets
Foreign exchange (gains)/losses, net
Interest income
Interest expense
Share of (profits)/losses of associates and joint ventures
Impairment of non-current financial assets
(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
NNeett ccaasshh fflloowwss ffrroomm ooppeerraattiinngg aaccttiivviittiieess
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr
22001199
22001188
22001177
$$ 336655
55
557788
((33))
444422
334411
((88))
333366
((99))
5566
((1177))
((2299))
((1144))
33
––
1133
((22))
22,,005577
6611
330044
2266
((111144))
2299
((11))
221199
1133
((115555))
((99))
$ 2,470
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)
$ 759
(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)
22,,443300
2,633
1,957
CCaasshh fflloowwss ffrroomm iinnvveessttiinngg aaccttiivviittiieess
Issuance of loans receivable to related parties
Issuance of loans receivable
Proceeds from repayment of loans receivable, including interest
Purchases of subsidiaries, net of cash acquired (Note 4)
Purchases of disposal groups held for sale (Note 12)
Investments in associates and joint ventures (Note 11)
Sale of associates (Note 16)
Proceeds from sale of other investments (Notes 18 and 13)
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 (Notes 11 and 16)
Other investing activities, net
NNeett ccaasshh fflloowwss uusseedd iinn iinnvveessttiinngg aaccttiivviittiieess
Continued on the next page
The accompanying notes form an integral part of these consolidated financial statements.
–
((99))
22
((33))
((2222))
((33))
55
3322
77
((776622))
1166
4444
99
1199
((666655))
(1)
(1)
2
–
–
–
–
92
11
(521)
4
52
6
(22)
(378)
(2)
(2)
4
(5)
–
–
–
–
7
(595)
15
412
1
(2)
(167)
159
13
Annual report & Accounts 2019 Сonsolidated statement of cash flows (continued)
(in millions of US dollars)
CCaasshh fflloowwss ffrroomm ffiinnaanncciinngg aaccttiivviittiieess
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 (Note 22)
Repayment of bank loans and notes, including interest (Note 22)
Net proceeds from/(repayment of) bank overdrafts and credit lines, including interest (Note 22)
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 leases, including interest (Note 25)
Other financing activities, net
NNeett ccaasshh fflloowwss uusseedd iinn ffiinnaanncciinngg aaccttiivviittiieess
Effect of foreign exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr
CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee eenndd ooff tthhee yyeeaarr
Supplementary cash flow information:
CCaasshh fflloowwss dduurriinngg tthhee yyeeaarr::
Interest paid
Interest received
Income taxes paid
The accompanying notes form an integral part of these consolidated financial statements.
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr
22001199
22001188
22001177
$$ ((7711))
––
((88))
((11,,008866))
((55))
22,,880055
((33,,003355))
2222
––
2222
((2233))
((3377))
11
((11,,441155))
66
335566
11,,006677
$$ 11,,442233
$$ ((228833))
77
((558811))
$ (24)
–
(11)
(1,556)
(1)
1,412
(2,459)
–
12
11
11
–
(1)
(2,606)
(48)
(399)
1,466
$ 1,067
$ (320)
9
(623)
$ –
2
(11)
(430)
–
2,441
(3,344)
(139)
(13)
2
14
–
(1)
(1,479)
(2)
309
1,157
$ 1,466
$ (405)
8
(427)
160
14
Strategic report
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Additional information
Сonsolidated statement of changes in equity
(in millions of US dollars)
AAttttrriibbuuttaabbllee ttoo eeqquuiittyy hhoollddeerrss ooff tthhee ppaarreenntt eennttiittyy
AAddddiittiioonnaall
IIssssuueedd
ccaappiittaall
TTrreeaassuurryy
sshhaarreess
ppaaiidd--iinn
ccaappiittaall
RReevvaalluuaattiioonn
ssuurrpplluuss
UUnnrreeaalliisseedd
ggaaiinnss aanndd
lloosssseess
AAccccuummuullaatteedd
pprrooffiittss
TTrraannssllaattiioonn
ddiiffffeerreennccee
TToottaall
NNoonn--
ccoonnttrroolllliinngg
iinntteerreessttss
TToottaall
eeqquuiittyy
$$ 7755
––
––
$$ ((119966))
––
––
$$ 22,,448800
––
––
$$ 111100
––
––
$$ 66
––
((66))
$$ 33,,002266
332266
((1144))
$$ ((33,,882200)) $$ 11,,668811
332266
775522
––
777722
$$ 225577
3399
2222
$$ 11,,993388
336655
777744
––
––
––
––
––
––
––
––
––
––
––
––
2277
––
––
––
––
((11))
((11))
––
––
1133
––
––
((11))
––
((11))
––
––
––
––
––
––
––
11
11
––
––
––
––
––
––
––
––
((66))
331144
777722
11,,007788
6611
11,,113399
––
––
––
––
––
((1100))
((2277))
––
((11,,008866))
––
––
––
––
––
––
((1100))
((6611))
((7711))
––
1133
((11,,008866))
––
––
––
––
1133
((11,,008866))
––
((55))
((55))
AAtt 3311 DDeecceemmbbeerr 22001188
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
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
AAtt 3311 DDeecceemmbbeerr 22001199
$$ 7755
$$ ((116699))
$$ 22,,449922
$$ 110099
$$ ––
$$ 22,,221177
$$ ((33,,004488)) $$ 11,,667766
$$ 225522
$$ 11,,992288
The accompanying notes form an integral part of these consolidated financial statements.
15
161
Annual report & Accounts 2019
Сonsolidated statement of changes in equity (continued)
(in millions of US dollars)
AAttttrriibbuuttaabbllee ttoo eeqquuiittyy hhoollddeerrss ooff tthhee ppaarreenntt eennttiittyy
AAddddiittiioonnaall
IIssssuueedd
ccaappiittaall
TTrreeaassuurryy
sshhaarreess
ppaaiidd--iinn
ccaappiittaall
RReevvaalluuaattiioonn
ssuurrpplluuss
UUnnrreeaalliisseedd
ggaaiinnss aanndd
lloosssseess
AAccccuummuullaatteedd
pprrooffiittss
TTrraannssllaattiioonn
ddiiffffeerreennccee
TToottaall
NNoonn--
ccoonnttrroolllliinngg
iinntteerreessttss
TToottaall
eeqquuiittyy
$ 1,507
–
–
$ (231)
–
–
$ 2,500
–
–
$ 111
–
–
$ 39
–
56
$ 635
2,406
22
$ (2,777) $ 1,784
2,406
(965)
–
(1,043)
$ 242
64
(27)
$ 2,026
2,470
(992)
–
–
–
–
(1,432)
–
–
–
–
–
–
–
–
–
–
–
35
–
–
–
–
–
(35)
(35)
–
–
–
15
–
–
(1)
–
(1)
–
–
–
–
–
–
–
(89)
89
–
–
1
35
–
–
–
–
–
–
–
–
–
–
–
–
(33)
–
2,553
1,432
(1,043)
–
1,441
–
37
–
1,478
–
–
–
–
–
–
(3)
(35)
–
(1,556)
–
–
–
–
–
–
(3)
(21)
(24)
–
15
(1,556)
–
–
–
–
15
(1,556)
–
(1)
(1)
AAtt 3311 DDeecceemmbbeerr 22001177
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)
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
AAtt 3311 DDeecceemmbbeerr 22001188
$ 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.
162
16
Strategic report
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Financial statements
Additional information
Сonsolidated statement of changes in equity (continued)
(in millions of US dollars)
AAttttrriibbuuttaabbllee ttoo eeqquuiittyy hhoollddeerrss ooff tthhee ppaarreenntt eennttiittyy
AAddddiittiioonnaall
IIssssuueedd
ccaappiittaall
TTrreeaassuurryy
sshhaarreess
ppaaiidd--iinn
ccaappiittaall
RReevvaalluuaattiioonn
ssuurrpplluuss
UUnnrreeaalliisseedd
ggaaiinnss aanndd
lloosssseess
AAccccuummuullaatteedd
pprrooffiittss
TTrraannssllaattiioonn
ddiiffffeerreennccee
TToottaall
NNoonn--
ccoonnttrroolllliinngg
iinntteerreessttss
TToottaall
eeqquuiittyy
$ 1,507
–
–
$ (270)
–
–
$ 2,517
–
–
$ 112
–
–
$ –
–
39
$ 415
699
11
$ (3,790)
–
1,013
$ 491
699
1,063
$ 186
60
4
$ 677
759
1,067
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
39
–
–
–
–
(34)
(34)
–
–
–
–
17
–
–
(1)
–
(1)
–
–
–
–
–
–
–
–
–
–
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)
$ 1,507
$ (231)
$ 2,500
$ 111
$ 39
$ 635
$ (2,777) $ 1,784
$ 242
$ 2,026
AAtt 3311 DDeecceemmbbeerr 22001166
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
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)
AAtt 3311 DDeecceemmbbeerr 22001177
The accompanying notes form an integral part of these consolidated financial statements.
17
163
Annual report & Accounts 2019
Notes to the consolidated financial statements
Year ended 31 December 2019
1. CORPORATE INFORMATION
These consolidated financial statements were authorised for issue by the Board of Directors of EVRAZ plc on 26 February 2020.
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. Until 1 August 2019
the registered address of EVRAZ plc was 5th Floor, 6 St. Andrew Street, London, EC4A 3AE, United Kingdom. The new Company’s address is 2 Portman
street, London, W1H 6DU, United Kingdom.
The Company is a holding company which owns steel, 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 2019 and
2018, EVRAZ plc was 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:
SSuubbssiiddiiaarryy
EEffffeeccttiivvee
oowwnneerrsshhiipp iinntteerreesstt,, %%
22001199
22001188
22001177
BBuussiinneessss
aaccttiivviittyy
LLooccaattiioonn
EVRAZ Nizhny Tagil Metallurgical Plant
110000..0000
100.00
100.00
Steel production
Russia
EVRAZ Consolidated West-Siberian Metallurgical Plant
110000..0000
100.00
100.00
Steel production
Russia
EVRAZ Dneprovsk Metallurgical Plant
––
–
97.73
Steel production
Ukraine
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya
Yuzhkuzbassugol
110000..0000
100.00
100.00
Steel production
USA
110000..0000
100.00
100.00
Steel production
Canada
8888..1177
83.84
81.95
Coal mining
110000..0000
100.00
100.00
Coal mining
Russia
Russia
Russia
EVRAZ Kachkanarsky Mining-and-Processing Integrated Works
110000..0000
100.00
100.00
Ore mining &
processing
Evrazruda (in 2018 merged with EVRAZ Consolidated West-Siberian Metallurgical
Plant)
––
–
100.00
Ore mining
Russia
The full list of the Group’s subsidiaries and other significant holdings as of 31 December 2019 is presented in Note 34.
2. SIGNIFICANT ACCOUNTING POLICIES
BBaassiiss ooff PPrreeppaarraattiioonn
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 2019, 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.
164
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2. SIGNIFICANT ACCOUNTING POLICIES
CChhaannggeess iinn AAccccoouunnttiinngg PPoolliicciieess
NNeeww//RReevviisseedd SSttaannddaarrddss aanndd IInntteerrpprreettaattiioonnss AAddoopptteedd iinn 22001199::
IFRS 16 “Leases”
IFRS 16 supersedes IAS 17 “Leases”, IFRIC 4 “Determining whether an Arrangement contains a Lease”, SIC-15 “Operating Leases-Incentives” and SIC-
27 “Evaluating the Substance of Transactions Involving the Legal Form of a Lease”. The standard sets out the principles for the recognition,
measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.
The Group applied IFRS 16 “Leases” from 1 January 2019 using the modified retrospective approach, i.e. the comparative information was not
restated. Under this approach both lease liabilities and right-of-use assets were recognised at the date of transition to IFRS 16. They were included
within the Lease liabilities and Property, plant and equipment captions of the consolidated statement of financial position. Long-term finance lease
liabilities, which were previously presented in Other long-term liabilities, and short-term finance lease liabilities, which were previously presented in
Trade and other payables ($3 million and $3 million at 31 December 2018, respectively), were reclassified to the Lease liabilities caption from
1 January 2019.
The Group has elected to use the following practical expedients proposed by the standard:
on initial application IFRS 16 was applied only to contracts that were previously classified as leases;
on initial application initial direct costs are excluded from the measurement of the right-of-use asset;
for all classes of underlying assets each lease component and any associated non-lease components were accounted as a single lease
component; and
lease payments for contracts with a duration of 12 months or less or leases for which the underlying assets are of low value continue to be
expensed to the statement of operations on a straight-line basis over the lease term.
The main categories of contracts, which were affected by the requirements of IFRS 16, are operating leases of gondola cars, land underneath
production facilities and certain items of machinery and equipment.
At 1 January 2019, as a result of the application of the new standard, the Group recognised $127 million of right-of-use assets (including $7 million of
property, plant and equipment previously recognised under the finance lease contracts and $2 million of prepayments under lease contracts, which
were both reclassified from the respective accounts), and $124 million of lease liabilities (including $6 million recorded as finance lease liabilities at
31 December 2018). These lease liabilities consisted of non-current portion ($90 million) and current portion ($34 million).
The Group’s weighted average incremental borrowing rates applied to lease liabilities recognised in the statement of financial position at the date of
initial application were 8.7% for rouble-denominated liabilities and 4.2% for USD-denominated liabilities.
In previous years the majority of the Group’s outstanding short and long-term lease agreements were cancellable. IAS 17 required disclosing operating
lease commitments only for non-cancellable leases, consequently, the Group did not disclose commitments under non-cancellable operating leases
based on materiality grounds. However, under IFRS 16 the Group is also required to include in lease liabilities the contracts with an option to terminate
the lease if the lessee is reasonably certain not to exercise that option. This has resulted in the recognition of lease liabilities of $118 million on
transition.
Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures
The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied
but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it
implies that the expected credit loss model in IFRS 9 applies to such long-term interests.
The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate or joint venture, or any
impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying
IAS 28 “Investments in Associates and Joint Ventures”.
These amendments had no impact on the consolidated financial statements as the Group does not have such long term interests in its associate and
joint venture.
19
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Annual report & Accounts 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CChhaannggeess iinn AAccccoouunnttiinngg PPoolliicciieess ((ccoonnttiinnuueedd))
NNeeww//RReevviisseedd SSttaannddaarrddss aanndd IInntteerrpprreettaattiioonnss AAddoopptteedd iinn 22001199 ((ccoonnttiinnuueedd))
Amendments to IFRS 9 – Prepayment Features with Negative Compensation
Under IFRS 9, a debt instrument can be measured at amortised cost or at fair value through other comprehensive income, provided that the
contractual cash flows are “solely payments of principal and interest on the principal amount outstanding” (the “SPPI criterion”) and the instrument is
held within the appropriate business model for that classification. The amendments to IFRS 9 clarify that a financial asset passes the SPPI criterion
regardless of an event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable
compensation for the early termination of the contract. These amendments had no impact on the consolidated financial statements of the Group.
IFRIC 23 “Uncertainty over Income Tax Treatments”
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 Income
Taxes. The Interpretation specifically addresses the following:
whether an entity considers uncertain tax treatments separately;
the assumptions an entity makes about the examination of tax treatments by taxation authorities;
how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates;
how an entity considers changes in facts and circumstances.
The Interpretation establishes that an entity has to determine whether to consider each uncertain tax treatment separately or together with one or
more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed.
The Group applies significant judgements in identifying uncertainties over income tax treatments. Upon adoption of the Interpretation, the Group
considered whether it has any uncertain tax positions. The Group determined that it is probable that its tax treatments will be accepted by the taxation
authorities. The interpretation did not have an impact on the consolidated financial statements of the Group.
Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement
The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The
amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to
determine the current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial
assumptions used to remeasure the net defined benefit liability or asset reflecting the benefits offered under the plan and the plan assets after that
event. An entity is also required to determine the net interest for the remainder of the period after the plan amendment, curtailment or settlement
using the net defined benefit liability or asset reflecting the benefits offered under the plan and the plan assets after that event, and the discount rate
used to remeasure that net defined benefit liability or asset.
These amendments had no impact on the consolidated financial statements of the Group as it did not have any plan amendments, curtailments, or
settlements during the period.
Annual Improvements to IFRSs 2015-2017 Cycle
The amendments relate to IFRS 3 “Business Combinations”, IFRS 11 “Joint Arrangements”, IAS 12 “Income Taxes” and IAS 23 "Borrowing Costs”.
The application of these amendments had no effect on the Group’s financial position, performance or the disclosures as the Group followed the same
principles in prior periods.
The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
SSttaannddaarrddss IIssssuueedd BBuutt NNoott YYeett EEffffeeccttiivvee iinn tthhee EEuurrooppeeaann UUnniioonn
SSttaannddaarrddss nnoott yyeett eeffffeeccttiivvee ffoorr tthhee ffiinnaanncciiaall ssttaatteemmeennttss ffoorr tthhee yyeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001199
Amendments to IAS 1 and IAS 8 – Definition of Material
Amendments to References to the Conceptual Framework in IFRS Standards
Amendment to IFRS 3 – Definition of Business
Amendments to IFRS 9, IAS 39, IFRS 7 (Interest Rate Benchmark Reform)
IFRS 17 “Insurance Contracts”
Amendments to IAS 1 – Classification of Liabilities as Current or Non-current
EEffffeeccttiivvee ffoorr aannnnuuaall ppeerriiooddss
bbeeggiinnnniinngg oonn oorr aafftteerr
1 January 2020
1 January 2020
1 January 2020*
1 January 2020
1 January 2021*
1 January 2022*
*Subject to EU endorsement
The Group expects that the adoption of the pronouncements listed above will not have a significant impact on the Group’s results of operations and
financial position in the period of initial application.
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SSiiggnniiffiiccaanntt AAccccoouunnttiinngg JJuuddggeemmeennttss aanndd EEssttiimmaatteess
AAccccoouunnttiinngg JJuuddggeemmeennttss
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 from 14 April
2015.
The Group determined based on the criteria in IFRIC 4 “Determining whether an Arrangement Contains a Lease” (before 2019) and IFRS 16
“Leases” (from 2019) that the supply contracts with PraxAir and Air Liquide do not contain a lease. These contracts include 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 entities 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.
In 2019, an independent trader concluded contracts with two Group’s subsidiaries: for the purchase of semi-finished steel products with one
subsidiary of the Steel segment and for the sale of semi-finished steel products with another subsidiary of the Steel North America segment.
The Group analysed the nature of the contracts and determined that they require a separate recognition of the sales and purchase transactions
as there is neither a tripartite agreement, nor a call or put option, which would require to treat these contracts as a single arrangement.
Specifically, the trader bears full inventory and market risks, it has a full discretion in establishing prices for each contract separately based on
prevailing market conditions. In 2019, the Group sold to the independent trader 330 thousand metric tonnes of slabs ($161 million) and
purchased from it 192 thousand metric tonnes ($108 million).
In 2019, the Group concluded a contract with Xcel Energy Inc. for the construction of a solar power plant to be owned and operated by a third
party and for the supply of electricity to the Group’s steel plant for a long-term period on a take-or-pay basis. The Group determined based on
the criteria in IFRS 16 “Leases” that the supply contract with Xcel Energy Inc. does not contain a lease. Management believes that this
arrangement does 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 contract are disclosed in Note 30.
EEssttiimmaattiioonn UUnncceerrttaaiinnttyy
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 set out 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 2019, 2018 and 2017, the Group recognised a net impairment reversal/(loss) of $(142) million, $(30) million and $20 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.
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.
21
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Annual report & Accounts 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SSiiggnniiffiiccaanntt AAccccoouunnttiinngg JJuuddggeemmeennttss aanndd EEssttiimmaatteess ((ccoonnttiinnuueedd))
EEssttiimmaattiioonn UUnncceerrttaaiinnttyy ((ccoonnttiinnuueedd))
Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating
units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from
the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
The carrying amount of goodwill at 31 December 2019, 2018 and 2017 was $594 million, $864 million and $917 million, respectively. In 2019,
the Group recognised a $300 million impairment loss in respect of goodwill. More details of the assumptions used in estimating the value in use of
the cash-generating units to which goodwill is allocated are provided in Note 6.
Mineral Reserves
Mineral reserves and the associated mine plans are a material factor in the Group’s computation of a depletion charge. The Group estimates its
mineral reserves in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (“JORC Code”).
Estimation of reserves in accordance with the JORC Code involves some degree of uncertainty. The uncertainty depends mainly on the amount of
reliable geological and engineering data available at the time of the estimate and the interpretation of this data, which also requires use of subjective
judgement and development of assumptions.
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.
FFoorreeiiggnn CCuurrrreennccyy TTrraannssaaccttiioonnss
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, 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
thepresentation currency at the rate of exchange ruling at the end of the reporting period, and their statements of operations are translated at
the exchange rates that approximate the exchange rates at the dates of the transactions. The exchange differences arising on the translation are taken
directly to a separate component of equity. On disposal of a subsidiary with functional currency other than the US dollar, the deferred cumulative
amount recognised in equity relating to that particular subsidiary is recognised in the statement of operations.
The following exchange rates were used in the consolidated financial statements:
USD/RUB
EUR/USD
USD/CAD
USD/UAH
22001199
22001188
22001177
3311 DDeecceemmbbeerr
AAvveerraaggee
3311 DDeecceemmbbeerr
aavveerraaggee
3311 DDeecceemmbbeerr
6611..99005577
11..11223344
11..22996688
nn//aa
6644..77336622
11..11119955
11..33226699
2266..11333377
69.4706
1.1450
1.3658
27.6883
62.7078
1.1810
1.2962
27.2029
57.6002
1.1993
1.2530
28.0672
aavveerraaggee
58.3529
1.1297
1.2979
26.5947
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.
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BBaassiiss ooff CCoonnssoolliiddaattiioonn
Subsidiaries
Subsidiaries, which are those entities in which the Group has an interest of more than 50% of the voting rights and over which the Group has control, or
otherwise has power to exercise control over their operations, are consolidated. Subsidiaries are consolidated from the date on which control is
transferred to the Group and are no longer consolidated from the date that control ceases.
All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated; unrealised losses are also
eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, accounting policies for subsidiaries
have been changed to ensure consistency with the policies adopted by the Group.
Non-controlling interest is the equity in a subsidiary not attributable, directly or indirectly, to a parent. Non-controlling interests are presented in
the consolidated statement of financial position within equity, separately from the parent’s shareholders’ equity.
Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling
interests having a deficit balance.
Acquisition of Subsidiaries
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration
transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the
Group measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Acquisition costs incurred are expensed and included in administrative expenses.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is
remeasured to fair value at the acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value
of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with 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.
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Annual report & Accounts 2019
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IInnvveessttmmeennttss iinn AAssssoocciiaatteess
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.
IInntteerreessttss iinn JJooiinntt VVeennttuurreess
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.
PPrrooppeerrttyy,, PPllaanntt aanndd EEqquuiippmmeenntt
The Group’s property, plant and equipment is stated at purchase or construction cost, excluding the costs of day-to-day servicing, less accumulated
depreciation and any impairment in value. Such cost includes the cost of replacing part of plant and equipment when that cost is incurred and
recognition criteria are met.
The Group’s property, plant and equipment include mining assets, which consist of mineral reserves, mine development and construction costs and
capitalised site restoration costs. Mineral reserves represent tangible assets acquired in business combinations. Mine development and construction
costs represent expenditures incurred in developing access to mineral reserves and preparations for commercial production, including sinking shafts
and underground drifts, roads, infrastructure, buildings, machinery and equipment.
At each end of the reporting period management makes an assessment to determine whether there is any indication of impairment of property, plant
and equipment. If any such indication exists, management estimates the recoverable amount, which is the higher of an asset’s fair value less cost to
sell and its value in use. The carrying amount is reduced to the recoverable amount, and the difference is recognised as impairment loss in
the statement of operations or other comprehensive income. An impairment loss recognised for an asset in previous years is reversed if there has been
a change in the estimates used to determine the asset’s recoverable amount.
Land is not depreciated. Depreciation of property, plant and equipment, except for mining assets, is calculated on a straight-line basis over the
estimated useful lives of the assets. The useful lives of items of property, plant and equipment and methods of their depreciation are reviewed, and
adjusted as appropriate, at each fiscal year end.
The table below presents the useful lives of items of property, plant and equipment.
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Other assets
UUsseeffuull lliivveess
((yyeeaarrss))
WWeeiigghhtteedd aavveerraaggee
rreemmaaiinniinngg uusseeffuull lliiffee ((yyeeaarrss))
15–60
4–45
7–20
3–15
18
9
7
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.
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EExxpplloorraattiioonn aanndd EEvvaalluuaattiioonn EExxppeennddiittuurreess
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.
LLeeaasseess
Group as a Lessee
The determination of whether an arrangement is, or contains, a lease is done at contract inception and includes the assessment of whether
the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.
The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before
the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end
of the lease term or exercise a purchase option, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Otherwise, the lessee depreciates the right-of-use asset from the commencement date to the end of
the useful life of the underlying asset. Right-of-use assets are subject to impairment. The right-of-use assets are included in the Property, plant and
equipment caption of the statement of financial position (Note 9).
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over
the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease
payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include
the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease
term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as
expense (unless they are incurred to produce inventories) in the period on which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate
implicit in the lease is not readily determinable. The incremental borrowing rate is determined based on the Group’s borrowing rates for similar terms
and currencies in an economic environment, in which the lessee operates. After the commencement date, the amount of lease liabilities is increased to
reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is
a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment of plans to purchase the
underlying asset.
The lease term is a non-cancellable period for which a lessee has the right to use an underlying asset, together with any periods covered by an option
to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease if it is reasonably certain not to
be exercised.
The lease term of cancellable or renewable leases is dependent of the enforceability of the contract beyond the date on which it can be terminated.
The contract is enforceable if only one party of the lease contract has the right to terminate the lease without permission from the other party with no
more than an insignificant penalty. In this case the Group, as a lessee, assesses whether it is reasonably certain to exercise an extension option, or not
to exercise a termination option.
Lease payments for contracts with a duration of 12 months or less or leases for which the underlying assets are of low value are not recognised as
lease liabilities. They are expensed to the statement of operations on a straight-line basis over the lease term and included in cost of revenues, selling,
general and administrative expenses.
Information about lease arrangements is disclosed in Note 25.
Group as a Lessor
Finance leases, in which the Group acts as a lessor, when substantially all the risks and benefits incidental to ownership of the leased item are
transferred to the lessee, are recognised as net investments in finance lease from the commencement of the lease term at the present value of
the minimum lease payments. Lease payments are apportioned between the finance income and reduction of the lease receivable so as to achieve
a constant rate of interest on the remaining balance of recevables. Finance income is included in the interest income caption.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases (Note 9). Operating
lease income is recognised within the rendering of services caption on a straight-line basis over the lease term.
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LLeeaasseess ((ccoonnttiinnuueedd))
Accounting for Leases before 2019
Before 1 January 2019 the Group recognised as liabilities only finance lease arrangements. Finance leases, which involved the transfer to the Group
substantially all the risks and benefits incidental to ownership of the leased item, were 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 were 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
were charged to interest expense.
Leases where the lessor retained substantially all the risks and benefits of ownership of the asset were classified as operating leases. Operating lease
payments were recognised as an expense in the statement of operations on a straight-line basis over the lease term.
GGooooddwwiillll
Goodwill represents the excess of the aggregate of the consideration transferred for an acquisition of a subsidiary or an associate and the amount
recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value
of the net assets of the acquiree, the difference is recognised in the consolidated statement of operations.
Goodwill on acquisition of a subsidiary is included in intangible assets. Goodwill on acquisition of an associate is included in the carrying amount of the
investments in associates.
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.
IInnttaannggiibbllee AAsssseettss OOtthheerr TThhaann GGooooddwwiillll
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is
fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses. Expenditures on internally generated intangible assets, excluding capitalised development costs, are expensed as
incurred.
The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful
economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and
the amortisation method for an intangible asset with a finite life are reviewed at least at each year end. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits embodied in the asset are treated as changes in accounting estimates.
Intangible assets with indefinite useful lives are not amortised, they are tested for impairment annually either individually or at the cash-generating unit
level.
The table below presents the useful lives of intangible assets.
Customer relationships
Contract terms
Other
UUsseeffuull lliivveess
((yyeeaarrss))
WWeeiigghhtteedd aavveerraaggee
rreemmaaiinniinngg uusseeffuull lliiffee ((yyeeaarrss))
1–15
10
5–19
4
4
5
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).
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FFiinnaanncciiaall AAsssseettss
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.
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.
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.
Trade and Other Accounts Receivable
Trade and other receivables are recognised at their transaction price as defined in IFRS 15 “Revenue” if they do not contain a significant financing
component or if the Group expects, at contract inception, that the period between when the Group transfers a promised good or service to a customer
and when the customer pays for that good or service will be one year or less.
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.
IInnvveennttoorriieess
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.
VVaalluuee AAddddeedd TTaaxx
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.
CCaasshh aanndd CCaasshh EEqquuiivvaalleennttss
Cash and cash equivalents comprise cash at bank and in hand and deposits with an original maturity of three months or less.
BBoorrrroowwiinnggss
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).
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EEqquuiittyy
Share Capital
Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares are shown as a deduction in equity from the
proceeds. Any excess of the fair value of consideration received over the par value of shares issued is recognised as additional paid-in capital.
Treasury Shares
Own equity instruments which are acquired by the Group (treasury shares) are deducted from equity. No gain or loss is recognised in statement of
operations on the purchase, sale, issue or cancellation of the treasury shares. Any difference between the carrying amount and the consideration, if
reissued, is recognised in additional paid-in capital.
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.
PPrroovviissiioonnss
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.
EEmmppllooyyeeee BBeenneeffiittss
Social and Pension Contributions
Defined contributions are made by the Group to the Russian and Ukrainian state pension, social insurance and medical insurance funds at the
statutory rates in force based on gross salary payments. The Group has no legal or constructive obligation to pay further contributions in respect of
those benefits. Its only obligation is to pay contributions as they fall due. These contributions are expensed as incurred.
Defined Benefit Plans
The Group companies provide pensions and other benefits to their employees (Note 23). The entitlement to these benefits is usually conditional on
the completion of a minimum service period. Certain benefit plans require the employee to remain in service up to retirement age. Other employee
benefits consist of various compensations and non-monetary benefits. The amounts of benefits are stipulated in the collective bargaining agreements
and/or in the plan documents.
The Group involves independent qualified actuaries in the measurement of employee benefit obligations.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Re-measurements, comprising of
actuarial gains and losses, the effect of the asset ceiling, excluding net interest and the return on plan assets (excluding net interest), are recognised
immediately in the statement of financial position with a corresponding debit or credit to retained earnings through other comprehensive income in
the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
Past service costs are recognised in profit or loss on the earlier of the date of the plan amendment or curtailment, and the date that the Group
recognises restructuring-related costs.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. It is recorded within interest expense in
the consolidated statement of operations.
The Group recognises current service costs, past-service costs, gains and losses on curtailments and non-routine settlements in the consolidated
statement of operations within “cost of sales”, “general and administrative expenses” and “selling and distribution expenses”.
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EEmmppllooyyeeee BBeenneeffiittss ((ccoonnttiinnuueedd))
Other Costs
The Group incurs employee costs related to the provision of benefits such as health services, kindergartens and other services. These amounts
principally represent an implicit cost of employment and, accordingly, have been charged to cost of sales.
Share-based Payments
The Group has management compensation schemes (Note 21), under which certain senior executives and employees of the Group receive
remuneration in the form of share-based payment transactions, whereby they render services as consideration for equity instruments (“equity-settled
transactions”).
The cost of equity-settled transactions with grantees is measured by reference to the fair value of the Company’s shares at the date on which they are
granted. The fair value is determined using the Black-Scholes-Merton model. In valuing equity-settled transactions, no account is taken of any
conditions, other than market conditions.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity (additional paid-in capital), over the period in
which service conditions are fulfilled, ending on the date on which the relevant persons become fully entitled to the award (“the vesting date”).
The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting
period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The charge or credit in the statement of
operations for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.
No expense is recognised for awards 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, 2018 and 2019 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.
Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition,
an expense is recognised for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial
to the employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for
the award is recognised immediately.
The dilutive effect of outstanding share-based awards is reflected as additional share dilution in the computation of earnings per share (Note 20).
RReevveennuuee
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
The Group recognises revenues from sales of goods at the point in time when control of the asset is transferred to the customer 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.
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. The variable consideration is recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue
recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The Group 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
recognises 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. Transportation and handling services rendered by the Group in contracts, in which it acts as a principal, are presented within
the caption ”Sales of goods” in the consolidated statement of operations.
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2. SIGNIFICANT ACCOUNTING POLICIES (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.
Advances from Customers
The Group receives only short-term advances from its customers. The Group uses 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 does not account for a financing component even if it is significant.
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.
CCuurrrreenntt IInnccoommee TTaaxx
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 tax
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.
DDeeffeerrrreedd IInnccoommee TTaaxx
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
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.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
Management monitors the results of the operating segments separately for the purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated based on EBITDA (see below). This performance indicator is calculated based on
management accounts that differ from the IFRS consolidated financial statements for the following reasons:
1) certain subsidiaries of the Group are not consolidated in the management accounts;
2) for the last month of the reporting period, the management accounts for each operating segment are prepared using a forecast for that month;
3) 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;
4) 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 useful and relevant for the users and gives a better
comparison with the Russian steel peers.
The following tables present measures of segment profit or loss based on management accounts.
31
177
Annual report & Accounts 2019
3. SEGMENT INFORMATION (CONTINUED)
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001199
US$ million
Revenue
Sales to external customers
Inter-segment sales
TToottaall rreevveennuuee
SStteeeell
NNoorrtthh AAmmeerriiccaa
CCooaall
ooppeerraattiioonnss
EElliimmiinnaattiioonnss
TToottaall
SStteeeell,,
OOtthheerr
$$ 77,,990033
117755
88,,007788
$$ 22,,551177
––
22,,551177
$$ 11,,227733
773355
22,,000088
$$ 118866
330033
448899
$$ ––
((11,,221133))
((11,,221133))
$$ 1111,,887799
––
1111,,887799
SSeeggmmeenntt rreessuulltt –– EEBBIITTDDAA
$$ 11,,666688
$$ 3388
$$ 888833
$$ 1199
$$ 3322
$$ 22,,664400
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001188
US$ million
Revenue
Sales to external customers
Inter-segment sales
TToottaall rreevveennuuee
SStteeeell
NNoorrtthh AAmmeerriiccaa
CCooaall
SStteeeell,,
$ 8,373
343
8,716
$ 2,593
–
2,593
$ 1,533
1,322
2,855
OOtthheerr
ooppeerraattiioonnss
$ 214
279
493
EElliimmiinnaattiioonnss
TToottaall
$ –
(1,944)
(1,944)
$ 12,713
–
12,713
SSeeggmmeenntt rreessuulltt –– EEBBIITTDDAA
$ 2,701
$ 18
$ 1,180
$ 17
$ (14)
$ 3,902
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001177
US$ million
Revenue
Sales to external customers
Inter-segment sales
TToottaall rreevveennuuee
SStteeeell
SStteeeell,,
NNoorrtthh AAmmeerriiccaa
$ 8,093
295
8,388
$ 1,868
–
1,868
CCooaall
$ 796
1,142
1,938
SSeeggmmeenntt rreessuulltt –– EEBBIITTDDAA
$ 1,567
$ 77
$ 1,164
OOtthheerr
ooppeerraattiioonnss
EElliimmiinnaattiioonnss
TToottaall
$ 87
301
388
$ 20
$ –
(1,738)
(1,738)
$ 10,844
–
10,844
$ (24)
$ 2,804
178
32
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
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.
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001199
US$ million
RReevveennuuee
Reclassifications and other adjustments
RReevveennuuee ppeerr IIFFRRSS ffiinnaanncciiaall ssttaatteemmeennttss
EEBBIITTDDAA
Unrealised profits adjustment
Reclassifications and other adjustments
SStteeeell,,
OOtthheerr
SStteeeell
NNoorrtthh AAmmeerriiccaa
CCooaall
ooppeerraattiioonnss
EElliimmiinnaattiioonnss
TToottaall
$$ 88,,007788
$$ 22,,551177
$$ 22,,000088
6655
((1177))
1133
$$ 88,,114433
$$ 22,,550000
$$ 22,,002211
$$ 448899
((66))
$$448833
$$((11,,221133))
$$ 1111,,887799
((2299))
2266
$$((11,,224422))
$$ 1111,,990055
$$ 11,,666688
$$ 3388
$$ 888833
$$ 1199
$$ 3322
$$ 22,,664400
8811
4466
112277
––
––
––
4411
((8811))
((4400))
––
((11))
((11))
1177
((11))
1166
113399
((3377))
110022
EEBBIITTDDAA bbaasseedd oonn IIFFRRSS ffiinnaanncciiaall ssttaatteemmeennttss
$$ 11,,779955
$$ 3388
$$ 884433
$$ 1188
$$ 4488
$$ 22,,774422
((1177))
((225544))
((2266))
11
((1100))
––
((114477))
((330099))
44
4466
((33))
((116688))
((110077))
((33))
((3300))
$$ 11,,448899
$$ ((336688))
$$ 553322
––
((44))
––
––
1100
$$ 2244
––
––
––
––
––
$$ 4488
Unallocated subsidiaries
Social and social infrastructure maintenance
expenses
Depreciation, depletion and amortisation expense
Impairment of assets
Gain on disposal of property, plant and equipment
and intangible assets
Foreign exchange gains/(losses), net
Unallocated income/(expenses), net
PPrrooffiitt//((lloossss)) ffrroomm ooppeerraattiioonnss
Interest income/(expense), net
Share of profits/(losses) of joint ventures and
associates
Impairment of non-current financial assets
Gain/(loss) on financial assets and liabilities
Gain/(loss) on disposal groups classified as held for
sale
Other non-operating gains/(losses), net
PPrrooffiitt//((lloossss)) bbeeffoorree ttaaxx
((114411))
$$ 22,,660011
((2200))
((557733))
((444422))
22
1166
$$ 11,,558844
((336677))
$$ 11,,221177
((332288))
99
((5566))
1177
2299
1144
$$ 990022
33
179
Annual report & Accounts 2019
3. SEGMENT INFORMATION (CONTINUED)
Year ended 31 December 2018
US$ million
RReevveennuuee
Reclassifications and other adjustments
RReevveennuuee ppeerr IIFFRRSS ffiinnaanncciiaall ssttaatteemmeennttss
EEBBIITTDDAA
Unrealised profits adjustment
Reclassifications and other adjustments
EEBBIITTDDAA bbaasseedd oonn IIFFRRSS ffiinnaanncciiaall ssttaatteemmeennttss
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
PPrrooffiitt//((lloossss)) ffrroomm ooppeerraattiioonnss
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
PPrrooffiitt//((lloossss)) bbeeffoorree ttaaxx
SStteeeell,,
OOtthheerr
SStteeeell
NNoorrtthh AAmmeerriiccaa
CCooaall
ooppeerraattiioonnss
EElliimmiinnaattiioonnss
TToottaall
$ 8,716
163
$ 8,879
$ 2,701
(46)
17
(29)
$ 2,672
(25)
(239)
(18)
(3)
31
$ 2,418
$ 2,593
(10)
$ 2,583
$ 18
–
(4)
(4)
$ 14
–
(137)
(2)
(2)
(72)
$ (199)
$ 2,855
(518)
$ 2,337
$ 1,180
(25)
63
38
$ 1,218
(2)
(158)
(10)
(6)
30
$ 1,072
$ 493
(21)
$ 472
$ 17
–
–
–
$ 17
–
(3)
–
–
(2)
$ 12
$(1,944)
509
$(1,435)
$12,713
123
$12,836
$ (14)
4
1
5
$ (9)
–
–
–
–
–
$ (9)
$ 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
180
34
3. SEGMENT INFORMATION (CONTINUED)
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001177
US$ million
RReevveennuuee
Reclassifications and other adjustments
RReevveennuuee ppeerr IIFFRRSS ffiinnaanncciiaall ssttaatteemmeennttss
EEBBIITTDDAA
Unrealised profits adjustment
Reclassifications and other adjustments
SStteeeell
$ 8,388
(645)
$ 7,743
$ 1,567
(49)
(35)
(84)
EEBBIITTDDAA bbaasseedd oonn IIFFRRSS ffiinnaanncciiaall ssttaatteemmeennttss
$ 1,483
Unallocated subsidiaries
(29)
(255)
31
4
(31)
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
PPrrooffiitt//((lloossss)) ffrroomm ooppeerraattiioonnss
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
PPrrooffiitt//((lloossss)) bbeeffoorree ttaaxx
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
SStteeeell,,
NNoorrtthh AAmmeerriiccaa
$ 1,868
(4)
$ 1,864
CCooaall
$ 1,938
276
$ 2,214
OOtthheerr
ooppeerraattiioonnss
$ 388
74
$ 462
EElliimmiinnaattiioonnss
TToottaall
$(1,738)
$ 10,844
282
(17)
$(1,456)
$ 10,827
$ 77
–
(19)
(19)
$ 58
–
(132)
(19)
–
25
$ 1,164
$ 20
$ (24)
$ 2,804
(4)
66
62
–
1
1
(9)
–
(9)
(62)
13
(49)
$ 1,226
$ 21
$ (33)
$ 2,755
(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
35
181
Annual report & Accounts 2019
3. SEGMENT INFORMATION (CONTINUED)
The revenues from contracts with external customers for each group of similar products and services and rental income are presented in the following
table:
US$ million
SStteeeell
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
SStteeeell,, NNoorrtthh AAmmeerriiccaa
Construction products
Flat-rolled products
Railway products
Tubular products
Other products
Rendering of services
CCooaall
Coal
Other products
Rendering of services
OOtthheerr ooppeerraattiioonnss
Rendering of services
22001199
22001188
22001177
$$ 22,,116666
338866
11,,118811
22,,552288
337777
336655
119900
110099
553399
110033
77,,994444
220000
551188
440055
11,,112288
221111
3388
22,,550000
11,,225511
1155
2211
11,,228877
117744
117744
$ 2,280
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
$ 2,171
313
863
2,523
349
440
191
77
466
30
7,423
159
427
309
875
67
26
1,863
1,266
24
93
1,383
158
158
$$ 1111,,990055
$ 12,836
$ 10,827
Revenue from rendering of services included rental income, which was mainly attributable to the subsidiaries of the steel segment.
US$ million
Revenues from contracts with customers
Rental income
22001199
$$ 1111,,887733
3322
$$ 1111,,990055
22001188
$ 12,822
14
$ 12,836
22001177
$ 10,821
6
$ 10,827
182
36
3. SEGMENT INFORMATION (CONTINUED)
Distribution of the Group’s revenues by geographical area based on the location of customers for the years ended 31 December was as follows:
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
US$ million
CCIISS
Russia
Kazakhstan
Ukraine
Uzbekistan
Belarus
Kyrgyzstan
Others
AAmmeerriiccaa
USA
Canada
Mexico
Others
AAssiiaa
Taiwan
China
Philippines
Republic of Korea
Thailand
Indonesia
Japan
United Arab Emirates
Mongolia
Vietnam
India
Singapore
Others
EEuurrooppee
European Union
Turkey
Others
AAffrriiccaa
Kenya
Egypt
Others
OOtthheerr ccoouunnttrriieess
22001199
22001188
22001177
$$ 44,,337733
$ 4,564
$ 4,255
229977
229911
8811
7711
4499
7766
55,,223388
11,,770011
884477
111199
4422
22,,770099
668800
447788
338877
228822
224477
224444
224433
112244
6611
5577
4422
55
4433
22,,889933
776677
116666
2233
995566
6633
2277
1177
110077
22
237
480
32
72
50
65
5,500
2,226
537
154
92
3,009
433
114
631
409
225
346
186
5
58
35
60
133
81
2,716
1,146
254
26
1,426
77
86
16
179
6
254
368
37
62
36
55
5,067
1,465
546
156
34
2,201
468
145
345
321
189
330
149
25
28
44
19
41
58
2,162
775
328
25
1,128
106
100
58
264
5
None of the Group’s customers amounts to 10% or more of the consolidated revenues.
$$1111,,990055
$ 12,836
$ 10,827
37
183
Annual report & Accounts 2019
3. SEGMENT INFORMATION (CONTINUED)
Non-current assets other than financial instruments, deferred tax assets and post-employment benefit assets were located in the following countries at
31 December:
US$ million
Russia
Canada
USA
Ukraine
Kazakhstan
Czech Republic
Italy
Other countries
22001199
$ 3,967
981
827
––
38
35
––
3
22001188
$ 3,258
1,221
791
–
41
35
41
3
22001177
$ 3,879
1,332
818
61
51
37
45
4
$ 5,851
$ 5,390
$ 6,227
4. CHANGES IN THE COMPOSITION OF THE GROUP
BBuussiinneessss CCoommbbiinnaattiioonnss
In November 2019, the Group acquired 100% share in Metservice, which provides warehousing and related services in Nizhny Tagil (Russia).
The consideration amounted to $3 million in cash. At the date of business combination the fair value of net assets of the acquired company was
$3 million.
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.
PPuurrcchhaassee ooff NNoonn--ccoonnttrroolllliinngg IInntteerreessttss
Raspadskaya
In 2019, the Group acquired an additional 1.8% ownership interest in Raspadskaya, a subsidiary of the Group, for cash consideration of $25 million.
The excess of consideration over the carrying values of non-controlling interests acquired amounting to $3 million was charged to accumulated profits.
In addition, in June 2019 Raspadskaya purchased its own shares in course of the tender offer for cash consideration of $46 million. The Group
derecognised 2.53% of non-controlling interests and charged to accumulated profits $7 million representing the excess of consideration over the
carrying values of non-controlling interests acquired.
In the course of the closed subscription in September 2019 Raspadskaya issued 80,285 new shares, and Evraz Group S.A. acquired 80,284 shares,
thus increasing the Group’s stake in the subsidiary by 0.0014%.
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 2019, 2018 and 2017, the Group accrued $3 million, $4 million and $1 million interest on this liability.
Sale of Subsidiaries
In 2019, the Group sold EVRAZ Stratcor Inc, EVRAZ Palini e Bertoli, and Evraztrans-Ukraine. In 2018, the Group sold Dneprovsk Metallurgical Plant.
Further details of these transactions are disclosed in Note 12.
184
38
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.
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
US$ million
AAtt 3311 DDeecceemmbbeerr 22001166
Sale of subsidiaries (Note 12)
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001177
Sale of subsidiaries (Note 12)
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001188
Sale of subsidiaries (Note 12)
Impairment of Large diameter pipes
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001199
GGrroossss
aammoouunntt
$$ 22,,336677
(22)
58
$$ 22,,440033
(112)
(70)
$$ 22,,222211
(63)
–
34
IImmppaaiirrmmeenntt
lloosssseess
$$ ((11,,448877))
16
(15)
$$ ((11,,448866))
112
17
$$ ((11,,335577))
63
(300)
(4)
$$ 22,,119922
$$ ((11,,559988))
CCaarrrryyiinngg
aammoouunntt
$$ 888800
(6)
43
$$ 991177
–
(53)
$$ 886644
–
(300)
30
$$ 559944
The carrying amount of goodwill was allocated among cash-generating units as follows at 31 December:
US$ million
22001199
22001188
22001177
EVRAZ Inc. NA/EVRAZ Inc. NA Canada
Large diameter pipes
Oil Country Tubular Goods
Long products
EVRAZ Vanady-Tula
EVRAZ Nikom, a.s.
Others
$$ 552255
6688
114411
331166
3322
3333
44
$$ 559944
$ 799
349
134
316
29
33
3
$ 864
$ 843
381
146
316
35
35
4
$ 917
39
185
Annual report & Accounts 2019
6. IMPAIRMENT OF ASSETS
A summary of impairment losses recognition and reversals is presented below.
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001199
US$ million
EVRAZ Inc. NA Canada
Raspadskaya
EVRAZ Consolidated West-Siberian Metallurgical Plant
Yuzhkuzbassugol
EVRAZ Nizhny Tagil Metallurgical Plant
EVRAZ Inc. NA
Others, net
RReeccooggnniisseedd iinn pprrooffiitt oorr lloossss
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001188
US$ million
EVRAZ Stratcor Inc.
Yuzhkuzbassugol
Evrazruda
Others, net
RReeccooggnniisseedd iinn pprrooffiitt oorr lloossss
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001177
US$ million
EVRAZ Inc. NA
EVRAZ Inc. NA Canada
Raspadskaya
EVRAZ Palini e Bertoli
Yuzhkuzbassugol
Evrazruda
Others, net
RReeccooggnniisseedd iinn pprrooffiitt oorr lloossss
GGooooddwwiillll aanndd
iinnttaannggiibbllee aasssseettss
PPrrooppeerrttyy,, ppllaanntt aanndd
eeqquuiippmmeenntt
TTaaxxeess
rreecceeiivvaabbllee
$$ ((330000))
––
––
––
––
––
$$ ((330000))
((330000))
$$ ((11))
((9922))
((1188))
((1155))
((1111))
((88))
33
$$ ((114422))
((114422))
$$ ––
––
––
––
––
––
––
$$ ––
––
GGooooddwwiillll aanndd
iinnttaannggiibbllee aasssseettss
PPrrooppeerrttyy,, ppllaanntt aanndd
eeqquuiippmmeenntt
TTaaxxeess
rreecceeiivvaabbllee
$ –
–
–
–
$ –
–
$ (12)
(6)
(4)
(8)
$ (30)
(30)
$ –
–
–
–
$ –
–
GGooooddwwiillll aanndd
iinnttaannggiibbllee aasssseettss
PPrrooppeerrttyy,, ppllaanntt aanndd
eeqquuiippmmeenntt
TTaaxxeess
rreecceeiivvaabbllee
$ (13)
–
–
–
–
–
–
$ (13)
(13)
$ 6
(12)
9
20
(9)
8
(2)
$ 20
20
$ –
–
–
–
–
–
5
$ 5
5
TToottaall
$$ ((330011))
((9922))
((1188))
((1155))
((1111))
((88))
33
$$ ((444422))
((444422))
TToottaall
$ (12)
(6)
(4)
(8)
$ (30)
(30)
TToottaall
$ (7)
(12)
9
20
(9)
8
3
$ 12
12
In 2017-2019, the Group recognised impairment losses as a result of impairment testing at the level of cash-generating units.
In addition, the Group made a write-off of certain functionally obsolete items of property, plant and equipment and recorded an impairment relating to
VAT with a long-term recovery. In 2019, the Group decided to postpone reopening of a coal mine MUK-96, a subsidiary of Raspadskaya. In connection
with this decision the recoverable amount of mining assets relating to this mine ($84 million) was reassessed and fully impaired.
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 2017-2019, the impairment tests were performed as of 30 September, the conclusions were
reassessed at 31 December and no further impairment triggers were identified.
The recoverable amounts for all cash-generating units, except for Large diameter pipes in 2019, 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.
In 2019, the recoverable amount of Large diameter pipes has been determined based on the calculation of fair value less costs of disposal as it was
deemed to produce a more reliable result. This valuation method was based on unobservable inputs (discounted cash flows), which represent Level 3
of the fair value hierarchy.
186
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Business review
CSR report
Corporate governance
Financial statements
Additional information
6. IMPAIRMENT OF ASSETS (CONTINUED)
The key assumptions used by management in the impairment tests 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.
CCoommmmooddiittyy
PPeerriioodd ooff
ffoorreeccaasstt,, yyeeaarrss
PPrree--ttaaxx ddiissccoouunntt
rraattee,, %%
ppeerr ttoonnnnee iinn tthhee nneexxtt
rreeppoorrttiinngg yyeeaarr
AAvveerraaggee
pprriiccee ooff ccoommmmooddiittyy
RReeccoovveerraabbllee aammoouunntt
ooff CCGGUU,,
CCaarrrryyiinngg aammoouunntt
ooff CCGGUU bbeeffoorree
iimmppaaiirrmmeenntt,,
UUSS$$ mmiilllliioonn
UUSS$$ mmiilllliioonn
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
22001199
22001188
Steel North America
Large diameter pipes
steel products
Oil Country Tubular Goods
steel products
Long products
EVRAZ Vanady-Tula
EVRAZ Nikom, a.s.
steel products
vanadium
products
ferrovanadium
products
5
5
5
5
5
5
5
5
9.32
9.65
9.90
9.37
9.96
9.26
$1,112
$1,129
$1,127
$1,245
$720
$745
567
464
623
903
441
582
5
12.55
12.74
$21,452
$46,494
712
1,140
5
10.48
10.45
$21,371
$48,991
56
40
867
356
528
55
35
900
365
501
57
36
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
PPeerriioodd ooff ffoorreeccaasstt,,
yyeeaarrss
PPrree--ttaaxx
ddiissccoouunntt rraattee,, %%
AAvveerraaggee pprriiccee
ooff ccoommmmooddiittyy ppeerr ttoonnnnee
iinn tthhee nneexxtt rreeppoorrttiinngg yyeeaarr
CCoommmmooddiittyy
5
5
9.37
9.82
steel products
steel products
$ 607
$ 1,224
The impairment test models take into account the impact of Section 232 tariffs imposed on imports to the US and anti-dumping duties imposed by
the US against Canada on large-diameter pipes (Note 30). The effect of the anti-dumping duties is expected to last until 2024 when it will be subject to
a five-year (sunset) review by the US Department of Commerce. The Section 232 tariffs are expected to last until 2023.
As a result of impairment testing, in 2019, the Group recognised a $300 million impairment loss with respect to goodwill allocated to the Large
diameter pipes cash-generating unit. The impairment was caused by the use of a more conservative valuation model due to the increased current
market volatility.
The estimations of recoverable amounts are most sensitive to the following assumptions:
Discount Rates
Discount rates reflect the current market assessment of the risks specific to each cash-generating unit. The discount rates have been determined using
the Capital Asset Pricing Model and analysis of industry peers. Reasonably possible changes in discount rates could lead to an additional impairment at
Large diameter pipes. If discount rates were 10% higher, this would lead to an additional impairment of $88 million.
Sales and Purchases Prices
The price assumptions for the products sold and purchased by the Group were estimated based on industry research using analysts’ views published
by Goldman Sachs, J.P. Morgan, Renaissance Capital, UBS, CRU, Sberbank, Morgan Stanley, Bank of America, Citi, Deutsche Bank, HSBC, VTB Capital,
KPMG during the period from July to November 2019. The Group expects that the nominal prices will fluctuate with a compound annual growth rate of
(7.7)%-4.3% in 2020 – 2024 and 2% in 2025 and thereafter. Reasonably possible changes in sales and purchases prices could lead to an additional
impairment at Large diameter pipes. If the prices assumed for 2020 and 2021 in the impairment test were 10% lower, this would lead to an additional
impairment of $50 million.
Sales Volumes
Management assumed that the sales volumes of steel products in 2020 will change by (4)-21% and future dynamics will be driven by a gradual market
recovery and removal of anti-dumping duties allowing the Group to utilise assets’ capacities to a greater extent. Reasonably possible changes in sales
volumes could lead to an additional impairment at Large diameter pipes. If the sales volumes were 10% lower than those assumed for 2020 and 2021
in the impairment test, this would lead to an additional impairment of $22 million.
187
41
Annual report & Accounts 2019
6. IMPAIRMENT OF ASSETS (CONTINUED)
Cost Control Measures
The recoverable amounts of cash-generating units are based on the business plans approved by management. A reasonably possible deviation in cost
from these plans could lead to an additional impairment at Large diameter pipes. If the actual costs were 10% higher than those assumed for 2020
and 2021 in the impairment test, this would lead to an additional impairment of $127 million.
Sensitivity Analysis
There were no cash-generating units, which were not impaired in the reporting period and for which the reasonably possible changes could lead to
impairment. Consequently, information on changes in the assumptions used to measure the recoverable amounts that could lead that the recoverable
amounts would become equal to their carrying amounts is not disclosed.
7. INCOME AND EXPENSES
Cost of revenues, selling and distribution costs, general and administrative expenses include the following for the years ended 31 December:
US$ million
Cost of inventories recognised as expense
Staff costs, including social security taxes
Depreciation, depletion and amortisation
22001199
$$ ((44,,559955))
((11,,446644))
((557788))
22001188
$ (4,580)
(1,326)
(542)
22001177
$ (4,181)
(1,364)
(561)
In 2019, 2018 and 2017, the Group recognised expense on allowance for net realisable value in the amount of $(4) million, $Nil and $(4) million,
respectively.
Staff costs include the following:
US$ million
Wages and salaries
Social security costs
Net benefit expense
Share-based awards
Other compensations
22001199
$$ 11,,004477
227744
4422
1133
8888
22001188
$ 968
245
38
15
60
22001177
$ 1,000
246
42
17
59
$$ 11,,446644
$ 1,326
$ 1,364
188
42
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
7. INCOME AND EXPENSES (CONTINUED)
The average number of staff employed under contracts of service was as follows:
Steel
Steel, North America
Coal
Other operations
Unallocated
The major components of other operating expenses were as follows:
US$ million
Idling, reduction and stoppage of production, including termination benefits
Restoration works and casualty compensations in connection with accidents
Other
Interest expense consisted of the following for the years ended 31 December:
US$ million
Bank interest
Interest on bonds and notes
Interest on lease liabilities (Note 25)
Net interest expense on employee benefits obligations (Note 23)
Discount adjustment on provisions (Note 24)
Other
Interest income consisted of the following for the years ended 31 December:
US$ million
Interest on bank accounts and deposits
Interest on loans and accounts receivable
Other
22001199
4444,,551122
44,,229955
1144,,665555
992277
22,,334455
6666,,773344
22001199
$$ ((2200))
((33))
((3311))
$$ ((5544))
22001199
$$ ((6600))
((223311))
((88))
((1133))
((1188))
((66))
$$ ((333366))
22001199
$$ 77
11
––
$$ 88
Gain/(loss) on financial assets and liabilities included the following for the years ended 31 December:
US$ million
Loss on extinguishment of debts (Note 22)
Gain/(loss) on derivatives not designated as hedging instruments (Note 25)
Realised gain/(loss) on hedging instruments (Note 25)
Net gains/(losses) on cash flow hedges recycled to profit or loss
Other
22001199
$$ ((2277))
3388
((2233))
3333
((44))
$$ 1177
22001188
45,282
3,877
13,505
882
2,344
65,890
22001188
$ (17)
(3)
(35)
$ (55)
22001188
$ (74)
(248)
–
(13)
(16)
(8)
$ (359)
22001188
$ 9
7
2
$ 18
22001188
$ (1)
3
11
–
–
$ 13
22001177
54,737
3,395
14,629
523
2,736
76,020
22001177
$ (26)
(2)
(33)
$ (61)
22001177
$ (115)
(279)
–
(19)
(16)
(8)
$ (437)
22001177
$ 8
6
–
$ 14
22001177
$ (78)
4
14
–
3
$ (57)
189
43
Annual report & Accounts 2019
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
22001199
22001188
22001177
2200..0000%%
aanndd 1166..5500%%
20.00%
and 16.50%
2266..0088%%
1122..5500%%
1199..0000%%
2277..9900%%
99..6622%%
1188..0000%%
1199..0000%%
2244..8877%%
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%
In 2018, EVRAZ 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 2019 and 2018, EVRAZ Nizhny Tagil Metallurgical Plant and other subsidiaries included in
the group of consolidated taxpayers received a current income tax benefit amounting to $33 million and $37 million, respectively.
In December 2017, new tax legislation has been adopted in the USA, which introduced a reduction in federal income tax rate from 35% to 21% starting
from 1 January 2018. The Group’s subsidiaries measured the respective deferred tax assets and liabilities at 31 December 2017 using the enacted tax
rates.
Major components of income tax expense for the years ended 31 December were as follows:
US$ 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
Income tax (expense)/benefit reported in the consolidated statement of
operations
22001199
$$ ((554400))
88
((66))
11
$$ ((553377))
22001188
$ (679)
(4)
(54)
6
$ (731)
22001177
$ (484)
(1)
74
15
$ (396)
The major part of income taxes is paid in the Russian Federation. A reconciliation of income tax expense applicable to profit before income tax using
the Russian statutory tax rate to income tax expense as reported in the Group’s consolidated financial statements for the years ended 31 December is
as follows:
US$ million
Profit/(loss) before income tax
At the Russian statutory income tax rate of 20%
Adjustment in respect of income tax of previous years
Current income tax benefit from investment tax credit
Deferred income tax expense resulting from the changes in tax rates and laws
Current tax on dividends distributed by the Group’s subsidiaries
Change in deferred tax on undistributed earnings of the Group’s subsidiaries
Effect of non-deductible expenses and other non-temporary differences
Unrecognised temporary differences recognition/reversal
Effect of the difference in tax rates in countries other than the Russian
Federation
Share of profits in joint ventures and associates
Income tax (expense)/benefit reported in the consolidated statement of
operations
22001199
$$ 990022
((118800))
88
3333
––
((117788))
((1199))
((9966))
((113300))
2233
22
22001188
$ 3,201
(640)
(4)
37
–
(53)
(35)
(37)
(58)
57
2
22001177
$ 1,155
(231)
(1)
–
(6)
(26)
–
(254)
100
20
2
$$ ((553377))
$ (731)
$ (396)
In 2017, the higher 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.
As of 31 December 2019, the Group accrued deferred income taxes in respect of undistributed earnings of the Group’s subsidiaries in the amount of
$54 million (2018: $35 million, 2017: $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 2019, the aggregate amount of such temporary
differences, for which deferred tax liabilities have not been recognised, amounted to $59 million (2018: $101 million, 2017: $1,439 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.
190
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Strategic report
Business review
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Financial statements
Additional information
8. INCOME TAXES (CONTINUED)
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 2019, the unused tax losses carried forward approximated
$8,620 million (2018: $9,321 million, 2017: $9,893 million). The Group recognised deferred tax assets of $234 million (2018: $199 million, 2017:
$267 million) in respect of unused tax losses. Deferred tax assets in the amount of $1,878 million (2018: $2,287 million, 2017: $2,339 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
$7,592 million (2018: $8,492 million, 2017: $8,711 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 $7,499 million
(2018: $8,399 million, 2017: $8,664 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 (2018: $93 million, 2017: $47 million).
Deferred income tax assets and liabilities and their movements for the years ended 31 December were as follows:
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001199
US$ million
Deferred income tax liabilities:
Valuation and depreciation of property,
plant and equipment
Valuation and amortisation of intangible
assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
Net deferred income tax liability
CChhaannggee
rreeccooggnniisseedd iinn
ssttaatteemmeenntt ooff
ooppeerraattiioonnss
CChhaannggee
rreeccooggnniisseedd iinn
ootthheerr
ccoommpprreehheennssiivvee
iinnccoommee
CChhaannggee dduuee ttoo
ddiissppoossaall ooff
ssuubbssiiddiiaarriieess
TTrraannssllaattiioonn
ddiiffffeerreennccee
OOtthheerr
mmoovveemmeennttss
((33))
((99))
4433
3311
2299
1144
1111
((2288))
2266
5555
6600
––
––
––
––
––
((11))
––
––
((11))
((11))
––
((66))
––
––
((66))
((77))
((11))
––
11
((77))
((11))
––
4466
22
77
5555
1133
99
11
55
2288
77
3344
1133
––
––
1133
––
––
1133
––
––
1133
––
––
22001199
$$ 551199
4433
114466
770088
223344
112299
1155
113300
550088
115522
$$ 335522
Other movements in deferred tax assets and liabilities represent adjustments in connection with the adoption of IFRS 16 “Leases” (Note 2).
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001188
US$ million
Deferred income tax liabilities:
Valuation and depreciation of property,
plant and equipment
Valuation and amortisation of intangible
assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
Net deferred income tax liability
22001188
$ 469
50
96
615
199
95
3
152
449
92
$ 258
CChhaannggee
rreeccooggnniisseedd iinn
ssttaatteemmeenntt ooff
ooppeerraattiioonnss
CChhaannggee
rreeccooggnniisseedd iinn
ootthheerr
ccoommpprreehheennssiivvee
iinnccoommee
CChhaannggee dduuee ttoo
ddiissppoossaall ooff
ssuubbssiiddiiaarriieess
TTrraannssllaattiioonn
ddiiffffeerreennccee
OOtthheerr
mmoovveemmeennttss
–
–
–
–
–
(6)
–
–
(6)
(4)
2
–
–
–
(1)
–
–
–
(1)
(1)
–
(73)
(4)
(11)
(88)
(25)
(10)
(2)
(7)
(44)
(11)
(55)
–
–
–
–
–
–
–
–
–
–
–
–
(4)
(8)
27
15
(42)
(15)
(7)
31
(33)
(65)
(17)
45
22001188
$$ 446699
5500
9966
661155
119999
9955
33
115522
444499
9922
$$ 225588
22001177
$ 546
62
80
688
267
126
12
128
533
173
$ 328
191
Annual report & Accounts 2019
CChhaannggee
rreeccooggnniisseedd iinn
ssttaatteemmeenntt ooff
ooppeerraattiioonnss
CChhaannggee
rreeccooggnniisseedd iinn
ootthheerr
ccoommpprreehheennssiivvee
iinnccoommee
CChhaannggee dduuee ttoo
ddiissppoossaall ooff
ssuubbssiiddiiaarriieess
TTrraannssllaattiioonn
ddiiffffeerreennccee
OOtthheerr
mmoovveemmeennttss
8. INCOME TAXES (CONTINUED)
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001177
US$ million
Deferred income tax liabilities:
Valuation and depreciation of property,
plant and equipment
Valuation and amortisation of intangible
assets
Other
Deferred income tax assets:
Tax losses available for offset
Accrued liabilities
Impairment of accounts receivable
Other
Net deferred income tax asset
Net deferred income tax liability
22001177
$ 546
62
80
688
267
126
12
128
533
173
$ 328
(36)
(21)
19
(38)
55
8
1
(13)
51
47
(42)
–
–
–
–
–
(15)
–
–
(15)
(10)
5
(10)
(1)
(1)
(12)
(25)
(8)
–
–
(33)
(24)
(3)
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including right-of-use assets, consisted of the following as of 31 December:
US$ million
Cost
Land
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Mining assets
Other assets
Assets under construction
Accumulated depreciation, depletion and impairment losses
Buildings and constructions
Machinery and equipment
Transport and motor vehicles
Mining assets
Other assets
Government grants
22001199
$$ 110022
11,,889999
44,,775588
336699
22,,446688
3344
668811
1100,,331111
((994433))
((22,,990044))
((220000))
((11,,330088))
((2255))
((55,,338800))
((66))
22001166
$ 567
81
58
706
226
138
10
140
514
156
$ 348
25
3
4
32
11
3
1
1
16
4
20
22001188
$ 100
1,752
4,302
226
2,084
35
378
8,877
(857)
(2,647)
(145)
(998)
(28)
(4,675)
–
–
–
–
–
–
–
–
–
–
–
–
22001177
$ 107
1,894
4,812
255
2,461
37
549
10,115
(968)
(2,906)
(168)
(1,112)
(28)
(5,182)
–
$$ 44,,992255
$ 4,202
$ 4,933
192
46
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
9. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
The movement in property, plant and equipment, including right-of-use assets, was as follows:
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001199
US$ million
At 31 December 2018, cost, net of
accumulated depreciation
IFRS 16 adoption: recognition of right-of-
use assets (Note 2)
At 1 January 2019, cost, net of
accumulated depreciation
Additions
Assets put into operation
Assets acquired in business combinations
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
Government grants
Translation difference
At 31 December 2019, cost, net of
accumulated depreciation
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001188
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
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001177
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
BBuuiillddiinnggss
aanndd ccoonnssttrruuccttiioonnss
MMaacchhiinneerryy aanndd
eeqquuiippmmeenntt
TTrraannssppoorrtt aanndd
mmoottoorr vveehhiicclleess
MMiinniinngg
aasssseettss
OOtthheerr
aasssseettss
AAsssseettss uunnddeerr
ccoonnssttrruuccttiioonn
LLaanndd
TToottaall
$$ 110000
$$ 889955
$$ 11,,665555
$$ 8811
$$ 11,,008866
––
1122
4400
6688
––
$$ 110000
$$ 990077
$$ 11,,669955
$$ 114499
$$ 11,,008866
11
––
44
((33))
––
––
––
((44))
––
––
44
––
5500
––
((11))
((8822))
((1133))
11
((88))
1122
––
9900
1111
338877
––
((66))
((333311))
((2255))
22
((2255))
33
––
114433
44
4466
––
––
((4466))
––
––
((22))
––
––
1188
––
6666
––
––
((8877))
((110011))
11
––
6644
––
113311
$$ 77
––
$$ 77
––
66
––
––
((44))
––
––
––
––
––
––
$$ 337788
$$ 44,,220022
––
112200
$$ 337788
$$ 44,,332222
882288
((555555))
––
((44))
––
((1100))
33
––
––
((66))
4411
884444
––
44
((1144))
((555500))
((114499))
77
((3399))
7799
((66))
442277
$$ 110022
$$ 995566
$$ 11,,885544
$$ 116699
$$ 11,,116600
$$ 99
$$ 667755
$$ 44,,992255
BBuuiillddiinnggss
aanndd ccoonnssttrruuccttiioonnss
MMaacchhiinneerryy aanndd
eeqquuiippmmeenntt
TTrraannssppoorrtt aanndd
mmoottoorr vveehhiicclleess
MMiinniinngg
aasssseettss
OOtthheerr
aasssseettss
AAsssseettss uunnddeerr
ccoonnssttrruuccttiioonn
LLaanndd
TToottaall
$ 107
$ 926
$ 1,906
$ 87
$ 1,349
$ 9
$ 549
$ 4,933
–
–
–
–
–
–
–
–
–
224
(1)
(80)
(4)
–
(20)
(5)
(7)
$ 100
(145)
$ 895
350
(15)
(313)
(10)
1
(35)
1
(230)
$ 1,655
–
31
(1)
(23)
–
–
–
–
–
58
(2)
(82)
(15)
6
–
(1)
(13)
$ 81
(227)
$ 1,086
–
2
–
(3)
–
–
–
–
(1)
$ 7
579
(665)
–
–
(8)
–
(10)
–
(67)
579
–
(19)
(501)
(37)
7
(65)
(5)
(690)
$ 378
$ 4,202
BBuuiillddiinnggss
LLaanndd
aanndd ccoonnssttrruuccttiioonnss
MMaacchhiinneerryy aanndd
eeqquuiippmmeenntt
TTrraannssppoorrtt aanndd
mmoottoorr vveehhiicclleess
MMiinniinngg
aasssseettss
OOtthheerr
aasssseettss
AAsssseettss uunnddeerr
ccoonnssttrruuccttiioonn
TToottaall
$ 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
193
47
Annual report & Accounts 2019
9. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Assets under construction include prepayments to constructors and suppliers of property, plant and equipment in the amount of $77 million,
$36 million and $60 million as of 31 December 2019, 2018 and 2017, 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 2019 was $Nil (2018: $1 million, 2017: $6 million).
Right-of-Use Assets
In 2019, the movement in right-of-use assets were as follows:
US$ million
At 1 January 2019, assets under
finance leases, cost, net of
accumulated depreciation
Newly recognised right-of-use assets
Total right-of-use assets at 1 January
2019
Additions
Purchase of right-of-use assets
Depreciation charge
Transfer to assets held for sale
Translation difference
At 31 December 2019, cost, net of
accumulated depreciation
BBuuiillddiinnggss
LLaanndd
aanndd
ccoonnssttrruuccttiioonnss
MMaacchhiinneerryy aanndd
eeqquuiippmmeenntt
TTrraannssppoorrtt aanndd
mmoottoorr vveehhiicclleess
TToottaall
$$ 33
––
$$ 33
––
((33))
––
––
––
$$ 11
1122
$$ 1133
––
((11))
((11))
––
––
$$ 33
4400
$$ 4433
1111
––
((77))
––
11
$$ ––
6688
$$ 77
112200
$$ 6688
$$ 112277
44
––
((2222))
((22))
88
1155
((44))
((3300))
((22))
99
$$ ––
$$ 1111
$$ 4488
$$ 5566
$$ 111155
The liabilities related to the right-of-use assets are disclosed in Note 25.
Assets in Operating Lease
The Group acts as a lessor in some operating lease contracts. The carrying value of assets in operating lease at 31 December 2019 was $66 million,
including $51 million of right-of-use assets in sublease representing railroad cars.
US$ million
LLaanndd
BBuuiillddiinnggss
aanndd
ccoonnssttrruuccttiioonnss
MMaacchhiinneerryy aanndd
eeqquuiippmmeenntt
TTrraannssppoorrtt aanndd
mmoottoorr vveehhiicclleess
TToottaall
At 31 December 2019, cost, net of
accumulated depreciation
$$ 11
$$ 55
$$ 88
$$ 5522
$$ 6666
In 2019, rental income amounted to $32 million, including $25 million of income from subleasing of right-of-use assets.
At 31 December 2019, the undiscounted lease payments to be received under operating leases were as follows:
US$ million
22002200
22002211
22002222
22002233
22002244
AAfftteerr
55 yyeeaarrss ffrroomm
tthhee rreeppoorrttiinngg
ddaattee
TToottaall
Lease payments under operating leases
$ 25
$ 26
$ 15
$ 3
$ 3
$ 20
$ 92
194
48
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
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
22001199
$$ 667788
5577
2244
6677
882266
((556677))
((1133))
((1155))
((4466))
((664411))
22001188
$ 656
57
21
64
798
(525)
(13)
(11)
(43)
(592)
$$ 118855
$ 206
22001177
$ 693
57
26
65
841
(513)
(13)
(11)
(45)
(582)
$ 259
As of 31 December 2019, 2018 and 2017, water rights and environmental permits with a carrying value of $44 million had an indefinite useful life.
The movement in intangible assets was as follows:
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001199
US$ million
At 31 December 2018, cost, net of accumulated amortisation
Additions
Amortisation charge
Translation difference
CCuussttoommeerr
rreellaattiioonnsshhiippss
$$ 113311
––
((2266))
66
WWaatteerr rriigghhttss aanndd
eennvviirroonnmmeennttaall
ppeerrmmiittss
$$ 4444
––
––
––
At 31 December 2019, cost, net of accumulated amortisation
$$ 111111
$$ 4444
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001188
US$ million
At 31 December 2017, cost, net of accumulated amortisation
Additions
Amortisation charge
Translation difference
CCuussttoommeerr
rreellaattiioonnsshhiippss
$ 180
–
(36)
(13)
WWaatteerr rriigghhttss aanndd
eennvviirroonnmmeennttaall
ppeerrmmiittss
$ 44
–
–
–
CCoonnttrraacctt
tteerrmmss
$$ 1100
––
((22))
11
$$ 99
CCoonnttrraacctt
tteerrmmss
$ 15
–
(2)
(3)
At 31 December 2018, cost, net of accumulated amortisation
$ 131
$ 44
$ 10
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001177
US$ million
At 31 December 2016, cost, net of accumulated amortisation
Additions
Amortisation charge
Impairment losses recognised in statement of operations
Translation difference
At 31 December 2017, cost, net of accumulated amortisation
CCoonnttrraacctt
tteerrmmss
$ 17
–
(3)
–
1
$ 15
CCuussttoommeerr
rreellaattiioonnsshhiippss
WWaatteerr rriigghhttss aanndd
eennvviirroonnmmeennttaall
ppeerrmmiittss
$ 57
–
–
(13)
–
$ 44
$ 203
–
(36)
–
13
$ 180
49
OOtthheerr
$$ 2211
66
((66))
––
TToottaall
$$ 220066
66
((3344))
77
$$2211
$$ 118855
OOtthheerr
$ 20
10
(6)
(3)
$ 21
OOtthheerr
$ 20
5
(5)
–
–
$ 20
TToottaall
$ 259
10
(44)
(19)
$ 206
TToottaall
$ 297
5
(44)
(13)
14
$ 259
195
Annual report & Accounts 2019
11. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES
The Group accounted for investments in joint ventures and associates under the equity method.
The movement in investments in joint ventures and associates was as follows:
US$ million
IInnvveessttmmeenntt aatt 3311 DDeecceemmbbeerr 22001166
Additional investments
Share of profit/(loss)
Dividends paid
Translation difference
IInnvveessttmmeenntt aatt 3311 DDeecceemmbbeerr 22001177
Share of profit/(loss)
Dividends paid
Translation difference
IInnvveessttmmeenntt aatt 3311 DDeecceemmbbeerr 22001188
Additional investments
Share of profit/(loss)
Dividends paid
Translation difference
IInnvveessttmmeenntt aatt 3311 DDeecceemmbbeerr 22001199
TTiimmiirr IIrroonn OOrree PPrroojjeecctt
TTiimmiirr
SSttrreeaammccoorree
OOtthheerr aassssoocciiaatteess
$ 19
–
1
–
1
$$ 2211
(1)
–
(3)
$$ 1177
–
(1)
–
1
$$ 1177
$ 37
–
8
–
2
$$ 4477
9
–
(9)
$$ 4477
3
7
–
6
$$ 6633
$ 8
1
2
(1)
1
$$ 1111
1
(1)
(1)
$$ 1100
–
3
(2)
1
$$ 1122
TToottaall
$ 64
1
11
(1)
4
$$ 7799
9
(1)
(13)
$$ 7744
3
9
(2)
8
$$ 9922
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 provided 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 incurred interest charges on
the unpaid liability.
In 2019, 2018 and 2017, the Group paid 480 million roubles ($8 million), 500 million roubles ($9 million) and 500 million roubles ($8 million),
respectively, of purchase consideration and $1 million and $2 million, respectively, of interest charges. Previously, the Group paid the principal of
3,470 million roubles ($96 million) in total. In addition, the Group paid interest charges on the liability.
At 31 December 2018 and 2017, trade and other accounts payable included liabilities relating to this acquisition in the amount of $8 million, and
$19 million, respectively. In January 2019, the liability was fully settled.
The table below sets out Timir’s assets and liabilities as of 31 December:
US$ million
Mineral reserves and property, plant and equipment
Other non-current assets
TToottaall aasssseettss
Non-current liabilities
Current liabilities
TToottaall lliiaabbiilliittiieess
NNeett aasssseettss
22001199
$$ 5544
77
6611
––
2277
2277
3344
22001188
$ 48
6
54
–
21
21
33
22001177
$ 58
7
65
23
–
23
42
NNeett aasssseettss aattttrriibbuuttaabbllee ttoo 5511%% oowwnneerrsshhiipp iinntteerreesstt
$$ 1177
$ 17
$ 21
In 2019, 2018 and 2017, Timir’s statement of operations included only other income and expenses amounting to $(1) million, $(2) million and
$2 million, respectively.
At 31 December 2019, 2018 and 2017 Timir owed to the Group $9 million, $7 million and $8 million, respectively, which were included in
the receivables from related parties caption in 2018 and 2019 and in other non-current financial assets in 2017. The amounts represent a loan
bearing interest of 6.45% per annum (in 2017 the interest rate was 0.5% per annum).
196
50
11. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES (CONTINUED)
SSttrreeaammccoorree
The Group owns a 50% interest in Streamcore (Cyprus), a joint venture established for the purpose of exercising joint control over facilities for scrap
procurement and processing in Siberia, Russia.
The table below sets out Streamcore’s assets and liabilities as of 31 December:
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
US$ million
Property, plant and equipment
Inventories
Accounts receivable
TToottaall aasssseettss
Deferred income tax liabilities
Current liabilities
TToottaall lliiaabbiilliittiieess
NNeett aasssseettss
NNeett aasssseettss aattttrriibbuuttaabbllee ttoo 5500%% oowwnneerrsshhiipp iinntteerreesstt
The table below sets out Streamcore’s income and expenses:
US$ million
Revenue
Cost of revenue
Other expenses, including income taxes
NNeett pprrooffiitt
GGrroouupp’’ss sshhaarree ooff pprrooffiitt ooff tthhee jjooiinntt vveennttuurree
12. DISPOSAL GROUPS HELD FOR SALE
22001199
$$ 2255
1100
9944
112299
11
33
44
112255
$$ 6633
22001199
$$ 550022
((447788))
((1100))
1144
77
22001188
22001177
$ 21
9
151
181
1
86
87
$ 94
$ 47
22001188
$ 579
(553)
(8)
$ 18
$ 9
$ 24
60
104
188
2
92
94
$ 94
$ 47
22001177
$ 458
(432)
(9)
$ 17
$ 8
The table below demonstrates the carrying values of assets and liabilities, at the dates of disposal, of the subsidiaries and other business units
disposed of during 2017–2019.
US$ million
Property, plant and equipment
Goodwill
Other non-current assets
Inventories
Accounts receivable
Cash and cash equivalents
TToottaall aasssseettss
Employee benefits
Other non-current liabilities
Current liabilities
TToottaall lliiaabbiilliittiieess
NNoonn--ccoonnttrroolllliinngg iinntteerreessttss
NNeett aasssseettss
22001199
$$ 3399
––
2266
3344
2222
4477
116688
77
1133
111100
113300
––
$$3388
22001188
$ 65
–
2
38
46
2
153
21
–
147
168
–
22001177
$ 119
6
34
27
38
12
236
23
35
38
96
6
$ (15)
$ 134
51
197
Annual report & Accounts 2019
12. DISPOSAL GROUPS HELD FOR SALE (CONTINUED)
The net assets of disposal groups sold in 2017–2019 related to the following reportable segments:
US$ million
AAsssseettss ccllaassssiiffiieedd aass hheelldd ffoorr ssaallee
Steel
Coal
Other operations
LLiiaabbiilliittiieess ddiirreeccttllyy aassssoocciiaatteedd wwiitthh aasssseettss ccllaassssiiffiieedd aass hheelldd ffoorr ssaallee
Steel
Coal
Other operations
NNoonn--ccoonnttrroolllliinngg iinntteerreessttss
Steel
Cash flows on disposal of subsidiaries and other business units were as follows:
US$ million
Net cash disposed of with subsidiaries
Cash received
Tax and transaction costs paid
NNeett ccaasshh iinnffllooww
The disposal groups sold during 2017–2019 are described below.
Stratcor Inc.
22001199
$$ 116688
115555
––
1133
113300
112244
66
––
––
22001199
$$ ((4477))
9999
((88))
4444
22001188
$ 153
153
–
–
168
168
–
–
–
–
22001188
$ (2)
54
–
$ 52
22001177
$ 236
196
40
–
96
79
17
–
6
6
22001177
$ (12)
489
(65)
$ 412
On 11 October 2019, the Group sold its wholly-owned subsidiary EVRAZ Stratcor Inc. to a third party for cash consideration of 1 US dollar. EVRAZ
Stratcor Inc. is a vanadium producer located in the USA, it was included in the steel segment of the Group’s operations. The Group recognised
a $19 million gain on sale of the subsidiary within 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.
Evraztrans Ukraine
On 15 November 2019, the Group sold its wholly-owned subsidiary Evraztrans Ukraine to a third party for cash consideration of $8 million.
Evraztrans Ukraine is a railway forwarder located in Ukraine, it was included in 2 segments of the Group’s operations – other operations and steel.
The Group recognised a $(36) million loss on sale of the subsidiary, including $(37) 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. At 31 December 2019, the sale
consideration was unsettled.
Yartsevo Rolling Mill
Historically, the Group was one of major creditors of a steel-rolling mill in Yartsevo located in the Smolensk region of Russia. The mill went into
the bankruptcy proceedings and in the 1st half of 2019 the Group impaired the non-current financial asset relating to the mill, recognising a $56 million
loss, which was recorded in the Impairment of non-current financial assets caption of the consolidated statement of operations. At 30 June 2019,
the resulting carrying value of the non-current financial asset was $21 million. In November 2019, the Group acquired property, plant and equipment
and inventory of this rolling mill from the auction undertaken in the course of the bankruptcy proceedings for $22 million with the purpose of
subsequent sale to a third party. The proceeds from the sale were used by the bankruptcy administrator to partially repay the debts of the mill,
the majority of which were the debts to the Group. Upon acquisition the acquired non-current asset was classified as a disposal group held for
sale. Shortly after the acquisition the Group sold the mill for cash consideration of $66 million to a third-party acquirer. The gain on sale before tax
amounting to $44 million was included in the Gain/(loss) on disposal groups classified as held for sale caption of the consolidated statement of
operations. Income tax paid on a resale margin amounted to $8 million.
At the moment of the acquisition the Group did not have any arrangement for the sale of the mill to a new purchaser, therefore, the purchase and sale
transactions were not treated as linked.
198
52
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
12. DISPOSAL GROUPS HELD FOR SALE (CONTINUED)
Palini e Bertoli
On 2 December 2019, the Group sold its wholly-owned subsidiary EVRAZ Palini e Bertoli to a third party for cash consideration of $36 million.
EVRAZ Palini e Bertoli, an Italian rolling mill, was included in the steel segment of the Group’s operations.
The Group recognised a $2 million gain on sale of the subsidiary, including $(5) million of cumulative exchange losses reclassified from other
comprehensive income to the consolidated statement of operations and $(1) of transaction costs. 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
$47 million. At 31 December 2019, $3 million of the sale consideration was unsettled.
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.
Yuzhkoks
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.
Strategic Minerals Corporation
Following the sale agreement signed in 2016, on 6 April 2017, the Group sold Strategic Minerals Corporation (USA), in which it had a 78.76%
ownership interest, to a third party for cash consideration of $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.
53
199
Annual report & Accounts 2019
13. OTHER NON-CURRENT ASSETS
Other non-current assets consisted of the following as of 31 December:
Non-current Financial Assets
US$ million
Derivatives not designated as hedging instruments (Note 25)
Hedging instruments (Note 25)
Financial assets measured at fair value through other comprehensive income
Trade and other receivables
Loans receivable
Receivables from related parties
Restricted deposits
Other
Other Non-current Assets
US$ million
Safety stock inventories
Defined benefit asset (Note 23)
Income tax receivable
Other
22001199
$$ 1177
––
––
1166
11
––
66
––
$$ 4400
22001199
$$ 2299
1122
66
88
$$ 5555
22001188
22001177
$ –
–
–
17
1
1
6
66
$ 91
22001188
$ 24
3
8
9
$ 44
$ –
4
33
23
20
8
6
57
$ 151
22001177
$ 28
–
2
9
$ 39
Other Non-current Financial Assets
In 2018 and 2017, the Group’s other non-current financial assets mainly related to a steel-rolling mill located in the Smolensk region of Russia.
In 2019, these assets were partially impaired and the remaining balance was settled by cash (Note 12).
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 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.
In June 2018, the Group sold its ownership interest in Delong to the major shareholder of the entity for cash consideration of $92 million.
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.
14. INVENTORIES
Inventories consisted of the following as of 31 December:
US$ million
Raw materials and spare parts
Work-in-progress
Finished goods
22001199
$$ 881111
118855
448844
22001188
$ 737
292
445
22001177
$ 548
245
405
$$ 11,,448800
$ 1,474
$ 1,198
As of 31 December 2019, 2018 and 2017, the net realisable value allowance was $39 million, $34 million and $40 million, respectively.
As of 31 December 2019, 2018 and 2017, certain items of inventory with an approximate carrying amount of $512 million, $629 million and
$438 million, respectively, were pledged to banks as collateral against loans provided to the Group (Note 22).
200
54
15. TRADE AND OTHER RECEIVABLES
Trade and other receivables consisted of the following as of 31 December:
US$ million
Trade accounts receivable
Other receivables
Allowance for expected credit losses
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
22001199
$$ 448811
9999
558800
((4466))
$$ 553344
22001188
$ 806
71
877
(42)
$ 835
22001177
$ 722
63
785
(54)
$ 731
Ageing analysis and movement in allowance for expected credit losses are provided in Note 28.
16. RELATED PARTY DISCLOSURES
Related parties of the Group include associates and joint venture partners, key management personnel and other entities that are under the control or
significant influence of the key management personnel, the Group’s ultimate parent or its shareholders. In considering each possible related party
relationship, attention is directed to the substance of the relationship, not merely the legal form.
Amounts owed by/to related parties at 31 December were as follows:
US$ million
Loans
Timir (Note 11)
Dividends receivable
Yuzhny GOK
Sale of investments
Streamcore (Note 11)
Trade balances
Nakhodka Trade Sea Port
Vtorresource-Pererabotka
Yuzhny GOK
Other entities
Less: allowance for expected credit losses
AAmmoouunnttss dduuee ffrroomm
rreellaatteedd ppaarrttiieess
AAmmoouunnttss dduuee ttoo
rreellaatteedd ppaarrttiieess
22001199
22001188
22001177
22001199
22001188
22001177
$$ 99
$ 7
$ –
$$ ––
$ –
$ –
––
––
––
11
––
––
1100
––
4
–
–
–
–
–
11
–
6
–
–
2
4
–
12
–
––
55
77
55
11
11
1199
––
–
–
10
95
15
2
122
–
–
–
6
52
195
3
256
–
$$ 1100
$ 11
$ 12
$$ 1199
$ 122
$ 256
At 31 December 2017, the loan receivable from Timir (Note 11) amounting to $8 million, was classified as a non-current financial asset (Note 13).
In 2017–2019, the Group did not recognise any expense or income in relation to the doubtful debts allowance/expected credit losses of related
parties.
55
201
Annual report & Accounts 2019
16. RELATED PARTY DISCLOSURES (CONTINUED)
Transactions with related parties were as follows for the years ended 31 December:
US$ million
22001199
22001188
22001177
22001199
22001188
22001177
SSaalleess ttoo
rreellaatteedd ppaarrttiieess
PPuurrcchhaasseess ffrroomm
rreellaatteedd ppaarrttiieess
Genalta Recycling Inc.
Nakhodka Trade Sea Port
Vtorresource-Pererabotka
Yuzhny GOK
Other entities
$$ ––
––
66
2288
55
$ –
–
6
32
1
$ –
–
8
37
–
$$ 1100
7722
449988
7777
11
$ 15
73
569
104
4
$ 14
36
452
107
12
$$ 3399
$ 39
$ 45
$$ 665588
$ 765
$ 621
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.
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 and 2017, 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). In 2019, these receivables were settled by cash.
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.
Streamcore is an associate of the Group. In 2019, the Group received from Streamcore an advance payment for the sale of another associate of
the Group, RVK Limited, to Streamcore for $5 million. At the end of the reporting year this transaction has not been completed.
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 2019, 2018 and 2017, the purchases of scrap metal from Vtorresource-Pererabotka amounted to $424 million
(1,640,750 tonnes), $494 million (1,821,380 tonnes) and $422 million (1,601,320 tonnes), respectively. At 31 December 2019, $156 million
payable by the Group for purchases of scrap from Vtorresource-Pererabotka were classified as trade payables to third parties as Vtorresource-
Pererabotka sold its receivables under factoring contracts to several banks with no recourse (Note 26).
Yuzhny GOK, an ore mining and processing plant, is an associate of an entity, which is under common control with EVRAZ plc. The Group sold steel
products to Yuzhny GOK and purchased sinter from the entity. In 2019, 2018 and 2017, the volume of purchases was 755,085 tonnes,
1,344,277 tonnes and 1,639,306 tonnes, respectively. In 2019, 2018 and 2017, the Group recognised dividend income from Yuzhny GOK in
the amount of $3 million, $4 million and $6 million, respectively, within the other non-operating gains/(losses) caption in the consolidated statement of
operations. The dividends declared in 2018 and 2017 were received by the Group in the years following the years of declaration.
The transactions with related parties were based on prevailing market terms.
Compensation to Key Management Personnel
Key management personnel include the following positions within the Group:
directors of the Company,
vice presidents,
senior management of major subsidiaries.
In 2019, 2018 and 2017, key management personnel totalled 30, 32 and 30 people, respectively. Total compensation to key management personnel
were included in general and administrative expenses in the consolidated statement of operations and consisted of the following:
US$ million
Salary
Performance bonuses
Social security taxes
Share-based payments (Note 21)
Termination benefits
22001199
$$ 1144
1122
44
77
11
$$ 3388
22001188
$ 14
13
4
8
–
$ 39
22001177
$ 15
14
3
9
1
$ 42
Other disclosures on directors' remuneration required by Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts & Reports)
regulations 2008 are included in the Directors' Remuneration Report.
202
56
17. OTHER TAXES RECOVERABLE
Taxes recoverable consisted of the following as of 31 December:
US$ million
Input VAT
Other taxes
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
22001199
$$ 7733
110022
$$ 117755
22001188
$ 78
123
$ 201
22001177
$ 140
85
$ 225
Input VAT, representing amounts payable or paid to suppliers, is recoverable from the tax authorities via offset against VAT payable to the tax
authorities on the Group’s revenue or direct cash receipts from the tax authorities. Management periodically reviews the recoverability of the balance of
input value added tax and believes it is fully recoverable within one year.
18. OTHER CURRENT FINANCIAL ASSETS
Other current assets included the following as of 31 December:
US$ million
Other receivables from Lanebrook (Note 16)
Restricted deposits at banks
22001199
$$ ––
44
$$ 44
22001188
$ 32
3
$ 35
19. CASH AND CASH EQUIVALENTS
Cash and cash equivalents, mainly consisting of cash at banks, were denominated in the following currencies as of 31 December:
US$ million
US dollar
Euro
Russian rouble
Other
22001199
$$ 777744
448844
113344
3311
22001188
$ 273
540
215
39
22001177
$ 32
15
$ 47
22001177
$ 1,253
31
163
19
$$ 11,,442233
$ 1,067
$ 1,466
57
203
Annual report & Accounts 2019
20. EQUITY
SShhaarree CCaappiittaall
Number of shares
3311 DDeecceemmbbeerr
22001199
22001188
22001177
Ordinary shares, issued and fully paid
11,,550066,,552277,,229944
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.
TTrreeaassuurryy SShhaarreess
Number of shares
Treasury shares
3311 DDeecceemmbbeerr
22001199
22001188
22001177
5544,,662200,,223333
63,177,187
74,474,663
In 2015, EVRAZ plc repurchased 108,458,508 of its own shares ($336 million).
In 2019, 2018 and 2017, 8,556,954 shares, 11,297,476 shares and 12,541,215 shares, respectively, were transferred to the participants of
Incentive Plans (Note 21). The cost of treasury shares transferred to the participants of Incentive Plans, amounted to $27 million, $35 million and
$39 million in 2019, 2018 and 2017, respectively.
EEaarrnniinnggss ppeerr SShhaarree
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:
22001199
22001188
22001177
Weighted average number of ordinary shares outstanding during the period
Effect of dilution: share options
WWeeiigghhtteedd aavveerraaggee nnuummbbeerr ooff oorrddiinnaarryy sshhaarreess aaddjjuusstteedd ffoorr tthhee eeffffeecctt ooff ddiilluuttiioonn
11,,444488,,778899,,004488
1111,,999966,,331100
11,,446600,,778855,,335588
1,439,326,349
19,462,750
1,458,789,099
1,427,585,897
26,974,433
1,454,560,330
$$ 332266
$$ 00..2233
$$ 00..2222
$ 2,406
$ 1.67
$ 1.65
$ 699
$ 0.49
$ 0.48
Profit for the year attributable to equity holders of the parent, US$ million
Basic earnings per share
Diluted earnings per share
DDiivviiddeennddss
Dividends declared by EVRAZ plc during 2017–2019 were as follows:
DDaattee ooff ddeeccllaarraattiioonn
TToo hhoollddeerrss
rreeggiisstteerreedd aatt
DDiivviiddeennddss ddeeccllaarreedd,,
UUSS$$ mmiilllliioonn
UUSS$$ ppeerr sshhaarree
09/08/2017
28/02/2018
24/05/2018
08/08/2018
15/11/2018
27/02/2019
07/08/2019
18/08/2017
09/03/2018
08/06/2018
17/08/2018
23/11/2018
08/03/2019
16/08/2019
430
429.6
187.6
577.3
361
577.3
508.2
0.30
0.30
0.13
0.40
0.25
0.40
0.35
204
58
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
21. SHARE-BASED PAYMENTS
In 2017-2019, the Group had several Incentive Plans under which certain senior executives and employees (“participants”) could be awarded 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, 26 September 2018 and 25 September 2019.
The vesting under Incentive Plans adopted before 2017 does not depend on the achievement of any performance conditions. The new Plans adopted
in 2017, 2018 and 2019 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 (not lower than the 7th place in terms of EBITDA dynamics), 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, 2018 and 2019 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.
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 2019 are presented below:
Number of Shares of EVRAZ plc
TToottaall
IInncceennttiivvee PPllaann 22001199
IInncceennttiivvee PPllaann 22001188
IInncceennttiivvee PPllaann 22001177
IInncceennttiivvee PPllaann 22001166
March 2020
March 2021
March 2022
March 2023
5,223,903
3,159,678
1,614,553
773,640
515,761
515,761
773,641
773,640
560,534
840,809
840,912
–
1,803,121
1,803,108
–
–
2,344,487
–
–
–
10,771,774
2,578,803
2,242,255
3,606,229
2,344,487
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 awarded up to the date of termination.
There have been no modifications or cancellations to the plans during 2017–2019.
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 2019, 2018 and 2017 was $4.25, $5.27 and $2.54 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 2017-2019:
Dividend yield (%)
Expected life (years)
Market prices of the shares of
EVRAZ plc at the grant dates
IInncceennttiivvee PPllaann
22001199
IInncceennttiivvee PPllaann
22001188
IInncceennttiivvee PPllaann
22001177
IInncceennttiivvee PPllaann
22001166
IInncceennttiivvee PPllaann
22001155
IInncceennttiivvee PPllaann
22001144
IInncceennttiivvee PPllaann
22001133
2.3 – 3.0
0.5 – 3.5
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
$5.75
$7.36
$3.86
$1.73
$1.36
$1.68
$2.13
The following table illustrates the number of, and movements in, share-based awards during the years.
Number of shares
OOuuttssttaannddiinngg aatt 11 JJaannuuaarryy
Granted during the year
Forfeited during the year
Vested and exercised during the year
OOuuttssttaannddiinngg aatt 3311 DDeecceemmbbeerr
22001199
22001188
22001177
1177,,775555,,997777
22,,557788,,880033
((11,,000066,,005522))
((88,,555566,,995544))
1100,,777711,,777744
27,912,610
3,143,865
(2,003,022)
(11,297,476)
34,581,349
7,361,166
(1,488,690)
(12,541,215)
17,755,977
27,912,610
The weighted average share price at the dates of exercise was $7.21, $6.82 and $2.62 in 2019, 2018 and 2017, respectively. The weighted average
remaining contractual life of the share-based awards outstanding as of 31 December 2019, 2018 and 2017 was 1.1, 1 and 1.2 years, respectively.
In the years ended 31 December 2019, 2018 and 2017, the expense arising from the equity-settled share-based compensations was as follows:
US$ million
Expense arising from equity-settled share-based payment transactions
22001199
$$ 1133
22001188
$ 15
22001177
$ 17
205
59
Annual report & Accounts 2019
22. LOANS AND BORROWINGS
Short-term and long-term loans and borrowings were as follows as of 31 December:
US$ million
Bank loans
US dollar-denominated
6.50% notes due 2020
8.25% notes due 2021
6.75% notes due 2022
5.375% notes due 2023
5.25% notes due 2024
Rouble-denominated
12.95% rouble bonds due 2019
12.60% rouble bonds due 2021
7.95% rouble bonds due 2024
Unamortised debt issue costs
Interest payable
22001199
NNoonn--
ccuurrrreenntt
CCuurrrreenntt
22001188
NNoonn--
ccuurrrreenntt
CCuurrrreenntt
22001177
NNoonn--
ccuurrrreenntt
CCuurrrreenntt
$$ 11,,440044
$$ 11,,335522
$$ 5522
$ 1,370
$ 1,290
$ 80
$ 2,113
$ 2,051
$ 62
––
775500
550000
775500
770000
––
224422
332233
((1188))
8888
––
775500
550000
775500
770000
––
224422
332233
((1188))
––
––
––
––
––
––
––
––
––
––
8888
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
$$ 44,,773399
$$ 44,,559999
$$ 114400
$ 4,563
$ 4,186
$ 377
$ 5,391
$ 5,243
$ 148
The average effective annual interest rates were as follows at 31 December:
Long-term borrowings
Short-term borrowings
US dollar
Russian rouble
Euro
Canadian dollar
22001199
55..7744%%
99..9944%%
22..3399%%
44..0088%%
22001188
6.13%
12.84%
3.47%
3.87%
22001177
6.00%
12.78%
3.77%
3.29%
22001199
33..3311%%
77..8833%%
00..7700%%
––
22001188
–
–
0.74%
–
The liabilities are denominated in the following currencies at 31 December:
US$ million
US dollar
Russian rouble
Canadian dollar
Euro
Other
Unamortised debt issue costs
22001199
$$ 44,,002277
558866
112200
2244
––
((1188))
22001188
$ 3,758
440
144
238
3
(20)
22001177
1.85%
–
–
–
22001177
$ 4,604
530
43
242
–
(28)
The movement in loans and borrowings were as follows:
US$ million
1 January
CCaasshh cchhaannggeess::
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
NNoonn--ccaasshh cchhaannggeess::
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
206
60
$$ 44,,773399
$ 4,563
$ 5,391
22001199
$$ 44,,556633
22,,880055
((33,,003355))
2222
––
––
229911
––
2277
––
6666
$$ 44,,773399
22001188
$ 5,391
1,412
(2,459)
–
–
6
322
1
1
–
(111)
$ 4,563
22001177
$ 5,894
2,441
(3,344)
(139)
(1)
8
394
6
78
(6)
60
$ 5,391
22. LOANS AND BORROWINGS (CONTINUED)
Pledged Assets
The Group’s pledged assets at carrying value included the following at 31 December:
US$ million
Property, plant and equipment
Inventory
Issuer Substitution
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
22001199
$$ 7722
551122
22001188
$ 67
629
22001177
$ 66
438
On 13 March 2019, all outstanding US dollar-denominated notes with the total nominal value of $2,700 million were transferred from Evraz Group S.A.
to EVRAZ plc.
Issue of Notes and Bonds
In April 2019, EVRAZ plc issued 5.25% US dollar-denominated notes due 2024 in the amount of $700 million. The proceeds from the issue of
the notes were used to finance the purchase of 6.50% notes due 2020 at the tender offer in April 2019 and make whole call in May 2019.
In August 2019, EvrazHolding Finance, the Group’s subsidiary, issued 7.95% rouble-denominated bonds due 2024 in the amount of 20,000 million
roubles ($317 million at the exchange rate at the date of the transaction).
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.
Repurchase of Notes and Bonds
In April and May 2019, the Group fully settled its 6.50% notes due 2020 ($700 million). The premium over the carrying value on the repurchase and
other costs relating to the transaction in the total amount of $26 million were charged to the Gain/(loss) on financial assets and liabilities caption of
the consolidated statement of operations.
In June 2019, the Group fully settled its 12.95% rouble bonds due 2019, there was no gain or loss on this transaction. Upon repayment of these
bonds, the related swap contracts matured and the Group recycled $33 million of the accumulated unrecognised gains on cash flow hedges from other
comprehensive income to the statement of operations.
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.
Compliance with Financial Covenants
Some of the loan agreements and terms and conditions of notes provide for certain covenants in respect of EVRAZ plc and its subsidiaries.
The covenants impose restrictions in respect of certain transactions and financial ratios, including restrictions in respect of indebtedness and
profitability. EBITDA used for covenants compliance calculations is determined based on the definitions of the respective loan agreements and may
differ from that used by management for evaluation of performance.
Several bank credit facilities totalling $1,191 million contain certain financial maintenance covenants. These covenants require EVRAZ plc to maintain
two key ratios, consolidated net indebtedness to 12-month consolidated EBITDA and 12-month consolidated EBITDA to adjusted 12-month
consolidated interest expense, within certain limits. 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 2021, 2022, 2023 and 2024, totalling $2,700 million issued by the Group 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 plc and its subsidiaries are not allowed to increase the consolidated indebtedness,
but are allowed to refinance existing indebtedness subject to certain conditions. As of 31 December 2019, the Group’s gross leverage ratio was
below 3.5.
61
207
Annual report & Accounts 2019
22. LOANS AND BORROWINGS (CONTINUED)
Compliance with Financial Covenants (continued)
Several bank credit facilities totalling $171 million provide for certain covenants restricting the incurrence of indebtedness by EVRAZ North America plc
and its subsidiaries conditional on a fixed charge ratio. Once the threshold for the ratio is exceeded, it triggers restrictions on incurrence of additional
indebtedness by EVRAZ North America plc and its subsidiaries.
The incurrence covenants are in line with the Group’s financial strategy and, therefore, do not constitute any excessive restriction on its operations.
During 2019 the Group was in compliance with all financial and non-financial covenants.
Unamortised Debt Issue Costs
Unamortised debt issue costs represent agent commission and transaction costs paid by the Group in relation to the arrangement and reset of loans
and notes.
Unutilised Borrowing Facilities
The Group had the following unutilised borrowing facilities as of 31 December:
US$ million
Committed
Uncommitted
Total unutilised borrowing facilities
23. EMPLOYEE BENEFITS
Russian Plans
22001199
444477
11,,116655
$$ 11,,661122
22001188
$ 377
1,434
$ 1,811
22001177
$ 131
1,251
$ 1,382
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 accounted for these amendments, when measuring
the post-employment benefit obligations as of 31 December 2018 and recorded the resulting decrease in the obligations in the amount of $2 million
as a part of past service costs.
Ukrainian Plans
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.
208
62
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
23. EMPLOYEE BENEFITS (CONTINUED)
US and Canadian Plans
The Group’s subsidiaries in the USA and Canada have defined benefit pension plans that cover specified eligible employees. Benefits are based on
pensionable years of service, pensionable compensation, or a combination of both depending on the individual plan. The subsidiaries also have U.S.
and Canadian supplemental retirement plans (“SERP’s”), which are non-qualified plans designed to maintain benefits for eligible employees at the plan
formula level. The subsidiaries provide other unfunded post-retirement medical and life insurance plans (“OPEB’s”) for certain of their eligible
employees upon retirement after completion of a specified number of years of service. For the pension plans, SERP’s and OPEB’s, the subsidiaries use
a measurement date for plan assets and obligations of 31 December.
Certain employees that were hired after specified dates are no longer eligible to participate in the defined benefit pension plans. Those employees are
instead enrolled in defined contribution plans and receive a contribution funded by the Group’s subsidiaries equal to 3–7% of annual wages, including
applicable bonuses. The defined contribution plans are funded 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
Defined benefit pension plans and defined contribution plans are maintained by the subsidiaries located in Europe.
DDeeffiinneedd CCoonnttrriibbuuttiioonn PPllaannss
The Group’s expenses under defined contribution plans were as follows:
US$ million
Expense under defined contribution plans
DDeeffiinneedd BBeenneeffiitt PPllaannss
22001199
$$ 227722
22001188
$ 245
22001177
$ 246
The Russian, Ukrainian and other defined benefit plans were mostly unfunded and the US and Canadian plans were partially funded.
Except as disclosed above, in 2019 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.
63
209
Annual report & Accounts 2019
23. EMPLOYEE BENEFITS (CONTINUED)
The components of net benefit expense recognised in the consolidated statement of operations for the years ended 31 December 2019, 2018 and
2017 and amounts recognised in the consolidated statement of financial position as of 31 December 2019, 2018 and 2017 for the defined benefit
plans were as follows:
NNeett bbeenneeffiitt eexxppeennssee ((rreeccooggnniisseedd iinn tthhee ssttaatteemmeenntt ooff ooppeerraattiioonnss wwiitthhiinn ccoosstt ooff ssaalleess aanndd sseelllliinngg,, ggeenneerraall aanndd aaddmmiinniissttrraattiivvee eexxppeennsseess aanndd iinntteerreesstt
eexxppeennssee))
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001199
US$ million
Current service cost
Net interest expense
Net actuarial gains/(losses) on other long-term employee
benefits obligation
Past service cost
Other
Net benefit expense
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001188
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
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001177
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
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
$$ ((22))
((88))
((44))
((11))
––
$$ ((1155))
$$––
––
––
––
––
$$––
UUSS
&& CCaannaaddiiaann
ppllaannss
OOtthheerr
ppllaannss
$$ ((1177))
$$((11))
((55))
––
––
((33))
––
––
––
––
TToottaall
$$ ((2200))
((1133))
((44))
((11))
((33))
$$ ((2255))
$$ ((11))
$$ ((4411))
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
UUSS
&& CCaannaaddiiaann
ppllaannss
$ (2)
(8)
(1)
–
1
–
$ (10)
$–
–
–
–
–
–
$–
$ (19)
(5)
–
(1)
–
(3)
$ (28)
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
UUSS
&& CCaannaaddiiaann
ppllaannss
$ (2)
(9)
2
(3)
–
–
$ (1)
(4)
–
3
–
–
$ (18)
(6)
–
(3)
2
(3)
$ (12)
$ (2)
$ (28)
OOtthheerr
ppllaannss
$–
–
–
–
–
–
$–
OOtthheerr
ppllaannss
$–
–
–
–
–
–
$–
TToottaall
$ (21)
(13)
(1)
(1)
1
(3)
$ (38)
TToottaall
$ (21)
(19)
2
(3)
2
(3)
$ (42)
210
64
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
23. EMPLOYEE BENEFITS (CONTINUED)
GGaaiinnss//((lloosssseess)) rreeccooggnniisseedd iinn ootthheerr ccoommpprreehheennssiivvee iinnccoommee
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001199
US$ million
Return on plan assets, excluding amounts included in net
interest expense
Net actuarial gains/(losses) on post-employment benefit
obligation
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001188
US$ million
Return on plan assets, excluding amounts included in net
interest expense
Net actuarial gains/(losses) on post-employment benefit
obligation
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001177
US$ million
Return on plan assets, excluding amounts included in net
interest expense
Net actuarial gains/(losses) on post-employment benefit
obligation
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
$$ ––
((1155))
$$ ((1155))
$$ ––
––
$$ ––
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
$–
2
$ 2
$–
–
$–
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
$ –
6
$ 6
$ –
(4)
$ (4)
UUSS
&& CCaannaaddiiaann
ppllaannss
$$ 8844
((8811))
$$ 33
UUSS
&& CCaannaaddiiaann
ppllaannss
$ (30)
56
$ 26
UUSS
&& CCaannaaddiiaann
ppllaannss
$ 48
(23)
$ 25
OOtthheerr
ppllaannss
$$ ––
((33))
$$ ((33))
OOtthheerr
ppllaannss
$–
–
$–
OOtthheerr
ppllaannss
$ –
–
$ –
TToottaall
$$ 8844
((9999))
$$ ((1155))
TToottaall
$ (30)
58
$ 28
TToottaall
$ 48
(21)
$ 27
In addition to the amounts presented in the table above, actuarial gains/(losses) recognised in other comprehensive income include $(1) million
relating to a subsidiary classified as a disposal group held for sale.
Actual return on plan assets was as follows:
US$ million
Actual return on plan assets
including:
US & Canadian plans
Russian plans
NNeett ddeeffiinneedd bbeenneeffiitt lliiaabbiilliittyy
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001199
US$ million
Benefit obligation
Plan assets
Net defined benefit asset
Net defined benefit liability
22001199
$$110077
110077
––
22001188
$ (10)
(10)
–
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
$$ 112233
––
––
$$ 112233
$$ ––
––
––
$$ ––
UUSS
&& CCaannaaddiiaann
ppllaannss
$$ 778855
((665533))
1122
$$ 114444
OOtthheerr
ppllaannss
$$ 1111
((77))
––
$$ 44
65
22001177
$ 66
66
–
TToottaall
$$ 991199
((666600))
1122
$$ 227711
211
Annual report & Accounts 2019
23. EMPLOYEE BENEFITS (CONTINUED)
NNeett ddeeffiinneedd bbeenneeffiitt lliiaabbiilliittyy ((ccoonnttiinnuueedd))
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001188
US$ million
Benefit obligation
Plan assets
Net defined benefit asset
Net defined benefit liability
YYeeaarr eennddeedd 3311 DDeecceemmbbeerr 22001177
US$ million
Benefit obligation
Plan assets
Net defined benefit liability
MMoovveemmeennttss iinn nneett ddeeffiinneedd bbeenneeffiitt lliiaabbiilliittyy//((aasssseett))
US$ million
AAtt 3311 DDeecceemmbbeerr 22001166
Net benefit expense recognised in the statement of
operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001177
Net benefit expense recognised in the statement of
operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001188
Net benefit expense recognised in the statement of
operations
Contributions by employer
(Gains)/losses recognised in other comprehensive income
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001199
OOtthheerr
ppllaannss
$ –
–
–
$ –
OOtthheerr
ppllaannss
$ –
–
$ –
OOtthheerr
ppllaannss
$$ 22
–
–
–
(2)
–
$$ ––
–
–
–
–
–
TToottaall
$ 778
(555)
3
$ 226
TToottaall
$ 895
(611)
$ 284
TToottaall
$$ 331177
42
(37)
(27)
(18)
7
$$ 228844
38
(32)
(28)
(20)
(19)
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
UUSS
&& CCaannaaddiiaann
ppllaannss
$ 687
(555)
3
$ 135
UUSS
&& CCaannaaddiiaann
ppllaannss
$ 765
(611)
$ 154
$ –
–
–
$ –
UUkkrraaiinniiaann
ppllaannss
$ 19
–
$ 19
UUkkrraaiinniiaann
ppllaannss
UUSS
&& CCaannaaddiiaann
ppllaannss
$$ 3311
$$ 117766
28
(27)
(25)
–
2
$$ 115544
28
(24)
(26)
–
–
2
(2)
4
(16)
–
$$ 1199
–
–
–
(20)
1
$$ ––
–
–
–
–
–
$ 91
–
–
$ 91
RRuussssiiaann
ppllaannss
$ 111
–
$ 111
RRuussssiiaann
ppllaannss
$$ 110088
12
(8)
(6)
–
5
$$ 111111
10
(8)
(2)
–
(20)
$$ 9911
15
(10)
15
–
12
$$ 113322
$$ ––
$$ 222233
25
(15)
(3)
(7)
–
1
–
3
–
–
41
(25)
15
(7)
12
$$ 112233
$$ ––
$$ 113322
$$ 44
$$ 225599
212
66
23. EMPLOYEE BENEFITS (CONTINUED)
MMoovveemmeennttss iinn bbeenneeffiitt oobblliiggaattiioonn
US$ million
AAtt 3311 DDeecceemmbbeerr 22001166
Interest cost on benefit obligation
Current service cost
Past service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation related to
changes in demographic assumptions
Actuarial (gains)/losses on benefit obligation related to
changes in financial assumptions
Actuarial (gains)/losses on benefit obligation related to
experience adjustments
Curtailment/settlement gain
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001177
Interest cost on benefit obligation
Current service cost
Past service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation related to
changes in demographic assumptions
Actuarial (gains)/losses on benefit obligation related to
changes in financial assumptions
Actuarial (gains)/losses on benefit obligation related to
experience adjustments
Curtailment/settlement gain
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001188
Interest cost on benefit obligation
Current service cost
Past service cost
Benefits paid
Actuarial (gains)/losses on benefit obligation related to
changes in demographic assumptions
Actuarial (gains)/losses on benefit obligation related to
changes in financial assumptions
Actuarial (gains)/losses on benefit obligation related to
experience adjustments
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Other
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001199
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
$$ 110088
$$ 3311
UUSS
&& CCaannaaddiiaann
ppllaannss
$$ 771111
OOtthheerr
ppllaannss
$$ 22
9
2
3
(8)
–
(11)
3
–
–
5
$$ 111111
8
2
–
(8)
–
(6)
5
(1)
–
(20)
$$ 9911
8
2
1
(10)
3
15
1
–
–
12
4
1
(3)
(2)
–
4
–
–
(16)
–
$$ 1199
–
–
–
–
–
–
–
–
(20)
1
$$ ––
–
–
–
–
–
–
–
–
–
–
24
18
3
(37)
(19)
48
(6)
(2)
–
25
$$ 776655
25
19
1
(36)
(7)
(49)
–
–
–
(31)
$$ 668877
26
17
–
(36)
(2)
83
–
(8)
–
18
TToottaall
$$ 885522
37
21
3
(47)
(19)
41
(3)
(2)
(18)
30
$$ 889955
33
21
1
(44)
(7)
(55)
5
(1)
(20)
(50)
–
–
–
–
–
–
–
–
(2)
–
$$ ––
–
–
–
–
–
–
–
–
–
–
$$ ––
$$ 777788
–
1
–
(1)
–
3
–
–
8
–
34
20
1
(47)
1
101
1
(8)
8
30
$$ 112233
$$ ––
$$ 778855
$$ 1111
$$ 991199
The weighted average duration of the defined benefit obligation was as follows:
Years
Russian plans
Ukrainian plans
US & Canadian plans
Other plans
22001199
1100..8855
––
1144..3344
2200..33
22001188
9.82
8.00
13.48
7.46
22001177
10.11
8.00
13.09
7.46
213
67
Annual report & Accounts 2019
23. EMPLOYEE BENEFITS (CONTINUED)
CChhaannggeess iinn tthhee ffaaiirr vvaalluuee ooff ppllaann aasssseettss
US$ million
AAtt 3311 DDeecceemmbbeerr 22001166
Interest income on plan assets
Return on plan assets (excluding amounts included in net
interest expense)
Contributions of employer
Benefits paid
Other
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001177
Interest income on plan assets
Return on plan assets (excluding amounts included in net
interest expense)
Contributions of employer
Benefits paid
Other
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001188
Interest income on plan assets
Return on plan assets (excluding amounts included in net
interest expense)
Contributions of employer
Benefits paid
Reclassification to liabilities directly associated with disposal
groups classified as held for sale
Other
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001199
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
UUSS
&& CCaannaaddiiaann
ppllaannss
$$ 553355
18
48
27
(37)
(3)
23
OOtthheerr
ppllaannss
$$ ––
–
–
–
–
–
–
TToottaall
$$ 553355
18
48
37
(47)
(3)
23
$$ 661111
$$ ––
$$ 661111
20
(30)
24
(36)
(3)
(31)
–
–
–
–
–
–
20
(30)
32
(44)
(3)
(31)
$$ ––
–
–
2
(2)
–
–
$$ ––
–
–
–
–
–
–
$$ ––
$$ 555555
$$ ––
$$ 555555
–
–
–
–
–
–
–
21
84
15
(36)
(1)
(3)
18
–
–
–
(1)
–
8
–
21
84
25
(47)
(1)
5
18
$$ ––
$$ 665533
$$ 77
$$ 666600
$$ ––
–
–
8
(8)
–
–
$$ ––
–
–
8
(8)
–
–
$$ ––
–
–
10
(10)
–
–
–
$$--
The amount of contributions expected to be paid to the defined benefit plans during 2020 approximates $42 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
Cash
Other
22001199
22001188
22001177
QQuuootteedd
UUnnqquuootteedd
QQuuootteedd
UUnnqquuootteedd
QQuuootteedd
UUnnqquuootteedd
4488%%
1144%%
33%%
––
6655%%
3344%%
––
––
11%%
3355%%
51%
12%
2%
–
65%
35%
–
–
–
35%
47%
12%
2%
–
61%
39%
–
–
–
39%
214
68
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
23. EMPLOYEE BENEFITS (CONTINUED)
The principal assumptions used in determining pension obligations for the Group’s plans are shown below:
22001199
UUSS &&
CCaannaaddiiaann
ppllaannss
33..33--33..44%%
––
33%%
8866
8888--8899
55--66..88%%
RRuussssiiaann
ppllaannss
77%%
55%%
55%%
7700
8800
––
OOtthheerr
ppllaannss
00..22%%
––
11%%
8888
9900
––
22001188
UUSS &&
RRuussssiiaann
CCaannaaddiiaann
ppllaannss
8.6%
5%-9%
5%-9%
69
79
–
ppllaannss
3.3-4.3%
–
3%
86
88-89
5-7%
OOtthheerr
ppllaannss
3%
3%
–
81
87
–
RRuussssiiaann
PPllaannss
7.6%
5%
5%
69
79
–
22001177
UUkkrraaiinniiaann
ppllaannss
UUSS &&
CCaannaaddiiaann
ppllaannss
OOtthheerr
ppllaannss
11.6%
3.6-4.0%
6%
6%
65
75
–
–
3%
85-87
88-89
6.7%
3%
3%
–
81
87
–
Discount rate
Future benefits increases
Future salary increase
Average life expectation,
male, years
Average life expectation,
female, years
Healthcare costs increase
rate
The following table demonstrates the sensitivity analysis of reasonable changes in the significant assumptions used for the measurement of the
defined benefit obligations, with all other variables held constant.
IImmppaacctt oonn tthhee ddeeffiinneedd bbeenneeffiitt oobblliiggaattiioonn
aatt 3311 DDeecceemmbbeerr 22001199,,
IImmppaacctt oonn tthhee ddeeffiinneedd bbeenneeffiitt oobblliiggaattiioonn
aatt 3311 DDeecceemmbbeerr 22001188,,
RReeaassoonnaabbllee
cchhaannggee iinn
aassssuummppttiioonn
RRuussssiiaann
ppllaannss
UUSS$$ mmiilllliioonn
UUSS &&
CCaannaaddiiaann
ppllaannss
UUSS$$ mmiilllliioonn
UUSS &&
CCaannaaddiiaann
ppllaannss
OOtthheerr
ppllaannss
RRuussssiiaann
ppllaannss
IImmppaacctt oonn tthhee ddeeffiinneedd bbeenneeffiitt oobblliiggaattiioonn
aatt 3311 DDeecceemmbbeerr 22001177,,
UUSS$$ mmiilllliioonn
OOtthheerr
ppllaannss
RRuussssiiaann
ppllaannss
UUkkrraaiinniiaann
ppllaannss
UUSS &&
CCaannaaddiiaann
ppllaannss
OOtthheerr
ppllaannss
Discount rate
Future benefits increases
Future salary increase
Average life expectation,
male, years
Average life expectation,
female, years
Healthcare costs
increase rate
10%
(10%)
10%
(10%)
10%
(10%)
1
(1)
1
(1)
10%
(10%)
$$ ((88))
$$ ((3344))
$$ ((11))
$ (7)
$ (38)
$ –
$ (7)
$ (2)
$ (37)
$ –
99
66
((99))
11
((11))
11
((11))
11
((11))
––
––
3366
––
––
11
((11))
1122
((1122))
77
((77))
––
––
11
––
––
––
––
––
––
––
––
––
––
8
5
(4)
1
(1)
–
(2)
–
(2)
–
–
40
–
–
1
(1)
11
(11)
6
(6)
1
(1)
–
–
–
–
–
–
–
–
–
–
–
8
5
(4)
–
–
1
(1)
1
(1)
–
–
2
–
–
1
(1)
–
–
–
–
–
–
40
–
–
1
(1)
12
(12)
6
(6)
1
(1)
69
–
–
–
–
–
–
–
–
–
–
–
215
Annual report & Accounts 2019
24. PROVISIONS
At 31 December the provisions were as follows:
US$ million
22001199
22001188
22001177
NNoonn--ccuurrrreenntt
CCuurrrreenntt
NNoonn--ccuurrrreenntt
CCuurrrreenntt
NNoonn--ccuurrrreenntt
CCuurrrreenntt
Site restoration and
decommissioning costs
Other provisions
$$ 332211
––
$$ 332211
$$ 2211
1122
$$ 3333
$ 221
1
$ 222
$ 23
12
$ 35
$ 260
9
$ 269
In the years ended 31 December 2019, 2018 and 2017, the movement in provisions was as follows:
US$ million
AAtt 3311 DDeecceemmbbeerr 22001166
Additional provisions
Increase from passage of time
Effect of change in the discount rate
Effect of changes in estimated costs and timing
Utilised in the year
Unused amounts reversed
Reclassification to liabilities directly associated with disposal groups classified
as held for sale
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001177
Additional provisions
Increase from passage of time
Effect of change in the discount rate
Effect of changes in estimated costs and timing
Utilised in the year
Reclassification to liabilities directly associated with disposal groups classified
as held for sale
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001188
Additional provisions
Increase from passage of time
Effect of change in the discount rate
Effect of changes in estimated costs and timing
Utilised in the year
Unused amounts reversed
Reclassification to liabilities directly associated with disposal groups classified
as held for sale
Translation difference
AAtt 3311 DDeecceemmbbeerr 22001199
Site Restoration Costs
SSiittee rreessttoorraattiioonn aanndd
ddeeccoommmmiissssiioonniinngg ccoossttss
OOtthheerr pprroovviissiioonnss
$$ 222244
11
16
33
15
(11)
(1)
(9)
11
$$ 228899
4
16
(38)
29
(13)
(1)
(42)
$$ 224444
31
18
73
(20)
(21)
–
(9)
26
$$ 334422
$$ 77
14
–
–
–
(5)
(4)
–
–
$$ 1122
14
–
–
–
(12)
–
(1)
$$ 1133
21
–
–
–
(10)
(4)
(8)
–
$$ 1122
$ 29
3
$ 32
TToottaall
$$ 223311
25
16
33
15
(16)
(5)
(9)
11
$$ 330011
18
16
(38)
29
(25)
(1)
(43)
$$ 225577
52
18
73
(20)
(31)
(4)
(17)
26
$$ 335544
Under the legislation, mining companies and steel mills have obligations to restore mining sites and contaminated land. The majority of costs are
expected to be paid after 2061.
At 31 December the respective liabilities were measured based on estimates of restoration costs, which are expected to be incurred in the future
discounted at the following annual rates:
Russia
Ukraine
USA
Others
216
22001199
77%%
nn//aa
22%%
nn//aa
22001188
9%
13.2%
3.0%
4.7%
22001177
8%
13.2%
2.2%
5%
70
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
25. LEASE AND OTHER LONG-TERM LIABILITIES
LLeeaassee LLiiaabbiilliittiieess
The Group has a number of lease contracts, under which it leases railroad cars, coating equipment, warehouses, offices and other machinery and
equipment (Note 9). Before the adoption of IFRS 16 (Note 2) the Group classified its leases (as lessee) at the inception date as either a finance lease
within the Other long-term liabilities caption or an operating lease.
US$ million
1 January 2019
Recognition of liabilities under new contracts
Sale of subsidiaries
Interest accrued
Payment of principal
Payment of interest
Reclassification into short-term portion
Exchange difference
31 December 2019
TToottaall
$$ 112244
1155
((22))
88
((3355))
((22))
––
99
$$ 111177
NNoonn--ccuurrrreenntt lleeaassee
lliiaabbiilliittiieess
CCuurrrreenntt ppoorrttiioonn ooff lleeaassee
lliiaabbiilliittiieess
$ 90
14
–
6
–
–
(33)
6
$ 83
$ 34
1
(2)
2
(35)
(2)
33
3
$ 34
Expense relating to variable lease payments not included in the measurement of opening lease liabilities amounted to $7 million. Expense relating to
leases, which were not recognised as lease liabilities (leases of low-value assets and short-term leases), amounted to $12 million.
The maturity of contractual undiscounted and discounted cash flows under lease payments was as follows at 31 December 2019:
US$ million
Not later than 1 year from the reporting date
Later than 1 year and not later than 2 years
Later than 2 years and not later than 5 years
Later than 5 years and not later than 10 years
Later than 10 years
TToottaall lleeaassee ppaayymmeennttss
Less: amounts representing finance charges
3311 DDeecceemmbbeerr 22001199
OOtthheerr LLoonngg--TTeerrmm LLiiaabbiilliittiieess
Other liabilities consisted of the following as of 31 December:
US$ million
FFiinnaanncciiaall lliiaabbiilliittiieess
Finance lease liabilities
Derivatives not designated as hedging instruments
Hedging instruments
Long-term trade and other payables
Long-term accounts payable to related parties
Less: current portion (Note 26)
NNoonn--ffiinnaanncciiaall lliiaabbiilliittiieess
Employee income participation plans and compensations
Tax liabilities
Other non-financial liabilities
Less: current portion (Note 26)
LLeeaassee ppaayymmeennttss
PPrreesseenntt vvaalluuee
ooff lleeaassee ppaayymmeennttss
$ 35
38
40
14
8
113355
(18)
$$ 111177
$ 34
34
34
10
5
111177
–
$$ 111177
22001199
22001188
22001177
$$ ––
66
––
4444
––
5500
((2244))
2266
––
44
1133
1177
((33))
1144
6
5
46
30
2
89
(68)
21
6
8
6
20
(3)
17
$$ 4400
$ 38
71
8
–
3
45
1
57
(18)
39
5
1
11
17
(2)
15
$ 54
217
Annual report & Accounts 2019
25. LEASE AND OTHER LONG-TERM LIABILITIES (CONTINUED)
Hedging Instruments
In July 2015, the Group issued bonds in the total amount of 15,000 million Russian roubles ($216 million at 31 December 2018), which bore interest
of 12.95% per annum and had a put date in 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
Year
of issue
2015
Bonds principal,
millions
of roubles
15,000
Hedged amount,
millions
Swap amount,
Interest rates
of roubles
US$ million
on the swap amount
13,310
239
5.90% - 6.55%
The Group accounted for these swap contracts as cash flow hedges. In 2017, one of these swap contracts with the notional amount of $26 million did
not meet the criteria for efficiency and ceased to be classified as hedging instruments. In 2019, 2018 and 2017, the change in fair value of these
derivatives amounted to $46 million, $(44) million and $20 million, respectively. The realised gain/(loss) on the swap transactions amounting to
$(23) million, $11 million and $14 million, respectively, was related to the interest portion of the change in fair value of the swap.
Under IFRS the lesser of the cumulative gain or loss on the hedging instrument from inception of the hedge and the cumulative change in present value
of the expected future cash flows on the hedged item from inception of the hedge is recognised in other comprehensive income and the remaining loss
on the hedging instrument is recorded through the statement of operations. In 2019, 2018 and 2017, the Group recognised a gain/(loss) in other
comprehensive income amounting to $27 million, $(3) million and $9 million, 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 2019, 2018 and 2017, $19 million,
$(41) million and $11 million, respectively, were recorded in the Foreign exchange gains/(losses) caption in the consolidated statement of operations.
In June 2019, upon repayment of the 12.95% rouble bonds, the related swap contracts matured and the Group recycled $33 million of
the accumulated unrecognised gains on cash flow hedges from other comprehensive income to the statement of operations.
Derivatives Not Designated as Hedging Instruments
In 2017-2019 derivatives not designated as hedging instruments comprised of the swap contracts, which either were not designated as cash flow or
fair value hedges or ceased to be effective, and forward contracts.
The aggregate amounts under swap contracts translated at the year end exchange rates are summarised in the table below.
US$ million
Bonds principal
Hedged amount
Swap amount
22001199
$$ 332233
332233
331177
22001188
$ 24
24
26
22001177
$ 28
28
26
To manage the currency exposure on the rouble-denominated bonds, the Group partially economically hedged these transactions: in 2019, the Group
concluded a currency and interest rate swap contract under which it agreed to deliver US dollar-denominated interest payments at a 3.75% rate 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 2019, are summarised in the table below.
7.95 per cent bonds due 2024
YYeeaarr
ooff iissssuuee
2019
BBoonnddss pprriinncciippaall,,
mmiilllliioonnss ooff rroouubblleess
HHeeddggeedd aammoouunntt,,
mmiilllliioonnss ooff rroouubblleess
SSwwaapp aammoouunntt,,
UUSS$$ mmiilllliioonn
IInntteerreesstt rraatteess
oonn tthhee sswwaapp aammoouunntt
20,000
20,000
317
3.75%
In addition, 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.
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 2019, 2018 and 2017, a change in fair value of the derivatives of $20 million, $(6) million and $2 million, respectively, together with a realised
gain/(loss) on the swap transactions, amounting to $8 million, $2 million and $2 million, respectively, was recognised within gain/(loss) on financial
assets and liabilities in the consolidated statement of operations (Note 7).
218
72
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Additional information
25. LEASE AND OTHER LONG-TERM LIABILITIES (CONTINUED)
Derivatives Not Designated as Hedging Instruments (continued)
In 2018, the Group concluded EUR/USD forward contracts, which were accounted for at fair value. In 2019 and 2018, the change in fair value of
the derivatives $(4) million and $(2) million, respectively, together with a realised gain/(loss) on the currency forward transactions, amounting to
$14 million and $9 million, respectively, was recognised within gain/(loss) on financial assets and liabilities in the consolidated statement of
operations (Note 7).
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)
22001199
$$ 998822
113322
116622
7755
2277
22001188
$ 877
98
140
30
71
22001177
$ 822
89
158
39
20
$$ 11,,337788
$ 1,216
$ 1,128
The maturity profile of the accounts payable is shown in Note 28.
At 31 December 2019, trade accounts payable included $156 million owed by the Group for purchases of scrap from Vtorresource-Pererabotka,
a related party (Note 16). These amounts were classified as trade payables to third parties as Vtorresource-Pererabotka sold its receivables from
the Group under factoring contracts to several banks with no recourse.
27. OTHER TAXES PAYABLE
Other taxes payable were mainly denominated in roubles and consisted of the following as of 31 December:
US$ million
VAT
Social insurance taxes
Property tax
Land tax
Personal income tax
Import/export tariffs
Other taxes, fines and penalties
22001199
$$ 6677
4488
77
66
88
77
1100
22001188
$ 124
40
10
5
6
74
7
22001177
$ 129
42
12
6
7
–
16
$$ 115533
$ 266
$ 212
28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
CCrreeddiitt RRiisskk
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 2019, the major customers were Russian Railways (4.2% of total sales) and Shang Chen Steel Co. (2.2%).
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.
219
73
Annual report & Accounts 2019
28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
CCrreeddiitt RRiisskk ((ccoonnttiinnuueedd))
At 31 December the maximum exposure to credit risk is equal to the carrying amount of financial assets, which is disclosed below.
US$ million
Restricted deposits at banks (Notes 13 and 18)
Financial instruments included in other non-current and current assets
(Notes 13 and 18)
Long-term and short-term investments (Notes 13 and 18)
Trade and other receivables (Notes 13 and 15)
Loans receivable
Receivables from related parties (Notes 13 and 16)
Cash and cash equivalents (Note 19)
22001199
$$ 1100
1177
–
555500
3333
1100
11,,442233
$$ 22,,004433
22001188
$ 9
66
32
852
30
12
1,067
$ 2,068
22001177
$ 21
61
65
754
31
19
1,466
$ 2,417
Receivables from related parties in the table above do not include prepayments in the amount of$Nil, $Nil and $1 million as of 31 December 2019,
2018 and 2017, respectively.
The ageing analysis of trade and other receivables, loans receivable and receivables from related parties at 31 December is presented in the table
below.
US$ million
22001199
22001188
22001177
GGrroossss aammoouunntt
IImmppaaiirrmmeenntt
GGrroossss aammoouunntt
IImmppaaiirrmmeenntt
GGrroossss aammoouunntt
IImmppaaiirrmmeenntt
Not past due
Past due
less than 6 months
between 6 months and 1 year
over 1 year
$$ 444466
119933
110077
3311
5555
$$ 663399
$$ ((11))
((4455))
((11))
––
((4444))
$$ ((4466))
$ 770
166
109
9
48
$ 936
$ (1)
(41)
–
–
(41)
$ (42)
$ 671
187
114
20
53
$ 858
In the years ended 31 December 2019, 2018 and 2017, the movement in allowance for expected credit losses was as follows:
US$ million
At 1 January
Charge for the year
Utilised
Disposal of subsidiaries
Translation difference
At 31 December
LLiiqquuiiddiittyy RRiisskk
22001199
$$ ((4422))
((33))
22
–
((33))
22001188
$ (54)
1
3
–
8
$$ ((4466))
$ (42)
$ (1)
(53)
(2)
(10)
(41)
$ (54)
22001177
$ (47)
(10)
4
1
(2)
$ (54)
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.
220
74
28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
LLiiqquuiiddiittyy RRiisskk ((ccoonnttiinnuueedd))
The following tables summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted payments, including interest
payments.
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
3311 DDeecceemmbbeerr 22001199
US$ million
FFiixxeedd--rraattee ddeebbtt
Loans and borrowings
Principal
Interest
Lease liabilities
Other long-term financial liabilities
Amounts payable under put options for shares in
subsidiaries
TToottaall ffiixxeedd--rraattee ddeebbtt
VVaarriiaabbllee--rraattee ddeebbtt
Loans and borrowings
Principal
Interest
TToottaall vvaarriiaabbllee--rraattee ddeebbtt
NNoonn--iinntteerreesstt bbeeaarriinngg ddeebbtt
Trade and other payables
Payables to related parties
TToottaall nnoonn--iinntteerreesstt bbeeaarriinngg ddeebbtt
3311 DDeecceemmbbeerr 22001188
US$ million
FFiixxeedd--rraattee ddeebbtt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Other long-term financial liabilities
Amounts payable under put options for shares in
subsidiaries
Principal
Interest
TToottaall ffiixxeedd--rraattee ddeebbtt
VVaarriiaabbllee--rraattee ddeebbtt
Loans and borrowings
Principal
Interest
TToottaall vvaarriiaabbllee--rraattee ddeebbtt
NNoonn--iinntteerreesstt bbeeaarriinngg ddeebbtt
Trade and other payables
Payables to related parties
TToottaall nnoonn--iinntteerreesstt bbeeaarriinngg ddeebbtt
OOnn ddeemmaanndd
LLeessss tthhaann
33 mmoonntthhss
33 ttoo 1122
mmoonntthhss
11 ttoo 22 yyeeaarrss
22 ttoo 55 yyeeaarrss
AAfftteerr
55 yyeeaarrss
TToottaall
$$ ––
––
––
––
––
––
––
––
––
222288
11
222299
$$ 55
9977
99
1166
––
$$ 55
113344
2266
88
6699
$$ 11,,000022
118844
3388
1111
$$ 22,,330044
224499
4400
1166
––
––
112277
224422
11,,223355
22,,660099
2266
1144
4400
888833
1133
889966
1166
4455
6611
7788
––
7788
3300
5599
8899
––
––
––
338866
112255
551111
––
––
––
$$ 1100
––
2222
––
––
3322
888855
1166
990011
––
––
––
$$ 33,,332266
666644
113355
5511
6699
44,,224455
11,,334433
225599
11,,660022
11,,118899
1144
11,,220033
$$ 222299
$$ 11,,006633
$$ 338811
$$ 11,,332244
$$ 33,,112200
$$ 993333
$$ 77,,005500
OOnn ddeemmaanndd
LLeessss tthhaann
33 mmoonntthhss
33 ttoo 1122
mmoonntthhss
11 ttoo 22 yyeeaarrss
22 ttoo 55 yyeeaarrss
AAfftteerr
55 yyeeaarrss
TToottaall
$ –
–
–
–
–
–
–
3
–
3
129
94
223
$ –
84
–
13
–
–
97
2
15
17
864
26
890
$ 226
148
3
53
60
9
499
65
45
110
12
–
12
$ 710
194
–
9
–
–
$ 2,452
211
1
8
–
–
913
2,672
13
59
72
–
–
–
1,014
107
1,121
–
–
–
$ 17
–
5
3
–
–
25
–
–
–
–
–
–
$ 3,405
637
9
86
60
9
4,206
1,097
226
1,323
1,005
120
1,125
$ 226
$ 1,004
$ 621
$ 985
$ 3,793
$ 25
$ 6,654
75
221
Annual report & Accounts 2019
28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
LLiiqquuiiddiittyy RRiisskk ((ccoonnttiinnuueedd))
3311 DDeecceemmbbeerr 22001177
US$ million
FFiixxeedd--rraattee ddeebbtt
Loans and borrowings
Principal
Interest
Finance lease liabilities
Other long-term financial liabilities
Amounts payable under put options for shares in
subsidiaries
Principal
Interest
TToottaall ffiixxeedd--rraattee ddeebbtt
VVaarriiaabbllee--rraattee ddeebbtt
Loans and borrowings
Principal
Interest
TToottaall vvaarriiaabbllee--rraattee ddeebbtt
NNoonn--iinntteerreesstt bbeeaarriinngg ddeebbtt
Financial instruments included in long-term liabilities
Trade and other payables
Payables to related parties
TToottaall nnoonn--iinntteerreesstt bbeeaarriinngg ddeebbtt
OOnn ddeemmaanndd
LLeessss tthhaann
33 mmoonntthhss
33 ttoo 1122
mmoonntthhss
11 ttoo 22 yyeeaarrss
22 ttoo 55 yyeeaarrss
AAfftteerr
55 yyeeaarrss
TToottaall
$ –
–
–
–
–
–
–
–
–
–
–
143
237
380
$ –
90
–
14
–
–
$ 4
179
1
3
–
–
104
187
1
19
20
–
770
18
788
57
57
114
1
37
–
38
$ 269
252
4
20
$ 2,580
416
1
15
$ 799
22
6
4
$ 3,652
959
12
56
60
4
609
408
64
472
–
–
–
–
–
–
–
–
60
4
3,012
831
4,743
1,013
113
1,126
1
–
–
1
202
4
206
–
–
–
–
1,681
257
1,938
2
950
255
1,207
$ 380
$ 912
$ 339
$ 1,081
$ 4,139
$ 1,037
$ 7,888
Payables to related parties in the tables above do not include contract liabilities in the amount of $5 million, $2 million and $1 million as of
31 December 2019, 2018 and 2017, respectively.
MMaarrkkeett RRiisskk
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.
IInntteerreesstt RRaattee RRiisskk
The Group borrows on both a fixed and variable rate basis and has other interest-bearing liabilities, such as finance lease liabilities and other
obligations.
The Group incurs interest rate risk on liabilities with variable interest rates. The Group’s treasury function performs analysis of current interest rates.
In case of changes in market fixed or variable interest rates management may consider the refinancing of a particular debt on more favourable terms.
The Group does not have any financial assets with variable interest rates.
Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Group does not account for any fixed rate financial assets or liabilities at fair value through profit or loss. Therefore, a change in interest rates at
the reporting date would not affect the Group’s profits.
The Group does not account for any fixed rate financial assets as assets available for sale. Therefore, a change in interest rates at the reporting date
would not affect the Group’s equity.
222
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Additional information
28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
MMaarrkkeett RRiisskk ((ccoonnttiinnuueedd))
IInntteerreesstt RRaattee RRiisskk ((ccoonnttiinnuueedd))
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.
US$ million
22001199
22001188
22001177
BBaassiiss ppooiinnttss
EEffffeecctt oonn PPBBTT
BBaassiiss ppooiinnttss
EEffffeecctt oonn PPBBTT
BBaassiiss ppooiinnttss
EEffffeecctt oonn PPBBTT
US$ millions
US$ millions
US$ millions
LLiiaabbiilliittiieess ddeennoommiinnaatteedd iinn UUSS ddoollllaarrss
Decrease in LIBOR
Increase in LIBOR
LLiiaabbiilliittiieess ddeennoommiinnaatteedd iinn eeuurroo
Decrease in EURIBOR
Increase in EURIBOR
LLiiaabbiilliittiieess ddeennoommiinnaatteedd iinn rroouubblleess
Decrease in Bank of Russia key rate
Increase in Bank of Russia key rate
CCuurrrreennccyy RRiisskk
((1177))
1177
((66))
66
((7755))
5500
22
((22))
––
––
––
––
(17)
17
(1)
1
(100)
50
$ 2
(2)
–
$ –
–
$ –
(11)
11
(1)
1
(225)
300
$ 2
(2)
–
$ –
–
$ –
The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in currencies other than the functional currencies of
the respective Group’s subsidiaries. The currencies in which these transactions are denominated are primarily US dollars, Canadian dollars and euro.
The Group does not have formal arrangements to mitigate currency risks of the Group’s operations. However, management believes that the Group is
partly secured from currency risks as foreign currency denominated sales are used to cover repayment of foreign currency denominated borrowings.
The Group’s exposure to currency risk determined as the net monetary position in the respective currencies was as follows at 31 December:
US$ million
USD/RUB
EUR/RUB
EUR/USD
USD/CAD
EUR/CZK
USD/CZK
USD/UAH
RUB/UAH
USD/KZT
22001199
$$ 22,,775500
446677
((7777))
((990077))
((1111))
1177
––
––
((116644))
22001188
$ 2,886
265
7
(723)
(12)
(20)
(119)
–
(170)
22001177
$ 2,589
(276)
(11)
(892)
(6)
5
(199)
(4)
(163)
77
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Annual report & Accounts 2019
28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
MMaarrkkeett RRiisskk ((ccoonnttiinnuueedd))
CCuurrrreennccyy RRiisskk ((ccoonnttiinnuueedd))
Sensitivity Analysis
The following table demonstrates the sensitivity to reasonably possible changes in the respective currencies, with all other variables held constant, of
the Group’s profit before tax. In estimating reasonably possible changes the Group assessed the volatility of foreign exchange rates during the reporting
periods.
22001199
22001188
22001177
CChhaannggee iinn
eexxcchhaannggee rraattee
EEffffeecctt oonn
PPBBTT
CChhaannggee iinn
eexxcchhaannggee rraattee
EEffffeecctt oonn
PPBBTT
CChhaannggee iinn
eexxcchhaannggee rraattee
EEffffeecctt oonn
PPBBTT
%
US$ millions
%
US$ millions
%
US$ millions
((77..7788))
77..7788
((77..5500))
77..5500
((88..8844))
88..8844
((55..0022))
55..0022
((44..5588))
44..5588
((22..2233))
22..2233
((55..9988))
55..9988
((77..6688))
77..6688
((1100..8822))
1100..8822
((44..2200))
44..2200
((223300))
220000
((3355))
3355
––
––
44
((44))
4422
((4422))
––
––
((11))
11
––
––
––
––
77
((77))
(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)
USD/RUB
EUR/RUB
CAD/RUB
EUR/USD
USD/CAD
EUR/CZK
USD/CZK
USD/UAH
RUB/UAH
USD/KZT
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.
22001199
22001188
22001177
CChhaannggee iinn
eexxcchhaannggee rraattee
EEffffeecctt oonn
PPBBTT
CChhaannggee iinn
eexxcchhaannggee rraattee
EEffffeecctt oonn
PPBBTT
CChhaannggee iinn
eexxcchhaannggee rraattee
EEffffeecctt oonn
PPBBTT
%
US$ millions
%
US$ millions
%
US$ millions
USD/RUB
((77..7788))
77..7788
3300
((2255))
(13.87)
13.87
36
(27)
(10.01)
10.01
66
(49)
FFaaiirr VVaalluuee ooff FFiinnaanncciiaall IInnssttrruummeennttss
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.
224
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28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
FFaaiirr VVaalluuee ooff FFiinnaanncciiaall IInnssttrruummeennttss ((ccoonnttiinnuueedd))
At 31 December the Group held the following financial instruments measured at fair value:
US$ million
LLeevveell 11
LLeevveell 22
LLeevveell 33
LLeevveell 11
LLeevveell 22
LLeevveell 33
LLeevveell 11
LLeevveell 22
LLeevveell 33
22001199
22001188
22001177
AAsssseettss mmeeaassuurreedd aatt ffaaiirr vvaalluuee
Derivatives not designated as hedging
instruments (Notes 13, 25)
Hedging instruments (Note 25)
Financial assets measured at fair value
through other comprehensive income
(Note 13)
LLiiaabbiilliittiieess mmeeaassuurreedd aatt ffaaiirr vvaalluuee
Derivatives not designated as hedging
instruments (Note 25)
Hedging instruments (Note 25)
––
––
––
––
––
1177
––
––
66
––
––
––
––
––
––
–
–
–
–
–
–
–
–
5
46
–
–
–
–
–
–
–
33
–
–
3
1
–
–
3
–
–
–
–
–
During the reporting period, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair
value measurements.
The following table shows financial instruments for which carrying amounts differ from fair values at 31 December.
US$ million
22001199
22001188
22001177
CCaarrrryyiinngg aammoouunntt
FFaaiirr vvaalluuee
CCaarrrryyiinngg aammoouunntt
FFaaiirr vvaalluuee
CCaarrrryyiinngg aammoouunntt
FFaaiirr vvaalluuee
Long-term fixed-rate bank loans
Long-term variable-rate bank loans
$$ 5566
11,,330099
$$ 5577
11,,333300
$ 269
1,084
$ 266
1,092
$ 427
1,668
$ 442
1,665
USD-denominated
6.50% notes due 2020
8.25% notes due 2021
6.75% notes due 2022
5.375% notes due 2023
5.25% notes due 2024
Rouble-denominated
12.95% rouble bonds due 2019
12.60% rouble bonds due 2021
7.95% rouble bonds due 2024
––
777766
551133
775599
770055
––
225500
333333
––
882255
555555
881199
777700
––
226688
334466
708
777
513
759
–
216
223
–
723
826
535
754
–
222
241
–
707
774
512
757
–
260
269
–
752
873
560
792
–
280
302
–
$$ 44,,770011
$$ 44,,997700
$ 4,549
$ 4,659
$ 5,374
$ 5,666
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
22001199
22001188
22001177
USD
EUR
RUB
2.5 – 3.8%
4.9 – 5.7%
3.6 – 4.5%
–
–
1.7 – 3.4%
1.7 – 3.9%
8.13%
7.97%
79
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Annual report & Accounts 2019
28. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
CCaappiittaall MMaannaaggeemmeenntt
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 2019.
The Group manages its capital structure and makes adjustments to it by the issue of new shares, dividend payments to shareholders, and the
purchase of treasury shares. In addition, the Group monitors distributable profits on a regular basis and determines the amounts and timing of
dividend payments taking into account cashflow and other constraints.
29. NON-CASH TRANSACTIONS
Transactions that did not require the use of cash or cash equivalents, not disclosed in the notes above, were as follows in the years ended
31 December:
US$ million
Liabilities for purchases of property, plant and equipment, excluding VAT
Loans provided in the form of payments by banks for property, plant and
equipment
22001199
$$ 114422
–
22001188
$ 92
6
22001177
$ 80
8
30. COMMITMENTS AND CONTINGENCIES
Operating Environment of the Group
The Group is one of the largest vertically integrated steel producers globally and the largest steel producer in Russia. The Group’s major subsidiaries
are located in Russia, the USA and Canada. Russia is considered to be a developing market with higher economic and political risks.
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.
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. In 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. In addition, effective 25 October 2018,
the Canadian government imposed provisional safeguard measures on imports from most countries (excluding the United States) of certain categories
of steel products by adding a 25% surtax in cases, where the volume of imports from trading partners exceeded historical norms. Most of those
provisional safeguards expired on 29 April 2019 following an inquiry by the Canadian International Trade Tribunal. In May 2019, the United States
lifted the 25% tariffs on imports of steel products from Canada and Mexico. The Canadian government lifted its retaliatory tariffs on steel the same day.
Therefore, the Group’s cross-border transactions between U.S. and Canadian subsidiaries no longer face the 25% Section 232 tariffs and Canadian
retaliatory tariffs. The entities of the Steel North America segment import steel for further processing and final products for selling to domestic
customers. U.S. Section 232 tariffs remain in place against other countries, including Russia, and U.S. subsidiaries still face those 25% tariffs on any
imported steel from those countries.
In August 2018, the U.S. imposed a preliminary 24.38% antidumping duty on welded line pipe greater than 16-inch outside diameter exported from
Canada into the United States. In April 2019, after completing its final investigation, the U.S. imposed a final antidumping duty of 12.32% that remains
in place. A review of the duty rate at the U.S. Department of Commerce may be initiated in May 2020, which may lead to a revised rate in October
2021.
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.
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30. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Taxation
Russian 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
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 $70 million.
Contractual Commitments
At 31 December 2019, the Group had contractual commitments for the purchase of production equipment and construction works for an approximate
amount of $379 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 IFRS 16 “Leases”. At 31 December 2019, the Group has committed expenditure of
$551 million over the life of the contract.
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 $400 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 $406 million during the life of the contract. Based on management’s assessment this supply contract does not fall within the scope of IFRS 16
“Leases” 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 $106 million.
In 2019, the Group concluded a contract with Xcel Energy Inc. for the supply of electricity for a period of 22 years. The Group is committed to purchase
from 1 January 2022 at least 500,000 MWh annually on a take-or-pay basis at rates ranging from 3.90 to 4.90 cents/kWh. The rates can be adjusted
for gas prices. The total amount of this commitment at the unadjusted rates approximates $440 million.
Social Commitments
The Group is involved in a number of social programmes aimed to support education, healthcare and social infrastructure development in towns where
the Group’s assets are located. The Group budgeted to spend approximately $20 million under these programmes in 2020.
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 2019 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 2019. 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 2020 to 2025, under which the Group
will perform works aimed at reductions in environmental pollution and contamination. As of 31 December 2019, the costs of implementing these
programmes are estimated at $199 million.
81
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Annual report & Accounts 2019
30. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Legal Proceedings
The Group has been and continues to be the subject of legal proceedings, none of which has had, individually or in aggregate, a significant effect on 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 2019, possible legal risks approximate $22 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 ($486 million
at the exchange rate as of 31 December 2019) 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 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.
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
TToottaall aauuddiitt ffeeeess
OOtthheerr sseerrvviicceess
22001199
$$ 11
22
33
11
$$ 44
22001188
$ 1
2
3
1
$ 4
32. MATERIAL PARTLY-OWNED SUBSIDIARIES
Financial information of subsidiaries that have material non-controlling interests is provided below.
Subsidiary
Raspadskaya
New CF&I (subsidiary of EVRAZ Inc NA)
CCoouunnttrryy ooff
iinnccoorrppoorraattiioonn
Russia
USA
NNoonn--ccoonnttrroolllliinngg iinntteerreessttss
22001199
11.83%
10.00%
22001188
16.16%
10.00%
22001177
$ 1
2
3
1
$ 4
22001177
18.05%
10.00%
US$ million
22001199
22001188
22001177
AAccccuummuullaatteedd bbaallaanncceess ooff mmaatteerriiaall nnoonn--ccoonnttrroolllliinngg iinntteerreessttss
Raspadskaya
New CF&I (subsidiary of EVRAZ Inc NA)
Others
PPrrooffiitt aallllooccaatteedd ttoo mmaatteerriiaall nnoonn--ccoonnttrroolllliinngg iinntteerreessttss
Raspadskaya
New CF&I (subsidiary of EVRAZ Inc NA)
Others
228
$$ 116622
110055
((1155))
225522
3355
22
22
$$ 3399
$ 170
103
(16)
257
74
4
(14)
$ 64
$ 149
99
(6)
242
51
1
8
$ 60
82
32. MATERIAL PARTLY-OWNED SUBSIDIARIES (CONTINUED)
The summarised financial information regarding these subsidiaries is provided below. This information is based on amounts before inter-company
eliminations.
Strategic report
Business review
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Additional information
SSuummmmaarriisseedd ssttaatteemmeennttss ooff ooppeerraattiioonnss
Raspadskaya
US$ million
Revenue
Cost of revenue
Gross profit/(loss)
Operating costs
Impairment of assets
Foreign exchange gains/(losses), net
PPrrooffiitt//((lloossss)) ffrroomm ooppeerraattiioonnss
Non-operating gains/(losses)
PPrrooffiitt//((lloossss)) bbeeffoorree ttaaxx
Income tax benefit/(expense)
NNeett pprrooffiitt//((lloossss))
OOtthheerr ccoommpprreehheennssiivvee iinnccoommee//((lloossss))
TToottaall ccoommpprreehheennssiivvee iinnccoommee//((lloossss))
attributable to non-controlling interests
dividends paid to non-controlling interests
New CF&I
US$ million
Revenue
Cost of revenue
Gross profit/(loss)
Operating costs
Impairment of assets
PPrrooffiitt//((lloossss)) ffrroomm ooppeerraattiioonnss
Non-operating gains/(losses)
PPrrooffiitt//((lloossss)) bbeeffoorree ttaaxx
Income tax benefit/(expense)
NNeett pprrooffiitt//((lloossss))
OOtthheerr ccoommpprreehheennssiivvee iinnccoommee//((lloossss))
TToottaall ccoommpprreehheennssiivvee iinnccoommee//((lloossss))
attributable to non-controlling interests
dividends paid to non-controlling interests
22001199
$$ 999966
((550099))
448877
((9966))
((9922))
((2244))
227755
2233
229988
((6644))
$$ 223344
115500
338844
5566
((33))
22001199
$$ 775577
((665544))
110033
((9933))
–
1100
2200
3300
((77))
$$ 2233
((66))
1177
22
–
22001188
$ 1,086
(493)
593
(76)
(4)
23
536
5
541
(113)
$ 428
(204)
224
42
–
22001188
$ 808
(690)
118
(88)
(1)
29
19
48
(11)
$ 37
7
44
4
–
83
22001177
$ 868
(430)
438
(74)
9
13
386
(21)
365
(75)
$ 290
36
326
57
–
22001177
$ 558
(533)
25
(54)
(2)
(31)
18
(13)
21
$ 8
(3)
5
1
–
229
Annual report & Accounts 2019
32. MATERIAL PARTLY-OWNED SUBSIDIARIES (CONTINUED)
SSuummmmaarriisseedd ssttaatteemmeennttss ooff ffiinnaanncciiaall ppoossiittiioonn aass aatt 3311 DDeecceemmbbeerr
Raspadskaya
US$ million
Property, plant and equipment
Other non-current assets
Current assets
TToottaall aasssseettss
Deferred income tax liabilities
Non-current liabilities
Current liabilities
TToottaall lliiaabbiilliittiieess
TToottaall eeqquuiittyy
attributable to:
equity holders of parent
non-controlling interests
New CF&I
US$ million
Property, plant and equipment
Other non-current assets
Current assets
TToottaall aasssseettss
Deferred income tax liabilities
Non-current liabilities
Current liabilities
TToottaall lliiaabbiilliittiieess
TToottaall eeqquuiittyy
attributable to:
equity holders of parent
non-controlling interests
SSuummmmaarriisseedd ccaasshh ffllooww iinnffoorrmmaattiioonn
Raspadskaya
US$ million
Operating activities
Investing activities
Financing activities
New CF&I
US$ million
Operating activities
Investing activities
Financing activities
33. SUBSEQUENT EVENTS
Dividends
22001199
$$ 887700
99
11,,008822
11,,996611
8822
7766
332277
448855
11,,447766
11,,331144
116622
22001199
$$ 220055
11,,003388
115522
11,,339955
1166
112288
220044
334488
11,,004477
994422
110055
22001199
$$ 338866
119944
((7722))
22001199
$$ 7766
((7700))
((66))
22001188
$ 831
113
858
1,802
71
23
545
639
1,163
993
170
22001188
$ 173
982
199
1,354
12
81
231
324
1,030
927
103
22001188
$ 345
(285)
(37)
22001188
$ 80
(80)
–
22001177
$ 1,047
11
590
1,648
72
31
599
702
946
797
149
22001177
$ 167
921
155
1,243
12
89
156
257
986
887
99
22001177
$ 406
19
(413)
22001177
$ (16)
16
–
On 26 February 2020, the Board of directors of EVRAZ plc declared dividends in the amount of $581 million, which represents $0.40 per share.
230
84
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
34. LIST OF SUBSIDIARIES AND OTHER SIGNIFICANT HOLDINGS
CCoouunnttrryy ooff
iinnccoorrppoorraattiioonn
NNaammee
RReellaattiioonnsshhiipp
OOwwnneerrsshhiipp
iinntteerreesstt iinn 22001199
RReeggiisstteerreedd aaddddrreessss
NNootteess
Canada
Camrose Pipe Corporation
indirect subsidiary
100.00%
9040 N.Burgard Way, Portland, OR 97203
Canada
Canadian National Steel Corporation
indirect subsidiary
100.00%
Canada
EVRAZ Inc. NA Canada
indirect subsidiary
100.00%
Canada
EVRAZ Materials Recycling Inc.
indirect subsidiary
100.00%
Canada
EVRAZ Wasco Pipe Protection
Corporation
indirect subsidiary
51.00%
Canada
Genalta Recycling Inc.
joint venture
50.00%
Canada
General Scrap Partnership
indirect subsidiary
100.00%
Canada
Genlandco Inc.
indirect subsidiary
100.00%
Canada
Kar-basher Manitoba Ltd
joint venture
50.00%
Canada
Kar-basher of Alberta Ltd
indirect subsidiary
100.00%
Canada
King Crusher Inc.
joint venture
50.00%
Canada
New Gensubco Inc.
indirect subsidiary
100.00%
Canada
Sametco Auto Inc.
indirect subsidiary
100.00%
Cyprus
Actionfield Limited
indirect subsidiary
100.00%
Cyprus
East Metals 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
181 Bay Street, Suite 2100, Toronto,
Ontario M5J 2T3
2400, 525 8th Avenue SW
Calgary AB T2P 1G1
387 Broadway, Winnipeg, Manitoba R3C
0V5
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
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
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
Cyprus
Fegilton Limited
indirect subsidiary
100.00%
3 Themistokli Dervi, Julia House, 1066,
Nicosia
sold
Cyprus
Laybridge Limited
indirect subsidiary
100.00%
Cyprus
Malvero Holdings Limited
indirect subsidiary
-
Cyprus
Mastercroft Finance Limited
indirect subsidiary
100.00%
Cyprus
Nafkratos Limited
indirect subsidiary
100.00%
Cyprus
RVK Invest Limited
associate
42.63%
Cyprus
Sinano Shipmanagement Limited
indirect subsidiary
100.00%
Cyprus
Steeltrade Limited
indirect subsidiary
100.00%
Cyprus
Streamcore Limited
joint venture
50.00%
Cyprus
Unicroft 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
Themistokli Dervi, 3, Julia House, P.C. 1066,
Nicosia, Cyprus
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
3 Themistokli Dervi, Julia House, 1066,
Nicosia
Leoforos Archiepiskopou Makariou lll, 135,
EMELLE Building, flat/office 22, 3021,
Limassol
liquidated
100% controlled
through put option
for the purchase of
shares
Cyprus
Velcast Limited
indirect subsidiary
100.00%
3 Themistokli Dervi, Julia House, 1066,
Nicosia
under strike-off
procedures
Czech
Republic
EVRAZ Nikom, a.s.
indirect subsidiary
100.00%
Mnisek pod Brdy, c. 900, 25210
Italy
EVRAZ Palini e Bertoli S.r.l
indirect subsidiary
100.00%
via E. Fermi 28, 33058 San Giorgio di
Nogaro (UD)
sold
Kazakhstan
Evraz Caspian Steel
indirect subsidiary
65.00%
41, ul. Promyshlennaya, Kostanai, 110000
Kazakhstan
EvrazMetall Kazakhstan
indirect subsidiary
100.00%
office 411; 29, prospekt Jenis, Saryarka
district, Nur-Sultan
Luxembourg
Evraz Group S.A.
direct subsidiary
100.00%
13, avenue Monterey, L-2163, Luxembourg
Mexico
EVRAZ NA Mexico
indirect subsidiary
100.00%
Frida Kahlo 195-709, Valle Оrientе, San
Pedro Garza Carcia, Nuevo Leon, 66269
Netherlands
ECS Holdings Europe B.V.
indirect subsidiary
65.00%
Hoogoorddreef 15, 1101 BA Amsterdam
85
231
Annual report & Accounts 2019
34. LIST OF SUBSIDIARIES AND OTHER SIGNIFICANT HOLDINGS (CONTINUED)
CCoouunnttrryy ooff
iinnccoorrppoorraattiioonn
NNaammee
RReellaattiioonnsshhiipp
OOwwnneerrsshhiipp
iinntteerreesstt iinn 22001199
RReeggiisstteerreedd aaddddrreessss
NNootteess
Republic of
S.Africa
Republic of
S.Africa
Republic of
S.Africa
EVRAZ Highveld Steel and Vanadium
Limited
indirect subsidiary
85.11%
Old Pretoria Road, Portion 93 of the Farm
Schoongezicht 308 JS eMalahleni (Witbank)
deconsolidated in
2015
Mapochs Mine (Proprietary) Limited
indirect subsidiary
62.98%
Mapochs Mine Community Trust
indirect subsidiary
-
Old Pretoria Road, Portion 93 of the Farm
Schoongezicht 308 JS eMalahleni (Witbank)
deconsolidated in
2015
Portion 93 of the farm Schoongezicht
No.308 JS, eMalahleni
deconsolidated in
2015
Russia
Aktiv-Media
indirect subsidiary
100.00%
Russia
Allegro JV
associate
50.00%
Russia
ATP Yuzhkuzbassugol
indirect subsidiary
100.00%
Russia
AVT-Ural
indirect subsidiary
51.00%
Russia
Blagotvoritelniy fond Evraza - Sibir
Blagotvoritelniy fond Evraza - Ural
indirect subsidiary -
non-commercial
indirect subsidiary -
non-commercial
-
-
Centr kultury i iskusstva NTMK
indirect subsidiary -
non-commercial
Centr podgotovki personala Evraz-
Ural
indirect subsidiary -
non-commercial
-
-
Russia
Centr Servisnykh Resheniy
indirect subsidiary
100.00%
Russia
Russia
Centralnaya Obogatitelnaya Fabrika
Abashevskaya
Centralnaya Obogatitelnaya Fabrika
Kuznetskaya
indirect subsidiary
92.10%
indirect subsidiary
100.00%
Russia
Elekrosvyaz YKU
indirect subsidiary
87.20%
office 6; 35, ul. Ordzhonikidze,
Novokuznetsk, Kemerovskaya obl., 654007
office 2/2, bld.2, ul. Vladislava Tetyukhina,
Verhnyaya Salda, Sverdlovskaya obl.,
624760
20, Silikatnaya, Novokuznetsk,
Kemerovskaya obl., 654086
2, ul. Sverdlova, Kachkanar, Sverdlovskaya
obl., 624351
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
1, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654063
12, Tupik Strelochny, Novokuznetsk,
Kemerovskaya obl., 654086
16, Shosse Severnoe, Novokuznetsk,
Kemerovskaya obl., 654043
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654006
Brianskmetallresursy
indirect subsidiary
99.96%
14, ul. Staleliteinaya, Bryansk, 241035
Russia
Russia
EVRAZ Consolidated West-Siberian
metallurgical Plant
EVRAZ Kachkanarsky Ore Mining
and Processing Plant
indirect subsidiary
100.00%
indirect subsidiary
100.00%
16, ul. Shosse Kosmicheskoe,
Novokuznetsk, Kemerovskaya obl., 654043
2, ul. Sverdlova, Kachkanar, Sverdlovskaya
obl., 624351
Russia
EVRAZ Metall Inprom
indirect subsidiary
100.00%
EVRAZ Nizhny Tagil Metallurgical
Plant
direct subsidiary
100.00%
EVRAZ Uzlovaya
indirect subsidiary
100.00%
2-a, ul. Marshala Zhukova, Taganrog,
Rostovskaya obl., 347942
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
4, ul.Entuziastov, kvartal 5 Pyatiletka,
Uzlovaya, Tulskaya obl., 301600
EVRAZ Vanady Tula
indirect subsidiary
100.00%
1, ul. Przhevalskogo, Tula, 300016
Russia
EVRAZ Yuzhny Stan
indirect subsidiary
100.00%
Russia
EvrazEK
indirect subsidiary
100.00%
1, ul. Zarechnaya, rabochy poselok Ust-
Donetsky, Ust-Donetsky raion, Rostovskaya
obl., 346550
2B, ul. Khlebozavodskaya, Novokuznetsk,
Kemerovskaya obl., 654006
liquidated
Russia
Evrazenergotrans
indirect subsidiary
50.00%
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
office 14; 62, ul. Internationalnaya, Kyzyl,
Tyva Republic, 667000
30, Shosse Severnoe, Novokuznetsk,
Kemerovskaya obl., 654043
4, ul. Belovezhskaya, Moscow, 121353
4, ul. Belovezhskaya, Moscow, 121353
1, ul. Zhdanova, Gurievsk, Kemerovskaya
obl., 652780
9, ul. Khimicheskaya, Taganrog,
Rostovskaya obl., 347913
office 115; 2, ul. Sverdlova, Kachkanar,
Sverdlovskaya obl., 624351
controlled through
put option for the
purchase of shares
of Malvero
Holdings Limited
merged
controlled through
put option for the
purchase of shares
of Malvero
Holdings Limited
EvrazHolding Finance
indirect subsidiary
100.00%
EvrazHolding LLC
EvrazMetall Sibir
EvrazService
Evraztekhnika
indirect subsidiary
100.00%
indirect subsidiary
indirect subsidiary
100.00%
100.00%
Gurievsky rudnik
indirect subsidiary
100.00%
Industrialnaya Vostochno-
Evropeiskaya company
indirect subsidiary
100.00%
Russia
KachkanarEnergoTrans
indirect subsidiary
50.00%
232
86
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
34. LIST OF SUBSIDIARIES AND OTHER SIGNIFICANT HOLDINGS (CONTINUED)
CCoouunnttrryy ooff
iinnccoorrppoorraattiioonn
NNaammee
RReellaattiioonnsshhiipp
OOwwnneerrsshhiipp
iinntteerreesstt iinn 22001199
RReeggiisstteerreedd aaddddrreessss
NNootteess
Russia
Kachkanarskaya
teplosnabzhauschaya company
indirect subsidiary
100.00%
Russia
Kulturno-sportivniy centr metallurgov
indirect subsidiary -
non-commercial
-
Russia
Kuznetskpogruztrans
indirect subsidiary
94.50%
Russia
Kuznetskteplosbyt
indirect subsidiary
100.00%
Russia
Magnit
indirect subsidiary
-
Russia
Managing Company EVRAZ
Mezhdurechensk
indirect subsidiary
100.00%
Russia
Medsanchast Vanady
indirect subsidiary
100.00%
Russia
Metallenergofinance
indirect subsidiary
100.00%
Russia
Metservice
indirect subsidiary
100.00%
Russia
Mezhegeyugol Coal Company
indirect subsidiary
100.00%
Russia
Mine Abashevskaya
indirect subsidiary
100.00%
Russia
Mine Alardinskaya
indirect subsidiary
100.00%
Russia
Mine Esaulskaya
indirect subsidiary
100.00%
Russia
Mine Osinnikovskaya
indirect subsidiary
100.00%
Russia
Mine Uskovskaya
indirect subsidiary
100.00%
Russia
Mining Metallurgical Company
“Timir”
joint venture
51.00%
Russia
Montazhnik Raspadskoy
indirect subsidiary
88.17%
Russia
Mordovmetallotorg
indirect subsidiary
99.90%
Russia
Nizhny Tagil Telecompany Telecon
indirect subsidiary
-
Russia
Novokuznetskmetallopttorg
associate
48.51%
Russia
Ohothichie hozyaistvo
indirect subsidiary -
non-commercial
-
17, 8 microraion, Kachkanar, Sverdlovskaya
obl., 624350
20, Prospect Metallurgov, Novokuznetsk,
Kemerovskaya obl., 654007
18, ul. Promyshlennaya, Novokuznetsk,
Kemerovskaya obl., 654029
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
4, ul. Sverdlova, Kachkanar, Sverdlovskaya
obl., 624351
69, ul. Kirova, Novokuznetsk,
Kemerovskaya obl., 654080
1, Zeleny Mys district, Kachkanar,
Sverdlovskaya obl., 624350
4, ul. Rudokoprovaya, Novokuznetsk,
Kemerovskaya obl., 654006
office 16; 51, ul. Malysheva, Ekaterinburg,
Sverdlovskaya obl., 620075
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., 652804
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654006
4, Prospect Geologov, Neryungri, Republic of
Saha (Yakutia), 678960
office 408; 106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
39, Aleksandrovskoe Shosse, Saransk,
Respublica Mordovia, 430006
74, ul. Industrialnaya, Nizhny Tagil,
Sverdlovskaya obl., 622025
16, ul. Chaikinoi, Novokuznetsk,
Kemerovskaya obl., 654005
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
Russia
Russia
Olzherasskoye
shakhtoprokhodcheskoye upravlenie
indirect subsidiary
88.17%
office 331; 106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
Osinnikovsky remontno-
mekhanichesky zavod
indirect subsidiary
84.43%
1/2, ul. Pervogornaya, Osinniki,
Kemerovskaya obl., 652804
Russia
Parus
indirect subsidiary
100.00%
office 107; 3, ul. 1 Liteinaya, Yartsevo,
Smolenskaya obl., 215805
sold
Russia
Promuglepoject
indirect subsidiary
100.00%
Russia
Publishing House IKaR
indirect subsidiary
-
Russia
Raspadskaya
direct subsidiary
88.17%
Russia
Raspadskaya Coal Company
indirect subsidiary
88.17%
Russia
Raspadskaya Preparation Plant
indirect subsidiary
88.17%
Russia
Raspadskaya-Koksovaya
indirect subsidiary
88.17%
Russia
Russia
Russia
Razrez Raspadskiy
indirect subsidiary
88.17%
Regional Media Company
Regionalniy Centr podgotovki
personala Evraz-Sibir
indirect subsidiary
indirect subsidiary -
non-commercial
-
-
4, ul. Nevskogo, Novokuznetsk,
Kemerovskaya obl., 654006
4, ul. Sverdlova, Kachkanar, Sverdlovskaya
obl., 624351
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
4, ul. Belovezhskaya, Moscow, 121353
4, ul. Nevskogo, Novokuznetsk,
Kemerovskaya obl., 654006
87
233
Annual report & Accounts 2019
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
34. LIST OF SUBSIDIARIES AND OTHER SIGNIFICANT HOLDINGS (CONTINUED)
CCoouunnttrryy ooff
iinnccoorrppoorraattiioonn
NNaammee
RReellaattiioonnsshhiipp
OOwwnneerrsshhiipp
iinntteerreesstt iinn 22001199
RReeggiisstteerreedd aaddddrreessss
NNootteess
Russia
Rembytcomplex
indirect subsidiary
100.00%
Russia
Sanatoriy-porfilactory Lenevka
indirect subsidiary -
non-commercial
-
Russia
Sfera
indirect subsidiary
100.00%
Russia
Sibir-VK
joint venture
50.00%
Russia
Sibmetinvest
indirect subsidiary
100.00%
8, 8 microraion, Kachkanar, Sverdlovskaya
obl., 624351
Nikolopoltavskoye post-office, Lenevka,
Prigorodny district, Sverdlovskaya obl.,
622911
office 315; 205, ul. 8 Marta, Ekaterinburg,
Sverdlovskaya obl., 620085
37A, ul. Kutuzova, Novokuznetsk,
Kemerovskaya obl., 654041
office 10; 1, 1st km of Rublevo-Uspenskoye
shosse, der. Razdory, Odintsovo area,
Moscow region, 143082
57, Prospect Stroiteley, Novokuznetsk,
Kemerovskaya obl., 654005
Specializirovanniy registrator
KOMPAS
investment
10.83%
Specializirovannoye
Shakhtomontazhno-naladochnoye
upravlenie
indirect subsidiary
49.64%
28, proezd Zaschitny, Novokuznetsk,
Kemerovskaya obl., 654034
controlled through
put option for the
purchase of shares
of Malvero
Holdings Limited
Russia
Sportivniy complex Uralets
Russia
Sportivno-Ozdorovitelny complex
Metallurg-Forum
indirect subsidiary -
non-commercial
indirect subsidiary -
non-commercial
-
-
Russia
Tagilteplosbyt
indirect subsidiary
100.00%
Tomusinskoye pogruzochno-
transportnoye upravlenie
indirect subsidiary
51.66%
36, Gvardeisky bulvar, Nizhny Tagil,
Sverdlovskaya obl., 622005
office 26; 61, ul. Krasnogvardeiskaya,
Nizhny Tagil, Sverdlovskaya obl., 622013
67, Prospect Lenina, Nizhny Tagil,
Sverdlovskaya obl., 622034
office 209; 106, ul. Mira, Mezhdurechensk,
Kemerovskaya obl.,652870
Trade Company EvrazHolding
indirect subsidiary
100.00%
4, ul. Belovezhskaya, Moscow, 121353
Vladimirmetallopttorg
indirect subsidiary
95.64%
57, ul. P. Osipenko, Vladimir, 600009
TV-Most
indirect subsidiary
Russia
TVN
indirect subsidiary
-
-
Russia
Uliyanovskmetall
indirect subsidiary
99.37%
Russia
United accounting systems
indirect subsidiary
100.00%
Russia
Russia
United Coal Company
Yuzhkuzbassugol
Upravlenie po montazhu,
demontazhu i remontu
gornoshakhtnogo oborudovaniya
indirect subsidiary
100.00%
indirect subsidiary
100.00%
Russia
Vanadyservice
indirect subsidiary
100.00%
Vanady-transport
indirect subsidiary
100.00%
Vtorresurs-Pererabotka
joint venture
50.00%
Yuzhno-Kuzbasskoye
geologorazvedochnoye upravlenie
indirect subsidiary
100.00%
Russia
ZAO Irkutskvtorchermet
associate
42.63%
Russia
ZAO Vtorchermet
associate
42.63%
Russia
Zapadnye Vorota
indirect subsidiary
100.00%
Russia
Zavod metallurgicheskih reagentov
associate
Switzerland
Switzerland
East Metals A.G.
East Metals Shipping A.G.
indirect subsidiary
indirect subsidiary
50.00%
100.00%
100.00%
Ukraine
EVRAZ Ukraine
indirect subsidiary
100.00%
Ukraine
Evraztrans Ukraine
indirect subsidiary
100.00%
Ukraine
234
United accounting systems Ukraine
indirect subsidiary
100.00%
88
office 164, 31, Moscovsky prospect,
Kemerovo, 650065
office 16; 35, ul. Ordzhonikidze,
Novokuznetsk, Kemerovskaya obl., 654007
20, 11 proezd Inzhenerny, Ulyanovsk,
432072
office 205; 1, ul. Rudokoprovaya,
Novokuznetsk, Kemerovskaya obl., 654063
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654006
3, ul. Shakhtovaya, Osinniki, Kemerovskaya
obl., 652804
11a, 10 microraion, Kachkanar,
Sverdlovskaya obl., 624351
merged
2, ul. Sverdlova, Kachkanar, Sverdlovskaya
obl., 624351
37A, ul. Kutuzova, Novokuznetsk,
Kemerovskaya obl., 654041
33, Prospect Kurako, Novokuznetsk,
Kemerovskaya obl., 654006
office 212, bld. ZAO Vtorchermet, ul.
Severny Promuzel, Irkutsk, 664053
office 211, bld. ZAO Vtorchermet, ul.
Severny promuzel, Irkutsk, 664053
14a, ul. Bolshaya Dorogomilovskaya,
Moscow, 121059
1, ul. Metallurgov, Nizhny Tagil,
Sverdlovskaya obl., 622025
Baarerstrasse 131, 6300 Zug
Baarerstrasse 131, 6300 Zug
31, ul. Udarnikov, Dnepr,
Dnepropetrovskaya obl., 49064
office 512,
93, ul. Yavornitskogo, Dnepr,
Dnepropetrovskaya obl., 49000
3, ul. Mayakovskogo, Dnepr,
Dnepropetrovskaya obl., 49064
liquidated
sold
liquidated
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
34. LIST OF SUBSIDIARIES AND OTHER SIGNIFICANT HOLDINGS (CONTINUED)
CCoouunnttrryy ooff
iinnccoorrppoorraattiioonn
NNaammee
RReellaattiioonnsshhiipp
OOwwnneerrsshhiipp
iinntteerreesstt iinn 22001199
RReeggiisstteerreedd aaddddrreessss
NNootteess
United
Kingdom
EVRAZ North America plc
indirect subsidiary
100.00%
Suite 1, 3rd Floor,
11-12 St James’s Square, London SW1 4LB
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
USA
CF&I Steel LP
Colorado and Wyoming Railway
Company
indirect subsidiary
indirect subsidiary
90.00%
90.00%
1612 E Abriendo Pueblo, CO 81004
2100 S. Freeway Pueblo, CO 81004
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%
71 S.Wacker, Suite 1700, Chicago, IL
60606
71 S.Wacker, Suite 1700, Chicago, IL
60606
71 S.Wacker, Suite 1700, Chicago, IL
60606
71 S.Wacker, Suite 1700, Chicago, IL
60606
EVRAZ Stratcor, Inc.
indirect subsidiary
100.00%
4285 Malvern Road, Hot Springs, AR 71901
sold
EVRAZ Trade NA LLC
indirect subsidiary
100.00%
Fremont County Irrigating Ditch Co.
General Scrap Inc.
New CF&I Inc.
Oregon Ferroalloy Partners
investment
indirect subsidiary
indirect subsidiary
indirect subsidiary
13.50%
100.00%
90.00%
60.00%
Oregon Steel Mills Processing Inc.
indirect subsidiary
100.00%
OSM Distribution Inc.
indirect subsidiary
100.00%
Palmer North America LLC
indirect subsidiary
90.00%
71 S.Wacker, Suite 1700, Chicago, IL
60606
113 W. 5th Street Florence, CO 81226
3101 Valley Street Minot, ND 58702
1612 E Abriendo Pueblo, CO 81004
14400 Rivergate Blvd. Portland, OR 97203
71 S.Wacker, Suite 1700, Chicago, IL
60606
71 S.Wacker, Suite 1700, Chicago, IL
60606
251 Little Falls Drive, Wilmington, Delaware
19808
Union Ditch and Water Co.
indirect subsidiary
57.59%
113 W. 5th Street Florence, CO 81226
89
235
Annual report & Accounts 2019
EVRAZ plc
Separate Financial Statements
for the year ended 31 December 2019
Separate statement of comprehensive income
(In millions of US dollars)
General and administrative expenses
Operating income
Impairment of investments
Foreign exchange gains/(losses)
Interest expense
Gain/(loss) on financial assets or liabilities
Dividend income
Other non-operating gains/(losses)
PPrrooffiitt bbeeffoorree ttaaxx
Current income tax expense
NNeett pprrooffiitt
TToottaall ccoommpprreehheennssiivvee iinnccoommee
The accompanying notes form an integral part of these separate financial statements.
NNootteess
22001199
22001188
3311 DDeecceemmbbeerr
66
33
66
33,,66,,77,,88
77
66
66
99
$$ ((1111))
99
((331188))
((119999))
((221111))
((66))
99,,773322
3333
99,,002299
((113399))
88,,889900
$$ 88,,889900
$ (10)
6
–
164
(66)
–
–
–
94
(14)
80
$ 80
236
Separate statement of financial position
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
(In millions of US dollars)
AASSSSEETTSS
NNoonn––ccuurrrreenntt aasssseettss
Investments in subsidiaries
Investments in joint ventures
Receivables from related parties
CCuurrrreenntt aasssseettss
Receivables from related parties
Dividends receivable from related parties
Income tax receivable
TTOOTTAALL AASSSSEETTSS
EEQQUUIITTYY AANNDD LLIIAABBIILLIITTIIEESS
Capital and reserves
Issued capital
Treasury shares
Reorganisation reserve
Merger reserve
Share-based payments
Accumulated profits
LLIIAABBIILLIITTIIEESS
NNoonn--ccuurrrreenntt lliiaabbiilliittiieess
Trade and other payables
Long-term loans
Loans payable to related parties
Financial guarantee liabilities
CCuurrrreenntt lliiaabbiilliittiieess
Trade and other payables
Payables to related parties
Short-term loans and current portion of long-term loans
Loans payable to related parties
Financial guarantee liabilities
Income tax payable
TTOOTTAALL LLIIAABBIILLIITTIIEESS
NNootteess
3311 DDeecceemmbbeerr
22001199
22001188
33
33
66
66
66
99
44
44
44
44
55
88
77
66
66
33,,88
66
77
66
66
99
$$ 1155,,009955
2222
1199
1155,,113366
99
662299
1166
665544
$ 3,197
24
21
3,242
12
–
–
12
1155,,779900
3,254
7755
((116699))
((558844))
112277
116622
99,,117700
88,,778811
77
22,,774477
552222
1199
33,,229955
77
33,,115511
6633
442244
77
6622
33,,771144
77,,000099
75
(196)
(584)
127
149
1,393
964
14
–
724
21
759
14
–
–
1,493
10
14
1,531
2,290
TTOOTTAALL EEQQUUIITTYY AANNDD LLIIAABBIILLIITTIIEESS
$$ 1155,,779900
$ 3,254
The Financial Statements on pages 236-247 were approved by the Board of Directors on 26 February 2020 and signed on its behalf
by Alexander Frolov, Chief Executive Officer.
The accompanying notes form an integral part of these separate financial statements.
237
Annual report & Accounts 2019 Separate statement of cash flows
(In millions of US dollars)
CCaasshh fflloowwss ffrroomm ooppeerraattiinngg aaccttiivviittiieess
Net profit
Adjustments to reconcile net loss to net cash flows from operating activities:
NNootteess
22001199
22001188
$$ 88,,889900
$ 80
Operating income
Impairment of investments
Foreign exchange (gains)/losses
Interest expense
(Gain)/loss on financial assets or liabilities
Dividend income
Other non-operating (gains)/losses
Changes in working capital:
Receivables from related parties
Income tax receivable
Trade and other payables
Taxes payable
NNeett ccaasshh ffllooww uusseedd iinn ooppeerraattiinngg aaccttiivviittiieess
CCaasshh fflloowwss ffrroomm iinnvveessttiinngg aaccttiivviittiieess
Dividends received
NNeett ccaasshh ffllooww ffrroomm iinnvveessttiinngg aaccttiivviittiieess
CCaasshh fflloowwss ffrroomm ffiinnaanncciinngg aaccttiivviittiieess
Proceeds from bank loans and notes
Repayment of bank loans and notes, including interest
Proceeds from loans provided by related parties
Repayment of loans provided by related parties, including interest
Payments for investments on deferred terms, including interest
Dividends paid to shareholders
NNeett ccaasshh ffllooww uusseedd iinn//((ffrroomm)) ffiinnaanncciinngg aaccttiivviittiieess
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
CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee eenndd ooff tthhee yyeeaarr
SSuupppplleemmeennttaarryy ccaasshh ffllooww iinnffoorrmmaattiioonn::
Interest paid
Income taxes paid
The accompanying notes form an integral part of these separate financial statements.
238
66
33
66
33,,66,,77
77
66
66
66
99
88
66
77
77
66
66
33
44
((99))
331188
119999
221111
66
((99,,773322))
((3333))
((115500))
88
((1166))
((77))
114400
((2255))
778844
778844
669955
((885544))
11,,773366
((11,,224411))
((88))
((11,,008866))
((775588))
((11))
––
––
$$ ––
((220000))
((1166))
(6)
–
(164)
66
–
–
–
(24)
5
–
(6)
14
(11)
–
–
–
–
2,976
(1,396)
(11)
(1,556)
13
(2)
–
–
$ –
(34)
–
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Separate statement of changes in equity
(In millions of US dollars)
NNootteess
IIssssuueedd
ccaappiittaall
TTrreeaassuurryy
sshhaarreess
RReeoorrggaanniissaattiioonn
rreesseerrvvee
MMeerrggeerr
rreesseerrvvee
SShhaarree--bbaasseedd
ppaayymmeennttss
AAccccuummuullaatteedd
pprrooffiittss
TToottaall
AAtt 3311 DDeecceemmbbeerr 22001177
$ 1,507
$ (231)
$ (584)
$ 127
$ 134
$ 1,472
$ 2,425
Total comprehensive loss
for the year
Share-based payments
Dividends declared
Reduction of share
capital
Transfer of treasury
shares to participants of
the Incentive Plans
AAtt 3311 DDeecceemmbbeerr 22001188
Total comprehensive
income for the year
Share-based payments
Dividends declared
Reduction of share
capital
Transfer of treasury
shares to participants of
the Incentive Plans
AAtt 3311 DDeecceemmbbeerr 22001199
55
44
44
44
55
44
44
44
–
–
–
(1,432)
–
–
–
–
–
35
–
–
–
–
–
–
–
–
–
–
–
15
–
–
–
80
–
80
15
(1,556)
(1,556)
1,432
(35)
–
–
$$ 7755
$$ ((119966))
$$ ((558844))
$$ 112277
$$ 114499
$$ 11,,339933
$$ 996644
––
––
––
––
––
––
––
––
––
2277
––
––
––
––
––
––
––
––
––
––
––
1133
––
––
––
88,,889900
88,,889900
––
1133
((11,,008866))
((11,,008866))
––
((2277))
––
––
$$ 7755
$$ ((116699))
$$ ((558844))
$$ 112277
$$ 116622
$$ 99,,117700
$$ 88,,778811
The accompanying notes form an integral part of these separate financial statements.
239
Annual report & Accounts 2019
EVRAZ plc
Notes to the separate financial statements
Year ended 31 December 2019
1. CORPORATE INFORMATION
These separate financial statements were authorised for issue by the Board of Directors of EVRAZ plc on 26 February 2020.
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. Until 1 August 2019
the registered address of EVRAZ plc was 5th Floor, 6 St. Andrew Street, London, EC4A 3AE, United Kingdom. The new Company’s address is 2 Portman
street, London, W1H 6DU, 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 and
2019, EVRAZ plc was 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
BBaassiiss ooff PPrreeppaarraattiioonn
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the European
Union and in accordance with the Companies Act 2006.
International Financial Reporting Standards are issued by the International Accounting Standard Board (“IASB”). IFRSs that are mandatory for
application as of 31 December 2019, but not adopted by the European Union, are not expected to have a significant impact on the Company’s financial
statements.
These financial statements have been prepared on a going concern basis as the directors believe that 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.
FFoorreeiiggnn CCuurrrreennccyy TTrraannssaaccttiioonnss
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.
IInnvveessttmmeennttss
Investments in subsidiaries, associates or joint ventures are initially recorded at acquisition cost. Impairment in value is recorded if the carrying value
of an investment exceeds its recoverable amount.
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.
CCaasshh aanndd CCaasshh EEqquuiivvaalleennttss
Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.
BBoorrrroowwiinnggss
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.
PPrroovviissiioonnss
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.
240
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FFiinnaanncciiaall GGuuaarraanntteeee LLiiaabbiilliittiieess
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.
3. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES
Investments in subsidiaries and joint ventures consisted of the following as of 31 December:
Subsidiaries
Evraz Group S.A.
NTMK
Raspadskaya
Joint Ventures
Timir
OOwwnneerrsshhiipp iinntteerreesstt
CCoosstt,, nneett ooff iimmppaaiirrmmeenntt UUSS$$ mmiilllliioonn
22001199
22001188
22001199
22001188
110000%%
110000%%
8888..1166%%
100%
–
–
22,,888844
1100,,777711
11,,444400
1155,,009955
3,197
–
–
3,197
5511..0000000011%%
51.00001%
2222
24
The movement in investments was as follows:
$US million
3311 DDeecceemmbbeerr 22001177
Share-based compensations
3311 DDeecceemmbbeerr 22001188
Additional investments
Impairment loss (recognition)/reversal
Share-based compensations
EEvvrraazz GGrroouupp SS..AA..
NNTTMMKK
RRaassppaaddsskkaayyaa
$ 3,182
15
$$ 33,,119977
––
((331166))
33
$ –
–
$$ ––
1100,,776611
––
1100
$ –
–
$$ ––
11,,444400
––
––
TTiimmiirr
$ 24
–
$$ 2244
––
((22))
––
TToottaall
$ 3,206
15
$$ 33,,222211
1122,,220011
((331188))
1133
3311 DDeecceemmbbeerr 22001199
$$ 22,,888844
$$ 1100,,777711
$$ 11,,444400
$$ 2222
$$ 1155,,111177
The Company recognises share-based payments made to employees of subsidiaries under control of Evraz Group S.A., EVRAZ NTMK and Raspadskaya
as an addition to the cost of its investments in these subsidiaries (Note 5).
Evraz Group S.A.
The Company acquired Evraz Group S.A. in 2011 by means of the share exchange offer made by the Company to the shareholders of Evraz Group S.A.
At that date the cost of investments in Evraz Group S.A. was measured at the carrying amount of the equity items shown in the separate accounts of
Evraz Group S.A. at the dates of the share exchange. In 2019, the Company impaired its investment in Evraz Group S.A. largely as a consequence of
the decline in value of the Large diameter pipes cash-generating unit. More details are provided in Note 6 of the consolidated financial statements
.
NTMK
On 18 April 2019, the Company acquired 100% ownership interest in NTMK from Evraz Group S.A. for consideration of $10,761 million, which was
partially settled by non-cash consideration (Note 6). At 31 December 2019, the Company owed $2,899 million to Evraz Group S.A. in respect of this
acquisition.
Raspadskaya
On 18 April 2019, the Company acquired 84.33% ownership interest in Raspadskaya from Evraz Group S.A. for consideration of $1,423 million, which
was settled wholly by non-cash consideration (Note 6). On 30 September 2019, the Company acquired 1.33% in Raspadskaya from Evraz Group S.A.
for cash consideration of $17 million.
241
Annual report & Accounts 2019
3. INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES (CONTINUED)
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. During 2013-2019 the Company paid deferred installments for this
acquisition.
In 2019 and 2018, the Company paid 480 million roubles and 500 million roubles ($7 million and $9 million, respectively) of purchase consideration
and $1 million and $2 million, respectively, of interest charges. In 2019 and 2018, the Company recognised interest charges on deferred installments
of $Nil and $1 million, respectively, within interest expense.
At 31 December 2018, trade and other accounts payable included liabilities relating to this acquisition in the amount of $8 million, which were fully
settled in 2019.
In 2016 and before, due to the postponement of the major project activities, the Company impaired its investment in Timir. In 2019, the Company
additionally impaired $2 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
NNuummbbeerr ooff sshhaarreess
3311 DDeecceemmbbeerr
22001199
22001188
Ordinary shares of $0.05 each, issued and fully paid
11,,550066,,552277,,229944
1,506,527,294
EVRAZ plc does not have an authorised limit on its share capital.
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
NNuummbbeerr ooff sshhaarreess
Treasury shares
3311 DDeecceemmbbeerr
22001199
22001188
5544,,662200,,223333
63,177,187
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 2019 and 2018, the Company transferred to the participants of Incentive Plans 8,556,954 and
11,297,476 shares, respectively.
Reorganisation Reserve
Reorganisation reserve represents the difference between the net assets of Evraz Group S.A. at the date of the Group’s reorganisation (7 November
2011) and the par value of the issued shares of EVRAZ plc. This charge to equity reduced the amount of distributable reserves.
Merger Reserve
The merger reserve arose in 2013 in connection with the purchase of 50% in Corber Enterprises S.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.
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.
242
4. EQUITY (CONTINUED)
Dividends
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
In 2019 and 2018, the Company declared dividends in the amount of $1,086 million and $1,556 million, respectively (Note 20 of the consolidated
financial statements).
Distributable Reserves
$US million
Accumulated profits
Reorganisation reserve
Unrealised profits
31 December
22001199
99,,117700
((558844))
((88,,220000))
338866
22001188
1,393
(584)
–
809
Dividend income from Evraz Group S.A. (Note 6) did not constitute a qualifying consideration and was distributed out of the profit resulting from sale of
assets (EVRAZ NTMK and Raspadskaya) to parent and, therefore, this income is excluded from the Company’s distributable reserves at 31 December
2019.
Although distributable reserves are currently calculated at $386 million (2018: $809 million), the Company has also considered the impact of further
restrictions on distributions for public companies within Section 831 of the Companies Act. Under these restrictions the amount of reserves available
for distribution at 31 December 2019 would be $379 million (2018: $762 million).
During February 2020 the directors became aware that certain dividends paid in 2018 and 2019 totaling $1,447 million had been made otherwise
than in accordance with the Companies Act 2006. The directors duly checked the sufficiency of distributable reserves before each distribution, but due
to an administrative error the interim accounts were not filed at Companies House prior to payment.
To rectify these breaches, in February 2020 the Company filed the interim accounts in respect of each dividend payment. A special resolution will be
proposed at the Annual General Meeting of the Company’s shareholders in June 2020 to authorise the appropriation of distributable profits to
the payment of the relevant dividends and remove any right for the Company to pursue shareholders or directors (the ‘Director Release’) for repayment.
The Director Release will constitute a related party transaction under the Listing Rules of the UK Listing Authority and under IFRS. The overall effect of
the special resolution being passed will be to return all parties to the position they would have been in had the relevant dividends been made in full
compliance with the Companies Act 2006.
5. SHARE-BASED PAYMENTS
As disclosed in Note 21 of the consolidated financial statements, the Group has incentive plans under which certain employees (“participants”) can be
gifted shares of the Company.
In 2019 and 2018, the Company recognised share-based compensation expense amounting to $13 million and $15 million, respectively, as a cost of
investments in subsidiaries with a corresponding increase in equity.
6. RELATED PARTY TRANSACTIONS
Related parties of the Company include its direct and indirect subsidiaries, associates and joint venture partners, key management personnel and
other entities that are under the control or significant influence of the key management personnel, the Company’s parent or its shareholders.
Loans Received from Related Parties
The following movements in loans payable to related parties were in 2018-2019.
BBaallaannccee aatt
3311
DDeecceemmbbeerr
22001188
LLooaannss
rreecceeiivveedd
ffrroomm
rreellaatteedd
ppaarrttiieess
IInntteerreesstt
rraattee
MMaattuurriittyy
IInntteerreesstt
eexxppeennssee
RReeppaayymmeenntt
ooff llooaannss
NNoonn--ccaasshh
ttrraannssaaccttiioonnss
FFoorreexx
((ggaaiinn))//lloossss
BBaallaannccee aatt
3311
DDeecceemmbbeerr
22001199
US$ million
CCuurrrreennccyy
Direct subsidiary
Evraz Group S.A.
USD
3.50%
2022
$$ −−
$$ 554433
$$ 66
$$ ((2211))
Indirect subsidiaries
East Metals A.G
EVRAZ KGOK
Sibmetinvest
EVRAZ Vanady Tula
EVRAZ ZSMK
USD
RUB
RUB
RUB
RUB
2.73-5.06%
2018-2020
5.89%
2019-2020
5.51%
5.51-5.89%
2020
2019
6622
664488
−−
224444
5.51-5.89%
2019-2021
11,,226633
446666
336688
6655
110000
119944
1111
2277
22
77
4444
((112211))
((112266))
−−
((110011))
((887722))
$$ −−
−−
−−
((997733))
((6699))
((227711))
((771199))
$$ −−
$$ 552288
−−
5566
22
2211
9900
441188
−−
−−
−−
−−
$$ 22,,221177
$$ 11,,773366
$$ 9977
$$ ((11,,224411))
$$ ((22,,003322))
$$ 116699
$$ 994466
243
Annual report & Accounts 2019
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Loans Received from Related Parties (continued)
BBaallaannccee aatt
3311
DDeecceemmbbeerr
22001177
LLooaannss
rreecceeiivveedd
ffrroomm
rreellaatteedd
ppaarrttiieess
IInntteerreesstt
rraattee
MMaattuurriittyy
IInntteerreesstt
eexxppeennssee
RReeppaayymmeenntt
ooff llooaannss
NNoonn--ccaasshh
ttrraannssaaccttiioonnss
FFoorreexx
((ggaaiinn))//lloossss
BBaallaannccee aatt
3311
DDeecceemmbbeerr
22001188
US$ million
CCuurrrreennccyy
Direct subsidiary
Evraz Group S.A.
USD
3.50%
2020
$ −
$ 92
$ 1
$ (93)
$ −
$ −
$ −
Indirect subsidiaries
East Metals A.G
EVRAZ KGOK
EVRAZ Vanady Tula
EVRAZ ZSMK
USD
RUB
RUB
RUB
2.73-5.06%
2018-2020
5.89%
2019-2020
5.51-5.89%
2019
5.51-5.89%
2019-2021
738
−
−
−
552
664
257
1,411
16
10
4
33
(1,244)
−
(1)
(58)
−
−
−
−
−
−
(26)
(16)
62
648
244
(123)
1,263
$ 738
$ 2,976
$ 64
$ (1,396)
$ −
$ (165)
$ 2,217
Non-cash transactions include the transfer of the Company’s obligations under loans payable with a carrying value of $2,031 million to
Evraz Group S.A. for consideration of $1,999 million. The excess of the carrying value of the liabilities transferred over the newly recognised liability to
Evraz Group S.A. amounting to $33 million was recognised as a gain in the income statement within the Other non-operating gains/(losses) caption.
Dividend Income
In the reporting year the Company’s dividend income consisted of dividends from Evraz Group S.A. ($8,200 million declared in August 2019 and settled
by a non-cash offset), EVRAZ NTMK ($886 million declared in July 2019 and fully paid by cash and $623 million declared in December 2019 and not
paid as of 31 December 2019) and from Raspadkaya ($23 million declared in September 2019 and fully paid by cash).
Dividend income accrued in 2019
Dividends received by cash
Tax withheld
Non-cash offset
Exchange loss
Dividends receivable at 31 December 2019
Offset of Liabilities with Evraz Group S.A.
EEvvrraazz GGrroouupp SS..AA..
EEVVRRAAZZ NNTTMMKK
RRaassppaaddsskkaayyaa
$ 8,200
$ 1,509
–
–
(8,200)
–
$$ ––
(763)
(85)
–
(32)
$$ 662299
$ 23
(21)
(2)
–
–
$$ ––
TToottaall
$ 9,732
(784)
(87)
(8,200)
(32)
$$ 662299
During 2019 there were a number of transactions between EVRAZ plc and its direct subsidiary Evraz Group S.A.:
EVRAZ plc purchased EVRAZ NTMK and Raspadskaya from Evraz Group S.A. for total consideration of $12,201 million (Note 3);
EVRAZ plc transferred its obligations under loans payable to EVRAZ KGOK, EVRAZ Vanady Tula, EVRAZ ZSMK, Sibmetinvest for consideration
of $1,999 million (Note 6, Loans Received from Related Parties);
Evraz Group S.A. transferred to EVRAZ plc notes payble for consideration of $2,850 million (Note 7);
Evraz Group S.A. declared dividends to EVRAZ plc in the amount of $8,200 million (Note 6, Dividend Income).
During 2019 EVRAZ plc and Evraz Group S.A. concluded agreements, under which the above mentioned mutual payment obligations were offset
resulting in a net liability payable to Evraz Group S.A. in the amount of $3,151 million.
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 totaling $1,191 million at 31 December 2019 (2018: $1,061 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 2019 it accrued $2 million of such income
(2018: $3 million).
In addition, in 2019 the Company accrued $1 million of guarantee fees (2018:$1 million) for the issued guarantees to several banks for liabilities of
East Metals A.G amounting to $141 million as of 31 December 2019 (2018: $86 million).
In 2019, the Company issued a guarantee in respect of the liabilities of Evrazholding Finance, an indirect subsidiary, under the bonds due 2024 with
the outstanding principal amount of RUB 20 billion ($323 million at the exchange rate as of 31 December 2019). The Company recognised a financial
guarantee liability of $5 million in respect of this guarantee. The guarantee fees earned by the Company amounted to $1 million.
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). In 2018, the Company recognised financial guarantee liability of $18 million. In 2019 and 2018,
the Company accrued $4 million and $2 million income, respectively, under this guarantee.
244
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Guarantees (continued)
In 2019, the Company issued a guarantee for the loan payable by Evraz Group S.A. to East Metals A.G. amounting to $169 million and accrued
$1 million of guarantee fee income.
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 2019, OOO Evrazholding, an indirect subsidiary of the Company, rendered consulting services to the Company in the amount of $1 million (2018:
$1 million).
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. LOANS AND BORROWINGS
The Company had the following loans and borrowings during 2018-2019.
66..5500%% nnootteess
dduuee 22002200
88..2255%% nnootteess
dduuee 22002211
66..7755%% nnootteess
dduuee 22002222
55..337755%% nnootteess
dduuee 22002233
55..2255%% nnootteess
dduuee 22002244
$US million
3311 DDeecceemmbbeerr 22001188
NNoonn--ccaasshh cchhaannggeess::
Recognition of notes at fair value
Interest and other charges expensed
Accrual of premiums and other charges on
early repayment of borrowings
CCaasshh cchhaannggeess::
Cash proceeds from bank loans and notes, net
of debt issues costs
Repayment of interest and premiums on early
repayment
Repayment of principal
3311 DDeecceemmbbeerr 22001199
$$ ––
773388
44
66
––
((4488))
((770000))
$$ ––
$$ ––
880088
2299
––
––
((3311))
––
$$ ––
552288
2200
––
––
((1177))
––
$$ ––
777766
3322
––
––
((4400))
––
$$ ––
––
2288
––
669955
((1188))
––
$$880066
$$553311
$$ 776688
$$ 770055
$$ 22,,881100
TToottaall
$$ ––
22,,885500
111133
66
669955
((115544))
((770000))
On 13 March 2019, Evraz Group S.A. transferred all its rights and obligations under the notes with a nominal amount of $2,700 million to EVRAZ plc for
consideration of $2,850 million being the market value of the notes at that date. The Company recognised the liabilities at fair value and classified
them as subsequently measured at amortised cost.
In April 2019, EVRAZ plc issued 5.25% US dollar-denominated notes due 2024 in the amount of $700 million. The proceeds from the issue of
the notes were used to finance the purchase of 6.50% notes due 2020 at the tender offer in April 2019 and make whole call in May 2019.
In April and May 2019, the Group fully settled its 6.50% notes due 2020 ($700 million). The premium over the carrying value on the repurchase
amounting to $(6) million was included in the Gain/(loss) on financial assets and liabilities caption of the separate statement of comprehensive
income.
At 31 December 2019 the current portion of borrowings included only interest payable under the notes.
8. TRADE AND OTHER PAYABLES
Trade and other accounts payable included the following at 31 December:
US$ million
Liability relating to a settlement of guarantee
Payables for the acquisition of Timir (Note 3)
22001199
22001188
NNoonn--ccuurrrreenntt
CCuurrrreenntt
NNoonn--ccuurrrreenntt
CCuurrrreenntt
$$77
––
$$77
$$ 77
––
$$77
$ 14
–
$ 14
$ 6
8
$ 14
At 31 December 2019 and 2018, 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 2019, the Company paid $7 million (2018: $6 million) in
respect of this liability and recognised interest expense of $1 million (2018: $1 million).
245
Annual report & Accounts 2019
9. INCOME TAXES
A reconciliation of income tax expense applicable to profit before income tax using the statutory tax rate to income tax expense as reported in the
Company’s financial statements for the years ended 31 December is as follows:
US$ million
Profit/(loss) before income tax
At the statutory income tax rate of 19%
Adjustment in respect of income tax of previous years
Non-deductible expenses
Effect of lower tax rate for dividend income
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
2019
$$ 99,,002299
((11,,771166))
((22))
((9944))
11,,669966
((2233))
––
$$ ((113399))
2018
$ 94
(18)
–
–
–
–
4
$ (14)
The tax rate on dividends is equal to 10% for income from the Russian subsidiaries and zero rate for dividend income from Luxembourg. In 2019,
the Company accrued tax on dividend income amounting to $153 million. At 31 December 2019 the Company had an amount payable of $62 million
in relation to income tax on dividends receivable from NTMK.
In 2019, the Company recognised current income tax benefit of $16 million relating to the current year tax losses of $87 million that can be carried
back to recover current tax paid in 2018.
As of 31 December 2019, the unused tax losses carried forward amounted to $121 million (2018: $Nil). Deferred tax assets in respect of these losses
have not been recorded as it is not probable that sufficient taxable profits will be available in the foreseeable future to offset the losses. They are
available for offset against future taxable profits indefinitely.
As at 31 December 2019, the Company had $130 million of unutilised foreign tax credits. No deferred tax asset has been recognised on these tax
credits as they are unlikely to have value in the future. These tax credits have no fixed expiry date.
10. FINANCIAL INSTRUMENTS
LLiiqquuiiddiittyy RRiisskk
The following tables summarise the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments, including
interest payments.
3311 DDeecceemmbbeerr 22001199
US$ million
FFiixxeedd--rraattee ddeebbtt
Loans and borrowings
Principal
Interest
Loans payable to related parties
Principal
Interest
Trade and other payables
Principal
Interest
Financial guarantees
TToottaall ffiixxeedd--rraattee ddeebbtt
NNoonn--iinntteerreesstt bbeeaarriinngg ddeebbtt
Payables to related parties
TToottaall nnoonn--iinntteerreesstt bbeeaarriinngg ddeebbtt
246
OOnn ddeemmaanndd
LLeessss tthhaann 33
mmoonntthhss
33 ttoo 1122
mmoonntthhss
11 ttoo 22 yyeeaarrss
22 ttoo 55 yyeeaarrss
AAfftteerr 55 yyeeaarrss
TToottaall
$$ ––
––
––
––
––
––
––
––
$$ ––
6688
119988
44
33
––
––
$$ ––
110055
221188
2288
33
11
77
$$ 775500
114422
$$ 11,,995500
116699
--
1188
44
––
77
552222
55
44
––
1122
227733
336622
992211
22,,666622
33,,115511
––
––
––
––
––
––
––
––
$$ ––
$$ 22,,770000
448844
993388
5555
1144
11
2266
44,,221188
33,,115511
––
––
––
––
––
––
––
––
––
––
$$33,,115511
$$ 227733
$$ 336622
$$ 992211
$$ 22,,666622
$$ ––
$$ 77,,336699
10. FINANCIAL INSTRUMENTS (CONTINUED)
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
LLiiqquuiiddiittyy RRiisskk ((ccoonnttiinnuueedd))
3311 DDeecceemmbbeerr 22001188
US$ million
FFiixxeedd--rraattee ddeebbtt
Loans payable to related parties
Principal
Interest
Trade and other payables
Principal
Interest
Financial guarantees
TToottaall ffiixxeedd--rraattee ddeebbtt
MMaarrkkeett RRiisskk
CCuurrrreennccyy RRiisskk
OOnn ddeemmaanndd
LLeessss tthhaann 33
mmoonntthhss
33 ttoo 1122
mmoonntthhss
11 ttoo 22 yyeeaarrss
22 ttoo 55 yyeeaarrss
AAfftteerr 55
yyeeaarrss
TToottaall
$ –
$ 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
2019
$ 613
2018
$ 2,162
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.
USD/RUB
FFaaiirr VVaalluuee ooff FFiinnaanncciiaall IInnssttrruummeennttss
22001199
CChhaannggee iinn
eexxcchhaannggee rraattee
EEffffeecctt oonn PPBBTT
22001188
CChhaannggee iinn
eexxcchhaannggee rraattee
EEffffeecctt oonn PPBBTT
%
US$ millions
%
US$ millions
(7.78)
7.78
52
(44)
(13.87)
13.87
(348)
263
The carrying amounts of financial instruments, such as cash, accounts receivable and payable, loans payable to related parties, approximate their fair
value. The fair value of the notes is disclosed in Note 28 of the consolidated financial statements.
11. SUBSEQUENT EVENTS
On 12 February 2020, EVRAZ NTMK, the Company’s wholly-owned subsidiary, declared dividends in the amount of 31.9 billion roubles, which is
approximately $499 million. These dividends increase the Company’s distributables reserves.
Other material events after the reporting year are disclosed in Note 33 of the consolidated financial statements.
247
Annual report & Accounts 2019
Additional information
Lakhta Center
St. Petersburg, Russia
Stock performance indicators
and shareholder information
The shares of EVRAZ plc trades
on the Main market of London Stock
Exchange
Unsolicited telephone calls
and correspondence
Information about shares
of EVRAZ plc
The Company’s issued share capital
as of 31 December 2019 and 26 February
2020 was 1,506,527,294 ordinary
shares, of which 54,619,5211 shares
are held in Treasury. Therefore, the total
number of voting rightsin the Company
is 1,451,907,773.
Share price
Relative share price dynamics, 52w
Ticker (Bloomberg)
Trading service
Market
Listing category
FTSE index
FTSE sector
FTSE sub-sector
Country of share
register
Segment
MiFID Status
SEDOL
ISIN number
EVR LN
SETS
MAIN MARKET
Premium Equity
Commercial Companies
FTSE100
Industrial Metals &
Mining
Iron & Steel
GB
STMM
Regulated Market
B71N6K8
GB00B71N6K86
150
140
130
120
110
100
90
80
70
60
01.2019 02.2019 03.2019 04.2019 05.2019 06.2019 07.2019 08.2019 09.2019 10.2019 11.2019 12.2019
EVRAZ
FTSE 100 INDEX
Shareholder structure
28.77
ROMAN
ABRAMOVICH1
19.41
ALEXANDER
ABRAMOV1
9.69
ALEXANDER
FROLOV1
5.77
GENNADY
KOZOVOY2
33.56
FREE-FLOAT
1.
The number of shares differs from the figure in the Financial statements by the amount of shares held in Trust.
250
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.
1.
2.
The number of shares as per dealing notification dated
20 June 2019.
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.
Strategic report
Business review
CSR report
Corporate governance
Financial statements
Additional information
Definitions of selected alternative
performance measures
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.
Free Cash Flow
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.
Cash and short-term bank
deposits
Cash and short-term bank deposits
is not a measure under IFRS and should not be
considered as an alternative to other measures
of financial position. EVRAZ calculation of cash
and short-term bank deposits may be different
from the calculation used by other companies
and therefore comparability may be limited.
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
Cash and cash equivalents
Cash and short-term bank deposits
1,423
1,423
1,067
1,067
356
356
33.4
33.4
31 December
2019
31 December
2018
Change
Change,%
Total debt has been calculated as follows, 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, non-current
portion
Finance lease liabilities, current
portion
Total debt
140
18
(6)
83
34
31 December
2019
31 December
2018
Change
Change,%
4,599
4,186
413
9.9
377
20
(237)
(62.9)
(2)
(10)
50
(55)
-
6
83
28
n/a
n/a
n/a
5
4,868
4,638
230
Net debt has been calculated as follows, US$ million
31 December
2019
31 December
2018
Change
Change,%
Total debt
Cash and cash equivalents
Net debt
4,868
(1,423)
3,445
4,638
(1,067)
3,571
230
(356)
(126)
5
33.4
(3.5)
251
Annual report & accounts 2019 CAPEX
CAPEX has been calculated as follows, US$ million
Capital expenditure (CAPEX) is cash expenditure
on property, plant and equipment. For internal
reporting and analysis, CAPEX includes non-
cash transactions related to CAPEX.
GHG intensity ratio
Tonnes of CO2 equivalent (Scope 1 and 2 GHG
emissions) divided by tonnes of crude steel.
Оnly steelmaking enterprises are included into
the calculation, which are located in Russia
and North America.
Labour productivity, US$/t
P=S/V
S – Labour Costs (asset and A-category
subsidiaries), exclusive of tax, local currency
(on Division consolidation sites with different
currencies, $)
V – production volume, tn. (for steel assets: V –
metal products shipped)
LTIFR
31 December
2019
31 December
2018
Change
Change,%
Purchases of property, plant
and equipment and intangible assets
Non-cash purchases (Note 12)
CAPEX
762
-
762
521
6
527
241
(6)
235
46.3
n/a
44.6
Coking coal concentrate cash
cost, US$/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$/t
Cash cost of iron ore products is defined as cost
of revenues less depreciation and SG&A,
the result is divided by sales volumes.
Number of EBS transformations
Number of EBS transformations implemented
at the key assets during the reporting year.
The LTIFR is calculated on a year-to-date basis
for the company employees only.
LTIFR = X•1000000/Y
Effect from efficiency
improvement programme
(сustomer focus and cost
cutting effects)
X is the total number of occupational injuries
resulted in lost time among the company
employees in the reporting period. Fatalities are
not included.
Each project effect is calculated as an absolute
deviation of targeted metriс year to year multiplied
by relevant price or volume depending on project’s
focus.
Y is the actual total number of man-hours worked
by all company employees in the reporting period.
Slab cash costs, US$/t
Cash cost of slab is defined as the production
cost less depreciation, the result is divided
by production volumes of slab. Raw materials from
EVRAZ coal and iron ore producers are accounted
for on at-cost-basis. Costs of slab of EVRAZ
NTMK, EVRAZ ZSMK are then weighted averaged
by the total saleable slab production volume.
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Additional information
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
Evrazruda JORC equivalent coal proved and probable reserves, kt
Mine
Kaz
Tashtagol
Sheregesh
Total
As of 31 December 2019
Fe, %
4,082
62,053
84,847
150,982
Kachkanarsky GOK (EVRAZ KGOK) JORC equivalent coal proved and probable reserves, kt
Mine
As of 31 December 2019
Gusevogorskoe
Kachkanar Proper (Sobstvenno-Kachkanarskoye)
Total
3,050,520
6,743,222
9,793,742
31.90
Fe, %
15.9
As of 31 December 2019
83,132
23,137
113,913
73,030
184,489
477,702
As of 31 December 2019
911,914
224,639
113,058
101,323
1,350,934
As of 31 December 2019
85,768
S, %
1.39
V2O5, %
0.13
253
Annual report & accounts 2019 Terms and Abbreviations
B
C
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.
Cash cost of coking coal concentrate
Cash cost of coking coal concentrate is defined
as the production cost less depreciation, incl.
SG&A and Maintenance CAPEX, the result
is divided by production volumes. This measure
is used to monitor segment competitiveness
improvement.
CAPEX
Capital expenditure.
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.
A product resulting from iron ore / coal
enrichment, with a high grade of extracted
mineral.
Construction products
Include beams, channels, angles, rebars, wire
rods, wire and other goods.
Converter
A type of furnace that uses pure oxygen
in the process of producing steel from cast iron
or dry mix.
Conversion costs
Conversion costs is defined as production costs
without raw materials and depreciation, incl.
SG&A and Maintenance CAPEX. This measure
is used to monitor segment competitiveness
improvement.
Continuous casting machine
Process whereby molten metal is solidified
into a “semi-finished” billet, bloom, or slab
for subsequent rolling in the finishing mills.
Crude steel
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.
Coke battery
A group of coke ovens operating as a unit
and connected by common walls.
Deposit
An area of coal resources or reserves identified
by surface mapping, drilling or development.
Coking coal
Highly volatile coal used to manufacture coke.
E
By-product
A secondary product which results from
a manufacturing process or chemical reaction.
Concentrate
Electric arc furnace
A furnace used in the steelmaking process
which heats charged material via an electric
arc.
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F
I
Feasibility study
A comprehensive engineering estimate of all
costs, revenues, equipment requirements
and production levels likely to be achieved if
a mine is developed. The study is used to define
the technical and economic viability of a project
and to support the search for project financing.
Finished products
Products that have completed
the manufacturing process but have not yet
been sold or distributed to the end user.
Flat products or Flat-rolled steel products
Include commodity plate, specialty plate
and other products in flat shape such as sheet,
strip and tin plate.
G
Greenfield
The development or exploration of a new project
not previously examined.
Grinding balls
Balls used to grind material by impact
and pressure.
H
Head-hardened rails
High strength rails with head hardened by heat
treatment.
Heat-treatment
A group of industrial and metalworking
processes used to alter the physical,
and sometimes chemical, properties
of a material.
HiPo
High potential employee.
Iron ore
Chemical compounds of iron with other
elements, mainly oxygen, silicon, sulphur
or carbon. Only extremely pure (rich) iron-oxygen
compounds are used for steelmaking.
ISO 14001
The International Standardisation
Organisation’s standard for environmental
management systems.
ISO 9001:2008
The International Standardisation
Organisation’s standard for a quality
management system.
J
JORC Code
The Australasian Joint Ore Reserves Committee,
which is widely accepted as a standard
for professional reporting of Mineral Resources
and Ore Reserves.
Kt
Thousand tonnes.
K
L
Labour productivity
Labour productivity is defined as labour
costs exclusive of tax divided by production
volumes of steel products. The measurement
of performance enables the Company
to monitor labour efficiency.
Ladle furnace
The secondary metallurgy vessel used between
steelmaking and casting operations to allow
the composition of molten steel to be brought
to the required customer specification.
Lean
Lean is philosophy of managing the business
that is based on a set of principles that define
the way of work.
Long products
Include bars, rods and structural products that
are ‘long’ rather than ‘flat’ and are produced
from blooms or billets.
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.
255
Annual report & accounts 2019 O
Open pit mine
A mine working or excavation open
to the surface where material is not replaced
into the mined out areas.
OCTG pipe
Oilfield Casing and Tubing Goods or Oil Country
Tubular Goods – pipes used in the oil industry.
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.
Pig iron
The solidified iron produced from a blast
furnace used for steel production. In liquid form,
pig iron is known as hot metal.
Pipe blank
A flat sheet of metal, a semi-finished product,
sold to pipemakers to manufacture pipes.
Plate
A long thin square shaped construction element
made from slabs.
Pulverised coal injection (PCI)
A cost-reducing technique in iron-making, where
cheaper coal is prepared to replace normal
coking coal in the blast furnace. The coal
is pulverised into very small particles before
injection into the furnace.
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.
in metallurgical production. Slag is used
in cement and fertiliser production as well
as for base course material in road construction.
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.
Steam coal
All other types of hard coal not classified
as coking coal. Coal of this type is also
commonly referred to as thermal coal.
T
S
SG&A
Selling, General and Administrative Expenses.
Saleable products
Products produced by EVRAZ mines or steel
mills which are suitable for sale to third parties.
Self-coverage
The raw material requirement of EVRAZ
steelmaking facilities compared with coal
product sales or production of iron ore products
from own raw materials.
Scrap
Iron containing recyclable materials (mainly
industrial or household waste) that is generally
remelted and processed into new steel.
Semi-finished products
The initial product forms in the steel making
process including slabs, blooms, billets
and pipe blanks that are further processed into
more finished products such as beams, bars,
sheets, tubing etc.
Sinter
An iron rich clinker formed by heating iron
ore fines and coke in a sinter line. The
materials, in pellet form, combine efficiently
in the blast furnace and allow for more
consistent and controllable iron manufacture.
Slab
A common type of semi-finished steel product
which can be further rolled into sheet and plate
products.
Slag
Slag is a byproduct generated when non-
ferrous substances in iron ore, limestone
and coke are separated from the hot metal
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
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.
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.
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Short summary of relevant
anti-corruption policies
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.
care, culture, and environmental protection.
All petitions are carefully considered in terms
of legitimacy and transparency of purpose,
the amount sought, and the reputation
of the petitioner. The decisions are then
taken by the Group CEO. When support
is granted, sponsorship being its preferred
form, such instances are followed up by experts
under the vice president for corporate
communications and by compliance managers.
This ensures full accountability and strict
adherence of those supported to EVRAZ policy
requirements.
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.
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
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.
257
Annual report & accounts 2019 Contact
details
Registered Name and Number
EVRAZ plc (Company No. 07784342)
Secretary
Prism Cosec
Registered Office
Investor Relations
2 Portman street, London, W1H 6DU,
England, UK.
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
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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Annual report & accounts 2019