TIDMEVR
RNS Number : 2319A
Evraz Plc
28 March 2012
FOR IMMEDIATE RELEASE
EVRAZ ANNOUNCES PRELIMINARY UNAUDITED FINANCIAL RESULTS FOR
2011
28 March 2012- EVRAZ plc (LSE: EVR) (together with its
subsidiaries referred to as "EVRAZ" or the "Group"), today
announces its preliminary unaudited financial results for the year
ended 31 December 2011.
The financial information presented in this preliminary
announcement has been prepared in accordance with the Disclosure
and Transparency Rules of the UK Financial Services Authority,
International Financial Reporting Standards (IFRS) as adopted by
the European Union and in accordance with the provisions of the
Companies Act 2006. The financial information presented in this
preliminary announcement is also consistent with IFRS as issued by
the International Accounting Standards Board.
EVRAZ plc was incorporated on 23 September 2011 as a public
company under the laws of the United Kingdom and became a new
parent entity of the Group. The unaudited financial information for
the year ended 31 December 2011 contained in this document does not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The Group's statutory financial statements for
the year ended 31 December 2011, which are the first statutory
financial statements of EVRAZ plc to be presented since its
incorporation, will be approved by the Directors, audited and
delivered to the Registrar of Companies in due course.
As the Group has been formed through a reorganisation in which
EVRAZ plc became a new parent entity of the Group, the consolidated
financial information has been prepared as a continuation of the
existing group.
2011 Highlights:
Financials:
-- Consolidated revenue US$16,400 million (+22% vs. 2010)
-- Consolidated adjusted EBITDA US$2,898 million (+23%)
-- Net profit US$453 million (-4%)
-- Operating cash flow US$2,647 million (+59%)
-- Net debt US$6,442 million (-10% vs. 31 December 2010)
-- Final dividend of US$228 million announced
Steel segment:
-- Crude steel production 16.8 million tonnes (+3%)
-- Total external steel sales volumes 15.5 million tonnes
(+0%)
-- Steel segment revenue US$14,717 million (+21%)
Mining segment:
-- Iron ore production 21.2 million tonnes (+7%)
-- Raw coking coal production 6.3 million tonnes (-16%)
-- Steam coal production 3.0 million tonnes (-23%)
-- Mining segment revenue US$3,784 million (+51%)
Vanadium segment:
-- Primary vanadium (slag) production 20,741 tonnes (+0.4%)
-- External vanadium product sales volumes 26,632 tonnes
(+34%)
-- Vanadium segment revenue US$665 million (+17%)
Corporate developments:
-- Move to a Premium Listing on the London Stock Exchange
-- Inclusion in the FTSE 100
-- Appointment of Sir Michael Peat as Senior Non-Executive
Independent Director
-- Appointment of Alexander Izosimov as an Independent
Non-Executive Director
Financial management:
-- Issuance of US$850 million Eurobonds at a coupon rate of 6.75% due 2018
-- Early redemption of US$622 million of 2013 Eurobonds
-- Issuance of RUB20 billion (US$621 million) 5-year Rouble bonds at a coupon rate of 8.40%
-- Conversion of US$650 million convertible bonds originally due
in 2014 resulted in a US$553 million decrease of debt
-- 5-year US$500 million credit facility signed with Gazprombank
-- 5-year US$610 million revolving facility signed with a
consortium of banks by North American subsidiary at record-low 1.5%
to 2% over LIBOR
-- Rating upgrades by Moody's, Standard & Poor's and Fitch
to "Ba3", "B+" and "BB-" respectively
CAPEX:
-- CAPEX in 2011 amounted to US$1,281 million compared with US$832 million in 2010
-- Launch of Yerunakovskaya-VIII coking coal mine development
-- Expansion of our largest iron ore mine KGOK started
Dividends:
-- Under the revised dividend policy EVRAZ will target to
maintain a long-term average dividend payout ratio of at least 25%
of the consolidated net profit adjusted for non-recurring items,
for the relevant period
-- EVRAZ declares a gross final dividend of US$0.17/ordinary share of EVRAZ plc
-- Ex-dividend date - 6 June 2012, record date - 8 June 2012;
deadline for currency election - 11 June 2012; fixing of FX rate
date - 22 June 2012; payment date - 9 July 2012.
Alexander Abramov, Chairman of the Board of EVRAZ plc,
commented:
"2011 was a landmark year in the development of EVRAZ. We
produced a robust operating performance in volatile markets, posted
strong financial results, delivered against key management
objectives, simplified the company's capital structure and moved up
to trading on the Main Market of the London Stock Exchange,
becoming a Premium Listed UK company and a constituent of the
FTSE100 Index.
"That the group was able to deliver such a resilient performance
in a year characterised by global economic uncertainty is testament
to the power of our integrated business model, the sustainability
of our strategy and the efforts of our management team and
employees. Although the new company, EVRAZ plc, represents the same
underlying assets as EVRAZ Group S.A., the listing will enable us
to broaden our shareholder base, improve the liquidity of the
Company's shares, and provide better access to the international
capital markets. Importantly the listing also shows EVRAZ's
commitment to the highest standards of governance, transparency and
information disclosure.
"As a global organisation our undertaking is to make the world
Stronger, Safer and Cleaner and to this end, we are increasing our
emphasis on the Health, Safety and Environmental management of the
Group."
Alexander Frolov, Chief Executive of EVRAZ plc, commented:
"First of all, I'd like to emphasise that the safety of our
employees remains our top priority. In 2011 we have recorded
significant improvement in both lost time injury frequency rate and
fatal injury frequency rate, with the former down 23% and the
latter down 50% year-on-year. Our main goal now is to make these
improvements sustainable.
"Our main strategic priorities in 2011 were to grow our
steelmaking raw material base and to improve the performance and
efficiency of our existing mining operations. During the year we
launched a number of growth initiatives to improve productivity and
secure our self-coverage in raw materials. We remain on track to
reach our long-term objective of achieving integration levels in
excess of 100% self-coverage in iron ore and coking coal
supply.
"At the same time, we have focused on the need for operational
excellence in our steel operations, firstly, in order to preserve
our competitive advantage as one of the world's leading low cost
steel producers, and secondly, to reposition the business and
increase our share of higher value-added finished products. We have
made considerable progress in pursuit of these goals: modernising
existing facilities, investing in new projects and successfully
shifting our production more toward value-added steel products.
Mining Segment
"In 2011, we focused on investments in the development of our
iron ore resource base, primarily the expansion of the Kachkanar
iron ore operations to ensure steady supply of iron ore to our
steelmaking operations in the years to come. As a result, our KGOK
plant increased production of raw iron ore from 52 to 55 million
tonnes. Production of iron ore products increased as a result of
continuous efforts on debottlenecking. Our mining segment sold 18%
more iron ore products to our steel segment and to external
customers in 2011 compared to 2010.
"One of our challenges in 2011 was to stabilise our existing
coking coal mining operations and lay the foundation for a future
increase in production. The performance of our coal mines has been
affected in the past few years by a combination of negative factors
including difficult geological conditions, mine shutdowns and
temporary stoppages, divestments and the impact of more stringent
health and safety requirements. As a result, the production of raw
coking coal fell from 10 million tonnes in 2009 to 6.3 million
tonnes in 2011.
"2011 was not an exception as we had to temporarily stop the
Alardinskaya and Osinnikovskaya mines for longwall repositionings
and additional implementation of safety equipment. In the fourth
quarter these works were finished and all the mines became
operative. In October, production was launched at the Ulyanovskaya
mine. As a result, fourth quarter production was up 19% compared to
the third quarter.
"To prepare for the future depletions of existing mines and
increase our coking coal self-coverage we launched construction of
the Yerunakovskaya 8 mine. We have also looked into possible
variants of starting the development of the Mezhegey coal deposit,
even with limited mining volumes, as early as 2013.
"With implementation of all the plans we expect the production
volumes of coking coal in 2012 to increase over the 2011 level,
bringing our coking coal self-coverage to over 100% by the end of
2013, which will help improve profitability of our business.
Steel Segment
"Buoyed by strong contributions from our core markets of Russia
and North America, our steelmaking business made progress in 2011.
With all our major facilities operating at full capacity,
production volumes of crude steel rose 3% year on year to 16.8
million tonnes.
"Within the product mix, we saw a further shift away from
semi-finished products towards higher margin, value-added finished
products. As a consequence, the share of finished products as a
proportion of total output increased to 77% from 75% in 2010, a
record contribution in our corporate history.
"A special emphasis of 2011 was on cost reduction and improving
product quality. We invested in the development of pulverised coal
injection technology (PCI) at all our Russian blast furnaces,
designed to significantly reduce consumption of coking coal and
natural gas in blast furnace production.
"The modernisation of the Russian rail mills, when completed by
the end of 2012, will allow us to supply better quality rails to
satisfy the immediate demand of our major customer in Russia,
Russian Railways. The next stage will be production of 100-metre
heat-treated rails for high-speed railroads in line with the
Russian long-term state programme to develop rail transportation in
the country. We have also modernised the wheel production
significantly improving the quality of railway wheels made at our
plant in Nizhny Tagil, supplied also to Russian Railways and
commercial customers in Russia and other CIS countries.
Operational Improvements
"In order to preserve our competitive advantage and compete
effectively in the global market, we need to create more value for
our customers and to do so more efficiently by using fewer
resources, which is why we have introduced the EVRAZ Business
System into the organisation. We are applying Lean business
principles across our business to create a culture of continuous
improvement. Lean is a management philosophy which defines the way
we work, and our goal is not just to identify cost reductions, but
to change the way our entire organisation thinks and acts.
"In 2011, we streamlined further our business by moving into our
new headquarters in Moscow, relocated our North American centre of
operations, and commenced the consolidation of our European assets
into a single unit. We also merged our two major integrated steel
plants, NKMK, the leading rail producer in Russia, and ZSMK,
Siberia's largest steel mill, into a new unified business, United
ZSMK, creating one of the largest steel plants in Russia.
Positioned for Growth
"We are committed to enhancing our mining asset base,
modernising our steel making facilities and improving product
quality in order to maintain and strengthen our competitive
position in our key markets. To achieve these goals, we invested
US$1.28 billion in a number of projects in 2011. Some of them will
come on-stream by the end of 2012, starting with the increased
production of our iron ore mine at Kachkanar, followed in 2013 by
(1) an additional 2 million tonnes of raw coking coal per year to
be mined at the Yerunakovskaya 8 mine and (2) the start of mining
at the Mezhegey coking coal deposit, with an estimated 700 million
tonnes of reserves and resources. The development of new deposits
will help to underpin our goal of reaching integration levels in
excess of 100% self-coverage in iron ore and coking coal.
"By the end of 2012, we will start using pulverised coal
injection technology (PCI) at all our Russian steelmaking
facilities, which will reduce coking coal consumption by 20% and
eliminate the need for natural gas in blast furnace production,
thus lowering our steelmaking costs.
"We are continuing to modernise and expand existing steel making
and rolling facilities, commission new steel mills and invest in
new production technology. The reconstruction of our Russian rail
mills at United ZSMK and NTMK should be completed in 2012, enabling
EVRAZ to increase its manufacturing capacity for high-speed rails
and improve the quality of the products.
"In 2013 we expect two new rolling mills, in the south of Russia
and in Kazakhstan, to start producing rebars and small sections
from internally supplied billets. This will allow us to further
increase the proportion of higher value-added products and improve
the profitability of our steel operations."
Giacomo Baizini, EVRAZ plc Chief Financial Officer,
commented:
"Our financial performance was strong with revenues growing by
22% to US$16.4 billion, driven primarily by price increases.
Stronger revenues and a higher proportion of value-added products
within the revenue mix had a positive impact on adjusted EBITDA,
which increased 23% year on year to US$2.9 billion. Whilst the
Steel division was the major contributor to revenue growth, our
mining operations were responsible for more than half the Group's
adjusted EBITDA, reinforcing the value of a strong raw materials
asset base.
"Notwithstanding our growth in EBITDA, our net profit contracted
by 3% in 2011 as it was negatively affected by a number of one-off
items. In H1 it was negatively impacted by US$161 million relating
to the incentivised conversion of our 2014 convertible bonds. In H2
we incurred US$19 million of expenses for the move to the Premium
Listing on the London Stock Exchange. Without these items our 2011
net profit would have been US$633 million.
"Our H1 2011 profit was also affected by US$71 million of
charges on the early repurchase of our 2013 Eurobonds, and H2 2011
profit was also negatively affected by an increased mining
depletion charge of US$182 million. This was due to the growth in
per tonne depletion rates caused by estimation of relatively higher
per tonne future capital expenditures required to develop proved
and probable reserves that were added by the Group as a result of
independent JORC valuation of the Group's iron ore and coal
reserves and resources in the middle of the year.
"The business delivered strong cash performance, generating
operating cashflow of US$2.6 billion, which supported capital
expenditure of US$1.28 billion. The Group produced free cashflow of
US$641 million (vs. US$282 million in 2010). The strong cash
generation and the incentivised conversion of the 2014 convertible
bonds resulted in a reduction of net debt during the year of US$742
million to US$6.4 billion at 31 December 2011.
"Refinancing of short-term debt using debt instruments with
longer-term maturities remains our financial management strategy.
In April 2011 we repurchased US$622 million of the 2013 Eurobonds
and issued a new US$850 million 7-year Eurobond at an interest rate
of 6.75%. We also continued to take advantage of the Rouble bond
market with a further RUB 20 billion issue, which was then swapped
into US dollars at very attractive rates. We signed a 5-year US$500
million credit line with Gazprombank in October 2011 and a 5-year
revolving credit facility in North America at a record-low interest
rate.
"We also converted US$650 million convertible bonds originally
due in 2014 thereby reducing our debt level by US$553 million. Our
short-term debt has decreased by 15% and now stands at US$626
million - less than 10% of our total debt. Leverage was 2.2x net
debt to LTM Adjusted EBITDA and we have no material maturities
until 2013.
"Our improved financial position was reflected in credit rating
upgrades by Moody's, Standard & Poor's and Fitch Ratings.
"On the back of such results we are today announcing a final
dividend for 2011 of US$228 million or US$0.17 per share. Including
the interim ordinary dividend of US$89 million paid in October,
this gives a total ordinary dividend for 2011 of US$317 million, or
50% of net profit adjusted for non-recurring items of US$633
million, (where non-recurring items are US$161 million of
incentivised conversion premium and US$19 million of expenses
related to the Premium Listing on the London Stock Exchange).This
is in-line with the Company's stated policy of targeting a
long-term average dividend payout ratio of at least 25% of adjusted
net profit".
Outlook
Commenting on the outlook for 2012 and beyond Mr. Frolov
said:
"The long-term prospects for global infrastructure, a sector
where EVRAZ has established a strong reputation and footprint,
remain attractive. As a low cost, vertically integrated global
steel manufacturer, EVRAZ is well placed to benefit from the
increased emphasis on infrastructure development globally.
"In the near-term, the outlook for the global steel industry is
likely to continue to be challenging in 2012. Our current
expectation is for a modest overall rise in steel consumption,
driven by demand from the emerging markets. The wider global
economy and, in turn, the steel industry, continues to face
challenges and will likely remain volatile.
"However, we have substantial experience of managing the
business in an extremely challenging environment in late 2008-2009
and enter this period of uncertainty with confidence. Inventories
at traders and at our mills and ports are very low and we do not
ship without a pre-payment, which minimises our credit risk.
"We continue to run our steelmaking capacities at full
utilisation and expect the situation to remain the same in the
foreseeable future. This is expected to result in a slight increase
in volumes of finished steel products in 2012 compared to 2011 due
to the completion of certain maintenance and modernisation
projects.
"In Russia steel prices have remained broadly flat in Q1 2012 on
Q4 2011, and our cost base is increasing due to the ongoing
strengthening of the Rouble. Prices of steel products have remained
broadly flat since the beginning of 2012. Russian Railroads remains
a very strong customer and we expect it to maintain purchase
volumes over the next several years. In addition, we expect to
improve our product mix and generate additional revenue through our
rail mill and wheel shop modernisation.
"Demand for our products in North America remains strong and the
relative performance of this region so far in 2012 is higher than
in 2011.
"CAPEX for FY2012 is expected to remain at the level of 2011 but
we continuously assess the market environment and have flexibility
in our CAPEX plans.
"We strongly believe that the quality of EVRAZ Group's asset
base, the competitive advantages derived from vertical integration,
its low cost position, geographic breadth and highly experienced
management team leave the Company well positioned to continue to
implement its growth strategy and deliver value for
shareholders."
Mr. Baizini added:
"Given the challenging outlook for the industry, we continue
carefully to monitor and proactively address any potential issues
of future compliance with the covenants associated with the
Company's financial indebtedness. Furthermore, EVRAZ continues to
have substantial financial headroom, having in excess of US$800
million of cash on our balance sheet at the end of 2011 as well as
significant liquidity available in committed and uncommitted credit
lines to support our operations and investment plans."
Full year to 31 December 2011 2010 (1) Change
(US$ million)
--------------------------- ------- --------- -------
Revenue 16,400 13,394 22.4%
Adjusted EBITDA (2) 2,898 2,350 23.3%
Profit from operations 1,860 1,330 39.8%
Net profit 453 470 (3.6)%
Earnings per share, (US$) 0.36 0.39 (7.7)%
--------------------------- ------- --------- -------
1 The amounts shown here and in similar tables throughout the
press release do not correspond to the 2010 financial statements
and reflect adjustments made in connection with the completion of
initial accounting
2 Refer to Appendix 1 for reconciliation to profit from
operations
2011 Results Summary:
EVRAZ's consolidated revenues for the year ended 31 December
2011 increased by 22.4% to US$16,400 million compared with
US$13,394 million in 2010. Increases in both prices and volumes
contributed to this revenue growth. Price increases accounted for
US$2,774 million, or approximately 92% of the revenue growth, while
volume increases accounted for US$232 million, or approximately 8%
of the revenue growth.
The price effect was partially attributable to the change in
shipment terms by EVRAZ's Russian mills to domestic customers
(except for sales of rails to Russian Railways) from ExWorks to CPT
(Carriage paid to) Incoterms from April 2011. Transportation
included in 2011 revenues for CPT shipments in Russia amounted for
approximately US$248 million.
The steel segment accounted for the majority of the increase in
revenue due to higher average prices of steel products. EVRAZ's
sales volumes of steel products to external customers remain at the
same level as in 2010.
While total steel sales volumes did not change in 2011 compared
to 2010, there were some changes between the markets. Sales volumes
in the Russian and Ukrainian markets increased by 1.2 million
tonnes and 0.1 million tonnes respectively compared to 2010. This
increase was fully offset by a decrease in export sales volumes
from EVRAZ's Russian and Ukrainian operations, which reflects
EVRAZ's strategy to direct sales away from export markets where
prices for its steel products were generally lower in 2011, to
domestic CIS markets, where prices for steel products were higher.
Sales volumes of EVRAZ's European operations increased by 0.1
million tonnes, while volumes of North American operations
increased by 0.1 million tonnes. Steel sales volumes of EVRAZ's
South African operations remained flat in 2011.
Geographic breakdown of consolidated revenues
Year ended 31 December
------------------------------------------------------------------
2011 2010 2011 v 2010
------------------------- ------------------------- ------------
US$ million % of total US$ million % of total % change
------------------- ------------ ----------- ------------ ----------- ------------
Russia 6,632 40.4% 4,692 35.0% 41.3%
Americas 3,741 22.8% 3,162 23.6% 18.3%
Asia 2,350 14.3% 2,671 20.0% (12.0)%
Europe 1,941 12.0% 1,422 10.6% 36.4%
CIS 1,187 7.2% 960 7.2% 23.6%
Africa 544 3.3% 485 3.6% 12.2%
Rest of the world 5 0.0% 2 0.0% 150.0%
------------ ----------- ------------ ----------- ------------
Total 16,400 100.0% 13,394 100.0% 22.4%
------------------- ------------ ----------- ------------ ----------- ------------
Revenues from sales in Russia increased both in absolute terms
and as a proportion of total revenues from 35.0% to 40.4%, driven
by improving demand for construction products in the Russian market
supported by additional sales through sales branches of EVRAZ
Metall Inprom.
In 2011, revenues from non-Russian sales rose by 12.3% to
US$9,768 million compared with US$8,702 million in 2010 but
decreased as a percentage of total revenues to 59.6%, compared with
65.0% in 2010.
In 2011, the consolidated cost of revenues amounted to 76.1% of
consolidated revenues, or US$12,473 million compared with 77.0% of
consolidated revenues, or US$10,319 million, in 2010.
Gross profitrose by 27.7% from US$3,075 million in 2010 to
US$3,927 million in 2011. This increase in gross profit margin
primarily resulted from an increase in steel and mining product
prices.
Selling, general and administrative (SG&A) expenses as a
percentage of consolidated revenues increased year-on-year from
11.5% to 12.7%.
Total loss on the disposal of property, plant and equipment in
2011 amounted to US$50 million compared with US$52 million in
2010.
Total impairment of assets amounted to US$104 million in 2011 as
compared to US$147 million in 2010. Impairment in 2010 was partly
attributable to impairment of goodwill in the amount of US$16
million related to Stratcor. EVRAZ recognized impairment of assets,
other than goodwill, in the amounts of US$104 million and US$131
million in 2011 and 2010 respectively, including impairment of
certain items of property, plant and equipment and intangible
assets.
The total foreign exchange gain amounted to US$269 million in
2011 compared to US$104 million in 2010. The foreign exchange gain
in 2011 primarily related to gains in respect of intercompany loans
issued by Russian subsidiaries to Mastercroft Finance Ltd (a Cyprus
based subsidiary) in Roubles (gains recognised in Mastercroft
Finance Ltd) and intercompany loans issued by Russian subsidiaries
in US dollars (gains recognised in Russian subsidiaries) due to the
depreciation of the Rouble against the US dollar between 31
December 2010 and 31 December 2011.
Profit from operations improved from US$1,330 million, or 9.9%
of consolidated revenues, in 2010, to US$1,860 million, or 11.3% of
consolidated revenues, in 2011.
Consolidated adjusted EBITDA increased by 23.3% to US$2,898
million in 2011 compared to US$2,350 million in 2010, with adjusted
EBITDA margin of 17.6% and 17.5% respectively.
Interest expensedecreased 2.7% to US$708 million in 2011
compared with US$728 million in 2010 due to reduction in total
debt.
In 2011, income tax expense amounted to US$420 million compared
to US$163 million in 2010. EVRAZ's effective tax rate, defined as
income tax expense (benefit) as a percentage of profit (loss)
before tax, increased from 25.8% in 2010 to 48.1% in 2011. The
lower effective rate in 2010 is explained by a US$142 million
benefit arising from a new tax code in Ukraine.
The net profit attributable to equity holders of EVRAZ plc in
2011 was US$461 million compared with US$486 million in 2010.
Review of Operations
Steel Segment Results
Full year to 31 December 2011 2010 Change
(US$ million)
-------------------------- ------- ------- --------
Revenues* 14,717 12,123 21.4%
Profit from operations 580 878 (33.9)%
Adjusted EBITDA 1,262 1,485 (15.0)%
Adjusted EBITDA margin 8.6% 12.2% (3.6)%
-------------------------- ------- ------- --------
*Segment revenues include intersegment sales
Steel Segment Sales*
Year ended 31 December
------------------------------------------------------------------
2011 2010 2011 v 2010
------------------------- ------------------------- ------------
US$ million % of total US$ million % of total % change
---------------------------- ------------ ----------- ------------ ----------- ------------
Steel products
Construction products (1) 4,430 30.1% 3,337 27.5% 32.8%
Railway products (2) 1,969 13.4% 1,472 12.1% 33.8%
Flat-rolled products (3) 2,763 18.8% 2,007 16.6% 37.7%
Tubular products (4) 1,322 9.0% 1,309 10.8% 1.0%
Semi-finished products (5) 2,235 15.2% 2,340 19.3% (4.5)%
Other steel products (6) 592 4.0% 411 3.4% 44.0%
Other products (7) 1,406 9.5% 1,247 10.3% 12.8%
------------ ----------- ------------ ----------- ------------
Total 14,717 100.0% 12,123 100.0% 21.4%
---------------------------- ------------ ----------- ------------ ----------- ------------
(1) Includes rebars, wire rods, wire, H-beams, channels and
angles.
(2) Includes rail and wheels.
(3) Includes plates and coils.
(4) Includes large diameter, ERW seamless pipes and casing.
(5) Includes billets, slabs, pig iron, pipe blanks and
blooms.
(6) Includes rounds, grinding balls, mine uprights and
strips.
(7) Includes coke and coking products, refractory products,
ferroalloys and resale of coking coal.
Steel Products Sales Volumes*
Full year to 31 December 2011 2010 Change
('000 tonnes)
-------------------------- ------- ------- --------
Steel products
Construction products 5,515 5,090 8.3%
Railway products 2,098 1,913 9.7%
Flat-rolled products 2,872 2,573 11.6%
Tubular products 912 924 (1.3)%
Semi-finished products 3,479 4,481 (22.4)%
Other steel products 674 584 15.5%
------- ------- --------
Total 15,550 15,565 (0.1)%
-------------------------- ------- ------- --------
* Including intersegment sales
Steel segment revenues increased by 21.4% to US$14,717 million
in 2011 compared with US$12,123 million in 2010, a reflection of
increasing prices for steel products, as described above.
The proportion of revenues attributable to sales of construction
products increased as a result of higher sales volumes and prices
of construction products in Russia.
The proportion of revenues attributable to sales of railway
products increased in 2011 compared with 2010 due to growth in
sales volumes. In 2010, EVRAZ signed an agreement with Russian
Railways that linked the prices for EVRAZ's rails supplied to
Russian Railways to the market prices of scrap metal. This
agreement had the effect of protecting EVRAZ's margin.
The proportion of revenues attributable to sales of flat-rolled
products (primarily plates) increased in response to sales volumes
growth across EVRAZ's Russian, North American and European
operations.
The proportion of revenues attributable to sales of tubular
products decreased due to relative stability of prices and volumes
of tubular products compared with the growing revenues of other
product groups.
The proportion of revenues attributable to sales of
semi-finished products decreased largely due to lower sales volumes
of semi-finished products sold by the Russian and Ukrainian
operations to export markets.
Revenues from sales in Russia amounted to approximately 41.7% of
steel segment revenues in 2011, compared with 35.3% in 2010. The
increased share of revenues from sales in Russia resulted from the
reallocation of steel volumes from Asian export markets to the
Russian market.
Steel segment cost of revenues increased to 83.8% of steel
segment revenues in 2011, or US$12,380 million, compared with 82.3%
of steel segment revenues, or US$9,983 million, in 2010. The
increase in cost of revenues in monetary terms is attributable to a
rise of 33.5% in raw material costs due to growth in the prices of
all key raw materials (particularly coking coal and iron ore) and
appreciation of Russian Rouble and other Group's reporting
currencies against the US dollar; increased energy costs (+24.5%)
due to higher energy prices and the currencies appreciation against
the US dollar; and enhanced staff costs (+23.6%). Costs of
semi-finished products increased by 20.2% mainly due to increased
slab usage volumes in EVRAZ North America, and higher average cost
of slabs.
In 2011, the steel segment recorded an operating profit of
US$580 million (3.9% of steel segment revenues), compared with
US$878 million (7.2% of steel segment revenues) in 2010.
Mining Segment Results
Full year to 31 December 2011 2010 Change
(US$ million)
------------------------------- ------ ------ -------
Revenues 3,784 2,507 50.9%
Profit/(loss) from operations 1,150 613 87.6%
Adjusted EBITDA 1,628 935 74.1%
Adjusted EBITDA margin 43.0% 37.3% 5.7%
------------------------------- ------ ------ -------
Mining Segment Sales*
Year ended 31 December
------------------------------------------------------------------
2011 2010 2011 v 2010
------------------------- ------------------------- ------------
US$ million % of total US$ million % of total % change
------------------------- ------------ ----------- ------------ ----------- ------------
Iron ore products 2,438 64.4% 1,526 60.9% 59.8%
Iron ore concentrate 723 19.1% 516 20.6% 40.1%
Sinter 576 15.2% 369 14.7% 56.1%
Pellets 853 22.5% 521 20.8% 63.7%
Other 286 7.6% 120 4.8% 138.3%
Coal products 1,247 33.0% 901 35.9% 38.4%
Raw coking coal 157 4.1% 161 6.4% (2.5)%
Coking coal concentrate 862 22.8% 501 20.0% 72.1%
Raw steam coal 52 1.4% 108 4.3% (51.9)%
Steam coal concentrate 176 4.7% 131 5.2% 34.4%
Other revenues 99 2.6% 80 3.2% 23.8%
------------ ----------- ------------ ----------- ------------
Total 3,784 100.0% 2,507 100.0% 50.9%
------------------------- ------------ ----------- ------------ ----------- ------------
Full year to 31 December 2011 2010 Change
('000 tonnes)
-------------------------- ------- -------- --------
Iron ore products 19,951 16,936 17.8%
Iron ore concentrate 6,434 5,825 10.5%
Sinter 4,423 3,969 11.4%
Pellets 6,064 5,451 11.2%
Other 3,030 1,691 79.2%
Coal products 8,595 9,455 (9.1)%
Raw coking coal 1,595 2,443 (34.7)%
Coking coal concentrate 4,150 4,607 (9.9)%
Raw steam coal 1,437 2,247 (36.0)%
Steam coal concentrate 1,413 158 794.3%
-------------------------- ------- -------- --------
* Including intersegment sales
Mining segment revenuesrose 50.9% to US$3,784 million in 2011,
compared with US$2,507 million in 2010, primarily reflecting higher
prices of iron ore and coking coal products in 2011.
Total sales volumes of EVRAZ's mining segment in 2011 as
compared to 2010 increased by 17.8% in respect of iron ore products
and decreased by 9.1% in respect of coal products. The decrease in
total sales volumes of coking coal products in 2011 was caused by
lower production volumes of raw coking coal following temporary
stoppages of some mines in 2011 for additional implementation of
safety equipment and procedures Sales volumes of steam coal
decreased by 17.2% due to lower volumes of raw steam coal mined as
some steam coal facilities were not operating in 2011. In monetary
terms, a higher proportion of raw coal processed by EVRAZ's mining
segment into coal concentrate, sold at higher prices, offset the
impact of decreased mined raw coal volumes.
In 2011, mining segment sales to the steel segment amounted to
US$2,706 million, or 71.5% of mining segment sales, compared with
US$1,747 million, or 69.7% of mining segment sales, in 2010.
In H1 2011, EVRAZ's iron ore requirements were self-covered by
approximately 99% and in H2 2011 by approximately 106% compared
with 90% in H1 2010 and 102% in H2 2010. Self-coverage in coking
coal (including 40% share of Raspadskaya production) was 88% in H1
2011 and 71% in H2 2011 compared to 90% and 80% respectively in
2010. Excluding the Raspadskaya share self-coverage was 62% in 1H
2011 and 49% in H2 2011.
Approximately 40% of the mining segment's external sales in 2011
were to customers in Russia compared with 48% in 2010. The decrease
in the share of third party sales outside Russia is largely
attributable to higher sales volumes of iron ore in the CIS and
European markets.
Mining segment cost of revenues decreased to 62.4% of mining
segment revenues, or US$2,363 million, in 2011 from 62.6% of mining
segment revenues, or US$1,569 million, in 2010. The increase in
monetary terms was primarily attributable to the growth in raw
materials costs (+114.7%) which resulted from higher prices and
volumes of external coking coal purchased by the mining segment for
processing (due to decrease in the Yuzhkuzbassugol's mining
volumes) and increased prices of purchased iron ore; higher
depreciation and depletion costs (+92.5%) as a result of an
increased mining depletion charge of US$180 million in 2011, fixed
assets additions and appreciation of the Russian Rouble against the
US dollar.
Vanadium Segment Results
Full year to 31 December 2011 2010 Change
(US$ million)
-------------------------- ----- ----- --------
Revenues 665 566 17.5%
Loss from operations (13) (10)
Adjusted EBITDA 22 53 (58.5)%
Adjusted EBITDA margin 3.3% 9.4% (6.1)%
-------------------------- ----- ----- --------
Vanadium Segment Sales*
Year ended 31 December
------------------------------------------------------------------
2011 2010 2011 v 2010
------------------------- ------------------------- ------------
US$ million % of total US$ million % of total % change
---------------------------------- ------------ ----------- ------------ ----------- ------------
Vanadium in slag 76 11.4% 39 6.9% 94.9%
Vanadium in alloys and chemicals 579 87.1% 516 91.2% 12.2%
Other revenues 10 1.5% 11 1.9% (9.1)%
------------ ----------- ------------ ----------- ------------
Total 665 100.0% 566 100.0% 17.5%
---------------------------------- ------------ ----------- ------------ ----------- ------------
Full year to 31 December 2011 2010 Change
('000 tonnes of pure Vanadium)
--------------------------------- ----- ----- -------
Vanadium products 27.4 20.6 33.0%
Vanadium in slag 6.7 3.1 116.1%
Vanadium in alloys and
chemicals 20.7 17.5 18.3%
--------------------------------- ----- ----- -------
* Including intersegment sales
Vanadium segment revenues increased by 17.5% to US$665 million
in 2011, compared with US$566 million in 2010, reflecting
significantly higher sales volumes of vanadium products despite
lower prices. Sales volumes of the vanadium segment increased from
20.6 thousand tonnes of pure vanadium in 2010 to 27.4 thousand
tonnes of pure vanadium in 2010.
Vanadium segment cost of revenues increased to 91.7% of vanadium
segment revenues, or US$610 million, in 2011 from 88.5% of vanadium
segment revenues, or US$501 million, in 2010. The increase in
monetary terms was primarily attributable to higher sales
volumes.
Other operations segment results
Full year to 31 December 2011 2010 Change
(US$ million)
-------------------------- ------ ------ -------
Revenues 966 823 17.4%
Profit from operations 162 77 110.4%
Adjusted EBITDA 197 144 36.8%
Adjusted EBITDA margin 20.4% 17.5% 2.9%
-------------------------- ------ ------ -------
EVRAZ's other operations include logistics, port services, power
and heat generation and supporting activities.
Consolidated Group Financial Position
Cash flow
Cash flow from operating activities increased from US$1,662
million in 2010 to US$2,647 million in 2011. Cash provided by
operating activities before working capital adjustments increased
from US$2,030 million in 2010 to US$2,528 million in 2011.
Net cash used in investing activities totalled US$1,188 million
in 2011 compared with US$744 million in 2010. Substantially, all
the cash used in investing activities related to own capital
expenditures.
In 2011, EVRAZ's capital expenditure totalled US$1,281 million,
including US$678 million in respect of the steel segment and US$452
million in respect of the mining segment. EVRAZ's capital
expenditure plans are subject to change depending, among other
things, on the development of market conditions and the cost and
availability of funds. EVRAZ's 2012 budget anticipates total
capital expenditure for 2012 to be in line with 2011.
Net cash used in financing activities amounted to US$1,282
million in 2011 compared to US$899 million in 2010 reflecting a
reduction in debt and interest paid.
Statement of financial position
As of 31 December 2011 total debt decreased to US$7,206 million
compared to US$7,811 million as of 31 December 2010. Cash and cash
equivalents together with short-term bank deposits amounted to
US$803 million, against US$684 million as of 31 December 2010.
Liquidity, defined as cash and cash equivalents, amounts available
under credit facilities and short-term bank deposits with original
maturity of more than three months, totalled approximately US$2,125
million as of 31 December 2011 compared with approximately US$1,694
million as of 31 December 2010.(Please refer to Appendix 2 for
calculation of liquidity)
As of 31 December 2011, EVRAZ had unutilised borrowing
facilities of US$1,322 million, including US$560 million of
committed facilities and US$762 million of uncommitted facilities.
Committed facilities consisted of credit facilities available for
Russian and North American operations in the amounts of US$261
million and US$299 million respectively. Uncommitted facilities
consisted of revolving credit lines of US$522 million with
international banks for export trade financing at East Metals and
credit facilities available for South African, European, North
American and Russian operations in the amounts of US$49 million,
US$136 million, US$15 million and US$40 million respectively.
EVRAZ's current ratio, defined as current assets divided by
current liabilities, slightly decreased from 1.77 as of 31 December
2010 to 1.76 as of 31 December 2011.
Net debt amounted to US$6,442 million as of 31 December 2011
compared with US$7,184 million as of 31 December 2010. (Please
refer to Appendix 3 for calculation of net debt)
# # #
For further information:
Investor Relations: Alexander Boreyko Director, Investor
Relations
London: +44 207 832 8990 Moscow: +7 495 232 1370
ir@evraz.com
Media Relations: Oleg Kuzmin VP, Corporate Communications
London: +44 207 832 8998 Moscow: +7 495 937 6871 media@evraz.com
Appendix 1
Adjusted EBITDA
Adjusted EBITDA represents profit from operations plus
depreciation, depletion and amortisation, impairment of assets,
loss (gain) on disposal of property, plant and equipment, and
foreign exchange loss (gain). EVRAZ presents an Adjusted EBITDA
because it considers Adjusted EBITDA to be an important
supplemental measure of its operating performance and believes
Adjusted EBITDA is frequently used by securities analysts,
investors and other interested parties in the evaluation of
companies in the same industry. Adjusted EBITDA is not a measure of
financial performance under IFRS and it should not be considered as
an alternative to net profit as a measure of operating performance
or to cash flows from operating activities as a measure of
liquidity. EVRAZ's calculation of Adjusted EBITDA may be different
from the calculation used by other companies and therefore
comparability may be limited. Adjusted EBITDA has limitations as an
analytical tool and potential investors should not consider it in
isolation, or as a substitute for an analysis of our operating
results as reported under IFRS. Some of these limitations
include:
-- Adjusted EBITDA does not reflect the impact of financing or
financing costs on EVRAZ's operating performance, which can be
significant and could further increase if EVRAZ were to incur more
debt.
-- Adjusted EBITDA does not reflect the impact of income taxes on EVRAZ's operating performance.
-- Adjusted EBITDA does not reflect the impact of depreciation
and amortisation on EVRAZ's operating performance. The assets of
EVRAZ's businesses which are being depreciated and/or amortised
will have to be replaced in the future and such depreciation and
amortisation expense may approximate the cost to replace these
assets in the future. Adjusted EBITDA, due to the exclusion of this
expense, does not reflect EVRAZ's future cash requirements for
these replacements. Adjusted EBITDA also does not reflect the
impact of a loss on disposal of property, plant and equipment.
Reconciliation of profit (loss) from operations to adjusted
EBITDA is as follows:
Year ended 31 December
-------------------------
2011 2010
------------ -----------
(US$ million)
------------------------------------------------- -------------------------
Consolidated Adjusted EBITDA reconciliation
Profit from operations 1,860 1,330
Add:
Depreciation, depletion and amortisation 1,153 925
Impairment of assets 104 147
Loss on disposal of property, plant &
equipment 50 52
Foreign exchange gain (269) (104)
------------ -----------
Consolidated Adjusted EBITDA 2,898 2,350
============ ===========
Steel segment Adjusted EBITDA reconciliation
Profit from operations 580 878
Add:
Depreciation and amortisation 546 558
Impairment of assets 78 81
Loss on disposal of property, plant &
equipment 29 33
Foreign exchange loss/(gain) 29 (65)
------------ -----------
Steel segment Adjusted EBITDA 1,262 1,485
============ ===========
Mining segment Adjusted EBITDA reconciliation
(Loss)/profit from operations 1,150 613
Add:
Depreciation, depletion and amortisation 530 282
Impairment of assets 31 20
Loss on disposal of property, plant &
equipment 20 18
Foreign exchange loss/(gain) (103) 2
------------ -----------
Mining segment Adjusted EBITDA 1,628 935
============ ===========
Vanadium segment Adjusted EBITDA reconciliation
Loss from operations (13) (10)
Add:
Depreciation and amortisation 34 47
Impairment of assets 0 16
Foreign exchange loss 1 0
------------ -----------
Vanadium segment Adjusted EBITDA 22 53
============ ===========
Other operations Adjusted EBITDA reconciliation
Profit from operations 162 77
Add:
Depreciation and amortisation 40 37
Impairment of assets (5) 30
Loss on disposal of property, plant &
equipment 1 1
Foreign exchange gain (1) (1)
------------ -----------
Other operations Adjusted EBITDA 197 144
============ ===========
Unallocated Adjusted EBITDA reconciliation
Profit from operations (51) (118)
Add:
Depreciation and amortisation 3 1
Foreign exchange gain (195) (40)
------------ -----------
Unallocated Adjusted EBITDA (243) 157
============ ===========
Intersegment eliminations
Profit from operations 32 (110)
------------ -----------
Eliminations Adjusted EBITDA 32 (110)
============ ===========
Appendix 2
Liquidity
Liquidity is not a measure under IFRS and it should not be
considered as an alternative to other measures of financial
position. EVRAZ's calculation of Liquidity may be different from
the calculation used by other companies and therefore comparability
may be limited.
31 December 31 December
2011 2010
------------ --------------
(US$ million)
------------------------------------------- ----------------------------
Liquidity Calculation
Cash and cash equivalents 801 683
Amounts available under credit facilities 1,322 1,010
Short-term bank deposits 2 1
---------------- ----------
Total estimated liquidity 2,125 1,694
================ ==========
Appendix 3
Net Debt
Net Debt represents long-term loans, net of current portion,
plus short-term loans and current portion of long--term loans, plus
finance lease liablilities, including current portion of finance
lease liabilities, less cash and cash equivalents (excluding
restricted deposits). Net Debt is not a measure under IFRS and it
should not be considered as an alternative to other measures of
financial position. EVRAZ's calculation of Net Debt may be
different from the calculation used by other companies and
therefore comparability may be limited.
Net Debt has been calculated as follows:
31 December 31 December
2011 2010
------------ --------------
(US$ million)
---------------------------------------------- ----------------------------
Net Debt Calculation
Add:
Long-term loans, net of current portion 6,593 7,097
Short-term loans and current portion of
long-term loans 613 714
Finance lease liabilities, including current
portion
Less: 39 57
Short-term bank deposits (2) (1)
Cash and cash equivalents (801) (683)
---------------- ----------
Net Debt 6,442 7,184
================ ==========
Unaudited Consolidated Financial Statements
Year ended 31 December 2011
Contents
Unaudited Consolidated Financial Statements
Unaudited Consolidated Statement of Operations
..............................................................
Unaudited Consolidated Statement of Comprehensive Income
...........................................
Unaudited Consolidated Statement of Financial Position
....................................................
Unaudited Consolidated Statement of Cash Flows
............................................................
Unaudited Consolidated Statement of Changes in Equity
....................................................
Notes to the Unaudited Consolidated Financial Statements
.................................................
Index to the Notes to the Unaudited Consolidated Financial
Statements
1. Corporate Information ...........................................................................................
2. Significant Accounting Policies ..............................................................................
Basis of Preparation
............................................................................................
Changes in Accounting Policies
..........................................................................
Significant Accounting Judgements and Estimates
.............................................
Foreign Currency Transactions
...........................................................................
Basis of Consolidation
.........................................................................................
Investments in Associates
....................................................................................
Interests in Joint Ventures
...................................................................................
Property, Plant and Equipment
...........................................................................
Leases
................................................................................................................
..
Goodwill
..............................................................................................................
Intangible Assets Other Than Goodwill
...............................................................
Financial Assets
...................................................................................................
Inventories
...........................................................................................................
Value Added Tax
.................................................................................................
Cash and Cash Equivalents
.................................................................................
Borrowings
...........................................................................................................
Financial Guarantee
Liabilities............................................................................
Equity
................................................................................................................
...
Provisions
............................................................................................................
Employee Benefits
................................................................................................
Share-based Payments
.........................................................................................
Revenue
................................................................................................................
Current Income Tax
............................................................................................
Deferred Income Tax
...........................................................................................
3. Segment Information ..............................................................................................
4. Business Combinations ..........................................................................................
Vanady-Tula
........................................................................................................
Steel
Dealers........................................................................................................
Inprom
Group......................................................................................................
Other Payments for Acquisition of Subsidiaries
..................................................
Disclosure of Other Information in Respect of Business
Combinations ..............
5. Goodwill ...............................................................................................................
6. Acquisitions of Non-controlling Interests in Subsidiaries
..........................................
7. Income and Expenses ............................................................................................
8. Income Taxes ........................................................................................................
9. Property, Plant and Equipment ...............................................................................
10. Intangible Assets Other Than Goodwill
..................................................................
11. Investments in Joint Ventures and Associates
.........................................................
Corber Enterprises Limited
.................................................................................
Kazankovskaya
....................................................................................................
Streamcore
...........................................................................................................
12. Disposal Groups Held for Sale
...............................................................................
13. Other Non-Current Assets
....................................................................................
14. Inventories
............................................................................................................
15. Trade and Other Receivables
.................................................................................
16. Related Party Disclosures
......................................................................................
17. Other Taxes Recoverable
......................................................................................
18. Other Current Financial Assets
..............................................................................
19. Cash and Cash Equivalents
....................................................................................
20. Equity
................................................................................................................
...
Share Capital
.......................................................................................................
Treasury Shares
...................................................................................................
Earnings Per Share
..............................................................................................
Dividends
.............................................................................................................
Legal Reserve
.......................................................................................................
Other Movements in Equity
.................................................................................
21. Loans and Borrowings
...........................................................................................
22. Finance Lease Liabilities
........................................................................................
23. Employee Benefits
.................................................................................................
24. Share-Based Payments
..........................................................................................
25. Provisions
.............................................................................................................
26. Other Long-Term Liabilities
...................................................................................
27. Trade and Other Payables
.....................................................................................
28. Other Taxes Payable
.............................................................................................
29. Financial Risk Management Objectives and Policies
...............................................
Credit Risk
...........................................................................................................
Liquidity Risk
.......................................................................................................
Market Risk
..........................................................................................................
Fair Value of Financial
Instruments....................................................................
Capital Management
...........................................................................................
30. Non-Cash Transactions
.........................................................................................
31. Commitments and Contingencies
............................................................................
32. Auditor's Remuneration
.........................................................................................
33. Subsequent Events
................................................................................................
Unaudited Consolidated Statement of Operations
(In millions of US dollars, except for per share
information)
Year ended 31 December
Notes 2011 2010* 2009
--------- --------- ---------
Revenue
Sale of goods 3 $ 16,077 $ 13,144 $ 9,505
Rendering of services 3 323 250 267
--------- --------- ---------
16,400 13,394 9,772
Cost of revenue 7 (12,473) (10,319) (8,124)
Gross profit 3,927 3,075 1,648
Selling and distribution costs 7 (1,154) (807) (626)
General and administrative expenses 7 (921) (732) (628)
Social and social infrastructure
maintenance expenses (61) (64) (53)
Loss on disposal of property,
plant and equipment (50) (52) (39)
5, 9,
10,
Impairment of assets 13 (104) (147) (180)
Foreign exchange gains/(losses),
net 269 104 156
Other operating income 50 63 38
Other operating expenses 7 (96) (110) (121)
--------- --------- ---------
Profit from operations 1,860 1,330 195
Interest income 7 17 13 40
Interest expense 7 (708) (728) (677)
Share of profits/(losses) of joint
ventures and associates 11 55 21 2
Gain/(loss) on financial assets
and liabilities, net 7 (355) 8 97
Gain/(loss) on disposal groups
classified as held for sale, net 12 8 (14) (5)
Gain on bargain purchases 4 - 4 6
Other non-operating gains/(losses),
net (4) (1) 4
Profit/(loss) before tax 873 633 (338)
Income tax benefit/(expense) 8 (420) (163) 46
--------- --------- ---------
Net profit/(loss) $ 453 $ 470 $ (292)
========= ========= =========
Attributable to:
Equity holders of the parent entity $ 461 $ 486 $ (295)
Non-controlling interests (8) (16) 3
--------- --------- ---------
$ 453 $ 470 $ (292)
========= ========= =========
Earnings/(losses) per share:
basic, for profit/(loss) attributable
to equity holders of the parent
entity, US dollars 20 $ 0.36 $ 0.39 $ (0.24)
diluted, for profit/(loss) attributable
to equity holders of the parent
entity, US dollars 20 $ 0.36 $ 0.39 $ (0.24)
* The amounts shown here do not correspond to the 2010 financial
statements and reflect adjustments made in connection with the
completion of initial accounting (Note 2).
The accompanying notes form an integral part of these
consolidated financial statements.
Unaudited Consolidated Statement of Comprehensive Income
(In millions of US dollars)
Year ended 31 December
Notes 2011 2010* 2009
------
Net profit/(loss) $ 453 $ 470 $ (292)
Other comprehensive income
Effect of translation to presentation
currency (620) 64 108
Net gains/(losses) on available-for-sale
financial assets 13 (20) (8) 12
Net (gains)/losses on available-for-sale
financial assets reclassified
to profit or loss (Notes 7 an 7,
13) 13 20 4 (8)
Income tax effect - - -
--------- ------ --------
- (4) 4
Decrease in revaluation surplus
in connection with the impairment
of property, plant and equipment 9 (1) (7) (8)
Income tax effect 8 - 1 1
--------- ------ --------
(1) (6) (7)
Effect of translation to presentation
currency of the Group's joint
ventures and associates 11 (35) (9) (10)
--------- ------ --------
Share of other comprehensive
income of joint ventures and
associates accounted for using
the equity method (35) (9) (10)
Total other comprehensive income/(loss) (656) 45 95
--------- ------ --------
Total comprehensive income/(loss),
net of tax $ (203) $ 515 $ (197)
========= ====== ========
Attributable to:
Equity holders of the parent
entity $ (177) $ 522 $ (228)
Non-controlling interests (26) (7) 31
--------- ------ --------
$ (203) $ 515 $ (197)
========= ====== ========
* The amounts shown here do not correspond to the 2010 financial
statements and reflect adjustments made in connection with the
completion of initial accounting (Note 2).
The accompanying notes form an integral part of these
consolidated financial statements.
Unaudited Consolidated Statement of Financial Position
(In millions of US dollars)
31 December
Notes 2011 2010* 2009
------ ------------- ------------- -------------
Assets
Non-current assets
Property, plant and equipment 9 $ 8,306 $ 8,607 $ 8,585
Intangible assets other than goodwill 10 838 1,004 1,098
Goodwill 5 2,180 2,219 2,186
Investments in joint ventures and
associates 11 663 688 634
Deferred income tax assets 8 79 100 70
Other non-current financial assets 13 53 118 66
Other non-current assets 13 107 103 128
------------- ------------- -------------
12,226 12,839 12,767
Current assets
Inventories 14 2,188 2,070 1,828
Trade and other receivables 15 971 1,213 1,001
Prepayments 176 192 134
Loans receivable 44 1 1
Receivables from related parties 16 8 80 107
Income tax receivable 83 54 58
Other taxes recoverable 17 412 353 258
Other current financial assets 18 57 52 120
Cash and cash equivalents 19 801 683 671
------------- ------------- -------------
4,740 4,698 4,178
Assets of disposal groups classified
as held for sale 12 9 2 7
------------- ------------- -------------
4,749 4,700 4,185
------------- ------------- -------------
Total assets $ 16,975 $ 17,539 $ 16,952
============= ============= =============
Equity and liabilities
Equity
Equity attributable to equity holders
of the parent entity
Issued capital 20 $ 1,338 $ 375 $ 375
Treasury shares 20 (8) - -
Additional paid-in capital 20 2,289 1,742 1,739
Revaluation surplus 4 171 180 208
Legal reserve 20 - 36 36
Unrealised gains and losses - - 4
Accumulated profits 3,606 4,570 4,065
Translation difference (1,851) (1,214) (1,260)
------------- ------------- -------------
5,545 5,689 5,167
Non-controlling interests 236 247 275
------------- ------------- -------------
5,781 5,936 5,442
Non-current liabilities
Long-term loans 21 6,593 7,097 5,931
Deferred income tax liabilities 8 1,020 1,072 1,231
Finance lease liabilities 22 26 38 58
Employee benefits 23 296 315 307
Provisions 25 285 279 176
Other long-term liabilities 26 285 143 68
------------- ------------- -------------
8,505 8,944 7,771
Current liabilities
Trade and other payables 27 1,460 1,173 1,069
Advances from customers 154 205 112
Short-term loans and current portion
of long-term loans 21 613 714 1,992
Payables to related parties 16 98 217 235
Income tax payable 92 78 108
Other taxes payable 28 188 180 140
Current portion of finance lease
liabilities 22 13 19 17
Provisions 25 53 54 35
Amounts payable under put options
for shares of subsidiaries 9 6 17
Dividends payable by the Group's
subsidiaries to non-controlling
shareholders 9 13 13
------------- ------------- -------------
2,689 2,659 3,738
Liabilities directly associated
with disposal groups classified
as held for sale 12 - - 1
------------- ------------- -------------
2,689 2,659 3,739
------------- ------------- -------------
Total equity and liabilities $ 16,975 $ 17,539 $ 16,952
============= ============= =============
* The amounts shown here do not correspond to the 2010 financial
statements and reflect adjustments made in connection with the
completion of initial accounting (Note 2).
The accompanying notes form an integral part of these
consolidated financial statements.
Unaudited Consolidated Statement of Cash Flows
(In millions of US dollars)
Year ended 31 December
2011 2010* 2009
------- -------- ------------
Cash flows from operating activities
Net profit/(loss) $ 453 $ 470 $ (292)
Adjustments to reconcile net profit/(loss)
to net cash flows from operating activities:
Deferred income tax (benefit)/expense
(Note 8) 12 (186) (231)
Depreciation, depletion and amortisation
(Note 7) 1,153 925 979
Loss on disposal of property, plant
and equipment 50 52 39
Impairment of assets 104 147 180
Foreign exchange (gains)/losses, net (269) (104) (156)
Interest income (17) (13) (40)
Interest expense 708 728 677
Share of (profits)/losses of associates
and joint ventures (55) (21) (2)
(Gain)/loss on financial assets and
liabilities, net 355 (8) (97)
(Gain)/loss on disposal groups classified
as held for sale, net (8) 14 5
Gain on bargain purchases - (4) (6)
Other non-operating (gains)/losses,
net 4 1 (4)
Bad debt expense 49 48 41
Changes in provisions, employee benefits
and other long-term assets and liabilities (29) (15) (16)
Expense arising from the equity-settled
awards (Note 24) 23 2 6
Share-based payments under cash-settled
awards (Note 24) (1) (3) (35)
Other (4) (3) (3)
------- -------- ------------
2,528 2,030 1,045
Changes in working capital:
Inventories (204) (191) 680
Trade and other receivables 167 (239) 438
Prepayments (2) (44) (52)
Receivables from/payables to related
parties (61) (34) (162)
Taxes recoverable (123) (91) 239
Other assets (3) 38 (56)
Trade and other payables 367 107 (353)
Advances from customers (44) 80 1
Taxes payable 44 5 (73)
Other liabillities (22) 1 (9)
Net cash flows from operating activities 2,647 1,662 1,698
Cash flows from investing activities
Issuance of loans receivable to related
parties (3) (46) (28)
Proceeds from repayment of loans issued
to related parties, including interest 46 5 40
Issuance of loans receivable (4) (1) (3)
Proceeds from repayment of loans receivable,
including interest 4 2 114
Proceeds from the transaction with a
49% ownership interest in NS Group - - 506
Purchases of subsidiaries, net of cash
acquired (Note 4) (36) (27) (20)
Purchases of interest in associates/joint
ventures - (9) (42)
Purchases of other investments - - (25)
Sale of other investments - - 48
Restricted deposits at banks in respect
of investing activities (1) 17 (16)
Short-term deposits at banks, including
interest 5 29 20
Purchases of property, plant and equipment
and intangible assets (1,281) (832) (441)
Proceeds from disposal of property,
plant and equipment 23 21 6
Proceeds from sale of disposal groups
classified as held for sale, net of
transaction costs (Note 12) 5 42 28
Dividends received 54 1 1
Other investing activities, net - 54 (1)
------------ ------------ ------------
Net cash flows from/(used in) investing
activities (1,188) (744) 187
Cash flows from financing activities
Issue of shares, net of transaction
costs of $nil, $nil and $5 million,
respectively (Note 20) $ - $ - $ 310
Payments relating to conversion of bonds
into shares (Note 21) (161) - -
Proceeds from issue of shares by a consolidated
subsidiary to non-controlling shareholders 1 - -
Repurchase of vested share-based awards
(Note 20) - - (3)
Purchase of treasury shares (Note 20) (22) - (5)
Sale of treasury shares (Note 20) 3 - 7
Purchases of non-controlling interests
(Note 6) (51) (13) (8)
Contribution from/(distribution to)
a shareholder (Note 4) - - 65
Dividends paid by the parent entity
to its shareholders (Note 20) (491) - (90)
Dividends paid by the Group's subsidiaries
to non-controlling shareholders (1) (1) (2)
Proceeds from bank loans and notes 3,507 3,172 3,427
Repayment of bank loans and notes, including
interest (3,815) (4,142) (4,987)
Net proceeds from/(repayment of) bank
overdrafts and credit lines, including
interest (283) 106 (794)
Payments under covenants reset (Note
21) - (29) (85)
Gain on derivatives not designated as
hedging instruments (Note 26) 66 31 -
Collateral under swap contracts (Note
18) (10) - -
Restricted deposits at banks in respect
of financing activities (1) - 1
Payments under finance leases, including
interest (24) (23) (31)
Proceeds from sale-leaseback - - 38
Net cash flows used in financing activities (1,282) (899) (2,157)
Effect of foreign exchange rate changes
on cash and cash equivalents (59) (7) 13
Net increase/(decrease) in cash and
cash equivalents 118 12 (259)
Cash and cash equivalents at beginning
of year 683 671 930
------------ ------------ ------------
Cash and cash equivalents at end of
year $ 801 $ 683 $ 671
============ ============ ============
Supplementary cash flow information:
Cash flows during the year:
Interest paid $ (586) $ (594) $ (586)
Interest received 8 11 29
Income taxes paid by the Group (443) (341) (141)
* The amounts shown here do not correspond to the 2010 financial
statements and reflect adjustments made in connection with the
completion of initial accounting (Note 2).
The accompanying notes form an integral part of these
consolidated financial statements.
Unaudited Consolidated Statement of Changes in Equity
(In millions of US dollars)
Attributable to equity holders of the parent entity
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additional Unrealised
Issued Treasury paid-in Revaluation Legal gains Accumulated Translation Non-controlling Total
capital shares capital surplus reserve and losses profits difference Total interests Equity
---------------------------------- ------------------------------------ ------------------------------- ------------------------------ ----------------------------------- ------------------------------------ ------------------------------------- ---------------------------------- ----------------------------- ------------------------------ ---------------------------------
At 31 December
2010 (as
previously
reported) $ 375 $ - $ 1,742 $ 180 $ 36 $ - $ 4,632 $ (1,214) $ 5,751 $ 247 $ 5,998
Adjustments to
provisional
values (Note 2) - - - - - - (62) - (62) - (62)
---------------------------------- ------------------------------------ ------------------------------- ------------------------------ ----------------------------------- ------------------------------------ ------------------------------------- ---------------------------------- ----------------------------- ------------------------------ ---------------------------------
At 31 December
2010 (as
restated) 375 - 1,742 180 36 - 4,570 (1,214) 5,689 247 5,936
Net profit - - - - - - 461 - 461 (8) 453
Other
comprehensive
income/(loss) - - - (1) - - - (637) (638) (18) (656)
Reclassification
of revaluation
surplus to
accumulated
profits in
respect of the
disposed items
of property,
plant and
equipment - - - (8) - - 8 - - - -
---------------------------------- ------------------------------------ ------------------------------- ------------------------------ ----------------------------------- ------------------------------------ ------------------------------------- ---------------------------------- ----------------------------- ------------------------------ ---------------------------------
Total
comprehensive
income/(loss)
for the period - - - (9) - - 469 (637) (177) (26) (203)
Conversion of
bonds (Notes
20 and 21) 29 - 524 - - - - - 553 - 553
Appropriation of
net profit
to legal reserve - - - - 3 - (3) - - - -
Group's
reorganisation
(Notes 1 and 20) 2,247 - - - (39) - (2,219) - (11) 11 -
Reduction in par
value
of shares of
EVRAZ plc
(Note 20) (1,313) - - - - - 1,313 - - - -
Acquisition of
non-controlling
interests in
subsidiaries
(Note 6) - - - - - - (18) - (18) (33) (51)
Sale of
non-controlling
interests in
subsidiaries - - - - - - - - - 34 34
Non-controlling
interests
arising on
establishment
of subsidiaries
(Note 4) - - - - - - (4) - (4) 4 -
Purchase of
treasury shares
(Note 20) - (22) - - - - - - (22) - (22)
Transfer of
treasury shares
to participants
of the
Incentive Plan
(Notes 20
and 24) - 11 - - - - (11) - - - -
Sale of treasury
shares
(Note 20) - 3 - - - - - - 3 - 3
Share-based
payments (Note
24) - - 23 - - - - - 23 - 23
Dividends
declared by the
parent entity to
its shareholders
(Note 20) - - - - - - (491) - (491) - (491)
Dividends
declared by the
Group's
subsidiaries to
non-controlling
shareholders
(Note 20) - - - - - - - - - (1) (1)
---------------------------------- ------------------------------------ ------------------------------- ------------------------------ ----------------------------------- ------------------------------------ ------------------------------------- ---------------------------------- ----------------------------- ------------------------------ ---------------------------------
At 31 December
2011 $ 1,338 $ (8) $ 2,289 $ 171 $ - $ - $ 3,606 $ (1,851) $ 5,545 $ 236 $ 5,781
================================== ==================================== =============================== ============================== =================================== ==================================== ===================================== ================================== ============================= ============================== =================================
The accompanying notes form an integral part of these
consolidated financial statements.
Attributable to equity holders of the parent entity
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additional Unrealised
Issued Treasury paid-in Revaluation Legal gains Accumulated Translation Non-controlling Total
capital shares capital surplus reserve and losses profits difference Total interests Equity
---------------------- -------------------- ------------------------ ---------------------- --------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2009 $ 375 $ - $ 1,739 $ 208 $ 36 $ 4 $ 4,065 $ (1,260) $ 5,167 $ 275 $ 5,442
Net profit* - - - - - - 486 - 486 (16) 470
Other
comprehensive
income/(loss) - - - (6) - (4) - 46 36 9 45
Reclassification
of revaluation
surplus to
accumulated
profits in
respect of the
disposed items
of property,
plant and
equipment - - - (22) - - 22 - - - -
Total
comprehensive
income/(loss)
for the period* - - - (28) - (4) 508 46 522 (7) 515
Acquisition of
non-controlling
interests in
existing
subsidiaries
(Note 6) - - 1 - - - (3) - (2) (14) (16)
Derecognition of
non-controlling
interests in
subsidiaries
(Note 20) - - - - - - - - - (6) (6)
Share-based
payments (Note
24) - - 2 - - - - - 2 - 2
Dividends
declared by the
Group's
subsidiaries to
non-controlling
shareholders
(Note 20) - - - - - - - - - (1) (1)
---------------------- -------------------- ------------------------ ---------------------- --------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2010* $ 375 $ - $ 1,742 $ 180 $ 36 $ - $ 4,570 $ (1,214) $ 5,689 $ 247 $ 5,936
====================== ==================== ======================== ====================== ===================== ==================== ============================ ========================== ======================== ====================== ========================
* The amounts shown here do not correspond to the 2010 financial
statements and reflect adjustments made in connection with the
completion of initial accounting (Note 2).
The accompanying notes form an integral part of these
consolidated financial statements.
Attributable to equity holders of the parent entity
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additional Unrealised
Issued Treasury paid-in Revaluation Legal gains Accumulated Translation Non-controlling Total
capital shares capital surplus reserve and losses profits difference Total interests Equity
---------------------- ---------------------- ------------------------ ---------------------- --------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2008 $ 332 $ (9) $ 1,054 $ 218 $ 30 $ - $ 4,377 $ (1,330) $ 4,672 $ 245 $ 4,917
Net loss - - - - - - (295) - (295) 3 (292)
Other
comprehensive
income/(loss) - - - (7) - 4 - 70 67 28 95
Reclassification
of revaluation
surplus to
accumulated
profits in
respect of the
disposed items
of property,
plant and
equipment - - - (3) - - 3 - - - -
Total
comprehensive
income/(loss)
for the period - - - (10) - 4 (292) 70 (228) 31 (197)
Issue of share
capital
(Note 20) 43 - 492 - - - - - 535 - 535
Transaction costs
in respect
of the issue of
shares
(Note 20) - - (5) - - - - - (5) - (5)
Equity component
of convertible
bonds (Note 20) - - 133 - - - - - 133 - 133
Derecognition of
non-controlling
interests
arising on
acquisition
of subsidiaries
(Note 4) - - - - - - (5) - (5) - (5)
Contribution from
a shareholder
(Note 4) - - 65 - - - - - 65 - 65
Purchase of
treasury shares
(Note 20) - (5) - - - - - - (5) - (5)
Sale of treasury
shares
(Note 20) - 12 - - - - (6) - 6 - 6
Exercise of share
options
(Note 20) - 2 - - - - (3) - (1) - (1)
Appropriation of
net profit
to legal reserve
(Note
20) - - - - 6 - (6) - - - -
Dividends
declared by the
Group's
subsidiaries to
non-controlling
shareholders
(Note 20) - - - - - - - - - (1) (1)
---------------------- ---------------------- ------------------------ ---------------------- --------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2009 $ 375 $ - $ 1,739 $ 208 $ 36 $ 4 $ 4,065 $ (1,260) $ 5,167 $ 275 $ 5,442
====================== ====================== ======================== ====================== ===================== ==================== ============================ ========================== ======================== ====================== ========================
The accompanying notes form an integral part of these
consolidated financial statements.
Notes to the Unaudited Consolidated Financial Statements
Year ended 31 December 2011
1. Corporate Information
The financial information presented in this preliminary
announcement was authorised for issue by the Board of Directors of
EVRAZ plc on 26 March 2012.
EVRAZ plc ("EVRAZ plc" or "the Company") was incorporated on 23
September 2011 as a public company under the laws of the United
Kingdom with the registered number 7784342. The Company's
registered office is at 5(th) Floor, 6 St. Andrew Street, London,
EC4A 3AE, United Kingdom.
As a result of the reorganisation implemented by way of the
share exchange offer made by the Company for the shares of Evraz
Group S.A. (Note 20), on 7 November 2011, the Company became a new
parent entity of Evraz Group S.A., a joint stock company registered
in Luxembourg in 2004. Evraz Group S.A. is a holding company which
owns steel production, mining and trading companies. At 31 December
2011, the Company held 99.82% in Evraz Group S.A. Lanebrook Limited
(Cyprus) is the ultimate controlling party of the Group.
The Company, together with its subsidiaries (the "Group"), is
involved in the production and distribution of steel and related
products and coal and iron ore mining. In addition, the Group
produces vanadium products. The Group is one of the largest steel
producers globally.
The major subsidiaries included in the consolidated financial
statements of the Group were as follows at 31 December:
Effective
ownership interest,
%
------------------------------------------ ------------------------- ----------------- ---------------
Business
Subsidiary 2011 2010 2009 activity Location
------------------------------------------ ------- ------- ------- ----------------- ---------------
EVRAZ Nizhny Tagil Iron
& Steel Plant 100.00 100.00 100.00 Steel production Russia
EVRAZ United West-Siberian
Iron & Steel Plant 100.00 100.00 100.00 Steel production Russia
Novokuznetsk Iron & Steel
Plant (in 2011 merged
with West-Siberian Iron
& Steel Plant) - 100.00 100.00 Steel production Russia
EVRAZ Vitkovice Steel
a.s. 100.00 100.00 100.00 Steel production Czech Republic
EVRAZ Highveld Steel and
Vanadium Limited 85.12 85.12 85.12 Steel production South Africa
EVRAZ Dnepropetrovsk Iron
and Steel Works 96.04 96.04 96.03 Steel production Ukraine
EVRAZ Inc. NA 100.00 100.00 100.00 Steel mill USA
EVRAZ Inc. NA Canada 100.00 100.00 100.00 Steel mill Canada
Yuzhkuzbassugol 100.00 100.00 100.00 Coal mining Russia
EVRAZ Kachkanarsky Mining-and-Processing Ore mining
Integrated Works 100.00 100.00 100.00 and processing Russia
Evrazruda 100.00 100.00 100.00 Ore mining Russia
EVRAZ Sukha Balka 99.42 99.42 99.42 Ore mining Ukraine
At 31 December 2011, the Group employed approximately 112,000
employees, excluding joint venture's and associates' employees.
Going Concern
These consolidated financial statements have been prepared on a
going concern basis.
The Group's activities in all of its operating segments continue
to be affected by the uncertainty and instability of the current
economic environment. In the event that the financial results of
the Group deteriorate further and are below the management's
current forecasts, the Group may not be in compliance with
financial covenants under certain bank loans, which, if not
resolved, may trigger a cross default under other debt instruments.
Such an event would permit the Group's lenders to demand immediate
payment of the outstanding borrowings under the relevant debt
instruments.
Directors and management have considered a number of
alternatives to proactively address this situation in the event
that the Group fails to be in compliance with its financial
covenants, including, if and when necessary, a repayment of certain
borrowings, a financial covenant reset, a waiver from its lenders
and a refinancing of certain borrowings. The Group may incur
additional costs related to these alternatives.
Based on the analysis of available alternatives, management's
track record of resolving similar matters and the probabilities of
their successful implementation, directors and management concluded
that there is no material uncertainty that may cast significant
doubt on the Group's ability to continue as a going concern.
Consequently, directors and management have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future.
2. Significant Accounting Policies
Basis of Preparation
These consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting
Standards ("IFRS"), as adopted by the European Union.
International Financial Reporting Standards are issued by the
International Accounting Standard Board ("IASB"). IFRSs that are
mandatory for application as of 31 December 2011, but not adopted
by the European Union, do not have any impact on the Group's
consolidated financial statements.
These consolidated financial statements have been prepared on a
going concern basis as the directors believe there are no material
uncertainties that lead to significant doubt that the entity can
continue as a going concern in the foreseeable future.
The consolidated financial statements have been prepared under
the historical cost convention, except as disclosed in the
accounting policies below. Exceptions include, but are not limited
to, property, plant and equipment at the date of transition to IFRS
accounted for at deemed cost, available for sale investments
measured at fair value, assets classified as held for sale measured
at the lower of their carrying amount or fair value less costs to
sell and post-employment benefits measured at present value.
As the Group has been formed through a reorganisation in which
EVRAZ plc became a new parent entity of the Group (Note 20), these
consolidated financial statements have been prepared as a
continuation of the existing group using the pooling of interests
method. The difference in share capital and legal reserve in the
amount of $895 million was recorded as an adjustment to accumulated
profits. At 31 December 2011, there were shareholders which did not
accept the share exchange offer. Accordingly, the Group recognised
non-controlling interests of $11 million representing these
shareholders.
Completion of Initial Accounting
In 2011, the purchase price allocation for the acquisition of
ZAO Koksovaya by the Group's joint venture has been completed (Note
11). As a result, the Group recognised adjustments to the
provisional values of identifiable assets, liabilities and
contingent liabilities of the entity and restated the consolidated
financial statements as of 31 December 2010 and for the year then
ended. Consequently, the 2010 comparative information differs from
the previously published financial statements.
The effects of the completion of purchase price allocation are
summarised below.
31 December 2010
------------------------------------------
As previously
US$ million Restated reported Adjustment
------------- -------------- -----------
Assets
Investments in joint ventures and
associates $ 688 $ 750 $ (62)
Non-current assets 12,839 12,901 (62)
Total assets $ 17,539 $ 17,601 $ (62)
============= ============== ===========
Equity and liabilities
Accumulated profits $ 4,570 $ 4,632 $ (62)
Equity 5,689 5,751 (62)
Total equity and liabilities $ 17,539 $ 17,601 $ (62)
============= ============== ===========
Year ended 31 December 2010
--------------------------------------
As previously
US$ million Restated reported Adjustment
--------- -------------- -----------
Share of profits/(losses) of joint
ventures and associates $ 21 $ 73 $ (52)
Gain/(loss) on disposal groups
classified as held for sale, net (14) (4) (10)
Profit/(loss) before tax 633 695 (62)
Net profit/(loss) $ 470 $ 532 $ (62)
========= ============== ===========
Attributable to:
Equity holders of the parent entity $ 486 $ 548 $ (62)
Non-controlling interests (16) (16) -
--------- -------------- -----------
$ 470 $ 532 $ (62)
========= ============== ===========
Changes in Accounting Policies
In the preparation of these consolidated financial statements,
the Group followed the same accounting policies and methods of
computation as compared with those applied in the previous year,
except for the adoption of new standards and interpretations and
revision of the existing standards as of 1 January 2011.
New/Revised Standards and Interpretations Adopted in 2011
-- IAS 24 (revised) "Related Party Disclosures"
The amendment clarifies the definitions of a related party. The
amendment introduces an exemption from the general related party
disclosure requirements for transactions with a government and
entities that are controlled, jointly controlled or significantly
influenced by the same government as the reporting entity. The
adoption of the amendment did not have any impact on the financial
position or performance of the Group.
-- Amendment to IAS 32 "Financial Instruments: Presentation"
The amendment alters the definition of a financial liability in
IAS 32 to enable entities to classify rights issues and certain
options or warrants as equity instruments. The amendment is
applicable if the rights are given pro rata to all of the existing
owners of the same class of an entity`s non-derivative equity
instruments, to acquire a fixed number of the entity`s own equity
instruments for a fixed amount in any currency. The amendment had
no effect on the financial position or performance of the
Group.
-- IFRIC 19 "Extinguishing Financial Liabilities with Equity
Instruments"
The interpretation clarifies that equity instruments issued to a
creditor to extinguish a financial liability qualify as
consideration paid. The equity instruments issued are measured at
their fair value. In case that this cannot be reliably measured,
the instruments are measured at the fair value of the liability
extinguished. Gains and losses are recognised immediately in profit
or loss. The adoption of this interpretation had no effect on the
financial statements of the Group.
-- Amendments to IFRIC 14/IAS 19 "Prepayments of a Minimum
Funding Requirement"
The amendment removes an unintended consequence when an entity
is subject to minimum funding requirements and makes an early
payment of contributions to cover such requirements. The amendment
permits a prepayment of future service cost by the entity to be
recognised as pension asset. The amendment to the interpretation
had no effect on the financial position or performance of the
Group.
-- Amendments to standards following the May 2010 "improvements
to IFRS" project
The third omnibus of amendments to IFRS was issued primarily
with a view to removing inconsistencies and clarifying wording. The
adoption of these amendments did not have significant impact on the
financial statements of the Group.
Standards Issued But Not Yet Effective
Standards not yet effective for the financial effective for annual
statements for the year ended 31 December periods beginning
2011 on or after
* Amendments to IFRS 7 "Financial Instruments:
Disclosures" - Transfers of Financial Assets 1 July 2011
* Amendments to IAS 1 "Presentation of Financial
Statements" - Changes to the Presentation of Other
Comprehensive Income 1 July 2012
* Amendments to IAS 12 "Income Taxes" - Deferred Taxes:
Recovery of Underlying Asset 1 January 2012
* IFRS 10 "Consolidated Financial Statements" 1 January 2013
* IFRS 11 "Joint Arrangements" 1 January 2013
* IFRS 12 "Disclosure of Interests in Other Entities" 1 January 2013
* IFRS 13 "Fair Value Measurement" 1 January 2013
* Amendments to IAS 19 "Employee Benefits" 1 January 2013
* Amendments to IFRS 7 "Financial Instruments:
Disclosures" - Offsetting Financial Assets and
Finanacial Liabilities 1 January 2013
* IFRIC 20 "Stripping Costs in the Production Phase of
a Surface Mine" 1 January 2013
* Amendments to IAS 32 "Financial Instruments:
Presentation" - Offsetting Financial Assets and
Finanacial Liabilities 1 January 2014
* IFRS 9 "Financial Instruments" 1 January 2015
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.
Amended IAS 19 "Employee Benefits" introduced recognition of
actuarial gains and losses in other comprehensive income in the
period they occur. This amendment is required to be applied
retrospectively. At 31 December 2011, the Group had $261 million
actuarial losses (Note 23), they will increase the Group's
liabilities under defined benefit plans.
Significant Accounting Judgements and Estimates
Estimation Uncertainty
The key assumptions concerning the future and other key sources
of estimation uncertainty at the end of the reporting period, that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year are discussed below.
Impairment of Property, Plant and Equipment
The Group assesses at each reporting date whether there is any
indication that an asset may be impaired. If any such indication
exists, the Group makes an estimate of the asset's recoverable
amount. An asset's recoverable amount is the higher of an asset's
or cash-generating unit's fair value less costs to sell and its
value in use and is determined for an individual asset, unless the
asset does not generate cash inflows that are largely independent
of those from other assets or group 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 2011, 2010 and 2009, the
Group recognised an impairment loss of $105 million, $109 million
and $23 million, respectively (Note 9).
The determination of impairments of property, plant and
equipment involves the use of estimates that include, but are not
limited to, the cause, timing and amount of the impairment.
Impairment is based on a large number of factors, such as changes
in current competitive conditions, expectations of growth in the
industry, increased cost of capital, changes in the future
availability of financing, technological obsolescence,
discontinuance of service, current replacement costs and other
changes in circumstances that indicate 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 fair value
and, ultimately, the amount of any impairment.
Useful Lives of Items of Property, Plant and Equipment
The Group assesses the remaining useful lives of items of
property, plant and equipment at least at each financial year-end
and, if expectations differ from previous estimates, the changes
are accounted for as a change in an accounting estimate in
accordance with IAS 8 "Accounting Policies, Changes in Accounting
Estimates and Errors". These estimates may have a material impact
on the amount of the carrying values of property, plant and
equipment and on depreciation expense for the period.
In 2011 and 2009, the Group changed its estimation of useful
lives of property, plant and equipment, which resulted in a $16
million and $102 million decrease in depreciation expense,
respectively, as compared to the amounts that would have been
charged had no change in estimate occurred. In 2010, the change in
estimates of useful lives of property, plant and equipment resulted
in an additional depreciation expense of approximately $10
million.
Fair Values of Assets and Liabilities Acquired in Business
Combinations
The Group is required to recognise separately, at the
acquisition date, the identifiable assets, liabilities and
contingent liabilities acquired or assumed in a business
combination at their fair values, which involves estimates. Such
estimates are based on valuation techniques which require
considerable judgement in forecasting future cash flows and
developing other assumptions.
Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an
annual basis. This requires an estimation of the value in use of
the cash-generating units to which the goodwill is allocated.
Estimating the value in use requires the Group to make an estimate
of the expected future cash flows from the cash-generating unit and
also to choose a suitable discount rate in order to calculate the
present value of those cash flows.
The carrying amount of goodwill at 31 December 2011, 2010 and
2009 was $2,180 million, $2,219 million and $2,186 million,
respectively. In 2011, 2010 and 2009, the Group recognised an
impairment loss in respect of goodwill in the amount of $Nil, $16
million and $160 million, respectively. More details of the
assumptions used in estimating the value in use of the
cash-generating units to which goodwill is allocated are provided
in Note 5.
Mineral Reserves
Mineral reserves are a material factor in the Group's
computation of depreciation, depletion and amortisation 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 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.
Site Restoration Provisions
The Group reviews site restoration provisions at each reporting
date and adjusts them to reflect the current best estimate in
accordance with IFRIC 1 "Changes in Existing Decommissioning,
Restoration and Similar Liabilities". The amount recognised as a
provision is the best estimate of the expenditures required to
settle the present obligation at the end of the reporting period
based on the requirements of the current legislation of the country
where the respective operating assets are located. The risks and
uncertainties that inevitably surround many events and
circumstances are taken into account in reaching the best estimate
of a provision. Considerable judgement is required in forecasting
future site restoration costs.
Future events that may affect the amount required to settle an
obligation are reflected in the amount of a provision when there is
sufficient objective evidence that they will occur.
In 2011 and 2010, the independent experts made a re-assessment
of site restoration provisions (Note 25).
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.).
Allowances
The Group makes allowances for doubtful receivables to account
for estimated losses resulting from the inability of customers to
make required payments. When evaluating the adequacy of an
allowance for doubtful accounts, management bases its estimates on
the current overall economic conditions, the ageing of accounts
receivable balances, historical write-off experience, customer
creditworthiness and changes in payment terms. Changes in the
economy, industry or specific customer conditions may require
adjustments to the allowance for doubtful accounts recorded in the
consolidated financial statements. As of 31 December 2011, 2010 and
2009, allowances for doubtful accounts in respect of trade and
other receivables have been made in the amount of $108 million,
$117 million, $92 million respectively (Note 29).
The Group makes an allowance for obsolete and slow-moving raw
materials and spare parts. In addition, certain finished goods of
the Group are carried at net realisable value (Note 14). Estimates
of net realisable value of finished goods are based on the most
reliable evidence available at the time the estimates are made.
These estimates take into consideration fluctuations of price or
cost directly relating to events occurring subsequent to the end of
the reporting period to the extent that such events confirm
conditions existing at the end of the period.
Litigations
The Group exercises judgment 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. Revisions to the estimates may
significantly affect future operating results. More details are
provided in Note 31.
Current Taxes
Russian and Ukrainian tax, currency and customs legislation is
subject to varying interpretations and changes 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, which can
be significant. In Russia and Ukraine the periods remain open to
review by the tax and customs authorities with respect to tax
liabilities for three calendar years preceding the year of review.
Under certain circumstances reviews may cover longer periods. More
details are provided in Note 31.
Deferred Income Tax Assets
Deferred tax assets are reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the
deferred tax asset to be utilised. The estimation of that
probability includes judgments based on the expected performance.
Various factors are considered to assess the probability of the
future utilisation of deferred tax assets, including past operating
results, operational plan, expiration of tax losses carried
forward, and tax planning strategies. If actual results differ from
these estimates or if these estimates must be adjusted in future
periods, the financial position, results of operations and cash
flows may be negatively affected. In the event that the assessment
of future utilisation of deferred tax assets must be reduced, this
reduction will be recognised in the statement of operations.
Foreign Currency Transactions
The presentation currency of the Group is the US dollar because
the presentation in US dollars is convenient for the major current
and potential users of the consolidated financial statements.
The functional currencies of the Group's subsidiaries are the
Russian rouble, US dollar, euro, Czech koruna, South African rand,
Canadian dollar and Ukrainian hryvnia. As at the reporting date,
the assets and liabilities of the subsidiaries with the functional
currency other than the US dollar, are translated into the
presentation currency at the rate of exchange ruling at the end of
the reporting period, and their statements of operations are
translated at the exchange rates that approximate the exchange
rates at the dates of the transactions. The exchange differences
arising on the translation are taken directly to a separate
component of equity. On disposal of a subsidiary with the
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.
Transactions in foreign currencies in each subsidiary of the
Group are initially recorded in the functional currency at the rate
ruling at the date of the transaction. Non-monetary items measured
at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined.
Monetary assets and liabilities denominated in foreign currencies
are translated at the functional currency rate of exchange ruling
at the end of the reporting period. All resulting differences are
taken to the statement of operations.
Any goodwill arising on the acquisition of a foreign operation
and any fair value adjustments to the carrying amounts of assets
and liabilities arising on the acquisition are treated as assets
and liabilities of the foreign operation and translated at the
closing rate.
Basis of Consolidation
Subsidiaries
Subsidiaries, which are those entities in which the Group has an
interest of more than 50% of the voting rights, 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 from 1 January 2010
Business combinations are accounted for using the acquisition
method.
The cost of an acquisition is measured as the aggregate of the
consideration transferred, measured at acquisition date fair value
and the amount of any non-controlling interest in the acquiree. For
each business combination, the Group measures the non-controlling
interest in the acquiree either at fair value or at the
proportionate share of the acquiree's identifiable net assets.
Acquisition costs incurred are expensed and included in
administrative expenses.
If the business combination is achieved in stages, the
acquisition date fair value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date through profit or loss.
Any contingent consideration to be transferred by the acquirer
is recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration which is
deemed to be an asset or liability, will be recognised in
accordance with IAS 39 either in profit or loss or as a change to
other comprehensive income. If the contingent consideration is
classified as equity, it should not be remeasured until it is
finally settled within equity.
The initial accounting for a business combination involves
identifying and determining the fair values to be assigned to the
acquiree's identifiable assets, liabilities and contingent
liabilities and the cost of the combination. If the initial
accounting for a business combination can be determined only
provisionally by the end of the period in which the combination is
effected because either the fair values to be assigned to the
acquiree's identifiable assets, liabilities or contingent
liabilities or the cost of the combination can be determined only
provisionally, the Group accounts for the combination using those
provisional values. The Group recognises any adjustments to those
provisional values as a result of completing the initial accounting
within twelve months of the acquisition date.
Comparative information presented for the periods before the
completion of initial accounting for the acquisition is presented
as if the initial accounting had been completed from the
acquisition date.
Acquisition of Subsidiaries Prior to 1 January 2010
The previous accounting policies relating to business
combinations include the following differences as compared with the
policies applied strating from 1 January 2010:
-- Transaction costs directly attributable to the acquisition
formed part of the acquisition costs.
-- The non-controlling interest (formerly known as minority
interest) could be measured only at the proportionate share of the
acquiree's identifiable net assets.
-- Business combinations achieved in stages were accounted for
as separate steps. Any additional acquired share of interest did
not affect previously recognised goodwill.
-- Contingent consideration was recognised if the Group had a
present obligation, the economic outflow was more likely than not
and a reliable estimate was determinable. Subsequent adjustments to
the contingent consideration were recognised as part of
goodwill.
Increases in Ownership Interests in Subsidiaries
The differences between the carrying values of net assets
attributable to interests in subsidiaries acquired and the
consideration given for such increases is either added to
additional paid-in capital, if positive, or charged to accumulated
profits, if negative, in the consolidated financial statements.
Purchases of Controlling Interests in Subsidiaries from Entities
under Common Control
Purchases of controlling interests in subsidiaries from entities
under common control are accounted for using the pooling of
interests method.
The assets and liabilities of the subsidiary transferred under
common control are recorded in these financial statements at the
historical cost of the controlling entity (the "Predecessor").
Related goodwill inherent in the Predecessor's original acquisition
is also recorded in the financial statements. Any difference
between the total book value of net assets, including the
Predecessor's goodwill, and the consideration paid is accounted for
in the consolidated financial statements as an adjustment to the
shareholders' equity.
These financial statements, including corresponding figures, are
presented as if a subsidiary had been acquired by the Group on the
date it was originally acquired by the Predecessor.
Put Options Over Non-controlling Interests
The Group derecognises non-controlling interests if
non-controlling shareholders have a put option over their holdings.
The difference between the amount of the liability recognised in
the statement of financial position over the carrying value of the
derecognised non-controlling interests is charged to accumulated
profits.
Investments in Associates
Associates are entities in which the Group generally has between
20% and 50% of the voting rights, or is otherwise able to exercise
significant influence, but which it does not control or jointly
control.
Investments in associates are accounted for under the equity
method of accounting and are initially recognised at cost including
goodwill. Subsequent changes in the carrying value reflect the post
acquisition changes in the Group's share of net assets of the
associate and goodwill impairment charges, if any.
The Group's share of its associates' profits or losses is
recognised in the statement of operations and its share of
movements in reserves is recognised in equity. However, when the
Group's share of losses in an associate equals or exceeds its
interest in the associate, the Group does not recognise further
losses, unless the Group has legal or constructive obligations to
make payments to, or on behalf of, the associate. If the associate
subsequently reports profits, the Group resumes recognising its
share of those profits only after its share of the profits equals
the share of losses not recognised.
Unrealised gains on transactions between the Group and its
associates are eliminated to the extent of the Group's interest in
the associates; unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset
transferred.
Interests in Joint Ventures
The Group's interest in its joint ventures is accounted for
under the equity method of accounting whereby an interest in
jointly controlled entities is initially recorded at cost and
adjusted thereafter for post-acquisition changes in the Group's
share of net assets of joint ventures. The statement of operations
reflects the Group's share of the results of operations of joint
ventures.
Property, Plant and Equipment
The Group's property, plant and equipment is stated at purchase
or construction cost, excluding the costs of day-to-day servicing,
less accumulated depreciation and any impairment in value. Such
cost includes the cost of replacing part of plant and equipment
when that cost is incurred and recognition criteria are met.
The Group's property, plant and equipment include mining assets,
which consist of mineral reserves, mine development and
construction costs and capitalised site restoration costs. Mineral
reserves represent tangible assets acquired in business
combinations. Mine development and construction costs represent
expenditures incurred in developing access to mineral reserves and
preparations for commercial production, including sinking shafts
and underground drifts, roads, infrastructure, buildings, machinery
and equipment.
At each end of the reporting period management makes an
assessment to determine whether there is any indication of
impairment of property, plant and equipment. If any such indication
exists, management estimates the recoverable amount, which is the
higher of an asset's fair value less cost to sell and its value in
use. The carrying amount is reduced to the recoverable amount, and
the difference is recognised as impairment loss in the statement of
operations or other comprehensive income. An impairment loss
recognised for an asset in previous years is reversed if there has
been a change in the estimates used to determine the asset's
recoverable amount.
Land is not depreciated. Depreciation of property, plant and
equipment, except for mining assets, is calculated on a
straight-line basis over the estimated useful lives of the assets.
The useful lives of items of property, plant and equipment and
methods of their depreciation are reviewed, and adjusted as
appropriate, at each fiscal year-end. The table below presents the
useful lives of items of property, plant and equipment.
Weighted average
Useful lives remaining useful
(years) life (years)
------------- ------------------
Buildings and constructions 15-60 19
Machinery and equipment 4-45 11
Transport and motor vehicles 7-20 12
Other assets 3-15 6
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.
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.
Leases
The determination of whether an arrangement is, or contains a
lease is based on the substance of the arrangement at inception
date of whether the fulfilment of the arrangement is dependent on
the use of a specific asset or assets or the arrangement conveys a
right to use the asset.
Finance leases, which transfer to the Group substantially all
the risks and benefits incidental to ownership of the leased item,
are capitalised from the commencement of the lease term at the fair
value of the leased property or, if lower, at the present value of
the minimum lease payments. Lease payments are apportioned between
the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the
liability. Finance charges are charged to interest expense.
The depreciation policy for depreciable leased assets is
consistent with that for depreciable assets, which are owned. If
there is no reasonable certainty that the Group will obtain
ownership by the end of the lease term, the asset is fully
depreciated over the shorter of the lease term or its useful
life.
Leases where the lessor retains substantially all the risks and
benefits of ownership of the asset are classified as operating
leases. Operating lease payments are recognised as an expense in
the statement of operations on a straight-line basis over the lease
term.
Goodwill
Goodwill represents the excess of the aggregate of the
consideration transferred for an acquisition of a subsidiary or an
associte and the amount recognised for non-controlling interest
over the net identifiable assets acquired and liabilities assumed.
If this consideration is lower than the fair value of the net
assets of the acquiree, the difference is recognised in the
consolidated statement of operations.
Goodwill on acquisition of a subsidiary is included in
intangible assets. Goodwill on acquisition of an associate is
included in the carrying amount of the investments in
associates.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. Goodwill is reviewed for impairment
annually or more frequently, if events or changes in circumstances
indicate that the carrying amount may be impaired.
For the purpose of impairment testing, goodwill acquired in a
business combination is allocated to each of the Group's
cash-generating units that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of
the acquiree are assigned to those units.
Impairment is determined by assessing the recoverable amount of
the cash-generating unit or the group of cash generating units, to
which the goodwill relates. Where the recoverable amount of the
cash-generating unit is less than the carrying amount, an
impairment loss is recognised. An impairment loss recognised for
goodwill is not reversed in a subsequent period.
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 values of the
operation disposed of and the portion of the cash-generating unit
retained.
Intangible Assets Other Than Goodwill
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is fair value as at the date of acquisition.
Following initial recognition, intangible assets are carried at
cost less any accumulated amortisation and any accumulated
impairment losses. Expenditures on internally generated intangible
assets, excluding capitalised development costs, are expensed as
incurred.
The useful lives of intangible assets are assessed to be either
finite or indefinite.
Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment whenever there is
an indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an intangible
asset with a finite life are reviewed at least at each year end.
Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset are
treated as changes in accounting estimates.
Intangible assets with indefinite useful lives are not
amortised, they are tested for impairment annually either
individually or at the cash generating unit level.
The table below presents the useful lives of intangible
assets.
Weighted average
Useful lives remaining useful
(years) life (years)
------------- ------------------
Customer relationships 1-15 11
Trade names and trademarks 5 -
Water rights and environmental
permits with definite lives 5 1
Patented and unpatented technology 18 13
Contract terms 1-49 45
Other 5-10 8
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).
Emission Rights
One of the Group's subsidiaries participates in the programme
for emission reduction established by the Kyoto protocol. Emission
rights (allowances) for each compliance period (one year) are
issued at the beginning of the year, actual emissions are verified
after the end of the year.
Allowances, whether issued by government or purchased, are
accounted for as intangible assets in accordance with IAS 38
"Intangible Assets". Allowances that are issued for less than fair
value are measured initially at their fair value.
When allowances are issued for less than fair value, the
difference between the amount paid and fair value is recognised as
a government grant. Initially the grant is recognised as deferred
income in the statement of financial position and subsequently
recognised as income on a systematic basis over the compliance
period for which the allowances were issued, regardless of whether
the allowances are held or sold.
As emissions are made, a liability is recognised for the
obligation to deliver allowances equal to emissions that have been
made. This liability is a provision that is within the scope of IAS
37 "Provisions, Contingent Liabilities and Contingent Assets" and
it is measured at the best estimate of the expenditure required to
settle the present obligation at the end of the reporting period
being the present market price of the number of allowances required
to cover emissions made up to the end of the reporting period.
Financial Assets
The Group classified its investments into the following
categories: financial assets at fair value through profit or loss;
loans and receivables; held-to-maturity and available-for-sale.
When investments are recognised initially, they are measured at
fair value plus, in the case of investments not at fair value
through profit or loss, directly attributable transaction costs.
The Group determines the classification of its investments after
initial recognition.
Investments that are acquired principally for the purpose of
generating a profit from short-term fluctuations in price are
classified as held for trading and included in the category
"financial assets at fair value through profit or loss".
Investments which are included in this category are subsequently
carried at fair value; gains or losses on such investments are
recognised in income.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Such assets are carried at amortised cost using the
effective interest method. Gains and losses are recognised in
income when the loans and receivables are derecognised or impaired,
as well as through the amortisation process.
Non-derivative financial assets with fixed or determinable
payments and fixed maturity that management has the positive intent
and ability to hold to maturity are classified as held-to-maturity.
Held-to-maturity investments are carried at amortised cost using
the effective yield method.
Investments intended to be held for an indefinite period of
time, which may be sold in response to needs for liquidity or
changes in interest rates, are classified as available-for-sale;
these are included in non-current assets unless management has the
express intention of holding the investment for less than 12 months
from the end of the reporting period or unless they will need to be
sold to raise operating capital, in which case they are included in
current assets. Management determines the appropriate
classification of its investments at the time of the purchase and
re-evaluates such designation on a regular basis. After initial
recognition available-for-sale investments are measured at fair
value with gains or losses being recognised as a separate component
of equity until the investment is derecognised or until the
investment is determined to be impaired, at which time the
cumulative gain or loss previously reported in equity is included
in the statement of operations. Reversals of impairment losses in
respect of equity instruments are not recognised in the statement
of operations. Impairment losses in respect of debt instruments are
reversed through profit or loss if the increase in fair value of
the instrument can be objectively related to an event occurring
after the impairment loss was recognised in the statement of
operations.
For investments that are actively traded in organised financial
markets, fair value is determined by reference to stock exchange
quoted market bid prices at the close of business on the end of the
reporting period. For investments where there is no active market,
fair value is determined using valuation techniques. Such
techniques include using recent arm's-length market transactions,
reference to the current market value of another instrument, which
is substantially the same, discounted cash flow analysis or other
valuation models.
All purchases and sales of financial assets under contracts to
purchase or sell financial assets that require delivery of the
asset within the time frame generally established by regulation or
convention in the market place are recognised on the settlement
date i.e. the date the asset is delivered by/to the
counterparty.
Accounts Receivable
Accounts receivable, which generally are short term, are
recognised and carried at the original invoice amount less an
allowance for any uncollectible amounts. An estimate for doubtful
debts is made when collection of the full amount is no longer
probable. Bad debts are written off when identified.
The Group establishes an allowance for impairment of accounts
receivable that represents its estimate of incurred losses. The
main components of this allowance are a specific loss component
that relates to individually significant exposures, and a
collective loss component established for groups of similar
receivables in respect of losses that have been incurred but not
yet identified. The collective loss allowance is determined based
on historical data of payment statistics for similar financial
assets.
Inventories
Inventories are recorded at the lower of cost and net realisable
value. Cost of inventory is determined on the weighted average
basis and includes expenditure incurred in acquiring or producing
inventories and bringing them to their existing location and
condition. The cost of finished goods and work in progress includes
an appropriate share of production overheads based on normal
operating capacity, but excluding borrowing costs.
Net realisable value is the estimated selling price in the
ordinary course of business, less estimated costs of completion and
estimated costs necessary to make the sale.
Value Added Tax
The tax authorities permit the settlement of sales and purchases
value added tax ("VAT") on a net basis.
The Group's subsidiaries located in Russia apply the accrual
method for VAT recognition, under which VAT becomes payable upon
invoicing and delivery of goods or rendering services as well upon
receipt of prepayments from customers. VAT on purchases, even if
not settled at the end of the reporting period, is deducted from
the amount of VAT payable.
Where provision has been made for impairment of receivables, an
impairment loss is recorded for the gross amount of the debtor,
including VAT.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash at bank and in hand and
short-term deposits with an original maturity of three months or
less.
Borrowings
Borrowings are initially recognised at fair value, net of
directly attributable transaction costs. After initial recognition
borrowings are measured at amortised cost using the effective
interest rate method; any difference between the amount initially
recognised and the redemption amount is recognised as interest
expense over the period of the borrowings.
Prior to 2008, borrowing costs were expensed as incurred. Since
1 January 2008 borrowing costs relating to qualifying assets are
capitalised (Note 9).
Financial Guarantee Liabilities
Financial guarantee liabilities issued by the Group are those
contracts that require a payment to be made to reimburse the holder
for a loss it incurs because the specified debtor fails to make a
payment when due in accordance with the terms of a debt instrument.
Financial guarantee contracts are recognised initially as a
liability at fair value, adjusted for transaction costs that are
directly attributable to the issue of the guarantee. Subsequently,
the liability is measured at the higher of the best estimate of the
expenditure required to settle the present obligation at the end of
the reporting period and the amount initially recognised.
Equity
Share Capital
Ordinary shares are classified as equity. External costs
directly attributable to the issue of new shares are shown as a
deduction in equity from the proceeds. Any excess of the fair value
of consideration received over the par value of shares issued is
recognised as additional paid-in capital.
Treasury Shares
Own equity instruments which are acquired by the Group (treasury
shares) are deducted from equity. No gain or loss is recognised in
statement of operations on the purchase, sale, issue or
cancellation of the treasury shares.
Dividends
Dividends are recognised as a liability and deducted from equity
only if they are declared before or the end of the reporting
period. Dividends are disclosed when they are proposed before the
end of the reporting period or proposed or declared after the end
of the reporting period but before the financial statements are
authorised for issue.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the
Group expects a provision to be reimbursed, for example under an
insurance contract, the reimbursement is recognised as a separate
asset but only when the reimbursement is virtually certain.
If the effect of the time value of money is material, provisions
are determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision
due to the passage of time is recognised as an interest
expense.
Provisions for site restoration costs are capitalised within
property, plant and equipment.
Employee Benefits
Social and Pension Contributions
Defined contributions are made by the Group to the Russian and
Ukrainian state pension, social insurance, medical insurance and
unemployment funds at the statutory rates in force (approximately
36%), 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 benefits obligations.
The liability recognised in the statement of financial position
in respect of post-employment benefits is the present value of the
defined benefit obligation at the end of the reporting period less
the fair value of the plan assets, together with adjustments for
unrecognised actuarial gains or losses and past service costs. The
defined benefit obligation is calculated annually using the
projected unit credit method. The present value of the benefits is
determined by discounting the estimated future cash outflows using
interest rates of high-quality government bonds that are
denominated in the currency in which the benefits will be paid, and
that have terms to maturity approximating to the terms of the
related obligations.
Actuarial gains and losses are recognised as income or expense
when the cumulative unrecognised actuarial gains or losses for each
individual plan exceed 10% of the higher of defined benefit
obligation and the fair value of plan assets. The excess of
cumulative actuarial gains or losses over the 10% of the higher of
defined benefit obligation and the fair value of plan assets are
recognised over the expected average remaining working lives of the
employees participating in the plan.
The past service cost is recognised as an expense on a straight
line basis over the average period until the benefits become
vested. If the benefits are already vested immediately following
the introduction of, or changes to, a pension plan, past service
cost is recognised immediately. The defined benefit asset or
liability comprises the present value of the defined benefit
obligation less past service cost not yet recognised and less the
fair value of plan assets out of which the obligations are to be
settled directly.
The Group includes expected return on plan assets the in
interest expense caption of the consolidated statement of
operations.
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, under which
certain directors, 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 non-executive
directors and employees 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,
further details of which are given in Note 24. In valuing
equity-settled transactions, no account is taken of any conditions,
other than market conditions.
The cost of equity-settled transactions is recognised, together
with a corresponding increase in equity (additional paid-in
capital), over the period in which service conditions are
fulfilled, ending on the date on which the relevant persons become
fully entitled to the award ("the vesting date"). The cumulative
expense recognised for equity-settled transactions at each
reporting date until the vesting date reflects the extent to which
the vesting period has expired and the Group's best estimate of the
number of equity instruments that will ultimately vest. The charge
or credit in the statement of operations for a period represents
the movement in cumulative expense recognised as at the beginning
and end of that period.
No expense is recognised for awards that do not ultimately vest.
Once a share-settled transaction is vested, no further accounting
entries are made to reverse the cost already charged, even if the
instruments that are the subject of the transaction are
subsequently forfeited. In this case, the Group makes a transfer
between different components of equity.
Where the terms of an equity-settled award are modified, as a
minimum an expense is recognised as if the terms had not been
modified. In addition, an expense is recognised for any
modification, which increases the total fair value of the
share-based payment arrangement, or is otherwise beneficial to the
employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if
it had vested on the date of cancellation, and any expense not yet
recognised for the award is recognised immediately. However, if a
new award is substituted for the cancelled award, and designated as
a replacement award on the date that it is granted, the cancelled
and new awards are treated as if they were a modification of the
original award, as described in the previous paragraph.
Cash-settled share-based payments represent transactions in
which the Group acquires goods or services by incurring a liability
to transfer cash or other assets to the supplier of those goods or
services for amounts that are based on the price (or value) of the
Group's shares or other equity instruments.
The cost of cash-settled transactions is measured initially at
fair value at the grant date using the Black-Scholes-Merton model.
This fair value is expensed over the period until the vesting date
with recognition of a corresponding liability. The liability is
remeasured to fair value at each reporting date up to and including
the settlement date with changes in fair value recognised in the
statement of operations.
The dilutive effect of outstanding share-based awards is
reflected as additional share dilution in the computation of
earnings per share (Note 20).
Revenue
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured.
When goods are sold or services are rendered in exchange for
dissimilar goods or services, the revenue is measured at the fair
value of the goods or services received, adjusted by the amount of
any cash or cash equivalents transferred. When the fair value of
the goods or services received cannot be measured reliably, the
revenue is measured at the fair value of the goods or services
given up, adjusted by the amount of any cash or cash equivalents
transferred.
The following specific recognition criteria must also be met
before revenue is recognised:
Sale of Goods
Revenue is recognised when the significant risks and rewards of
ownership of the goods have passed to the buyer and the amount of
revenue can be measured reliably. The moment of transfer of the
risks and rewards of ownership is determined by the contract
terms.
Rendering of Services
The Group's revenues from rendering of services include
electricity, transportation, port and other services. Revenue is
recognised when services are rendered.
Interest
Interest is recognised using the effective interest method.
Dividends
Revenue is recognised when the shareholders' right to receive
the payment is established.
Rental Income
Rental income is accounted for on a straight-line basis over the
lease term on ongoing leases.
Current Income Tax
Current income tax assets and liabilities for the current and
prior periods are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or
substantively enacted by the end of the reporting period.
Current income tax relating to items recognised directly in
equity is recognised in equity and not in the statement of
operations.
Deferred Income Tax
Deferred tax assets and liabilities are calculated in respect of
temporary differences using the liability method. Deferred income
taxes are provided for all temporary differences arising between
the tax basis of assets and liabilities and their carrying values
for financial reporting purposes, except where the deferred income
tax arises from the initial recognition of goodwill or of an asset
or liability in a transaction that is not a business combination
and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss.
A deferred tax asset is recorded only to the extent that it is
probable that taxable profit will be available against which the
deductible temporary differences can be utilised. Deferred tax
assets and liabilities are measured at tax rates that are expected
to apply to the period when the asset is realised or the liability
is settled, based on tax rates that have been enacted or
substantively enacted at the end of the reporting period.
Deferred income tax is provided on temporary differences arising
on investments in subsidiaries, associates and joint ventures,
except where the timing of the reversal of the temporary difference
can be controlled and it is probable that the temporary difference
will not reverse in the foreseeable future.
3. Segment Information
For management purposes, the Group is organised into business
units based on their products and services, and has four reportable
operating segments:
-- Steel productionsegment includes production of steel and
related products at eleven steel mills.
-- Mining segment includes iron ore and coal mining and
enrichment.
-- Vanadium products segment includes extraction of vanadium ore
and production of vanadium products. Vanadium slag arising in the
steel-making process is also allocated to the vanadium segment.
-- Other operationsinclude energy generating companies,
seaports, shipping and railway transportation companies.
Management and investment companies are not allocated to any of
the segments.
No operating segments have been aggregated to form the above
reportable segments.
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. This performance indicator is calculated
based on management accounts that differ from the IFRS consolidated
financial statements for the following reasons:
1) for the last month of the reporting period, the statement of
operations for each operating segment is prepared using a forecast
for that month;
2) the statement of operations is based on local GAAP figures
with the exception of depreciation expense which approximates the
amount under IFRS.
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 on a
reasonable basis to a segment, 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 on a reasonable basis to the segment, including expenses
relating to external counterparties and expenses relating to
transactions with other segments.
Segment result is segment revenue less segment expense that is
equal to earnings before interest, tax and depreciation and
amortisation ("EBITDA").
Segment EBITDA is determined as segment's profit/(loss) from
operations adjusted for 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.
The following tables present measures of segment profit or loss
based on management accounts.
Year ended 31 December 2011
Vanadium
US$ million Steel production Mining products Other operations Eliminations Total
---------------- --------- --------- ---------------- ------------ ----------
Revenue
Sales to external customers $ 15,622 $ 420 $ 269 $ 166 $ - $ 16,477
Inter-segment sales 422 3,092 364 656 (4,534) -
---------------- --------- --------- ---------------- ------------ ----------
Total revenue 16,044 3,512 633 822 (4,534) 16,477
Segment result - EBITDA $ 1,120 $ 1,529 $ 111 $ 176 $ 17 $ 2,953
Year ended 31 December 2010
Vanadium
US$ million Steel production Mining products Other operations Eliminations Total
---------------- ------- --------- ---------------- ------------ ----------
Revenue
Sales to external customers $ 12,592 $ 322 $ 280 $ 140 $ - $ 13,334
Inter-segment sales 359 2,056 257 536 (3,208) -
---------------- ------- --------- ---------------- ------------ ----------
Total revenue 12,951 2,378 537 676 (3,208) 13,334
Segment result - EBITDA $ 1,445 $ 898 $ 90 $ 122 $ (155) $ 2,400
Year ended 31 December 2009
Vanadium
US$ million Steel production Mining products Other operations Eliminations Total
---------------- ------- --------- ---------------- ------------ ---------
Revenue
Sales to external customers $ 9,292 $ 188 $ 226 $ 117 $ - $ 9,823
Inter-segment sales 129 1,160 36 439 (1,764) -
---------------- ------- --------- ---------------- ------------ ---------
Total revenue 9,421 1,348 262 556 (1,764) 9,823
Segment result - EBITDA $ 950 $ 179 $ 12 $ 110 $ - $ 1,251
The following table shows a reconciliation of revenue and EBITDA
used by management for decision making and revenue and profit or
loss before tax per the consolidated financial statements prepared
under IFRS.
Year ended 31 December 2011
Steel Vanadium
US$ million production Mining products Other operations Eliminations Total
----------- --------- --------- ---------------- ------------ ----------
Revenue $ 16,044 $ 3,512 $ 633 $ 822 $ (4,534) $ 16,477
Forecasted vs. actual
revenue 134 (1) (5) (4) - 124
Reclassifications and
other adjustments (1,461) 273 37 148 802 (201)
----------- --------- --------- ---------------- ------------ ----------
Revenue per IFRS financial
statements $ 14,717 $ 3,784 $ 665 $ 966 $ (3,732) $ 16,400
==========
EBITDA $ 1,120 $ 1,529 $ 111 $ 176 $ 17 $ 2,953
Forecasted vs. actual
EBITDA (63) (10) (5) (1) - (79)
Exclusion of management
services from segment
result 91 43 3 2 - 139
Unrealised profits
adjustment (5) - (3) - 15 7
Reclassifications and
other adjustments 119 66 (84) 20 - 121
----------- --------- --------- ---------------- ------------ ----------
142 99 (89) 21 15 188
----------- --------- --------- ---------------- ------------ ----------
EBITDA based on IFRS
financial statements $ 1,262 $ 1,628 $ 22 $ 197 $ 32 $ 3,141
Unallocated subsidiaries (243)
----------
$ 2,898
==========
Depreciation, depletion
and amortisation expense (546) (530) (34) (40) - (1,150)
Impairment of assets (78) (31) - 5 - (104)
Gain/(loss) on disposal
of property, plant
and equipment and intangible
assets (29) (20) - (1) - (50)
Foreign exchange gains/(losses),
net (29) 103 (1) 1 - 74
----------- --------- --------- ---------------- ------------ ----------
$ 580 $ 1,150 $ (13) $ 162 $ 32 $ 1,668
Unallocated income/(expenses),
net 192
----------
Profit/(loss) from
operations $ 1,860
==========
Interest income/(expense),
net $ (691)
Share of profits/(losses)
of joint ventures and
associates 55
Gain/(loss) on financial
assets and liabilities (355)
Loss on disposal groups
classified as held
for sale 8
Other non-operating
gains/(losses), net (4)
----------
Profit/(loss) before
tax $ 873
==========
Year ended 31 December 2010
Steel Vanadium
US$ million production Mining products Other operations Eliminations Total
----------------------- ------------------------- ------------------------- ------------------------- ------------------------ -----------------------
Revenue $ 12,951 $ 2,378 $ 537 $ 676 $ (3,208) $ 13,334
Forecasted vs.
actual
revenue 112 (7) (4) (1) - 100
Reclassifications
and
other adjustments (940) 136 33 148 583 (40)
----------------------- ------------------------- ------------------------- ------------------------- ------------------------ -----------------------
Revenue per IFRS
financial
statements $ 12,123 $ 2,507 $ 566 $ 823 $ (2,625) $ 13,394
=======================
EBITDA $ 1,445 $ 898 $ 90 $ 122 $ (155) $ 2,400
Forecasted vs.
actual
EBITDA (24) (14) (1) - - (39)
Exclusion of
management
services from
segment
result 62 32 2 2 - 98
Unrealised profits
adjustment (33) - 3 - 45 15
Reclassifications
and
other adjustments 35 19 (41) 20 - 33
----------------------- ------------------------- ------------------------- ------------------------- ------------------------ -----------------------
40 37 (37) 22 45 107
----------------------- ------------------------- ------------------------- ------------------------- ------------------------ -----------------------
EBITDA based on
IFRS
financial
statements $ 1,485 $ 935 $ 53 $ 144 $ (110) $ 2,507
Unallocated
subsidiaries (157)
-----------------------
$ 2,350
=======================
Depreciation,
depletion
and amortisation
expense (558) (282) (47) (37) - (924)
Impairment of
goodwill - - (16) - - (16)
Impairment of
assets (81) (20) - (30) - (131)
Gain/(loss) on
disposal
of property, plant
and equipment and
intangible
assets (33) (18) - (1) - (52)
Foreign exchange
gains/(losses),
net 65 (2) - 1 - 64
----------------------- ------------------------- ------------------------- ------------------------- ------------------------ -----------------------
$ 878 $ 613 $ (10) $ 77 $ (110) $ 1,291
Unallocated
income/(expenses),
net 39
-----------------------
Profit/(loss) from
operations $ 1,330
=======================
Interest
income/(expense),
net (715)
Share of
profits/(losses)
of joint ventures
and
associates 21
Gain/(loss) on
financial
assets and
liabilities 8
Loss on disposal
groups
classified as held
for sale (14)
Gain on bargain
purchases 4
Other non-operating
gains/(losses),
net (1)
-----------------------
Profit/(loss)
before
tax $ 633
=======================
Year ended 31 December 2009
Steel Vanadium
US$ million production Mining products Other operations Eliminations Total
------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ------------------------
Revenue $ 9,421 $ 1,348 $ 262 $ 556 $ (1,764) $ 9,823
Forecasted vs.
actual
revenue (54) (2) 3 - - (53)
Reclassifications
and
other adjustments (389) 110 98 209 (26) 2
------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ------------------------
Revenue per IFRS
financial
statements $ 8,978 $ 1,456 $ 363 $ 765 $ (1,790) $ 9,772
========================
EBITDA $ 950 $ 179 $ 12 $ 110 $ - $ 1,251
Forecasted vs.
actual
EBITDA (27) - - - - (27)
Exclusion of
management
services from
segment
result 53 30 - 4 - 87
Unrealised profits
adjustment (15) - - - 12 (3)
Reclassifications
and
other adjustments (34) 70 (24) 53 - 65
------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ------------------------
(23) 100 (24) 57 12 122
------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ------------------------
EBITDA based on
IFRS
financial
statements $ 927 $ 279 $ (12) $ 167 $ 12 $ 1,373
Unallocated
subsidiaries (136)
------------------------
$ 1,237
========================
Depreciation,
depletion
and amortisation
expense (624) (281) (38) (35) (978)
Impairment of
goodwill (160) - - - (160)
Impairment of
assets (24) 4 - - (20)
Gain/(loss) on
disposal
of property, plant
and equipment and
intangible
assets (25) (12) - (2) (39)
Foreign exchange
gains/(losses),
net 54 1 - - 55
------------------------ ------------------------- ------------------------- ------------------------ ------------------------ ------------------------
$ 148 $ (9) $ (50) $ 130 $ 12 $ 95
Unallocated
income/(expenses),
net 100
------------------------
Profit/(loss) from
operations $ 195
========================
Interest
income/(expense),
net (637)
Share of
profits/(losses)
of joint ventures
and
associates 2
Gain/(loss) on
financial
assets and
liabilities 97
Loss on disposal
groups
classified as held
for sale (5)
Gain on bargain
purchases 6
Other non-operating
gains/(losses),
net 4
------------------------
Profit/(loss)
before
tax $ (338)
========================
The revenues from external customers for each group of similar
products and services are presented in the following table:
US$ million 2011 2010 2009
--------- --------- --------
Steel Production
Construction products $ 4,423 $ 3,331 $ 2,184
Flat-rolled products 2,760 2,005 1,448
Railway products 1,964 1,466 1,113
Tubular products 1,321 1,309 1,008
Semi-finished products 2,235 2,340 2,018
Other steel products 554 383 236
Other products 1,165 1,064 729
Rendering of services 101 77 119
--------- --------- --------
14,523 11,975 8,855
Mining
Iron ore 586 330 175
Coal 392 355 219
Other products 39 26 22
Rendering of services 20 25 19
--------- --------- --------
1,037 736 435
Vanadium Products
Vanadium in slag 76 39 60
Vanadium in alloys and chemicals 558 493 290
Other products 4 3 3
Rendering of services 3 2 1
--------- --------- --------
641 537 354
Other Operations
Rendering of services 199 146 128
--------- --------- --------
199 146 128
$ 16,400 $ 13,394 $ 9,772
========= ========= ========
Distribution of the Group's revenues by geographical area based
on the location of customers for the years ended 31 December was as
follows:
US$ million 2011 2010 2009
--------- --------- --------
CIS
Russia $ 6,632 $ 4,692 $ 2,950
Ukraine 623 471 233
Kazakhstan 401 342 210
Others 163 147 100
--------- --------- --------
7,819 5,652 3,493
========= ========= ========
America
USA 2,172 1,674 1,543
Canada 1,478 1,451 861
Others 91 37 25
--------- --------- --------
3,741 3,162 2,429
========= ========= ========
Asia
Thailand 708 550 285
Taiwan 360 459 228
United Arab Emirates 315 410 415
China 252 367 528
Indonesia 212 113 74
Korea 111 126 174
Philippines 84 285 250
Japan 81 71 21
Syria 51 65 62
Vietnam 33 93 226
Jordan 6 29 101
Others 137 103 59
--------- --------- --------
2,350 2,671 2,423
========= ========= ========
Europe
Germany 368 219 116
Italy 267 205 140
Czech Republic 205 189 120
Austria 224 188 148
Poland 221 139 93
Turkey 145 118 130
Slovakia 94 64 51
Others 417 300 230
--------- --------- --------
1,941 1,422 1,028
========= ========= ========
Africa
South Africa 472 407 298
Others 72 78 83
--------- --------- --------
544 485 381
========= ========= ========
Other countries 5 2 18
--------- --------- --------
$ 16,400 $ 13,394 $ 9,772
========= ========= ========
None of the Group's customers amounts to 10% or more of the
consolidated revenues.
Non-current assets other than financial instruments, deferred
tax assets and post-employment benefit assets were located in the
following countries at 31 December:
US$ million 2011 2010 2009
--------- --------- ---------
Russia $ 6,153 $ 6,200 $ 5,915
USA 2,047 2,119 2,222
Canada 2,069 2,166 2,154
Ukraine 759 892 1,020
South Africa 567 723 767
Czech Republic 213 241 216
Italy 206 221 234
Other countries 52 40 88
$ 12,066 $ 12,602 $ 12,616
========= ========= =========
4. Business Combinations
Vanady-Tula
On December 20, 2007, the Group signed an option agreement with
OOO SGMK-Engineering (the "Seller") in respect of shares of OAO
Vanady-Tula ("Vanady-Tula"), a vanadium refinery located in Russia.
Under the agreement, the Group had the right to acquire (the call
option) and OOO SGMK-Engineering had the right to sell to the Group
(the put option) 90.84% of shares in Vanady-Tula for 3,140 million
roubles ($108 million at the exchange rate as of 2 November 2009,
the date of the business combination). The options were extended to
31 December 2009. The exercise of the options was conditional upon
the approval of the regulatory authorities. To secure the put
option, the Group provided the seller with a non-interest bearing
deposit in the amount of 3,091 million roubles ($121 million at the
exchange rate as at the payment date). The deposit would have been
repayable to the Group if neither the call option nor the put
option were exercised before their expiration.
During 2008 and 2009, the Group purchased shares in Vanady-Tula
and immediately prior to the business combination held a 1.88%
ownership interest in the entity. The consideration paid for these
shares was $2 million.
On 2 November 2009, the Group obtained the necessary regulatory
approvals. The share options became exercisable and economic
benefits have been effectively transferred to the Group since that
date. As a result, the financial position and results of operations
of Vanady-Tula were included in the Group's consolidated financial
statements beginning 2 November 2009 as the Group effectively
exercised control over the entity's operations since that date.
In December 2009, the option agreement was dissolved and the
companies entered into a new agreement for the purchase of an
82.96% ownership interest in Vanady-Tula. The purchase
consideration amounted to 2,854 million roubles ($95 million at the
exchange rate as of the date of the transaction, which was
completed on 15 December 2009).
The table below sets forth the fair values of Vanady-Tula's
consolidated identifiable assets, liabilities and contingent
liabilities at the date of business combination:
US$ million 2 November 2009
---------------
Property, plant and equipment $ 54
Inventories 14
Accounts and notes receivable 16
Total assets 84
Deferred income tax liabilities 9
Current liabilities 31
-----------------------
Total liabilities 40
Net assets $ 44
=======================
Fair value of net assets attributable to 92.72%
ownership interest 41
-----------------------
Purchase consideration $ 110
-----------------------
Goodwill $ 69
=======================
In 2009, cash flow on acquisition was as follows:
US$ million
Net cash acquired with the subsidiary $ -
Cash paid (5)
---------
Net cash outflow $ (5)
=========
At 31 December 2009, the Group's accounts receivable include $12
million due from the seller.
For the period from 2 November 2009 to 31 December 2009,
Vanady-Tula reported net profit amounting to $2 million.
In accordance with the Russian legislation, an acquirer, which
purchases at least 30% of the acquiree's share capital, is obliged
to offer to other shareholders to sell their holdings ("obligatory
offer"). On December 15, 2009, the date when the Group became the
legal owner of the shares under the new purchase agreement, the
Group derecognised all non-controlling interests in the entity and
accrued a liability to the non-controlling shareholders in the
amount of $17 million. This transaction resulted in a $5 million
charge to accumulated profits.
In February, 2010, the Group made an offer to non-controlling
shareholders of Vanady-Tula to sell their stakes to the Group. The
non-controlling shareholders sold an 11.26% ownership interest to
the Group. The Russian legislation allows a shareholder owning more
than 95% of a company to increase its stake to 100% through a
forced disposal of the shares held by non-controlling shareholders.
Consequently, in August 2010, the Group started the buy out of
non-controlling shares of Vanady-Tula. In November 2010, the Group
completed the buy-out of the remaining shares (3.90%).
The total purchase consideration for a 15.16% ownership interest
amounted to 521 million Russian roubles ($18 million at the
exchange rate as of the dates of transactions).
Steel Dealers
On 15 October 2009, the Group acquired a 100% interest in a
holding company owning steel dealers throughout Russia (formerly
known as Carbofer). The purchase consideration amounted to $11
million.
The financial position and the results of operations of this
holding were included in the Group's consolidated financial
statements beginning 15 October 2009.
The table below sets forth the fair values of consolidated
identifiable assets, liabilities and contingent liabilities of the
acquiree at the date of of business combination:
US$ million 15 October2009
--------------
Property, plant and equipment $ 7
Other non-current assets 7
Inventories 73
Accounts and notes receivable 45
Cash 4
--------------
Total assets 136
Current liabilities 119
----------
Total liabilities 119
Net assets $ 17
==========
Purchase consideration $ 11
----------
Gain on bargain purchase $ 6
==========
In 2009, cash flow on acquisition was as follows:
US$ million
Net cash acquired with the subsidiary $ 4
Cash paid (9)
---------
Net cash outflow $ (5)
=========
In 2010, the Group paid $1 million of purchase consideration. In
2011, the Group made a final payment of $1 million for this
acquisition.
For the period from 15 October to 31 December 2009, steel
dealers reported net loss amounting to $5 million.
Inprom Group
On December 22, 2010, the Group acquired 100% in a holding
entity owning steel dealers throughout Russia (known as Inprom
Group). Purchase consideration consisted of cash amounting to $19
million plus the fair value of a deferred consideration of $21
million.
The financial position and the results of operations of Inprom
were included in the Group's consolidated financial statements
beginning December 22, 2010.
The table below sets forth the fair values of consolidated
identifiable assets, liabilities and contingent liabilities of the
acquiree at the date of of business combination:
22 December
US$ million 2010
-----------
Property, plant and equipment $ 123
Other non-current assets 26
Inventories 31
Accounts and notes receivable 24
Cash 8
-----------
Total assets 212
Non-current liabilities 8
Current liabilities 161
----------
Total liabilities 169
Non-controlling interests (1)
----------
Net assets $ 44
==========
Purchase consideration $ 40
----------
Gain on bargain purchase $ 4
==========
In 2010, cash flow on acquisition was as follows:
US$ million
Net cash acquired with the subsidiary $ 8
Cash paid (18)
----------
Net cash outflow $ (10)
==========
In 2011, the Group made a final payment of $1 million for the
acquisition of Inprom Group.
For the period from December 22 to 31 December 2010, Inprom
Group reported net loss amounting to $1 million.
Other Payments for Aquisition of Subsidiaries
In 2009, the Group and Lanebrook Limited signed an amendment
agreement under which the purchase price for the Ukrainian
subsidiaries acquired in 2008 has been reduced by $65 million. This
reduction in the purchase price was accounted for as a contribution
from a shareholder in the consolidated statement of changes in
equity.
In 2010, the Group fully settled a $16 million liability under
earn-out payments for the acquisition of Stratcor in 2006. In 2011,
the Group paid $3 million of synergy payments related to the same
acquisition (Note 26).
In 2011, the Group paid $20 million for the acquisition of
Kachkakanar Heat and Power Plant. Under the terms of the purchase
agreement, the control over operating activities of the entity is
transferred to the Group on 1 January 2012. As such, this payment
was included in other non-current assets as of 31 December 2011
(Note 13).
In 2011, the Group purchased a 100% ownership interest in an
entity which assets comprise only land to be used for a
construction of a rolling mill in Russia. The cash consideration
amounted to $11 million. This purchase did not qualify for a
business combination, as the acquired company does not constitute a
business.
Disclosure of Other Information in Respect of Business
Combinations
As the acquired subsidiaries either did not prepare financial
statements in accordance with IFRS before the business combinations
or applied accounting policies that are significantly different
from the Group's accounting policies, it is impracticable to
determine revenues and net profit of the combined entity for each
year presented on the assumption that all business combinations
effected during each year had occurred at the beginning of the
respective year.
5. Goodwill
The table below presents movements in the carrying amount of
goodwill.
Gross Impairment
US$ million amount losses Carrying amount
----------------- ------------------- ---------------
At 31 December 2008 $ 2,923 $ (756) $ 2,167
Goodwill recognised on acquisitions
of subsidiaries (Note 4) 69 - 69
Adjustment to contingent consideration (5) - (5)
Impairment - (160) (160)
Palmrose - (100) (100)
Claymont Steel - (49) (49)
General Scrap - (4) (4)
Evraz Inc. N.A. Canada (Surrey) - (7) (7)
Translation difference 94 21 115
----------------- ------------------- ---------------
At 31 December 2009 3,081 (895) 2,186
Adjustment to contingent consideration 8 - 8
Impairment - (16) (16)
Stratcor, Inc. - (16) (16)
Translation difference 43 (2) 41
----------------- ------------------- ---------------
At 31 December 2010 3,132 (913) 2,219
Adjustment to contingent consideration (6) - (6)
Translation difference (35) 2 (33)
At 31 December 2011 $ 3,091 $ (911) $ 2,180
================= =================== ===============
Goodwill relates to the assembled workforce and synergy from
integration of the acquired subsidiaries into the Group. The
carrying amount of goodwill was allocated among cash generating
units as follows at 31 December:
US$ million 2011 2010 2009
-------- -------- --------
Evraz Inc. NA $ 1,130 $ 1,130 $ 1,130
Oregon Steel Portland Mill 412 412 412
Rocky Mountain Steel Mills 410 410 410
OSM Tubular - Camrose Mills 157 157 157
Claymont Steel 135 135 135
General Scrap 16 16 16
Evraz Inc. NA Canada 827 845 801
Calgary 227 232 220
Red Deer 55 57 54
Regina Steel 389 397 376
Regina Tubular 134 137 130
Others 22 22 21
Evraz Palini e Bertoli 74 78 82
Evraz Vanady-Tula 63 66 66
Strategic Minerals Corporation 25 31 39
Nikom, a.s. 37 40 40
Evraz Highveld Steel and Vanadium
Limited 24 29 27
Evro-Aziatskaya Energy Company - - 1
$ 2,180 $ 2,219 $ 2,186
======== ======== ========
The cash generating units within Evraz Inc. N.A. and Evraz Inc.
N.A. Canada represent the smallest identifiable groups of assets,
primarily individual mills, which generate cash flows that are
largely independent from other assets or groups of assets.
Goodwill was tested for impairment as of 31 December 2011. For
the purpose of the goodwill impairment testing the Group assessed
the recoverable amount of each cash generating unit to which the
goodwill relates. The recoverable amount has been determined based
on a value-in-use calculation using cash flows projections based on
the actual operating results and business plans approved by
management and appropriate discount rates reflecting time value of
money and risks associated with respective cash generating units.
For the periods not covered by management business plans, cash flow
projections have been estimated by extrapolating the respective
business plans results using a zero real growth rate.
The key assumptions used by management in the value-in-use
calculations are presented in the table below.
Average
price of
Period Pre-tax the commodity
of forecast, discount per ton
years rate, % Commodity in 2012
-------------- ----------- --------------- ---------------
Evraz Inc. NA 5 9.11-14.47 steel products $966
Evraz Inc. NA Canada 5 13.32 steel products $1,175
Evraz Palini e Bertoli 5 12.47 steel plates EUR754
vanadium
Evraz Vanady-Tula 5 14.42 products $22,583
ferrovanadium
Strategic Minerals Corporation 5 14.47 products $29,917
ferrovanadium
Nikom, a.s. 5 13.60 products $24,460
Evraz Highveld Steel and ferrovanadium
Vanadium Limited 5 14.92 products $27,462
steel products $986
The calculations of value-in-use are most sensitive to the
following assumptions:
Discount Rates
Discount rates reflect the current market assessment of the
risks specific to each cash generating unit. The discount rates
have been determined using the Capital Asset Pricing Model and
analysis of industry peers. Reasonable changes in discount rates
could lead to an additional impairment at Evraz Palini e Bertoli,
Strategic Minerals Corporation and General Scrap Inc. cash
generating units. If discount rates were 10% higher, this would
lead to an additional impairment of $9 million. The recoverable
amount of these cash generating units based on the discount rates
applied exceeds their carrying amount by $38 million.
Sales Prices
The prices of the products sold by the Group were estimated
using industry research. The Group expects that the nominal prices
will grow with a compound annual gross rate of 4% in 2012-2016,
3.0% in 2017 and thereafter. If the prices assumed for 2012 and
2013 in the impairment test were 10% lower, this would not lead to
any additional impairment.
Sales Volumes
Management assumed that the sales volumes of steel products
would increase on average by 5% during 2012 and would grow evenly
during the following four years to reach normal asset capacity
thereafter. Reasonable changes in sales volumes could lead to an
additional impairment at General Scrap Inc. cash generating unit.
If the sales volumes were 10% lower than those assumed for 2012 and
2013 in the impairment test, this would lead to an additional
impairment of $2 million. The recoverable amount of this cash
generating unit based on the sales volumes applied exceeds its
carrying amount by $2 million.
Cost Control Measures
The recoverable amounts of cash generating units are based on
the business plans approved by management. A reasonable deviation
of cost from these plans could lead to an additional impairment at
Evraz Vanady-Tula and Evraz Palini e Bertoli cash generating units.
If the actual costs were 10% higher than those assumed for 2012 and
2013 in the impairment test, this would lead to an additional
impairment of $36 million. The recoverable amount of these cash
generating units based on the cost control measures applied exceeds
their carrying amount by $50 million.
6. Acquisitions of Non-Controlling Interests in Subsidiaries
Evraztrans
In 2011, the Group acquired an additional non-controlling
interest of 24% in Evraztrans, a subsidiary, which renders railway
transportation services. Cash consideration amounted to $51
million. The excess of the amounts of consideration over the
carrying values of non-controlling interests acquired amounting to
$18 million was charged to accumulated profits.
Stratcor
In 2010, the Group acquired an additional non-controlling
interest of 5.92% in Strategic Minerals Corporation ("Stratcor")
for a cash consideration of $8 million paid in 2009. The excess of
the amount of consideration paid over the carrying value of
acquired non-controlling interest amounting to $3 million was
charged to accumulated profits.
LDPP
In 2010, the Group acquired an additional non-controlling
interest of 25% in OAO Large Diameter Pipe Plant ("LDPP") for a
cash consideration of $8 million. The excess of the carrying value
of acquired non-controlling interest over the amount of
consideration paid amounting to $1 million was recorded in
additional paid-in capital.
7. Income and Expenses
Cost of revenues, selling and distribution costs, general and
administrative expenses include the following for the years ended
31 December:
US$ million 2011 2010 2009
---------- ---------- ----------
Cost of inventories recognised
as expense $ (7,106) $ (5,241) $ (3,849)
Staff costs, including social
security taxes (2,228) (1,743) (1,524)
Depreciation, depletion and
amortisation (1,153) (925) (979)
In 2011, 2010 and 2009, the Group made a reversal of the
allowance for net realisable value in the amount of $14 million,
$35 million and $177 million, respectively.
Staff costs include the following:
US$ million 2011 2010 2009
-------- -------- --------
Wages and salaries $ 1,648 $ 1,347 $ 1,165
Social security costs 404 257 217
Post-employment benefit expense 59 59 49
Share-based awards 23 2 6
Other compensations 94 78 87
$ 2,228 $ 1,743 $ 1,524
======== ======== ========
The average number of staff employed under contracts of service
was as follows:
2011 2010 2009
----------------- ----------------- -----------------
Steel Production 63,414 61,858 65,471
Mining 37,490 38,336 43,127
Vanadium Products 1,212 1,178 1,158
Other Operations 3,583 3,855 4,986
Unallocated 3,362 3,279 2,592
109,061 108,506 117,334
================= ================= =================
The major components of other operating expenses were as
follows:
US$ million 2011 2010 2009
------- -------- --------
Idling, reduction and stoppage
of production, including termination
benefits $ (40) $ (45) $ (70)
Restoration works and casualty
compensations in connection
with accidents (4) (17) (1)
Site restoration provision
accrued with respect to Kazankovskaya
(Note 11) (6) - -
Other (46) (48) (50)
------- -------- --------
$ (96) $ (110) $ (121)
======= ======== ========
Interest expense consisted of the following for the years ended
31 December:
US$ million 2011 2010 2009
-------- -------- --------
Bank interest $ (154) $ (241) $ (346)
Interest on bonds and notes (495) (423) (268)
Finance charges payable under
finance leases (5) (6) (7)
Interest on liabilities relating
to employee benefits and expected
return on plan assets (Note
23) (28) (32) (28)
Discount adjustment on provisions (19) (15) (12)
Interest on contingent consideration (1) (1) (2)
Other (6) (10) (14)
$ (708) $ (728) $ (677)
======== ======== ========
Interest income consisted of the following for the years ended
31 December:
US$ million 2011 2010 2009
----- ----- -----
Interest on bank accounts and
deposits $ 6 $ 9 $ 17
Interest on loans receivable 4 1 10
Interest on loans receivable
from related parties 3 2 6
Interest on accounts receivable - 1 7
Other 4 - -
----- ----- -----
$ 17 $ 13 $ 40
===== ===== =====
Gain/(loss) on financial assets and liabilities included the
following for the years ended 31 December:
US$ million 2011 2010 2009
-------- ------ -----
Impairment of available-for-sale
financial assets (Note 13) $ (20) $ (2) $ -
Gain/(loss) on extinguishment
of debts (Note 21) (71) - 103
Loss on conversion of bonds
(Note 21) (161) - -
Change in the fair value of
derivatives (Note 26) (110) 4 1
Other 7 6 (7)
$ (355) $ 8 $ 97
======== ====== =====
8. Income Taxes
The Group's income was subject to tax at the following tax
rates:
2011 2010 2009
------------ ------- -------
Russia 20.00% 20.00% 20.00%
Canada 26.50% 28.00% 29.00%
Cyprus 10.00% 10.00% 10.00%
Czech Republic 19.00% 19.00% 20.00%
Italy 31.40% 31.40% 31.40%
South Africa 28.00% 28.00% 28.00%
Switzerland 10.09% 10.09% 12.10%
23.00%
Ukraine and 25.00% 25.00% 25.00%
USA 37.95% 38.32% 38.51%
In 2010, a new Tax Code has been adopted in Ukraine, which
introduced a gradual reduction in income tax rates from 25% in 2010
to 16% in 2014. In addition, in accordance with the new Tax Code
the carrying values of property, plant and equipment per statutory
books as of 1 April 2011 will become a new tax base of these assets
for income tax calculations. The Group's subsidiaries measured the
respective deferred tax assets and liabilities at 31 December 2010
based on the new tax bases using the announced tax rates and a
forecast of temporary differences reversal.
Major components of income tax expense for the years ended 31
December were as follows:
US$ million 2011 2010 2009
-------- -------- --------
Current income tax expense $ (537) $ (415) $ (179)
Adjustment in respect of income
tax of previous years 129 (8) (6)
Deferred income tax benefit/(expense)
relating to origination and
reversal of temporary differences (12) 260 231
Income tax benefit/(expense)
reported in the consolidated
statement of operations $ (420) $ (163) $ 46
======== ======== ========
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 2011 2010 2009
-------- -------- ----------
Profit before income tax $ 873 $ 633 $ (338)
At the Russian statutory income
tax rate of 20% (175) (127) 68
Adjustment in respect of income
tax of previous years 129 (8) (6)
Deferred income tax expense
arising on the adjustment to
current income tax of prior
periods and the change in tax
base of underlying assets (116) - -
Deferred income tax benefit
resulting from reduction in
tax rate - 17 13
Deferred income tax benefit
relating to changes in tax
regulations other than tax
rates - 125 -
Effect of non-deductible expenses
and other non-temporary differences (282) (261) (135)
Unrecognised temporary differences
recognition/reversal (52) 5 23
Tax on dividends distributed
by the Group's subsidiaries
to parent company - - (1)
Effect of the difference in
tax rates in countries other
than the Russian Federation 65 82 68
Deferred income tax provided
for undistributed earnings
of the Group's subsidiaries - - 11
Share of profits in joint ventures
and associates 11 4 -
Utilisation of previously unrecognised
tax losses - - 5
Income tax expense reported
in the consolidated statement
of operations $ (420) $ (163) $ 46
======== ======== ==========
Deferred income tax assets and liabilities and their movements
for the years ended 31 December were as follows:
Year ended 31 December 2011
Change Change Change
recognised recognised due Change
in Received in other to due
statement from comprehen- business to disposal
of tax sive combina of Translation
US$ million 2011 operations authorities income tions subsidiaries difference 2010
------------------ ----------- ------------ ----------- --------- ------------- ------------ -------------------
Deferred
income
tax
liabilities:
Valuation and
depreciation
of property,
plant
and
equipment $ 1,021 (1) - - - - (52) $ 1,074
Valuation and
amortisation
of
intangible
assets 221 (38) - - - - (15) 274
Other 93 11 - - - - (7) 89
------------------ ----------- ------------ ----------- --------- ------------- ------------ -------------------
1,335 (28) - - - - (74) 1,437
Deferred
income
tax assets:
Tax losses
available
for offset 151 14 - - - - (13) 150
Accrued
liabilities 123 (17) - - - - (13) 153
Impairment of
accounts
receivable 33 3 - - - - (3) 33
Other 87 (40) - - - - (2) 129
394 (40) - - - - (31) 465
Net deferred
income
tax asset 79 (17) - - - - (4) 100
================== =========== ============ =========== ========= ============= ============ ===================
Net deferred
income
tax
liability $ 1,020 (5) - - - - (47) $ 1,072
================== =========== ============ =========== ========= ============= ============ ===================
Year ended 31 December 2010
Change Change Change
recognised recognised due Change
in Received in other to due
statement from comprehen- business to disposal
of tax sive combina of Translation
US$ million 2010 operations authorities income tions subsidiaries difference 2009
------------------ ----------- ------------ ----------- --------- ------------- ------------ -------------------
Deferred
income
tax
liabilities:
Valuation and
depreciation
of property,
plant
and
equipment $ 1,074 (184) - (1) 5 (13) 10 $1,257
Valuation and
amortisation
of
intangible
assets 274 (38) - - - - 15 297
Other 89 (7) - - - - 4 92
------------------ ----------- ------------ ----------- --------- ------------- ------------ -------------------
1,437 (229) - (1) 5 (13) 29 1,646
Deferred
income
tax assets:
Tax losses
available
for offset 150 5 (74) - 11 - 5 203
Accrued
liabilities 153 23 - - - - 2 128
Impairment of
accounts
receivable 33 6 - - 5 - - 22
Other 129 (3) - - 1 - (1) 132
465 31 (74) - 17 - 6 485
Net deferred
income
tax asset 100 24 - - 10 - (4) 70
================== =========== ============ =========== ========= ============= ============ ===================
Net deferred
income
tax
liability $ 1,072 (236) 74 (1) (2) (13) 19 $ 1,231
================== =========== ============ =========== ========= ============= ============ ===================
Year ended 31 December 2009
Change Change Change
recognised recognised due Change
in Received in other to due
statement from comprehen- business to disposal
of tax sive combina of Translation
US$ million 2009 operations authorities income tions subsidiaries difference 2008
------------------- ----------- ------------ ----------- --------- ------------- ------------ --------
Deferred
income
tax
liabilities:
Valuation and
depreciation
of property,
plant
and equipment $1,257 (42) - (1) 9 - 17 $1,274
Valuation and
amortisation
of intangible
assets 297 (49) - - - - 36 310
Undistributed
earnings
of
subsidiaries - (11) - - - - - 11
Other 92 31 - - - - 3 58
------------------- ----------- ------------ ----------- --------- ------------- ------------ --------
1,646 (71) - (1) 9 - 56 1,653
Deferred
income
tax assets:
Tax losses
available
for offset 203 154 - - 4 - 2 43
Accrued
liabilities 128 (20) - - - - 1 147
Impairment of
accounts
receivable 22 (3) - - 2 - (1) 24
Other 132 29 - 1 - 8 94
------------------- ----------- ------------ ----------- --------- ------------- ------------ --------
485 160 - - 7 - 10 308
Net deferred
income
tax asset 70 20 - - 8 - (2) 44
=================== =========== ============ =========== ========= ============= ============ ========
Net deferred
income
tax liability $ 1,231 (211) - (1) 10 - 44 $ 1,389
=================== =========== ============ =========== ========= ============= ============ ========
As of 31 December 2011, 2010 and 2009, deferred income taxes in
respect of undistributed earnings of the Group's subsidiaries have
not been provided for, as management does not intend to distribute
accumulated earnings in the foreseeable future. The current tax
rate on intra-group dividend income varies from 0% to 10%.
At 31 December 2011, the Group has not recognised a deferred tax
liability and deferred tax asset in respect of temporary
differences of $5,686 million and $3,478 million, respectively
(2010: $5,764 million and $2,831 million, 2009: $4,270 million and
$2,713 million, respectively). These differences are associated
with investments in subsidiaries and were not recognised as the
Group is able to control the timing of the reversal of those
temporary differences and does not intend to reverse them in the
foreseeable future.
In the context of the Group's current structure, tax losses and
current tax assets of the different companies may not be set off
against current tax liabilities and taxable profits of other
companies, except for the companies registered in Cyprus where
group relief can be applied. As of 31 December 2011, the unused tax
losses carry forward approximated $3,481 million (2010: $3,365
million, 2009: $2,757 million). The Group recognised deferred tax
asset of $151 million (2010: $150 million, 2009: $203 million) in
respect of unused tax losses. Deferred tax asset in the amount of
$694 million (2010: $655 million, 2009: $463 million) has 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 $2,568 million (2010: $2,555 million, 2009: $1,873
million) for which deferred tax asset was not recognised arose in
companies registered in Luxembourg, Cyprus, Russia, Ukraine and
Canada. Losses in the amount of $2,479 million (2010: $2,535
million, 2009: $1,870 million) are available indefinitely for
offset against future taxable profits of the companies in which the
losses arose and $89 million will expire during 2012 - 2022 (2010:
$20 million, 2009: $3 million).
9. Property, Plant and Equipment
Property, plant and equipment consisted of the following as of
31 December:
US$ million 2011 2010 2009
-------- -------- --------
Cost:
Land $ 187 $ 177 $ 164
Buildings and constructions 2,594 2,536 2,456
Machinery and equipment 5,798 5,734 5,337
Transport and motor vehicles 508 483 445
Mining assets 2,631 2,656 2,617
Other assets 75 84 77
Assets under construction 1,027 702 539
-------- -------- --------
12,820 12,372 11,635
Accumulated depreciation,
depletion and impairment losses:
Buildings and constructions (954) (854) (711)
Machinery and equipment (2,358) (2,046) (1,631)
Transport and motor vehicles (227) (203) (173)
Mining assets (923) (607) (485)
Other assets (52) (55) (50)
-------- -------- --------
(4,514) (3,765) (3,050)
$ 8,306 $ 8,607 $ 8,585
======== ======== ========
The movement in property, plant and equipment for the year ended
31 December 2011 was as follows:
Buildings Transport Assets
and Machinery and motor Mining Other under
US$ million Land constructions and equipment vehicles assets assets construction Total
------ --------------- -------------- ---------- ------- ------- --------------- ---------
At 31 December
2010,
cost, net of
accumulated
depreciation $ 177 $ 1,682 $ 3,688 $ 280 $ 2,049 $ 29 $ 702 $ 8,607
Reclassifications
between
categories - 16 (25) (1) - (5) 15 -
Additions 12 7 5 - 28 3 1,297 1,352
Assets put into
operation 4 193 522 66 101 7 (893) -
Disposals - (17) (44) (4) (3) (1) (3) (72)
Depreciation and
depletion charge - (151) (485) (43) (379) (6) - (1,064)
Impairment losses
recognised in
statement
of operations - (14) (47) (3) (29) - (21) (114)
Impairment losses
reversed through
statement of
operations - 6 3 - - - 1 10
Impairment losses
recognised or
reversed
through other
comprehensive
income - - (1) - - - - (1)
Transfer to/from
assets held for
sale - (4) - - - - (5) (9)
Change in site
restoration
and
decommissioning
provision - (3) 4 - 16 - - 17
Translation
difference (6) (75) (180) (14) (75) (4) (66) (420)
------ --------------- -------------- ---------- ------- ------- --------------- ---------
At 31 December
2011,
cost, net of
accumulated
depreciation $ 187 $ 1,640 $ 3,440 $ 281 $ 1,708 $ 23 $ 1,027 $ 8,306
====== =============== ============== ========== ======= ======= =============== =========
The movement in property, plant and equipment for the year ended
31 December 2010 was as follows:
Buildings Transport Assets
and Machinery and motor Mining Other under
US$ million Land constructions and equipment vehicles assets assets construction Total
------ --------------- -------------- ---------- ------- ------- --------------- ---------
At 31 December
2009,
cost, net of
accumulated
depreciation $ 164 $ 1,745 $ 3,706 $ 272 $ 2,132 $ 27 $ 539 $ 8,585
Reclassifications
between
categories - 1 (4) 1 3 (1) - -
Additions - 2 4 6 25 - 840 877
Assets acquired in
business
combination 11 47 55 2 - 3 5 123
Assets put into
operation 1 54 423 45 70 11 (604) -
Disposals (1) (9) (39) (3) (12) (2) (10) (76)
Depreciation and
depletion charge - (149) (453) (40) (151) (10) - (803)
Impairment losses
recognised in
statement
of operations - (4) (40) - (8) - (65) (117)
Impairment losses
reversed through
statement of
operations - 3 8 - 1 - 3 15
Impairment losses
recognised or
reversed
through other
comprehensive
income - (4) (1) - (2) - - (7)
Transfer to/from
assets held for
sale - (6) (9) - (75) - - (90)
Change in site
restoration
and
decommissioning
provision - 2 - - 71 - - 73
Translation
difference 2 - 38 (3) (5) 1 (6) 27
------ --------------- -------------- ---------- ------- ------- --------------- ---------
At 31 December
2010,
cost, net of
accumulated
depreciation $ 177 $ 1,682 $ 3,688 $ 280 $ 2,049 $ 29 $ 702 $ 8,607
====== =============== ============== ========== ======= ======= =============== =========
The movement in property, plant and equipment for the year ended
31 December 2009 was as follows:
Buildings Transport Assets
and Machinery and motor Mining Other under
US$ million Land constructions and equipment vehicles assets assets construction Total
------ --------------- -------------- ---------- ------- ------- --------------- ---------
At 31 December
2008,
cost, net of
accumulated
depreciation $ 157 $ 1,813 $ 3,747 $ 297 $ 2,244 $ 63 $ 691 $ 9,012
Reclassifications 5 35 (12) (1) 5 (34) 2 -
Additions - - 10 1 11 - 371 393
Assets acquired in
business
combination - 31 26 2 - - 2 61
Assets put into
operation 3 56 346 24 72 15 (516) -
Disposals - (11) (26) (4) (1) (1) (6) (49)
Depreciation and
depletion charge - (151) (445) (43) (147) (17) - (803)
Impairment losses
recognised in
statement
of operations - (28) (33) - (4) - (7) (72)
Impairment losses
reversed through
statement of
operations - 15 20 - 22 - - 57
Impairment losses
recognised or
reversed
through other
comprehensive
income (4) (3) (1) - - - - (8)
Disposal of assets
due to sale of a
subsidiary - (1) - - (10) - - (11)
Transfer to/from
assets held for
sale - (3) - - - (2) - (5)
Change in site
restoration
and
decommissioning
provision - 5 6 - 3 - - 14
Translation
difference 3 (13) 68 (4) (63) 3 2 (4)
------ --------------- -------------- ---------- ------- ------- --------------- ---------
At 31 December
2009,
cost, net of
accumulated
depreciation $ 164 $ 1,745 $ 3,706 $ 272 $ 2,132 $ 27 $ 539 $ 8,585
====== =============== ============== ========== ======= ======= =============== =========
Assets under construction include prepayments to constructors
and suppliers of property, plant and equipment in the amount of
$287 million, $250 million and $121 million as of 31 December 2011,
2010 and 2009, 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.
The amount of borrowing costs capitalised during the year ended
31 December 2011 was $13 million (2010: $5 million, 2009: $7
million). In 2011, the rate used to determine the amount of
borrowing costs eligible for capitalisation was 4.6% (2010: 6.3%,
2009: 7%), which is the effective interest rate of borrowings that
were outstanding during the period, other than borrowings made
specifically for the purpose of obtaining qualifying assets.
10. Intangible Assets Other Than Goodwill
Intangible assets consisted of the following as of 31
December:
US$ million 2011 2010 2009
-------- -------- --------
Cost:
Customer relationships $ 1,230 $ 1,353 $ 1,276
Trade names and trademarks 31 31 31
Water rights and environmental
permits 64 64 64
Patented and unpatented technology 9 10 9
Contract terms 16 11 42
Other 55 53 46
1,405 1,522 1,468
Accumulated amortisation:
Customer relationships (480) (441) (307)
Trade names and trademarks (31) (25) (19)
Water rights and environmental
permits (7) (6) (5)
Patented and unpatented technology (8) (8) (6)
Contract terms (4) (3) (2)
Other (37) (35) (31)
(567) (518) (370)
$ 838 $ 1,004 $ 1,098
======== ======== ========
As of 31 December 2011, 2010 and 2009, water rights and
environmental permits with a carrying value $56 million had an
indefinite useful life.
The movement in intangible assets for the year ended 31 December
2011 was as follows:
Water rights
and Patented
Customer Trade names environ-mental and unpatented Contract
US$ million relation-ships and trademarks permits technology terms Other Total
--------------- --------------- --------------- --------------- -------- ------ ---------
At 31 December 2010,
cost, net of
accumulated
amortisation $ 912 $ 6 $ 58 $ 2 $ 8 $ 18 $ 1,004
Additions - - - - - 4 4
Amortisation charge (111) (6) (1) - - (5) (123)
Emission allowances
granted - - - - - 7 7
Emission allowances
used/sold/purchased
for the period - - - - - (4) (4)
Impairment loss
recognised
in statement of
operations - - - - - (2) (2)
Impairment losses
reversed through
statement of
operations 6 - - - 5 - 11
Translation
difference (57) - - (1) (1) - (59)
--------------- --------------- --------------- --------------- -------- ------ ---------
At 31 December 2011,
cost, net of
accumulated
amortisation $ 750 $ - $ 57 $ 1 $ 12 $ 18 $ 838
=============== =============== =============== =============== ======== ====== =========
The movement in intangible assets for the year ended 31 December
2010 was as follows:
Water rights
and Patented
Customer Trade names environ-mental and unpatented Contract
US$ million relation-ships and trademarks permits technology terms Other Total
--------------- --------------- --------------- --------------- -------- ------ ---------
At 31 December 2009,
cost, net of
accumulated
amortisation $ 969 $ 12 $ 59 $ 3 $ 40 $ 15 $ 1,098
Additions - - - - - 7 7
Amortisation charge (113) (6) (1) (2) (1) (4) (127)
Emission allowances
granted - - - - - 6 6
Emission allowances
used/sold/purchased
for the period - - - - - (5) (5)
Impairment loss
recognised
in statement of
operations - - - - (30) - (30)
Impairment losses
reversed through
statement of
operations 1 - - - - - 1
Translation
difference 55 - - 1 (1) (1) 54
--------------- --------------- --------------- --------------- -------- ------ ---------
At 31 December 2010,
cost, net of
accumulated
amortisation $ 912 $ 6 $ 58 $ 2 $ 8 $ 18 $ 1,004
=============== =============== =============== =============== ======== ====== =========
The movement in intangible assets for the year ended 31 December
2009 was as follows:
Water rights Patented
Customer Trade names and environ-mental and unpatented Contract
US$ million relation-ships and trademarks permits technology terms Other Total
--------------- --------------- ------------------ --------------- -------- ------ ---------
At 31 December
2008,
cost, net of
accumulated
amortisation $ 946 $ 16 $ 60 $ 5 $ 58 $ 23 $ 1,108
Additions - - - - - 1 1
Amortisation
charge (104) (5) (1) (2) (18) (4) (134)
Emission
allowances
granted - - - - - 5 5
Emission
allowances
used/sold for
the
period - - - - - (11) (11)
Impairment loss
recognised
in statement of
operations (15) - - - - - (15)
Impairment losses
reversed through
statement of
operations 8 2 - - - - 10
Translation
difference 134 (1) - - - 1 134
--------------- --------------- ------------------ --------------- -------- ------ ---------
At 31 December
2009,
cost, net of
accumulated
amortisation $ 969 $ 12 $ 59 $ 3 $ 40 $ 15 $ 1,098
=============== =============== ================== =============== ======== ====== =========
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:
Kazankov-
US$ million Corber Streamcore skaya Other associates Total
-------- ---------- --------- ---------------- --------
Investment at 31 December
2008 $ 541 $ - $ - $ 10 $ 551
Additional investments - 42 - 13 55
Share of profit/(loss) 40 - - - 40
Impairment of investments - - - (1) (1)
Disposal of investments - - - (1) (1)
Translation difference (12) 2 - - (10)
Investment at 31 December
2009 569 44 - 21 634
Share of profit/(loss) 95 - - 1 96
Impairment of investments - (23) - (10) (33)
Translation difference (8) - (1) (9)
-------- ---------- --------- ---------------- --------
Investment at 31 December
2010 656 21 - 11 688
Additional investments - - - 9 9
Share of profit/(loss) 50 - - 1 51
Reversal of impairment
of investments - 4 - - 4
Dividends paid (52) - - (2) (54)
Translation difference (33) (1) - (1) (35)
Investment at 31 December
2011 $ 621 $ 24 $ - $ 18 $ 663
======== ========== ========= ================ ========
Share of profit/(loss) of joint ventures and associates which is
reported in the statement of operations comprised the
following:
US$ million 2011 2010 2009
-------- -------- --------
Share of profit/(loss), net $ 51 $ 96 $ 40
Impairment of investments 4 (33) (1)
Group's share in excess of
net assets of ZAO Koksovaya
transferred to Raspadskaya
over consideration received
(Note 12) - (42) -
Losses recognised in excess
of the Group's investment
in the associate - - (37)
-------- -------- --------
Share of profits/(losses)
of joint ventures and associates
recognised in the consolidated
statement of operations $ 55 $ 21 $ 2
======== ======== ========
Corber Enterprises Limited
Corber Enterprises Limited ("Corber") is a joint venture
established in 2004 for the purpose of exercising joint control
over economic activities of Raspadskaya Mining Group. Corber is
registered in Cyprus. The Group has 50% share in the joint venture,
i.e. effectively owns 40% in OAO Raspadskaya (Russia).
The table below sets forth Corber's assets and liabilities as of
31 December:
US$ million 2011 2010 2009
----------- ----------- -----------
Mineral reserves $ 733 $ 798 $ 864
Other property, plant and
equipment 901 920 746
Other non-current assets 54 27 38
Inventories 84 77 44
Accounts and notes receivable 198 275 335
Cash 180 165 24
----------- ----------- -----------
Total assets 2,150 2,262 2,051
Non-current liabilities 38 338 325
Deferred income tax liabilities 174 188 186
Current liabilities 455 82 111
----------- ----------- -----------
Total liabilities 667 608 622
----------- ----------- -----------
Non-controlling interests 243 335 291
----------- ----------- -----------
Net assets $ 1,240 $ 1,319 $ 1,138
=========== =========== ===========
Group's share of net assets 620 659 569
Add: cost of guarantee 2 2 2
Less: unrealised profits
in inventory balance (1) (5) (2)
----------- ----------- -----------
Investment $ 621 $ 656 $ 569
=========== =========== ===========
The table below sets forth Corber's income and expenses:
US$ million 2011 2010 2009
---------------------- ---------------------- ----------------------
Revenue $ 726 $ 706 $ 497
Cost of revenue (361) (323) (252)
Other expenses, including
income taxes (246) (139) (141)
---------------------- ---------------------- ----------------------
Net profit $ 119 $ 244 $ 104
====================== ====================== ======================
Attributable to:
Equity holders of the parent
entity $ 93 $ 194 $ 82
Non-controlling interests 26 50 22
---------------------- ---------------------- ----------------------
Net profit $ 119 $ 244 $ 104
====================== ====================== ======================
50% of unrealised profits
on transactions with the
joint venture 4 (2) (1)
Group's share of profits
of the joint venture $ 50 $ 95 $ 40
Kazankovskaya
ZAO Kazankovskaya ("Kazankovskaya") is a Russian coal mining
company that was acquired as part of the purchase of
Yuzhkuzbassugol in 2007. The Group owns 50% in Kazankovskaya.
The table below sets forth Kazankovskaya's assets and
liabilities as of 31 December:
US$ million 2011 2010 2009
---------------------- ---------------------- ----------------------
Mineral reserves $ - $ - $ -
Other property, plant and
equipment - - 21
Inventories - 1 2
Accounts receivable 1 1 1
Other current assets 2 1 1
Total assets 3 3 25
Non-current liabilities 69 65 48
Deferred income tax liabilities 3 4 8
Current liabilities 25 24 15
---------------------- ---------------------- ----------------------
Total liabilities 97 93 71
Net assets/(liabilities) $ (94) $ (90) $ (46)
====================== ====================== ======================
The accumulated unrecognised losses in respect of Kazankovskaya
amounted to:
US$ million 2011 2010 2009
---------- ---------- -------
Unrecognised losses $ (27) $ (21) $ -
The table below sets forth Kazankovskaya'sincome and
expenses:
US$ million 2011 2010 2009
---------------------- ---------------------- ---------------------
Revenue $ - $ 14 $ 15
Cost of revenue (1) (32) (26)
Other expenses, including
income taxes (10) (23) (55)
---------------------- ---------------------
Net loss $ (11) $ (41) $ (66)
---------------------- ---------------------- ---------------------
Group's share of loss of
the associate $ (6) $ (21) $ (33)
====================== ====================== =====================
including: share of loss
allocated against loan receivable
from Kazankovskaya - - (33)
Streamcore
In 2009, the Group acquired 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. Cash consideration amounted to $42 million.
The table below sets forth the fair values of Streamcore's
identifiable assets, liabilities and contingent liabilities at the
date of acquisition:
US$ million 4 September2009
---------------
Property, plant and equipment $ 59
Inventories 1
Accounts receivable 11
Total assets 71
Deferred income tax liabilities 5
Current liabilities 5
---------------
Total liabilities 10
Net assets $ 61
===============
The table below sets forth Streamcore's assets and liabilities
as of 31 December:
US$ million 2011 2010 2009
-------- -------- --------
Property, plant and equipment $ 40 $ 31 $ 59
Accounts receivable 11 17 15
Total assets 51 48 74
Non-current liabilities - - 2
Deferred income tax liabilities 1 4 5
Current liabilities 1 1 3
-------- -------- --------
Total liabilities 2 5 10
-------- -------- --------
Net assets $ 49 $ 43 $ 64
======== ======== ========
Group's share of net assets 24 21 32
Group's share in goodwill - - 12
Investment $ 24 $ 21 $ 44
======== ======== ========
The table below sets forth Streamcore'sincome and expenses from
the date of acquisition of interest in the joint venture:
Period from
4 September
to
31 December
US$ million 2011 2010 2009
------- -------- ----------------------
Revenue $ 9 $ 10 $ 5
Cost of revenue (6) (9) (4)
Other expenses, including
income taxes (3) (1) (1)
-------- ----------------------
Net profit $ - $ - $ -
------- -------- ----------------------
Group's share of profit of
the joint venture $ - $ - $ -
======= ======== ======================
12. Disposal Groups Held for Sale
The major classes of assets and liabilities of the disposal
groups measured at the lower of carrying amount and fair value less
costs to sell were as follows as of 31 December:
US$ million 2011 2010 2009
------- ------- -------
Land $ - $ - $ 1
Other property, plant and
equipment 9 2 6
Assets classified as held
for sale 9 2 7
Liabilities directly associated
with assets classified as
held for sale - - 1
Net assets classified as
held for sale $ 9 $ 2 $ 6
======= ======= =======
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 2009-2011.
US$ million 2011 2010 2009
------- -------- --------
Property, plant and equipment $ 1 $ 90 $ 16
Inventory - - 3
Accounts and notes receivable - 22 7
Total assets 1 112 26
Deferred income tax liabilities - 13 -
Non-current liabilities - 1
Current liabilities - - 14
------- -------- --------
Total liabilities - 14 14
Net assets $ 1 $ 98 $ 12
======= ======== ========
Cash flows on disposal of subsidiaries and other business units
were as follows:
US$ million 2011 2010 2009
------- -------- --------
Net cash disposed of with
subsidiaries $ - $ - $ -
Transaction costs - - -
Cash received 5 42 28
------- -------- --------
Net cash inflow $ 5 $ 42 $ 28
======= ======== ========
At 31 December 2010 and 2009, the Group owed $5 million in
respect of the disposed business units. In 2011, these payables
were written off and recorded as a gain on assets held for
sale.
The disposal groups sold during 2009-2011 are described
below.
Mine 12
On 1 June 2009, the Group entered into a contractual agreement
to sell a 100% ownership interest in Mine 12, the coal mine located
in Russia, for a cash consideration of $2 million. Under the terms
of the agreement, control over Mine 12 was transferred to the
purchaser at the date of the agreement and the Group ceased to
consolidate Mine 12 from that date. In July 2009, the regulatory
approval for the acquisition of Mine 12 was received and the
transaction was completed.
Loss from the sale of Mine 12 in the amount of $9 million was
included in the consolidated statement of operations for the year
ended 31 December 2009.
Sale of Koksovaya
In April, 2010, the Group sold ZAO Koksovaya to Raspadskaya, a
subsidiary of Corber, the Group's joint venture, which holds 80% in
Raspadskaya. ZAO Koksovaya is an operating hard-coking coal mine,
which owns the license for Tomusinskaya 5-6 coal deposit. As part
of the transaction, the parties entered into a long-term off-take
contract under which Raspadskaya committed to supply to the Group
certain volumes of coal or concentrate produced from coal extracted
on the Tomusinskaya 5-6 deposit during 2010-2019.
The cash consideration amounted to $40 million. The loss from
sale, net of the Group's share in gain on the transaction
recognised by Raspadskaya (Note 11), amounted to $15 million and
was included in loss on disposal groups classified as held for sale
caption of the consolidated statement of operations.
Other Disposal Groups Held for Sale
Other disposal groups held for sale included a few small
subsidiaries involved in non-core activities (construction
business, trading activity and recreational services) and other
non-current assets.
13. Other Non-Current Assets
Non-Current Financial Assets
US$ million 2011 2010 2009
------- -------- -------
Available-for-sale financial
assets - investments in Delong
Holdings Limited (Note 7) $ 17 $ 37 $ 43
Derivatives not designated
as hedging instruments (Note
26) - 5 -
Restricted deposits 15 9 18
Loans to related parties
(Note 16) - 46 -
Loans receivable 18 17 4
Trade and other receivables 3 3 1
Other - 1 -
------- -------- -------
$ 53 $ 118 $ 66
======= ======== =======
Other Non-Current Assets
US$ million 2011 2010 2009
-------- -------- --------
Income tax receivable $ 26 $ 24 $ 2
Input VAT 11 11 59
Defined benefit plan asset
(Note 23) 28 19 15
Fees for future purchases
under a long-term contract - 11 12
Prepayments for purchases
of subsidiaries (Note 4) 20 - -
Prepayment for purchases
of associates and joint ventures - 9 -
Prepaids for purchases of
non-controlling interests - - 8
Deposit to secure put option
for the shares of OAO Vanady-Tula
(Note 4) - - 12
Other 22 29 20
-------- -------- --------
$ 107 $ 103 $ 128
======== ======== ========
Available-For-Sale Financial Assets
At 31 December 2011, the Group holds 82,853,998 shares of Delong
Holdings Limited ("Delong"), which is approximately 15.5% of the
entity's share capital. Delong is a flat steel producer
headquartered in Beijing (China).
The investments in Delong are measured at fair value based on
market quotations. The change in the fair value of these shares is
initially recorded in other comprehensive income.
In 2009, the Group exercised the swap contract for the shares of
Delong and used the proceeds to acquire approximately 5.47% of
Delong shares for a cash consideration of S$31 million ($22 million
at the exchange rate as of the date of the transaction).
Available-For-Sale Financial Assets (continued)
The loss of $7 million, being the difference between the
acquisition cost and fair value of the shares at the reporting
date, was recognised in gain/(loss) on financial assets and
liabilities caption of the consolidated statement of operations,
within gain/(loss) on available-for-sale financial assets (Note
7).
In 2010, the Group recognised $6 million impairment loss on
Delong shares, including $4 million - through comprehensive income
and $2 million - through the statement of operations. In 2011, a
$20 million loss relating to the decline in quotations of Delong
shares was recognised in the statement of operations.
In 2009, the Group sold its 13.65% ownership interest in Cape
Lambert Iron Ore, an Australian mining company, acquired in 2008.
The cash consideration amounted to $17 million. The gain in the
amount of $7 million was recognised in gain/(loss) on financial
assets and liabilities caption of the consolidated statement of
operations, within gain/(loss) on available-for-sale financial
assets (Note 7).
Prepayment for Purchases of Associates and Joint Ventures
In 2010, the Group made a prepayment to a key management person
for the acquisition of 29% ownership interest in Mediaholding
Provincia. This prepayment was included in the other non-current
assets caption of the consolidated statement of financial position
as of 31 December 2010. The acquisition was completed in 2011. At
31 December 2011, Mediaholding Provincia was accounted for under
the equity method and included in investments in joint ventures and
associates.
Impairment of Long-Term Taxes
In 2011, the Group recognised an $9 million loss relating to
unrecoverable VAT. This loss was included in the impairment of
assets caption of the consolidated statement of opertions.
14. Inventories
Inventories consisted of the following as of 31 December:
US$ million 2011 2010 2009
---------- ---------- ----------
Raw materials and spare
parts $ 975 $ 974 $ 724
Work-in-progress 466 444 367
Finished goods 747 652 737
$ 2,188 $ 2,070 $ 1,828
========== ========== ==========
As of 31 December 2011, 2010 and 2009, the net realisable value
allowance was $90 million, $114 million and $145 million,
respectively.
As of 31 December 2011, 2010 and 2009, certain items of
inventory with an approximate carrying amount of $250 million, $203
million and $81 million, respectively, were pledged to banks as
collateral against loans provided to the Group (Note 21).
15. Trade and Other Receivables
Trade and other receivables consisted of the following as of 31
December:
US$ million 2011 2010 2009
---------- ---------- ----------
Trade accounts receivable $ 1,002 $ 1,239 $ 931
Other receivables 56 72 160
---------- ---------- ----------
1,058 1,311 1,091
Allowance for doubtful accounts (87) (98) (90)
---------- ---------- ----------
$ 971 $ 1,213 $ 1,001
========== ========== ==========
Ageing analysis and movement in allowance for doubtful accounts
are provided in Note 29.
16. Related Party Disclosures
For the Group related parties 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.
Related parties may enter into transactions, which unrelated
parties might not, and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties.
Amounts owed by/to related parties at 31 December were as
follows:
Amounts due from Amounts due to
related parties related parties
--------------------- ---------------------
US$ million 2011 2010 2009 2011 2010 2009
------ ----- ------ ----- ------ ------
Kazankovskaya $ 21 $ 21 $ 14 $ - $ 1 $ 1
Lanebrook Limited - 53 53 - - -
Raspadsky Ugol 2 2 1 39 32 73
Yuzhny GOK 5 19 22 46 178 154
Other entities 9 9 19 13 6 7
37 104 109 98 217 235
Less: allowance for
doubtful accounts (29) (24) (2) - - -
------ ----- ------ ----- ------ ------
$ 8 $ 80 $ 107 $ 98 $ 217 $ 235
====== ===== ====== ===== ====== ======
Transactions with related parties were as follows for the years
ended 31 December:
Sales to Purchases from
related parties related parties
---------------------
US$ million 2011 2010 2009 2011 2010 2009
------ ------ ----- ------ ------ ------
Interlock Security
Services $ 1 $ 1 $ 1 $ 43 $ 37 $ 27
Kazankovskaya 1 6 5 5 14 15
Raspadsky Ugol 8 11 11 207 192 107
Yuzhny GOK 42 20 6 165 67 34
Other entities 8 8 8 27 20 18
------ ------ ----- ------ ------ ------
$ 60 $ 46 $ 31 $ 447 $ 330 $ 201
====== ====== ===== ====== ====== ======
In addition to the disclosures presented in this note, the
balances and transactions with related parties are disclosed in
Notes 11 and 13.
Interlock Security Services is a group of entities controlled by
a member of the key management personnel. The entities provide
security services to the Russian subsidiaries of the Group.
Kazankovskaya is an associate of the Group (Note 11). The Group
purchased coal from the entity and sold mining equipment and
inventory to Kazankovskaya. In 2011, the Group issued a $3 million
loan to Kazankovskaya with the maturity date on 31 December 2011
and an interest rate of 8% per annum. At the reporting date, the
Group assessed the recoverability of this loan and recognised a
loss, which was included in the other non-operating expenses
caption of the consolidated statement of operations.
Lanebrook Limited is a controlling shareholder of the Company.
At 31 December 2010 and 2009, the amounts receivable from Lanebrook
Limited included overpayments for the acquired working capital of
the Ukrainian subsidiaries and a $46 million loan. The loan bore
interest of 7.85% per annum and was due for repayment on 22 June
2012. At 31 December 2010, the loan was included in other
non-current assets. In 2011, Lanebrook early settled the loan and
fully repaid its debts relating to the acquisition of the Ukrainian
businesses.
In addition, in 2008, the Group acquired from Lanebrook a 1%
ownership interest in Yuzhny GOK for a cash consideration of $38
million (Note 18). As part of the transaction, the Group signed a
put option agreement that gives the Group the right to sell these
shares back to Lanebrook Limited for the same amount. The put
option expires on 31 December 2012.
OOO Raspadsky Ugol ("Raspadsky Ugol"), a subsidiary of the
Group's joint venture, sells coal to the Group. Raspadsky Ugol
represents approximately 12% of volume of the Group's coal
purchases. The coal was sold at prevailing market prices at the
dates of transactions. The Group sells steel products and renders
services to Raspadsky Ugol.
Yuzhny GOK, the ore mining and processing plant, is an associate
of Lanebrook Limited. The Group sold steel products to Yuzhny GOK
and purchased sinter from the entity.
In addition to the purchase transactions disclosed above, in
July 2011, the Group acquired an office building for its
administrative staff in Moscow from OOO Zapadnye Vorota, an entity
under the control of the ultimate principal shareholders of the
Group. The cash consideration (including VAT) amounted to $102
million.
The transactions with related parties were based on market
terms.
Compensation to Key Management Personnel
Key management personnel include the following positions within
the Group:
-- directors of the Company,
-- vice presidents,
-- top managers of major subsidiaries.
In 2011, 2010 and 2009, key management personnel totalled 56, 55
and 58 persons, respectively. Total compensation to key management
personnel were included in general and administrative expenses in
the consolidated statement of operations and consisted of the
following:
US$ million 2011 2010 2009
------- ------- -------
Salary $ 20 $ 21 $ 18
Performance bonuses 12 14 10
Social security taxes 1 1 1
Share-based payments (Note
24) 13 1 3
Termination benefits 3 4 -
Other benefits 1 3 1
------- ------- -------
$ 50 $ 44 $ 33
======= ======= =======
Disclosures on directors' remuneration required by the Companies
Act 2006 and those specified for audit by the Director's
Remuneration Report Regulations 2002 are included in the Directors'
Remuneration Report.
17. Other Taxes Recoverable
Taxes recoverable consisted of the following as of 31
December:
US$ million 2011 2010 2009
-------- -------- --------
Input VAT $ 287 $ 241 $ 173
Other taxes 125 112 85
-------- -------- --------
$ 412 $ 353 $ 258
======== ======== ========
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 2011 2010 2009
------- ------- ---------
Investments in Yuzhny GOK
(Note 16) $ 38 $ 38 $ 38
Bank deposits 2 1 22
Restricted deposits at banks 7 13 59
Collateral under swap agreements
(Note 26) 10 - -
Other short-term investments - - 1
$ 57 $ 52 $ 120
======= ======= =========
Financial Assets at Fair Value through Profit or Loss
In 2009, the Group recognised $7 million gain on swaps for the
shares of Delong and Cape Lambert Iron Ore, which was included in
gain/(loss) on financial assets and liabilities caption of the
consolidated statement of operations, within change in the fair
value of derivatives.
19. Cash and Cash Equivalents
Cash and cash equivalents, mainly consisting of cash at banks,
were denominated in the following currencies as of 31 December:
US$ million 2011 2010 2009
-------- -------- ---------
US dollar $ 314 $ 306 $ 300
Russian rouble 262 200 170
Euro 89 46 75
South African rand 80 49 110
Ukrainian hryvnia 25 10 1
Canadian dollar 21 69 14
Czech koruna 6 1 1
Other 4 2 -
-------- -------- ---------
$ 801 $ 683 $ 671
======== ======== =========
20. Equity
Share Capital
Prior to the reorganisation, in which the majority of shares of
Evraz Group S.A. were exchanged into shares of EVRAZ plc, the share
capital of the Group comprised the share capital of Evraz Group
S.A.
Share Capital of Evraz Group S.A.
Number of shares 2011 2010 2009
------------ ------------ ------------
Authorised
Ordinary shares of EUR2
each 257,204,326 257,204,326 257,204,326
Issued and fully paid
Ordinary shares of EUR2
each 156,214,373 145,957,121 145,957,121
Scrip Dividends
On 30 January 2009, the Extraordinary General Meeting approved
the modification of the method of payment of the 2008 interim
dividends: euro equivalent of the outstanding dividends of $2.25
per share could be either exchanged for new shares of Evraz Group
S.A. or paid in cash to the shareholders who voted against or
abstained from voting.
The voluntary partial scrip dividend alternative was voted for
in respect of 97,553,473 shares, representing 79.62% of the share
capital of Evraz Group S.A., entitling the holders to subscribe to
9,755,347 new shares issued at a price of $22.50 per share. The new
shares are ranked pari passu with the existing ordinary shares of
Evraz Group S.A. The major shareholder, Lanebrook Limited,
subscribed to 9,193,477 shares.
Convertible Bonds and Equity Offerings
On 13 July 2009, Evraz Group S.A. completed the offering of $600
million unsecured convertible bonds (the "Convertible Bonds
Offering") and $300 million equity in the form of global depository
receipts ("GDRs") listed on the London Stock Exchange, representing
ordinary shares of Evraz Group S.A. (the "Equity Offering").
The bonds were issued at 100% of their principal amount. They
bore interest of 7.25% per annum payable on a quarterly basis and
matured on 13 July 2014.
The conversion could be exercised at the option of bondholders
on any date during the period from 11 September 2009 till 6 July
2014. The bonds would be convertible into GDRs at an initial
conversion price of $21.20 per GDR. The conversion price
represented a 28% premium to the equity offering placement price of
$16.50 per GDR, which was the reference price for the convertible
bonds. Lanebrook, the Company's parent, and its affiliate,
subscribed for $200 million of the bonds.
The Group could early redeem the bonds at their principal amount
plus accrued interest if 15% or less of the bonds remained
outstanding.
In the equity offering, on 13 July 2009, 6,060,608 new shares
were issued as GDRs at an issue price of $16.50 per GDR.
Evraz Group S.A. granted to Goldman Sachs and Morgan Stanley
(the "Joint Bookrunners") in the convertible bonds offering an
over-allotment option to subscribe to additional bonds for up to
$50 million, which was exercised in full on 27 July 2009 and
resulted in an increase in the aggregate principal amount of the
bonds to $650 million.
Evraz Group S.A. granted to the Joint Bookrunners in the equity
offering an over-allotment option to subscribe to up to 909,090
additional GDRs, represented by 303,030 additional new shares,
corresponding to additional gross proceeds of $15 million. This
option was exercised in full on 27 July 2009. Transaction costs
relating to the bonds and equity offerings amounted to $10 million
and $5 million, respectively.
The Group considered that the convertible bonds represent a
financial instrument that creates a financial liability and grants
an option to the holders of the instrument to convert it into an
equity instrument of the Company. The Group recognised the
liability and equity components separately in its statement of
financial position.
The Group determined the carrying amount of the liability
component by measuring the fair value of a similar liability that
does not have an associated equity component. The fair value of
this liability was calculated based on cash flows discounted at the
Group's market rate of interest (without a conversion option) at
the date of the convertible bonds offering (13.26%).
The carrying amount of the equity instrument represented by the
option to convert the instrument into ordinary shares was then
determined by deducting the fair value of the financial liability
from the fair value of the compound financial instrument as a
whole. Transaction costs relating to the convertible bonds offering
were allocated between liability and equity components on a pro
rata basis. As a result, the equity component of the convertible
bonds amounting to $133 million was included in equity.
Shares Lending Transactions
In order to facilitate the issuance of the convertible bonds,
Morgan Stanley offered to certain institutional investors an
opportunity to borrow ordinary shares of Evraz Group S.A.,
represented by GDRs, during the term of the bonds by means of a
loan of GDRs beneficially owned by Lanebrook (the "Borrowed
GDRs").
On 4 August 2009, the Board of Directors approved the issue of
the new ordinary shares to Lanebrook in the amount equal to the
number of shares underlying the borrowed GDRs. The Group effected a
novation of the shares lending arrangements, whereby Evraz Group
S.A. was substituted for Lanebrook as a lender of the borrowed
GDRs. As a result, on 12 August 2009, 7,333,333 new shares were
issued to Lanebrook in exchange for the right to receive 7,333,333
shares lended under the shares lending transactions. These
transactions had no impact on equity, as the Group's net assets did
not change as a result of these transactions. At 31 December 2011,
2010 and 2009, Evraz Group S.A. was the owner of these shares.
Conversion of Bonds into Shares
In July and August 2011, Evraz Group S.A. issued 30,771,756 GDRs
representing 10,257,252 ordinary shares to bondholders that have
accepted the offer to convert 7.25% convertible bonds due 2014
(Note 21).
Share Capital of EVRAZ plc
On 17 October 2011, following the decision of the Board of
directors, Evraz Group S.A. commenced the Group's reorganisation
and re-domiciliation to the United Kingdom. This was implemented by
means of the share exchange offer made by the Company to the
shareholders of Evraz Group S.A., which were entitlied to receive 9
shares of EVRAZ plc for each share of Evraz Group S.A.
The first share exchange was performed on 7 November 2011: EVRAZ
plc issued 1,313,258,883 ordinary shares with par value of $2 each
and exchanged them for approximately 98.01% interest in Evraz Group
S.A. The new shares were admitted to the premium listing segment of
the Official List of the UK Listing Authority and to trading on the
London Stock Exchange's main market for listed securities.
On 24 November 2011, the par value of the shares was reduced to
$1, and $1,313 million representing distributable reserves were
transferred to accumulated profits. All subsequent shares were
issued with par value of $1 each. The exchange offer was finally
closed on 7 February 2012.
Information about the share exchange is summarised below.
Number of shares Number of shares Ownership
issued by EVRAZ of Evraz Group interest
Date of exchange plc S.A. exchanged exchanged
---------------------- ----------------- ----------------- -----------
7 November 2011 1,313,258,883 145,917,653.67 98.01%
28 November 2011 23,212,353 2,579,150.33 1.73%
16 December 2011 1,089,477 121,053.00 0.08%
----------------- ----------------- -----------
Total at 31 December
2011 1,337,560,713 148,617,857.00 99.82%
================= ================= ===========
30 January 2012 839,388 93,265.33 0.06%
8 February 2012 659,790 73,310.00 0.05%
----------------- ----------------- -----------
Total at closing of
the offer 1,339,059,891 148,784,432.33 99.93%
================= ================= ===========
Upon the closure of the offer, the admission of the global
depository receipts of Evraz Group S.A. to trading on the London
Stock Exchange has been cancelled.
On 17 February 2012, the Group purchased the remaining GDRs,
representing 96,607.67 shares of Evraz Group S.A., for $4 million
and exchanged them for the newly issued shares of EVRAZ plc. Since
that date Evraz Group S.A. became a wholly-owned subsidiary of
EVRAZ plc.
Treasury Shares
In 2011, the Group purchased 235,878 treasury shares for $22
million, sold 34,332 shares for $3 million and transferred 115,389
shares to participants of the Incentive Plan (Note 24). The cost of
treasury shares gifted under the Incentive Plan, amounting to $11
million, was charged to accumulated profits. As of 31 December
2011, after the share exchange described above, the Group had
775,410 treasury shares.
In 2009, the Group purchased 67,569 treasury shares for $5
million and sold 135,000 treasury shares, including 27,902 shares
that were sold to the plan participants at exercise prices
determined in the Incentive Plans. The excess of the purchase cost
of treasury shares over the proceeds from their sale, amounting to
$6 million was charged to accumulated profits.
Repurchase of Vested Share-Based Awards
In 2007, the Group made a decision to cease the issuance of new
shares for the settlement of share-based awards. Since that date
the Group acquired its own shares (in the form of global depositary
receipts) on the open market for the grantees or repurchased the
share options after vesting. In 2009, 234,813 share options were
repurchased after vesting. The cash spent on repurchase of vested
options amounting to $3 million was charged to accumulated
profits.
Earnings per Share
Earnings per share are calculated by dividing the net income
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period. Diluted
earnings per share amounts are calculated by dividing the net
profit attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the period
plus the weighted average number of ordinary shares that would be
issued on the conversion of all the potential dilutive ordinary
shares into ordinary shares.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
2011 2010 2009
-------------- -------------- --------------
Weighted average number
of ordinary shares for basic
earnings per share 1,293,795,125 1,247,614,092 1,210,116,474
Effect of dilution: share-based
awards 2,689,622 134,937 -
Weighted average number
of ordinary shares adjusted
for the effect of dilution 1,296,484,747 1,247,749,029 1,210,116,474
============== ============== ==============
Profit/(loss) for the year
attributable to equity holders
of the parent, US$ million $ 461 $ 486 $ (295)
Basic earnings/(losses)
per share $ 0.36 $ 0.39 $ (0.24)
Diluted earnings/(losses)
per share $ 0.36 $ 0.39 $ (0.24)
The fair value of shares issued as a scrip alternative on 30
January 2009 exceeded the cash alternative, thus giving rise to a
bonus element in the issue of shares. The per share figures for all
the periods presented have been restated to include a bonus element
of 1,045,216 shares of Evraz Group S.A. in the calculation of basic
earnings per share from the beginning of the earliest period
presented.
The weighted average number of ordinary shares for basic
earnings per share does not include 7,333,333 shares of Evraz Group
S.A. issued in 2009 to Lanebrook in exchange for the right to
receive 7,333,333 shares lended under the shares lending
transactions. These transactions had no impact on equity, as the
Group's net assets did not change as a result of these
transactions.
In 2011 and 2010, share-based awards (Note 24) had a dilutive
effect. In 2009, the Group reported net loss. Consequently, they
were antidilutive.
In 2010 and 2009, the convertible bonds were antidilutive as the
interest (net of tax) per ordinary share obtainable on conversion
exceeded basic earnings per share.
In 2011, the weighted average number of ordinary shares
outstanding from 1 January 2011 to the date of the first share
exchange ("the reorganisation date") was computed on the basis of
the weighted average number of ordinary shares of Evraz Group S.A.
outstanding during the period multiplied by the share exchange
ratio. The number of ordinary shares outstanding from the
reorganisation date to the end of 2011 was the actual number of
ordinary shares of EVRAZ plc outstanding during that period. The
weighted average number of ordinary shares outstanding and earnings
per share for each comparative period have been recalculated using
the share exchange ratio.
There have been no other transactions involving ordinary shares
or potential ordinary shares between the reporting date and the
date of completion of these consolidated financial statements.
Dividends
Dividends declared by Evraz Group S.A. during 2009-2011 were as
follows:
To holders Dividends
registered declared,
Date of declaration at US$ million US$ per share
--------------------- ------------- ------------- --------------
Interim for 2011 10/10/2011 18/09/2011 491 3.30
In 2011, Evraz Group S.A. declared interim dividends of $3.30
per share, including special dividends of $2.70 per share.
The shareholders meetings held 16 May 2011 and 17 May 2010
resolved not to declare dividends for 2010 and 2009.
In addition, certain subsidiaries of the Group declared
dividends. The share of non-controlling shareholders in those
dividends was $1 million in 2011, 2010 and 2009.
Legal Reserve
According to the Luxembourg Law, Evraz Group S.A. is required to
create a legal reserve of 10% of share capital per the Luxembourg
statutory accounts by annual appropriations which should be at
least 5% of the annual net profit per statutory financial
statements. The legal reserve can be used only in case of a
bankruptcy.
Other Movements in Equity
Acquisitions of Non-Controlling Interests in Subsidiaries
In 2011 and 2010, the Group acquired non-controlling interests
in certain subsidiaries (Note 6). The excess of consideration over
the carrying value of non-controlling interests amounting to $18
million and $3 million, respectively, was charged to accumulated
profits and the excess of acquired non-controlling interests over
the consideration amounting to $Nil and $1 million, respectively,
was recorded as additional paid-in capital.
Derecognition of Non-Controlling Interests in Subsidiaries
In 2009, the Group derecognised non-controlling interests in
Vanady-Tula resulting in a $5 million charge to accumulated profits
(Note 4).
In 2010, the non-controlling shareholder's right to put a 49%
share in Frotora Holdings Ltd. ("Frotora") to the Group at fair
value of the ownership interest become exercisable. The Group
derecognised a 49% ownership interest in Frotora amounting to $6
million and accrued a liability for the same amount. The assets of
Frotora comprised mostly the rights under a long-term lease of land
to be used for a construction of a commercial sea port in Ukraine.
These rights are included in contract terms category of the
intangible assets. In 2010, the Group recognised an impairment loss
of $30 million in respect of these rights due to the change in
plans for the use of this land.
21. Loans and Borrowings
As of 31 December 2011, 2010 and 2009, total interest bearing
loans and borrowings consisted of short-term loans and borrowings
in the amount of $339 million, $381 million and $411 million,
respectively, and long-term loans and borrowings in the amount of
$6,919 million, $7,636 million and $7,747 million, respectively,
including the current portion of long-term liabilities of $193
million, $244 million and $1,498 million, respectively.
Short-term and long-term loans and borrowings were as follows as
of 31 December:
US$ million 2011 2010 2009
---------- ---------- --------
Bank loans $ 2,613 $ 3,472 $ 4,605
8.875 per cent notes due
2013 534 1,156 1,156
7.25 per cent convertible
bonds due 2014 (Note 20) - 650 650
8.25 per cent notes due 2015 577 577 577
9.5 per cent notes due 2018 509 509 509
6.75 per cent notes due 2018 850 - -
13.5 per cent bonds due 2014 621 656 661
9.25 per cent bonds due 2013 466 492 -
9.95 per cent bonds due 2015 466 492 -
8.40 per cent bonds due 2016 621 - -
Liabilities under bonds assumed
in business combination 1 13 -
Unamortised debt issue costs (133) (192) (196)
Difference between the nominal
amount and liability component
of convertible bonds (Note
20) - (104) (126)
Interest payable 81 90 87
---------- ---------- --------
$ 7,206 $ 7,811 $ 7,923
========== ========== ========
The average effective annual interest rates were as follows at
31 December:
Long-term borrowings Short-term borrowings
------------------------- --------------------------
2011 2010 2009 2011 2010 2009
------- ------- ------- -------- ------- -------
US dollar 6.96% 8.01% 7.30% 2.89% 3.06% 4.18%
Russian rouble 10.37% 11.17% 13.49% 10.83% 12.50% 13.25%
Euro 4.66% 5.05% 5.11% 3.64% 1.48% 1.46%
Czech koruna - - - 3.38% - 3.38%
The liabilities are denominated in the following currencies at
31 December:
US$ million 2011 2010 2009
---------- ---------- --------
US dollar $ 4,790 $ 6,079 $ 7,233
Russian rouble 2,215 1,699 701
Euro 328 322 297
Czech koruna 6 7 14
Unamortised debt issue costs (133) (192) (196)
Difference between the nominal
amount and liability component
of convertible bonds (Note
20) - (104) (126)
---------- ---------- --------
$ 7,206 $ 7,811 $ 7,923
========== ========== ========
Covenants Reset
Some of the loan agreements and terms and conditions of notes
provide for certain covenants in respect of Evraz Group S.A. and
its subsidiaries. The covenants impose restrictions in respect of
certain transactions and financial ratios, including restrictions
in respect of indebtedness and profitability.
In November 2009, the lenders under certain bank facilities
approved the requested amendments to the agreements, which included
a reset of the financial covenants. The total principal amount of
these borrowings at 31 December 2009 was $2,895 million.
In December 2009, the Group received the consent of the holders
of its notes due in 2013, 2015 and 2018 totalling $2,242 million to
amend the terms of certain covenants in the notes. The financial
covenant ratios of the notes were subsequently amended in a manner
similar to the amendments to the bank facilities.
In connection with the covenants reset, the Group incurred
transaction costs comprising consent fees and legal fees amounting
to $114 million, which will be amortised during the period of the
borrowings. These costs were fully paid during 2009 and 2010.
Pledged Assets
The Group pledged its rights under some export contracts as
collateral under the loan agreements. All proceeds from sales of
steel pursuant to these contracts can be used to satisfy the
obligations under the loan agreements in the event of a
default.
At 31 December 2011, 2010 and 2009, the Group had equipment with
a carrying value of $Nil, $Nil and $11 million, respectively,
pledged as collateral under the loan agreements. In addition, the
Group pledged inventory with a carrying value of $250 million, $203
million and $81 million as of 31 December 2011, 2010 and 2009,
respectively.
Issue of Notes and Bonds
In 2009, the Group issued convertible bonds in the amount of
$650 million, which bore interest of 7.25% per annum and matured on
13 July 2014 (Note 20). These bonds were converted into shares in
2011 (Note 20).
In 2011, the Group issued notes for the amount of $850 million
due in 2018. The notes bear semi-annual coupon at the annual rate
of 6.75% and must be redeemed at their principal amount on 27 April
2018. The proceeds from the issue of the notes were used for the
partial repurchase of 8.875% notes due 2013 and repayment of
certain bank loans.
In 2009, the Group issued bonds in the total amount of 20,000
million Russian roubles, which bear interest of 13.50% per annum
and mature on 16 October 2014. In 2010, the Group issued bonds in
the amount of 15,000 million Russian roubles, which bear interest
of 9.25% per annum and mature on 22 March 2013 and bonds amounting
to 15,000 million Russian roubles, which bear interest of 9.95% per
annum and mature on 26 October 2015. In 2011, the Group issued
bonds in the total amount of 20,000 million Russian roubles, which
bear interest of 8.40% per annum and mature on 2 June 2016. The
currency and interest rate risk exposures of these transactions
were partially economically hedged (Note 26).
Repurchase of Notes and Bonds
In 2009, the Group re-purchased notes due 2009, 2013, 2015 and
2018 with the nominal amount of $417 million for a cash
consideration of $302 million. As a result, the Group recognised a
gain on extinguishment of debts in the amount of $115 million
within gain/(loss) on financial assets and liabilities caption of
the consolidated statement of operations for the year ended 31
December 2009.
In 2011, the Group re-purchased $622 million of 8.875% notes due
2013 for a cash consideration of $693 million. As a result, the
Group recognised a loss on extinguishment of debts in the amount of
$71 million within gain/(loss) on financial assets and liabilities
caption of the consolidated statement of operations for the year
ended 31 December 2011 (Note 7).
On 22 June 2011, Evraz Group S.A. made an incentive offer to the
holders of 7.25% convertible bonds due 2014 to convert these bonds
into GDRs at $21.12 per GDR. In addition, the holders were offered
an incentive payment ("conversion premium") of $24,443.89 per bond
with the principal amount of $100,000 each. The bondholders owning
6,478 bonds accepted the incentivised conversion. In July and
August 2011, Evraz Group S.A. additionally converted 21 bonds and
settled 1 bond by cash. The conversion premium paid by Evraz Group
S.A. in the amount of $158 million together with $3 million of
transaction costs were recognised as a loss (Note 7). Evraz Group
S.A. issued 30,771,756 GDRs representing 10,257,252 ordinary
shares. As such, the carrying amount of liability amounting to $553
million was reclassified into equity.
Early Settlement
In 2009, the Group repaid a bank loan ahead of schedule. As a
result, the Group recognised a loss on extinguishment of debts in
the amount of $13 million within gain/(loss) on financial assets
and liabilities caption of the consolidated statement of operations
for the year ended 31 December 2009.
Loans from the Russian State Banks
In 2008, the Group signed loan agreements for $1,807 million
with Vnesheconombank ("VEB") and 10,000 million Russian roubles
($340 million as of 31 December 2008) with VTB. The facilities
matured in one year from the dates of disbursement. The interest
rates were set at one year LIBOR plus 5% per annum (VEB) and 16.50%
per annum (VTB).
In 2008, the Group utilised $1,342 million under these loan
agreements and $805 million were disbursed in 2009. These
facilities were used for refinancing of short-term loans.
In December 2009, the Group fully repaid its liabilities under
$800 million loan from VEB and 10,000 million roubles loan from
VTB.
In November 2009, the maturity of the VEB loan facility in the
total amount of $1,007 million was extended for another twelve
months. Consequently, the VEB tranches totalling $805 million have
been classified as non-current liabilities in the consolidated
statement of financial position as of 31 December 2009. In 2010,
the Group fully repaid its liabilities under $1,007 million loan
from VEB.
Unamortised Debt Issue Costs
Unamortised debt issue costs represent agent commission and
transaction costs paid by the Group in relation to the arrangement
and reset of loans and notes.
Unutilised Borrowing Facilities
The Group had the following unutilised borrowing facilities as
of 31 December:
US$ million 2011 2010 2009
---------- ---------- ---------
Unutilised borrowing facilities $ 1,322 $ 1,010 $ 1,345
22. Finance Lease Liabilities
The Group has several lease agreements under which it has an
option to acquire the leased assets at the end of lease term
ranging from 1 to 15 years. The estimated remaining useful life of
leased assets varies from 2 to 29 years. The leases were accounted
for as finance leases in the consolidated financial statements. The
carrying value of the leased assets was as follows as at 31
December:
US$ million 2011 2010 2009
-------- -------- --------
Buildings and constructions $ 2 $ 1 $ 1
Machinery and equipment 22 22 29
Transport and motor vehicles 83 93 101
Assets under construction - 10 10
$ 107 $ 126 $ 141
======== ======== ========
The leased assets are included in property, plant and equipment
in the consolidated statement of financial position (Note 9).
US$ million 2011 2010 2009
---------------------------- ---------------------------- ----------------------------
Present Present Present
value of value of value of
Minimum minimum Minimum minimum Minimum minimum
lease lease lease lease lease lease
payments payments payments payments payments payments
------------- ------------- ------------- ------------- ------------- -------------
Not later than one year $ 16 $ 13 $ 25 $ 19 $ 24 $ 17
Later than one year and
not later than five years 29 24 41 33 65 51
Later than five years 3 2 5 5 7 7
------------- ------------- ------------- ------------- ------------- -------------
48 39 71 57 96 75
Less: amounts representing
finance charges (9) - (14) - (21) -
------------- ------------- ------------- ------------- ------------- -------------
$ 39 $ 39 $ 57 $ 57 $ 75 $ 75
============= ============= ============= ============= ============= =============
Future minimum lease payments were as follows at 31
December:
In the years ended 31 December 2011, 2010 and 2009, the average
interest rates under the finance lease liabilities were 9.8%, 9.9%
and 10.0%.
23. Employee Benefits
Russian Plans
In 2009-2010, the Russian subsidiaries of the Group provided
regular lifetime pension payments and lump-sum amounts payable at
the 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, certain Russian 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.
In 2009, the Group realised a staff optimisation programme. The
Group paid $22 million as termination benefits to approximately
10,000 employees discharged as a result of the staff optimisation
measures. The termination payments were recognised as expense and
included in other operating expense caption of the consolidated
statement of operations for the year ended 31 December 2009.
Defined contribution plans represent payments made by the Group
to the Russian state pension, social insurance, medical insurance
and unemployment funds at the statutory rates in force, based on
gross salary payments. The Group has no legal or constructive
obligation to pay further contributions in respect of those
benefits.
Ukrainian Plans
The Ukrainian subsidiaries make regular contributions to the
State Pension Fund thereby partially compensating 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.
The Ukrainian enterprises gradually increase these compensations
and in 2012 they will compensate 100% of preferential pensions. In
addition, employees receive lump-sum payments on retirement 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.
USA and Canadian Plans
The Group's subsidiaries in the USA and Canada have defined
benefit pension plans, post-retirement healthcare and life
insurance benefit plans and supplemental retirement plans that
cover all eligible employees. Benefits are based on pensionable
years of service, pensionable compensation, or a combination of
both depending on the individual plan. Certain employees that were
hired after specified dates are no longer eligible to participate
in the defined benefit plans. Those employees are instead enrolled
in defined contribution plans and receive a contribution funded by
the Group's subsidiaries equal to 2-7% of annual wages, including
bonuses for certain employees. The defined contribution plans are
funded annually, and participants' benefits vest after three years
of service. The subsidiaries also offer qualified Thrift (401(k))
plans to all of their eligible employees.
Other Plans
Defined benefit pension plans and a defined contribution plan
are maintained by the subsidiaries located in South Africa, Italy
and the Czech Republic.
Defined Contribution Plans
The Group's expenses under defined contribution plans were as
follows:
US$ million 2011 2010 2009
-------- -------- --------
Expense under defined contribution
plans $ 404 $ 257 $ 217
Defined Benefit Plans
The Russian, Ukrainian and the Other defined benefit plans are
mostly unfunded and the USA and Canadian plans are partially
funded.
The components of net benefit expense recognised in the
consolidated statement of operations for the years ended 31
December 2011, 2010 and 2009 and amounts recognised in the
consolidated statement of financial position as of 31 December
2011, 2010 and 2009 for the defined benefit plans were as
follows:
Net benefit expense (recognised in cost of sales and general and
administrative expenses)
Year ended 31 December 2011
USA
Russian Ukrainian & Canadian Other
US$ million plans plans plans plans Total
---------- ---------- ------------ --------- ----------
Current service cost $ (7) $ (5) $ (17) $ - $ (29)
Interest cost on benefit
obligation (16) (9) (33) (2) (60)
Expected return on plan
assets - - 32 - 32
Net actuarial gains/(losses)
recognised in the year (9) - (5) - (14)
Past service cost 1 12 (1) - 12
---------- ---------- ------------ --------- ----------
Net benefit expense $ (31) $ (2) $ (24) $ (2) $ (59)
========== ========== ============ ========= ==========
Year ended 31 December 2010
USA
Russian Ukrainian & Canadian Other
US$ million plans plans plans plans Total
---------- ---------- -------------------- --------------------- ---------------------
Current service cost $ (5) $ (5) $ (14) $ (1) $ (25)
Interest cost on benefit
obligation (16) (8) (34) (2) (60)
Expected return on plan
assets - - 28 - 28
Net actuarial
gains/(losses)
recognised in the year (3) - (4) - (7)
Past service cost 6 (2) 1 - 5
Minimum funding
requirements - - 1 - 1
Curtailment gain/(loss) - - (1) - (1)
---------- ---------- -------------------- --------------------- ---------------------
Net benefit expense $ (18) $ (15) $ (23) $ (3) $ (59)
========== ========== ==================== ===================== =====================
Year ended 31 December 2009
USA
Russian Ukrainian & Canadian Other
US$ million Plans plans plans plans Total
---------- ---------- -------------------- --------------------- ---------------------
Current service cost $ (5) $ (6) $ (13) $ (1) $ (25)
Interest cost on benefit
obligation (11) (7) (33) (2) (53)
Expected return on plan
assets - - 25 - 25
Net actuarial
gains/(losses)
recognised in the year - (1) (2) (1) (4)
Past service cost 1 (2) (1) - (2)
Minimum funding
requirements - - 7 - 7
Curtailment gain/(loss) 1 - (1) - -
---------- ---------- -------------------- --------------------- ---------------------
Net benefit expense $ (14) $ (16) $ (18) $ (4) $ (52)
========== ========== ==================== ===================== =====================
Actual return on plan assets was as follows:
US$ million 2011 2010 2009
------------------- ------------------- -------------------
Actual return on plan assets $ 1 $ 44 $ 66
including:
USA & Canadian plans 1 44 65
Russian plans - - 1
Benefit liability
31 December
2011
USA
Russian Ukrainian & Canadian Other
US$ million Plans plans plans plans Total
---------------------- --------------------- ------------------- --------------------- -------------------
Benefit
obligation $ 203 $ 65 $ 700 $ 21 $ 989
Plan assets (1) - (470) - (471)
---------------------- --------------------- ------------------- --------------------- -------------------
202 65 230 21 518
Unrecognised
net
actuarial
gains/
(losses) (68) (8) (185) - (261)
Unrecognised
past service
cost 10 2 (1) - 11
---------------------- --------------------- ------------------- --------------------- -------------------
Benefit asset - - 28 - 28
====================== ===================== =================== ===================== ===================
Benefit
liability $ 144 $ 59 $ 72 $ 21 $ 296
====================== ===================== =================== ===================== ===================
31 December
2010
USA
Russian Ukrainian & Canadian Other
US$ million Plans plans plans plans Total
---------------------- --------------------- -------------------- --------------------- --------------------
Benefit
obligation $ 192 $ 77 $ 629 $ 24 $ 922
Plan assets (1) - (463) - (464)
---------------------- --------------------- -------------------- --------------------- --------------------
191 77 166 24 458
Unrecognised
net
actuarial
gains/
(losses) (68) (2) (95) - (165)
Unrecognised
past service
cost 12 (10) 1 - 3
---------------------- --------------------- -------------------- --------------------- --------------------
Benefit asset - - 19 - 19
====================== ===================== ==================== ===================== ====================
Benefit
liability $ 135 $ 65 $ 91 $ 24 $ 315
====================== ===================== ==================== ===================== ====================
31 December 2009
USA
Russian Ukrainian & Canadian Other
US$ million plans plans Plans plans Total
---------- ---------- ------------ --------- ----------
Benefit obligation $ 173 $ 72 $ 562 $ 20 $ 827
Plan assets (1) - (403) - (404)
---------- ---------- ------------ --------- ----------
172 72 159 20 423
Unrecognised net actuarial
gains/ (losses) (55) (4) (74) - (133)
Unrecognised past service
cost 14 (12) - - 2
---------- ---------- ------------ --------- ----------
Benefit asset - - 15 - 15
========== ========== ============ ========= ==========
Benefit liability $ 131 $ 56 $ 100 $ 20 $ 307
========== ========== ============ ========= ==========
Movements in benefit obligation
USA
Russian Ukrainian & Canadian Other
US$ million plans plans plans plans Total
--------- ---------- ------------ -------- ----------
At 31 December 2008 $ 150 $ 72 $ 475 $ 20 $ 717
Interest cost on benefit
obligation 11 7 33 2 53
Current service cost 5 6 13 1 25
Benefits paid (12) (5) (43) (2) (62)
Actuarial (gains)/losses
on benefit obligation 29 (6) 46 (5) 64
Curtailment gain (5) - - - (5)
Disposal of subsidiaries (2) - - - (2)
Translation difference (3) (2) 38 4 37
--------- ---------- ------------ -------- ----------
At 31 December 2009 173 72 562 20 827
Interest cost on benefit
obligation 16 8 34 2 60
Current service cost 5 5 14 1 25
Past service cost (4) - - - (4)
Benefits paid (13) (6) (37) (1) (57)
Actuarial (gains)/losses
on benefit obligation 17 (2) 39 - 54
Disposal of subsidiaries (1) - - - (1)
Translation difference (1) - 17 2 18
--------- ---------- ------------ -------- ----------
At 31 December 2010 192 77 629 24 922
Interest cost on benefit
obligation 16 9 33 2 60
Current service cost 7 5 17 - 29
Past service cost 1 (24) 3 - (20)
Benefits paid (15) (7) (39) (1) (62)
Actuarial (gains)/losses
on benefit obligation 14 5 65 - 84
Translation difference (12) - (8) (4) (24)
At 31 December 2011 $ 203 $ 65 $ 700 $ 21 $ 989
========= ========== ============ ======== ==========
The amount of contributions expected to be paid to the defined
benefit plans during 2012 approximates $73 million.
Changes in the fair value of plan assets
USA
Russian Ukrainian & Canadian Other
US$ million plans plans plans plans Total
-------- ---------- ------------ -------- ----------
At 31 December 2008 $ 1 $ - $ 316 $ - $ 317
Expected return on plan
assets - - 25 - 25
Contributions of employer 11 5 24 2 42
Benefits paid (12) (5) (43) (2) (62)
Actuarial gains/(losses)
on plan assets 1 - 40 - 41
Minimum funding requirements - - 7 - 7
Translation difference - - 34 - 34
-------- ---------- ------------ -------- ----------
At 31 December 2009 1 - 403 - 404
Expected return on plan
assets - - 28 - 28
Contributions of employer 13 6 37 1 57
Benefits paid (13) (6) (37) (1) (57)
Actuarial gains/(losses)
on plan assets - - 16 - 16
Minimum funding requirements - - 1 - 1
Translation difference - - 15 - 15
-------- ---------- ------------ -------- ----------
At 31 December 2010 1 - 463 - 464
Expected return on plan
assets - - 32 - 32
Contributions of employer 15 7 52 1 75
Benefits paid (15) (7) (39) (1) (62)
Actuarial gains/(losses)
on plan assets - - (31) - (31)
Translation difference - - (7) - (7)
-------- ---------- ------------ -------- ----------
At 31 December 2011 $ 1 $ - $ 470 $ - $ 471
======== ========== ============ ======== ==========
The major categories of plan assets as a percentage of total
plan assets were as follows at 31 December:
2011 2010 2009
------------------ ------------------ ------------------
USA & Canadian plans:
Equity funds and investment
trusts 81% 86% 86%
Corporate bonds and notes 11% 11% 9%
Shares 0% 0% 0%
Property 3% 0% 3%
Cash 5% 3% 2%
The following table is a summary of the present value of the
benefit obligation, fair value of the plan assets and experience
adjustments for the current year and previous four annual
periods.
US$ million 2011 2010 2009 2008 2007
------ ------ ------ ------ ------
Defined benefit
obligation $ 989 $ 922 $ 827 $ 717 $ 535
Plan assets 471 464 404 325 201
------ ------ ------ ------ ------
(Deficit)/surplus (518) (458) (423) (392) (334)
Experience adjustments
on plan liabilities 137 60 54 (38) (18)
Experience adjustments
on plan assets (12) 9 24 16 5
The principal assumptions used in determining pension
obligations for the Group's plans are shown below:
2011 2010 2009
-------------------------------------- -------------------------------------- --------------------------------------
USA & USA & USA &
Russian Ukrainian Canadian Other Russian Ukrainian Canadian Other Russian Ukrainian Canadian Other
plans plans plans plans plans plans plans plans plans plans plans plans
Discount
rate 8% 14.0% 4.0-5.3% 4.0-8.8% 8% 12.6% 5.1-5.8% 3.9-8.3% 10% 12.4% 5.5-9.3% 4.2-9.5%
Expected
rate of
return
on assets 12% - 0.9-7.1% - 12% - 0.9-7.3% - 12% - 1.3-8.5% -
Future
benefits
increases 8% 8% - 3.0-6.3% 8% 8% - 3% 8% 9% 3% 3-10%
Future
salary
increase 8% 8% 3.0-3.1% 2.0-6.3% 8% 8% 3.0-3.2% 2.0-6.5% 8% 9% 3-7.5% 6.3-7.5%
Healthcare
costs
increase
rate - - 6.5-7% 7.3-7.5% - - 6.8-10% 6.5-7% - - 8-10% 8%
The expected long-term rate of return on defined benefit pension
plan assets represents the weighted-average asset return for each
forecasted asset class return over several market cycles.
A one percentage point change in the assumed rate of increase in
healthcare costs would have insignificant effects on the Group's
current service cost and the defined benefit obligation.
24. Share-based Payments
On 5 September 2006, 14 December 2010 and 13 October 2011, the
Group adopted Incentive Plans under which certain members of the
Board of Directors, senior executives and employees
("participants") could acquire or be gifted shares of Evraz Group
S.A. Share options granted on 5 September 2006 under the Incentive
Plan 2006 could be exercised at $65.37 per share. Shares under the
Incentive Plans 2010 and 2011 are gifted to the participants upon
vesting.
Under Plan 2006, the vesting date for each tranche was the date
falling 15 days after the date when the Board of Directors approves
the annual results.
The actual vesting dates were as follows:
Incentive
Number of Shares of Evraz Group S.A. Plan 2006
11 May 2007 99,282
15 April 2008 148,904
15 May 2009 248,183
496,369
According to the Plan 2010 and 2011, the vesting date for each
tranche occurs within the 90 days period after announcement of the
annual results. The expected vesting dates of the awards
outstanding at 31 December 2011 are presented below:
Incentive Incentive
Number of Shares of EVRAZ plc Plan 2011 Plan 2010
29 March 2012 851,068 739,686
29 March 2013 894,399 739,491
29 March 2014 1,235,903 -
2,981,370 1,479,177
The plans are administrated by the Board of Directors of the
Company. The Board of Directors has the right to accelerate vesting
of the grant. In the event of a participant's employment
termination the following rules were established:
-- Plans 2010 and 2011: unless otherwise determined by the Board
or by a decision of the authorised person, a participant loses the
entitlement for the shares that were not gifted up to the date of
termination.
-- Plan 2006: all options granted to a participant, whether
vested or not, expired on termination date.
There have been no modifications or cancellations to the plans
during 2009 - 2011. In 2011, after the Group's reorganisation
(Notes 1 and 20) the shares of Evraz Group S.A., which were granted
to the participants, have been substituted by the shares of EVRAZ
plc.
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 2011,
2010 and 2006 was $48.26, $102.07 and $14.15 per share of Evraz
Group S.A., respectively. The fair value of these awards was
estimated at the date of grant using the Black-Scholes-Merton
option pricing models with the following inputs, including
assumptions:
Incentive Incentive Incentive
Plan 2011 Plan 2010 Plan 2006
----------- ----------- ------------
Dividend yield (%) 3.6 - 4.8 1.2 - 1.5 4 - 6
Expected volatility (%) n/a n/a 45.37
Risk-free interest rates
(%) n/a n/a 5.42 - 5.47
Expected life (years) 0.5 - 2.5 0.5 - 2.5 0.7 - 2.7
Market prices of the shares
of Evraz Group S.A. at the
grant dates $51.57 $103.83 $66.06
The historical volatility has been used for valuation of the
share-based awards. The volatility reflects the assumption that it
is indicative of future trends which may not necessarily be the
actual outcome.
The following table illustrates the number (No.) and weighted
average exercise prices (WAEP) of, and movements in, share-based
awards during the years.
2011 2011 2010 2010 2009 2009
No. WAEP No. WAEP No. WAEP
Outstanding at 1 January 321,898 $ - - $ - 370,340 $ 50.71
Granted during the year 335,069 - 334,755 - - -
Forfeited during the
year (45,960) - (12,857) - (107,625) 48.30
Exercised during the
year: (115,389) - - - (262,715) 51.70
by purchase of shares
on the open market (115,389) - (27,902)
by repurchase of vested
share-based awards - - (234,813)
Exchange into shares
of EVRAZ plc 3,964,929 - -
Outstanding at 31 December 4,460,547 $ - 321,898 $ - - $ -
The weighted average share price at the dates of exercise was
$97.46 and $67.29 in 2011 and 2009, respectively.
The weighted average remaining contractual life of the
share-based awards outstanding as of 31 December 2011 and 2010 was
1.2 and 1.4 years, respectively.
In the years ended 31 December 2011, 2010 and 2009, expense
arising from the share-based compensations, was as follows:
US$ million 2011 2010 2009
------- ------ ------
Expense arising from equity-settled
share-based payment transactions $ 23 $ 2 $ -
Expense arising from cash-settled
share-based payment transactions - - 6
$ 23 $ 2 $ 6
======= ====== ======
In 2011, 2010 and 2009, the Group paid $1 million, $3 million
and $35 million in respect of the cash-settled share-based
compensations, respectively.
25. Provisions
In the years ended 31 December 2011, 2010 and 2009, the
movements in provisions was as follows:
Site restoration
and decom-missioning Legal
US$ million costs claims Other provisions Total
At 31 December 2008 $ 160 $ 4 $ 52 $ 216
Additional provisions 15 7 28 50
Increase from passage
of time 12 - - 12
Effect of changes in
estimated costs and
timing (1) - - (1)
Utilised in the year (6) (3) (59) (68)
Unused amounts reversed - (2) (6) (8)
Translation difference 10 - - 10
At 31 December 2009 190 6 15 211
Additional provisions 23 18 12 53
Increase from passage
of time 15 - - 15
Effect of change in
the discount rate 20 - - 20
Effect of changes in
estimated costs and
timing 55 - - 55
Utilised in the year (5) (5) (15) (25)
Unused amounts reversed -- (2) (1) (3)
7 - - 7
At 31 December 2010 305 17 11 333
Additional provisions 45 20 19 84
Increase from passage
of time 19 - - 19
Effect of change in
the discount rate (8) - - (8)
Effect of changes in
estimated costs and
timing (9) (1) - (10)
Utilised in the year (12) (12) (14) (38)
Unused amounts reversed (2) (8) (2) (12)
Translation difference (28) (1) (1) (30)
At 31 December 2011 $ 310 $ 15 $ 13 $ 338
At 31 December the provisions were as follows:
US$ million 2011 2010 2009
Non-current Current Non-current Current Non-current Current
Site restoration and
decommissioning costs $ 283 $ 27 $ 277 $ 28 $ 172 $ 18
Legal claims - 15 - 17 - 6
Other provisions 2 11 2 9 4 11
$ 285 $ 53 $ 279 $ 54 $ 176 $ 35
Site Restoration Costs
Under the legislation, mining companies and steel mills have
obligations to restore mining sites and contaminated land. The
respective liabilities were measured based on estimates of
restoration costs which are expected to be incurred in the future
discounted at the annual rate ranging from 3.7% to 14% (2010: 6.1%
to 13%, 2009: from 8% to 13%).
26. Other Long-Term Liabilities
Other long-term liabilities consisted of the following as of 31
December:
US$ million 2011 2010 2009
-------- -------- -------
Contingent consideration payable
for the acquisition of Stratcor $ 16 $ 24 $ 31
Deferred consideration payable
for the acquisition of Inprom
(Note 4) 11 21 -
Dividends payable under cumulative
preference shares of a subsidiary
to a related party 14 14 14
Employee income participation
plans and compensations 2 3 7
Tax liabilities 26 33 18
Derivatives not designated
as hedging instruments (Note
21) 209 38 6
Other liabilities 16 24 18
294 157 94
Less: current portion (Note
27) (9) (14) (26)
$ 285 $ 143 $ 68
Contingent Consideration Payable
Contingent consideration represents additional payments for the
acquisition of Stratcor in 2006. This consideration could be paid
each year up to 2019. The payments depend on the deviation of the
average prices for vanadium pentoxide from certain levels and the
amounts payable for each year are limited to maximum amounts. In
2011, the Group paid $3 million in respect of this liability (2010:
$16 million, 2009: Nil).
Derivatives Not Designated As Hedging Instruments
In 2009-2011, the Group issued rouble-denominated bonds in the
total amount of 70,000 million Russian roubles (Note 21). To manage
the currency exposure, the Group concluded swap contracts under
which it agreed to deliver US dollar-denominated interest payments
at the rates ranging from 4.45% to 8.90% per annum plus the
notional amount totalling $2,177 million, in exchange for
rouble-denominated interest payments plus the notional amount
totalling 63,790 roubles ($1,981 million at the exchange rate as of
31 December 2011). The exchange is exercised on approximately the
same dates as the payments under the bonds.
26. Other Long-Term Liabilities
Derivatives Not Designated As Hedging Instruments
(continued)
The swap contracts are summarised in the table below.
Interest
Principal, Hedged amount, rates on
millions millions Swap amount, the swap
of roubles of roubles US$ million amount
------------------------ --------------- ------------- ---------------
13.5 per cent bonds
due 2014 20,000 14,019 $ 475 7.50% - 8.90%
9.25 per cent bonds
due 2013 15,000 14,778 500 5.75% - 5.90%
9.95 per cent bonds
due 2015 15,000 14,997 491 5.65% - 5.88%
8.40 per cent bonds
due 2016 20,000 19,996 711 4.45% - 4.60%
70,000 63,790 $ 2,177
======================== =============== =============
These swap contracts were not designated as cash flow or fair
value hedges. The Group accounted for these derivatives at fair
value which was determined using valuation techniques. In 2011,
2010 and 2009, the change in fair value of the derivatives of
$(176) million, $(27) million and $(6) million, respectively,
together with a realised gain on the swap transactions, amounting
to $66 million, $31 million and $Nil, respectively, was recognised
within gain/(loss) on financial assets and liabilities in the
consolidated statement of operations (Note 7).
27. Trade and Other Payables
Trade and other payables consisted of the following as of 31
December:
US$ million 2011 2010 2009
---------- ---------- ----------
Trade accounts payable $ 1,147 $ 880 $ 780
Accrued payroll 254 229 177
Other long-term obligations
with current maturities (Note
26) 9 14 26
Other payables 50 50 86
$ 1,460 $ 1,173 $ 1,069
Maturity profile of the accounts payable is shown in Note
29.
28. Other Taxes Payable
Taxes payable were mainly denominated in roubles and consisted
of the following as of 31 December:
US$ million 2011 2010 2009
-------- -------- ---------
VAT $ 81 $ 90 $ 67
Social insurance taxes 53 40 29
Property tax 17 14 16
Land tax 10 10 5
Personal income tax 12 10 10
Other taxes, fines and penalties 15 16 13
-------- -------- ---------
1 1 $ 138
$ 188 $ 180 $ 140
======== ======== =========
29. Financial Risk Management Objectives and Policies
Credit Risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. Financial instruments that potentially expose the Group to
concentrations of credit risk consist primarily of cash and trade
accounts receivable.
To manage credit risk related to cash, the Group maintains its
available cash, mainly in US dollars, in reputable international
banks and major Russian banks. Management periodically reviews the
creditworthiness of the banks in which it deposits cash.
The Group's trade receivables consist of a large number of
customers, spread across diverse industries and geographical areas.
There are no significant concentrations of credit risk within the
Group. The Group defines counterparties as having similar
characteristics if they are related entities. The major customers
are Russian Railways and Vanomet AG (4.2% and 2.4% of total sales,
respectively).
Some 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 asks for a
payment period which is longer than normal terms. In this case, the
Group requires bank guarantees or other liquid collateral. The
Group developed standard payment terms and constantly monitors the
status of accounts receivable collection and the creditworthiness
of the customers.
Certain of the Group's long-standing Russian customers for
auxiliary products, such as heat and electricity, represent
municipal enterprises and governmental organisations that
experience financial difficulties. The significant part of doubtful
debts allowance consists of receivables from such customers. The
Group has no practical ability to terminate the supply to these
customers and negotiates with regional and municipal authorities
the terms of recovery of these receivables.
At 31 December the maximum exposure to credit risk is equal to
the carrying amount of financial assets, which is disclosed
below.
US$ million 2011 2010 2009
---------- ---------- ----------
Restricted deposits at banks
(Notes 13 and 18) $ 22 $ 22 $ 77
Financial instruments included
in other non-current and current
assets (Notes 13 and 18) 10 6 -
Long-term and short-term investments
(Notes 13 and 18) 57 76 104
Trade and other receivables
(Notes 13 and 15) 974 1,216 1,002
Loans receivable 62 18 5
Receivables from related parties
(Notes 13 and 16) 8 124 107
Cash and cash equivalents (Note
19) 801 683 671
---------- ---------- ----------
$ 1,934 $ 2,145 $ 1,966
========== ========== ==========
Receivables from related parties in the table above do not
include prepayments in the amount of $nil, $2 million and $nil as
of 31 December 2011, 2010 and 2009, respectively.
The ageing analysis of trade and other receivables, loans
receivable and receivables from related parties at 31 December is
presented in the table below.
US$ million 2011 2010 2009
Gross Impairment Gross Impairment Gross Impairment
amount amount amount
Not past due $ 846 $ (5) $ 1,098 $ (8) $ 842 $ (1)
Past due 306 (103) 377 (109) 364 (91)
Less than six months 204 (24) 232 (16) 187 (5)
between six months and
one year 30 (16) 27 (10) 28 (8)
over one year 72 (63) 118 (83) 149 (78)
$ 1,152 $ (108) $ 1,475 $ (117) $ 1,206 $ (92)
In the years ended 31 December 2011, 2010 and 2009, the movement
in allowance for doubtful accounts was as follows:
US$ million 2011 2010 2009
-------- -------- -------
At 1 January $ 117 $ 92 $ 93
Charge for the year 45 45 41
Utilised (47) (19) (41)
Translation difference (7) (1) (1)
At 31 December $ 108 $ 117 $ 92
======== ======== =======
Liquidity Risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group's
approach to managing liquidity is to ensure that it will always
have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Group's reputation.
The Group manages liquidity risk by maintaining adequate cash
reserves and borrowing facilities, by continuously monitoring
forecast and actual cash flows and matching the maturity profiles
of financial assets and liabilities.
The Group prepares the 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. The Group's objective is to refinance its
short-term debt by long-term borrowings. The Group developed
standard payment periods in respect of trade accounts payable and
monitors the timeliness of payments to its suppliers and
contractors.
The following tables summarise the maturity profile of the
Group's financial liabilities based on contractual undiscounted
payments, including interest payments.
Year ended 31 December 2011
On demand Less 3 to 1 to 2 to After Total
than 12 2 years 5 years 5 years
US$ million 3 months months
Fixed -rate debt
Loans and borrowings
Principal $ 4 $ 1 $ 27 $1,019 $ 2,338 $ 1,374 $ 4,763
Interest - 23 420 395 741 159 1,738
Finance lease liabilities - 1 3 4 10 3 21
Financial instruments
included in long-term
liabilities 1 1 6 53 178 23 262
Total fixed-rate debt 5 26 456 1,471 3,267 1,559 6,784
Variable-rate debt
Loans and borrowings
Principal 158 213 129 268 1,671 56 2,495
Interest - 22 68 82 148 8 328
Finance lease liabilities - 4 8 7 8 - 27
Total variable-rate
debt 158 239 205 357 1,827 64 2,850
Non-interest bearing
debt
Financial instruments
included in other liabilities - - - - - 4 4
Trade and other payables 238 949 10 - - - 1,197
Payables to related
parties 67 31 - - - - 98
Amounts payable under
put options for shares
of subsidiaries 9 - - - 11 - 20
Dividends payable 9 - - - - - 9
Total non-interest
bearing debt 323 980 10 - 11 4 1,328
$ 486 $1,245 $ 671 $1,828 $5,105 $1,627 $ 10,962
Year ended 31 December 2010
On demand Less 3 to 1 to 2 to After Total
than 12 2 years 5 years 5 years
US$ million 3 months months
Fixed -rate debt
Loans and borrowings
Principal $ 7 $ 20 $ 124 $ 25 $ 5,039 $ 538 $ 5,753
Interest - 55 462 509 955 123 2,104
Finance lease liabilities - 1 2 3 7 3 16
Financial instruments
included in long-term
liabilities 1 2 11 8 60 21 103
Total fixed-rate debt 8 78 599 545 6,061 685 7,976
Variable-rate debt
Loans and borrowings
Principal 235 224 15 283 1,487 20 2,264
Interest - 19 56 62 89 4 230
Finance lease liabilities - 5 17 12 19 2 55
Total variable-rate
debt 235 248 88 357 1,595 26 2,549
Non-interest bearing
debt
Financial instruments
included in other liabilities - - - - - 5 5
Trade and other payables 104 795 31 - - - 930
Payables to related
parties 177 37 2 - - - 216
Amounts payable under
put options for shares
of subsidiaries 6 - - - 21 - 27
Dividends payable 13 - - - - - 13
Total non-interest
bearing debt 300 832 33 - 21 5 1,191
$ 543 $ 1,158 $720 $ 902 $7,677 $ 716 $ 11,716
Year ended 31 December 2009
On demand Less 3 to 1 to 2 to After Total
than 12 2 years 5 years 5 years
US$ million 3 months months
Fixed -rate debt
Loans and borrowings
Principal $ 5 $ 25 $ 273 $ 930 $ 2,488 $ 1,091 $ 4,812
Interest - 32 384 374 841 217 1,848
Finance lease liabilities - 1 2 3 7 5 18
Financial instruments
included in long-term
liabilities 17 - 1 7 28 25 78
Total fixed-rate debt 22 58 660 1,314 3,364 1,338 6,756
Variable-rate debt
Loans and borrowings
Principal 242 229 1,135 904 795 41 3,346
Interest - 30 103 69 42 5 249
Finance lease liabilities - 5 16 22 32 3 78
Total variable-rate
debt 242 264 1,254 995 869 49 3,673
Non-interest bearing
debt
Financial instruments
included in other liabilities 5 - - - - - 5
Trade and other payables 196 647 23 - - - 866
Payables to related
parties 112 62 14 - - - 188
Amounts payable under
put options for shares
of subsidiaries 17 - - - - - 17
Dividends payable 13 - - - - - 13
Total non-interest
bearing debt 343 709 37 - - - 1,089
$ 607 $ 1,031 $ 1,951 $ 2,309 $ 4,233 $ 1,387 $ 11,518
Payablesto related parties in the tables above do not include
advances received in the amount of $Nil, $1 million and $47 million
as of 31 December 2011, 2010 and 2009, respectively.
Market Risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates, interest rates and equity prices, will
affect the Group's income or the value of its holdings of financial
instruments. The objective of market risk management is to manage
and control market risk exposures, while optimising the return on
risk.
Interest Rate Risk
The Group borrows on both a fixed and variable rate basis and
has other interest-bearing liabilities, such as finance lease
liabilities and other obligations.
The Group incurs interest rate risk on liabilities with variable
interest rates. The Group's treasury function performs analysis of
current interest rates. In case of changes in market fixed or
variable interest rates management may consider the refinancing of
a particular debt on more favourable terms. The Group does not have
any financial assets with variable interest rates.
Fair Value Sensitivity Analysis for Fixed Rate Instruments
The Group does not account for any fixed rate financial assets
or liabilities at fair value through profit or loss. Therefore, a
change in interest rates at the reporting date would not affect the
Group's profits.
The Group does not account for any fixed rate financial assets
as assets available for sale. Therefore, a change in interest rates
at the reporting date would not affect the Group's equity.
Cash Flow Sensitivity Analysis for Variable Rate Instruments
Based on the analysis of exposure during the years presented,
reasonably possible changes in floating interest rates at the
reporting date would have changed 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.
2011 2010 2009
Basis Effect Basis Effect Basis Effect
points on PBT points on PBT points on PBT
US$ US$ US$
millions millions millions
Liabilities denominated
in US dollars
Decrease in LIBOR (6) $ 1 (25) $ 4 (25) $ 8
Increase in LIBOR 6 (1) 100 (17) 100 (30)
Liabilities denominated
in euro
Decrease in EURIBOR (15) - (25) 1 (25) 1
Increase in EURIBOR 15 $ - 100 $ (2) 100 $ (2)
Currency Risk
The Group is exposed to currency risk on sales, purchases and
borrowings that are denominated in a currency other than the
respective functional currencies of the Group's subsidiaries. The
currencies in which these transactions primarily are denominated
are US 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 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 respective currencies was as follows at 31
December:
US$ million 2011 2010 2009
---------- ---------- ----------
USD/RUB $ 4,402 $ 3,419 $ 1,732
EUR/RUB (321) (283) (297)
EUR/USD 127 137 108
CAD/USD 995 1,180 1,281
EUR/CZK 35 38 22
USD/CZK (229) (282) (154)
USD/ZAR 14 66 41
EUR/ZAR 77 41 43
USD/UAH (156) (1) (88)
RUB/UAH (1) (43) (15)
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.
2011 2010 2009
Change Effect Change Effect Change Effect
in exchange on in exchange on in exchange on
rate PBT rate PBT rate PBT
% US$ millions % US$ millions % US$ millions
USD/RUB (11.36) (500) (9.70) (332) (15.65) (271)
11.36 500 9.70 332 15.65 271
EUR/RUB (8.27) 27 (8.79) 25 (12.18) 36
8.27 (27) 8.79 (25) 12.18 (36)
EUR/USD (11.37) (15) (11.32) (16) (12.96) (14)
11.37 15 11.32 16 12.96 14
CAD/USD (9.75) (97) (10.97) (129) (14.02) (180)
9.75 97 10.97 129 14.02 180
EUR/CZK (5.87) (2) (5.30) (2) (10.28) (2)
5.87 2 5.30 2 10.28 2
USD/CZK (13.96) 32 (13.79) 39 (18.52) 29
13.96 (32) 13.79 (39) 18.52 (29)
USD/ZAR (17.34) (2) (13.68) (9) (21.41) (9)
17.34 2 13.68 9 21.41 9
EUR/ZAR (13.14) (10) (11.59) (5) (17.74) (8)
13.14 10 11.59 5 17.74 8
USD/UAH (0.33) 1 (1.71) - (31.30) 28
0.33 (1) 1.71 - 31.30 (28)
RUB/UAH (11.33) - (9.94) 4 (13.53) 2
11.33 - 9.94 (4) 13.53 (2)
Except for the effects of changes in the exchange rates
disclosed above, the Group is exposed to currency risk on
derivatives not designated as hedging instruments (Note 26). The
impact of currency risk on the fair value of these derivatives is
disclosed below.
2011 2010 2009
Change Effect Change Effect Change Effect
in exchange on in exchange on in exchange on
rate PBT rate PBT rate PBT
% US$ millions % US$ millions % US$ millions
USD/RUB (11.36) 252 (9.70) 167 (15.65) 83
11.36 (201) 9.70 (137) 15.65 (61)
Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets and liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data (unobservable inputs).
The carrying amounts of financial instruments, such as cash,
short-term and long-term investments, short-term accounts
receivable and payable, short-term loans receivable and payable and
promissory notes, approximate their fair value.
At 31 December the Group held the following financial
instruments measured at fair value:
2011 2010 2009
Level Level Level Level Level Level Level Level Level
US$ million 1 2 3 1 2 3 1 2 3
Assets measured at
fair value
Available for sale
financial assets 17 - - 37 - - 43 - -
Financial assets
at fair value through
profit or loss - - - - - - - - -
Derivatives not designated
as hedging instruments - - - - 5 - - - -
Liabilities measured
at fair value
Liability at fair
value through profit
or loss - - - - - 16 - - 12
Derivatives not designated
as hedging instruments
(Note 26) - 209 - - 38 - - 6 -
Deferred consideration
payable for the acquisition
of Inprom (Note 4) 11 - - 21 - - - - -
Contingent consideration
payable for the acquisition
of Stratcor (Note
26) - - 16 - - 24 - - 31
Amounts payable under
put options for shares
of subsidiaries - - 9 - - 6 - - -
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 which carrying
amounts differ from fair values at 31 December.
US$ million 2011 2010 2009
Carrying Fair Carrying Fair Carrying Fair
amount Value amount value amount value
Long-term
fixed-rate
bank loans $ 104 $ 115 $ 1,201 $ 1,198 $ 1,234 $ 1,197
Long-term
variable-rate
bank loans 2,109 1,943 1,807 1,663 2,894 2,847
8.875 per cent
notes
due 2013 535 559 1,144 1,248 1,132 1,155
7.25 per cent
convertible
bonds due
2014 - - 551 650 528 624
8.25 per cent
notes
due 2015 560 581 555 615 551 554
9.5 per cent
notes due
2018 501 520 499 565 497 508
6.75 per cent
notes
due 2018 853 759 - - - -
13.5 per cent
bonds
due 2014 635 676 670 740 674 667
9.25 per cent
bonds
due 2013 476 468 502 498 - -
9.95 per cent
bonds
due 2015 472 478 498 496 - -
8.40 per cent
bonds
due 2016 623 559
Liabilities
under 12.00
per cent
rouble bonds
due 2011 and
2013 assumed
in business
combination 1 1 13 12 - -
$ 6,869 $ 6,659 $ 7,440 $ 7,685 $ 7,510 $ 7,552
The fair value of the non-convertible bonds and notes was
determined based on market quotations. The fair value of
convertible bonds and 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. The discount rates used for valuation of financial
instruments were as follows:
Currency in which financial instruments
are denominated 2011 2010 2009
----------------- ----------------- ----------------
USD 8.2 - 9.1% 7.7 - 8.3% 8.6 - 9.5%
EUR 3.2% 2.8% 7.0%
RUB 9.7% 12.0% 16.0%
Capital Management
Capital includes equity attributable to the equity holders of
the parent entity. Revaluation surplus which is included in capital
is not subject to capital management because of its nature.
The primary objective of the Group's capital management is to
ensure that it maintains a strong credit rating and healthy capital
ratios in order to support its business and maximise the return to
shareholders. The Board of Directors reviews the Group's
performance and establishes key performance indicators. In
addition, the Group and certain of its subsidiaries are subject to
externally imposed capital requirements (loans and bonds covenants)
which are used for capital monitoring. There were no changes in the
objectives, policies and processes during 2011.
The Group manages its capital structure and makes adjustments to
it by issue of new shares, dividend payments to shareholders,
purchase of treasury shares. In addition, the Group monitors
distributable profits on a regular basis and determines the amounts
and timing of dividends payments.
The capital requirements imposed by certain loan agreements
include a $2,000 million minimum representing consolidated equity
less goodwill. In 2009-2011, the Group was in compliance with this
requirement.
30. Non-cash Transactions
Transactions that did not require the use of cash or cash
equivalents were as follows in the years ended 31 December:
US$ million 2011 2010 2009
------ ------ --------
Liabilities for purchases of property,
plant and equipment $ 93 $ 70 $ 49
Purchases of property, plant and
equipment settled by an offset
with accounts receivable 10 12 -
Loan to a partner on Mezhegey coal
field project 39 - -
Carrying amount of convertible
bonds transferred to equity upon
debt conversion (Note 21) 553 - -
Offset of income tax receivable/(payable)
against other taxes 10 17 18
31. Commitments and Contingencies
Operating Environment of the Group
The Group is one of the largest vertically integrated steel
producers globally and the largest steel producer in Russia. The
Group's major subsidiaries are located in Russia, Ukraine, the
European Union, the USA, Canada and the Republic of South Africa.
Russia and Ukraine are considered to be emerging markets with
higher economic and political risks.
In the wake of the global financial crisis, all countries
continue to face an uneven economic recovery. Though stabilisation
measures introduced by governments had positive effects,
nevertheless, in 2010 and 2011, there was no material uplift in the
ship-building, pipe-making, railway transportation, construction,
oil and gas industries which are the major customers of the Group.
The global steel industry is highly competitive and has
historically been characterised by overcapacity. Steel consumption
is affected by the cyclical nature of demand for steel products and
the sensitivity of that demand to worldwide general economic
conditions. The global economic recession resulted in a
significantly lower demand for steel products and decreased
profitability.
Operating Environment of the Group (continued)
In 2011, the sovereign debt problems in Europe and the USA added
extra volatility to commodity markets and led to an additional
uncertainty in the process of recovery of the global economy.
The global economic climate continues to be unstable and this
may negatively affect the Group's results and financial position in
a manner not currently determinable.
Taxation
Russian and Ukrainian tax, currency and customs legislation is
subject to varying interpretations, and changes, which can occur
frequently. Management's interpretation of such legislation as
applied to the transactions and activity of the Group may be
challenged by the relevant regional and federal authorities.
Recent events within the Russian Federation suggest that the tax
authorities are taking a more assertive position in its
interpretation of the legislation and assessments and, as a result,
it is possible that transactions and activities that have not been
challenged in the past may be challenged. As such, significant
additional taxes, penalties and interest may be assessed.
Management believes that it has paid or accrued all taxes that
are applicable. Where uncertainty exists, the Group has accrued tax
liabilities based on management's best estimate of the probable
outflow of resources embodying economic benefits, which will be
required to settle these liabilities. Possible liabilities, which
were identified by management at the end of the reporting period as
those that can be subject to different interpretations of the tax
laws and other regulations and are not accrued in these financial
statements could be up to approximately $46 million.
Contractual Commitments
At 31 December 2011, the Group had contractual commitments for
the purchase of production equipment and construction works for an
approximate amount of $524 million.
In 2010, the Group concluded an agreement for the supply of
oxygen, nitrogen and argon by a third party for a period of 20
years. The contractual price comprises a fixed component and a
variable component. The total amount of a fixed component
approximates 252 million euro. The agreement is within the scope of
IFRIC 4 "Determining whether an arrangement contains a lease". At
31 December 2011, the lease had not commenced.
Social Commitments
The Group is involved in a number of social programmes aimed to
support education, health care and social infrastructure
development in towns where the Group's assets are located. In 2012,
the Group plans to spend approximately $160 million under these
programmes.
Environmental Protection
In the course of the Group's operations, the Group may be
subject to environmental claims and legal proceedings. The
quantification of environmental exposures requires an assessment of
many factors, including changing laws and regulations, improvements
in environmental technologies, the quality of information available
related to specific sites, the assessment stage of each site
investigation, preliminary findings and the length of time involved
in remediation or settlement. Management believes that any pending
environmental claims or proceedings will not have a material
adverse effect on its financial position and results of
operations.
In the period from 2012 to 2017, the Group is committed to spend
approximately $303 million under the environmental programmes.
Legal Proceedings
The Group has been and continues to be the subject of legal
proceedings, none of which has had, individually or in aggregate, a
significant effect on the Group's operations or financial position.
Possible liabilities, which were identified by the Group at the end
of the reporting period as those that can be subject to different
interpretations of legislation and are not accrued in these
financial statements could be up to approximately $3 million.
32. Auditor's Remuneration
The remuneration of the Group's auditor in respect of the
services provided to the Group was as follows.
US$ million 2011 2010 2009
------- ------- ------
Audit of the parent company
of the Group $ 4 $ 2 $ 2
Audit of the subsidiaries 7 6 5
------- ------- ------
Total assurance services 11 8 7
Services in connection with
capital market transactions 3 1 -
Other non-audit services 2 1 -
------- ------- ------
Total other services 5 2 -
------- ------- ------
$ 16 $ 10 $ 7
======= ======= ======
The Group has early adopted the UK Companies Regulations 2011
(Statutory Instrument 2011/2198). Comparative amounts for 2010 and
2009 have been classified accordingly.
33. Subsequent Events
Final Dividends
On 26 March 2012, the Board of directors of EVRAZ plc proposed
to declare final dividends for 2011 in the amount of $228 million,
which represents $0.17 per share.
Buyback of Shares by Raspadskaya
In November 2011, Raspadskaya, a subsidiary of Corber, the
Group's joint venture (Note 11), announced a buyback of up to 10%
of its shares from shareholders. The buyback programme commenced on
7 February 2012 and runs till 31 March 2012. At the end of February
2012 Corber sold 48,351,712 shares back to Raspadskaya for $248
million. At 31 December 2011, the market value of these shares was
$149 million.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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