TIDMEVR
RNS Number : 4470E
Evraz Plc
09 April 2014
2013 Annual Report of EVRAZ plc ("EVRAZ")
EVRAZ has today:
-- posted its Annual Report for the year ended 31 December 2013
("2013 Annual Report") on its website:
http://www.evraz.com/investors/annual_reports/ as required by DTR
6.3.5 R (3); and
-- submitted to the UK National Storage Mechanism a copy of its
2013 Annual Report in accordance with LR 9.6.1 R.
The 2013 Annual Report will shortly be available for inspection
on the National Storage Mechanism
http://www.morningstar.co.uk/uk/NSM
The 2013 Annual Report and the Notice of the Company's Annual
General Meeting, which will be held on 12 June 2014 in London, will
be posted to shareholders on or around the end of April 2013.
The Appendix to this announcement contains additional
information which has been extracted from the 2013 Annual Report
for the purposes of compliance with DTR 6.3.5 only. It should be
read in conjunction with EVRAZ's Preliminary Results Announcement
issued on 9 April 2014. Together these constitute the material
required by DTR 6.3.5 and DTR 4.2.3 to be communicated to the media
in unedited full text through a Regulatory Information Service.
This announcement should be read in conjunction with and is not a
substitute for reading the full 2013 Annual Report. Page and note
references in the text below refer to page numbers and notes in the
2013 Annual Report and terms defined in that document have the same
meanings in these extracts:
-- a description of principal risks and uncertainties;
-- a note on related party transactions; and
-- the Directors' Responsibilities Statement.
For further information:
Media Relations:
Vsevolod Sementsov
VP, Corporate Communications
London: +44 207 832 8998 Moscow: +7 495 937 6871
media@evraz.com
Investor Relations:
Sergey Belyakov
Director, Investor Relations
London: +44 207 832 8990 Moscow: +7 495 232 1370
ir@evraz.com
Regulatory enquiries:
For information about proxy voting, dividends and to report
changes in personal details, shareholders should contact the
Company's registrar:
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
United Kingdom
Tel: +44 (0) 870 873 5848
Fax +44 (0)870 703 6101
Email: webqueries@computershare.co.uk
APPENDIX
PRINCIPAL RISKS AND UNCERTAINTIES
Like all businesses, EVRAZ is affected by, and must manage,
risks and uncertainties that can impact its ability to deliver its
strategy. While the risks can be numerous, the principal risks
faced by the Group as identified by the Board are described below
along with the corresponding mitigating actions and changes in the
risk level during the year.
To date the Group has not been significantly impacted by recent
geopolitical developments relating to Ukraine. There is a risk,
however, that, if these events were to escalate, there could be an
impact on EVRAZ's operations in the country (EVRAZ generated 7% of
consolidated revenue from its Ukrainian business). In addition,
EVRAZ may be affected by government sanctions if they are broadened
from the current level.
Global economic factors, industry conditions and cost
effectiveness
Risk description
EVRAZ Steel, Mining and Vanadium operations are highly dependent
and sensitive to the global macroeconomic environment, economic and
industry conditions, eg global supply/demand balance for steel and
particularly for iron ore and coking coal which has the potential
to significantly affect both product prices and volumes across
domestic and export markets. As EVRAZ's operations have a high
level of fixed costs, global economic and industry conditions can
impact the Company's operational performance and liquidity.
Mitigating actions
EVRAZ has a focused investment policy aimed at reducing and
managing the cost base with the objective of being among the
sector's lowest cost producers.
Health, safety and environmental (HSE) issues
Risk description
Safety and environmental risks are inherent to the Company's
principal business activities of steelmaking and mining.
Furthermore, EVRAZ operations are subject to a wide range of HSE
laws, regulations and standards, the breach of any of which may
result in fines, penalties or other sanctions. Such actions could
have a material adverse effect on the Company's business, financial
condition and business prospects.
Mitigating actions
HSE issues have direct oversight at Board level and HSE
procedures and material issues are given top priority at all
internal management level meetings. Management KPIs include a
material factor for safety performance. EVRAZ has instigated a
programme to improve the management of safety risks across all
business units with the objective of embedding a new safety,
harm-free culture at all management and operational levels. Safety
training has been reviewed and strengthened and an operational
safety assessment is undertaken for all new projects.
Dependency on certain key markets
Risk description
The Company's profitability is highly dependent on limited
geographical markets, i.e. 43% of EVRAZ revenues are derived from
Russia, and 22% from North America; and also dependent on the mix
between semi-finished and finished steel products.
Mitigating actions
The strategic risks and opportunities within these regions are
regularly reviewed, including consideration of the quality and
nature of the Company's product portfolio, relative cost
effectiveness and the sustainability of industry sector market
positioning together with effective in-house (EVRAZ Metall Inprom)
and external distribution networks.
Capital projects and expenditure
Risk description
EVRAZ's maintenance and development capital expenditure, in
addition to capital expenditure focused on improving the Company's
cost effectiveness, is aligned to the Company's and external market
expectations for each particular project and to maximise levels of
investment returns.
Economic issues outside those factored into the Company's
business plans including regulatory approvals, may negatively
impact the Company's anticipated free cash flow and cause certain
elements of the planned capital expenditure to be re-phased,
deferred or abandoned with consequential impact on the Company's
planned future performance.
Mitigating actions
Project delivery is closely monitored against project plans
resulting in high level action to manage project investment both
for timely delivery and for planned project expenditure.
In the course of 2013 the Company revisited key assumptions of
the main investment projects and performed scenario analysis, which
resulted in the suspension and/or postponement of certain
projects.
Human Resources
Risk description
The principal HR risk is the quality and availability of
critical operational and business skills of EVRAZ management and
employees, particularly in certain regions and for particular
business units, eg mining professionals including engineers, mining
experts and project managers. Associated risks involve selection,
recruitment, training and retention of employees and qualified
executives.
There is also a risk of employee union action. Union relations
are largely stable, although the Company had a short-lived labour
action at its vanadium operations in South Africa in 2013, and an
extended period of negotiations with certain labour unions in
Russia.
As a result of HR risks, the Company's growth plans might be
jeopardised.
Mitigating actions
Succession planning is a key feature of EVRAZ's human resources
management. EVRAZ seeks to meet its leadership and skill needs
through retention of its employees, internal promotion, structured
professional internal mentoring and external development
programmes.
Potential Actions by Governments
Risk description
EVRAZ operates in a number of countries and there is a risk that
governments or government agencies could adopt new laws and
regulations, or otherwise impact the Company's operations.
New laws, regulations or other requirements could have the
effect of limiting the Company's ability to obtain financing in
international markets, or selling its products.
Mitigating actions
Although these risks are mostly not within the Company's
control, EVRAZ and its executive teams are members of various
national industry bodies and, as a result, contribute to the
thinking of such bodies and, when appropriate, participate in
relevant discussions with political and regulatory authorities.
Business Interruption
Risk description
Prolonged outages or production delays, especially in coal
mining, could have a material adverse effect on the Company's
operating performance, production, financial condition and future
prospects. In addition, long term business interruption may result
in loss of customers, competitive advantage being compromised and
damage to the Company's reputation.
Mitigating actions
The Company has defined and established business continuity
plans, procedures and protocols which are subject to regular review
and audit of their appropriateness and effectiveness. The Company
carries certain business interruption insurance, except for
particular mining events.
Business interruptions in mining mainly relate to production
safety. Measures to mitigate these risks include methane monitoring
and degasing systems, timely mining equipment maintenance, employee
safety training.
In 2013 EVRAZ had to suspend mining works at the Raspadskaya
underground mine in May-July due to increased levels of carbon
monoxide. A set of safety measures was undertaken in order to
alleviate the causes of hazards.
Treasury
Risk description
EVRAZ, as with many other large and multi-national corporates,
faces various treasury risks including liquidity, credit access,
currency fluctuations, and interest rate and tax compliance
risks.
Mitigating actions
EVRAZ employs skilled specialists to manage and mitigate such
risks and the management of such risks is embedded in internal
controls. Oversight of the key risks is reported within the monthly
Board reports and by the review of compliance of such internal
controls by a management independent internal audit function, which
reports to the Audit Committee on a monthly basis.
In 2013 EVRAZ undertook certain actions in order to extend the
debt maturity profile and lower short term external funding needs,
i.e. through issuing US$1,000 million Eurobonds due in 2020, as
well as. proactively managing the remaining portion of debt subject
to maintenance covenants. The EVRAZ Treasury management team and
the directors regularly and pro-actively review all funding
requirements and exposures.
Taxation
Risk description
EVRAZ operates in various jurisdictions, and changes to national
tax laws, including those which could be adopted based on
recommendations by international organisations (eg OECD's BEPS
project etc) are not within management's control.
Russian tax legislation is developing and undergoes frequent
changes; tax law enforcement is subject to varying interpretations.
Management's interpretation of such legislation may be challenged
by the relevant regional and federal authorities, which could
adversely affect the financial position of EVRAZ's Russian
subsidiaries, despite any planning efforts.
Mitigating actions
EVRAZ has a taxation control function which monitors planned
changes to tax laws, analyses their impact on EVRAZ's operations
and reports them to the Company's management on a quarterly basis.
Management's possible actions to address tax challenges include
making provisions (if applicable) in the financial statements;
implementing if necessary, changes to the Company's organisational
structure and adjustments to cash flow structure.
Note 16
Related Party Disclosures
Related parties of the Group include associates and joint
venture partners, key management personnel and other entities that
are under the control or significant influence of the key
management personnel, the Group's ultimate parent or its
shareholders. In considering each possible related party
relationship, attention is directed to the substance of the
relationship, not merely the legal form.
Amounts owed by/to related parties at 31 December were as
follows:
Amounts due from Amounts due to
related parties related parties
--------------------- ---------------------
US$ million 2013 2012 2011 2013 2012 2011
------ ------ ----- ------ ------ -----
Kazankovskaya $ - $ 23 $ 21 $ - $ - $ -
Raspadsky Ugol - 2 2 - 42 39
Vtorresource-Pererabotka 4 3 - 13 45 -
Yuzhny GOK 5 4 5 336 163 46
Liability to management of Raspadskaya for the acquisition of Corber
(Note 4) - - - 102 - -
Other entities 7 14 9 7 7 13
16 46 37 458 257 98
Less: allowance for doubtful accounts (3) (34) (29) - - -
------ ------ ----- ------ ------ -----
$ 13 $ 12 $ 8 $ 458 $ 257 $ 98
====== ====== ===== ====== ====== =====
In 2013, 2012 and 2011, the Group recognised an expense for bad
and doubtful debts of related parties in the amount of $Nil, $4
million and $7 million, respectively.
Transactions with related parties were as follows for the years
ended 31 December:
Sales to Purchases from
related parties related parties
---------------------
US$ million 2013 2012 2011 2013 2012 2011
------ ------ ----- ------ ------ ------
Genalta Recycling Inc. $ - $ - $ - $ 22 $ 14 $ 10
Interlock Security Services 1 1 1 51 48 43
Kazankovskaya - 1 1 - 1 5
Raspadsky Ugol - 8 8 5 127 207
Vtorresource-Pererabotka 16 14 - 462 485 -
Yuzhny GOK 62 66 42 150 124 165
Other entities 7 9 8 38 31 27
------ ------ ----- ------ ------ ------
$ 86 $ 99 $ 60 $ 728 $ 830 $ 457
====== ====== ===== ====== ====== ======
In addition to the disclosures presented in this note, some of
the balances and transactions with related parties are disclosed in
Notes 4, 11, 13 and 25.
Genalta Recycling Inc. is a joint venture of a Canadian
subsidiary of the Group. It sells scrap metal to the Group.
Interlock Security Services is a group of entities controlled by
a member of the key management personnel, which provide security
services to the Russian subsidiaries of the Group.
Kazankovskaya was an associate of the Group (Note 11). The Group
purchased coal from the entity and sold mining equipment and
inventory to Kazankovskaya. In 2012 and 2011, the Group issued
short-term loans to Kazankovskaya bearing an interest rate ranging
from 8.1% to 8.5% per annum. At the reporting dates, the Group
assessed the recoverability of these loans and recognised a loss,
which was included in the other non-operating expenses caption of
the consolidated statement of operations (2012: $5 million, 2011:
$3 million). In 2013, the Group acquired a controlling interest in
Kazankovskaya (Note 11) and subsequently sold the subsidiary to a
third party (Note 12), consequently, this entity ceased to be a
related party to the Group.
Lanebrook Limited is a controlling shareholder of the Company.
In 2008, the Group acquired from Lanebrook a 1% ownership interest
in Yuzhny GOK for a cash consideration of $38 million (Note 18). As
part of the transaction, the Group signed a put option agreement
that gives the Group the right to sell these shares back to
Lanebrook Limited for the same amount. In January 2014, the Group
sold 0.14% of the shares to Lanebrook Limited for $5 million. The
put option for the remaining shares expires on 31 December
2014.
In addition, in 2012 the Group sold one of its subsidiaries to
Lanebrook (Note 12).
OOO Raspadsky Ugol ("Raspadsky Ugol"), a subsidiary of
Raspadskaya (Note 11), sold coal to the Group and the Group sold
steel products and rendered services to Raspadsky Ugol. In 2013,
Raspadsky Ugol ceased to be a related party as the Group obtained
control over the entity (Note 4).
Vtorresource-Pererabotka is a subsidiary of Streamcore, the
Group's joint venture, acquired in 2012. It sells scrap metal to
the Group and provides scrap processing and other services. In 2013
and 2012, the purchases of scrap metal from
Vtorresource-Pererabotka amounted to $370 million (1,420,990
tonnes) and $399 million (1,366,423 tonnes), respectively.
Yuzhny GOK, an ore mining and processing plant, is an associate
of Lanebrook Limited. The Group sold steel products to Yuzhny GOK
and purchased sinter from the entity. In 2013, the volume of
purchases achieved 1,549,958 tonnes.
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 $102
million.
The transactions with related parties were based on market
terms.
Compensation to Key Management Personnel
Key management personnel include the following positions within
the Group:
-- directors of the Company,
-- vice presidents,
-- top managers of major subsidiaries.
In 2013, 2012 and 2011, key management personnel totalled 57, 55
and 55 people, respectively. Total compensation to key management
personnel were included in general and administrative expenses in
the consolidated statement of operations and consisted of the
following:
US$ million 2013 2012 2011
------- ------- -------
Salary $ 24 $ 21 $ 20
Performance bonuses 13 14 12
Social security taxes 3 3 1
Share-based payments (Note 21) 11 10 13
Termination benefits - - 3
Other benefits 1 1 1
------- ------- -------
$ 52 $ 49 $ 50
======= ======= =======
Other disclosures on directors' remuneration required by the
Companies Act 2006 and those specified for audit by the Directors'
Remuneration Report Regulations 2002 are included in the Directors'
Remuneration Report.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Each of the directors listed in the Governance section of the
Annual report confirm that to the best of their knowledge:
-- the consolidated financial statements of EVRAZ plc, prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as
a whole (the 'Group');
-- the Annual Report and Accounts taken as a whole, which
incorporates the Strategic Report and the Directors Report, is
fair, balanced and understandable, and that it provides the
information necessary for shareholders to assess the Company's
performance, business model and strategy and that it includes a
fair review of the development and performance of the business and
the position of the Company and the Group, together with a
description of the principal risks and uncertainties that they
face.
By order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
This information is provided by RNS
The company news service from the London Stock Exchange
END
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