REG - Evraz Plc - Annual Financial Report <Origin Href="QuoteRef">EVRE.L</Origin> - Part 2
01/04/2015 07:20
- Part 2: For the preceding part double click ID:nRSA0934Ja
emissions, used water quality and tailings management.
Potential actions by governments 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 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.The Company has diligently taken international legal advice in order to assess the compliance requirements and risks of consequences from sanctions against Russian businesses and develop procedures to ensure that sanction requirements are complied with across the Company's operations.
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
sell its products.To date the Company 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 generates approximately 6% of consolidated revenue from its Ukrainian
business), including on revenues from the sale of coking coal to third party Ukrainian customers.EVRAZ may also be adversely affected by government sanctions against
Russian business or otherwise reducing its ability to conduct business with potential or existing counterparties. Despite potential negative impact from sanctions EVRAZ
does not presently expect them to have long term effects on the Company's business.
Treasury EVRAZ, as with many other large and multi-national corporates, faces various treasury risks including liquidity, credit access, currency and interest rate fluctuation, 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 compliance with the internal controls is reviewed by the independent internal audit function, which reports to the Audit Committee. In addition, the Company is developing a robust sanctions risk management system. EVRAZ continues to undertake actions in order to extend its debt maturity profile and lower short-term external funding needs, as well as to proactively manage the remaining portion of debt subject to maintenance covenants. Liquidity risk is managed through revisiting capital expenditure plans, cost optimisation programmes and continued asset portfolio rationalisation, and by pro-active liability management and revision of the Company's dividend policy. The EVRAZ treasury management team and the directors regularly review all funding requirements and exposures.
and tax compliance risks. EVRAZ may be impacted by a possible introduction of limitations on repatriation of foreign currency proceeds from exports, as well as additional
regulations or limitations on cross-border capital flows. In addition, and as mentioned above, potential actions by governments, including economic sanctions impacting
Russian entities may increase the Company's capital market risk in respect of new funding issues.
Functional currency devaluation Group borrowing capacity may be impacted in times of severe devaluation of the subsidiaries' functional currencies relative to the US dollar: while Group EBITDA and cash EVRAZ works to reduce the amount of intercompany loans payable from subsidiaries with Russian rouble and Ukrainian hryvnia functional currencies, to limit the possible devaluation effect on Group consolidated net income.EVRAZ is also closely monitoring and controlling cost inflation resulting from severe devaluations.
generating capacity can increase (at least in the medium term) - because a large proportion of sales are priced in dollars - its profit and equity can decrease
significantly.
Business interruption Prolonged outages or production delays, especially in coal mining, could have a material adverse effect on the Company's operating performance, production, financial The Company has defined and established disaster recovery procedures which are subject to regular review. Business interruptions in mining mainly relate to production safety. Measures to mitigate these risks include methane monitoring and degassing systems, timely mining equipment maintenance, employee safety training and development of geodynamic monitoring systems. Detailed analysis of causes of incidents is performed in order to develop and implement preventative actions. Records of minor interruptions are reviewed to identify any more significant underlying issues.
condition and future prospects. In addition, long term business interruption may result in loss of customers and competitive advantage, and damage to the Company's
reputation.
Human Resources (HR) The principal HR risk is the availability of management and employees with the necessary attributes and skills. This is particularly the case for certain regions and Succession planning is a key feature of EVRAZ's human resources management. EVRAZ has invested substantial resource in training, internal mentoring, and development of its pool of successors.
business units, e.g. engineers, mining experts and project managers. Associated risks involve selection, recruitment, training and retention of employees and qualified EVRAZ seeks to meet its leadership and skill needs through retention of its employees, internal promotion, structured professional internal mentoring and external development programmes. This includes internal training, schools of engineers, technical forums, and expertise certification programmes. Additionally, training programmes at the Moscow Skolkovo business school are used for the key strategic management pool.
executives.
Human Resources (HR)
The principal HR risk is the availability of management and employees with the
necessary attributes and skills. This is particularly the case for certain
regions and business units, e.g. engineers, mining experts and project
managers. Associated risks involve selection, recruitment, training and
retention of employees and qualified executives.
Succession planning is a key feature of EVRAZ's human resources management.
EVRAZ has invested substantial resource in training, internal mentoring, and
development of its pool of successors.
EVRAZ seeks to meet its leadership and skill needs through retention of its
employees, internal promotion, structured professional internal mentoring and
external development programmes. This includes internal training, schools of
engineers, technical forums, and expertise certification programmes.
Additionally, training programmes at the Moscow Skolkovo business school are
used for the key strategic management pool.
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 2014 2013 2012 2014 2013 2012
Kazankovskaya $ - $ - $ 23 $ - $ - $ -
Raspadsky Ugol - - 2 - - 42
Vtorresource-Pererabotka 11 4 3 5 13 45
Yuzhny GOK 37 5 4 96 336 163
Liability to management of Raspadskaya for the acquisition of Corber - - - - 102 -
Other entities 7 7 14 7 7 7
55 16 46 108 458 257
Less: allowance for doubtful accounts (2) (3) (34) - - -
$ 53 $ 13 $ 12 $ 108 $ 458 $ 257
In 2014, 2013 and 2012, the Group recognised an expense for bad and doubtful
debts of related parties in the amount of $Nil, $Nil and $4 million,
respectively.
Transactions with related parties were as follows for the years ended 31
December:
Sales to Purchases fromrelated parties
related parties
US$ million 2014 2013 2012 2014 2013 2012
Genalta Recycling Inc. $ - $ - $ - $ 24 $ 22 $ 14
Interlock Security Services 1 1 1 39 51 48
Kazankovskaya - - 1 - - 1
Raspadsky Ugol - - 8 - 5 127
Vtorresource-Pererabotka 17 16 14 465 462 485
Yuzhny GOK 42 62 66 125 150 124
Other entities 3 7 9 24 38 31
$ 63 $ 86 $ 99 $ 677 $ 728 $ 830
Genalta Recycling Inc. is a joint venture of a Canadian subsidiary of the
Group. It sells scrap metal to the Group.
Interlock Security Services is a group of entities controlled by a member of
the key management personnel, which provide security services to the Russian
and Ukrainian subsidiaries of the Group.
Kazankovskaya was an associate of the Group. The Group purchased coal from the
entity and sold mining equipment and inventory to Kazankovskaya. In 2012, 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). In 2013, the Group acquired a
controlling interest in Kazankovskaya and subsequently sold the subsidiary to
a third party, 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. 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 $6 million. The put option for
the remaining shares expires on 31 December 2015.
In addition, in 2012 the Group sold one of its subsidiaries to Lanebrook.
OOO Raspadsky Ugol ("Raspadsky Ugol"), a subsidiary of Raspadskaya, 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.
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 2014, 2013 and 2012, the purchases of
scrap metal from Vtorresource-Pererabotka amounted to $383 million (1,601,041
tonnes), $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 2014, the volume of purchases was 1,486,415 tonnes. In 2014,
the Ukrainian hryvnia has depreciated against the US dollar by 97%. As a
result, the Group recognised a $88 million foreign exchange loss on the
balances and transactions with Yuzhny GOK.
On 1 April 2014, the Group received a non-interest bearing loan of 2,935
million Ukrainian hryvnias ($267 million at the exchange rate as of the date
of disbursement) from Standart IP, an entity under control of one of the major
shareholders. The proceeds were used for the purposes of short-term liquidity
management for a Ukrainian subsidiary. The loan was fully repaid in several
instalments by 10 April 2014.
The transactions with related parties were based on prevailing market terms.
Compensation to Key Management Personnel
Key management personnel include the following positions within the Group:
· directors of the Company,
· vice presidents,
· top managers of major subsidiaries.
In 2014, 2013 and 2012, key management personnel totalled 51, 57 and 55
people, respectively. Total compensation to key management personnel were
included in general and administrative expenses in the consolidated statement
of operations and consisted of the following:
US$ million 2014 2013 2012
Salary $ 20 $ 24 $ 21
Performance bonuses 29 13 14
Social security taxes 4 3 3
Share-based payments (Note 21) 14 11 10
Termination benefits 1 - -
Other benefits 1 1 1
$ 69 $ 52 $ 49
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.
RESPONSIBILITY STATEMENT UNDER THE DISCLOSURE AND TRANSPARENCY RULES
Each of the directors whose names and functions are listed on pages 70-71 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, including the Strategic Report include a
fair review of the development and performance of the business and the
position of the Company and the Group, together with a description of the
principal risks and uncertainties that they face.
By order of the Board
Signature
Alexander Frolov
Chief Executive Officer
EVRAZ plc
31 March 2015
EVRAZ plc
Consolidated Statement of Operations
(in millions of US dollars, except for per share information)
Year ended 31 December
2014 2013 2012
restated* restated*
Continuing operations
Revenue
Sale of goods $ 12,745 $ 14,071 $ 14,367
Rendering of services 316 340 359
13,061 14,411 14,726
Cost of revenue (9,734) (11,501) (11,803)
Gross profit 3,327 2,910 2,923
Selling and distribution costs (1,009) (1,213) (1,211)
General and administrative expenses (743) (877) (839)
Social and social infrastructure maintenance expenses (30) (50) (51)
Loss on disposal of property, plant and equipment (48) (47) (56)
Impairment of assets (540) (563) (413)
Foreign exchange gains/(losses), net (1,005) (258) (41)
Other operating income 35 53 75
Other operating expenses (88) (116) (129)
Profit/(loss) from operations (101) (161) 258
Interest income 17 23 23
Interest expense (563) (699) (654)
Share of profits/(losses) of joint ventures and associates 10 8 1
Gain/(loss) on derecognition of equity investments, net - 89 -
Gain/(loss) on financial assets and liabilities, net (583) (43) 164
Gain/(loss) on disposal groups classified as held for sale, net 136 131 23
Other non-operating gains/(losses), net - 15 (6)
Loss before tax (1,084) (637) (191)
Income tax benefit/(expense) (194) 86 (229)
Net loss $ (1,278) $ (551) $ (420)
Attributable to:
Equity holders of the parent entity $ (1,175) $ (504) $ (393)
Non-controlling interests (103) (47) (27)
$ (1,278) $ (551) $ (420)
Earnings/(losses) per share:
basic, for profit/(loss) attributable to equity holders of the parent entity, US dollars $ (0.78) $ (0.34) $ (0.29)
diluted, for profit/(loss) attributable to equity holders of the parent entity, US dollars $ (0.78) $ (0.34) $ (0.29)
*The amounts shown here do not correspond to the 2013 and 2012 financial
statements and reflect adjustments made in connection with the cessation of
classification of subsidiaries as held for sale.
EVRAZ plc
Consolidated Statement of Comprehensive Income
(in millions of US dollars)
Year ended 31 December
2014 2013 2012
restated* restated*
Net loss $ (1,278) $ (551) $ (420)
Other comprehensive income/(loss)
Othercomprehensiveincometobereclassifiedtoprofitorlossin subsequentperiods
Exchange differences on translation of foreign operations into presentation currency (1,918) (375) 281
Exchange differences recycled to profit or loss (66) 90 96
Net gains/(losses) on available-for-sale financial assets (12) 7 4
(1,996) (278) 381
Effect of translation to presentation currency of the Group's joint ventures and associates (79) (11) 44
Net gains/(losses) on available-for-sale financial assets of the Group's joint ventures and associates - - 1
(79) (11) 45
Items not to be reclassified to profit or loss in subsequent periods
Gains/(losses) on re-measurement of net defined benefit liability (33) 119 (74)
Income tax effect 15 (30) 14
(18) 89 (60)
Gains/(losses) on re-measurement of net defined benefit liability recognised by the Group's joint ventures and associates - - (2)
Decrease in revaluation surplus in connection with the impairment of property, plant and equipment - (9) -
Income tax effect - 2 -
- (7) -
Total other comprehensive income/(loss) (2,093) (207) 364
Total comprehensive income/(loss), net of tax $ (3,371) $ (758) $ (56)
Attributable to:
Equity holders of the parent entity $ (3,164) $ (677) $ (28)
Non-controlling interests (207) (81) (28)
$ (3,371) $ (758) $ (56)
* The amounts shown here do not correspond to the 2013 and 2012
financial statements and reflect adjustments made in connection with the
cessation of classification of subsidiaries as held for sale.
EVRAZ plc
Consolidated Statement of Financial Position
(in millions of US dollars)
31 December
2014 2013 2012
restated* restated*
Assets
Non-current assets
Property, plant and equipment $ 5,796 $ 9,490 $ 8,064
Intangible assets other than goodwill 441 588 735
Goodwill 1,541 1,988 2,203
Investments in joint ventures and associates 121 191 551
Deferred income tax assets 97 86 70
Other non-current financial assets 98 144 92
Other non-current assets 40 62 64
8,134 12,549 11,779
Current assets
Inventories 1,372 1,744 2,080
Trade and other receivables 654 915 944
Prepayments 82 124 143
Loans receivable 24 21 19
Receivables from related parties 53 13 12
Income tax receivable 23 59 59
Other taxes recoverable 158 283 330
Other current financial assets 40 71 712
Cash and cash equivalents 1,086 1,604 1,382
3,492 4,834 5,681
Assets of disposal groups classified as held for sale 4 302 277
3,496 5,136 5,958
Total assets $ 11,630 $ 17,685 $ 17,737
Equity and liabilities
Equity
Equity attributable to equity holders of the parent entity
Issued capital $ 1,507 $ 1,473 $ 1,340
Treasury shares - (1) (1)
Additional paid-in capital 2,481 2,326 1,820
Revaluation surplus 155 162 173
Other reserves - 156 -
Unrealised gains and losses - 12 5
Accumulated profits 1,299 2,589 3,009
Translation difference (3,644) (1,685) (1,424)
1,798 5,032 4,922
Non-controlling interests 218 431 200
2,016 5,463 5,122
Non-current liabilities
Long-term loans 5,470 6,041 6,375
Deferred income tax liabilities 471 841 928
Employee benefits 364 492 593
Provisions 173 254 332
Other long-term liabilities 442 230 181
6,920 7,858 8,409
Current liabilities
Trade and other payables 1,379 1,488 1,531
Advances from customers 155 180 157
Short-term loans and current portion of long-term loans 761 1,816 1,795
Payables to related parties 108 458
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