Viability statement

As a global steel and mining group, EVRAZ is exposed to a range of risks and inherent uncertainties that are explained more fully in this section. The Group’s principal risks and its approach to managing them, together with the latest financial forecasts and five-year strategic plan, have formed the basis of this long-term viability assessment.

In accordance with provision C.2.2 of the UK Corporate Governance Code published in April 2016, the Board has assessed the Group’s prospects over the period of the current strategic plan to December 2021 and considers it possible to form a reasonable expectation of the Group’s viability over this five-year period. The assessment included consideration of the stress-testing detailed below, with particular attention paid to the forecast cash position and compliance with financial maintenance covenants in each scenario, as well as the mitigation plan developed by the management.

The assessment was underpinned by scenarios that encompass a wide spectrum of potential outcomes. These scenarios are designed to explore the Group’s resilience to the significant risks set out on Principal risks page , as well as combinations of correlated risks. The key scenarios can be summarised as:

  • Base scenario:
    • the key assumptions as disclosed in Note 6 to the financial statements under Impairment of assets on Financial statements page;
    • future pricing of steel and raw materials is within the range of the external analyst forecasts set out in Note 6;
    • annual steel volumes are assumed to vary from -9.0% to 5.0% compared with the 2016 level over the five-year period to December 2021;
  • Global economic decline:
    • steel and raw material prices and exchange rates during 2017 and future periods are at the lower end of the external analyst forecast set out in Note 6;
    • sales volumes are assumed to remain at the level of the base scenario;
  • Increased conversion costs in the CIS;
  • Limited access to capital markets;
  • Appreciation of local operating currencies;
  • Business interruption:
    • lost production and restoration costs; and
  • Combinations of correlated risks/scenarios.

The scenarios are designed to be severe but plausible. They take full account of the potential actions available to mitigate the occurrence and impact of the risk, and the likely effectiveness of such action. The process makes certain assumptions about the normal level of capital recycling likely to occur and considers whether additional financing facilities will be required and available in each scenario. EVRAZ considers that this stress-testing-based assessment of its prospects is reasonable, given the risks and inherent uncertainties facing the business.

The directors confirm that their assessment of the principal risks facing the Group is robust. Based upon this robust assessment and the stress-testing of Group prospects across several risk-related scenarios, the directors have a reasonable expectation that EVRAZ will be able to remain in operation and meet its liabilities as they fall due over the five-year period to December 2021.

In making this statement, the directors have made the following key assumptions:

  • the continued availability of funding or refinancing, by way of capital markets, bank debt, and asset financing, of up to one-third of the current debt level in all the scenarios considered; and
  • selling prices remain in line with prevailing market assumptions.