TIDMEVR
RNS Number : 0934J
Evraz Plc
01 April 2015
EVRAZ PUBLISHES 2014 ANNUAL REPORT and reports full year 2014
results
1 April 2015 - EVRAZ plc ("EVRAZ" or "the Company") (LSE: EVR)
has today:
-- posted its Annual Report for the year ended 31 December 2014
("2014 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
2014 Annual Report in accordance with LR 9.6.1 R.
The 2014 Annual Report will shortly be available for inspection
on the National Storage Mechanism
http://www.morningstar.co.uk/uk/NSM
The 2014 Annual Report and the Notice of the Company's Annual
General Meeting, which will be held on 18 June 2015 in London, will
be posted to shareholders in mid-May 2015.
The Appendix to this announcement contains additional
information which has been extracted from the 2014 Annual Report
for the purposes of compliance with DTR 6.3.5 only and should be
read in conjunction with this announcement. 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 2014
Annual Report. Page and note references in the text below refer to
page numbers and notes in the 2014 Annual Report.
EVRAZ announces its audited results for the year ended 31
December 2014 ("the Period").
The financial information contained in this document for the
year ended 31 December 2014 does not constitute statutory accounts
as defined in section 435 of the Companies Act 2006. The audited
statutory accounts for the year ended 31 December 2013 have been
delivered to the Registrar of Companies and those for 2014 will be
delivered following the Company's annual general meeting convened
for 18 June 2015.
The auditor has reported on the statutory accounts for the year
ended 31 December 2014. The auditor's report was unqualified.
Key Highlights
-- Health and safety performance improved in FY2014 with annual
LTIFR decreasing from 1.96x to 1.60x
-- Consolidated revenue fell 9% as a result of decline in Steel segment revenues
-- Consolidated EBITDA demonstrated excellent growth of 28% to
US$2,325 million mostly driven by the Steel segment
-- EVRAZ's capex in 2014 amounted to US$654 million, down from
US$902 million in 2013. Most of the capex was spent on sustaining
current capacity, while US$211 million was used for projects aimed
either at increasing production or decreasing costs.
-- Net debt was reduced 11% to US$5.8 billion bringing the net debt to EBITDA ratio to 2.5x
-- Net loss was US$1,278 million vs. US$551 million in 2013
mostly due to impairment of assets (US$540 million) and foreign
exchange loss (US$1,005 million)
-- The translation loss in Other comprehensive Income/(Loss) was
approximately US$2 billion. It was caused by translating Russian
roubles and Ukrainian hryvnia assets stated at historical cost
using current (31 December 2014) exchange rate
-- Successful implementation of the pulverised coal injection (PCI) project
-- The launch of mass production on EVRAZ Caspian Steel
-- Return to pre-accident levels of annualised production on
Raspadskaya - over 10mt of coking coal
-- EVRAZ North America Investment in EVRAZ Regina Steel upgrade
and construction of a spiral pipe mill #5 approved
-- Disposal of EVRAZ Vitkovice Steel based on an enterprise value of US$287 million
-- In light of the strong financial performance in 2014, the
Directors would like to make a return of capital to Shareholders of
up to US$375 million by way of Tender Offer
Strategic progress
The Company has made notable progress on its strategic
objectives during 2014, including:
-- Sustainability in volatile market environment; EBITDA margin improved from 12.6% to 17.8%
-- Operational efficiency plan implemented. Our actions to
reduce costs and improve operational performance have had a
significant positive impact on overall performance during the
year
-- Optimisation of asset portfolio; EVRAZ Vitkovice Steel sold
-- Strong cash flow sufficient to pay down debt; Net Debt/EBITDA down to 2.5x vs 3.6x YoY
-- We are transforming our coal business into a large scale
market participant in Russia and globally - revamping of
Raspadskaya finalised
-- We are committed to investing into selected projects from our
wide project portfolio that will achieve a rate of return which
will significantly exceed our current cost of capital
-- We further extended our portfolio of high value-added
products and enhanced the quality of customer service
-- The efficacy of our strategy was underlined by the strong
operating results achieved by EVRAZ's business units in 2014
Financial Highlights
Full year to 31 December
(US$ million) 2014 2013 Change
------------------------------------------ ----------------- ----------------- -------
Consolidated revenue 13,061 14,411 (9)%
------------------------------------------ ----------------- ----------------- -------
Loss from operations (101) (161) (37)%
------------------------------------------ ----------------- ----------------- -------
Consolidated EBITDA 2,325 1,821 28%
------------------------------------------ ----------------- ----------------- -------
Net profit/(loss) (1,278) (551) 132%
------------------------------------------ ----------------- ----------------- -------
Earnings/(loss) per share, basic (US$) (0.78) (0.34) 129%
------------------------------------------ ----------------- ----------------- -------
Net cash flows from operating activities 1,957 1,900 3%
------------------------------------------ ----------------- ----------------- -------
CAPEX 654 902 (27)%
------------------------------------------ ----------------- ----------------- -------
31 December 2014 31 December 2013
------------------------------------------ ----------------- ----------------- -------
Net debt 5,814 6,534 (11)%
------------------------------------------ ----------------- ----------------- -------
Total assets 11,630 17,685 (34)%
------------------------------------------ ----------------- ----------------- -------
Health, Safety and Environment
Health and safety of our employees and contractors is our
ultimate value and key priority. We prioritise the safety and
reliability of our businesses to protect the welfare of our
employees and the environment.
Our strategic goal is to have zero fatal accidents at our
plants. We believe that we can achieve this goal through extensive
employee training and initiatives to create a culture of personal
involvement and responsibility.
In 2014, we were focused on the implementation of electricity
isolation initiatives and improvement of safety trainings
practices. In conjunction with other initiatives this helped us to
reduce our LTIFR by 18% in 2014. However, regrettably in 2014 the
Company recorded 12 employee and 7 contractor fatalities vs. 18 and
6, incidents in 2013, correspondingly.
In 2015, all initiatives with a focus on safety training and the
LOTO (Lockout, Tryout) energy isolation programme implementation
will be continued. Compliance with environmental standards is one
of the major long-term targets of EVRAZ's HSE policy. EVRAZ is
actively assessing its environmental impacts and potential
liabilities to improve management of those exposures. EVRAZ
recognises the importance of abating climate change and supports
the global effort to reduce greenhouse ("GHG") gas emissions into
the atmosphere. Total 2014 GHG emissions decreased by 7% compared
with the previous year due to implementation of the pulverised coal
injection technology at EVRAZ ZSMK and disposals of certain
assets.
Analysis of results for the twelve months ended 31 December
2014
Statement of operations
Revenues
(US$ million)
----------------------------------------------------------------------
Segment 2014 2013 Change Relative change
---------------------- -------- -------- -------- ----------------
Steel 9,519 10,792 (1,273) (11.8)%
---------------------- -------- -------- -------- ----------------
Steel, North America 3,160 3,036 124 4.1%
---------------------- -------- -------- -------- ----------------
Coal 1,318 1,486 (168) (11.3)%
---------------------- -------- -------- -------- ----------------
Other operations 648 730 (82) (11.2)%
---------------------- -------- -------- -------- ----------------
Eliminations (1,584) (1,633) 49 (3.0)%
---------------------- -------- -------- -------- ----------------
Total 13,061 14,411 (1,350) (9.4)%
---------------------- -------- -------- -------- ----------------
Group revenues decreased by 9.4% in 2014, mostly as a result of
a decline in the Steel segment revenues, which account for 72.9% of
the total Group revenue. EVRAZ's steel sales volumes (including
those from the Steel North America segment) declined by 1.9% to
15.2 million tonnes in 2014. The decline in the revenue of the
Steel segment was largely caused by lower prices of steel products,
in line with the general negative trend in steel pricing.
Additionally the timing of adjustments to domestic steel prices
in Russia and Ukraine lagged behind the timing of the devaluation
of local currencies against the US dollar that occurred in 2014.
The selling prices of steel products decreased by 7.3% year on year
accompanied by a fall in revenues from sales of steel segment
non-core products, including iron ore, vanadium, coke, chemicals
and scrap.
The Steel segment revenues were also impacted of changes in the
Group's product mix during 2013-2014. Specifically, this related to
the suspension of operations of EVRAZ Palini e Bertoli, EVRAZ
Vitkovice Steel disposal and the closure of EVRAZ Claymont Steel
and EVRAZ ZSMK plate rolling mill, as well as decline in the
production of railway products.
While sales volumes of flat-rolled and railway steel products
reduced, part of the production of semi-finished goods was switched
from internal consumption to external sales. Changes in the sales
mix contributed to a 2.9% decrease in revenues.
Revenues of the Steel, North America segment increased by 4.1%
to US$3,160 million, compared to US$3,036 million in 2013, driven
by higher sales volumes, particularly of tubular and railway
products. The Coal segment revenues dropped by 11.3%, primarily due
to reduced selling prices, partially offset by increased
volumes.
Revenue by region
(US$ million)
------------------------------------------------------------------
Region 2014 2013 Change Relative change
-------------------- ------- ------- -------- ----------------
Russia 5,279 6,136 (857) (14.0)%
-------------------- ------- ------- -------- ----------------
Americas 3,529 3,242 287 8.9%
-------------------- ------- ------- -------- ----------------
Asia 1,954 2,062 (108) (5.2)%
-------------------- ------- ------- -------- ----------------
CIS (excl. Russia) 926 1,175 (249) (21.2)%
-------------------- ------- ------- -------- ----------------
Europe 916 1,385 (469) (33.9)%
-------------------- ------- ------- -------- ----------------
Africa 447 404 43 10.6%
-------------------- ------- ------- -------- ----------------
Rest of the world 10 7 3 42.9%
-------------------- ------- ------- -------- ----------------
Total 13,061 14,411 (1,350) (9.4)%
-------------------- ------- ------- -------- ----------------
EBITDA
(US$ million)
-----------------------------------------------------------------
Segment 2014 2013 Change Relative change
---------------------- ------ ------ ------- ----------------
Steel 1,912 1,656 256 15%
---------------------- ------ ------ ------- ----------------
Steel, North America 279 158 121 77%
---------------------- ------ ------ ------- ----------------
Coal 373 226 147 65%
---------------------- ------ ------ ------- ----------------
Other operations 37 37 - 0%
---------------------- ------ ------ ------- ----------------
Unallocated (225) (226) 1 (0)%
---------------------- ------ ------ ------- ----------------
Eliminations (51) (30) (21) 70%
---------------------- ------ ------ ------- ----------------
Total 2,325 1,821 504 28%
---------------------- ------ ------ ------- ----------------
Steel segment EBITDA in 2014 is higher than in 2013 as a result
of asset optimisation and cost reduction activities, as well as the
decrease in expenses in US dollar terms at Russian and Ukrainian
subsidiaries due to the local currencies devaluation in 2014. Lower
prices of coking coal and iron ore also impacted positively the
segment results. The economy on the cost side was partially offset
by decline in steel products sales prices due to both global weak
market environment and lag in price adjustment in Russia and
Ukraine after currency devaluation.
Steel North America segment EBITDA was positively impacted by
growing sales of tubular and long steel products, accompanied by
implemented cost reduction initiatives.
The year on year increase in Coal segment EBITDA was related to
the increase in sales volumes of coking coal and coking coal
concentrate and a decrease in costs associated with Russian rouble
weakening, portfolio optimisation at Yuzhkuzbassugol and
operational improvements.
Eliminations mostly reflect the unrealised profits or losses of
Steel segment in transactions with the Steel North America
segment.
The implementation of the efficiency improvement plan brought
about US$420 million of savings, including, as planned,
approximately a US$55 million reduction in G&A costs (before
the Russian rouble and Ukranian hryvnia devaluation effect) which
contributed to the overall G&A contraction.
General and administrative (G&A) expenses declined by 15.3%
YoY due to the asset portfolio optimisation, a G&A expense
reduction programme implemented in 2014 as well as to a positive
effect of the local currency devaluation in Russia and Ukraine. As
a result our G&A expenses reduced to 5.7% of our revenues
compared to 6.1% a year before.
Our actions to reduce costs and improve operational performance
have had a significant positive impact on overall performance
during the year. To facilitate assessment of performance our cost
saving targets and quantification are based on management accounts
adjusted to eliminate macroeconomic impacts (such as exchange rate
fluctuations and inflation) and once-off expenditure (such as
employee severance payments and other discontinuation costs). On
this basis there has been a cost improvement of US$420 million
during the year.
The following table provides a description of the cost cutting
initiatives:
(US$ million)
---------------------------------------------------------------------- ----
Cost cutting initiatives at ongoing operations, including 245
---------------------------------------------------------------------- ----
Reduction of headcount and related G&A costs 80
---------------------------------------------------------------------- ----
Optimisation of tunneling works, maintenance costs,
degassing and ventilation
costs in the Coal segment 45
---------------------------------------------------------------------- ----
Improving yields and raw material costs at steel mills 92
---------------------------------------------------------------------- ----
Other cost optimisation 28
---------------------------------------------------------------------- ----
Optimisation of asset portfolio 100
---------------------------------------------------------------------- ----
Mines shutdowns and disposals at Evrazruda and Yuzhkuzbassugol 56
---------------------------------------------------------------------- ----
Suspension of EVRAZ Claymont, disposal of Central heat
and Power Plant and
shutdown of a plate rolling mill at EVRAZ ZSMK 44
---------------------------------------------------------------------- ----
Increase in production 75
---------------------------------------------------------------------- ----
Volume growth at EVRAZ North America's ongoing assets 48
---------------------------------------------------------------------- ----
Recovery of production at the Raspadskaya mine 27
---------------------------------------------------------------------- ----
Total 420
---------------------------------------------------------------------- ----
Cost of revenues, expenses and results
(US$ million)
---------------------------------------------------------------------------------------------------------
Item 2014 2013 Change Relative change
--------------------------------------------------------- -------- --------- ------- ----------------
Cost of revenue (9,734) (11,501) 1,767 (15.4)%
--------------------------------------------------------- -------- --------- ------- ----------------
Gross profit 3,327 2,910 417 14.3%
--------------------------------------------------------- -------- --------- ------- ----------------
Selling and distribution costs (1,009) (1,213) 204 (16.8)%
--------------------------------------------------------- -------- --------- ------- ----------------
General and administrative expenses (743) (877) 134 (15.3)%
--------------------------------------------------------- -------- --------- ------- ----------------
Impairment of assets (540) (563) 23 (4.1)%
--------------------------------------------------------- -------- --------- ------- ----------------
Foreign exchange gains/(losses), net (1,005) (258) (747) 289.5%
--------------------------------------------------------- -------- --------- ------- ----------------
Other operating income and expenses, net (131) (160) 29 (18.1)%
--------------------------------------------------------- -------- --------- ------- ----------------
Profit from operations (101) (161) 60 (37.3)%
--------------------------------------------------------- -------- --------- ------- ----------------
Interest expense, net (546) (676) 130 (19.2)%
--------------------------------------------------------- -------- --------- ------- ----------------
Gain/(loss) on financial assets and liabilities, net (583) (43) (540) n/a
--------------------------------------------------------- -------- --------- ------- ----------------
Gain on disposal group classified as held for sale, net 136 131 5 3.8%
--------------------------------------------------------- -------- --------- ------- ----------------
Other non-operating gains/(losses), net 10 112 (102) n/a
--------------------------------------------------------- -------- --------- ------- ----------------
Profit before tax (1,084) (637) (447) 70.2%
--------------------------------------------------------- -------- --------- ------- ----------------
Income tax benefit/(expense) (194) 86 (280) n/a
--------------------------------------------------------- -------- --------- ------- ----------------
Net profit (1,278) (551) (727) 131.9%
--------------------------------------------------------- -------- --------- ------- ----------------
The Group's cost of revenue decreased by 15.4% due to reduction
in all costs.
A detailed breakdown of the cost of revenue is as follows:
% of % of
(US$ million) 2014 revenue 2013 revenue Change Relative change
------------------------------ ------- --------- ------- --------- -------- ----------------
Revenue 13,061 14,411
------------------------------ ------- --------- ------- --------- -------- ----------------
Cost of revenue 9,734 74.5% 11,501 79.8% (1,767) (15.4%)
------------------------------ ------- --------- ------- --------- -------- ----------------
Raw materials, incl. 3,086 23.6% 3,396 23.6% (310) (9.1)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Iron ore 700 5.4% 730 5.1% (30) (4.1)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Coking coal 431 3.3% 563 3.9% (132) (23.4)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Scrap 1,251 9.6% 1,331 9.2% (80) (6.0)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Other raw materials 704 5.4% 772 5.4% (68) (8.8)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Semi-finished products 187 1.4% 489 3.4% (302) (61.8)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Auxiliary materials 823 6.3% 1,025 7.1% (202) (19.7)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Services 753 5.8% 813 5.6% (60) (7.4)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Goods for resale 843 6.5% 828 5.7% 15 1.8%
------------------------------ ------- --------- ------- --------- -------- ----------------
Transportation 660 5.1% 826 5.7% (166) (20.1)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Staff costs 1,577 12.1% 1,951 13.5% (374) (19.2)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Depreciation 714 5.5% 951 6.6% (237) (24.9)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Electricity 568 4.3% 642 4.5% (74) (11.5)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Natural gas 294 2.3% 398 2.8% (104) (26.1)%
------------------------------ ------- --------- ------- --------- -------- ----------------
Other costs 229 1.8% 182 1.3% 47 25.8%
------------------------------ ------- --------- ------- --------- -------- ----------------
The cost of raw materials decreased by 9.1% in 2014 driven
mostly by lower coking coal and scrap costs which fell by US$132
million and US$80 million respectively. The decrease was
accompanied by lower coal and scrap consumption, mainly as a result
of mothballing one of EVRAZ ZSMK's coking plants, the shutdown of
EVRAZ Claymont and the EVRAZ Vitkovice Steel disposal. The
implementation of operational improvements resulted in optimised
yields at the Russian steel mills which was another factor which
led to the decrease in raw material costs.
The costs of purchased semi-finished products fell by 61.8%
primarily due to the lower consumption of slab purchased from third
parties by EVRAZ North America's assets which were substituted by
shipments from EVRAZ NTMK. The EVRAZ Vitkovice Steel disposal also
helped to reduce the semi-finished cost profile overall.
The 19.7% reduction in costs of auxiliary materials resulted
from the disposal and suspension of subsidiaries as well as from
cost optimisation programmes, in particular in the Coal segment,
and the weakening of the Russian rouble and Ukrainian hryvnia.
The decrease in transportation costs was related to the Russian
rouble weakening, the disposal of EVRAZ VGOK and Evrazruda's asset
optimisation.
Staff costs decreased by US$374 million, or by 19.2%, which
reflects the effect of the asset and personnel optimisation
programmes, and impact on costs in Russia and Ukraine of local
currency devaluation.
Total depreciation, depletion and amortisation in the cost of
goods sold amounted to US$714 million in 2014 compared to US$951
million in 2013. The depletion charge was significantly reduced in
the Coal segment driven by a lower depreciation and depletion
expense at Yuzhkuzbassugol following the revision and detailing of
future mine plans. In addition, the remaining useful lives of plant
and equipment were reassessed and extended at EVRAZ NTMK, EVRAZ
ZSMK and EVRAZ DMZ. This was also accompanied by a decrease of the
US dollar amount of depreciation at our Russian and Ukrainian sites
due to weakening of the local currencies.
Electricity costs decreased by 11.5%, due to lower consumption
volumes, predominantly because of asset optimisation and disposals,
and as a result of continued operational improvements. Natural gas
expenditure was down by 26.1% due to a number of factors, including
the disposal of Central Heat and Power Plant in H2 2013 which
consumed significant volumes of natural gas, operational
improvements at EVRAZ DMZ, the introduction of PCI technology at
EVRAZ ZSMK, the disposal of EVRAZ Vitkovice Steel and the
suspension of operations at EVRAZ Palini e Bertoli. Electricity and
natural gas prices were generally stable in US dollar terms, while
in Russia and Ukraine higher nominal prices were offset by the
impact of currency movements.
Other costs include taxes, change in work in progress ("WIP")
and finished goods, and certain energy costs. The increase in other
costs in 2014 is mostly driven by a decrease in stock of WIP and
finished goods.
The key drivers of lower selling and distribution expenses were
reduced sales volumes to third parties and the Russian rouble
weakening. This was accompanied by the impact of the EVRAZ
Vitkovice Steel disposal closure of EVRAZ Claymont and suspension
of operations at and EVRAZ Palini e Bertoli.
Impairment losses during the reporting period include US$(261)
million related to impairments of several cash generating units at
EVRAZ North America, US$(112) million related to idled EVRAZ Palini
e Bertoli assets, and a US$(58) million impairment for EVRAZ
Highveld Steel and Vanadium resulting from the decrease in prices
for steel and steel products and the changes in forecast production
volumes and the increase in the discount rates, as well as US$(71)
million relating to several Yuzhkuzbassugol mines which were idled
(Kusheyakovskaya and Abashevskaya).
Foreign exchange losses of US$(1,005) million arose, in
particular, due to the US dollar-denominated amounts payable by
subsidiaries in Russia and Ukraine, where the national currencies,
which are also functional currencies of these subsidiaries,
depreciated by 42% and 49%, respectively. In addition, there are
debts between subsidiaries with different functional currencies
and, consequently, gains/(losses) of one subsidiary recognised in
the Statement of Operations cannot be not offset with the exchange
gains/(losses) of another subsidiary with a different functional
currency. The net amount of foreign exchange losses relating to
intra-group debt included in foreign exchange losses was US$(265)
million.
Interest expenses incurred by the Group have fallen over recent
years as a result of the decrease in the level of debt and the
refinancing of debt at lower interest rates. The interest expense
for bank loans, bonds and notes amounted to US$503 million in 2014,
down from US$617 million in 2013. It was also impacted by a
decrease in the interest expense of the rouble-denominated bonds
due to the rouble weakening.
As described in detail in Notes 22 and 25 of the consolidated
financial statements, during 2010-2012 the Group issued
rouble-denominated bonds that at issuance were economically swapped
into fixed rate US dollar borrowings. Losses on financial assets
and liabilities amounted to US$(583) million and included, inter
alia, $(94) million of realised losses and US$(494) million of
unrealised losses on the change in the fair value of these currency
and interest rate swaps. As the Group does not apply hedge
accounting to these swaps and the related economically hedged
rouble-denominated borrowings, the offsetting reduction in the US
dollar value of the rouble-denominated bonds was credited directly
to the exchange differences on translation of foreign operations
into the presentation currency in Other Comprehensive
Income/(Loss).
In the reporting period the Group had an income tax expense of
US$(194) million in comparison with a US$86 million benefit for
2013. The change reflects better operating results of the Group as
well as an increase in the amount of non-deductible expenses and
unrecognised temporary differences, mostly caused by the forex
exchange losses and losses on derivatives, which either cannot be
utilised or cannot be deductible for tax purposes in the respective
subsidiaries.
Cash flow
(US$ million)
----------------------------------------------------------------------------------------------------------------------
Item 2014 2013 Change Relative change
----------------------------------------------------------------------- -------- -------- ------- ----------------
Cash flows from operating activities before change in working capital 1,976 1,535 441 28.7%
----------------------------------------------------------------------- -------- -------- ------- ----------------
Changes in working capital (19) 365 (384) n/a
----------------------------------------------------------------------- -------- -------- ------- ----------------
Net cash flows from operating activities 1,957 1,900 57 3.0%
----------------------------------------------------------------------- -------- -------- ------- ----------------
Short-term deposits at banks, including interest 8 677 (669) (98.8)%
Purchases of property, plant and equipment and intangible assets (612) (902) 290 (32.2)%
Purchase of subsidiaries, net of cash acquired (102) 31 (133) n/a
Proceeds from sale of disposal groups classified as held for sale, net
of transaction costs 311 1 310 n/a
Other investing activities 6 (71) 77 n/a
Net cash flows from / (used in) investing activities (389) (264) (125) 47.3%
----------------------------------------------------------------------- -------- -------- ------- ----------------
Net cash flows from financing activities (1,811) (1,367) (444) 32.5%
----------------------------------------------------------------------- -------- -------- ------- ----------------
Effect of foreign exchange rate changes on cash and cash equivalents (282) (48) (234) n/a
----------------------------------------------------------------------- -------- -------- ------- ----------------
Net increase/(decrease) in cash and cash equivalents (525) 221 (746) n/a
----------------------------------------------------------------------- -------- -------- ------- ----------------
Cash flows from operating activities before changes in working
capital increased by 28.7% in 2014 to US$1,976 million compared to
US$1,535 million in 2013 reflecting better operational results.
Free cash flow before debt repayments and dividends for the
period was a positive US$1,012 million.
Calculation of free cash flow
(US$ million)
--------------------------------------------------------------------------------------------- ------
Item 2014
--------------------------------------------------------------------------------------------- ------
EBITDA 2,325
--------------------------------------------------------------------------------------------- ------
EBITDA excluding non-cash items 2,333
--------------------------------------------------------------------------------------------- ------
Changes in working capital, excluding income tax (19)
--------------------------------------------------------------------------------------------- ------
Income tax accrued (357)
--------------------------------------------------------------------------------------------- ------
Net Cash flows from operating activities 1,957
--------------------------------------------------------------------------------------------- ------
Interest and similar payments (493)
--------------------------------------------------------------------------------------------- ------
Capital expenditure, including recorded in financing activities (654)
--------------------------------------------------------------------------------------------- ------
Purchases of subsidiaries (net of cash acquired) and interests in associates/joint ventures (131)
--------------------------------------------------------------------------------------------- ------
Proceeds from sale of disposal groups classified as held for sale,
net of transaction costs 311
--------------------------------------------------------------------------------------------- ------
Other cash flows from investing activities 35
--------------------------------------------------------------------------------------------- ------
Equity transactions (13)
--------------------------------------------------------------------------------------------- ------
Free cash flow 1,012
--------------------------------------------------------------------------------------------- ------
CAPEX and key projects
In 2014, we continued to reduce our total capital expenditure to
US$654 million compared to US$902 million in 2013 as a result of a
comprehensive review of the Company's investment programme, as well
as the decrease in expenses in US dollar terms at Russian and
Ukrainian subsidiaries due to the local currencies devaluation in
2014. The majority of 2014 capex was directed towards maintenance
spending.
In 2014, we commenced sales of 100 metre rails from EVRAZ ZSMK
and the EVRAZ Caspian Steel (formerly the Vostochny rolling mill)
started commercial operations. The Yerunakovskaya VIII coal mine
reached planned mining volumes, and our PCI project at EVRAZ ZSMK
become fully operational at all blast furnaces. We completed stage
one of Sheregesh ore mine output enhancement project, and we
continued to develop Mezhegey coal deposit. Also we commenced the
execution phase for the continuous casting machines reconstruction
Project at EVRAZ ZSMK.
A summary of our capital expenditure (including recognized in
financing activities) for 2014 in millions of USD is as
follows:
Mezhegey coal mine development (Phase I) 41 Ramp-up to be completed by 2016. Capacity of 2.0 mtpa
-------------------------------------------------------- ---- ------------------------------------------------------
Construction of Yerunakovskaya VIII coal mine 35 Ramp-up of long-wall 48-3. Production of ca. 3
million tonnes of raw coking coal.
-------------------------------------------------------- ---- ------------------------------------------------------
PCI at EVRAZ ZSMK 24 PCI units launched at all EVRAZ ZSMK's blast
furnaces. Ramp-up to be completed in Q1 2015.
-------------------------------------------------------- ---- ------------------------------------------------------
Reconstruction of Sheregesh ore mine 19 Stage one completed and mining commenced at a new
+115-metre level. The mine's annual output
to reach 4.8 million tonnes of raw ore.
-------------------------------------------------------- ---- ------------------------------------------------------
EVRAZ ZSMK rail mill modernisation 17 Ramp-up largely completed, equipment adjustment
continues. In May 2014, shipments of first
100 metre rails commenced.
-------------------------------------------------------- ---- ------------------------------------------------------
Reconstruction of continuous casting machines at EVRAZ 11 In progress since Q2 2014, to be completed in Q4
ZSMK 2015. Capacity of 2.0 mtpa
-------------------------------------------------------- ---- ------------------------------------------------------
EVRAZ Caspian Steel (Vostochny rolling mill, 10 The mill commenced production and shipments of
Kazakhstan) products in H1 2014.
-------------------------------------------------------- ---- ------------------------------------------------------
Other development projects 54
-------------------------------------------------------- ---- ------------------------------------------------------
Maintenance 443
-------------------------------------------------------- ---- ------------------------------------------------------
Total 654
-------------------------------------------------------- ---- ------------------------------------------------------
Effect of Russian rouble devaluation on book value
Under IAS 21, the financial information of each subsidiary is
prepared in its functional currency and then translated into the
Group reporting currency - the US dollar - for consolidation and
presentation purposes. Changes in the carrying values of each
subsidiary's assets and liabilities when translated into US dollars
are recognised as a translation difference directly in other
comprehensive income/(loss). Thus any significant depreciation or
appreciation of the subsidiaries' functional currencies has
significant effect on the carrying values of subsidiaries' and the
Group's equity.
At the beginning of 2014, EVRAZ had approximately US$7 billion
net asset exposure in Russian rouble (RUB, the functional currency
of Russian subsidiaries) and Ukrainian hryvnia (UAH, the functional
currency of the Ukrainian subsidiaries). These net assets mostly
represented historical cost of property, plant and equipment of the
RUB and UAH functional currency subsidiaries less related RUB and
UAH nominated liabilities.
Rouble-denominated bonds are not a part of these net assets, as
at the issuance they were economically swapped into fixed rate US
dollar borrowings.
In 2014, there was a 42% depreciation of the Russian rouble and
49% depreciation of the Ukrainian hryvnia against the US dollar.
This depreciation led to an approximately US$3 billion decline in
the US dollar equivalent of the carrying values of net assets
(primarily property, plant and equipment) of these subsidiaries and
a corresponding decline in the Group's consolidated equity.
Based on the Group's existing capital structure, including the
character and amount of intercompany loans between subsidiaries
with different functional currencies, this decline was divided
between
- the translation loss in Other Comprehensive Income/(Loss) of
approximately US$2 billion, and
- the foreign exchange gains/(losses), net in the Statement of
Operations of approximately US $1 billion, including US$0.3 billion
of net loss on intercompany loans between subsidiaries with
different functional currencies.
Management believes that the market value of the respective
property, plant and equipment measured in US dollars declined on
average to a significantly lower extent. This was also the case for
their US dollar-measured cash-generating capacity, as determined by
IAS 36 discounted cash flows value-in-use methodology (VIU). Most
of the changes in the value in use during 2014 were caused by the
shift in the product mix as a result of the decreasing demand in
Russia caused related economic instability in the domestic markets
of the related cash generating units, increase in the weighted
average cost of capital as well as by the change in the long term
forecasts for global iron ore and coal prices.
Even though IAS 16 allows the use of a fair value option for
accounting for property, plant and equipment, the fair value
accounting is rarely used in metals and mining industries and it is
complicated for a capital extensive business. Moreover, the use of
fair value model for accounting for property, plant and equipment
would decrease the comparability of EVRAZ financial statements.
The schedule below provides the value in use of property, plant
and equipment of the major Russian and Ukrainian subsidiaries, and
their carrying values:
Company Country Carrying Value in Carrying Value in Hypothetical
value* use** of value* use** of net of
of PP&E PP&E as of PP&E PP&E as tax increase
as of 31 of 31 December as of 31 of 31 December in carrying
December 2013 December 2014 value of
2013 2014 equity
as of 31
December
2014 if
VIU were
used to
value PP&E
----------------- --------- ---------- ---------------- ---------- ---------------- --------------
NTMK Russia 1,145 3,802 632 3,023 1,913
----------------- --------- ---------- ---------------- ---------- ---------------- --------------
ZSMK Russia 1,433 1,441 824 3,127 1,842
----------------- --------- ---------- ---------------- ---------- ---------------- --------------
Raspadskaya Russia 2,350 3,178 1,316 1,588 218
----------------- --------- ---------- ---------------- ---------- ---------------- --------------
Yuzhkuzbassugol Russia 1,318 1,342 704 965 209
----------------- --------- ---------- ---------------- ---------- ---------------- --------------
KGOK Russia 337 1,678 175 348 138
----------------- --------- ---------- ---------------- ---------- ---------------- --------------
DMZ Ukraine 241 251 115 157 34
----------------- --------- ---------- ---------------- ---------- ---------------- --------------
Sukha Balka Ukraine 306 334 145 179 28
----------------- --------- ---------- ---------------- ---------- ---------------- --------------
Total 7,130 12,026 3,911 9,387 4,382
---------------------------- ---------- ---------------- ---------- ---------------- --------------
* as reported in the Group's consolidated financial statements
under IFRS
** calculated in accordance with IAS 36 for the impairment test
at 31 December 2014. More details are provided in Note 6 "Impairment
of Assets" and Note 2 "Significant Accounting Policies" in the
Group's consolidated financial statements under IFRS
Financing and liquidity
In 2014, in line with our financial strategic priorities we
focused on effective liquidity management, positive free cash flow
generation and debt reduction. 2014 started with total debt of
US$8,166 million and during the year a number of refinancing
actions and debt repayments have been completed. In January 2014,
US$70 million was borrowed under a US Ex-Im guaranteed facility to
refinance part of the EVRAZ ZSMK rail mill capex. On 12 August
2014, a US$425 million 5-year syndicated pre-export financing
facility was signed, which was subsequently increased to $500
million. The proceeds were mainly used to refinance RUB 20 billion
local bonds which matured in October 2014. In November 2014, the
North American operations issued $350 million of senior secured
notes with maturity in May 2019 as a debut transaction in a US
High-yield market and in December 2014 extended the existing
asset-based loan facility, originally maturing in 2016, until May
2019.
On 8 December 2014 EVRAZ launched a public tender offer for
8.25% guaranteed notes issued by Evraz Group S.A. maturing in
November 2015. As a result of the tender and a series of bilateral
purchases we redeemed and cancelled in aggregate $438 million or
76% of the outstanding notes. Further $10 million were repurchased
in January and February of 2015, thus leaving US$129 million of the
notes outstanding after the described transactions.
As a result of these actions, as well as a number of scheduled
drawings and repayments of bank indebtedness, our total debt
decreased by US$1,259 million to US$6,907 million as at 31 December
2014, while our net debt decreased by US$720 million to US$5,814
million at 31 December 2014 compared to US$6,534 million as at 31
December 2013. Interest expense accrued in respect of loans, bonds
and notes was US$503 million for 2014, compared to US$617 million
for 2013. Our net debt to EBITDA stood at 2.5 times compared to 3.6
times as at 31 December 2013.
As at 31 December 2014, debt with maintenance financial
covenants comprised the $500 million syndicated facility and a
number of bilateral facilities totaling approximately US$341
million. The covenants under the syndicated facility include only
two key ratios calculated on the basis of EVRAZ plc's consolidated
financials: a maximum net leverage and a minimum EBITDA interest
cover. The ratios are tested two times a year on a 12-month basis
with the levels of 4.5x and 2.0x respectively. Some of the older
bilateral facilities have similar covenant ratios tested on the
basis of Evraz Group S.A.'s consolidated figures.
As at 31 December 2014, we were in full compliance with our
financial covenants in respect of the level of total debt and of
net leverage (net debt to EBITDA not to exceed 4.5 times).
With the improved cash flow and net debt reduction in 2014, the
risk of breaching financial covenants in the foreseeable future has
reduced. Eurobond covenants currently do not limit the Group's
ability to refinance EVRAZ's consolidated indebtedness.
Our cash on 31 December 2014 amounted to US$1,086 million and
our short-term loans and current portion of long-term loans mainly
represented by maturing capital markets instruments adjusted for
hedging exposure under cross-currency swaps related to
rouble-denominated bonds stood at US$1,040 million.
Analysis of Segment operations
For management purposes, in 2013 and previous periods the Group
was organised into business units based on their products and
services, and had four reportable operating segments:
-- Steel production segment included production of steel and
related products at eleven steel mills.
-- Mining segment included iron ore and coal mining and enrichment.
-- Vanadium products segment included extraction of vanadium ore
and production of vanadium products. Vanadium slag arising in the
steel-making process was also allocated to the vanadium
segment.
-- Other operations included energy-generating companies,
seaports, shipping and railway transportation companies.
In 2014, the management reporting used by the chief operating
decision maker for making decisions about resource allocation has
changed to put more emphasis on analysis of the operating results
of the coal segment and operations in North America. As such, new
reportable segments were identified and the comparative segment
information has been restated accordingly. The new reportable
operating segments are:
-- Steel segment includes production of steel and related
products at all mills except for those located in North America.
Extraction of vanadium ore and production of vanadium products,
iron ore mining and enrichment and certain energy-generating
companies are also included in this segment as they are closely
related to the main process of steel production.
-- Steel, North America is a segment, which includes production
of steel and related products in the USA and Canada.
-- Coal segment includes coal mining and enrichment. It also
includes operations of Nakhodka Trade Sea Port as it is used to a
significant extent for shipping of products of the coal segment to
the Asian markets.
-- Other operations include energy-generating companies,
shipping and railway transportation companies.
US$ millions Steel Steel, NA Coal Other
--------------- --------------- -------------- -------------- ------------
2014 2013 2014 2013 2014 2013 2014 2013
--------------- ------ ------- ------ ------ ------ ------ ----- -----
Revenue 9,519 10,792 3,160 3,036 1,318 1,486 648 730
--------------- ------ ------- ------ ------ ------ ------ ----- -----
EBITDA 1,912 1,656 279 158 373 226 37 37
--------------- ------ ------- ------ ------ ------ ------ ----- -----
EBITDA margin 20.1% 15.3% 8.8% 5.2% 28.3% 15.2% 5.7% 5.1%
--------------- ------ ------- ------ ------ ------ ------ ----- -----
CAPEX 317 476 84 89 232 343 21 3
--------------- ------ ------- ------ ------ ------ ------ ----- -----
Dividends
On 2 July 2014, EVRAZ paid dividends in the amount of US$90.4
million which represented the approximate cash portion of the
proceeds from the sale of EVRAZ Vitkovice Steel.
The dividend policy has been revised to support the financial
strategy of deleveraging and envisages that regular dividends will
be paid only when the net leverage (net debt to EBITDA) target of
below 3.0x is achieved.
Key recent developments
Tender offer
On 31 March 2015, the Board resolved to announce a return of
capital to be effected by a tender offer to shareholders at $3.10
per share in the amount of up to $375 million.
In the future, the Company may consider returning cash to its
shareholders should the net debt to EBITDA ratio continue to be
below 3x with net debt reduction on track.
Oulook and guidance
Steel segment
We expect global steel demand to continue to grow. However steel
pricing will remain volatile and largely driven by existing
underutilization of production capacity in selected markets, and
specifically competition from Chinese steel producers in the
international steel markets as China's economic growth slowdown
persists. Downward price pressure caused by increased Chinese steel
exports and growing competition between major steel exporters will
offset some of the efficiency and cost reduction gains achieved by
EVRAZ in 2014.
The Company expects to run its steel-making capacities in Russia
and Ukraine at full fully utilisation. While the Russian steel
market remains the priority, EVRAZ will closely monitor the recent
changes in the market and Russia's weakening demand caused by the
devaluation of the Russian rouble. The Company expects to sell a
significantly larger part of its steel in export markets.
The Russian construction steel market is expected to be highly
competitive as newly commissioned mini-mills reach their designed
capacity. Intensified competition will reduce producers margins and
put additional pressure on steel imports into the country.
Steel, North America
Overall steel demand will be driven by the continuous economic
recovery in the United States and increasing demand from selected
economic sectors (construction, automotive, energy).
We expect to run our steel-making capacities at full
utilisation. We remain very positive about our rail and
large-diameter businesses in North America.
OCTG demand will face severe headwinds in 2015 resulting from
lower oil prices and high inventory levels at the distributors'
level. Hence we expect utilization of our OCTG mills in the US and
Canada to be significantly lower than in 2014.
Coal segment
In 2015, EVRAZ is planning to expand sales in Russia, whilst
maintaining the volumes shipped to premium export markets. In 2015,
coke production in Russia is expected to decrease by 2-3%, which
will result in a higher competition in the Russian coal market;
quality grade coal will be in great demand and the oversupply of
soft coal grades is expected to be maintained.
We remain on track to full recovery of coal volumes at
Raspadskaya which together with positive effects of the Russian
rouble devaluation will further reduce coking coal costs. The
Russian coal market will retain its key importance for our
business, however as we expect the Russian coal consumption to be
stable in volume terms, most of the additional coal production will
be shipped to export markets.
APPENDIX
Key RISKS AND UNCERTAINTIES
Key risks
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 in 2014 and valid as of the date of this
report's publication as identified by the Board are described below
along with the corresponding mitigating actions and changes in the
risk level during the year.
Risk Risk description Risk level 2014 vs. 2013 and
mitigating actions
------------------- ---------------------------------- ---------------------------------------
Global economic EVRAZ operations are
factors, dependent on the global EVRAZ has a focused investment
industry macroeconomic environment policy aimed at reducing and
conditions and economic and industry managing the cost base with
and cost conditions, e.g. global the objective of being among
effectiveness supply / demand balance the sector's lowest cost producers.
for steel and particularly In respect of its mining operations
for iron ore and coking the Company has a focus on
coal which has the potential divestiture or downscaling
to affect both product of high cost and lower coal
prices and volumes across quality mining assets and
all markets. As EVRAZ development of efficient low
operations have a high cost mining operations.
level of fixed costs, For both mining and steelmaking
global economic and industry operations the Company executes
conditions can impact cost reduction projects to
the Company's operational reinforce competitiveness
performance. of assets. Particularly, conversion
In addition, any reduction and logistics cost optimisation
in availability of long-term programmes were initiated
funding puts constraints during the year.
on the Company's ability
to grow its business.
Poor availability of
long-term funding requires
the Company to prioritise
debt repayments rather
than focus on long-term
capital investment projects
(see Treasury below).
------------------- ---------------------------------- ---------------------------------------
Health, safety Safety and environmental HSE issues have direct oversight
and environmental risks are inherent to at Board level and HSE procedures
(HSE) issues the Company's principal and material issues are given
business activities of top priority at all internal
steelmaking and mining. management meetings. Management
Further, EVRAZ operations KPIs place significant emphasis
are subject to a wide on safety performance. EVRAZ
range of HSE laws, regulations has instigated a programme
and standards, the breach to improve the management
of any of which may result of safety risks across all
in fines, penalties, business units with the objective
suspension of production, of embedding a new safety,
or other sanctions. Such harm-free culture at all management
actions could have a and operational levels.
material adverse effect The Company continues to focus
on the Company's business, on standardisation of critical
financial condition and/or safety programmes with a main
business prospects. focus in 2014 on implementing
The key environmental an energy isolation programme,
issues are primarily or LOTO (Lockout Tryout).
concerned with air emissions, Further, EVRAZ has introduced
used water quality and a programmes of Behaviour
tailings management. Safety Conversations to drive
a more proactive approach
to preventing injuries and
incidents. Safety training
has been reviewed and strengthened
and an operational safety
assessment is undertaken for
all new projects.
------------------- ---------------------------------- ---------------------------------------
Potential EVRAZ operates in a number Although these risks are mostly
actions by of countries and there not within the Company's control,
governments is a risk that governments EVRAZ and its executive teams
or government agencies are members of various national
could adopt new laws industry bodies and, as a
and regulations, or otherwise result, contribute to the
impact the Company's thinking of such bodies and,
operations. New laws, when appropriate, participate
regulations or other in relevant discussions with
requirements could have political and regulatory authorities.
the effect of limiting The Company has diligently
the Company's ability taken international legal
to obtain financing in advice in order to assess
international markets, the compliance requirements
or sell its products. and risks of consequences
To date the Company has from sanctions against Russian
not been significantly businesses and develop procedures
impacted by recent geopolitical to ensure that sanction requirements
developments relating are complied with across the
to Ukraine. There is Company's operations.
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 EVRAZ employs skilled specialists
large and multi-national to manage and mitigate such
corporates, faces various risks and the management of
treasury risks including such risks is embedded in
liquidity, credit access, internal controls. Oversight
currency and interest of the key risks is reported
rate fluctuation, and within the monthly Board reports
tax compliance risks. and compliance with the internal
EVRAZ may be impacted controls is reviewed by the
by a possible introduction independent internal audit
of limitations on repatriation function, which reports to
of foreign currency proceeds the Audit Committee. In addition,
from exports, as well the Company is developing
as additional regulations a robust sanctions risk management
or limitations on cross-border system.
capital flows. In addition, EVRAZ continues to undertake
and as mentioned above, actions in order to extend
potential actions by its debt maturity profile
governments, including and lower short-term external
economic sanctions impacting funding needs, as well as
Russian entities may to proactively manage the
increase the Company's remaining portion of debt
capital market risk in subject to maintenance covenants.
respect of new funding Liquidity risk is managed
issues. 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.
------------------- ---------------------------------- ---------------------------------------
Functional Group borrowing capacity EVRAZ works to reduce the
currency may be impacted in times amount of intercompany loans
devaluation of severe devaluation payable from subsidiaries
of the subsidiaries' with Russian rouble and Ukrainian
functional currencies hryvnia functional currencies,
relative to the US dollar: to limit the possible devaluation
while Group EBITDA and effect on Group consolidated
cash generating capacity net income.
can increase (at least EVRAZ is also closely monitoring
in the medium term) - and controlling cost inflation
because a large proportion resulting from severe devaluations.
of sales are priced in
dollars - its profit
and equity can decrease
significantly.
------------------- ---------------------------------- ---------------------------------------
Business Prolonged outages or The Company has defined and
interruption production delays, especially established disaster recovery
in coal mining, could procedures which are subject
have a material adverse to regular review. Business
effect on the Company's interruptions in mining mainly
operating performance, relate to production safety.
production, financial Measures to mitigate these
condition and future risks include methane monitoring
prospects. In addition, and degassing systems, timely
long term business interruption mining equipment maintenance,
may result in loss of employee safety training and
customers and competitive development of geodynamic
advantage, and damage monitoring systems. Detailed
to the Company's reputation. 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.
------------------- ---------------------------------- ---------------------------------------
Human Resources The principal HR risk Succession planning is a key
(HR) is the availability of feature of EVRAZ's human resources
management and employees management. EVRAZ has invested
with the necessary attributes substantial resource in training,
and skills. This is particularly internal mentoring, and development
the case for certain of its pool of successors.
regions and business EVRAZ seeks to meet its leadership
units, e.g. engineers, and skill needs through retention
mining experts and project of its employees, internal
managers. Associated promotion, structured professional
risks involve selection, internal mentoring and external
recruitment, training development programmes. This
and retention of employees includes internal training,
and qualified executives. 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 $4 million, respectively.
Transactions with related parties were as follows for the years
ended 31 December:
Sales to Purchases from
related parties related parties
---------------------
US$ 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)
Other comprehensive income to be reclassified to profit or loss in subsequent
periods
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 108 458 257
Income tax payable 86 57 48
Other taxes payable 151 203 195
Provisions 41 45 40
Dividends payable by the Group's subsidiaries to non-controlling
shareholders - 5 8
------------- ------------- -------------
2,681 4,252 4,031
Liabilities directly associated with disposal groups classified as held
for sale 13 112 175
------------- ------------- -------------
2,694 4,364 4,206
------------- ------------- -------------
Total equity and liabilities $ 11,630 $ 17,685 $ 17,737
------------------------------------------------------------------------- ------------- ------------- -------------
EVRAZ plc
Consolidated Statement of Cash Flows
(in millions of US dollars)
Year ended 31 December
2014 2013 2012
restated* restated*
---------- ---------- ----------
Cash flows from operating activities
Net profit/(loss) $ (1,278) $ (551) $ (420)
Adjustments to reconcile net profit/(loss) to net cash flows from operating
activities:
Deferred income tax (benefit)/expense (Note 8) (163) (335) (38)
Depreciation, depletion and amortisation (Note 7) 833 1,114 1,259
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
Interest income (17) (23) (23)
Interest expense 563 699 654
Share of (profits)/losses of associates and joint ventures (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
Bad debt expense 41 8 12
Changes in provisions, employee benefits and other long-term assets and
liabilities (62) (68) (55)
Expense arising from equity-settled awards (Note 21) 30 25 22
Other (1) (2) (6)
---------- ---------- ----------
1,976 1,535 1,733
Changes in working capital:
Inventories (87) 229 121
Trade and other receivables (1) 65 (78)
Prepayments (2) 15 37
Receivables from/payables to related parties (246) 131 141
Taxes recoverable 33 48 120
Other assets 11 (17) 18
Trade and other payables 150 (135) 96
Advances from customers 27 30 (1)
Taxes payable 100 4 (43)
Other liabilities (4) (5) (1)
Net cash flows from operating activities 1,957 1,900 2,143
---------------------------------------------------------------------------------- ---------- ---------- ----------
Cash flows from investing activities
Issuance of loans receivable to related parties (4) (2) (5)
Proceeds from repayment of loans issued to related parties, including interest - - 1
Issuance of loans receivable - (2) -
Proceeds from repayment of loans receivable, including interest 3 3 4
Return of capital by a joint venture (Note 11) - - 38
Purchases of subsidiaries, net of cash acquired (Note 4) (102) 31 (12)
Purchases of interest in associates/joint ventures (Note 11) (29) (61) -
Restricted deposits at banks in respect of investing activities 1 (2) -
Short-term deposits at banks, including interest 8 677 (656)
Purchases of property, plant and equipment and intangible assets (612) (902) (1,261)
Proceeds from disposal of property, plant and equipment 14 7 9
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs
(Note 12) 311 1 311
Dividends received 2 1 88
Other investing activities, net 19 (15) (61)
----- ----- -------
Net cash flows used in investing activities (389) (264) (1,544)
--------------------------------------------------------------------------------------------- ----- ----- -------
Cash flows from financing activities
Purchase of treasury shares in the course of the Group's reorganisation (Note
20) $ - $ - $ (4)
Purchase of treasury shares (Note 20) (13) (6) -
Proceeds from loans provided by related parties 267 - -
Repayment of loans provided by related parties (251) - -
Purchases of non-controlling interests (Note 4) - - (1)
Dividends paid by the parent entity to its shareholders (Note 20) (90) - (375)
Dividends paid by the Group's subsidiaries to non-controlling shareholders (3) (1) (1)
Proceeds from bank loans and notes 2,579 1,976 2,706
Repayment of bank loans and notes, including interest (3,223) (3,978) (2,716)
Net proceeds from/(repayment of) bank overdrafts and credit lines, including
interest (942) 621 292
Payments for purchase of property, plant and equipment on deferred terms (42) - -
Payments under covenants reset (Note 22) - (1) (7)
Gain/(loss) on derivatives not designated as hedging instruments (Note 25) (94) 51 81
Collateral under swap contracts (Note 18) 14 (21) 10
Restricted deposits at banks in respect of financing activities - - 2
Payments under finance leases, including interest (1) (8) (29)
Other financing activities (12) - -
Net cash flows used in financing activities (1,811) (1,367) (42)
Effect of foreign exchange rate changes on cash and cash equivalents (282) (48) 32
Net increase in cash and cash equivalents (525) 221 589
Cash and cash equivalents at the beginning of the year 1,604 1,382 801
----------- ----------- -----------
Add back: decrease/(increase) in cash of disposal groups classified as assets
held for sale
(Note 12) 7 1 (8)
=========== =========== ===========
Cash and cash equivalents at the end of the year $ 1,086 $ 1,604 $ 1,382
=========== =========== ===========
Supplementary cash flow information:
Cash flows during the year:
Interest paid $ (517) $ (586) $ (559)
Interest received 10 23 7
Income taxes paid by the Group (263) (249) (298)
------------------------------------------------------------------------------- ----------- ----------- -----------
* 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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