TIDMEVR
RNS Number : 2282X
Evraz Plc
27 August 2015
EVRAZ plc
EVRAZ ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR H1
2015
27 August 2015 - EVRAZ plc ("EVRAZ" or "the Company") (LSE: EVR)
today announces its unaudited interim results for the six months
ended 30 June 2015 ("the Period").
H1 2015 HIGHLIGHTS
-- Strong free cash flow of US$372 million (H1 2014: US$444 million)
-- Consistent reduction in net debt: US$5.7 billion (FY 2014:
US$5.8 billion), with net debt to EBITDA of 2.6 times
-- Cost saving of US$149 million* due to ongoing productivity
improvements and cost-cutting initiatives
-- Consolidated EBITDA of US$922 million (H1 2014: US$1,080 million)
-- EBITDA margin of 18.8% (FY 2014: 17.8%; H1 2014: 15.9%)
-- EBITDA margin in the Coal segment of 31.7% (FY 2014: 28.3%;
H1 2014: 21.9%) due to the following:
o shutdown of unprofitable mines
o disposal or shutdown of non-core steam coal operations
o a greater share of premium coal grades in the product mix
-- Secure position as one of the lowest-cost producers of steel and raw materials in Russia:
o cash cost of slabs decreased to US$196/t from US$292/t in H1
2014
o cash costs of coking coal concentrate of US$32/t (H1 2014:
US$55/t)
o cash costs of iron ore products (58% Fe content) of US$31/t
(H1 2014: US$48/t)
-- US$336 million returned to shareholders in April 2015 via the
tender offer to purchase the Company's ordinary shares, announced
following the 2014 results
* See Financial review for details
Financial Highlights
(US$ million) H1 2015 H1 2014 Change
------------------------------------------ ------------- ----------------- --------
Consolidated revenue 4,894 6,805 (28.1)%
------------------------------------------ ------------- ----------------- --------
Profit from operations 479 297 61.3%
------------------------------------------ ------------- ----------------- --------
Consolidated EBITDA(1) 922 1,080 (14.6)%
------------------------------------------ ------------- ----------------- --------
Net profit 19 15 26.7%
------------------------------------------ ------------- ----------------- --------
Earnings per share, basic (US$) 0.01 0.03 (66.7)%
------------------------------------------ ------------- ----------------- --------
Net cash flows from operating activities 804 844 (4.7)%
------------------------------------------ ------------- ----------------- --------
CAPEX(2) 251 365 (31.2)%
------------------------------------------ ------------- ----------------- --------
30 June 2015 31 December 2014
------------------------------------------ ------------- ----------------- --------
Net debt(3) 5,680 5,814 (2.3)%
------------------------------------------ ------------- ----------------- --------
Total assets 10,878 11,630 (6.5)%
------------------------------------------ ------------- ----------------- --------
(1) See Annex 1 for the definition of EBITDA
(2) Including payments on deferred terms recognised in financing
activities
(3) See Annex 5 for the calculation of net debt
Commenting on the financial results for H1 2015, EVRAZ CEO
Alexander Frolov said, "In the first half of 2015, sales volumes in
our core Russian and North American markets contracted
significantly, compounded by continued pressure on global steel
prices.
On the positive side, we have managed to maintain our market
share and reallocated part of our Russian sales to export markets
in response to changing demand for steel products.
Thanks to our continued client focus and successful
implementation of cost-cutting initiatives, we generated strong
cash flows and continued to reduce our debt.
We continue to execute our strategy, which focuses on low-cost
production, customer care, cost-cutting and targeted,
performance-enhancing capital expenditures."
CONFERENCE CALL AND WEBCAST
A webcast/conference call to discuss the results hosted by
Alexander Frolov, CEO, and Pavel Tatyanin, CFO, will commence on
Thursday, 27 August 2015, at:
3 pm (London Time)
5 pm (Moscow Time)
10 am (New York Time)
To join the webcast please register on-line at
http://www.evraz.com/investors/financial_results/
or dial:
0 800 694 0257 in the UK (toll-free)
8 10 800 2097 2044 or 8 800 775 6818 in Russia (toll-free)
1 866 966 9439 in the USA (toll-free)
+44 (0) 1452 555 566 International Dial-in
Conference ID 6006581
To avoid any technical inconveniences it is recommended that
participants dial in 10 minutes before the event start time.
The playback will be available until 3 September 2015.
Participants requesting the playback should dial:
0 800 953 1533 in the UK (toll-free)
1 866 247 4222 in the USA
+44 (0) 1452 55 00 00 International Dial-in
and enter the Code 6006581 followed by the # sign.
FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements", which
include all statements other than statements of historical facts,
including, without limitation, any statements preceded by, followed
by or that include the words "targets", "believes", "expects",
"aims", "intends", "will", "may", "anticipates", "would", "could"
or similar expressions or the negative thereof. Such
forward-looking statements involve known and unknown risks,
uncertainties and other important factors beyond the Group's
control that could cause the actual results, performance or
achievements of the Group to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking, including, among others, the achievement of
anticipated levels of profitability, growth, cost and synergy of
recent acquisitions, the impact of competitive pricing, the ability
to obtain necessary regulatory approvals and licenses, the impact
of developments in the Russian economic, political and legal
environment, volatility in stock markets or in the price of the
Group's shares or GDRs, financial risk management and the impact of
general business and global economic conditions. Such
forward-looking statements are based on numerous assumptions
regarding the Group's present and future business strategies and
the environment in which the Group will operate in the future. By
their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. These
forward-looking statements speak only as at the date as of which
they are made, and each of EVRAZ and the Group expressly disclaims
any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statements contained herein to
reflect any change in EVRAZ's or the Group's expectations with
regard thereto or any change in events, conditions or circumstances
on which any such statements are based. Neither the Group, nor any
of its agents, employees or advisors intends or has any duty or
obligation to supplement, amend, update or revise any of the
forward-looking statements contained in this document.
Table of contents
Strategic goals IN 2015
Market outlook
Financial review
key recent developments
Review of operations by Segment
Steel
Steel, North America
Coal
Key RISKS AND UNCERTAINTIES
DIRECTOR'S RESPONSIBILITY STATEMENT
Unaudited Interim Condensed Consolidated Financial
Statements
Strategic goals IN 2015
EVRAZ's strategy is to produce steel efficiently from its own
low-cost raw materials for use in infrastructure worldwide. The
Company implements its strategy through five development
principles: Health, Safety and the Environment; Human Capital;
Customer Focus; EVRAZ Business System; Growth.
Throughout its work, EVRAZ places great effort into establishing
a safe work environment for its employees. In H1 2015, initiatives
focused on safety training and an equipment electricity isolation
programme. Despite the Company's efforts, there were seven
fatalities (six employees and one contractor) at its sites in the
Period, while the lost-time injury frequency rate (LTIFR) reached
1.93, compared with 1.62 in H1 2014. EVRAZ remains committed to its
long-term goal of reaching zero fatalities at its sites and will
continue efforts to improve reporting transparency.
EVRAZ is committed to developing employees through educational
programmes and providing internal career opportunities. Since the
Company started the EVRAZ New Leaders programme in partnership with
the Moscow School of Management SKOLKOVO in 2009, more than 250
people have completed the one-year executive education course. Of
those, 53% were promoted to management positions after graduation.
In 2015, 50 participants are due to join the programme. The total
workforce decreased from 94,823 on 31 December 2014 to 88,731 on 30
June 2015, down by 6,092, due to productivity improvements and
asset optimisation.
(MORE TO FOLLOW) Dow Jones Newswires
August 27, 2015 02:03 ET (06:03 GMT)
EVRAZ is expanding its product portfolio and sales geography to
better serve current and future customers. In H1 2015, it broadened
its export base to the markets of Brazil, Cuba, Malaysia and Turkey
with railway products from the EVRAZ ZSMK and EVRAZ NTMK. In
Russia, the Company sold 100-metre rails to the Moscow Metro and
new grades to Russian High-speed Railways. In North America, it is
working on thicker-wall large-diameter pipes (LDP) for natural gas
transmission and continues to focus on maximising the market share
of its premium rails. From these initiatives, EVRAZ is targeting an
additional EBITDA of US$75 million in 2015, of which it already
achieved US$38 million in H1 2015.
A fundamental part of the EVRAZ strategy is to remain a low-cost
producer with simple and efficient operational processes. EVRAZ has
targeted US$280 million of cost savings in 2015, based on
management accounts adjusted to eliminate macroeconomic affects
(such as exchange-rate fluctuations and inflation) and once-off
expenditures (such as employee severance payments and other
discontinuation costs). On this basis, the Company saved US$149
million in H1 2015, the main contributors being improvements in raw
material consumption yields and in productivity, the energy
efficiency programme, maintenance procedures, general and
administrative expenses, and asset optimisation.
The investment programme for 2015 is based on selective projects
aimed at either expanding the product mix or improving the cost
base. EVRAZ is implementing six capital initiatives with an average
internal rate of return (IRR) of over 30%. Through the Regina
steelmaking and LDP mill upgrade projects, the Company aims to
match the increasing demand and quality requirements from North
American gas transmission clients. EVRAZ NTMK's new grinding ball
mill will help to deliver the most complex grades of that product,
which are currently not manufactured domestically, to serve the
Company's Russian customers. The Company expects the upgraded
billet caster at EVRAZ ZSMK to be commissioned in autumn 2015,
which will decrease conversion costs. The expansion of the
Sheregesh iron ore mine in Siberia will support the low-cost
resource base, while the projects to develop the Mezhegey coal
deposit in Tyva, Russia will provide high-quality grades to
clients. EVRAZ invested US$114 million in development CAPEX in H1
2015 and expects to spend another US$95 million in H2 2015.
Market outlook
Global markets
The environment in the global steel industry remains challenging
due to excess capacities and slowing consumption growth in China.
Volatile domestic demand caused seaborne steel exports from China
to rise by 27% in H1 2015, from 41.3 million tonnes in H1 2014 to
52.4 million tonnes, creating pressure on global steel prices. In
the Period, global prices for steel products decreased by an
average of 17% compared with H1 2014 (Platts World Steel Price
Index). We do not envisage any significant changes in H2 2015,
although the situation will depend on the pace of capacity cuts and
fixed investment stimulus in China.
Iron ore majors are building up new capacities and are expected
to supply an additional 150 million tonnes to the market in 2015.
Together with the slowdown in Chinese steel output, this led to
prices of the raw material plummeting by 45% in H1 2015, from
US$110 per tonne in H1 2014 to US$60 per tonne (CFR China).
High-cost producers appear reluctant to reduce capacities, leave
the market permanently and take losses, so an oversupply of iron
ore is expected for at least two to three years.
Coking coal markets were also affected by the dynamics of
China's steel market. Chinese coking coal imports declined by 30%
in H1 2015, from 31.0 million tonnes in H1 2014 to 21.6 million
tonnes. Meanwhile, seaborne market prices were supported by cuts in
North American shipments and improvements in consumption in India.
Hard coking coal prices fell by 16% in H1 2015, from US$117 per
tonne in H1 2014 to US$98 per tonne (FOB Australia). While numerous
coking coal projects are in the pipeline, they are based on
reasonable volume expectations and are unlikely to lead to
oversupply. We expect the coking coal market to stabilise in the
next six to 12 months and global prices to rise.
Steel
As Russia remains the core market for EVRAZ, the current
economic slowdown has created some turbulence.
Russian demand for steel products declined by 8% in H1 2015,
from 21.4 million tonnes in H1 2014 to 19.7 million tonnes. In
particular, consumption of rebars and construction profiles fell by
15% and 27%, respectively. Consumption of rails decreased by just
2% due to advance purchases from Russian Railways in the
Period.
Russian steel production was stable in H1 2015, as new EAF
steelmaking facilities increased output and export volumes of steel
products rose (by 12%, from 12.8 million tonnes in H1 2014 to 14.3
million tonnes) due to the rouble devaluation, which gave Russian
producers a cost advantage over global peers.
Russian steel prices came under pressure from the dynamics of
the global steel market, slowing domestic consumption and currency
fluctuations. In H1 2015, construction and railway product prices
decreased by 30% in US dollar terms compared with H1 2014.
In H1 2015, EVRAZ demonstrated great flexibility in reallocating
volumes from the Russian to export markets, maintaining production
levels and helping to increase profitability margins. Export
shipments increased to 54% in the Period, from 42% in H1 2014.
Despite the rise in export volumes, the Company's market share in
Russia remained at 23% in H1 2015, unchanged from H1 2014.
In H2 2015, EVRAZ expects Russian steel demand to increase due
to improved credit conditions, state mortgage support programmes
and ongoing work on several large infrastructure projects (the
South Stream and Siberian Power pipelines and World Cup 2018).
Russian iron ore production was stable in H1 2015. Output of
saleable iron ore concentrate totalled 26 million tonnes, while
that of pellets rose by 3% to 16.2 million tonnes.
EVRAZ consumed 90% of its Russian iron ore products internally
in H1 2015, so only 10% was exposed to market fluctuations. While
domestic iron ore prices denominated in roubles remained stable due
to the currency's devaluation, prices in US dollars declined by
40%. Despite that decline, EVRAZ's iron ore business remains
free-cash-flow positive due to its beneficial cost position.
Instability in Ukraine led to decreasing local demand in that
market. Internal consumption declined by 33% in H1 2015, from 2.1
million tonnes in H1 2014 to 1.4 million tonnes. In addition,
overall crude steel production fell by 27%, from 15.5 million
tonnes in H1 2014 to 11.3 million tonnes in 15. However, the
Company maintained production volumes at the EVRAZ DMZ Petrovskogo
steel plant in H1 2015 at 0.4 million tonnes by successfully
increasing steel product exports. The Ukrainian hryvnia devaluation
significantly improved the profitability of EVRAZ' Ukrainian export
shipments, and the Company expects its volumes and margins to
remain at current levels in H2 2015.
The challenging conditions in the steel industry and an
increased vanadium supply led to an 18% decline in ferrovanadium
(FeV) prices in H1 2015, from US$26.1K/kg in H1 2014 to US$21.5K/kg
(Metal Bulletin Index). As one of the lowest-cost producers and the
largest player outside China, EVRAZ remains competitive in the
international marketplace.
Steel, North America
The US dollar appreciation and local price premium caused the US
steel industry to come under significant pressure from imports in
the Period. Finished steel imports increased by 14% from 14 million
tonnes in H1 2014 to 16 million tonnes in H1 2015, causing the
local capacity utilisation rate to decline by 5 percentage points,
from 77% to 72%.
As a result of the increase in imports, price spreads are
narrowing below the level that encourages additional imports, which
should improve domestic prices and margins in H2 2015. In addition,
with the exception of the energy sector, demand across the economy
remains strong, particularly in the automotive and non-residential
construction industries.
EVRAZ remains the leading producer of LDP and rails in North
America, with a market share of 50% and 40%, respectively. Over the
next three to five years, it expects the LDP market to expand from
the current 0.8 mtpa to 1.7 mtpa due to the upcoming pipeline of
major gas exploration projects in Western Canada. In addition, the
rails market should be supported by the ambitious Class-I railway
corporate investment project plans.
Coal
Russian coking coal concentrate production declined by 7% to
23.7 million tonnes in H1 2015, from 25.6 million tonnes in H1
2014. Domestic consumption remained stable at 19.7 million tonnes
in the Period. Export shipments dropped by 23%, from 10.8 million
tonnes in H1 2014 to 8.3 million tonnes in H1 2015, due to
weakening demand from China, Ukraine and the EU.
Despite being affected by global benchmark trends, local prices
were supported by the Russian rouble devaluation and stable
consumption in Russia. In H1 2015, while US dollar-denominated
prices declined by 18% compared with H1 2014, rouble-denominated
prices increased by 40%.
EVRAZ' coking coal concentrate production volumes remained flat
at 6.5 million tonnes in H1 2015. EVRAZ coking coal consumption
declined due to further successful implementation of the pulverised
coal injection (PCI) technology. Overall Russian shipments dropped
13% as surplus volumes were reallocated to other Russian clients
and to the premium markets of Southeast Asia (Japan and Korea),
driving up non-CIS export sales by 38%.
We maintain our positive outlook for the domestic coking coal
market and expect demand for premium coal grades to remain
strong.
2015 year-end Oulook
In H2 2015, EVRAZ expects its results to continue to be affected
by the weak steel and raw material markets and currency
volatility.
(MORE TO FOLLOW) Dow Jones Newswires
August 27, 2015 02:03 ET (06:03 GMT)
The Company forecasts a moderate decline in demand for its steel
products due to instability on the Russian market, driven by a
decrease in investment activity, which will constrain performance
in priority market segments. The outlook for North America remains
stable, the key products being LDP and rails.
If current market conditions persist into H2 2015, steel prices
will continue to decline, as input costs slide and key currencies
decline against US dollar.
In contrast, the Russian rouble devaluation will have a positive
effect on operating expenses, helping EVRAZ to maintain healthy
profitability.
Importantly, EVRAZ continues to expect positive free cash flow
and progress towards reducing net debt in absolute terms, while
optimising working capital with a particular focus on quality of
receivables.
Commitment to customers and cost-cutting initiatives remain the
Company's top priorities.
Financial review
Statement of operations
Revenues
(US$ million)
----------------------------------------------------------------------
Segment H1 2015 H1 2014 Change Relative change
---------------------- -------- -------- -------- ----------------
Steel 3,413 5,035 (1,622) (32.2)%
---------------------- -------- -------- -------- ----------------
Steel, North America 1,249 1,578 (329) (20.8)%
---------------------- -------- -------- -------- ----------------
Coal 540 708 (168) (23.7)%
---------------------- -------- -------- -------- ----------------
Other operations 234 330 (96) (29.1)%
---------------------- -------- -------- -------- ----------------
Eliminations (542) (846) 304 (35.9)%
---------------------- -------- -------- -------- ----------------
Total 4,894 6,805 (1,911) (28.1)%
---------------------- -------- -------- -------- ----------------
Steel segment revenue (including intersegment), which amounted
to 69.7% of the Company's overall revenue, decreased in H1 2015,
largely due to lower revenue from steel product sales, which
declined by 31.9%. This was mainly due to a fall in prices
(-23.8%), which was in line with the general negative trend in
steel prices. Revenues from sales of steel products were also
impacted by changes in the Company's sales volume (-4.8%) and
product mix (-3.3%). Sales volumes of steel products declined from
6.9 million tonnes in H1 2014 to 6.6 million tonnes in H1 2015. The
shift in the sales mix reflected higher sales of semi-finished
products and lower sales of finished goods. Since production
volumes of flat-rolled and railway products declined, EVRAZ
switched some of the semi-finished goods produced from internal
consumption to external sales.
Revenues from the Steel, North America segment fell by 20.8%,
including 21.7% decrease of revenue from sales of steel products.
It was driven by a decline in prices (-9.6%), sales volumes (-8.4%)
and changes in product mix (-3.7%). Notably, sales of tubular goods
declined as a slowdown in drilling activity impacted demand for oil
country tubular goods (OCTG).
Coal segment revenues fell due to lower sales prices and
volumes. In H1 2015, the Company decreased its production amid
several scheduled longwall moves and adjustments to production
plans in response to weak market conditions.
Revenue by region
(US$ million)
--------------------------------------------------------------------
Region H1 2015 H1 2014 Change Relative change
-------------------- -------- -------- -------- ----------------
Russia 1,643 2,792 (1,149) (41.2)%
-------------------- -------- -------- -------- ----------------
Americas 1,402 1,751 (349) (19.9)%
-------------------- -------- -------- -------- ----------------
Asia 797 1,052 (255) (24.2)%
-------------------- -------- -------- -------- ----------------
CIS (excl. Russia) 356 488 (132) (27.0)%
-------------------- -------- -------- -------- ----------------
Europe 520 510 10 2.0%
-------------------- -------- -------- -------- ----------------
Africa 174 207 (33) (15.9)%
-------------------- -------- -------- -------- ----------------
Rest of the world 2 5 (3) (60.0)%
-------------------- -------- -------- -------- ----------------
Total 4,894 6,805 (1,911) (28.1)%
-------------------- -------- -------- -------- ----------------
EBITDA
(US$ million)
---------------------------------------------------------------------
Segment H1 2015 H1 2014 Change Relative change
---------------------- -------- -------- ------- ----------------
Steel 731 913 (182) (19.9)%
---------------------- -------- -------- ------- ----------------
Steel, North America 37 135 (98) (72.6)%
---------------------- -------- -------- ------- ----------------
Coal 171 155 16 10.3%
---------------------- -------- -------- ------- ----------------
Other operations 8 20 (12) (60.0)%
---------------------- -------- -------- ------- ----------------
Unallocated (70) (115) 45 (39.1)%
---------------------- -------- -------- ------- ----------------
Eliminations 45 (28) 73 (260.7)%
---------------------- -------- -------- ------- ----------------
Total 922 1,080 (158) (14.6)%
---------------------- -------- -------- ------- ----------------
In H1 2015, Steel segment EBITDA decreased compared with H1 2014
as a result of lower sales prices for steel products on export
markets and in Russia and Ukraine, partly offset by a fall in
expenses at Russian and Ukrainian subsidiaries in US dollar terms
due to the depreciation of the local currencies. Lower prices for
iron ore, coking coal and scrap, the deconsolidation of EVRAZ
Highveld Steel and Vanadium and the disposal of EVRAZ Vitkovice
Steel all had a positive effect on the segment's results.
EBITDA from the Steel, North America segment was impacted by a
fall in sales volumes and lower prices, driven by the downturn in
the OCTG and flat-rolled product markets.
Coal segment EBITDA rose, reflecting the positive effects of the
Russian rouble's devaluation on costs, the implementation of the
efficiency improvement programme and asset optimisation at
Yuzhkuzbassugol and the Raspadskaya coal company, which compensated
the decline in coal product sales prices.
Eliminations mostly reflect unrealised profits or losses of the
Steel segment in transactions with the Steel, North America
segment.
Actual cost savings in H1 2015 are based on management accounts
adjusted to eliminate macroeconomic affects (such as exchange-rate
fluctuations and inflation) and once-off expenditures (such as
employee severance payments and other discontinuation costs).
The following table details the estimated savings from the H1
2015 cost-cutting improvements:
Cost-cutting improvements
(US$ million)
-------------------------------------------------------------- ----
Cost-cutting initiatives and productivity improvements,
including 73
-------------------------------------------------------------- ----
Improving yields and raw material costs in steel mills 46
-------------------------------------------------------------- ----
Productivity improvement at Evrazruda (US$5 million)
and Yuzhkuzbassugol (US$2 million) 7
-------------------------------------------------------------- ----
Energy effectiveness and optimistaion of maintenance
costs 9
-------------------------------------------------------------- ----
Other cost optimisations 11
-------------------------------------------------------------- ----
Optimisation of asset portfolio 27
-------------------------------------------------------------- ----
EVRAZ North America: shutdown of Claymont 15
-------------------------------------------------------------- ----
EVRAZ ZSMK portfolio asset optimisation: shutdown of
coke battery #2 and disposal of non-core assets 7
-------------------------------------------------------------- ----
Production suspension and disposal of high cost and
inefficient assets at the Raspadskaya coal company
and Evrazruda 5
-------------------------------------------------------------- ----
Reduction of general and administrative (G&A) costs
and non-G&A headcount 49
-------------------------------------------------------------- ----
Total 149
-------------------------------------------------------------- ----
Cost of revenues, expenses and results
(US$ million)
--------------------------------------------------------------------------------------------------------
Item H1 2015 H1 2014 Change Relative change
--------------------------------------------------------- -------- -------- ------- ----------------
Cost of revenue (3,570) (5,192) 1,622 (31.2%)
(MORE TO FOLLOW) Dow Jones Newswires
August 27, 2015 02:03 ET (06:03 GMT)
--------------------------------------------------------- -------- -------- ------- ----------------
Gross profit 1,324 1,613 (289) (17.9%)
--------------------------------------------------------- -------- -------- ------- ----------------
Selling and distribution costs (425) (543) 118 (21.7%)
--------------------------------------------------------- -------- -------- ------- ----------------
General and administrative expenses (252) (390) 138 (35.4%)
--------------------------------------------------------- -------- -------- ------- ----------------
Impairment of assets (20) (147) 127 (86.4%)
--------------------------------------------------------- -------- -------- ------- ----------------
Foreign-exchange gains/(losses), net (99) (180) 81 (45.0%)
--------------------------------------------------------- -------- -------- ------- ----------------
Other operating income and expenses, net (49) (56) 7 (12.5%)
--------------------------------------------------------- -------- -------- ------- ----------------
Profit from operations 479 297 182 61.3%
--------------------------------------------------------- -------- -------- ------- ----------------
Interest expense, net (224) (287) 63 (22.0%)
--------------------------------------------------------- -------- -------- ------- ----------------
Gain/(loss) on financial assets and liabilities, net 48 (43) 91 n/a
--------------------------------------------------------- -------- -------- ------- ----------------
Gain on disposal group classified as held for sale, net 20 127 (107) (84.3%)
--------------------------------------------------------- -------- -------- ------- ----------------
Loss of control over a subsidiary (167) - (167) n/a
--------------------------------------------------------- -------- -------- ------- ----------------
Other non-operating gains/(losses), net (36) 5 (41) n/a
--------------------------------------------------------- -------- -------- ------- ----------------
Profit before tax 120 99 21 21.2%
--------------------------------------------------------- -------- -------- ------- ----------------
Income tax benefit/(expense) (101) (84) (17) 20.2%
--------------------------------------------------------- -------- -------- ------- ----------------
Net profit 19 15 4 26.7%
--------------------------------------------------------- -------- -------- ------- ----------------
The foreign exchange loss, which relates mostly to intercompany
loans between subsidiaries with different functional currencies,
was US$(99) million in H1 2015, 45% lower than in H1 2014 due to
lower loan balances subject to such exchange rates
fluctuations.
Gain on financial assets and liabilities of US$48 million (loss
of US$43 million in H1 2014) relates mostly to the unrealised gain
(H1 2014: loss) on foreign currency swaps caused by movements in
the relevant forward exchange rates in the respective periods. The
H1 2015 gain is a result of the Russian rouble revaluation during
the respective Period.
Following the placement of EVRAZ Highveld under the business
rescue procedures, the Company ceased to consolidate EVRAZ Highveld
starting 14 April 2015 and recognised a loss on disposal of a
subsidiary in the amount of US$167 million, including US$142
million of translation loss recycled to statement of
operations.
The Group's cost of revenue decreased by 31.2% in H1 2015
compared with H1 2014.
A detailed breakdown of the cost of revenue is as follows:
% of % of
(US$ million) H1 2015 revenue H1 2014 revenue Change Relative change
------------------------------- -------- --------- -------- --------- -------- ----------------
Revenue 4,894 6,805
------------------------------- -------- --------- -------- --------- -------- ----------------
Cost of revenue 3,570 73.0% 5,192 76.3% (1,622) (31.2%)
------------------------------- -------- --------- -------- --------- -------- ----------------
Raw materials, incl. 1,136 23.2% 1,649 24.2% (513) (31.1)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Iron ore 173 3.5% 401 5.9% (228) (56.9)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Coking coal and coke 190 3.9% 231 3.4% (41) (17.8)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Scrap 469 9.6% 638 9.4% (169) (26.5)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Other raw materials 304 6.2% 379 5.5% (75) (19.8)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Semi-finished products 110 2.2% 32 0.5% 78 243.8%
------------------------------- -------- --------- -------- --------- -------- ----------------
Auxiliary materials 295 6.0% 444 6.5% (149) (33.6)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Services 265 5.4% 382 5.6% (117) (30.7)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Goods for resale 204 4.2% 337 5.0% (133) (39.5)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Transportation 292 6.0% 345 5.1% (53) (15.4)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Staff costs 588 12.0% 855 12.5% (267) (31.3)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Depreciation 256 5.2% 380 5.6% (124) (32.7)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Electricity 179 3.7% 283 4.2% (104) (36.8)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Natural gas 91 1.9% 176 2.6% (85) (48.3)%
------------------------------- -------- --------- -------- --------- -------- ----------------
Other costs 154 3.2% 309 4.5% (155) (50.2)%
------------------------------- -------- --------- -------- --------- -------- ----------------
The lower iron ore costs were largely attributable to lower
purchase prices of iron ore (-US$141 million), accompanied by a
decline in volumes of iron ore purchased from third parties due to
an increase in own production. The share of internally purchased
iron ore in consumption rose from 53% in H1 2014 to 64% in H1 2015
(-US$87 million).
Scrap costs decreased primarily due to lower prices of scrap
purchased in Russia
(-US$48 million) and a decline in consumption at EVRAZ ZSMK
(-US$18 million) amid a 6% decrease in steel production compared
with H1 2014. This was accompanied by a decrease in scrap costs at
EVRAZ North America (-US$81 million) due to lower prices and
production volumes of crude steel amid a market downturn. The
deconsolidation of EVRAZ Highveld Steel and Vanadium and the
disposal of EVRAZ Vitkovice Steel contributed to the decline in
scrap costs (-US$28 million), which was partly offset by an
increase in consumption of scrap at EVRAZ NTMK (+US$6 million) due
to greater steel production.
The decrease in other raw material costs was due to the
deconsolidation of EVRAZ Highveld Steel and Vanadium and the
disposal of EVRAZ Vitkovice Steel (-US$30 million), as well as a
fall in prices in Russia (-US$68 million) and the decline in
production volumes at EVRAZ North America (-US$15 million),
partially offset by the decrease in consumption of PCI coal (+US$26
million) and other raw materials (+US$17 million).
Other factors influencing the decrease in raw material
consumption included the implementation of operational improvement
plans, which helped to optimise yields.
The costs of semi-finished products increased by US$78 million,
primarily due to lower consumption of slab purchased from EVRAZ
NTMK by EVRAZ North America, which was substituted by shipments
from third parties (+US$120 million). This was partly offset by a
decline in slab prices (-US$29 million) and a decline in
semi-finished costs due to the disposal of EVRAZ Vitkovice Steel
(-US$8 million).
(MORE TO FOLLOW) Dow Jones Newswires
August 27, 2015 02:03 ET (06:03 GMT)
Auxiliary material costs decreased by US$149 million. This
included the effect of cost optimisation programmes (-US$16
million), deconsolidation of EVRAZ Highveld Steel and Vanadium
(-US$20 million) and effect of the Russian rouble and Ukrainian
hryvnia weakening (-US$140 million), which was partly offset by
higher prices in local currencies (+US$25 million).
The fall in goods for resale stemmed primarily from a decline in
goods for resale at EVRAZ Metall Inprom, predominantly due to lower
steel prices compared with H1 2014.
The cost of transportation services decreased by US$53 million
due to the Russian rouble weakening.
Staff costs decreased by US$267 million, reflecting the effect
of the disposal and optimisation of assets (-US$25 million),
personnel optimisation programmes (-US$28 million) and the impact
on costs of the Russian rouble and Ukrainian hryvnia weakening
(-US$249 million), which was partly offset by wage inflation at the
Company's Russian and Ukrainian assets.
Total depreciation, depletion and amortisation in the cost of
goods sold fell by US$124 million compared with H1 2014, the main
reason being a decrease in depreciation in US dollar terms at
Russian and Ukrainian assets due to the weakening of the local
currencies (-US$123 million).
Electricity costs declined by US$104 million due to lower
consumption volumes, primarily due to asset optimisation and
disposals (-US$34 million), ongoing operational improvements, and
the Russian rouble and Ukrainian hryvnia weakening (-US$82
million), which was partly offset by a rise in tariffs in local
currencies (+US$13 million).
Natural gas costs fell by US$85 million due to a decrease in
consumption (-US$43 million) as a result of operational
improvements at EVRAZ DMZ, the introduction of PCI technology at
EVRAZ ZSMK, the disposal of EVRAZ Vitkovice Steel. The positive
effect of the Russian rouble and Ukrainian hryvnia weakening
(-US$53 million) was partly offset by an increase in tariffs in
local currencies (+US$12 million).
The US$155 million decrease in other costs stemmed mainly from
the change in unrealised profit as at 30 June 2015 (-US$122
million) and disposal of EVRAZ Vitkovice Steel (-US$33 million).
The unrealised profit adjustment eliminates profit/loss reported on
intragroup sales and is attributable to inventories not sold
outside the Company. EVRAZ reported an unrealised loss of US$36
million in H1 2014, and an unrealised profit of US$86 million in H1
2015, which was driven by lower slab stock at East Metals and a
decrease in EVRAZ NTMK's products margin.
Selling and distribution expenses declined by 21.8% in H1 2015
due to the Russian rouble weakening and lower external sales
volumes.
General and administrative expenses declined by 35.4% in H1
2015, driven by the Russian rouble and Ukrainian hryvnia weakening
and lower staff costs, which resulted mainly from headcount
optimisation at EVRAZ North America and the Company's Russian steel
and coal plants.
Cash flow
(US$ million)
----------------------------------------------------------------------------------------------------------------------
Item H1 2015 H1 2014 Change Relative change
----------------------------------------------------------------------- -------- -------- ------- ----------------
Cash flows from operating activities before change in working capital 864 970 (106) (11.0)%
----------------------------------------------------------------------- -------- -------- ------- ----------------
Changes in working capital (60) (126) 66 (52.4)%
----------------------------------------------------------------------- -------- -------- ------- ----------------
Net cash flows from operating activities 804 844 (40) (4.8)%
----------------------------------------------------------------------- -------- -------- ------- ----------------
Purchases of property, plant and equipment and intangible assets (248) (339) 91 (26.9)%
Purchase of subsidiaries, net of cash acquired - (102) 102 (100.0)%
Proceeds from sale of disposal groups classified as held for sale, net
of transaction costs 40 296 (256) (86.5)%
Other investing activities 2 22 (20) (90.9)%
Net cash flows from / (used in) investing activities (206) (123) (83) (67.5)%
----------------------------------------------------------------------- -------- -------- ------- ----------------
Net cash flows from financing activities (758) (960) 202 (21.1)%
----------------------------------------------------------------------- -------- -------- ------- ----------------
Effect of foreign exchange rate changes on cash and cash equivalents 70 (20) 90 n/a
----------------------------------------------------------------------- -------- -------- ------- ----------------
Net increase/(decrease) in cash and cash equivalents (90) (259) 169 (65.3)%
----------------------------------------------------------------------- -------- -------- ------- ----------------
Net cash flows from operating activities decreased by 4.8%
compared with H1 2014, reflecting the decline in the financial
results. Free cash flow for the period was US$372 million.
Calculation of free cash flow
(US$ million)
--------------------------------------------------------------------------------------------- --------
Item H1 2015
--------------------------------------------------------------------------------------------- --------
EBITDA 922
--------------------------------------------------------------------------------------------- --------
EBITDA excluding non-cash items 938
--------------------------------------------------------------------------------------------- --------
Changes in working capital (60)
--------------------------------------------------------------------------------------------- --------
Income tax accrued (74)
--------------------------------------------------------------------------------------------- --------
Net cash flows from operating activities 804
--------------------------------------------------------------------------------------------- --------
Interest and similar payments (219)
--------------------------------------------------------------------------------------------- --------
Capital expenditures, including recorded in financing activities (251)
--------------------------------------------------------------------------------------------- --------
Purchases of subsidiaries (net of cash acquired) and interests in associates/joint ventures -
--------------------------------------------------------------------------------------------- --------
Proceeds from sale of disposal groups classified as held for sale,
net of transaction costs 40
--------------------------------------------------------------------------------------------- --------
Other cash flows from investing activities 1
--------------------------------------------------------------------------------------------- --------
Equity transactions (3)
--------------------------------------------------------------------------------------------- --------
Free cash flow 372
--------------------------------------------------------------------------------------------- --------
CAPEX and key projects
In H1 2015, EVRAZ continued to reduce its total capital
expenditure (US$251 million, compared with US$365 million in H1
2014) due to currency fluctuations and the completion of
capital-intensive projects. During H1 2015, the Company made good
progress with the Mezhegey coal project (launch of the longwall is
scheduled for the end of 2015 - beginning of 2016). The new mining
technology implemented at the Sheregesh mine reached the planned
production capacity. The continuous casting machine at EVRAZ ZSMK
was halted for the final phase of reconstruction, and the re-launch
is scheduled for the third quarter of 2015. EVRAZ NTMK has started
a project to build a new grinding ball mill to make sophisticated
grades of that product, which are currently not manufactured
domestically. Two projects of approximately US$200 million
investment in the next two years were launched at EVRAZ Regina,
aimed at improving the quality and volume of tubular products.
(MORE TO FOLLOW) Dow Jones Newswires
August 27, 2015 02:03 ET (06:03 GMT)
Capital expenditure (including that recognised in financing
activities) for H1 2015 in millions of US dollars can be summarised
as follows:
Construction of an LDP mill 37 Construction of a new mill at EVRAZ Regina is in progress
since Q2 2015, to be completed in
Q2 2016. Expected to add 160kt of tubular product capacity.
---------------------------------------------- ----- ---------------------------------------------------------------
ontinuous casting machine reconstruction ( ) 23 Reconstruction of CCM at EVRAZ ZSMK, in progress since Q2
2014, launch date Q3 2015. Capacity
to increase to 2.2 mtpa.
---------------------------------------------- ----- ---------------------------------------------------------------
Coal deposit development 17 Mezhegey (phase 1). Ramp-up to be completed by 2016. Capacity
of 1.5 mtpa.
---------------------------------------------- ----- ---------------------------------------------------------------
Iron ore capacity expansion 6 The Sheregesh mine's output is due to reach 4.8 mtpa of raw
ore.
---------------------------------------------- ----- ---------------------------------------------------------------
Steel mill upgrade 3 Upgrade of EVRAZ Regina steel mill. In progress since Q2 2015,
to be completed in Q4 2016.
The aim is to improve steel quality, increase capacity for
casting by 110kt and rolling by
250kt, and result in a crown yield saving from 0.75% to 1.1%
---------------------------------------------- ----- ---------------------------------------------------------------
Grinding ball mill construction 0.02 Construction of a new grinding ball mill at EVRAZ NTMK is in
progress since Q2 2015, to be
completed in Q2 2018. Expected to increase ball production to
300kt by 2018.
---------------------------------------------- ----- ---------------------------------------------------------------
Other development projects 28
---------------------------------------------- ----- ---------------------------------------------------------------
Maintenance 137
---------------------------------------------- ----- ---------------------------------------------------------------
Total 251
---------------------------------------------- ----- ---------------------------------------------------------------
Financing and liquidity
At the beginning of 2015, total debt was US$6,907 million. In
March 2015, EVRAZ settled the 8.75% rouble notes due in 2015 in
full and the related liabilities under swap contracts. The total
cash outflow amounted to US$123 million. In April 2015, EVRAZ
partially repurchased below par 9.95% notes due in October 2015
with a principal of RUB4,150 million and terminated the respective
swap contracts; the total cash outflow amounted to US$141
million.
In April 2015, the Company completed a share buyback via a
tender offer of 108,458,508 ordinary shares for US$3.10 per share.
The total cash used amounted to US$339 million.
In May 2015, the Company signed a new EUR475 million loan
agreement with Gazprombank and simultaneously repaid an existing
US$500 million loan due to mature in December 2016 from the same
bank. The new loan is repayable in two instalments: 30% of the
principal in June 2018 and 70% in June 2019.
As a result of these actions, as well as scheduled drawings and
repayments of bank loans, total debt decreased by US$228 million to
US$6,679 million as at 30 June 2015, while net debt decreased by
US$134 million to US$5,680 million, compared with US$5,814 million
as at 31 December 2014. Due to the lower total debt and refinancing
initiatives in H2 2014 and H1 2015, interest expenses accrued in
respect of loans, bonds and notes were US$209 million in H1 2015,
compared with US$263 million in H1 2014. Net debt to EBITDA stood
at 2.6 times, compared with 2.5 times as at 31 December 2014.
As at 30 June 2015, debt with maintenance financial covenants
comprised a US$500 million syndicated facility and various
bilateral facilities totalling around US$687 million. The
maintenance covenants under these facilities 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
and the strictest levels are 4.0x and 2.5x, respectively.
As at 30 June 2015, facilities totalling US$149 million
contained maintenance financial covenants tested on the financial
statements of Evraz Group S.A. The maintenance covenants under
these facilities include similar ratios as mentioned above. The
strictest levels are 4.5x and 2.5x, respectively.
As at 30 June 2015, EVRAZ was in full compliance with its
financial covenants.
As at 30 June 2015, cash amounted to US$996 million and
short-term loans and the current portion of long-term loans stood
at US$1,457 million. They are mainly represented by capital market
instruments, particularly rouble-denominated notes adjusted for
respective hedging exposure.
Cash-on-hand and committed credit facilities are sufficient to
cover all of our refinancing needs for the remainder of 2015.
key recent developments
-- In July 2015, the Company entered into a US$200 million term
loan agreement with Alfa Bank. The loan was drawn in full and is
repayable in one instalment in July 2019.
-- In July 2015, as part of refinancing efforts, EVRAZ issued
new 12.95% rouble notes due in 2019 with a principal amount of
RUB15 billion and hedged its FX exposure by entering into a series
of cross currency swaps with a total nominal of US$265 million.
Proceeds from the notes were partly used to repurchase in a public
tender offer below par 8.40% notes due in 2016 with a total
principal of RUB4,792 million and to terminate the respective
cross-currency swaps. Total cash used to repurchase and terminate
the swaps amounted to US$173 million.
-- In August 2015, the Company signed a US$100 million 5-year
loan agreement with Nordea Bank and a US$125 million 5-year loan
agreement with JSC Unicredit Bank. Both loans will be drawn in
September 2015 and are repayable in equal quarterly instalments
from the third quarter of 2017.
Review of operations by Segment
US$ million Steel Steel, NA Coal Other
--------------- ------------------ ------------------ ------------------ ------------------
H1 2015 H1 2014 H1 2015 H1 2014 H1 2015 H1 2014 H1 2015 H1 2014
--------------- -------- -------- -------- -------- -------- -------- -------- --------
Revenues 3,413 5,035 1,249 1,578 540 708 234 330
--------------- -------- -------- -------- -------- -------- -------- -------- --------
EBITDA 731 913 37 135 171 155 8 20
--------------- -------- -------- -------- -------- -------- -------- -------- --------
EBITDA margin 21.4% 18.1% 3.0% 8.6% 31.7% 21.9% 3.4% 6.1%
--------------- -------- -------- -------- -------- -------- -------- -------- --------
CAPEX 118 181 83 25 62 158 1 2
--------------- -------- -------- -------- -------- -------- -------- -------- --------
Steel
The Steel segment includes production of steel and related
products at all mills except for those in North America. The
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.
Sales review
Steel segment revenues by products
H1 2015 H1 2014
----------------------------------- ------------------------------------ ----------------
US$ % of total segment US$ % of total segment
million revenues million revenues Relative change
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Steel products, external
sales 2,750 80.6% 3,949 78.4% (30.4)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Semi-finished
products(1) 1,136 33.3% 1,177 23.4% (3.5)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Construction
products(2) 1,068 31.3% 1,648 32.7% (35.2)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
(MORE TO FOLLOW) Dow Jones Newswires
August 27, 2015 02:03 ET (06:03 GMT)
Railway products(3) 297 8.7% 639 12.7% (53.5)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Flat-rolled products(4) 108 3.2% 301 6.0% (64.1)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Other steel products(5) 141 4.1% 184 3.7% (23.4)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Steel products,
intersegment sales 149 4.4% 307 6.1% (51.5)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Including sales to
Steel, North America 145 4.2% 301 6.0% (51.8)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Iron ore products 85 2.5% 167 3.3% (49.1)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Vanadium products 183 5.4% 242 4.8% (24.4)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Other revenues 246 7.2% 370 7.3% (33.5)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
Total 3,413 100% 5,035 100% (32.2)%
------------------------- --------- ------------------------ --------- ------------------------- ----------------
(1) Includes billets, slabs, pig iron, pipe blanks and other
semi-finished products
(2) Includes rebars, wire rods, wire, beams, channels and
angles
(3) Includes rails, wheels, tyres and other railway products
(4) Includes commodity plate and other flat-rolled products
(5) Includes rounds, grinding balls, mine uprights and strips,
tubular products
Sales volumes of Steel segment
('000 tonnes)
-------- ------------------
H1 2015 H1 2014 Change
----------------------------------------------- -------- -------- --------
Steel products, external sales 6,260 6,353 (1.5)%
----------------------------------------------- -------- -------- --------
Semi-finished products 2,973 2,314 28.5%
----------------------------------------------- -------- -------- --------
Construction products 2,256 2,517 (10.4)%
----------------------------------------------- -------- -------- --------
Railway products 533 771 (30.9)%
----------------------------------------------- -------- -------- --------
Flat-rolled products 208 467 (55.5)%
----------------------------------------------- -------- -------- --------
Other steel products 290 284 2.1%
----------------------------------------------- -------- -------- --------
Steel products, intersegment sales 306 543 (43.6)%
----------------------------------------------- -------- -------- --------
Total steel products 6,566 6,896 (4.8)%
----------------------------------------------- -------- -------- --------
Vanadium products (tonnes of pure vanadium) 8,132 9,011 (9.8)%
----------------------------------------------- -------- -------- --------
Vanadium in slag 135 204 (33.8)%
----------------------------------------------- -------- -------- --------
Vanadium in alloys and chemicals 7,997 8,807 (9.2)%
----------------------------------------------- -------- -------- --------
Iron ore products 2070 2,394 (13.5)%
----------------------------------------------- -------- -------- --------
Pellets 657 610 7.7%
----------------------------------------------- -------- -------- --------
Other iron ore products 1413 1,784 (20.8)%
----------------------------------------------- -------- -------- --------
Geographic breakdown of external steel product sales
US$ million '000 t
------------------------------ ------------------------------
H1 2015 H1 2014 Change, % H1 2015 H1 2014 Change, %
------------------------- -------- -------- ---------- -------- -------- ----------
Russia 1,230 2,150 (42.8)% 2,563 3,231 (20.7)%
------------------------- -------- -------- ---------- -------- -------- ----------
Asia 635 889 (28.6)% 1,630 1,715 (4.9)%
------------------------- -------- -------- ---------- -------- -------- ----------
Europe 374 282 32.6% 971 477 103.6%
------------------------- -------- -------- ---------- -------- -------- ----------
CIS 248 353 (29.7)% 528 487 8.4%
------------------------- -------- -------- ---------- -------- -------- ----------
Africa, America and RoW 263 275 (4.4)% 568 443 28.2%
------------------------- -------- -------- ---------- -------- -------- ----------
Total 2,750 3,949 (30.4)% 6,260 6,353 (1.5)%
------------------------- -------- -------- ---------- -------- -------- ----------
The Steel segment's revenues decreased mainly due to lower
revenues from sales of steel products. The main drivers were lower
prices (-23.8%) and a negative impact from changes in sales volumes
(-4.8%) and the product mix (-3.3%): higher share of sales of
semi-finished products and a lower share of final products.
Revenues from external sales of semi-finished products fell by
3.5% due to lower average prices (-32.0%), which were partly offset
by an increase in sales volumes (+28.5%). External sales of billets
and slabs increased compared with H1 2014, mainly due to reduced
internal consumption related to the disposal of EVRAZ Vitkovice
Steel and a fall in the production of railway products.
Revenues from sales of construction products to third parties
dropped, mostly due to reduced volumes (-10.4%), lower average
prices (-24.8%) and weaker demand in Russia. As a result of the
latter, prices did not increase following the steep Russian rouble
devaluation versus the US dollar in late 2014.
Revenues from railway products decreased due to lower sales
volumes (-30.9%) and average prices (-22.6%). Volumes fell as
consumption of rails in the CIS countries declined, caused by a
decrease in new construction and the overhaul of railway
infrastructure as well as significantly lower demand from railcar
producers and railcar repair shops.
External revenues of flat-rolled products dropped. This was
mostly due to lower sales volumes (-55.5%) and a reduction in
average prices (-8.6%) following the deconsolidation of EVRAZ
Vitkovice Steel and EVRAZ Highveld Steel and Vanadium, as well as
lower sales of third-party producers' flat-rolled goods by EVRAZ
Metall Inprom amid reduced demand.
Revenues from external steel product sales in Russia decreased
by 42.8% compared with H1 2014, mainly due to lower prices, while
sales volumes fell by 20.7%. The share of Russian sales in external
steel product sales also declined from 54.4% in H1 2014 to 44.7% in
H1 2015, as shifting sales from the domestic to export markets
helped to stabilise production volumes and increased profitability
amid the weaker Russian rouble.
Steel segment revenues from sales of iron ore products fell by
49.1% due to lower iron ore prices (-38.6%) and sales volumes
(-13.5%) resulting from the deconsolidation of EVRAZ Highveld Steel
and Vanadium and partly offset by a better product mix (+3.0%).
Prices for iron ore products declined in H1 2015 in line with
global benchmarks. In the Period, around 64% of EVRAZ's iron ore
consumption in steelmaking came from the Company's own operations,
compared with 53% in H1 2014, predominantly due to a 14% increase
in iron ore production.
(MORE TO FOLLOW) Dow Jones Newswires
August 27, 2015 02:03 ET (06:03 GMT)
Steel segment revenues from sales of vanadium products declined
by 24.4% due to a decrease in prices (-14.9%) and sales volumes
(-9.8%), partly offset by a better product mix (+0.3%). This
resulted from the deconsolidation in 2015 of EVRAZ Highveld Steel
and Vanadium and Hochvanadium, while average selling prices
mirrored downward trends in the global steel market.
Steel segment cost of revenues
H1 2015 H1 2014
US$ million % of segment revenues US$ million % of segment revenues % change
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Cost of revenues 2,466 72.3% 3,755 74.6% (34.3)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Raw materials 955 28.0% 1,438 28.6% (33.6)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Iron ore 172 5.0% 401 8.0% (57.1)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Coking coal 373 10.9% 479 9.5% (22.1)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Scrap 177 5.2% 266 5.3% (33.5)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Other raw materials 233 6.8% 292 5.8% (20.2)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Semi-finished products 8 0.2% 19 0.4% (57.9)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Auxiliary materials 172 5.0% 253 5.0% (32.0)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Services 160 4.7% 245 4.9% (34.7)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Transportation 203 5.9% 236 4.7% (14.0)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Staff costs 323 9.5% 518 10.3% (37.6)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Depreciation 116 3.4% 185 3.7% (37.3)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Energy 248 7.3% 452 9.0% (45.1)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
Other* 281 8.2% 409 8.1% (31.3)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ---------
* Includes goods for resale, taxes in cost of revenues and
effect of changes in work in progress and inventories of finished
goods.
The principal factors affecting the change in the Steel
segment's cost of revenues in absolute terms were:
-- A fall in the cost of raw materials due to the following changes:
o A decrease in iron ore costs, primarily due to a decline in
prices for iron ore in Russia and Ukraine (-US$141 million) and a
decrease in volumes of iron ore purchased from third parties, as
own production volumes increased (-US$86 million).
o A decrease in coking coal costs, following the decline in
prices in Russia (-US$92 million) and partly offset by higher
prices of coal in Ukraine (+US$6 million). The change in prices was
accompanied by a decrease in consumption at EVRAZ ZSMK due to the
shutdown of two coke batteries and lower coal consumption at EVRAZ
ZSMK's pulverised coal injection (PCI) plant, commissioned in Q2
2014
(-US$27 million).
o A decrease in the cost of scrap, due to lower sales prices in
Russia
(-US$48 million) and a decline in volumes of scrap consumed by
EVRAZ ZSMK (-US$17 million) amid reduced steel production and the
disposal of EVRAZ Vitkovice Steel and deconsolidation of EVRAZ
Highveld Steel and Vanadium
(-US$28 million).
o The cost of other raw materials fell, mostly due to the
weakening of the Russian rouble, which was partly compensated by
price inflation (-US$43 million) and the disposal of EVRAZ
Vitkovice Steel and deconsolidation of EVRAZ Highveld Steel and
Vanadium (-US$30 million). The decrease in costs was partly offset
by higher consumption of coal dust and other raw materials at EVRAZ
ZSMK's PCI plant (+US$13 million).
o The implementation of cost-cutting initiatives resulted in
lower consumption rates, which also had a positive effect on raw
material costs.
-- Auxiliary material costs decreased by 32.0%. This was
primarily due to the Russian rouble and Ukrainian hryvnia weakening
(-US$110 million) and the deconsolidation of EVRAZ Highveld Steel
and Vanadium (-US$19 million), partly offset by an increase in
prices in local currencies (+US$25 million) and in the consumption
of refractories for current repairs at EVRAZ NTMK (+US$17
million).
-- The lower cost of services was driven by the Russian rouble
and Ukrainian hryvnia weakening (-US$57 million), the
deconsolidation of EVRAZ Highveld Steel and Vanadium (-US$31
million) and the disposal of EVRAZ Vitkovice Steel (-US$6 million),
partly offset by the higher cost of current repairs at EVRAZ NTMK
(+US$5 million).
-- Transportation costs decreased, primarily due to the weakening of the Russian rouble
(-US$25 million).
-- The decrease in staff costs was largely attributable to the
Russian rouble and Ukrainian hryvnia weakening (-US$186 million),
headcount optimisation (-US$18 million), the deconsolidation of
EVRAZ Highveld Steel and Vanadium and the disposal of EVRAZ
Vitkovice Steel (-US$25 million), partly offset by wage inflation
in Russia and Ukraine.
-- Depreciation and depletion costs fell, mostly due to local currencies weakening
(-US$66 million) and the deconsolidation of EVRAZ Highveld Steel
and Vanadium
(-US$7 million), partly offset by an increase in equipment
purchases (+US$9 million).
-- Lower energy costs were driven by the following:
o the Russian rouble and Ukrainian hryvnia weakening (-US$124
million), partly offset by an increase in tariffs in local
currencies (+US$28 million)
o the disposal of EVRAZ Vitkovice Steel and deconsolidation of
EVRAZ Highveld Steel and Vanadium (-US$44 million)
o lower consumption of electricity and natural gas (-US$56
million), primarily at EVRAZ ZSMK and EVRAZ NTMK, due to the
shutdown of Rolling Mill 450 at EVRAZ ZSMK following the
implementation of PCI, the outsourcing of the scrap recycling
department at EVRAZ NTMK and increased internal supply by the
ZapSib Heat and Power plant.
-- Other costs decreased, primarily due to changes in the cost of goods for resale
(-US$116 million), partly offset by changes in finished goods
(+US$24 million) and other changes.
Steel segment gross profit
Gross profit in the Steel segment decreased by 26.0% compared
with H1 2014, reflecting the 32.2% decline in segment revenues,
while the cost of revenues decreased by 34.3%.
Operational update
Steel: Russia
EVRAZ ZSMK:
-- In April 2015, a billet caster was halted for reconstruction
(with estimated loss in production of approximately 140,000 tonnes
of billets in H1 2015), which will last until the fourth quarter of
2015. The work aims to increase the caster's annual production
capacity to 2.2 million tonnes and decrease the billet cash cost
due to serial production and lower crude steel to billet rate.
-- Following the launch of a converter slag processing complex
at EVRAZ ZSMK at the end of 2014, costs of third-party purchases of
iron ore decreased by around US$5 million due to the use of 75,000
iron containing stock received from processing of reclaimed
iron-bearing waste.
-- EVRAZ began to sell special-purpose R65 rails (types DT370IK,
DT350NN and DT350SS) to Russian Railways, delivering 43,000 tonnes
overall.
-- In April 2015, field tests of 60E2 rails began at Deutsche
Bahn's testing ground in Germany for certification.
EVRAZ NTMK:
-- Praxair's two air separation facilities were commissioned,
which will supply nitrogen, oxygen and argon to NTMK's blast
furnace and converter shops. The new air separation units are 35%
more energy-efficient compared with the previous models resulting
in lower cost of purchased gasses for EVRAZ NTMK. The facilities
also feature an oxygen enrichment system, the first of its kind in
Russia that will eliminate oxygen loss in the blast furnaces.
-- The facility increased the number of sizes of wide range
beams produced monthly from 35 to 40. As a result, beams for Russia
and for export can now be produced simultaneously, including beams
in accordance with the ASTM standard.
(MORE TO FOLLOW) Dow Jones Newswires
August 27, 2015 02:03 ET (06:03 GMT)
-- The facility sold over 45,000 tonnes of slabs of complex API
grades to OMK, one of Russia's largest producer of pipes, for LDP
production. In the second half of 2015, deliveries of the slabs
will continue.
-- NTMK began commercial production of two new wheel types
(BA002, BA004) for sale in Europe and Turkey. Nine more types are
expected to be developed in the second half of 2015.
EVRAZ Caspian Steel:
-- The facility reached the nominal production capacity of over
400,000 tonnes per year and now produces the whole range of steel
profiles.
Steel: Ukraine
EVRAZ DMZ:
-- The facility successfully completed numerous initiatives that
will reduce pig iron consumption in the production of converter
steel by pouring molten iron directly (without mixers).
-- The facility continued to implement an energy efficiency
programme aimed at reducing natural gas consumption. The converter
shop began to use compressed air instead of steam and coke gas
instead of blast furnace gas. The project is expected to be
completed in the second half of 2015.
-- Commercial production of three new steel profiles has been launched.
-- In H1 2015, the facility sold 462,000 tonnes of steel
products (53% billets, 47% construction and structural steel),
compared with 447,000 tonnes in H1 2014. Lower domestic demand and
a drop in construction steel sales to the CIS were partly offset by
an increase in sales of construction products to the EU and MENA by
30% thanks to a greater focus on customers.
Steel: South Africa
In mid-April 2015, a business rescue plan was launched at EVRAZ
Highveld and Vanadium and has been managed by independent rescue
practitioners since then. As of April 2015, the results of EVRAZ
Highveld and Vanadium are not consolidated.
Iron ore
During the Period, the iron ore division continued to focus on
operational improvement programmes and cost reductions.
Operations at the core iron ore business in Russia, EVRAZ KGOK,
were stable. In H1 2015, the facility mined 29.2 million tonnes of
iron ore (+468 kt compared with H1 2014) and produced 5.0 million
tonnes of saleable iron ore products (+93 kt), including 1.8
million tonnes of sinter and 3.3 million tonnes of pellets.
At Russia's Evrazruda, the project to reconstruct the Sheregesh
iron ore mine has progressed and is expected to finish in the
second half of 2015.
In H1 2015, EVRAZ Sukha Balka in Ukraine produced 1.4 million
tonnes of lumpy ore, selling 56% domestically and 44% abroad. Work
was conducted on the dry magnetic separation facilities to improve
iron ore quality.
Vanadium
The installation of new pulp filtration equipment at EVRAZ
Vanady Tula was finished in H1 2015, and the new filtration area is
now ready to fully substitute the old one. This will result in cost
savings and secure better yields at the mill.
EVRAZ Stratcor is maximising the use of vanadium sourced within
the Company. It account for around 65% of the total feed in H1
2015. A further increase is expected in the second half of the
year.
Chemical shipments rose by 18% compared with H1 2014 and those
of Vanadium Aluminum Master Alloy by 7%, due to efforts to increase
the share of higher value-added products in EVRAZ' vanadium sales
portfolio. Greater spending by existing customers and an increase
in the client base both contributed to this. Several product
development opportunities were recently identified and are expected
to further expand EVRAZ' market share in high value-added niche
product groups.
Steel, North America
The Steel, North America segment includes the production of
crude steel and final steel products in the US and Canada.
Steel, North America segment revenues by products
H1 2015 H1 2014
% of total segment % of total segment
US$ million revenues US$ million revenues Relative change
------------------------ ------------ ---------------------- ------------ ---------------------- ----------------
Steel products 1,159 92.8% 1,481 93.9% (21.7)%
------------------------ ------------ ---------------------- ------------ ---------------------- ----------------
Construction
products(1) 145 11.6% 163 10.3% (11.0)%
------------------------ ------------ ---------------------- ------------ ---------------------- ----------------
Railway products(2) 240 19.2% 271 17.2% (11.4)%
------------------------ ------------ ---------------------- ------------ ---------------------- ----------------
Flat-rolled
products(3) 235 18.8% 304 19.3% (22.7)%
------------------------ ------------ ---------------------- ------------ ---------------------- ----------------
Tubular products(4) 539 43.2% 743 47% (27.5)%
------------------------ ------------ ---------------------- ------------ ---------------------- ----------------
Other revenues(5) 90 7.2% 97 6.1% (7.2)%
------------------------ ------------ ---------------------- ------------ ---------------------- ----------------
Total 1,249 100% 1,578 100% (20.8)%
------------------------ ------------ ---------------------- ------------ ---------------------- ----------------
(1) Includes beams, rebars and structural tubing
(2) Includes rails
(3) Includes commodity plate, specialty plate and other
flat-rolled products
(4) Includes large-diameter line pipes, ERW pipes and casing,
seamless pipes, casing and tubing, and other tubular products
(5) Includes scrap and services
Sales volumes of Steel, North America segment
('000 tonnes)
H1 2015 H1 2014 Relative change
----------------------------------------------- -------- -------- ----------------
Steel products
----------------------------------------------- -------- -------- ----------------
Construction products 195 199 (2.0%)
----------------------------------------------- -------- -------- ----------------
Railway products 280 275 1.8%
----------------------------------------------- -------- -------- ----------------
Flat-rolled products 308 304 1.3%
----------------------------------------------- -------- -------- ----------------
Tubular products 409 521 (21.5%)
----------------------------------------------- -------- -------- ----------------
Other steel products 0 2 (100.0%)
----------------------------------------------- -------- -------- ----------------
Total 1,192 1,301 (8.4%)
----------------------------------------------- -------- -------- ----------------
Revenues from steel product sales of the segment decreased due
to lower sales prices (-9.6%) and a negative impact from changes in
sales volumes (-8.4%) and the product mix
(-3.7%). Revenues from sales of construction products fell due
to lower sales volumes (-2.0%) and prices and changes in the
product mix (-9.0%). The decrease in sales volumes resulted from
the disposal of the structural tubing facility in Portland in March
2015, while prices were under pressure from high imports.
Railway product revenues declined by 11.4%, driven by a 13.2%
decline in average prices, in line with the general price trend in
the US steel market. Revenues increased by 1.8% amid continuing
demand from Class 1 railroads.
Lower flat-rolled product revenues were mainly due to lower
prices (-24.0%), although sales volumes increased (+1.3%). A record
level of imports in the fourth quarter of 2014 and early 2015
impacted sales revenues.
Revenues from tubular product sales decreased by 27.5%,
primarily due to lower sales volumes (-21.5%) and prices and
changes in the product mix (-6.0%). The decrease in sales volumes
was driven by weaker demand for oil country tubular goods (OCTG),
caused by a slowdown in drilling activities due to the falling oil
price.
Steel, North America segment cost of revenues
H1 2015 H1 2014 2015 v 2014
US$ million % of segment revenues US$ million % of segment revenues Change
------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenues 1,091 87.3% 1,317 83.5% (17.2)%
------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Raw materials 373 29.9% 478 30.3% (22.0)%
------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Semi-finished products 199 15.9% 285 18.1% (30.2)%
------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Auxiliary materials 68 5.4% 107 6.8% (36.4)%
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------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Services 79 6.3% 91 5.8% (13.2)%
------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Transportation 7 0.6% 7 0.4% 0.0%
------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Staff costs 146 11.7% 144 9.1% 1.4%
------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Depreciation 56 4.5% 56 3.5% 0.0%
------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Energy 55 4.4% 79 5.0% (30.4)%
------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Other* 108 8.6% 70 4.5% 54.3%
------------------------- ------------ ---------------------- ------------ ---------------------- ------------
* Includes primarily changes in finished goods, certain taxes
and allowances for inventories.
The main drivers of the lower cost of revenues in the segment
were as follows:
-- Raw material costs decreased, mostly due to lower raw
material consumption (scrap, coke, ferroalloys and other) as a
result of lower output both of crude steel and finished products,
such as OCTG, flat-rolled products and wire rod. Cost-cutting
initiatives resulted in lower consumption rates, while a decline in
raw material prices also contributed to the decrease.
-- The cost of semi-finished products declined due to lower
production volumes of tubular products and prices of purchased
slab.
-- The cost of auxiliary materials fell due to the
implementation of a cost-cutting plan in H1 2015 and a decrease in
production volumes of crude steel and finished products compared
with H1 2014.
-- Costs of services decreased due to lower production volumes compared with H1 2014.
-- Energy costs declined, driven by lower production, which
resulted in reduced energy consumption (-US$12 million), alongside
a decrease in tariffs for energy and natural gas
(-US$8 million).
-- Other costs rose, primarily due to an increase of allowances
for inventories caused by higher inventory write-offs and
slow-moving adjustments as a result of the market downturn.
Steel, North America gross profit
The segment's gross profit decreased to US$158 million in H1
2015, compared with US$262 million in H1 2014, due to a decrease of
sales volumes amid a downturn in the OCTG and flat product
markets.
Operational update
Steel, North America
A strengthening US dollar and tepid demand for steel products
outside North America resulted in record inflows of imports into
the North American market and price pressure. During H1 2015,
output of crude steel and finished saleable steel products at
EVRAZ' North American operations declined by 7% and 8% respectively
compared with H1 2014. The decline in crude steel production was
due to planned outages at the Regina and Pueblo steelmaking
facilities, while the decrease in finished steel products was the
result of weak demand for OCTG, flat products and wire rod, partly
offset by increased volumes of LDP.
In H1 2015, EVRAZ North America's flat product group was
impacted by rapidly declining plate prices amid record levels of
imports in the fourth quarter of 2014 and early months of 2015. In
response, the Company has:
-- reduced output and aggressively decreased costs as the market
continues to work through the de-stocking cycle;
-- reduced overall slab and work in-process inventories;
-- increased efforts to sell value-added solutions and continued
to upgrade the mix in favour of products where imports cannot
compete. For example, in Q2 2015, sales volumes of armour plate
doubled.
As regards tubular products, the performance of the LDP and OCTG
segments diverged significantly. For LDP, in the first half of the
year, volumes strengthened as mid-stream infrastructure companies
initiated new projects to satisfy demand from energy producers
seeking low-cost access to markets. In H1 2015, EVRAZ announced the
acquisition of pipe-making equipment from United Spiral Pipe to
supplement its LDP production capabilities and increase overall
output of LDP by around 100,000 tonnes per year. Together with this
acquisition, the Company announced an investment in the Regina
Saskatchewan operations to install equipment acquired and upgrade
the steelmaking and rolling facilities. Through these two projects,
EVRAZ North America will strengthen its position as the leader in
terms of quality and cost on a delivered basis in the Western North
America LDP market.
As for OCTG, the rapid decline in drilling activity stemming
from lower oil prices and high inventories at distributors forced
EVRAZ to curtail its OCTG operations. At the EVRAZ Pueblo seamless
mill, production was scaled down during Q1 2015, while at the EVRAZ
Calgary and Red Deer facilities, production curtailments occurred
in Q2 2015. The teams have aggressively managed their cost
structures to minimise the cash cost of carrying these facilities
while idle.
As regards long products, the EVRAZ Pueblo rail mill operated at
full capacity during the first half of the year. Record CAPEX
spending by Class-1 railroads is expected to translate into robust
demand throughout the year, and the strengthening US economy
recovery should underpin continued investment by Class-1 railroads.
Utilisation at the wire rod mill in Pueblo was scaled down, as high
levels of imports depressed market prices, despite strong
underlying demand from the construction and industrial sectors in
the US.
In the second half of the year, EVRAZ North America will
continue focusing on enhancing financial performance through
aggressive cost structure management and inventory
optimisation.
Coal
The Coal segment includes coal mining and enrichment and the
operations of the Nakhodka Commercial Sea Port, used extensively to
ship the Company's coal products to the Asian markets.
Sales review
Coal segment revenues by product
H1 2015 H1 2014
% of total segment % of total segment
US$ million revenues US$ million revenues Relative change
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
External sales
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Coal products 307 56.9% 390 55.1% (21.3)%
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Coking coal 25 4.6% 39 5.5% (35.9)%
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Coal concentrate 282 52.2% 297 41.9% (5.1)%
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Steam coal - 0.0% 54 7.6% (100.0)%
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Intersegment sales
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Coal products 194 35.9% 266 37.6% (27.1)%
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Coking coal 24 4.4% 58 8.2% (58.6)%
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Coal concentrate 170 31.5% 208 29.4% (18.3)%
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Other revenues 39 7.2% 52 7.3% (25.0)%
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Total 540 100% 708 100% (23.7)%
-------------------- ------------ ------------------------ ------------ ------------------------ ----------------
Sales volumes of Coal segment
('000 tonnes)
H1 2015 H1 2014 Relative change
-------------------------------------- -------- -------- ----------------
External sales
-------------------------------------- -------- -------- ----------------
Coal products 4,382 5,279 (17.0)%
-------------------------------------- -------- -------- ----------------
Coking coal 735 792 (7.2)%
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-------------------------------------- -------- -------- ----------------
Coal concentrate and other products 3,647 3,375 8.1%
-------------------------------------- -------- -------- ----------------
Steam coal - 1,112 (100.0)%
-------------------------------------- -------- -------- ----------------
Intersegment sales
-------------------------------------- -------- -------- ----------------
Coal products 2,910 3,271 (11.0)%
-------------------------------------- -------- -------- ----------------
Coking coal 593 1,094 (45.8)%
-------------------------------------- -------- -------- ----------------
Coal concentrate 2,317 2,177 6.4%
-------------------------------------- -------- -------- ----------------
Total, coal products 7,292 8,550 (14.7)%
-------------------------------------- -------- -------- ----------------
Overall revenues in the segment decreased amid a reduction in
sales prices, due to sluggish demand and lower coal prices globally
as well as higher output in other coal-exporting countries. Sales
volumes also decreased, as the Company mined less raw coal due to
scheduled longwall moves in H1 2015. Another driver of the lower
production was the deteriorating market environment and the Russian
rouble appreciation in Q2 2015, which made some export sales
unprofitable.
Internal sales of coal products decreased due to lower prices
(-22.3%) and sales volumes
(-11.0%), offset by a better product mix (+6.2%). The decrease
in coal consumption compared with H1 2014 resulted from reduced
coal consumption at EVRAZ ZSMK after the shutdown of two coke
batteries and launch of the PCI plant.
External sales of coal products decreased, mainly due to lower
prices (-12.8%) and sales volumes (-17.0%), offset by a better
product mix (+8.5%). While steam coal mines have been closed, sales
volumes of coking coal concentrate increased by 5.5%.
In H1 2015, the Coal segment's sales to the Steel segment
amounted to US$210 million or 38.8% of sales, compared with US$280
million or 39.5% of sales in H1 2014.
During the Period, around 78% of the coking coal consumed by
EVRAZ' steelmaking operations came from its own operations,
compared with 73% in H1 2014.
Coal segment cost of revenues
Coal segment cost of revenues
H1 2015 H1 2014 2015 vs 2014
US$ million % of segment revenues US$ million % of segment revenues Change
---------------------- ------------ ---------------------- ------------ ---------------------- -------------
Cost of revenues 387 71.7% 591 83.5% (34.5)%
---------------------- ------------ ---------------------- ------------ ---------------------- -------------
Auxiliary materials 58 10.7% 89 12.6% (34.8)%
---------------------- ------------ ---------------------- ------------ ---------------------- -------------
Services 32 5.9% 56 7.9% (42.9)%
---------------------- ------------ ---------------------- ------------ ---------------------- -------------
Transportation 71 13.1% 87 12.3% (18.4)%
---------------------- ------------ ---------------------- ------------ ---------------------- -------------
Staff costs 111 20.6% 181 25.6% (38.7)%
---------------------- ------------ ---------------------- ------------ ---------------------- -------------
Depreciation 83 15.4% 137 19.4% (39.4)%
---------------------- ------------ ---------------------- ------------ ---------------------- -------------
Energy 20 3.7% 28 4.0% (28.6)%
---------------------- ------------ ---------------------- ------------ ---------------------- -------------
Other* 12 2.2% 13 1.7% (7.7)%
---------------------- ------------ ---------------------- ------------ ---------------------- -------------
* Includes primarily changes in finished goods and certain
taxes, allowance for inventory and raw materials
The main factors affecting the decrease in the segment's cost of
revenues compared with H1 2015 were as follows:
-- The cost of auxiliary materials and services decreased during
the Period, primarily due to the rouble weakening (-US$37 million
and -US$29 million, respectively), as well as the effect of asset
optimisations and cost-cutting initiatives. This was partly offset
by an increase in costs at Raspadskaya due to higher production
volumes compared with H1 2014.
-- Transportation costs declined due to lower sales volumes
(-7%) and transportation costs from Russian entities as a result of
the Russian rouble devaluation.
-- Staff costs decreased due to headcount optimisation and the
closure of the Yuzhkuzbassugol mines (Kusheyakovskaya) (-US$9
million) and the Russian rouble weakening (-US$63 million).
-- Depreciation and depletion costs decreased, mostly due to
lower depreciation and depletion expenses at Yuzhkuzbassugol caused
by the revision and detailing of future mining plans and lower
depletion of mineral deposits (-US$4 million). This was also
accompanied by a fall in depreciation in US dollar terms due to the
weakening of the Russian rouble (-US$51 million).
-- Energy costs fell due the effect of currency movements
(-US$10 million), partly offset by higher electricity prices in
local currencies (+US$3 million).
-- Other costs decreased by 33.3% primarily due to changes in
work in progress and stocks of finished goods and the impact of the
Russian rouble weakening.
Coal segment gross profit
The segment's gross profit increased to US$153 million in H1
2015, from US$117 million in H1 2014. The increase in the gross
profit margin was primarily attributable to the effect of the
Russian rouble weakening on costs, lower depreciation and
depletion, cost-cutting initiatives and the mine restructuring at
Yuzhkuzbassugol.
Operational performance
The segment continued to implement its production efficiency
improvement programme, which included the following
initiatives:
-- improving performance of mining and washing plants;
-- increasing efficiency of logistics;
-- improving energy efficiency;
-- optimising headcount;
-- reducing general and administrative expenses (including
combining management functions by creating a united Raspadskaya
management company).
In H1 2015, EVRAZ's raw coking coal output totalled 9.2 million
tonnes, down 0.5 million tonnes compared with H1 2014. The primary
drivers were:
-- A decrease in production due to several longwall moves
-- The optimisation of the production programme in Q2 2015 to
meet market demand and decrease unprofitable export sales
For more details, please refer to the Q2 2015 production report
dated 17 July 2015.
Raspadskaya
In H1 2015, raw coking coal output from the Raspadskaya
company's mines amounted to 5.1 million tonnes, including 2.8
million tonnes of raw coal from the Raspadskaya mine.
The decline in world commodity prices and exchange-rate
volatility brought about adjustments to the 2015 coal production
programme. Unprofitable export sales to China were reduced by
scaling down production at the Raspadsky Razrez open pit and MUK-96
underground mine.
In H1 2015, the investment project at the Raspadskaya-Koksovaya
mine's field 2 was completed and bord and pillar mining of "K"
grade coking coal began.
Yuzhkuzbassugol
In H1 2015, Yuzhkuzbassugol mined 4.2 million tonnes of raw
coking coal.
The decommissioning of the Abashevskaya and Kusheyakovskaya
mines was completed as part of the asset portfolio optimisation.
The implementation of a cost reduction programme at
Yuzhkuzbassugol, including headcount optimisation, resulted in cost
savings of over US$7 million in H1 2015, and another US$8 million
is expected in the second half.
Mezhegeyugol
Construction of the Mezhegey mine continued in H1 2015.
Complicated hydrogeological conditions slowed the development work.
A programme of de-watering from the surface was conducted, although
the launch of the mine was postponed from September to December
2015.
Key RISKS AND UNCERTAINTIES
EVRAZ is exposed to numerous risks and uncertainties that exist
in its business that may affect its ability to execute its strategy
effectively in the remaining six months of the financial year and
could cause the actual results to differ materially from expected
and historical results.
Despite the ongoing market volatility described in the Market
Outlook section, the Directors consider that the principal risks
and uncertainties as summarised below and detailed in the EVRAZ plc
2014 Annual Report on pages 19 to 21, copies of which are available
at www.evraz.com, remain relevant in 2015 and the mitigating
actions described continue to be appropriate.
Risks:
-- Global economic factors, industry conditions and cost effectiveness
-- Health, safety and environment (HSE) issues
-- Potential actions by governments
-- Treasury
-- Functional currency devaluation
-- Business interruption
-- Human resources (HR)
EVRAZ continues to monitor these risks and actively pursues
strategies to mitigate them on an ongoing basis.
DIRECTOR'S RESPONSIBILITY STATEMENT
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August 27, 2015 02:03 ET (06:03 GMT)
The Directors confirm that to the best of their knowledge this
consolidated interim financial information has been prepared in
accordance with IAS 34 as adopted by the European Union and that
the interim management report includes a fair review of the
information required by DTR 4.2.7 and DTR 4.2.8, namely:
An indication of important events that have occurred during the
first six months and their impact on the consolidated interim
financial information, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and material related-party transactions in the first six months and
any material changes in the related party transactions described in
the last Annual Report.
By order of the Board
Signature
Alexander Frolov
Chief Executive Officer
EVRAZ plc
26 August 2015
Appendix 1
Definition of EBITDA
EBITDA represents profit from operations plus depreciation,
depletion and amortisation, impairment of assets, loss (gain) on
disposal of property, plant and equipment, and foreign exchange
loss (gain). EVRAZ presents an EBITDA because it considers EBITDA
to be an important supplemental measure of its operating
performance and believes that EBITDA is frequently used by
securities analysts, investors and other interested parties in the
evaluation of companies in the same industry. EBITDA is not a
measure of financial performance under IFRS and it should not be
considered as an alternative to net profit as a measure of
operating performance or to cash flows from operating activities as
a measure of liquidity. EVRAZ' calculation of EBITDA may be
different from the calculation used by other companies and
therefore comparability may be limited. EBITDA has limitations as
an analytical tool and potential investors should not consider it
in isolation, or as a substitute for an analysis of our operating
results as reported under IFRS. Some of these limitations
include:
-- EBITDA does not reflect the impact of financing or financing
costs on EVRAZ' operating performance, which can be significant and
could further increase if EVRAZ were to incur more debt.
-- EBITDA does not reflect the impact of income taxes on EVRAZ' operating performance.
-- EBITDA does not reflect the impact of depreciation and
amortisation on EVRAZ' operating performance. The assets of EVRAZ'
businesses that are being depreciated and/or amortised will have to
be replaced in the future, and such depreciation and amortisation
expense may approximate the cost of replacement of these assets in
the future. EBITDA, due to the exclusion of these costs, does not
reflect EVRAZ' future cash requirements for these replacements.
EBITDA also does not reflect the impact of a loss on disposal of
property, plant and equipment.
Appendix 2
Definition of free cash flow
Free cash flow represents EBITDA, net of non-cash items, less
changes in working capital, income tax paid, interest paid and
covenant reset charges, conversion premiums, premiums on early
repurchase of bonds and realised gain/(losses) on interest payments
under swap contracts, interest income and debt issue costs, less
capital expenditure, including recorded in financing activities,
purchases of subsidiaries, net of cash acquired, proceeds from sale
of disposal groups classified as held for sale, net of transaction
costs, less purchases of treasury shares for participants of the
incentive plans, plus other cash flows from investing activities.
Free cash flow is not a measure under IFRS and should not be
considered as an alternative to other measures of financial
position.
EVRAZ' calculation of free cash flow may be different from the
calculation used by other companies and therefore comparability may
be limited.
Appendix 3
Cash and short-term bank deposits
Cash and short-term bank deposits is not a measure under IFRS
and should not be considered as an alternative to other measures of
financial position. EVRAZ' calculation of cash and short-term bank
deposits may be different from the calculation used by other
companies and therefore comparability may be limited.
Cash and short-term bank deposits calculation
30 June 2015 31 December 2014
-------------- -------------------
(US$ million)
----------------------------------------------------- -----------------------------------
Cash and cash equivalents 996 1,086
----------------------------------------------------- ------------------ ---------------
Cash of disposal groups classified as held for sale - -
----------------------------------------------------- ------------------ ---------------
Collateral under swaps 3 7
----------------------------------------------------- ------------------ ---------------
Cash and short-term bank deposits 999 1,093
----------------------------------------------------- ------------------ ---------------
Appendix 4
Total debt
Total debt represents the nominal value of loans and borrowings
plus unpaid interest, finance lease liabilities, loans of assets
classified as held for sale, the nominal effect of cross-currency
swaps on principal of rouble-denominated notes. Total debt is not a
measure under IFRS and should not be considered as an alternative
to other measures of financial position. EVRAZ' calculation of
total debt may be different from the calculation used by other
companies and therefore comparability may be limited. The current
calculation is different from that used for covenant compliance
calculations.
Total debt has been calculated as follows:
30 June
2015 31 December 2014
-------- -----------------
(US$ million)
----------------------------------------------------------------------------------------- ---------------------------
Long-term loans, net of current portion 5,182 5,470
----------------------------------------------------------------------------------------- -------- -----------------
Short-term loans and current portion of long-term loans 947 761
----------------------------------------------------------------------------------------- -------- -----------------
Add back: Unamortised debt issue costs and fair value adjustment to liabilities assumed
in
business combination 36 37
----------------------------------------------------------------------------------------- -------- -----------------
Nominal effect of cross-currency swaps on principal of rouble-denominated notes 511 635
----------------------------------------------------------------------------------------- -------- -----------------
Finance lease liabilities, including current portion 3 4
----------------------------------------------------------------------------------------- -------- -----------------
Total debt 6,679 6,907
----------------------------------------------------------------------------------------- -------- -----------------
Appendix 5
Net debt
Net debt represents total debt less cash and liquid short-term
financial assets, including those related to disposal groups
classified as held for sale. Net debt is not a measure under IFRS
and should not be considered as an alternative to other measures of
financial position. EVRAZ' calculation of net debt may be different
from the calculation used by other companies and therefore
comparability may be limited. The current calculation is different
from that used for covenant compliance calculations.
Net debt has been calculated as follows:
30 June 2015 31 December 2014
------------- -----------------
(US$ million)
-------------------------------------------- --------------------------------
Total debt 6,679 6,907
-------------------------------------------- ------------- -----------------
Short-term bank deposits - -
-------------------------------------------- ------------- -----------------
Cash and cash equivalents (996) (1,086)
-------------------------------------------- ------------- -----------------
Cash of assets classified as held for sale - -
-------------------------------------------- ------------- -----------------
Collateral under swaps (3) (7)
-------------------------------------------- ------------- -----------------
Net debt 5,680 5,814
-------------------------------------------- ------------- -----------------
EVRAZ plc
Unaudited Interim Condensed Consolidated Financial
Statements
FOR THE Six-month period ended 30 June 2015
Contents
Report on Review of Interim Condensed Consolidated Financial
Statements
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Unaudited Interim Condensed Consolidated Financial
Statements
Unaudited Interim Condensed Consolidated Statement of
Operations
Unaudited Interim Condensed Consolidated Statement of
Comprehensive Income
Unaudited Interim Condensed Consolidated Statement of Financial
Position
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
Unaudited Interim Condensed Consolidated Statement of Changes in
Equity
Selected Notes to the Unaudited Interim Condensed Consolidated
Financial Statements
Independent Review Report to EVRAZ plc
Introduction
We have been engaged by EVRAZ plc (the Company) to review the
condensed set of financial statements in the interim report for the
six months ended 30 June 2015 which comprises the Interim Condensed
Consolidated Statement of Operations, Interim Condensed
Consolidated Statement of Comprehensive Income, Interim Condensed
Consolidated Statement of Financial Position, Interim Condensed
Consolidated Statement of Cash Flows, Interim Condensed
Consolidated Statement of Changes in Equity and related notes 1 to
15. We have read the other information contained in the Interim
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority. As disclosed in note 2, the annual financial statements
of the Group are prepared in accordance with IFRSs as adopted by
the European Union. The condensed set of financial statements
included in this interim financial report has been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK and Ireland), 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim report for the six months ended 30 June 2015 is not
prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
26 August 2015
Unaudited Interim Condensed Consolidated Statement of
Operations
(In millions of US dollars, except for per share
information)
Six-month period
ended 30 June
Notes 2015 2014*
Revenue
Sale of goods $ 4,786 $ 6,628
Rendering of services 108 177
--------- --------
4,894 6,805
Cost of revenue (3,570) (5,192)
Gross profit 1,324 1,613
Selling and distribution costs (425) (543)
General and administrative expenses (252) (390)
Social and social infrastructure
maintenance expenses (10) (13)
Loss on disposal of property, plant
and equipment (17) (21)
Impairment of assets 5 (20) (147)
Foreign exchange gains/(losses),
net (99) (180)
Other operating income 10 18
Other operating expenses (32) (40)
--------- --------
Profit from operations 479 297
Interest income 5 9
Interest expense (229) (296)
Share of profits/(losses) of joint
ventures and associates 8 (28) 5
Gain/(loss) on financial assets and
liabilities, net 48 (43)
Gain/(loss) on disposal groups classified
as held for sale, net 4 20 127
Loss of control over a subsidiary 4 (167) -
Other non-operating gains/(losses),
net (8) -
Profit before tax 120 99
Income tax expense 6 (101) (84)
--------- --------
Net profit $ 19 $ 15
========= ========
Attributable to:
Equity holders of the parent entity $ 19 $ 52
Non-controlling interests - (37)
--------- --------
$ 19 $ 15
========= ========
Earnings per share:
basic, for profit attributable to
equity holders of the parent entity,
US dollars 11 $ 0.01 $ 0.03
diluted, for profit attributable
to equity holders of the parent entity,
US dollars 11 $ 0.01 $ 0.03
* The amounts shown here do not correspond to the financial
statements for the six-month period ended 30 June 2014 and reflect
adjustments made in connection with the cessation of classification
of a subsidiary as held for sale (Note 2).
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of
Comprehensive Income
(In millions of US dollars)
Six-month period
ended 30 June
Notes 2015 2014*
Net profit $ 19 $ 15
Other comprehensive income
Other comprehensive income to be
reclassified to profit or loss in
subsequent periods
Exchange differences on translation
of foreign operations into presentation
currency (5) (197)
Recycling of exchange difference
to profit or loss 4 142 (65)
Net gains/(losses) on available-for-sale
financial assets - (9)
-------- ---------
137 (271)
Effect of translation to presentation
currency of the Group's joint ventures
and associates 8 1 (5)
-------- ---------
Share of other comprehensive income
of joint ventures and associates
accounted for using the equity method 1 (5)
Items not to be reclassified to
profit or loss in subsequent periods
Gains/(losses) on re-measurement
of net defined benefit liability (5) (29)
Income tax effect 2 9
-------- ---------
(3) (20)
Total other comprehensive income/(loss) 135 (296)
-------- ---------
Total comprehensive income/(loss),
net of tax $ 154 $ (281)
======== =========
Attributable to:
Equity holders of the parent entity $ 151 $ (234)
Non-controlling interests 3 (47)
(MORE TO FOLLOW) Dow Jones Newswires
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-------- ---------
$ 154 $ (281)
======== =========
* The amounts shown here do not correspond to the financial
statements for the six-month period ended 30 June 2014 and reflect
adjustments made in connection with the cessation of classification
of a subsidiary as held for sale (Note 2).
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of Financial
Position
(In millions of US dollars)
30 June 31 December
Notes 2015 2014
Assets
Non-current assets
Property, plant and equipment 7 $ 5,605 $ 5,796
Intangible assets other than goodwill 373 441
Goodwill 1,495 1,541
Investments in joint ventures and
associates 8 94 121
Deferred income tax assets 84 97
Other non-current financial assets 89 98
Other non-current assets 41 40
------------- -------------
7,781 8,134
Current assets
Inventories 1,170 1,372
Trade and other receivables 574 654
Prepayments 50 82
Loans receivable 12 24
Receivables from related parties 9 15 53
Income tax receivable 43 23
Other taxes recoverable 198 158
Other current financial assets 37 40
Cash and cash equivalents 10 996 1,086
------------- -------------
3,095 3,492
Assets of disposal groups classified
as held for sale 2 4
------------- -------------
3,097 3,496
------------- -------------
Total assets $ 10,878 $ 11,630
============= =============
Equity and liabilities
Equity
Equity attributable to equity holders
of the parent entity
Issued capital 11 $ 1,507 $ 1,507
Treasury shares 11 (305) -
Additional paid-in capital 11 2,493 2,481
Revaluation surplus 124 155
Accumulated profits 1,309 1,299
Translation difference (3,509) (3,644)
------------- -------------
1,619 1,798
Non-controlling interests 219 218
------------- -------------
1,838 2,016
Non-current liabilities
Long-term loans 12 5,182 5,470
Deferred income tax liabilities 478 471
Employee benefits 357 364
Provisions 154 173
Other long-term liabilities 56 442
------------- -------------
6,227 6,920
Current liabilities
Trade and other payables 1,355 1,379
Advances from customers 157 155
Short-term loans and current portion
of long-term loans 12 947 761
Payables to related parties 9 142 108
Income tax payable 29 86
Other taxes payable 154 151
Provisions 29 41
2,813 2,681
Liabilities directly associated with
disposal groups classified as held
for sale - 13
------------- -------------
2,813 2,694
------------- -------------
Total equity and liabilities $ 10,878 $ 11,630
============= =============
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
(In millions of US dollars)
Six-month period
ended
30 June
2015 2014*
Cash flows from operating activities
Net profit $ 19 $ 15
Adjustments to reconcile net profit/(loss)
to net cash flows from operating activities:
Deferred income tax (benefit)/expense 27 (59)
Depreciation, depletion and amortisation 307 435
Loss on disposal of property, plant and
equipment 17 21
Impairment of assets 20 147
Foreign exchange (gains)/losses, net 99 180
Interest income (5) (9)
Interest expense 229 296
Share of (profits)/losses of associates
and joint ventures 28 (5)
(Gain)/loss on financial assets and liabilities,
net (48) 43
(Gain)/loss on disposal groups classified
as held for sale, net (20) (127)
Loss of control over a subsidiary 167 -
Other non-operating (gains)/losses, net 8 -
Bad debt expense 9 21
Changes in provisions, employee benefits
and other long-term assets and liabilities (3) (2)
Expense arising from the equity-settled
awards 12 15
Other (2) (1)
864 970
Changes in working capital:
Inventories 78 (35)
Trade and other receivables 20 (74)
Prepayments 28 29
Receivables from/payables to related parties 11 (186)
Taxes recoverable (70) (1)
Other assets - 10
Trade and other payables (81) 118
Advances from customers 2 (46)
Taxes payable (49) 66
Other liabilities 1 (7)
Net cash flows from operating activities 804 844
Cash flows from investing activities
Issuance of loans receivable to related
parties (1) (1)
Proceeds from repayment of loans receivable,
including interest 2 1
Purchases of subsidiaries, net of cash acquired - (102)
Restricted deposits at banks in respect
of investing activities (2) 2
Short-term deposits at banks, including
interest 1 3
Purchases of property, plant and equipment
and intangible assets (248) (339)
Proceeds from disposal of property, plant
and equipment 2 4
Proceeds from sale of disposal groups classified
as held for sale, net of transaction costs 40 296
Other investing activities, net - 13
Net cash flows used in investing activities (206) (123)
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* The amounts shown here do not correspond to the financial
statements for the six-month period ended 30 June 2014 and reflect
adjustments made in connection with the cessation of classification
of a subsidiary as held for sale (Note 2).
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
(continued)
(In millions of US dollars)
Six-month period
ended
30 June
2015 2014*
Cash flows from financing activities
Purchase of treasury shares, including transaction
costs (Note 11) $ (339) $ (13)
Sale of non-controlling interests 1 -
Proceeds from loans provided by related
parties (Note 9) - 267
Repayment of loans provided by related parties
(Note 9) - (251)
Proceeds from bank loans and notes 1,463 1,052
Repayment of bank loans and notes, including
interest (1,756) (1,286)
Net proceeds from/(repayment of) bank overdrafts
and credit lines, including interest (4) (712)
Payments for purchase of property, plant
and equipment on deferred terms (3) (26)
Gain/(loss) on derivatives not designated
as hedging instruments (123) 25
Collateral under swap contracts 4 (10)
Payments under finance leases, including
interest (1) (1)
Other financing activities - (5)
Net cash flows used in financing activities (758) (960)
Effect of foreign exchange rate changes
on cash and cash equivalents 70 (20)
Net increase/(decrease) in cash and cash
equivalents (90) (259)
Cash and cash equivalents at beginning of
year 1,086 1,604
----------- -----------
Add back: decrease in cash of disposal groups
classified as assets held for sale - 8
----------- -----------
Cash and cash equivalents at end of period $ 996 $ 1,353
=========== ===========
Supplementary cash flow information:
Cash flows during the period:
Interest paid $ (213) $ (264)
Interest received 2 10
Income taxes paid (147) (94)
* The amounts shown here do not correspond to the financial
statements for the six-month period ended 30 June 2014 and reflect
adjustments made in connection with the cessation of classification
of a subsidiary as held for sale (Note 2).
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of Changes in
Equity
(In millions of US dollars)
Attributable to equity holders of the parent entity
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additional Unrealised
Issued Treasury paid-in Revaluation Other gains Accumulated Translation Non-controlling Total
capital shares capital surplus reserves and losses profits difference Total interests Equity
------------------------ ------------------------ ------------------------ ---------------------- -------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2014 $ 1,507 $ - $ 2,481 $ 155 $ - $ - $ 1,299 $ (3,644) $ 1,798 $ 218 $ 2,016
Net profit/(loss) - - - - - - 19 - 19 - 19
Other
comprehensive
income/(loss) - - - - - - (3) 135 132 3 135
Reclassification
of revaluation
surplus to
accumulated
profits in
respect of the
disposed
subsidiaries
(Note
4) - - - (28) - - 28 - - - -
Reclassification
of revaluation
surplus to
accumulated
profits in
respect of the
disposed items
of property,
plant and
equipment - - - (3) - - 3 - - - -
Total
comprehensive
income/(loss)
for the period - - - (31) - - 47 135 151 3 154
Derecognition of
non-controlling
interests in
subsidiaries
(Note 4) - - - - - - - - - (4) (4)
Non-controlling
interests
arising on sale
of ownership
interests in
subsidiaries - - - - - - (3) - (3) 2 (1)
Purchase of
treasury shares
(Note 11) - (336) - - - - (3) - (339) - (339)
Transfer of
treasury shares
to participants
of the
Incentive Plans
(Note 11) - 31 - - - - (31) - - - -
Share-based
payments - - 12 - - - - - 12 - 12
At 30 June 2015 $ 1,507 $ (305) $ 2,493 $ 124 $ - $ - $ 1,309 $ (3,509) $ 1,619 $ 219 $ 1,838
======================== ======================== ======================== ====================== ==================== ==================== ============================ ========================== ======================== ====================== ========================
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of Changes in
Equity (continued)
(MORE TO FOLLOW) Dow Jones Newswires
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(In millions of US dollars)
Attributable to equity holders of the parent entity
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additional Unrealised
Issued Treasury paid-in Revaluation Other gains Accumulated Translation Non-controlling Total
capital shares capital surplus reserves and losses profits difference Total interests Equity
------------------------ ---------------------- ------------------------ ---------------------- ---------------------- --------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2013 $ 1,473 $ (1) $ 2,326 $ 162 $ 156 $ 12 $ 2,589 $ (1,685) $ 5,032 $ 431 $ 5,463
Net
profit/(loss)* - - - - - - 52 - 52 (37) 15
Other
comprehensive
income/(loss) - - - (3) - (9) (16) (258) (286) (10) (296)
Total
comprehensive
income/(loss)
for the period* - - - (3) - (9) 36 (258) (234) (47) (281)
Issue of shares
(Note 11) 34 - 122 - (156) - - - - - -
Acquisition of
non-controlling
interests in
existing
subsidiaries - - 6 - - - - - 6 (6) -
Purchase of
treasury shares
(Note 11) - (13) - - - - - - (13) - (13)
Transfer of
treasury shares
to participants
of the
Incentive Plans
(Note 11) - 13 - - - - (13) - - - -
Share-based
payments - - 15 - - - - - 15 - 15
Dividends
declared by the
parent entity
to its
shareholders
(Note 11) - - - - - - (90) - (90) - (90)
At 30 June 2014* $ 1,507 $ (1) $ 2,469 $ 159 $ - $ 3 $ 2,522 $ (1,943) $ 4,716 $ 378 $ 5,094
======================== ====================== ======================== ====================== ====================== ===================== ============================ ========================== ======================== ====================== ========================
* The amounts shown here do not correspond to the financial
statements for the six-month period ended 30 June 2014 and reflect
adjustments made in connection with the cessation of classification
of a subsidiary as held for sale (Note 2).
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Selected Notes
to the Unaudited Interim Condensed Consolidated Financial
Statements
Six-month period ended 30 June 2015
1. Corporate Information
These interim condensed consolidated financial statements were
authorised for issue by the Board of Directors of EVRAZ plc on 26
August 2015.
EVRAZ plc ("EVRAZ plc" or "the Company") was incorporated on 23
September 2011 as a public company under the laws of the United
Kingdom with the registered number 7784342. The Company's
registered office is at 5(th) Floor, 6 St. Andrew Street, London,
EC4A 3AE, United Kingdom.
The Company, together with its subsidiaries (the "Group"), is
involved in the production and distribution of steel and related
products and coal and iron ore mining. In addition, the Group
produces vanadium products. The Group is one of the largest steel
producers globally.
Lanebrook Limited (Cyprus) is the ultimate controlling party of
the Company.
Going Concern
These interim condensed consolidated financial statements have
been prepared on a going concern basis.
The Group's activities in all of its operating segments continue
to be affected by the uncertainty and instability of the current
economic environment (Note 13). In response the Group implemented a
number of cost cutting initiatives, reduced capital expenditures
and continues to reduce the level of debt.
Based on the currently available facts and circumstances the
directors and management have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future.
2. Significant Accounting Policies
Basis of Preparation
These interim condensed consolidated financial statements have
been prepared in accordance with International Accounting Standard
("IAS") 34 "Interim Financial Reporting", as adopted by the
European Union. Accordingly, these interim condensed consolidated
financial statements do not include all the information and
disclosures required for a complete set of financial statements,
and should be read in conjunction with the Group's annual
consolidated financial statements for the year ended 31 December
2014, which were prepared in accordance with International
Financial Reporting Standards, as adopted by the European
Union.
The interim condensed consolidated financial statements do not
constitute statutory accounts as defined by Section 435 of the
Companies Act 2006. The financial information for the full year is
based on the statutory accounts for the financial year ended 31
December 2014. Statutory accounts for the year ended 31 December
2014 have been filed with the Registrar of Companies. The auditor's
report under section 495 of the Companies Act 2006 in relation to
those accounts was unqualified, did not include a reference to any
matters to which the auditor drew attention by way of emphasis
without qualifying their report and did not contain a statement
under section 498(2) or (3) of the Companies Act 2006.
Operating results for the six-month period ended 30 June 2015
are not necessarily indicative of the results that may be expected
for the year ending 31 December 2015.
Restatement of Financial Statements
Subsidiaries that Ceased to Be Classified as Held for Sale
At 30 June 2014, the disposal groups held for sale relating to
the other segment included an office building in Moscow. In the
2(nd) half of 2014, due to the current market conditions management
decided not to sell this asset.
As a result, the subsidiary owning the office building ceased to
meet the definition of a disposal group held for sale. In
accordance with IFRS 5 "Non-current Assets Held for Sale and
Discontinued Operations" the Group restated its consolidated
financial statements, including the relevant notes, for the periods
in which the assets were classified as held for sale as if the
subsidiary had not been classified as assets held for sale in the
past and all assets and liabilities and the results of operations
had been accounted for in accordance with the applicable
International Financial Reporting Standards as adopted by the
European Union.
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The effects of the restatement on the previously reported
amounts are set out below.
Six-month period ended 30 June
2014
Subsidiary
that ceased
As previously to be held
reported for sale Restated
-------------- ------------- ---------
Statement of Operations
Gain/(loss) on disposal groups
classified as held for sale, net $ 113 $ 14 $ 127
Net profit/(loss) 1 14 15
Earnings/(losses) per share for
profit/(loss) attributable to
equity holders of the parent entity,
US dollars, diluted 0.02 0.01 0.03
Statement of Changes in Equity
Total comprehensive income/(loss) (295) 14 (281)
Accumulated profits 2,508 14 2,522
Changes in Accounting Policies
In the preparation of the interim condensed consolidated
financial statements, the Group followed the same accounting
policies and methods of computation as compared with those applied
in the complete consolidated financial statements for year ended 31
December 2014, except for the adoption of new standards and
interpretations and revision of existing IAS as of 1 January
2015.
New/Revised Standards and Interpretations Adopted in 2015:
-- Annual Improvements to IFRSs 2011-2013 Cycle
These improvements were effective from 1 July 2014 and the Group
has applied these amendments for the first time in these interim
condensed consolidated financial statements. The amendments relate
to IFRS 3 "Business Combinations", IFRS 13 "Fair Value Measurement"
and IAS 40 "Investment Property" and did not have an impact on the
financial position or performance of the Group.
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
3. Segment Information
As disclosed in the consolidated financial statements for the
year ended 31 December 2014, in the second half of 2014, the
management reporting used by the chief operating decision maker for
making decisions about resource allocation has been changed to put
more emphasis on analysis of the operating results of the coal
segment and operations in North America. As such, the comparative
segment information for the first half of 2014 has been restated
accordingly.
The following tables present measures of segment profit or loss
based on management accounts.
Six-month period ended 30 June 2015
Steel,
US$ million Steel North America Coal Other operations Eliminations Total
--------- -------------- ------- ---------------- ------------ ---------
Revenue
Sales to external
customers $ 3,386 $ 1,250 $ 195 $ 40 $ - $ 4,871
Inter-segment sales 179 - 292 173 (644) -
--------- -------------- ------- ---------------- ------------ ---------
Total revenue 3,565 1,250 487 213 (644) 4,871
========= ============== ======= ================ ============ =========
Segment result -
EBITDA $ 622 $ 49 $ 177 $ 9 $ 13 $ 870
========= ============== ======= ================ ============ =========
Six-month period ended 30 June 2014
Steel,
US$ million Steel North America Coal Other operations Eliminations Total
--------- -------------- ------- ---------------- ------------ ---------
Revenue
Sales to external
customers $ 4,845 $ 1,580 $ 335 $ 70 $ - $ 6,830
Inter-segment sales 327 - 340 225 (892) -
--------- -------------- ------- ---------------- ------------ ---------
Total revenue 5,172 1,580 675 295 (892) 6,830
========= ============== ======= ================ ============ =========
Segment result -
EBITDA $ 848 $ 136 $ 134 $ 19 $ (36) $ 1,101
========= ============== ======= ================ ============ =========
The following table shows a reconciliation of revenue and EBITDA
used by the management for decision making and revenue and profit
or loss before tax per the consolidated financial statements
prepared under IFRS.
Six-month period ended 30 June 2015
Steel,
North Other
US$ million Steel America Coal operations Eliminations Total
--------- --------- ------- ----------- ------------ ----------------
Revenue $ 3,565 $ 1,250 $ 487 $ 213 $ (644) $ 4,871
Reclassifications and
other adjustments (152) (1) 53 21 102 23
Revenue per IFRS financial
statements $ 3,413 $ 1,249 $ 540 $ 234 $ (542) $ 4,894
EBITDA $ 622 $ 49 $ 177 $ 9 $ 13 $ 870
Exclusion of management
services from segment
result 47 - 4 - - 51
Unrealised profits adjustment 37 4 - - 32 73
Reclassifications and
other adjustments 25 (16) (10) (1) - (2)
--------- --------- ------- ----------- ------------ ----------------
109 (12) (6) (1) 32 122
--------- --------- ------- ----------- ------------ ----------------
EBITDA based on IFRS
financial statements $ 731 $ 37 $ 171 $ 8 $ 45 $ 992
Unallocated subsidiaries (70)
----------------
$ 922
================
Depreciation, depletion
and amortisation expense (134) (81) (88) (1) - (304)
Impairment of assets (12) - (8) - - (20)
Gain/(loss) on disposal
of property, plant and
equipment and intangible
assets (9) (6) (2) - - (17)
Foreign exchange gains/(losses),
net (82) (35) 6 3 - (108)
--------- --------- ------- ----------- ------------ ----------------
494 (85) 79 10 45 473
Unallocated income/(expenses),
net 6
----------------
Profit/(loss) from operations $ 479
Interest income/(expense),
net (224)
Share of profits/(losses)
of joint ventures and
associates (28)
Gain/(loss) on financial
assets and liabilities 48
Gain/(loss) on disposal
groups classified as
held for sale 20
Loss of control over
a subsidiary (167)
Other non-operating gains/(losses),
net (8)
----------------
Profit/(loss) before
tax $ 120
================
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August 27, 2015 02:03 ET (06:03 GMT)
Six-month period ended 30 June 2014
Steel,
North Other
US$ million Steel America Coal operations Eliminations Total
--------- --------- ------- ----------- ------------ ---------------
Revenue $ 5,172 $ 1,580 $ 675 $ 295 $ (892) $ 6,830
Reclassifications and
other adjustments (137) (2) 33 35 46 (25)
Revenue per IFRS financial
statements $ 5,035 $ 1,578 $ 708 $ 330 $ (846) $ 6,805
EBITDA $ 848 $ 136 $ 134 $ 19 $ (36) $ 1,101
Exclusion of management
services from segment
result 71 - 5 - - 76
Unrealised profits adjustment (12) - 1 - 8 (3)
Reclassifications and
other adjustments 6 (1) 15 1 - 21
--------- --------- ------- ----------- ------------ ---------------
65 (1) 21 1 8 94
--------- --------- ------- ----------- ------------ ---------------
EBITDA based on IFRS
financial statements $ 913 $ 135 $ 155 $ 20 $ (28) $ 1,195
Unallocated subsidiaries (115)
---------------
$ 1,080
===============
Depreciation, depletion
and amortisation expense (212) (81) (138) (2) - (433)
Impairment of assets (68) - (77) (2) - (147)
Gain/(loss) on disposal
of property, plant and
equipment and intangible
assets (7) - (14) - - (21)
Foreign exchange gains/(losses),
net (102) - (14) - - (116)
--------- --------- ------- ----------- ------------ ---------------
524 54 (88) 16 (28) 363
Unallocated income/(expenses),
net (66)
---------------
Profit/(loss) from operations $ 297
Interest income/(expense),
net (287)
Share of profits/(losses)
of joint ventures and
associates 5
Gain/(loss) on financial
assets and liabilities (43)
Gain/(loss) on disposal
groups classified as
held for sale 127
Profit/(loss) before
tax $ 99
===============
In the six-month period ended 30 June 2015, the Group made an
allowance for net realisable value of inventories in the amount of
$14 million.
The material changes in property, plant and equipment during the
six-month period ended 30 June 2015 other than those disclosed
above are presented below:
Steel,
US$ million Steel North America Coal Other operations Total
------- -------------- ------ ---------------- -------
Additions $ 118 $ 83 $ 62 $ 1 $ 264
4. Changes in Composition of the Group
Deconsolidation of Highveld Steel and Vanadium Limited
On 13 April 2015, as a result of severe economic difficulties
due to the current and persistent unfavourable economic environment
in South Africa, the Board of Highveld Steel and Vanadium Limited
("Highveld") decided to place the entity under the business rescue
procedures to avoid its liquidation and to avoid giving Highveld's
creditors the opportunity to apply for its liquidation in
court.
The rescue procedures will result either in (1) Highveld being
re-financed or financially restructured or, if that is not
possible, (2) Highveld's orderly winding down under the supervision
of a business rescue practitioner to maximise the return to
creditors and other affected parties.
Following the placement of Highveld under the business rescue
procedures, control and management of Highveld was transferred to a
"business rescue practitioner". Until Highveld is successfully
re-financed/restructured, Highveld's Board and the Group are no
longer be able to control Highveld or exercise significant
influence. The business rescue practitioner can consult with the
Highveld's Board or its directors, but he would not be bound by any
requests or advice from Highveld's Board or the directors.
The Group's management believes that due to the current market
conditions the option to invest additional cash in Highveld to pay
to the creditors and to stop business rescue procedures would
create no economic value for the Group. Therefore, in the opinion
of management, the potential voting rights that the Group has in
Highveld have no economic substance.
Based on the management's current assessment, the business
rescue procedures most likely will result in Highveld being sold to
one or more third parties at a significant discount or being
mandatorily liquidated. As a consequence, management believes that
on 14 April 2015 (the date of the placement of Highveld under the
business rescue procedures) the Group lost control over Highveld
and it is not expected that it will re-obtain control in the
future.
As a result, the Group ceased to consolidate Highveld starting
14 April 2015 and recognised a loss on disposal of a subsidiary in
the amount of $167 million, including $142 million of translation
loss recycled to statement of operations. In addition,
non-controlling interests of $4 million were derecognised.
Management analysed the classification of Highveld to determine
whether its disposal constitutes a discontinued operation under
IFRS 5 and concluded that this is not the case.
The table below demonstrates the carrying values of assets and
liabilities of Highveld, which was included in the steel segment of
the Group's operations, at the date of derecognition.
US$ million 13 April 2014
-------------
Property, plant and equipment $ 77
Other non-current assets 23
Inventories 74
Accounts receivable 59
Cash and cash equivalents 1
Total assets 234
Non-current liabilities 61
Current liabilities 144
-------------
Total liabilities 205
Non-controlling interests 4
Net assets $ 25
=============
Disposal of EVRAZ Portland Structural Tubing
In the first half of 2015, the Group sold assets of Portland
Structural Tubing for a cash consideration of $51 million. The
Group recognised $20 million as a gain on disposal groups
classified as held for sale.
5. Impairment of Non-current Assets
The Group recognised impairment losses as a result of the
impairment testing at the level of cash-generating units. In
addition, the Group made a write-off of certain functionally
obsolete items of property, plant and equipment.
For the purpose of the impairment testing as of 30 June 2015 the
Group assessed the recoverable amount of each cash-generating unit
("CGU") where indicators of impairment were identified.
The recoverable amount has been determined based on a
value-in-use calculation using cash flow projections based on the
actual operating results and business plans approved by management
and appropriate discount rates reflecting time value of money and
risks associated with respective cash-generating units. For the
periods not covered by management business plans, cash flow
projections have been estimated by extrapolating the respective
business plans results using a zero real growth rate. The key
assumptions used by management in the value-in-use calculations
with respect to the cash-generating units to which the goodwill was
allocated and where indicators of impairment existed are presented
in the table below.
Average Average
price price
of commodity of commodity Recoverable Carrying
Period Pre-tax per per amount amount
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of forecast, discount tonne tonne of CGU, of CGU,
years rate, % Commodity in 2015 in 2016 US$ million US$ million
------------- ------------ -------------- ------------- ------------- ------------- -------------
EVRAZ Palini
e Bertoli 10 15.32 steel plates - EUR 433 47 46
EVRAZ vanadium
Vanady-Tula 5 15.12 products $14,095 $16,613 316 65
EVRAZ
Vametco ferrovanadium
Holdings 5 13.96 products $21,124 $24,897 172 22
EVRAZ Nikom, ferrovanadium
a.s. 5 13.01 products $17,346 $20,445 35 32
EVRAZ Inc.
NA
Oregon Steel
Portland steel
Mill 7 11.54 products $704 $758 585 581
Rocky
Mountain steel
Steel Mills 7 13.12 products $1,352 $1,401 167 142
General
Scrap steel
Inc. 7 11.01 products $292 $298 32 27
EVRAZ Inc.
NA
Canada
steel
Calgary 7 13.66 products $1,195 $1,260 248 241
steel
Red Deer 7 12.07 products $1,044 $1,300 202 118
steel
Regina Steel 7 12.55 products $621 $696 773 609
Regina steel
Tubular 7 11.22 products $993 $1,088 563 344
In addition, the Group determined that there were indicators of
impairment in other cash generating units and tested them for
impairment using the following assumptions.
Average Average
Pre-tax price price of
Period discount of commodity commodity
of forecast, rate, per tonne per tonne
years % Commodity in 2015 in 2016
-------------- ---------- -------------------- -------------- -----------
EVRAZ Dnepropetrovsk
Iron and Steel Works 5 27.07 steel products $396 $394
EVRAZ Nizhny Tagil Metallurgical
Plant 5 15.12 steel products $393 $407
EVRAZ United West-Siberian
Iron & Steel Plant 5 15.12 steel products $344 $362
EVRAZ Caspian Steel 5 13.62 steel products $366 $367
steel mill
EVRAZ Yuzhny Stan 5 13.64 under construction - -
EVRAZ Bagleykoks 5 24.95 coke $188 $185
Yuzhkuzbassugol 15 15.12 coal $60 $56
Raspadskaya 20 13.95 coal $48 $48
vanadium
EVRAZ Stratcor Inc. 5 13.35 products $32,798 $36,761
Mezhegeyugol 27 16.77 coal $106 $76
EVRAZ Kachkanarsky
Mining-and-Processing
Integrated Works 25 15.26 ore $46 $52
EVRAZ Sukha Balka 19 25.86 ore $22 $29
Evrazruda 18 15.26 ore $45 $51
EVRAZ Nakhodka Trade
Seaport 5 15.12 port services $10 $10
Discount Rates
Discount rates reflect the current market assessment of the
risks specific to each cash-generating unit. The discount rates
have been determined using the Capital Asset Pricing Model and
analysis of industry peers. Reasonably possible changes in discount
rates could lead to an impairment at Raspadskaya, EVRAZ Caspian
Steel, EVRAZ Stratcor Inc., EVRAZ Nikom, EVRAZ Palini e Bertoli,
EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units. If
the discount rates were 10% higher, this would lead to an
impairment of $223 million.
Sales Prices
The prices of the products sold by the Group were estimated
using industry research. The Group expects that the nominal prices
will grow with a compound annual growth rate of (6.3)%-6.6% in 2015
- 2020 and 2.5%-3.0% in 2021 and thereafter. Reasonably possible
changes in sales prices in the 2(nd) half of 2015 and 2016 could
lead to an impairment at EVRAZ Palini e Bertoli, EVRAZ Stratcor
Inc., EVRAZ Inc. NA and EVRAZ Inc. NA Canada cash-generating units.
If the prices assumed for the 2(nd) half of 2015 and 2016 were 10%
lower, this would lead to an impairment of $15 million.
Sales Volumes
Management assumed that the sales volumes of steel products
would increase by 5.0% in 2016 and future dynamics will be driven
by gradual market recovery and changes in assets' capacities.
Reasonably possible changes in sales volumes in the 2(nd) half of
2015 and 2016 could lead to an impairment at EVRAZ Inc. NA
cash-generating units. If the sales volumes were 10% lower than
those assumed for the 2(nd) half of 2015 and 2016, this would lead
to an impairment of $1 million.
Cost Control Measures
The recoverable amounts of cash-generating units are based on
the business plans approved by management. A reasonably possible
deviation of cost from these plans could lead to an impairment at
EVRAZ Caspian Steel, EVRAZ Sukha Balka, EVRAZ Nikom, EVRAZ Palini e
Bertoli, EVRAZ Stratcor Inc. and EVRAZ Inc. NA and EVRAZ Inc. NA
Canada cash-generating units. If the actual costs were 10% higher
than those assumed for the 2(nd) half of 2015 and 2016, this would
lead to an impairment of $109 million.
The unit's recoverable amount would become equal to its carrying
amount if the assumptions used to measure the recoverable amount
changed as follows:
Discount Sales Sales Cost control
rates prices volumes measures
--------- -------- --------- -------------
Raspadskaya 2.7% - - -
EVRAZ Nikom 5.8% - - 2.8%
EVRAZ Palini e Bertoli 0.9% (5.0)% - 0.7%
EVRAZ Stratcor Inc. 1.6% (1.8)% - 0.5%
EVRAZ Caspian Steel 8.3% - - 5.4%
EVRAZ Sukha Balka - - - 6.4%
EVRAZ Inc. NA
Oregon Steel Portland
Mill 0.4% (4.1)% (8.3)% 1.5%
Rocky Mountain Steel Mills 8.3% - - -
General Scrap Inc. 8.7% - - -
EVRAZ Inc. NA Canada
Calgary 1.5% (6.8)% - 2.8%
6. Income Taxes
Major components of income tax expense were as follows:
Six-month period
ended 30 June
US$ million 2015 2014
--------- --------
Current income tax expense $ (76) $ (128)
Adjustment in respect of income tax of
previous years 2 (15)
Deferred income tax benefit relating to
changes in tax rates - 6
Deferred income tax benefit/(expense)
relating to origination and reversal of
temporary differences (27) 53
Income tax expense reported in the consolidated
statement of operations $ (101) $ (84)
========= ========
7. Property, Plant and Equipment
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The movement in property, plant and equipment for the six-month
period ended 30 June 2015 was as follows:
Buildings Transport Assets
and Machinery and motor Mining Other under
US$ million Land constructions and equipment vehicles assets assets construction Total
------ ---------------- -------------- ---------- ------- ------- ---------------- ---------
At 31 December
2014,
cost, net of
accumulated
depreciation $ 124 $ 1,118 $ 2,461 $ 102 $ 1,548 $ 15 $ 428 $ 5,796
Additions - - 1 - 1 - 262 264
Assets put into
operation - 15 75 14 144 5 (253) -
Disposals (1) (11) (1) (1) - (5) (19)
Depreciation and
depletion
charge - (38) (180) (12) (44) (3) - (277)
Impairment
losses
recognised in
statement
of operations - (2) (4) - (18) - (5) (29)
Impairment
losses
reversed
through
statement of
operations - 2 2 - 4 - 1 9
Loss of control
over
a subsidiary
(Note
4) (1) (2) (65) (1) (2) (1) (5) (77)
Transfer to
assets
held for sale (6) (10) (4) - - - - (20)
Change in site
restoration
and
decommissioning
provision - 2 (1) - 22 - - 23
Translation
difference (2) (6) (31) (1) (17) - (8) (65)
------ ---------------- -------------- ---------- ------- ------- ---------------- ---------
At 30 June 2015,
cost, net of
accumulated
depreciation $ 115 $ 1,078 $ 2,243 $ 101 $ 1,637 $ 16 $ 415 $ 5,605
====== ================ ============== ========== ======= ======= ================ =========
8. Investments in Joint Ventures and Associates
The movement in investments in joint ventures and associates
during the six-month period ended 30 June 2015 was as follows:
US$ million Timir Streamcore Other associates Total
------ ---------- ---------------- -------
At 31 December 2014 $ 82 $ 29 $ 10 $ 121
Share of profit/(loss) (29) 2 (1) (28)
Translation difference - 1 - 1
------ ---------- ---------------- -------
At 30 June 2015 $ 53 $ 32 $ 9 $ 94
====== ========== ================ =======
9. Related Party Disclosures
For the Group related parties include associates and joint
venture partners, key management personnel and other entities that
are under the control or significant influence of the key
management personnel, the Group's ultimate parent or its
shareholders. In considering each possible related party
relationship, attention is directed to the substance of the
relationship, not merely the legal form.
Amounts owed by/to related parties were as follows:
Amounts due from Amounts due to
related parties related parties
---------------------- ----------------------
30 June 31 December 30 June 31 December
US$ million 2015 2014 2015 2014
-------- ------------ -------- ------------
Vtorresource-Pererabotka $ - $ 11 $ 25 $ 5
Yuzhny GOK 9 37 113 96
Other entities 8 7 4 7
17 55 142 108
Less: allowance for doubtful
accounts (2) (2) - -
-------- ------------ -------- ------------
$ 15 $ 53 $ 142 $ 108
======== ============ ======== ============
In the first half of 2014, the Ukrainian hryvnia depreciated
against US dollar by 48%. As a result, the Group recognised a $85
million foreign exchange loss on the balances and transactions with
Yuzhny GOK in the six months ended 30 June 2014.
Transactions with related parties were as follows for the
six-month periods ended 30 June:
Sales to Purchases from
related parties related parties
-------------------
US$ million 2015 2014 2015 2014
--------- -------- --------- --------
Genalta Recycling Inc. $ - $ - $ 8 $ 11
Interlock Security Services - - 13 22
Vtorresource-Pererabotka 5 10 167 229
Yuzhny GOK 15 25 35 142
Other entities 1 2 3 16
--------- -------- --------- --------
$ 21 $ 37 $ 226 $ 420
========= ======== ========= ========
On 1 April 2014, the Group received a non-interest bearing loan
of 2,935 million Ukrainian hryvnias ($267 million at the exchange
rate as of the date of disbursement) from Standart IP, an entity
under control of one of the major shareholders. The proceeds were
used for the purposes of short-term liquidity management for a
Ukrainian subsidiary. The loan was fully repaid in several
installments by 10 April 2014.
Compensation to Key Management Personnel
In the six-month periods ended 30 June 2015 and 2014, key
management personnel totalled 42 and 51 persons, respectively.
Total compensation to key management personnel was included in
general and administrative expenses and consisted of the following
in the six-month periods ended 30 June:
US$ million 2015 2014
----- -----
Salary $ 8 $ 12
Performance bonuses 6 14
Social security taxes 3 3
Share-based payments 5 7
Termination benefits - 1
$ 22 $ 37
===== =====
10. Cash and Cash Equivalents
Cash and cash equivalents were denominated in the following
currencies:
30 June 31 December
US$ million 2015 2014
-------- ------------
US dollar $ 887 $ 943
Russian rouble 53 108
Ukrainian hryvnia 38 3
Others 18 32
-------- ------------
$ 996 $ 1,086
======== ============
The above cash and cash equivalents mainly consist of cash at
banks.
11. Equity
Share Capital
30 June 31 December
Number of shares 2015 2014
-------------- --------------
Issued and fully paid
Ordinary shares of $1 each 1,506,527,294 1,506,527,294
Treasury Shares
30 June 31 December
Number of shares 2015 2014
----------- ------------
Number of treasury shares 98,532,528 -
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 April 2015, EVRAZ
plc repurchased 108,458,508 own shares ($336 million). The Group
incurred $3 million of transaction costs, which were charged to
accumulated profits.
Subsequently, 9,925,980 shares were transferred to the
participants of Incentive Plans. The cost of treasury shares
transferred to the participants of Incentive Plans, amounted to $31
million.
In 2014, the Group purchased 7,252,575 shares of EVRAZ plc for
$13 million and transferred 7,251,922 shares to the participants of
Incentive Plans. The cost of treasury shares transferred to the
participants of Incentive Plans, amounting to $13 million, was
charged to accumulated profits.
Earnings per Share
Earnings per share are calculated by dividing the net income
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period. Diluted
earnings per share amounts are calculated by dividing the net
profit attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the period
plus the weighted average number of ordinary shares that would be
issued on the conversion of all the potential dilutive ordinary
shares into ordinary shares.
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The following reflects the profit and share data used in the
basic and diluted earnings per share computations:
Six-month period
ended 30 June
----------------------------------
2015 2014
Weighted average number of ordinary shares outstanding during the period 1,466,710,794 1,505,402,864
Effect of dilution: share options 34,505,010 25,615,845
---------------- ----------------
Weighted average number of ordinary shares adjusted for the effect of dilution 1,501,215,804 1,531,018,709
Profit for the period attributable to equity holders of the parent entity, US$
million $ 19 $ 52
Basic earnings per share $ 0.01 $ 0.03
Diluted earnings per share $ 0.01 $ 0.03
There have been no other transactions involving ordinary shares
or potential ordinary shares between the reporting date and the
date of completion of these interim condensed consolidated
financial statements.
12. Loans and Borrowings
Short-term and long-term loans and borrowings were as
follows:
30 June 31 December
US$ million 2015 2014
---------- ------------
Bank loans $ 1,707 $ 1,662
8.25% notes due 2015 129 138
7.40% notes due 2017 600 600
9.5% notes due 2018 509 509
6.75% notes due 2018 850 850
7.5% senior secured notes due 2019 350 350
6.50% notes due 2020 1,000 1,000
8.75% bonds due 2015 - 69
9.95% bonds due 2015 195 267
8.40% bonds due 2016 360 356
Liabilities under 7.75% bonds due 2017
assumed in business combination 392 392
Fair value adjustment to liabilities
assumed in business combination 18 20
Other liabilities - 1
Unamortised debt issue costs (54) (57)
Interest payable 73 74
---------- ------------
$ 6,129 $ 6,231
========== ============
Some of the loan agreements and terms and conditions of notes
provide for certain covenants in respect of EVRAZ plc and its
subsidiaries. The covenants impose restrictions in respect of
certain transactions and financial ratios, including restrictions
in respect of indebtedness and profitability.
Pledged Assets
The Group pledged its rights under some export contracts as
collateral under the loan agreements. All proceeds from sales of
steel pursuant to these contracts can be used to satisfy the
obligations under the loan agreements in the event of a
default.
At 30 June 2015 and 31 December 2014, the Group had inventory
with a carrying value of $42 million and $25 million, respectively,
pledged as collateral under the loan agreements.
At 30 June 2015, 100% shares of Mezhegeyugol and EVRAZ Caspian
Steel were pledged as collateral under bank loans with a carrying
value of $247 million. These subsidiaries represented 2.6% of the
consolidated assets at 30 June 2015 and had $53 million of external
revenues in the reporting period.
Partial Repurchase of the 9.95% Bonds Due 2015
In April 2015, the Group partially repurchased 9.95% notes due
2015 for a cash consideration of $80 million. The nominal value of
the repurchased notes was $81 million. As a result, the Group
recognised a $1 million gain within gain/(loss) on financial assets
and liabilities caption of the consolidated statement of
operations.
Unutilised Borrowing Facilities
As of 30 June 2015, the Group had unutilised bank loans in the
amount of $1,340 million, including $272 million of committed
facilities.
13. Commitments and Contingencies
Operating Environment of the Group
The Group is one of the largest vertically integrated steel
producers globally and the largest steel producer in Russia. The
Group's major subsidiaries are located in Russia, Ukraine, the USA
and Canada. Russia and Ukraine are considered to be developing
markets with higher economic and political risks. Steel consumption
is affected by the cyclical nature of demand for steel products and
the sensitivity of that demand to worldwide general economic
conditions.
The global economic recession resulted in a significantly lower
demand for steel products and decreased profitability. In addition,
the political crisis over Ukraine led to an additional uncertainty
in the global economy. The unrest in the Southeastern region of
Ukraine and the economic sanctions imposed on Russia caused the
depreciation of national currencies, economic slowdown,
deterioration of liquidity in the banking sector, and tighter
credit conditions within Russia and Ukraine. In addition, the
decreased crude oil prices have a negative impact on the Russian
economy. The combination of the above resulted in reduced access to
capital, a higher cost of capital, increased inflation and
uncertainty regarding economic growth. If the Ukrainian crisis
broadens and further sanctions are imposed on Russia, this could
have an adverse impact on the Group's business.
Management believes it is taking appropriate measures to support
the sustainability of the Group's business in the current
circumstances.
The global economic climate continues to be unstable and this
may negatively affect the Group's results and financial position in
a manner not currently determinable.
Taxation
Russian and Ukrainian tax, currency and customs legislation is
subject to varying interpretations, and changes, which can occur
frequently. Management's interpretation of such legislation as
applied to the transactions and activity of the Group may be
challenged by the relevant regional and federal authorities.
Management believes that it has paid or accrued all taxes that
are applicable. Where uncertainty exists, the Group has accrued tax
liabilities based on management's best estimate of the probable
outflow of resources embodying economic benefits, which will be
required to settle these liabilities. Possible liabilities which
were identified by management at the end of the reporting period as
those that can be subject to different interpretations of the tax
laws and other regulations and are not accrued in these financial
statements could be up to approximately $22 million.
Contractual Commitments
At 30 June 2015, the Group had contractual commitments for the
purchase of production equipment and construction works for an
approximate amount of $118 million.
In 2010, the Group concluded a contract for the construction of
an air separation plant and for the supply of oxygen and other
gases produced by a third party at this plant for a period of 20
years. Due to a change in plans of the third party provider and in
management's assessment of the extent of sales of gases to third
parties the Group no longer considers this supply contract to fall
within the scope of IFRIC 4 "Determining whether an Arrangement
Contains a Lease". The Group has a committed expenditure of $442
million over the life of the contract.
Social Commitments
The Group is involved in a number of social programmes aimed to
support education, healthcare and social infrastructure development
in towns where the Group's assets are located. The Group budgeted
to spend approximately $42 million under these programmes in the
second half of 2015.
Environmental Protection
In the course of the Group's operations, the Group may be
subject to environmental claims and legal proceedings. The
quantification of environmental exposures requires an assessment of
many factors, including changing laws and regulations, improvements
in environmental technologies, the quality of information available
related to specific sites, the assessment stage of each site
investigation, preliminary findings and the length of time involved
in remediation or settlement.
The Group has a number of environmental claims and proceedings
which are at an early stage of investigation. Environmental
provisions in relation to these proceedings that were recognised at
31 December 2014 amounted to $8 million. Preliminary estimates
available of the incremental costs indicate that such costs could
be up to $89 million. The Group has insurance agreements, which
will provide partial reimbursement of the costs actually incurred.
Management believes that, as of now, an economic outflow of the
additional costs is not probable and any pending environmental
claims or proceedings will not have a material adverse effect on
its financial position and results of operations.
In addition, the Group has committed to various environmental
protection programmes covering periods from 2015 to 2022, under
which the Group will perform works aimed at reductions in
environmental pollution and contamination. As of 30 June 2015, the
costs of implementing these programmes are estimated at $144
million.
Legal Proceedings
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