TIDMEVR
RNS Number : 3134G
Evraz Plc
01 March 2018
EVRAZ plc
EVRAZ PUBLISHES 2017 ANNUAL REPORT AND REPORTS FULL YEAR 2017
RESULTS
1 March 2018 - EVRAZ plc ("EVRAZ" or "the Company") (LSE: EVR)
has today:
-- posted its Annual Report for the year ended 31 December 2017
("2017 Annual Report") on its website:
http://www.evraz.com/investors/annual_reports/; and
-- submitted to the UK National Storage Mechanism a copy of its
2017 Annual Report in accordance with LR 9.6.1 R.
The 2017 Annual Report will shortly be available for inspection
on the National Storage Mechanism
http://www.morningstar.co.uk/uk/NSM
The 2017 Annual Report and the Notice of the Company's Annual
General Meeting, which will be held on 19 June 2018 in London, will
be posted to shareholders in mid-May 2018.
The Appendix to this announcement contains additional
information which has been extracted from the 2017 Annual Report
for the purposes of compliance with DTR 6.3.5 only and should be
read in conjunction with this announcement. Together these
constitute the material required by DTR 6.3.5 and DTR 4.2.3 to be
communicated to the media in unedited full text through a
Regulatory Information Service. This announcement should be read in
conjunction with and is not a substitute for reading the full 2017
Annual Report. Page and note references in the text below refer to
page numbers and notes in the 2017 Annual Report.
EVRAZ ANNOUNCES ITS AUDITED RESULTS FOR THE YEARED 31 DECEMBER
2017
The financial information contained in this document does not
constitute statutory accounts as defined by section 435 of the
Companies Act 2006. Financial information for 2016 has been
extracted from the audited statutory accounts for the year ended 31
December 2016 which were prepared in accordance with IFRS as
adopted by the European Union and have been delivered to the
Registrar of Companies. The auditor's report on those financial
statements was unqualified with no reference to matters to which
the auditor drew attention by way of emphasis and no statement
under s498(2) or s498(3) of the Companies Act 2006. The financial
information for the year ended 31 December 2017 will be delivered
to the Registrar of Companies following the Company's annual
general meeting convened for 19 June 2018. The auditor has reported
on the statutory accounts for the year ended 31 December 2017. The
auditor's report was unqualified.
FY 2017 HIGHLIGHTS
-- Strong free cash flow of US$1,322 million (FY2016: US$659 million)
-- Continued reduction in net debt: US$4.0 billion (FY2016: US$4.8 billion)
-- Total EBITDA effect from cost-cutting and customer focus
initiatives was US$267 million in 2017
-- Consolidated EBITDA of $2,624m, up 70.2% from $1,542m in
FY2016, driving the EBITDA margin from 20.0% to 24.2%, due to
strong market conditions and numerous improvement initiatives
-- Net profit of US$759 million vs. net loss of US$188 million in FY2016
-- Cash-cost of steel and raw materials in Russia increased
mostly as a result of rouble appreciation:
o cash cost of slabs increased to US$247/t from US$183/t in
FY2016
o cash costs of washed coking coal of US$42/t (FY2016:
US$30/t)
o cash costs of iron ore products (58% Fe content) of US$34/t
(FY2016: US$26/t)
-- A second interim dividend of US$429.6 million (US$0.30 per
share) has been declared, reflecting the Board's confidence in the
Group's financial position and outlook.
Financial Highlights
(US$ million) FY2017 FY2016 Change,%
------------------------------------------ ----------------- ----------------- ---------
Consolidated revenue 10,827 7,713 40.4
------------------------------------------ ----------------- ----------------- ---------
Profit/loss from operations 1,986 463 n/a
------------------------------------------ ----------------- ----------------- ---------
Consolidated EBITDA(1) 2,624 1,542 70.2
------------------------------------------ ----------------- ----------------- ---------
Net profit/(loss) 759 (188) n/a
------------------------------------------ ----------------- ----------------- ---------
Earnings/(loss) per share, basic (US$) 0.49 (0.15) n/a
------------------------------------------ ----------------- ----------------- ---------
Net cash flows from operating activities 1,957 1,503 30.2
------------------------------------------ ----------------- ----------------- ---------
CAPEX(2) 603 428 40.9
------------------------------------------ ----------------- ----------------- ---------
31 December 2017 31 December 2016
------------------------------------------ ----------------- ----------------- ---------
Net debt(3) 3,966 4,802 (17.4)
------------------------------------------ ----------------- ----------------- ---------
Total assets 10,380 9,204 12.8
------------------------------------------ ----------------- ----------------- ---------
(1) See p.267 of EVRAZ plc Annual Report 2017 for the definition
of EBITDA.
(2) Including payments on deferred terms recognised in financing
activities and non-cash transactions.
(3) See p.267 of EVRAZ plc Annual Report 2017 for the
calculation of net debt.
EVRAZ Chief Executive Officer, Alexander Frolov, commented
"EVRAZ benefited from an upswing on the global markets, as well
as from ongoing strategic initiatives on cost-cutting and product
development. These factors helped to generate strong EBITDA of
US$2,624 million in 2017. The Group's business model also attained
a fundamentally new level of sustainability as the net debt/EBITDA
ratio reached 1.5x.
Overall in 2017, our cost-cutting initiatives delivered the
EBITDA effect of US$163 million. Combined with a US$104 million
gain from customer-focus efforts, EVRAZ' total EBITDA effect from
initiatives was US$267 million in 2017. We believe that these
improvement processes are vital for our long-term
competitiveness.
The strength of the underlying cash flow generation and
continuing success with deleveraging have allowed us to announce a
formal dividend policy.
As we progress in 2018, we remain committed to our vision and
believe that our pipeline of investment projects and operational
efforts, combined with favourable market conditions will enable us
to generate strong financial results and benefit all our
stakeholders."
CONFERENCE CALL
A conference call to discuss the results hosted by Alexander
Frolov, CEO, and Nikolay Ivanov, CFO, will commence on Thursday, 1
March 2018, at:
2 pm (London Time)
5 pm (Moscow Time)
9 am (New York Time)
To join the call please dial:
+44 1452 55 5566 London
+7 499 677 1036 Russia
+1 631 510 7498 New York
Conference ID 6199752
To avoid any technical inconveniences it is recommended that
participants dial in 10 minutes before the event start time.
The FY2017 results presentation will be available on the
Company's website www.evraz.com on Thursday, 1 March 2018, at the
following link:
http://www.evraz.com/investors/financial_results/presentations/
MP3 recording will be available on Friday, 2 March 2018, at the
following link:
http://www.evraz.com/investors/financial_results/conference_calls/
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
Financial review
Statement of operations
CAPEX and key projects
Financing and liquidity
Key recent developments
Review of operations by Segment
APPIX
Key RISKS AND UNCERTAINTIES
DIVIDS
DIRECTOR'S RESPONSIBILITY STATEMENT
Financial review
Statement of operations
In its full-year financial results for 2017, EVRAZ reported an
increase of 40.4% year-on-year in consolidated revenues, which were
US$10,827 million compared with US$7,713 million in 2016. This
performance was driven partially by higher volumes but mostly by an
upswing in prices for steel and coal products amid more favourable
market trends.
In 2017 EBITDA increased significantly mainly driven by improved
market conditions in steel and coal markets as well as efficiency
initiatives. In 2017 EBITDA reached US$2,624 million, up 70.2% from
US$1,542 million in 2016, boosting the EBITDA margin from 20.0% to
24.2% and increasing free cash flow to US$1,322 million.
The Steel segment's revenues (including intersegment) increased
by 40.9% year-on-year to US$7,743 million, or 63.0% of the Group's
total before elimination. The growth was mainly attributable to
higher revenues from sales of steel products, which rose by 39.8%
year-on-year, largely due to an upturn in average sales prices of
38.6% that was underpinned by favourable market conditions. Steel
product sales volumes remained strong in 2017 (+1.2% y-o-y).
The Steel, North America segment's revenues grew by 27.3%
year-on-year. Prices rose by 18.7% and volumes climbed by 12.7%,
boosting the segment's revenues from sales of steel products by
31.4%. The key drivers of this growth were an improved demand for
oil country tubular goods (OCTG) following a recovery in oil prices
and a stronger demand for railway products.
The Coal segment's revenues surged by 67.5% year-on-year,
supported largely by higher sales prices, which grew by 62.9% amid
an upward trend in global benchmarks. Volumes rose by 4.6% due to
the stable demand and the improved productivity at mines.
The Steel segment's EBITDA improved, reflecting higher steel and
vanadium prices and the effects of cost-cutting initiatives
implemented in 2017. This was partially offset by an increase in
expenses in US dollar terms as a result of the rouble's
strengthening impact on costs, as well as by rising prices for raw
materials such as coal, iron ore and scrap.
The Steel, North America segment's EBITDA increased
year-on-year, supported by greater revenues from sales of tubular,
railway and flat-rolled products as well as higher expenses in
prior year connected with suspension of production. This was partly
offset by higher prices for scrap and purchased semi-finished
products.
The Coal segment's EBITDA grew year-on-year, mainly because
sales prices rose in line with global benchmarks.
Eliminations mostly reflect unrealised profits or losses that
relate to the inventories produced by the Steel segment on the
Steel, North America segment's balance sheet, and coal inventories
produced by the Coal segment on the Steel segment's balance
sheet.
Revenues
(US$ million)
-------------------------------------------------------------
Segment 2017 2016 Change Change, %
---------------------- -------- ------ ------- ----------
Steel 7,743 5,497 2,246 40.9
---------------------- -------- ------ ------- ----------
Steel, North America 1,864 1,464 400 27.3
---------------------- -------- ------ ------- ----------
Coal 2,214 1,322 892 67.5
---------------------- -------- ------ ------- ----------
Other operations 462 363 99 27.3
---------------------- -------- ------ ------- ----------
Eliminations (1,456) (933) (523) 56.0
---------------------- -------- ------ ------- ----------
Total 10,827 7,713 3,114 40.4
---------------------- -------- ------ ------- ----------
Revenue by region
(US$ million)
------------------------------------------------------------------------
Region 2017 2016 Change Change, %
---------------------------------- ------- ------ ------- ----------
Russia 4,255 3,080 1,175 38.1
----------------------------------
Americas 2,201 1,722 479 27.8
----------------------------------
Asia 2,162 1,372 790 57.6
----------------------------------
CIS (excl. Russia) 812 630 182 28.9
----------------------------------
Europe 1,128 640 488 76.3
----------------------------------
Africa and the rest of the world 269 269 - -
---------------------------------- ------- ------ ------- ----------
Total 10,827 7,713 3,114 40.4
---------------------------------- ------- ------ ------- ----------
EBITDA*
(US$ million)
-----------------------------------------------------------
Segment 2017 2016 Change Change, %
---------------------- ------ ------ ------- ----------
Steel 1,483 1,004 479 47.7
---------------------- ------ ------ ------- ----------
Steel, North America 58 28 30 107.1
---------------------- ------ ------ ------- ----------
Coal 1,226 644 582 90.4
---------------------- ------ ------ ------- ----------
Other operations 21 17 4 23.5
---------------------- ------ ------ ------- ----------
Unallocated (131) (109) (22) 20.2
---------------------- ------ ------ ------- ----------
Eliminations (33) (42) 9 (21.4)
---------------------- ------ ------ ------- ----------
Total 2,624 1,542 1,082 70.2
---------------------- ------ ------ ------- ----------
* For the definition of EBITDA, please refer to p.267 of the
Annual Report 2017
The following table details the effect of the Group's
cost-cutting initiatives.
Effect of Group's cost-cutting initiatives
in 2017
(US$ million)
-------------------------------------------------- ---------
Improving yields and raw material
costs, including 104
-------------------------------------------------- ---------
Improving yields and raw material
costs of Urals and Siberia divisions 61
-------------------------------------------------- ---------
Various improvements at coal beneficiating
plants and mines 30
-------------------------------------------------- ---------
Improving yields and raw material
costs of North American assets and
vanadium operations 13
-------------------------------------------------- ---------
Increasing productivity and cost effectiveness 37
-------------------------------------------------- ---------
Others, including 22
-------------------------------------------------- ---------
Reduction of general and administrative
(G&A) costs and non-G&A headcount 16
-------------------------------------------------- ---------
Optimisation of asset portfolio 6
-------------------------------------------------- ---------
Total 163
-------------------------------------------------- ---------
Revenues, cost of revenue and gross profit
of segments
(US$ million)
------------------------------------------------ --------
Change,
2017 2016 %
---------------------------- -------- -------- --------
Steel segment
---------------------------- -------- -------- --------
Revenues 7,743 5,497 40.9
---------------------------- -------- -------- --------
Cost of revenue (5,795) (4,068) 42.5
---------------------------- -------- -------- --------
Gross profit 1,948 1,429 36.3
---------------------------- -------- -------- --------
Steel, North America
segment
---------------------------- -------- -------- --------
Revenues 1,864 1,464 27.3
---------------------------- -------- -------- --------
Cost of revenue (1,656) (1,243) 33.2
---------------------------- -------- -------- --------
Gross profit 208 221 (5.9)
---------------------------- -------- -------- --------
Coal segment
---------------------------- -------- -------- --------
Revenues 2,214 1,322 67.5
---------------------------- -------- -------- --------
Cost of revenue (973) (701) 38.8
---------------------------- -------- -------- --------
Gross profit 1,241 621 99.8
---------------------------- -------- -------- --------
Other operations - gross
profit 104 85 22.4
---------------------------- -------- -------- --------
Unallocated - gross
profit (8) (7) 14.3
---------------------------- -------- -------- --------
Eliminations - gross
profit (151) (157) (3.8)
---------------------------- -------- -------- --------
Total 3,342 2,192 52.5
---------------------------- -------- -------- --------
Gross profit, expenses and results
(US$ million)
-------------------------------------------------------------------------------------------------
Item 2017 2016 Change Change, %
------------------------------------------------------------ ------ ------ ------- ----------
Gross profit 3,342 2,192 1,150 52.5
------------------------------------------------------------ ------ ------ ------- ----------
Selling and distribution costs (717) (623) (94) 15.1
------------------------------------------------------------ ------ ------ ------- ----------
General and administrative expenses (540) (469) (71) 15.1
------------------------------------------------------------ ------ ------ ------- ----------
Impairment of assets 12 (465) 477 n/a
------------------------------------------------------------ ------ ------ ------- ----------
Foreign exchange gains/(losses), net (54) (48) (6) 12.5
------------------------------------------------------------ ------ ------ ------- ----------
Other operating income and expenses, net (57) (124) 67 (54.0)
------------------------------------------------------------ ------ ------ ------- ----------
Profit/(loss) from operations 1,986 463 1,523 n/a
------------------------------------------------------------ ------ ------ ------- ----------
Interest expense, net (423) (471) 48 (10.2)
------------------------------------------------------------ ------ ------ ------- ----------
Share of profits/(losses) of joint ventures and associates 11 (23) 34 n/a
------------------------------------------------------------ ------ ------ ------- ----------
Loss on financial assets and liabilities, net (57) (9) (48) n/a
------------------------------------------------------------ ------ ------ ------- ----------
Loss on disposal groups classified as held for sale, net (360) - (360) n/a
------------------------------------------------------------ ------ ------ ------- ----------
Other non-operating losses, net (2) (52) 50 (96.2)
------------------------------------------------------------ ------ ------ ------- ----------
Profit/(loss) before tax 1,155 (92) 1,247 n/a
------------------------------------------------------------ ------ ------ ------- ----------
Income tax benefit/(expense) (396) (96) (300) n/a
------------------------------------------------------------ ------ ------ ------- ----------
Net profit/(loss) 759 (188) 947 n/a
------------------------------------------------------------ ------ ------ ------- ----------
In 2017, selling and distribution expenses increased by 15.1%,
mostly due to the stronger rouble and higher sales volumes. General
and administrative expenses rose by 15.1%, primarily because of the
effect that the rouble appreciation had on costs.
Foreign exchange losses amounting to US$54 million mainly
related to intra-group loans denominated in roubles payable by
Evraz Group S.A. to the Russian subsidiaries.
The appreciation of the Russian rouble against the US dollar in
2017 led to exchange losses recognised in income statement of
non-Russian subsidiaries, which are not offset with the exchange
gains recognised in equity of the Russian subsidiaries.
Interest expenses incurred by the Group decreased, mainly due to
the reduction in total debt and the efforts undertaken to refinance
existing facilities during the reporting period.
The interest expense for bank loans, bonds and notes dropped to
US$394 million in 2017, compared with US$439 million a year
earlier.
Losses on financial assets and liabilities amounted to US$57
million and were mostly related to premiums on early repurchases of
bonds denominated in US dollars.
The net loss of US$360 million on disposal groups classified as
held for sale was caused mostly by a reclassification to the
statement of operations of accumulated losses on translation of the
net assets of the sold subsidiaries into presentation currency (US
dollars) in the amount of US$741 million. Subsidiaries with net
assets of US$134 million were sold for consideration of US$515
million net of transaction costs.
For the reporting period, the Group had an income tax expense of
US$396 million, compared with US$96 million a year earlier. The
change reflects the Group's better operating results and income tax
on the sale transaction of EVRAZ Nakhodka Trade Sea Port in the
amount of US$60 million.
Cash flow
(US$ million)
----------------------------------------------------------------------------------------------------------------------
Item 2017 2016 Change Change, %
----------------------------------------------------------------------------- -------- -------- ------- ----------
Cash flows from operating activities before change in working capital 2,111 1,343 768 57.2
----------------------------------------------------------------------------- -------- -------- ------- ----------
Changes in working capital (154) 160 (314) n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows from operating activities 1,957 1,503 454 30.2
----------------------------------------------------------------------------- -------- -------- ------- ----------
Short-term deposits at banks, including interest 7 4 3 75.0
----------------------------------------------------------------------------- -------- -------- ------- ----------
Purchases of property, plant and equipment and intangible assets (595) (382) (213) 55.8
----------------------------------------------------------------------------- -------- -------- ------- ----------
Proceeds from sale of disposal groups classified as held for sale, net of
transaction costs 412 27 385 n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Other investing activities 9 11 (2) (18.2)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows used in investing activities (167) (340) 173 (50.9)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows used in financing activities (1,479) (1,369) (110) (8.0)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Effect of foreign exchange rate changes on cash and cash equivalents (2) (10) 8 (80.0)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net increase/(decrease) in cash and cash equivalents 309 (216) 525 n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Calculation of free cash flow*
(US$ million)
--------------------------------------------------------------------------------- ------ ------ ------- ----------
Item 2017 2016 Change Change, %
--------------------------------------------------------------------------------- ------ ------ ------- ----------
EBITDA 2,624 1,542 1,082 70.2
--------------------------------------------------------------------------------- ------ ------ ------- ----------
EBITDA excluding non-cash items 2,627 1,549 1,078 69.6
--------------------------------------------------------------------------------- ------ ------ ------- ----------
Changes in working capital (154) 160 (314) n/a
--------------------------------------------------------------------------------- ------ ------ ------- ----------
Income tax accrued (485) (183) (302) n/a
--------------------------------------------------------------------------------- ------ ------ ------- ----------
Social and social infrastructure maintenance expenses (31) (23) (8) 34.8
--------------------------------------------------------------------------------- ------ ------ ------- ----------
Net cash flows from operating activities 1,957 1,503 454 30.2
--------------------------------------------------------------------------------- ------ ------ ------- ----------
Interest and similar payments (453) (454) 1 (0.2)
--------------------------------------------------------------------------------- ------ ------ ------- ----------
Capital expenditures, including recorded in financing activities (603) (428) (175) 40.9
--------------------------------------------------------------------------------- ------ ------ ------- ----------
Proceeds from sale of disposal groups classified as held for sale, net of
transaction costs 412 27 385 n/a
--------------------------------------------------------------------------------- ------ ------ ------- ----------
Other cash flows from investing activities 9 11 (2) (18.2)
--------------------------------------------------------------------------------- ------ ------ ------- ----------
Free cash flow 1,322 659 663 100.6
--------------------------------------------------------------------------------- ------ ------ ------- ----------
* For the definition of free cash flow, please refer to p.267 of
the Annual Report 2017.
In 2017, net cash flows from operating activities increased by
30.2% year-on-year. Free cash flow for the period was US$1,322
million.
CAPEX and key projects
In 2017, EVRAZ' capital expenditure increased to US$603 million,
compared with
US$428 million a year earlier, due to significant expenses on
major projects and the strengthening of the rouble exchange rate
against the US dollar. EVRAZ NTMK continued to implement its two
main construction projects during 2017, the blast furnace no. 7 and
the new grinding ball mill, both of which are scheduled to be
launched in Q1 2018. In 2017, the degasser was installed at EVRAZ
Regina's steel mill. This was the last important module of the
upgrade project, making it possible to achieve the project's full
planned effect.
Capital expenditures (including those recognised in financing
activities) for 2017 in millions of US dollars can be summarised as
follows:
Capital expenditures in 2017 (US$ million)
-------------------------------------------- ---- ------------------------------------------------------------------
Blast furnace no. 7 133 The construction of EVRAZ NTMK's blast furnace no. 7 has been in
progress since Q3 2016. It
is due to be launched in Q1 2018.
-------------------------------------------- ---- ------------------------------------------------------------------
Steel mill upgrade 45 The upgrade of EVRAZ Regina's steel mill has been in progress
since Q2 2015. The aim is to
improve steel quality, increase the capacity for casting by 110
kt and rolling by 250 kt,
and result in a crown yield saving from 0.75% to 1.1%. The
project was completed in 2017.
-------------------------------------------- ---- ------------------------------------------------------------------
Grinding ball mill construction 8 The construction of EVRAZ NTMK's new grinding ball mill has been
in progress since Q2 2015.
It is due to be completed in Q1 2018 and is expected to increase
ball production to more than
300 kt by 2019.
-------------------------------------------- ---- ------------------------------------------------------------------
Boiler modernisation 7 The modernisation of EVRAZ ZSMK's boiler unit no. 9 has been in
progress since Q3 2016. It
was launched in Q4 2017, making it possible to achieve the
project's planned effect.
-------------------------------------------- ---- ------------------------------------------------------------------
Other development projects 43
-------------------------------------------- ---- ------------------------------------------------------------------
Maintenance 367
-------------------------------------------- ---- ------------------------------------------------------------------
Total 603
-------------------------------------------- ---- ------------------------------------------------------------------
Financing and liquidity
EVRAZ began 2017 with total debt of US$5,961 million. Throughout
the year, the Group prepaid and refinanced several of its bank
financing facilities, further reducing its financial leverage and
debt service costs.
In two transactions, amounting to US$110 million in January and
US$270 million in July, EVRAZ prepaid the remaining outstanding
principal of its US$500 million syndicated preexport financing
facility. The Group also prepaid its UniCredit Bank and Nordea Bank
loans in the amounts of US$44 million and US$13 million,
respectively.
In August, the Group partially repaid and refinanced the
remainder of its loan from Gazprombank. This transaction reduced
the outstanding balance, converted the rouble-denominated part into
US dollars, repriced the facility and extended the final maturity
to 2022. Upon completion of this transaction, the loan from
Gazprombank consists of a tranche denominated in US dollars of
US$152 million and a euro-denominated tranche of EUR180
million.
In September, EVRAZ prepaid US$99 million toward one of its
outstanding loans from VTB.
To fund the prepayments, the Group raised several new bank
loans: a six-year, US$200 million credit from Alfa-Bank, as well as
two-, three-, and five-year tranches totalling US$300 million from
Sberbank. In November, it also borrowed US$100 million from
ING DiBa with final maturity in 2022.
In October, EVRAZ' North American subsidiaries entered into a
new US$450 million asset-based lending facility maturing in 2022,
which was arranged by JP Morgan Chase Bank N.A. and a syndicate of
banks. This agreement is intended to finance the North American
operations' working capital needs and has replaced a similar
facility that would have matured in 2019.
During 2017, EVRAZ was also active on capital markets completing
several transactions.
In March, Evraz Group S.A. issued a US$750 million Eurobond due
in 2023 with a semi-annual coupon of 5.375%, which is the lowest
rate in the Group's history. The proceeds were used to fund the
tender offer for the Eurobonds due in 2018 and 2020. The Group
partially repurchased the 9.50% notes due in 2018 (US$50 million),
the 6.75% notes due in 2018 (US$332 million) and the 6.50% bonds
due in 2020 (US$300 million). The total cash outflow was US$726
million, including the premium paid over the nominal value.
In October, Evraz Group S.A. completed an early redemption, at
the make-whole price, of its 9.5% notes due in 2018 with a
principal amount of US$75 million and its 6.75% notes due in 2018
with a principal amount of US$196 million. The total cash outflow
was US$285 million, including the premium paid over the nominal
value.
In May, Evraz Inc. NA Canada called US$345 million of its 7.50%
senior secured notes due in 2019. In September, it called the
remaining US$5 million outstanding of these notes in full. These
two transactions resulted in a total cash outflow of US$364
million, including the premium paid over the nominal value.
These activities, as well as scheduled drawings and repayments
of bank loans, brought the Group's total debt down by US$529
million to US$5,432 million as at 31 December 2017. Net debt
dropped by US$836 million to US$3,966 million, compared with
US$4,802 million as at 31 December 2016.
Mainly due to decreasing total debt and the Group's efforts to
refinance existing facilities during 2017, interest expenses
accrued in respect of loans, bonds and notes decreased to US$394
million for the reporting period, compared with US$439 million a
year earlier.
Net debt to EBITDA stood at 1.5 times, compared with 3.1 times
as at 31 December 2016.
At the year-end, the Group had a total outstanding principal of
around US$1,772 million on debt with financial maintenance
covenants, comprised of various bilateral facilities. The
maintenance covenants under these facilities include the two key
ratios that are calculated based on EVRAZ plc's consolidated
financial statements: a maximum net leverage and a minimum EBITDA
interest coverage ratio. As of the year-end, EVRAZ was in full
compliance with its financial covenants.
As at 31 December 2017, the Group had accumulated US$1,466
million of cash and cash equivalents. It had additional liquidity
sources available in the form of US$131 million in committed and
US$1,251 million in uncommitted credit facilities.
At the year-end, short-term loans and the current portion of
long-term loans totalled US$148 million. Cash on hand and committed
credit facilities were more than sufficient to cover all of EVRAZ'
debt principal maturing in 2018 and 2019.
Key recent developments
In February 2018, EVRAZ repaid two US$100 million loans from
Alfa Bank due 2019, a US$200 million loan from Alfa Bank due 2023
and a US$100 million loan from Sberbank due 2020. The Group
financed these repayments with a combination of its cash balances
and a new 5-year US$300 million term loan from Alfa bank. These
transactions resulted in an extension of maturity profile and
reduction of interest charges.
Review of operations by Segment
(US$ Steel Steel, NA Coal Other
million)
----------- -------------- -------------- -------------- ------------
2017 2016 2017 2016 2017 2016 2017 2016
----------- ------ ------ ------ ------ ------ ------ ----- -----
Revenues 7,743 5,497 1,864 1,464 2,214 1,322 462 363
----------- ------ ------ ------ ------ ------ ------ ----- -----
EBITDA 1,483 1,004 58 28 1,226 644 21 17
----------- ------ ------ ------ ------ ------ ------ ----- -----
EBITDA
margin 19.2% 18.3% 3.1% 1.9% 55.4% 48.7% 4.5% 4.7%
----------- ------ ------ ------ ------ ------ ------ ----- -----
CAPEX 358 163 107 166 126 93 7 6
----------- ------ ------ ------ ------ ------ ------ ----- -----
Steel segment
Sales review
In 2017, revenues from the Steel segment climbed by 40.9% to
US$7,743 million, compared with US$5,497 million a year earlier.
The segment's revenues were affected by rising steel sales prices,
primarily for semi-finished, construction and railway products.
Revenues from external sales of semi-finished products grew by
48.9% due to a 46.5% uptick in average prices. Most of the
incremental revenues came from higher prices for billets and slabs
and increased export volumes of semi-finished products.
Revenues from sales of construction products to third parties
surged by 21.8% due to an upswing of 31.1% in average prices. This
was partly offset by a 9.3% reduction in sales volumes, primarily
on the Russian market, which was affected by heightened
competition.
Revenues from external sales of railway products rose due to a
34.8% increase in prices, which was supported by market upside and
growth of 13.0% in sales volumes. Greater sales of railway products
during the reporting period were attributable to higher demand for
wheels as the Russian market entered a new cycle in railcar
production.
External revenues from flat-rolled products jumped by 93.2%,
driven by surges of 47.6% in average prices and 45.6% in sales
volumes amid an improving market situation. This was in line with
global market trends and the increased production volumes at EVRAZ
Palini e Bertoli.
The share of sales to the Russian market edged down from 49.7%
in 2016 to 48.4% in 2017, mainly due to a shift in sales to Europe
and the CIS.
Steel segment revenues from sales of iron ore products climbed
by 23.9%. This was due to an upswing of 54.3% in average prices and
a drop of 30.4% in sales volumes, which stemmed from the
deconsolidation of EVRAZ Sukha Balka in June 2017. In 2017, around
66.5% of EVRAZ' iron ore consumption in steelmaking came from the
Group's own operations, compared with 68.4% a year earlier.
Steel segment revenues from sales of vanadium products surged by
81.1% due to increases of 71.8% in average prices and 9.3% in sales
volumes, despite the deconsolidation of Strategic Minerals
Corporation following its disposal in April 2017. The positive
price trend was in line with global benchmarks, which were driven
by stronger demand influenced by changes to China's environmental
policy and a scarcity of production facilities.
Steel segment revenues by products
2017 2016
--------- ------------------------------------ -------------------------
US$ % of total segment US$ % of total segment
million revenues million revenues Change,%
------------------------- --------- ------------------------- --------- ------------------------- ---------
Steel products, external
sales 6,219 80.3 4,469 81.3 39.2
------------------------- --------- ------------------------- --------- ------------------------- ---------
Semi-finished
products(*) 2,523 32.6 1,694 30.8 48.9
------------------------- --------- ------------------------- --------- ------------------------- ---------
Construction
products(**) 2,171 28.0 1,783 32.4 21.8
------------------------- --------- ------------------------- --------- ------------------------- ---------
Railway products(***) 863 11.1 584 10.6 47.8
------------------------- --------- ------------------------- --------- ------------------------- ---------
Flat-rolled
products(****) 313 4.0 162 2.9 93.2
------------------------- --------- ------------------------- --------- ------------------------- ---------
Other steel
products(*****) 349 4.6 246 4.6 41.9
------------------------- --------- ------------------------- --------- ------------------------- ---------
Steel products,
intersegment sales 284 3.7 184 3.3 54.3
------------------------- --------- ------------------------- --------- ------------------------- ---------
Including sales to
Steel, North America 270 3.5 176 3.2 53.4
------------------------- --------- ------------------------- --------- ------------------------- ---------
Iron ore products 192 2.5 155 2.8 23.9
------------------------- --------- ------------------------- --------- ------------------------- ---------
Vanadium products 545 7.0 301 5.5 81.1
------------------------- --------- ------------------------- --------- ------------------------- ---------
Other revenues 503 6.5 388 7.1 29.6
------------------------- --------- ------------------------- --------- ------------------------- ---------
Total 7,743 100.0 5,497 100.0 40.9
------------------------- --------- ------------------------- --------- ------------------------- ---------
* Includes billets, slabs, pig iron, pipe blanks and other
semi-finished products.
** Includes rebars, wire rods, wire, beams, channels and
angles.
*** Includes rails, wheels, tyres and other railway
products.
**** Includes commodity plate and other flat-rolled
products.
***** Includes rounds, grinding balls, mine uprights and strips,
tubular products.
Geographic breakdown of external steel product sales
(US$ million)
-------------------------------------------------------------------
2017 2016 Change, %
--------------------------------------- ------ ------ ----------
Russia 3,012 2,222 35.6
--------------------------------------- ------ ------ ----------
Asia 1,492 1,001 49.1
--------------------------------------- ------ ------ ----------
Europe 701 438 60.0
--------------------------------------- ------ ------ ----------
CIS 528 384 37.5
--------------------------------------- ------ ------ ----------
Africa, America and rest of the world 486 424 14.6
--------------------------------------- ------ ------ ----------
Total 6,219 4,469 39.2
--------------------------------------- ------ ------ ----------
Steel segment cost of revenue
In 2017, the Steel segment's cost of revenues increased by 42.5%
year-on-year. The main reasons for the growth were:
-- The cost of raw materials rose by 59.3%, primarily due to an
increase in prices for all key raw materials, (particularly for
coking coal, iron ore and scrap) and the stronger rouble. This was
accompanied by higher production volumes at EVRAZ ZSMK versus 2016,
when planned capital repairs to blast furnaces were performed. The
growth in raw material costs was partially offset by cost-cutting
initiatives, which reduced consumption.
-- Costs for auxiliary materials grew by 6.4% in the view of the
rouble strengthening impact on costs, as well as higher prices for
electrodes. This was partially offset by a reduction of US$12
million in costs following the disposal of EVRAZ Sukha Balka in
June 2017 and Strategic Minerals Corporation in April 2017.
-- Higher service costs were mainly driven by the appreciation of the Russian currency.
-- Transportation costs increased by 29.4%, primarily due to the
stronger rouble and higher export sales volumes of steel
products.
-- Staff costs increased by 16.2%, largely because of the effect
that rouble strengthening had on costs, accompanied by wage
inflation at Russian sites. This was partially offset by a
reduction of US$14 million in costs following the disposal of EVRAZ
Sukha Balka and Strategic Minerals Corporation.
-- Depreciation and depletion costs increased by 13.1%,
primarily due to the rouble's appreciation.
-- Energy costs were higher due to the stronger rouble and
increased tariffs in local currencies.
-- Other costs increased, primarily due to changes in goods for
resale and semi-finished products.
Steel segment cost of revenue
2017 2016
----------------------------------- ----------------------------------- ----------
US$ million % of segment revenue US$ million % of segment revenue Change, %
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Cost of revenue 5,795 74.8 4,068 74.0 42.5
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Raw materials 2,756 35.6 1,730 31.5 59.3
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Iron ore 485 6.3 292 5.3 66.1
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Coking coal 1,356 17.5 830 15.1 63.4
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Scrap 466 6.0 277 5.0 68.2
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Other raw materials 449 5.8 331 6.1 35.6
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Auxiliary materials 334 4.3 314 5.7 6.4
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Services 269 3.5 221 4.0 21.7
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Transportation 449 5.8 347 6.3 29.4
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Staff costs 530 6.8 456 8.3 16.2
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Depreciation 241 3.1 213 3.9 13.1
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Energy 474 6.1 395 7.2 20.0
-------------------------- ------------ --------------------- ------------ --------------------- ----------
Other* 742 9.6 392 7.1 89.3
-------------------------- ------------ --------------------- ------------ --------------------- ----------
* Includes goods for resale, taxes in cost of revenues,
semi-finished products and inter-segment unrealised profit.
Steel segment gross profit
The Steel segment's gross profit surged by 36.3% year-on-year,
driven primarily by higher steel and vanadium prices. This was
partially offset by a rise in prices for purchased raw materials
and the effect that rouble strengthening had on costs.
Steel, North America segment
Sales review
The segment's revenues from steel product sales increased
significantly as a result of improved prices and volumes, by 18.7%
and 12.7%, respectively. This was mainly attributable to greater
demand on the tubular market, mostly for OCTG and small-diameter
line pipe, as well as stronger sales volumes for seamless pipe.
Railway product revenues surged by 33.2%, driven by a 17.1%
increase in volumes, accompanied by a 16.1% increase in average
selling prices. Demand for rail improved after Class I railroads
finished destocking.
Revenues from flat-rolled products increased due to an upswing
in prices of 19.3%, which was partially offset by a decline in
sales volumes of 4.5%.
Revenues from tubular product sales grew by 48.8% year-on-year
due to increases of 40.3% in volumes and 8.5% in prices. The growth
in sales volumes was driven by improved demand for OCTG amid a
recovery in drilling activities that was led by rising oil prices.
The reduced demand for large diameter line pipe products, which was
caused by the slow pace of project approvals, partially offset the
growth in revenues from tubular products.
Steel, North America segment revenues by product
2017 2016
-------------------------------------- --------------------------------------- ----------
% of total segment % of total segment
US$ million revenue US$ million revenue Change, %
------------------------- ------------ ------------------------ ------------ ------------------------- ----------
Steel products 1,774 95.2 1,350 92.2 31.4
------------------------- ------------ ------------------------ ------------ ------------------------- ----------
Semi-finished products 4 0.2 - - n/a
------------------------- ------------ ------------------------ ------------ ------------------------- ----------
Construction
products(*) 159 8.5 158 10.8 0.6
------------------------- ------------ ------------------------ ------------ ------------------------- ----------
Railway products(**) 309 16.6 232 15.8 33.2
------------------------- ------------ ------------------------ ------------ ------------------------- ----------
Flat-rolled
products(***) 427 22.9 372 25.4 14.8
------------------------- ------------ ------------------------ ------------ ------------------------- ----------
Tubular products(****) 875 47.0 588 40.2 48.8
------------------------- ------------ ------------------------ ------------ ------------------------- ----------
Other revenues(*****) 90 4.8 114 7.8 (21.1)
------------------------- ------------ ------------------------ ------------ ------------------------- ----------
Total 1,864 100.0 1,464 100.0 27.3
------------------------- ------------ ------------------------ ------------ ------------------------- ----------
* Includes beams, rebars and structural tubing.
** Includes rails and wheels.
*** Includes commodity plate, specialty plate and other
flat-rolled products.
**** Includes large-diameter line pipes, ERW pipes and casing,
seamless pipes, casing and tubing.
***** Includes scrap and services.
Steel, North America segment cost of revenue
In 2017, the Steel, North America segment's cost of revenues
rose by 33.2% year-on-year. The main drivers were:
-- Raw material costs increased by 65.0%, primarily because of
higher scrap prices, accompanied by increased consumption of other
raw materials due to higher sales of tubular products driven by the
market recovery in the reporting period.
-- Costs of semi-finished products grew by 61.2% due to higher
prices for purchased semi-finished products and increased sales
volumes of steel products.
-- Auxiliary material costs increased by 42.3%, as production
volumes of crude steel and finished products were higher
year-on-year.
-- Service costs went up 14.8%, as sales volumes increased year-on-year.
-- Energy costs grew due to higher rates and greater sales volumes of steel products.
-- Other costs were down for the reporting period, primarily due
to changes in work in progress and finished goods and allowances
for inventories.
Steel North America segment cost of revenue
2017 2016
----------------------------------- ----------------------------------- ----------
US$ million % of segment revenue US$ million % of segment revenue Change, %
------------------------- ------------ --------------------- ------------ --------------------- ----------
Cost of revenue 1,656 88.8 1,243 84.9 33.2
------------------------- ------------ --------------------- ------------ --------------------- ----------
Raw materials 645 34.6 391 26.7 65.0
------------------------- ------------ --------------------- ------------ --------------------- ----------
Semi-finished products 303 16.3 188 12.8 61.2
------------------------- ------------ --------------------- ------------ --------------------- ----------
Auxiliary materials 148 7.9 104 7.1 42.3
------------------------- ------------ --------------------- ------------ --------------------- ----------
Services 124 6.7 108 7.4 14.8
------------------------- ------------ --------------------- ------------ --------------------- ----------
Staff costs 254 13.6 195 13.3 30.3
------------------------- ------------ --------------------- ------------ --------------------- ----------
Depreciation 95 5.1 97 6.6 (2.1)
------------------------- ------------ --------------------- ------------ --------------------- ----------
Energy 111 6.0 85 5.8 30.6
------------------------- ------------ --------------------- ------------ --------------------- ----------
Other* (24) (1.4) 75 5.2 (n/a
------------------------- ------------ --------------------- ------------ --------------------- ----------
* Includes primarily allowances for inventories, goods for
resale, certain taxes, transportation and inter-segment unrealised
profit.
Steel, North America segment gross profit
The Steel, North America segment's gross profit totalled US$208
million for 2017, down from US$221 million a year earlier. While
the decline was primarily caused by higher prices for scrap and
purchased semi-finished products, it was partially offset by an
increase in revenues due to improved market conditions.
Coal segment
Sales review
The segment's overall revenues increased sharply amid rising
sales prices as global market trends remained favourable. This was
driven by supply disruptions caused by the ongoing capacity
optimisation programme in China and extreme weather conditions in
Australia.
Sales volumes rose due to higher annual output at the
Raspadskaya and the Raspadskaya-Koksovaya mines, as well as the
launch of commercial production at Mezhegeyugol.
Revenues from internal sales of coal products grew, mainly
because of a surge in prices of 78.4% and an uptick in volumes of
1.4%. This was in line with the upward trends seen among global
benchmarks.
Revenues from external sales of coal products rose due to growth
of 61.1% in prices and 6.4% in sales volumes, which was driven by
stable, positive demand on the domestic and export markets and
higher coal production volumes.
In 2017, the Coal segment's sales to the Steel segment amounted
to US$830 million (37.5% of total sales), compared with US$483
million (36.5%) a year earlier.
During the reporting period, roughly 50.0% of EVRAZ' coking coal
consumption in steelmaking came from the Group's own operations,
compared with 47.5% in 2016.
Coal segment revenues by product
2017 2016
---------------------------------------- ----------------------------------------- ----------
% of total segment
US$ million revenue US$ million % of total segment revenue Change, %
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
External sales
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
Coal products 1,266 57.2 756 57.2 67.5
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
Coking coal 174 7.9 66 5.0 163.6
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
Coal concentrate 1,092 49.3 690 52.2 58.3
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
Inter-segment sales
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
Coal products 811 36.6 451 34.1 79.8
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
Coking coal 75 3.4 42 3.2 78.6
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
Coal concentrate 736 33.2 409 30.9 80.0
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
Other revenues 137 6.2 115 8.7 19.1
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
Total 2,214 100.0 1,322 100.0 67.5
--------------------- ------------ -------------------------- ------------ --------------------------- ----------
Coal segment cost of revenue
The main drivers of the year-on-year increase in the Coal
segment's cost of revenues were as follows:
-- The consumption of auxiliary materials rose by 55.0% amid an
increase in mine openings and higher drilling meterage. This was
accompanied by growth in prices for auxiliary materials and spare
parts, as well as by the rouble's appreciation impact on costs. The
increase in auxiliary materials costs was partially offset by the
effect of cost-cutting initiatives.
-- Costs for services climbed due to the stronger rouble, the
rescheduled longwall repositioning at Yuzhkuzbassugol's mines, the
growth of service costs to drill degassing holes and the increase
in open-pit mining works at the Raspadskaya-Koksovaya mine.
-- Transportation costs grew in the reporting period, primarily
due to the higher share of exports in the sales mix, which had a
negative impact on trading companies. This was accompanied by the
appreciation of the rouble and an increase in tariffs for the
supply of wagons.
-- Staff costs were up because of rouble strengthening and wage
inflation at Russian sites. This was partially offset by a
reduction of US$7 million due to the disposal of EVRAZ Nakhodka
Trade Sea Port.
-- Depreciation and depletion costs rose, primarily due to the stronger Russian currency.
-- The growth in energy costs was attributable to the impact of
the stronger rouble on costs and higher electricity prices in local
currencies.
-- Other costs decreased in the reporting period, mainly due to
changes in work in progress and finished goods. This was partially
offset by higher taxes after the mineral tax rate was increased, as
well as the effect of rouble strengthening.
Coal segment cost of revenue
2017 2016
----------------------------------- ----------------------------------- ----------
US$ million % of segment revenue US$ million % of segment revenue Change, %
------------------------- ------------ --------------------- ------------ --------------------- ----------
Cost of revenue 973 43.9 701 53.0 38.8
------------------------- ------------ --------------------- ------------ --------------------- ----------
Auxiliary materials 124 5.6 80 6.1 55.0
------------------------- ------------ --------------------- ------------ --------------------- ----------
Services 114 5.1 85 6.4 34.1
------------------------- ------------ --------------------- ------------ --------------------- ----------
Transportation 259 11.7 136 10.3 90.4
------------------------- ------------ --------------------- ------------ --------------------- ----------
Staff costs 198 8.9 164 12.4 20.7
------------------------- ------------ --------------------- ------------ --------------------- ----------
Depreciation/depletion 162 7.3 134 10.1 20.9
------------------------- ------------ --------------------- ------------ --------------------- ----------
Energy 49 2.2 37 2.8 32.4
------------------------- ------------ --------------------- ------------ --------------------- ----------
Other* 67 3.1 65 4.9 3.1
------------------------- ------------ --------------------- ------------ --------------------- ----------
* Includes primarily goods for resale and certain taxes,
allowance for inventory, raw materials and inter-segment unrealised
profit.
Coal segment gross profit
The Coal segment's gross profit for 2017 amounted to US$1,241
million, up from US$621 million a year earlier, primarily due to
higher sales prices.
APPIX
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 2018 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
2017 Annual Report on pages 38 to 39, copies of which are available
at http://www.evraz.com/investors/annual_reports/, are relevant in
2018 and the mitigating actions described are appropriate.
Principal risks:
Risk Mitigating/ risk management actions
----------------------- --------------------------------------------------------------
Global economic This is an external risk that
factors, industry is mostly outside the Group's
conditions control; however, it is partly
and mitigated by exploring new market
cyclicality opportunities, focusing on expanding
the share of value-added products,
further downscaling inefficient
assets, suspending production
in low-growth regions, further
reducing and managing the cost
base with the objective of being
among the sector's lowest-cost
producers, and balance sheet/gearing
improvement.
----------------------- --------------------------------------------------------------
Product competition Expand product portfolio and penetrate
new geographic and product markets.
Develop and improve loyalty and
customer focus programmes and
initiatives.
Quality improvement initiatives.
Focus on expanding the share of
value-added products.
----------------------- --------------------------------------------------------------
Cost effectiveness For both the mining and steelmaking
operations, the Group is implementing
cost-reduction projects to increase
asset competitiveness.
Focused investment policy aimed
at reducing and managing the cost
base.
Further expansion and control
of the Group's Russian steel distribution
network.
Development of high value-added
products.
----------------------- --------------------------------------------------------------
Treasury: availability Action to extend the debt maturity
of finance profile and diversify sources
of funding, as well as proactively
manage the remaining portion of
debt subject to maintenance covenants.
Liquidity risk is managed by revisiting
capital expenditure plans, cost
optimisation programmes, and continued
asset portfolio rationalisation.
Counterparty risk with commercial
customers is managed through a
combination of letters of credit
and, where creditworthiness is
uncertain, by prepayments.
----------------------- --------------------------------------------------------------
Functional EVRAZ works to reduce the amount
currency of intergroup loans denominated
devaluation in Russian roubles and Ukrainian
hryvnias to limit the possible
devaluation effect on its consolidated
net income.
----------------------- --------------------------------------------------------------
HSE: environmental Environmental risks matrix is
monitored on a regular basis.
Respective mitigation activity
is developed and performed in
response to the risks.
Implementation of air emissions
and water use reduction programmes
at plants. Waste management improvement
programmes.
Most of EVRAZ' operations are
certified under ISO 14001 and
the Group continues to work towards
bringing the remaining plants
to ISO 14001 requirements. EVRAZ
is currently compliant with REACH
requirements.
Participation in development of
GHG emissions regulation in Russia.
Reduction in GHG emissions as
a positive side-effect of energy
efficiency projects.
----------------------- --------------------------------------------------------------
HSE: health, Management KPIs place significant
safety emphasis on safety performance
and the standardisation of critical
safety programmes.
Implementing an energy isolation
programme.
Further development of a programme
of behaviour safety observations
which drives a more proactive
approach to preventing injuries
and incidents.
A series of health and safety
initiatives related to underground
mining.
Maintenance and repair modernisation
programmes, downtime management
system.
Development of occupational safety
risk assessment methodology.
Analysis of effectiveness of corrective
measures.
----------------------- --------------------------------------------------------------
Potential government While these risks are mostly outside
action the Group's control, EVRAZ and
its executive teams are members
of various national industry bodies.
As a result, they contribute to
the development of such bodies
and, when appropriate, participate
in relevant discussions with political
and regulatory authorities.
Procedures have been implemented
and will be further developed
to ensure that sanction requirements
are complied with across the Group's
operations.
----------------------- --------------------------------------------------------------
Business interruption The Group has defined and established
disaster recovery procedures that
are subject to regular review.
Business interruptions in mining
mainly relate to production safety.
Measures to mitigate these risks
include methane monitoring and
degassing systems, timely mining
equipment maintenance, and employee
safety training.
Detailed incident cause analysis
is performed in order to develop
and implement preventative actions.
Records of minor interruptions
are reviewed to identify any more
significant underlying issues.
----------------------- --------------------------------------------------------------
Cybersecurity Further development of a cybersecurity
and IT protection system, focused on:
infrastructure * isolation and protection of industrial networks
failure
* antivirus software systems update
* upgrade and expansion of backup system
* implementation of incident monitoring systems and
other measures.
----------------------- --------------------------------------------------------------
EVRAZ monitors these risks and actively pursues strategies to
mitigate them on an ongoing basis.
DIVIDS
Dividend policy
The strength of the underlying cash flow generation and
continuing success with deleveraging, have allowed the Company to
announce a formal dividend policy.
Going forward, the Company aims to declare dividends of a
minimum amount of US$300 million per annum to be paid in
semi-annual instalments of minimum US$150 million each following
interim and full year results.
Based upon the financial performance of the business, the Board
may consider a higher distribution level, taking into account the
outlook for our major markets, the Board's view of the long-term
growth prospects of the business and future capital investment
requirements, as well as the Company's commitment to maintain a
strong balance sheet.
In line with our existing capital allocation policy, no
dividends will be paid out if Net Debt/EBITDA is above 3.0x.
Second interim dividend
Given the improving performance throughout 2017, EVRAZ has
announced a second interim dividend. On 28 February 2018, the Board
of Directors voted to disburse a total of US$429.6 million, or
US$0.30 per share. The record date is 9 March 2018 and payment date
is 29 March 2018.
The move underscores the solid results delivered and free cash
flow generated, which allowed the Group to spend US$836 million on
reducing net debt as well as pay dividends. By the year-end, the
net debt/EBITDA ratio had decreased to 1.5x.
The second interim dividend will be paid in US Dollars, unless a
shareholder elects to receive dividends in UK pounds sterling or
Euros. The last date for submitting a Currency Election will be 12
March 2018. All conversions will take place on or around 13 March
2018.
DIRECTOR'S RESPONSIBILITY STATEMENT
Each of the directors whose names and functions are listed on
pages 108-111 of the Annual report confirm that to the best of
their knowledge:
-- the consolidated financial statements of EVRAZ plc, prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as
a whole (the 'Group');
-- the management report required by DTR 4.1.8R includes a fair
review of the development and performance of the business and the
position of the Company and the Group, together with a description
of the principal risks and uncertainties that they face.
By order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
28 February 2018
EVRAZ plc
Consolidated Statement of Operations
(in millions of US dollars, except for per share
information)
Year ended 31 December
Notes 2017 2016 2015
Continuing operations
Revenue
Sale of goods 3 $ 10,520 $ 7,477 $ 8,552
Rendering of services 3 307 236 215
--------- --------- ---------
10,827 7,713 8,767
Cost of revenue 7 (7,485) (5,521) (6,583)
Gross profit 3,342 2,192 2,184
Selling and distribution
costs 7 (717) (623) (728)
General and administrative
expenses 7 (540) (469) (553)
Social and social infrastructure
maintenance expenses (31) (23) (28)
Loss on disposal of property,
plant and equipment (4) (22) (41)
Impairment of assets 6 12 (465) (441)
Foreign exchange gains/(losses),
net (54) (48) (367)
Other operating income 39 22 28
Other operating expenses 7 (61) (101) (78)
--------- --------- ---------
Profit/(loss) from operations 1,986 463 (24)
Interest income 7 14 10 9
Interest expense 7 (437) (481) (475)
Share of profits/(losses)
of joint ventures and
associates 11 11 (23) (20)
Gain/(loss) on financial
assets and liabilities,
net 7 (57) (9) (48)
Gain/(loss) on disposal
groups classified as held
for sale, net 12 (360) - 21
Loss of control over a
subsidiary 4 - - (167)
Other non-operating gains/(losses),
net 7 (2) (52) (3)
Profit/(loss) before tax 1,155 (92) (707)
Income tax benefit/(expense) 8 (396) (96) (12)
--------- --------- ---------
Net profit/(loss) $ 759 $ (188) $ (719)
========= ========= =========
Attributable to:
Equity holders of the
parent entity $ 699 $ (215) $ (644)
Non-controlling interests 60 27 (75)
--------- --------- ---------
$ 759 $ (188) $ (719)
========= ========= =========
Earnings/(losses) per
share for profit/(loss)
attributable to equity
holders of the parent
entity, US dollars:
Basic 20 $ 0.49 $ (0.15) $ (0.45)
Diluted 20 $ 0.48 $ (0.15) $ (0.45)
Here and after in the press-release the note numbers refer to
notes in the Annual Report and Accounts.
EVRAZ plc
Consolidated Statement of Comprehensive Income
(in millions of US dollars)
Year ended 31 December
Notes 2017 2016 2015
Net profit/(loss) $ 759 $ (188) $ (719)
Other comprehensive income/(loss)
Other comprehensive income
to be reclassified to
profit or loss in subsequent
periods
Exchange differences on
translation of foreign
operations into presentation
currency 266 543 (820)
Exchange differences recycled
to profit or loss on disposal
of subsidiaries 4,12 747 - 142
Net gains/(losses) on
available-for-sale financial
assets 13 30 - -
Net gains/(losses) on
cash flow hedges 25 9 - -
1,052 543 (678)
Effect of translation
to presentation currency
of the Group's joint ventures
and associates 11 4 13 (27)
4 13 (27)
Items not to be reclassified
to profit or loss in subsequent
periods
Gains/(losses) on re-measurement
of net defined benefit
liability 23 26 11 1
Income tax effect 8 (15) - (5)
-------- -------- ----------
11 11 (4)
Decrease in revaluation
surplus in connection
with the impairment of
property, plant and equipment 9 - - (1)
Income tax effect 8 - - -
-------- -------- ----------
- - (1)
Total other comprehensive
income/(loss) 1,067 567 (710)
-------- -------- ----------
Total comprehensive income/(loss),
net of tax $ 1,826 $ 379 $ (1,429)
======== ======== ==========
Attributable to:
Equity holders of the
parent entity $ 1,762 $ 341 $ (1,340)
Non-controlling interests 64 38 (89)
-------- -------- ----------
$ 1,826 $ 379 $ (1,429)
======== ======== ==========
EVRAZ plc
Consolidated Statement of Financial Position
(in millions of US dollars)
31 December
Notes 2017 2016 2015
------------- ------------ ------------
Assets
Non-current assets
Property, plant and equipment 9 $ 4,933 $ 4,652 $ 4,302
Intangible assets other
than goodwill 10 259 297 324
Goodwill 5 917 880 1,176
Investments in joint ventures
and associates 11 79 64 74
Deferred income tax assets 8 173 156 119
Other non-current financial
assets 13 151 91 79
Other non-current assets 13 39 45 56
------------- ------------ ------------
6,551 6,185 6,130
Current assets
Inventories 14 1,198 984 899
Trade and other receivables 15 731 502 447
Prepayments 89 60 50
Loans receivable 11 13 5
Receivables from related
parties 16 12 8 6
Income tax receivable 50 43 44
Other taxes recoverable 17 225 192 127
Other current financial
assets 18 47 33 35
Cash and cash equivalents 19 1,466 1,157 1,375
------------- ------------ ------------
3,829 2,992 2,988
Assets of disposal groups
classified as held for
sale 12 - 27 1
------------- ------------ ------------
3,829 3,019 2,989
------------- ------------ ------------
Total assets $ 10,380 $ 9,204 $ 9,119
============= ============ ============
Equity and liabilities
Equity
Equity attributable to
equity holders of the parent
entity
Issued capital 20 $ 1,507 $ 1,507 $ 1,507
Treasury shares 20 (231) (270) (305)
Additional paid-in capital 2,500 2,517 2,501
Revaluation surplus 111 112 124
Unrealised gains and losses 13,25 39 - -
Accumulated profits 635 415 644
Translation difference (2,777) (3,790) (4,335)
------------- ------------ ------------
1,784 491 136
Non-controlling interests 32 242 186 133
------------- ------------ ------------
2,026 677 269
Non-current liabilities
Long-term loans 22 5,243 5,502 5,850
Deferred income tax liabilities 8 328 348 352
Employee benefits 23 284 317 301
Provisions 24 269 205 146
Other long-term liabilities 25 54 94 116
Amounts payable under put
options for shares in subsidiaries 4 61 - -
------------- ------------ ------------
6,239 6,466 6,765
Current liabilities
Trade and other payables 26 1,128 935 1,070
Advances from customers 272 266 228
Short-term loans and current
portion of long-term loans 22 148 392 497
Payables to related parties 16 256 226 143
Income tax payable 67 39 17
Other taxes payable 27 212 169 107
Provisions 24 32 26 23
2,115 2,053 2,085
Liabilities directly associated
with disposal groups classified
as held for sale 12 - 8 -
------------- ------------ ------------
2,115 2,061 2,085
------------- ------------ ------------
Total equity and liabilities $ 10,380 $ 9,204 $ 9,119
============= ============ ============
EVRAZ plc
Consolidated Statement of Cash Flows
(in millions of US dollars)
Year ended 31 December
2017 2016 2015
Cash flows from operating activities
Net profit/(loss) $ 759 $ (188) $ (719)
Adjustments to reconcile net
profit/(loss) to net cash flows
from operating activities:
Deferred income tax (benefit)/expense
(Note 8) (89) (87) (87)
Depreciation, depletion and
amortisation (Note 7) 561 521 585
Loss on disposal of property,
plant and equipment 4 22 41
Impairment of assets (12) 465 441
Foreign exchange (gains)/losses,
net 54 48 367
Interest income (14) (10) (9)
Interest expense 437 481 475
Share of (profits)/losses of
associates and joint ventures (11) 23 20
(Gain)/loss on financial assets
and liabilities, net 57 9 48
(Gain)/loss on disposal groups
classified as held for sale,
net 360 - (21)
Loss of control over a subsidiary - - 167
Other non-operating (gains)/losses,
net 2 52 3
Bad debt expense 10 1 18
Changes in provisions, employee
benefits and other long-term
assets and liabilities (26) (7) (56)
Expense arising from equity-settled
awards (Note 21) 17 16 20
Other 2 (3) -
------- -------- --------
2,111 1,343 1,293
Changes in working capital:
Inventories (199) (17) 204
Trade and other receivables (201) (38) 55
Prepayments (27) (1) 9
Receivables from/payables to
related parties 24 136 66
Taxes recoverable (32) (32) (34)
Other assets (2) (3) (3)
Trade and other payables 150 40 3
Advances from customers 19 20 100
Taxes payable 123 62 (72)
Other liabilities (9) (7) 1
Net cash flows from operating
activities 1,957 1,503 1,622
Cash flows from investing activities
Issuance of loans receivable
to related parties (2) (1) (2)
Issuance of loans receivable (2) - (2)
Proceeds from repayment of
loans receivable, including
interest 4 2 7
Purchases of subsidiaries,
net of cash acquired (Note
4) (5) - -
Restricted deposits at banks
in respect of investing activities (1) 1 (3)
Short-term deposits at banks,
including interest 7 4 4
Purchases of property, plant
and equipment and intangible
assets (595) (382) (423)
Proceeds from disposal of property,
plant and equipment 15 7 10
Proceeds from sale of disposal
groups classified as held for
sale, net of transaction costs
(Note 12) 412 27 44
Dividends received 1 1 -
Other investing activities,
net (1) 1 6
----- ----- -----
Net cash flows used in investing
activities (167) (340) (359)
Continued on the next page
EVRAZ plc
Consolidated Statement of Cash Flows (continued)
(in millions of US dollars)
Year ended 31 December
2017 2016 2015
Cash flows from financing activities
Purchase of treasury shares
(Note 20) $ - $ - $ (339)
Contributions of non-controlling
shareholders to the Group's
subsidiaries 2 13 6
Sale of non-controlling interests
(Note 4) - - 1
Payments for investments on
deferred terms (Note 11) (11) (8) (2)
Dividends paid by the parent
entity to its shareholders
(Note 20) (430) - -
Proceeds from bank loans and
notes 2,441 1,301 3,801
Repayment of bank loans and
notes, including interest (3,344) (2,428) (3,961)
Net proceeds from/(repayment
of) bank overdrafts and credit
lines, including interest (139) (5) (9)
Payments under covenants reset - (4) -
Restricted deposits at banks
in respect of financing activities (13) - -
Payments for purchase of property,
plant and equipment on deferred
terms - - (5)
Gain/(loss) on derivatives
not designated as hedging instruments
(Note 25) 2 (250) (464)
Gain/(loss) on hedging instruments
(Note 25) 14 14 5
Collateral under swap contracts - - 7
Payments under finance leases,
including interest (2) (1) (1)
Other financing activities,
net 1 (1) (1)
Net cash flows used in financing
activities (1,479) (1,369) (962)
Effect of foreign exchange
rate changes on cash and cash
equivalents (2) (10) (12)
Net increase/(decrease) in
cash and cash equivalents 309 (216) 289
Cash and cash equivalents at
the beginning of the year 1,157 1,375 1,086
----------- ----------- -----------
Decrease/(increase) in cash
of disposal groups classified
as assets held for sale (Note
12) - (2) -
=========== =========== ===========
Cash and cash equivalents at
the end of the year $ 1,466 $ 1,157 $ 1,375
=========== =========== ===========
Supplementary cash flow information:
Cash flows during the year:
Interest paid $ (405) $ (413) $ (443)
Interest received 8 6 4
Income taxes paid by the Group (427) (149) (204)
EVRAZ plc
Consolidated Statement of Changes in Equity
(in millions of US dollars)
Attributable to equity holders of the parent
entity
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Unrealised
Additional gains
Issued Treasury paid-in Revaluation and Accumulated Translation Non-controlling Total
capital shares capital surplus losses profits difference Total interests equity
------------------------ ------------------------ ----------------------- -------------------- --------------------- ------------------------ -------------------------- ---------------------- -------------------- ------------------------
At 31 December
2016 $ 1,507 $ (270) $ 2,517 $ 112 $ - $ 415 $ (3,790) $ 491 $ 186 $ 677
Net profit - - - - - 699 - 699 60 759
Other
comprehensive
income/(loss) - - - - 39 11 1,013 1,063 4 1,067
Reclassification
of revaluation
surplus
to accumulated
profits
in respect of the
disposed items of
property, plant
and
equipment - - - (1) - 1 - - - -
Reclassification
of additional
paid-in
capital in
respect
of the disposed
subsidiaries - - (34) - - 34 - - - -
Total
comprehensive
income/(loss) for
the period - - (34) (1) 39 745 1,013 1,762 64 1,826
Derecognition of
non-controlling
interests
on sale of
subsidiaries
(Note 12) - - - - - - - - (6) (6)
Derecognition of
non-controlling
interests
under put options
(Note 4) - - - - - (56) - (56) (4) (60)
Contribution of a
non-controlling
shareholder
to share capital
of the Group's
subsidiary - - - - - - - - 2 2
Transfer of
treasury
shares to
participants
of the Incentive
Plans (Notes 20
and
21) - 39 - - - (39) - - - -
Share-based
payments
(Note 21) - - 17 - - - - 17 - 17
Dividends declared
by the parent
entity
to its
shareholders
(Note 20) - - - - - (430) - (430) - (430)
At 31 December
2017 $ 1,507 $ (231) $ 2,500 $ 111 $ 39 $ 635 $ (2,777) $ 1,784 $ 242 $ 2,026
======================== ======================== ======================= ==================== ===================== ======================== ========================== ====================== ==================== ========================
EVRAZ plc
Consolidated Statement of Changes in Equity (continued)
(in millions of US dollars)
Attributable to equity holders of the parent
entity
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Unrealised
Additional gains
Issued Treasury paid-in Revaluation and Accumulated Translation Non-controlling Total
capital shares capital surplus losses profits difference Total interests equity
At 31 December
2015 $ 1,507 $ (305) $ 2,501 $ 124 $ - $ 644 $ (4,335) $ 136 $ 133 $ 269
Net loss - - - - - (215) - (215) 27 (188)
Other
comprehensive
income/(loss) - - - - - 11 545 556 11 567
Reclassification
of revaluation
surplus
to accumulated
profits
in respect of
the
disposed items
of
property, plant
and
equipment - - - (12) - 12 - - - -
Total
comprehensive
income/(loss) for
the period - - - (12) - (192) 545 341 38 379
Acquisition of
non-controlling
interests in
subsidiaries - - - - - (2) - (2) 2 -
Contribution of a
non-controlling
shareholder
to share capital
of the Group's
subsidiary - - - - - - - - 13 13
Transfer of
treasury
shares to
participants
of the Incentive
Plans (Notes 20
and
21) - 35 - - - (35) - - - -
Share-based
payments
(Note 21) - - 16 - - - - 16 - 16
At 31 December
2016 $ 1,507 $ (270) $ 2,517 $ 112 $ - $ 415 $ (3,790) $ 491 $ 186 $ 677
======================== ======================== ======================= ==================== ==================== ======================== ========================== ==================== ==================== ======================
EVRAZ plc
Consolidated Statement of Changes in Equity (continued)
(in millions of US dollars)
Attributable to equity holders of the parent
entity
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Unrealised
Additional gains
Issued Treasury paid-in Revaluation and Accumulated Translation Non-controlling Total
capital shares capital surplus 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 loss - - - - - (644) - (644) (75) (719)
Other
comprehensive
income/(loss) - - - (1) - (4) (691) (696) (14) (710)
Reclassification
of revaluation
surplus
to accumulated
profits
in respect of
the
disposed
subsidiaries - - - (28) - 28 - - - -
Reclassification
of revaluation
surplus
to accumulated
profits
in respect of
the
disposed items
of
property, plant
and
equipment - - - (2) - 2 - - - -
------------------------ ------------------------ ----------------------- -------------------- -------------------- -------------------------- -------------------------- ---------------------- -------------------- ------------------------
Total
comprehensive
income/(loss)
for
the period - - - (31) - (618) (691) (1,340) (89) (1,429)
Derecognition of
non-controlling
interests
in connection
with
the loss of
control
over a
subsidiary
(Note 4) - - - - - - - - (4) (4)
Non-controlling
interests
arising on sale
of
ownership
interests
in subsidiaries - - - - - (3) - (3) 2 (1)
Contribution of a
non-controlling
shareholder
to share capital
of the Group's
subsidiary - - - - - - - - 6 6
Purchase of
treasury
shares (Note 20) - (336) - - - (3) - (339) - (339)
Transfer of
treasury
shares to
participants
of the Incentive
Plans (Notes 20
and
21) - 31 - - - (31) - - - -
Share-based
payments
(Note 21) - - 20 - - - - 20 - 20
At 31 December
2015 $ 1,507 $ (305) $ 2,501 $ 124 $ - $ 644 $ (4,335) $ 136 $ 133 $ 269
======================== ======================== ======================= ==================== ==================== ========================== ========================== ====================== ==================== ========================
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSFKFDKCBKDQBB
(END) Dow Jones Newswires
March 01, 2018 02:01 ET (07:01 GMT)
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