TIDMEVR
RNS Number : 3229I
Evraz Plc
08 August 2019
EVRAZ plc
EVRAZ ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR H1
2019
8 August 2019 - EVRAZ plc ("EVRAZ" or "the Group"; LSE: EVR)
today announces its unaudited interim results for the six months
ended 30 June 2019 ("the Period").
H1 2019 HIGHLIGHTS
-- Free cash flow generation remained strong at US$692m (H1 2018: US$661m).
-- Consolidated EBITDA totalled US$1,482m, down 22.2% from
US$1,906m in H1 2018, driving the EBITDA margin down to 24.1% from
30.0% due to lower vanadium, coal and steel product prices.
-- EBITDA effect from cost-cutting and customer focus initiatives amounted to US$150m.
-- Total debt dropped by US$112m to US$4,526m (FY2018:
US$4,638m), while net debt increased by US$79m to US$3,650m
(FY2018: US$3,571m) due to the recognition under the new IFRS 16
Leases standard on the balance sheet of operating leases that were
not recognised as a liability under the previous standard.
-- Net profit was US$344m, compared with US$1,145m in H1 2018.
-- The cash cost of steel and raw materials in Russia was mostly lower:
o The cash cost of slabs decreased to US$230/t from US$248/t in
H1 2018
o The cash cost of washed coking coal fell to US$34/t from
US$47/t in H1 2018
o The cash cost of iron ore products was nearly flat at US$38/t
(H1 2018: US$37/t)
-- In Q2 2019 the US lifted the 25% Section 232 tariffs on steel
imports from Canada and Canada removed its retaliatory tariffs. The
US anti-dumping duty for imports of line pipe (16" or greater)
produced in Canada was reduced from 24% to 12%.
-- An interim dividend for 2019 of US$508.17m (US$0.35 per
share) has been declared, reflecting the Board's confidence in the
Group's financial position and outlook.
Financial Highlights
(US$m) H1 2019 H1 2018 Change, %
------------------------------------------ ------------- ----------------- ----------
Consolidated revenues 6,140 6,343 (3.2)
------------------------------------------ ------------- ----------------- ----------
Profit from operations 913 1,731 (47.3)
------------------------------------------ ------------- ----------------- ----------
Consolidated EBITDA(1) 1,482 1,906 (22.2)
------------------------------------------ ------------- ----------------- ----------
Net profit 344 1,145 (70.0)
------------------------------------------ ------------- ----------------- ----------
Earnings per share, basic (US$) 0.22 0.77 (71.4)
------------------------------------------ ------------- ----------------- ----------
Net cash flows from operating activities 1,175 932 26.1
------------------------------------------ ------------- ----------------- ----------
CAPEX(1) 309 232 33.2
------------------------------------------ ------------- ----------------- ----------
30 June 2019 31 December 2018
------------------------------------------ ------------- ----------------- ----------
Net debt(1) 3,650 3,571 2.2
------------------------------------------ ------------- ----------------- ----------
Total assets 9,826 9,373 4.8
------------------------------------------ ------------- ----------------- ----------
(1) For the definition, see "Definitions of selected alternative
performance measures".
Commenting on the results, EVRAZ' Chief Executive Officer,
Alexander Frolov, said:
"We have finished the first half of the year with a set of
rather healthy results, supported by positive trends in our key
product markets. In Russia, we saw a recovery of the construction
activity and, as a result, an increase in the consumption of most
of our products.
Our EBITDA reached almost US$1.5 billion, a 22% decline in
year-on-year terms, amid depressed vanadium prices and lower
average coking coal prices. This resulted in a slight increase of
the net debt to LTM EBITDA ratio to 1.1x times as at 30 June 2019,
compared with 0.9 times as at 31 December 2018.
The efficiency programme generated US$111 million of additional
EBITDA during the period, mostly through productivity growth, yield
improvements and numerous savings projects. Together with customer
focus initiatives, these amounted to $150 million in total.
Our total CAPEX reached US$309 million. Major investment
projects are currently in the equipment supplier selection stage or
the engineering phase. Overall, the Group invested US$79 million in
development CAPEX in the first half of 2019.
Given the solid results, the Board of Directors are recommending
an interim dividend for 2019 of US$0.35 per share, totalling
roughly US$508 million, which is in line with the previously
announced payout policy.
In the second half of 2019, EVRAZ expects the markets to be
volatile. Our financial performance will be supported by the high
level of vertical integration, the strength of the Russian steel
market and our continuing efforts in efficiency improvements."
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.
CONFERENCE CALL
A conference call to discuss the results, hosted by Alexander
Frolov, CEO, and Nikolay Ivanov, CFO, will be held on Thursday, 8
August 2019, at:
3 pm (London time)
5 pm (Moscow time)
10 am (New York time)
To join the call, please dial:
+44 (0)330 336 UK
9411
+7 495 646 9190 Russia
+1 929 477 0402 US
Conference ID: 6506107
To avoid any technical inconvenience, it is recommended that
participants dial in 10 minutes before the start of the call.
The presentation for the call will be available on the Group's
website, www.evraz.com, on Thursday, 8 August 2019, at the
following link:
https://www.evraz.com/en/investors/reports-and-results/financial-results/
An MP3 recording will be available on Friday, 9 August 2019, at
the following link:
https://www.evraz.com/en/investors/reports-and-results/financial-results/
Table of contents
Strategic goals IN 2019
HEALTH, SAFETY and ENVIRONMENT
HUMAN CAPITAL
CUSTOMER FOCUS
ASSET DEVELOPMENT
EVRAZ BUSINESS SYSTEM
Market outlook
Global markets
Russian Steel
North America
Coal
2019 YEAR- OUTLOOK
Financial review
Statement of operations
CAPEX and key projects
Financing and liquidity
Recent developments
Review of operations by Segment
Steel segment
Steel, North America segment
Coal segment
Key RISKS AND UNCERTAINTIES
DIVIDS
DIRECTOR'S RESPONSIBILITY STATEMENT
Definitions of selected alternative performance measures
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Strategic goals IN 2019
EVRAZ remains committed to its strategy of maintaining
leadership in infrastructure steel products with low-cost
production along the value chain. The strategy focuses on five
success factors: health, safety and the environment (HSE); human
capital; customer focus; asset development; and the EVRAZ Business
System.
HEALTH, SAFETY and ENVIRONMENT
Employees' health and safety are and always will be EVRAZ'
foremost priority. The Group strives to maintain a lost-time injury
frequency ratio (LTIFR) of less than 1.0. During the period, EVRAZ
focused on implementing its safety leadership development programme
and risk management system, which together will serve as the basis
for improving its safety culture. The Group has finished analysing
its HSE system as the first step in a transformation programme, set
to be launched in H2 2019 that aims to make cardinal changes in the
safety culture. The LTIFR trend was negative compared with the same
period last year at 2.07x in H1 2019 versus 1.76x in H1 2018.
Tragically, there were 13 fatal accidents, including ten employees
and three contractors in H1 2019. The most serious incident
happened in February at the Raspadsky open pit, where eight
employees died in an accident involving a crew bus in a quarry.
EVRAZ remains committed to its ultimate goal of reaching zero
fatalities at all sites.
HUMAN CAPITAL
The Group believes that the engagement and competence of its
employees are the foundation for continuous improvement at its
operations. During the period, EVRAZ continued its existing
development programmes and launched several new initiatives. The
Top-300 programme, a transformative journey for mine directors and
shop superintendents, has finished its first wave of participants
and proved to be successful. The next wave will start in October
2019 and will involve more than 100 people. EVRAZ has also
conducted information days in May at almost every plant to
communicate its strategy and performance results. Given the
development plans for the coal business and various important
investment projects ongoing, special recruitment centres have been
established in the Coal and Siberia divisions. Among other new
initiatives, a mentorship programme is ramping up at production
facilities to teach more experienced workers how to mentor their
junior colleagues. To better align salaries with performance, a new
motivation system has been developed so employees can be paid more
for reaching ambitious production targets. By the end of H1 2019,
total headcount was 67,813. Labour productivity for steel products
per person was 387t in the period, compared with 368t in H1
2018.
CUSTOMER FOCUS
EVRAZ strives to develop new types of products and secure its
market shares to ensure that it remains the leading producer of
infrastructure steel.
The Group continued to develop its programme aimed at promoting
demand for beams and structural products in construction and
improving the availability of its products to clients. EVRAZ' sales
of beams climbed from 290kt in H1 2018 to 345kt in H1 2019.
Another major initiative of EVRAZ is a joint client project with
Russian Railways. New types of services and technical requirements
are being developed through the collaboration between the two
companies. The Group strives to continuously provide better railway
products and has posted a national record for its rails from EVRAZ
ZSMK of 1.5 billion tonne-kilometres in gross tonnage moved at
Russian Railways' research and development facility. EVRAZ' sales
of rails from its Russian mills grew from 463kt in H1 2018 to 493kt
in H1 2019.
The Russian steel market saw significant growth during the
period of 10 -15% for major construction products, supported by a
recovery on the real estate market. EVRAZ maintained strong market
shares for key products of 68% in beams, 39% in structural
products, 30% in railway wheels and 83% in rails.
On the coal market, the Group is expanding its shipments to
export destinations after ramping up mining volumes. In addition to
shipments via ports in Russia's Far East, EVRAZ is also increasing
shipments to Baltic ports to meet client needs. In the period, the
Group's sales to India, China and Vietnam rose. Total export sales
grew from 3.9mt in H1 2018 to 4.2mt in H1 2019.
Given the strong demand for large-diameter energy pipe in the US
and Canada, EVRAZ made a significant effort to boost its sales to
the market. The re-launch of EVRAZ Portland's spiral mill and
addition of EVRAZ Regina's Mill-5, gives the Group capacity to
profitably serve both the US and Canadian markets. Another two
positive catalysts for the Group's business were the elimination of
US Section 232 tariffs and Canadian retaliatory tarrifs between the
two countries, as well as the reduction in US anti-dumping duties
from 24% to 12% for line pipe in sizes greater than 16 inches
imported into the US from Canada. Sales of large-diameter pipe
(LDP) climbed from 76kt in H1 2018 to 157kt in H1 2019. While the
domestic rail market was stable, EVRAZ was able to increase its
sales from 202kt in H1 2018 to 221kt in H1 2019. Market share
reached 40%, up from 38% in H1 2018.
In the vanadium segment, EVRAZ retained its target market shares
in core regions during the period (30-35% in the EU, 10-15% in the
US and 95% in the CIS) and further expanded its customer base in
Asia and South America. The Group lowered the share of long-term
contracts from 75% in H1 2018 to 70% to improve its participation
on the spot market.
Altogether, customer focus initiatives generated additional
EBITDA of US$39m during the period, mainly due to sales efforts in
beams, grinding balls and vanadium, as well as to improvements in
logistics efficiency.
ASSET DEVELOPMENT
EVRAZ focuses on developing its asset base through its annual
efficiency improvement programme, which consists mainly of
investment projects and operational improvements. During the
period, the Group has been working on the announced investment
programme, as well as on operational target setting for every stage
of production. In H1 2019, internal and external benchmarking were
performed and medium- and long-term technical KPI targets were set
at most plants. The efficiency programme generated US$111m of
additional EBITDA during the period, mostly through productivity
growth, yield improvements and numerous savings projects.
Major announced projects, including the rail and beam mill
modernisation and continuous casting machine no. 5 at EVRAZ NTMK,
integrated flat casting and rolling complex at EVRAZ ZSMK, and long
rail mill at EVRAZ Pueblo, are currently in the equipment supplier
selection stage or the engineering phase.
In the Steel segment, EVRAZ has started reconstruction work at
EVRAZ NTMK's blast furnace no. 6. Blast furnace no. 7, which was
launched last year, reached its average monthly production target
of 215kt. The Group also started stripping and infrastructure work
for the development of the new Sobstvenno-Kachkanarskoye iron ore
deposit at EVRAZ KGOK to ensure the long-term stability of mining
volumes. The new deposit has higher iron and vanadium content than
the existing Gusevogorskoye deposit.
In the Coal division, the Group is ramping up mining volumes at
its existing Raspadskaya and Yuzhkuzbassugol facilities. The
full-scale transition from room-and-pillar mining to longwall
mining at Raspadskaya-Koksovaya and the open pit of the same mine
will help to reach record volumes of 1.7mt by the end of the year.
The Raspadskaya mine is expected to add 1mt by the end of the year
due to increased efficiency.
At EVRAZ North America, EVRAZ Regina's steel and tubular
operations are working at their target parameters. During the
period, EVRAZ Regina's crude steel production reached 508kt, up 4%
from 488kt in H1 2018. EVRAZ' LDP production (including EVRAZ
Portland's operations) reached 159kt, up 52% from 105kt in H1 2018.
EVRAZ Pueblo's newly launched seamless threading line is ramping up
and is expected to reach the planned capacity of 120ktpa by the end
of the year.
Overall, the Group invested US$79m in development CAPEX in H1
2019.
EVRAZ BUSINESS SYSTEM
The EVRAZ Business System (EBS) methodology focuses on target
setting, staff development, management system support, corporate
culture, and process and infrastructure improvements. EBS
transformations serve as the foundation that creates the
infrastructure for continuous improvement at every shop of the
plant.
In H1 2019, new transformations were launched at EVRAZ ZSMK's
electric arc furnace and rail mill, Evrazruda's Tashtagol mine,
EVRAZ NTMK's steelmaking shop, and throughout EVRAZ KGOK's entire
production chain. Another new area for EBS is the logistics
segment, including automobile and railway haulage. By the end of
the year, EVRAZ plans to implement 38 active phases of EBS
transformations in production areas, including 20 in the Siberia
division, 14 in the Urals division and four in the Coal
division.
Market outlook
Global markets
In H1 2019, global steel markets had a softer start in most
regions of the world than in H1 2018. Steel prices, based on
hot-rolled coil (HRC) FOB China contracts, dropped by 12% to
US$523/t in H1 2019 from US$595/t in H1 2018 amid high inventory
levels and production. In H1 2019, YoY steel production growth in
China outpaced apparent steel use growth. At the beginning of the
year, the Chinese government introduced several measures to support
the economy, the effect of which became noticeable on steel markets
in the middle of H1 2019, driving prices to recover. China also
continues to impose output restrictions in its main steelmaking
provinces to curb environmental pollution levels, not limiting them
to the winter season. Meanwhile, global trade protectionism has
helped to improve conditions for local producers, in particular on
the US and EU markets, supporting capacity expansion.
In H1 2019, Chinese steel export volumes remained relatively
stable compared with H1 2018, edging up by only 2% to 36mt.
Apparent steel use in China grew by 11% YoY to 456mt due to higher
than expected growth of fixed asset investment in the real estate
sector.
Iron ore prices surged, breaching the US$100/t threshold in June
for the first time since 2014. Vale's tragic dam accident that took
place in Minas Gerais, Brazil, in January 2019 had a significant
impact on the global iron ore market. As a result, Vale's iron ore
production is expected to fall by around 60mt in 2019. There were
also significant weather disruptions in northern Brazil and
Australia, while Rio Tinto announced that it would reduce its
output by some 20mt in 2019 due to operational challenges. The
supply reduction, coupled with all these events, continues to push
iron ore prices higher. In H1 2019, iron ore prices averaged
US$91/t, up 31% from US$69/t in H1 2018. Chinese iron ore import
volumes descended by 5% to 504mt due to the reduction in supply,
which in turn was offset by a large increase in ore mining in
China.
Coking coal prices remain high, primarily due to the tight
supply and healthy demand. Coal supply from Australia was lower
than expected at the beginning of the year amid harsh weather and
logistical constraints. Hard coking coal prices (FOB Australia)
edged down by 3% to US$202/t, compared with US$208/t in H1 2018.
This led the spread between hard coking coal and semi-soft coking
coal to expand by 15% during the period to almost US$100/t. The
major reasons for this are the shortage of hard coking coal and
partial correlation of semi-soft prices with steam coal, demand for
which fell during the period. Chinese coking coal imports jumped by
30% to 38.5mt due to high levels of steel production.
In H1 2019, the average MB FeV price dropped by 14% to
US$56.3/kgV, compared with US$65.5/kgV in H1 2018 (and down 42%
from US$97.2/kgV in H2 2018). Global vanadium demand was estimated
at around 46.4 thousand mtV in the period, up 7% YoY as a result of
strong consumption growth from rebar producers in China, which was
partly compensated by a sharp decline in demand from the steel
industry outside China. The historically high price levels in
2017-18 led, particularly in China, to a 20% growth of vanadium
production YoY in H1 2019. Together with heavy destocking by end
users, this has swung the market into oversupply, pushing FeV
prices down to US$30-40/kgV in Q2 2019. However, lower vanadium
prices are stimulating demand from steelmakers and vanadium redox
flow battery producers, which will re--balance supply and demand in
the medium term.
Russian Steel
In H1 2019, Russian steel consumption grew by 11% YoY to 22.5mt,
mainly driven by growth in long and flat products.
Demand for long steel surged by 12%. In the railway segment,
demand for wheels grew by a further 18% in H1 2019, driven by the
continued elevated demand from new railcar producers and the higher
number of overhauls due to growth in cargo turnover. Rail
consumption edged down by 1% YoY. In construction steel, the beam
market expanded by 12% and demand for rebar and wire rod climbed by
16% and 13%, respectively, while demand for structural products
rose by 11%. Demand for construction steel is supported first by
the renovation of the housing stock in Moscow and, second, by
changes in the financing of housing construction that have
compelled developers to try to complete their existing projects in
a short time.
In H1 2019, Russian steel export volumes fell by 13% YoY to
13.4mt and domestic crude steel output remained at 36.2mt.
Overall, Russian steel prices followed trends on the global
steel market. The CPT Moscow rebar price averaged US$488/t in the
period, down 3% YoY. The price for channels fell by 20% to
US$598/t, compared with US$750/t in H1 2018. Based on the CPT
Moscow benchmark, HRC prices averaged US$553/t, down 9% from
US$608/t in H1 2018, and plates averaged US$561/t, down 10% from
US$622/t in H1 2018.
North America
In H1 2019, steel product consumption on the US market inched up
by 1% to 54.1mt, compared with 53.4mt in H1 2018. Demand for long
products increased by 14% YoY during the period, while consumption
of flat and tubular products dropped by a respective 5% and 1%.
Demand for oil country tubular goods (OCTG) pipes dropped by 6% to
2.2mt amid high inventory levels and pipeline constraints. Demand
for LDP in North America was strong in H1 2019 and is expected to
remain high in H2 2019. US pipeline demand is currently at record
levels to keep pace with unprecedented crude and natural gas
production. Plate demand in the US was down by 8%, while rod and
bar demand increased by 16%. On 17 May 2019, the US and Canada
reached a deal to remove US Section 232 tariffs on steel and
aluminium, as well as Canada's retaliatory steel tariffs, which
will have a positive impact on EVRAZ' sales.
In H1 2019, steel imports fell by a further 11% to 14.3mt,
compared with 16.1mt in H1 2018. While domestic steel production
rose by 6% to 44.7mt, many local producers announced new projects,
especially in the flat segment.
US steel prices were up in YoY terms, as the effect from the
introduction of duties under Section 232 continues to be felt.
Average prices increased by 8% to US$1,012/t for plate, by 7% to
US$1,480/t for OCTG and by 8% to US$793/t for rebar.
Coal
In H1 2019, Russian coking coal concentrate consumption grew by
2% YoY to 18.5mt. While no significant changes are expected on the
Russian coking coal market, small fluctuations in consumption are
possible due to the scheduled repairs of blast furnaces at Russian
mills and changing demand for coke.
During the period, China imposed port restrictions on Australian
coal that positively influenced export growth from Russia, pushing
coking coal export up 33% to 14mt.
Total Russian coking coal mining volumes climbed by 11% YoY to
45.9mt amid rising mining volumes at the Uvalnaya mine and the
commissioning of the Yubileinaya mine's second stage.
Global coking coal prices peaked in 2018 and the economic cycle
is now entering a phase of decline due to a slowdown in supply and
demand, and Russian prices are following the international
benchmarks. In H1 2019, prices for premium Zh-grade coking coal
averaged US$157/t FCA Kuzbass, down 8% from US$170/t in H1 2018.
Prices for semi-hard GZh-grade coking coal also fell by 8% YoY to
US$110/t.
2019 YEAR- OUTLOOK
In H2 2019, EVRAZ expects trends in key product markets to
remain in place with no significant deviations expected. The Group
will remain focused on implementing efficiency improvement
initiatives, executing planned investment projects to schedule and
generating returns for all our stakeholders.
Financial review
Statement of operations
In H1 2019, EVRAZ' consolidated revenues declined by 3.2% to
US$6,140m, compared with US$6,343m in H1 2018, primarily due to
lower sales prices for semi-finished, construction and coal
products, as well as reduced prices and volumes for vanadium
products.
EVRAZ' consolidated EBITDA amounted to US$1,482m in the period,
compared with US$1,906m in H1 2018, bringing the EBITDA margin down
from 30.0% to 24.1%, while free cash flow increased to US$692m. The
decrease in EBITDA is primarily attributable to lower prices for
vanadium, semi-finished and construction products, as well as
higher prices for raw materials, including iron ore, scrap and
ferroalloys. This was partly offset by reduced expenses in US
dollar terms because of the effect that ruble weakening had on
costs in H1 2019 versus H1 2018, as well as the impact of
cost--cutting initiatives on efficiency.
In H1 2019, the Steel segment's revenues (including
inter-segment) dropped by 6.0% YoY to US$4,159m, or 60.7% of the
Group's total before elimination. The decrease was mainly
attributable to lower revenues from sales of steel products, which
fell by 7.0% YoY and to a downturn in average sales prices which
was underpinned by unfavourable market conditions. The Group's
lower revenues from sales of steel products were partly offset by
higher sales volumes, which increased from 5.9mt in H1 2018 to
6.0mt in H1 2019 following the increase in production volumes at
Russian mills amid higher demand.
In H1 2019, revenues from the Steel, North America segment
increased by 14.3% YoY. Steel product revenues went up by 16.7%,
4.7% increase was attributed to the higher prices and 12.0% to the
improved sales volumes. The key growth driver was greater demand
for semi-finished, railway and other steel products.
The Coal segment's revenues declined by 9.3% YoY, 11.3% decline
was largely attributed to a slip in coal product sales prices,
which was partly offset by a 2.6% uptick in coal product sales
volumes. Coal prices followed the downward trend set by global
benchmarks in the period.
In H1 2019, the Steel segment's EBITDA decreased due to lower
prices for vanadium, semi--finished and construction products, and
higher prices for raw materials, including iron ore, scrap and
ferroalloys. This was partly offset by lower expenses in US dollar
terms due to the effect that ruble weakening had on costs; and the
impact of cost-cutting initiatives implemented in the period.
The Steel, North America segment's EBITDA was driven by greater
revenues from sales of semi--finished, railway and other steel
products, partly offset by higher costs of purchased semi--finished
products and staff costs.
The Coal segment's EBITDA was down YoY amid lower coal product
sales prices and higher transportation costs, partly offset by the
impact of cost-cutting initiatives and lower expenses in US dollar
terms due to the effect that ruble weakening had on costs.
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$m)
Segment H1 2019 H1 2018 Change Change, %
---------------------- -------- -------- ------- ----------
Steel 4,159 4,425 (266) (6.0)%
---------------------- -------- -------- ------- ----------
Steel, North America 1,316 1,151 165 14.3%
---------------------- -------- -------- ------- ----------
Coal 1,128 1,244 (116) (9.3)%
---------------------- -------- -------- ------- ----------
Other operations 249 279 (30) (10.8)%
---------------------- -------- -------- ------- ----------
Eliminations (712) (756) 44 (5.8)%
---------------------- -------- -------- ------- ----------
Total 6,140 6,343 (203) (3.2)%
---------------------- -------- -------- ------- ----------
Revenues by region,
(US$m)
Region H1 2019 H1 2018 Change Change, %
------------------------------ -------- -------- ------- ----------
Russia 2,152 2,309 (157) (6.8)%
------------------------------ -------- -------- ------- ----------
Americas 1,451 1,399 52 3.7%
------------------------------ -------- -------- ------- ----------
Asia 1,438 1,331 107 8.0%
------------------------------ -------- -------- ------- ----------
CIS (excl. Russia) 474 454 20 4.4%
------------------------------ -------- -------- ------- ----------
Europe 576 703 (127) (18.1)%
------------------------------ -------- -------- ------- ----------
Africa and rest of the world 49 147 (98) (66.7)%
------------------------------ -------- -------- ------- ----------
Total 6,140 6,343 (203) (3.2)%
------------------------------ -------- -------- ------- ----------
EBITDA*,
(US$m)
Segment H1 2019 H1 2018 Change Change, %
---------------------- -------- -------- ------- ----------
Steel 949 1,258 (309) (24.6)%
---------------------- -------- -------- ------- ----------
Steel, North America 60 40 20 50.0%
---------------------- -------- -------- ------- ----------
Coal 518 670 (152) (22.7)%
---------------------- -------- -------- ------- ----------
Other operations 9 10 (1) (10.0)%
---------------------- -------- -------- ------- ----------
Unallocated (67) (65) (2) 3.1%
---------------------- -------- -------- ------- ----------
Eliminations 13 (7) 20 n/a
---------------------- -------- -------- ------- ----------
Total 1,482 1,906 (424) (22.2)%
---------------------- -------- -------- ------- ----------
*For the definition of EBITDA, please refer to Annex 1
The following table details the effect of the Group's
cost-cutting initiatives.
Effect of Group's cost-cutting initiatives in H1 2019
(US$m)
----------------------------------------------------------------- ---------
Improving yields and raw material costs, including 43
----------------------------------------------------------------- ---------
Improving yields and raw material costs of Urals and
Siberia divisions 27
----------------------------------------------------------------- ---------
Various improvements at coal beneficiating plants and
mines 11
----------------------------------------------------------------- ---------
Improving yields and raw material costs of North American
assets and other assets 5
----------------------------------------------------------------- ---------
Increasing productivity and cost effectiveness 67
----------------------------------------------------------------- ---------
Others, including 1
----------------------------------------------------------------- ---------
Reduction of general and administrative (G&A) costs
and non-G&A headcount 1
----------------------------------------------------------------- ---------
Total 111
----------------------------------------------------------------- ---------
Revenues, cost of sales and gross profit by segment,
(US$m)
Change,
H1 2019 H1 2018 %
--------------------------------- -------- -------- --------
Steel segment
--------------------------------- -------- -------- --------
Revenues 4,159 4,425 (6.0)%
--------------------------------- -------- -------- --------
Cost of sales (2,958) (2,912) 1.6%
--------------------------------- -------- -------- --------
Gross profit 1,201 1,513 (20.6)%
--------------------------------- -------- -------- --------
Steel, North America segment
--------------------------------- -------- -------- --------
Revenues 1,316 1,151 14.3%
--------------------------------- -------- -------- --------
Cost of sales (1,153) (1,018) 13.3%
--------------------------------- -------- -------- --------
Gross profit 163 133 22.6%
--------------------------------- -------- -------- --------
Coal segment
--------------------------------- -------- -------- --------
Revenues 1,128 1,244 (9.3)%
--------------------------------- -------- -------- --------
Cost of sales (543) (533) 1.9%
--------------------------------- -------- -------- --------
Gross profit 585 711 (17.7)%
--------------------------------- -------- -------- --------
Other operations - gross profit 54 55 (1.8)%
--------------------------------- -------- -------- --------
Unallocated - gross profit (6) (5) 20.0%
--------------------------------- -------- -------- --------
Eliminations - gross profit (40) (61) (34.4)%
--------------------------------- -------- -------- --------
Total 1,957 2,346 (16.6)%
--------------------------------- -------- -------- --------
Gross profit, expenses and results,
(US$m)
Item H1 2019 H1 2018 Change Change, %
---------------------------------------------------------- -------- -------- ------- ----------
Gross profit 1,957 2,346 (389) (16.6)%
---------------------------------------------------------- -------- -------- ------- ----------
Selling and distribution costs (446) (443) (3) 0.7%
---------------------------------------------------------- -------- -------- ------- ----------
General and administrative expenses (282) (274) (8) 2.9%
---------------------------------------------------------- -------- -------- ------- ----------
Impairment of non-financial assets (17) (20) 3 15.0%
---------------------------------------------------------- -------- -------- ------- ----------
Foreign-exchange gains/(losses), net (273) 147 (420) n/a
---------------------------------------------------------- -------- -------- ------- ----------
Other operating income and expenses, net (26) (25) (1) 4.0%
---------------------------------------------------------- -------- -------- ------- ----------
Profit from operations 913 1,731 (818) (47.3)%
---------------------------------------------------------- -------- -------- ------- ----------
Interest expense, net (166) (180) 14 (7.8)%
---------------------------------------------------------- -------- -------- ------- ----------
Share of losses of joint ventures and associates 5 5 - 0.0%
---------------------------------------------------------- -------- -------- ------- ----------
Impairment of non-current financial assets (56) - (56) n/a
---------------------------------------------------------- -------- -------- ------- ----------
Gain/(loss) on financial assets and liabilities, net (7) 3 (10) n/a
---------------------------------------------------------- -------- -------- ------- ----------
Loss on disposal groups classified as held for sale, net - (10) 10 (100.0)%
---------------------------------------------------------- -------- -------- ------- ----------
Other non-operating losses, net 1 (6) 7 n/a
---------------------------------------------------------- -------- -------- ------- ----------
Profit before tax 690 1,543 (853) (55.3)%
---------------------------------------------------------- -------- -------- ------- ----------
Income tax benefit/(expense) (346) (398) 52 (13.1)%
---------------------------------------------------------- -------- -------- ------- ----------
Net profit 344 1,145 (801) (70.0)%
---------------------------------------------------------- -------- -------- ------- ----------
In H1 2019, selling and distribution expenses edged up slightly
amid higher freight rates, mainly due to increased sales at EVRAZ
North America, and greater port charges due to larger quantities
shipped under CIF/CFR terms in 2019. This was partly offset by the
effect of Section 232 duties on sales to the US amid a reduction in
tariff costs as a result of a customer receiving a tariff exemption
from the US government. General and administrative expenses rose by
2.9%, mainly due to higher staff costs at EVRAZ North America amid
an overall increase in salaries and wages, as well as at
Raspadskaya due to a headcount increase and wage indexation. This
was partly offset by the effect that the ruble depreciation had on
costs.
Foreign exchange losses amounted to US$273m, mainly related to
intra-group loans denominated in rubles payable by EVRAZ plc to the
Russian subsidiaries. The appreciation of the Russian ruble against
the US dollar in H1 2019 led to exchange losses recognised in the
income statements of non-Russian subsidiaries, which are not offset
by the exchange gains recognised in the income statements of the
Russian subsidiaries.
Interest expenses incurred by the Group decreased, mainly due to
the gradual reduction of total debt, as well as the management's
efforts to refinance existing indebtedness at more favourable terms
during the reporting period. The interest expense amounted to
US$166m in the period, compared with US$180m in H1 2018.
For the reporting period, the Group had an income tax expense of
US$346m, compared with US$398m in H1 2018. The change reflects the
worse operating results, and is affected by accrual of income tax
expense for distributed and undistributed dividends.
Cash flow,
(US$m)
Item H1 2019 H1 2018 Change Change, %
----------------------------------------------------------------------------- -------- -------- ------- ----------
Cash flows from operating activities before changes in working capital 1,224 1,526 (302) (19.8)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Changes in working capital (49) (594) 545 (91.8)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows from operating activities 1,175 932 243 26.1
----------------------------------------------------------------------------- -------- -------- ------- ----------
Short-term deposits at banks, including interest 4 7 (3) (42.9)
Purchases of property, plant and equipment and intangible assets (309) (226) (83) 36.7
Proceeds from sale of disposal groups classified as held for sale, net of
transaction costs - 41 (41) (100)
Proceeds from sale of other investments - 92 (92) (100)
Other investing activities 4 (15) 19 n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows used in investing activities (301) (101) (200) n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows used in financing activities (1,081) (1,391) 310 (22.3)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Effect of foreign-exchange rate changes on cash and cash equivalents 16 (4) 20 n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net increase/(decrease) in cash and cash equivalents (191) (564) 373 (66.1)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Calculation of free cash flow,*
(US$m)
----------------------------------------------------------------------------------------------------------------------
Item H1 2019 H1 2018 Change Change, %
----------------------------------------------------------------------------- -------- -------- ------- ----------
EBITDA 1,482 1,906 (424) (22.2)
----------------------------------------------------------------------------- -------- -------- ------- ----------
EBITDA excluding non-cash items 1,487 1,899 (412) (21.7)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Changes in working capital (49) (594) 545 (91.8)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Income tax accrued (253) (360) 107 (29.7)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Social and social infrastructure maintenance expenses (10) (13) 3 (23.1)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows from operating activities 1,175 932 243 26.1
----------------------------------------------------------------------------- -------- -------- ------- ----------
Interest and similar payments (177) (158) (19) 12.0
----------------------------------------------------------------------------- -------- -------- ------- ----------
Capital expenditures, including recorded in financing activities and
non-cash transactions (309) (232) (77) 33.2
----------------------------------------------------------------------------- -------- -------- ------- ----------
Proceeds from sale of disposal groups classified as held for sale, net of
transaction costs - 41 (41) (100)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Other cash flows from investing activities 3 78 (75) (96.2)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Free cash flow 692 661 31 4.7
----------------------------------------------------------------------------- -------- -------- ------- ----------
*For the definition of free cash flow, please refer to Annex
2.
In H1 2019, net cash flows from operating activities climbed by
26.1% YoY to US$1,175m, driven by stable level in working
capital.
CAPEX and key projects
During the reporting period, EVRAZ' capital expenditures rose to
US$309m, compared with US$232m in H1 2018, driven by significant
maintenance expenses.
Capital expenditures (including those recognised in financing
activities) for H1 2019 in millions of US dollars can be summarised
as follows.
(US$m)
Steel segment
---------------------------------------------------------- ----
Tashtagol mine expansion
The project aim is to increase Tashtagol mining
volumes. 5
---------------------------------------------------------- ----
Technical re-equipment of air heaters of blast
furnace no. 2
Technical re-equipment of air heaters of EVRAZ
ZSMK's blast furnace no. 2 aimed at increasing
efficiency. 5
---------------------------------------------------------- ----
Blast furnace no. 7 construction at EVRAZ NTMK
The project aim is to maintain stable pig iron
production volumes during the capital repair of
blast furnace no. 6. 4
---------------------------------------------------------- ----
Steel, North America segment
---------------------------------------------------------- ----
Long rail mill at EVRAZ Pueblo
The project aim is to maintain technical leadership
and continue shifting to a higher value product
mix with production of 100-metre rails. 7
---------------------------------------------------------- ----
EVRAZ Red Deer heat treatment
The project aim is to develop heat treatment capability
to access a higher margin market. 5
---------------------------------------------------------- ----
Coal segment
---------------------------------------------------------- ----
Access and development of reserves in the Uskovskaya
mine's seam no. 48
The project aim is to prepare the reserves in seam
no. 48 for mining. 12
---------------------------------------------------------- ----
Access and development of reserves in the Esaulskaya
mine's seam no. 29a
The project aim is to relocate mining operations
from seam no. 26 to seam no. 29a. 4
---------------------------------------------------------- ----
Other development projects 37
---------------------------------------------------------- ----
Maintenance - reconstruction of blast furnace no.
6 at EVRAZ NTMK 35
---------------------------------------------------------- ----
Other maintenance 195
---------------------------------------------------------- ----
Total 309
---------------------------------------------------------- ----
Financing and liquidity
EVRAZ began 2019 with total debt of US$4,638m. The Group used
its accumulated cash and part of its cash flows generated in the
period to further reduce total debt and completed several
transactions to extend its maturity profile.
In March, EVRAZ completed issuer substitution, a capital markets
transaction intended to substitute EVRAZ plc in place of Evraz
Group S.A. as the issuer of the outstanding Eurobonds in accordance
with their terms. Upon substitution, three major international
rating agencies assigned EVRAZ plc and its notes credit ratings,
which are in line with those of Evraz Group S.A. prior to the
transaction.
In April, EVRAZ plc issued a US$700m Eurobond due in 2024 with a
semi-annual coupon of 5.25%. The proceeds were used to fund the
tender offer for the Eurobonds due in 2020 that was completed in
April and the make whole call for the residual outstanding balance
of these notes that was completed in May. With a series of these
transactions, EVRAZ effectively shifted 2020 maturities to
2024.
In April, EVRAZ repaid US$50m in loans from Sberbank due in
2019.
In June, the Group repaid RUB15,000m of 12.95% ruble bonds due
in 2019 and respective cross-currency swaps, which economically
hedged the Group's exposure to currency risk.
At 1 January 2019, as a result of the application of a new
accounting standard, the Group recognised US$118m of lease
liabilities, which at recognition increased total debt. Under the
previous accounting standard, these contracts were accounted for as
operating leases, and were not recognised as either assets or
liabilities in the Group Statement of Financial Position.
These actions together with scheduled repayments of bank loans
reduced total debt in H1 2019 by US$112m to US$4,526m as at 30 June
2019.
In H1 2019, EVRAZ paid an interim dividend to its shareholders
in the amount of US$577m (US$0.40 per share).
During H1 2019, net debt increased by US$79m to US$3,650m,
compared with US$3,571m as at 31 December 2018, driven by the
recognition of lease liabilities under the new accounting standard.
Interest expense accrued in respect of loans, bonds and notes
amounted to US$148m in the period, compared with US$167m in H1
2018. The lower interest expense was mainly due to a gradual
reduction of total debt, as well as the management's efforts to
refinance existing indebtedness at more favourable terms.
A decline of EBITDA in H1 2019 compared with H1 2018 resulted in
a slight increase of the Group's major leverage metric, the ratio
of net debt to LTM EBITDA, to 1.1 times as at 30 June 2019,
compared with 0.9 times as at 31 December 2018.
As at 30 June 2019, debt with financial maintenance covenants
comprised various bilateral facilities with a total outstanding
principal of around US$1,008m. Maintenance covenants under these
facilities include two key ratios calculated using EVRAZ plc's
consolidated financials: a maximum net leverage and a minimum
EBITDA interest cover. As at 30 June 2019, EVRAZ was in full
compliance with its financial covenants.
As at 30 June 2019, cash amounted to US$876m, while short-term
loans and the current portion of long-term loans stood at US$107m.
Total scheduled debt maturities over the next 18 months are US$44m,
which are comfortably covered by cash balances.
Recent developments
On 5 August 2019, EvrazHolding Finance LLC, a finance subsidiary
of the Group, issued RUB20,000m (around US$317m at the exchange
rate on the transaction date) in five-year, exchange-traded bonds
due in 2024 with a 7.95% coupon payable semi-annually. To manage
the currency exposure on the ruble-denominated bonds, the Group was
able to economically hedge these transactions using cross-currency
interest rate swaps, effectively converting the liability exposure
to US dollars.
Review of operations by Segment
(US$m) Steel Steel, NA Coal Other
---------- ------------------- ------------------- ------------------- ---------------------
H1 2019 H1 2018 H1 2019 H1 2018 H1 2019 H1 2018 H1 2019 H1 2018
---------- --------- -------- --------- -------- --------- -------- --------- --------
Revenues 4,159 4,425 1,316 1,151 1,128 1,244 249 279
---------- --------- -------- --------- -------- --------- -------- --------- --------
EBITDA 949 1,258 60 40 518 670 9 10
---------- --------- -------- --------- -------- --------- -------- --------- --------
EBITDA
margin 22.8% 28.4% 4.6% 3.5% 45.9% 53.9% 3.6% 3.6%
---------- --------- -------- --------- -------- --------- -------- --------- --------
CAPEX 135 134 63 35 109 60 2 3
---------- --------- -------- --------- -------- --------- -------- --------- --------
Steel segment
Sales review
Steel segment revenues by product
H1 2019 H1 2018
------------------------------------ ------------------------------------ ----------
US$m % of total segment revenues US$m % of total segment revenues Change, %
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Steel products, external
sales 3,201 77.0% 3,443 77.8% (7.0)%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Semi-finished products(1) 1,206 29.0% 1,346 30.4% (10.4)%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Construction products(2) 1,059 25.5% 1,188 26.8% (10.9)%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Railway products(3) 554 13.3% 484 10.9% 14.5%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Flat-rolled products(4) 204 4.9% 217 4.9% (6.0)%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Other steel products(5) 178 4.3% 208 4.7% (14.4)%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Steel products, intersegment
sales 158 3.8% 174 3.9% (9.2)%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Including sales to Steel,
North America 152 3.7% 164 3.7% (7.3)%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Iron ore products 124 3.0% 87 2.0% 42.5%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Vanadium products 410 9.9% 466 10.5% (12.0)%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Other revenues 266 6.4% 255 5.8% 4.3%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
Total 4,159 100.0% 4,425 100.0% (6.0)%
------------------------------ ------ ---------------------------- ------ ---------------------------- ----------
(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
(kt)
-------- --------------------
H1 2019 H1 2018 Change, %
--------------------------------------------- -------- -------- ----------
Steel products, external sales 5,730 5,602 2.3%
--------------------------------------------- -------- -------- ----------
Semi-finished products 2,572 2,505 2.7%
--------------------------------------------- -------- -------- ----------
Construction products 1,837 1,809 1.5%
--------------------------------------------- -------- -------- ----------
Railway products 710 658 7.9%
--------------------------------------------- -------- -------- ----------
Flat-rolled products 323 310 4.2%
--------------------------------------------- -------- -------- ----------
Other steel products 288 320 (10.0%)
--------------------------------------------- -------- -------- ----------
Steel products, intersegment sales 301 303 (0.7%)
--------------------------------------------- -------- -------- ----------
Total steel products 6,031 5,905 2.1%
--------------------------------------------- -------- -------- ----------
Vanadium products (tonnes of pure vanadium) 8,620 9,270 (7.0%)
--------------------------------------------- -------- -------- ----------
Vanadium in slag 2,836 2,814 0.8%
--------------------------------------------- -------- -------- ----------
Vanadium in alloys and chemicals 5,784 6,456 (10.4%)
--------------------------------------------- -------- -------- ----------
Iron ore products(1) 1,234 1,558 (20.8%)
--------------------------------------------- -------- -------- ----------
Sinter 533 465 14.6%
--------------------------------------------- -------- -------- ----------
Pellets 699 1,089 (35.8%)
--------------------------------------------- -------- -------- ----------
Other iron ore products 2 4 (50.0%)
--------------------------------------------- -------- -------- ----------
(1) The H1 2018 data have been adjusted
Geographic breakdown of external steel product sales
US$m kt
------------------------------ ------------------------------
H1 2019 H1 2018 Change, % H1 2019 H1 2018 Change, %
------------------------------------------- -------- -------- ---------- -------- -------- ----------
Russia 1,603 1,672 -4.1% 2,537 2,493 1.8%
------------------------------------------- -------- -------- ---------- -------- -------- ----------
Asia 939 869 8.1% 2,002 1,616 23.9%
------------------------------------------- -------- -------- ---------- -------- -------- ----------
Europe 272 367 -25.9% 499 608 (17.9)%
------------------------------------------- -------- -------- ---------- -------- -------- ----------
CIS (excl. Russia) 280 244 14.8% 469 347 35.2%
------------------------------------------- -------- -------- ---------- -------- -------- ----------
Africa, America and the rest of the world 107 291 -63.2% 223 538 (58.6)%
------------------------------------------- -------- -------- ---------- -------- -------- ----------
Total 3,201 3,443 -7.0% 5,730 5,602 2.3%
------------------------------------------- -------- -------- ---------- -------- -------- ----------
In H1 2019, revenues from the Steel segment dropped by 6.0% to
US$4,159m, compared with US$4,425m in H1 2018. This resulted from
lower sales prices, primarily for semi-finished and construction
products, as well as lower vanadium product prices and volumes.
Revenues from external sales of semi-finished products fell by
10.4%, a 13.1% reduction was attributed to average prices decline,
which was partly offset by a 2.7% increase which was attributed to
higher sales volumes. The decrease was mainly due to lower export
prices for billets on the African, European and US markets and
lower export prices for slabs on the US market.
Revenues from sales of construction products to third parties
went down by 10.9%, a 12.4% decline was attributed to lower average
prices. Prices were lower for rebar and channels on the Russian and
European markets, rebar and wire rods in Asia, and channels and
wire in the CIS, while sales volumes of channels to Africa were
also down. This was partly offset by an increase in sales volumes
of rebars (by 5.6%) and beams (by 23.0%), primarily on the CIS and
Russian markets.
Revenues from external sales of railway products rose, 7.9%
increase was attributed predominantly to increases in volumes and
6.6% increase was attributed to the higher prices. A key driver of
higher prices and sales volumes of railway products during the
reporting period was greater demand for wheels and other railway
products on the Russian market and better demand for rails in the
CIS and African markets, albeit partly offset by lower rail export
volumes to the US market.
External revenues from flat-rolled products dropped by 6.0%, a
10.2% decrease was driven by sales prices, while a 4.2% increase
was attributed to the higher sales volumes amid an improving
situation on the Russian market. This resulted from strengthening
demand in Russia and greater production volumes at EVRAZ Palini e
Bertoli.
Revenues from external steel product sales in Russia decreased
by 4.1% YoY, primarily due to lower prices, which was partly offset
by greater demand. The share of the Russian market in total
external steel product sales edged up from 48.6% in H1 2018 to
50.1% in H1 2019. The increase in Asia's share of sales from 25.3%
to 29.3% was due to higher sales volumes for billets and slab. The
growing share of sales to Russia and Asia was also due to a shift
from the European and US markets.
Steel segment revenues from sales of iron ore products,
including intersegment sales, surged by 42.5%, a 63.3% jump was
driven by sales prices, while a 20.8% decrease was attributed to
slide in sales volumes. The main decrease in sales volumes was
mainly due to lower volumes of pellets on the Russian market amid
reduced demand.
In the reporting period, around 69.1% of EVRAZ' iron ore
consumed in steelmaking came from its own operations, compared with
67.0% in H1 2018.
Steel segment revenues from sales of vanadium products,
including intersegment sales, decreased by 12.0%, a 5.0% decline
was attributed to the slide in average prices and 7.0% decline was
attributed to lower sales volumes as a result of reduced
consumption in the large-diameter pipe segment and FeV substitution
with Niobium, as well as lower frame sales in North America in
2019.
Steel segment cost of revenues
Steel segment cost of revenues
H1 2019 H1 2018
------------------------------ ------------------------------ ----------
US$m % of segment revenues US$m % of segment revenues Change, %
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Cost of revenues 2,958 71.1% 2,912 65.8% 1.6%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Raw materials 1,351 32.5% 1,358 30.7% (0.5)%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Iron ore 254 6.1% 211 4.8% 20.4%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Coking coal 583 14.0% 649 14.7% (10.2)%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Scrap 290 7.0% 268 6.1% 8.2%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Other raw materials 224 5.4% 230 5.2% (2.6)%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Auxiliary materials 166 4.0% 165 3.7% 0.6%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Services 131 3.1% 130 2.9% 0.8%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Transportation 230 5.5% 223 5.0% 3.1%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Staff costs 250 6.0% 263 5.9% (4.9)%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Depreciation 120 2.9% 119 2.7% 0.8%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Energy 220 5.3% 232 5.2% (5.2)%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
Other* 490 11.8% 422 9.5% 16.1%
-------------------------- ------ ---------------------- ------ ---------------------- ----------
*Includes primarily goods for resale, inter-segment unrealised
profit and certain taxes, semi-finished products and allowances for
inventories
In H1 2019, the Steel segment's cost of revenues was almost flat
YoY, although there were changes in the amounts of constituent
parts included in the total cost of revenues.
The cost of raw materials fell by 0.5%, primarily due to the
lower cost of coking coal (-10.2%) and ruble weakness. This was
partly offset by the greater cost of iron ore (+20.4%) and scrap
(+8.2%) due to higher prices and crude steel production volumes.
The decrease in raw material costs was also accompanied by
cost-cutting initiatives, which reduced consumption.
Costs for auxiliary materials grew by 0.6% amid greater
consumption of auxiliary materials due to increased pig iron
production and higher auxiliary materials prices. This was partly
offset by the weaker ruble and a reduction of US$3m in costs
following the disposal of EVRAZ DMZ in March 2018.
Service costs grew by 0.8%, primarily driven by rescheduling of
capital repairs and maintenance, which was partly offset by the
depreciation of the ruble.
Higher transportation costs were primarily due to greater
volumes purchased from Russian mills, as well as increased
transportation services costs.
Staff costs fell by 4.9%, largely because of the effect that
ruble weakening had on costs.
Energy costs were lower due to the weaker ruble, albeit partly
offset by higher tariffs and greater consumption volumes.
Other costs rose by 16.1%, largely due to accrual of allowances
for vanadium stock amid lower vanadium prices, as well as higher
goods for resale costs due to the weaker ruble.
Steel segment gross profit
The Steel segment's gross profit slid by 20.6% YoY, driven
primarily by lower prices for vanadium, semi-finished and
construction products, which was partly offset by the positive
effect that ruble weakening had on costs.
Operational update
Russia: Urals
-- At EVRAZ NTMK, after building blast furnace no. 7, which was
launched in February 2018, the major overhaul of blast furnace no.
6 is under way. The project aims to support EVRAZ NTMK's pig iron
smelting capacity. The blast-furnace jacket and cowpers are
currently being installed.
-- EVRAZ NTMK continues to expand its wheel production capacity. In 2019, a sixth full-profile wheel-machining production line is planned to be purchased and installed.
-- EVRAZ NTMK is implementing a project to install a
top-pressure recovery turbine at blast furnace no. 7, which will
help to reduce external purchases of electricity by producing it in
house.
-- EVRAZ NTMK is considering a large investment programme aimed
at manufacturing value-added products, mastering the production of
new products and expanding rolling capacity. The main projects
under the programme are the construction of continuous casting
machine no. 5 and the major overhaul of the rail and beam shop.
Design work and main contractor selection are currently under
way.
-- EVRAZ KGOK continues to implement the reconstruction project
for its tailings facility. The project will make it possible for
the Group to ensure self-sufficiency in raw iron ore at the current
level. In 2019, the plan is to complete the engineering survey work
and develop the final design.
-- EVRAZ KGOK is implementing the project to develop the
Sobstvenno-Kachkanarskoye deposit, which is aimed at replacing 13mt
of retiring annual capacity from the Gusevogorskoye deposit by
2024. The site design, project documentation and site project
analysis have been completed. Deforestation and road construction
work are currently under way.
-- New products
o Five H-beam sizes according to the EN standard for Russian
customers
o A 200x200 millimetre angle with a 25 and 30 millimetre shelf
for the Russian market
o Developed a fourth and fifth category of hardness in balls
(d100 and d120)
o Two new wheel profiles for Austria's railways
o A EVRAZ-invented railway wheel profile for the EU market has
been prepared for certification
Russia: Siberia
-- The modernisation project for the 100-metre rail finishing
line has been completed, increasing the volume of 100-metre rails
shipped to Russian Railways.
-- Installation of the dynamic electrode reflux system at
electric arc furnace no. 2 in the electric furnace melting shop has
been completed, making it possible to optimise electrode use when
smelting steel.
-- At the Tashtagolskaya crushing and concentrating plant, the
conical crusher has been replaced. The new equipment will allow the
plant to double its productivity and reduce the grain size grade of
its concentrate from 20 millimetres to 16 millimetres.
-- Design work and main contractor selection are currently under
way under EVRAZ ZSMK's integrated flat casting and rolling facility
construction project.
-- New products
o The certificate of conformity for DT400IK R65 rails has been
received and rails are ready to be launched into commercial
production
o Re115 rails profile for the Brazilian market
o New lightweight no. 50 angles with a 3 millimetre shelf and
14U section
o A 20 180 millimetre plate for turnouts production, as well as
three small square profiles of 10, 12 and 14 millimetres for
machinery
Vanadium
-- EVRAZ NTMK's vanadium slag production climbed by 6.7% YoY in
H1 2019, mainly due to commissioning the new blast furnace during
H1 2018, resulting in a production stoppage.
-- During the reporting period, EVRAZ Vanady Tula continued to
implement its environmental programme: the new off-gas system has
been installed and is entering the start-up process. The water
treatment project has proceeded to the engineering stage.
-- EVRAZ Nikom's FeV 80% production was almost flat (up 0.3% due to improved yields).
Steel, North America segment
Sales review
Steel, North America segment revenues by product
H1 2019 H1 2018
US$m % of total segment revenues US$m % of total segment revenues Change, %
---------------------------- ------ ---------------------------- ------ ---------------------------- ----------
Steel products 1,260 95.7 % 1,080 93.8 % 16.7%
---------------------------- ------ ---------------------------- ------ ---------------------------- ----------
Semi-finished products(1) 96 7.3 % 5 0.4 % n/a
---------------------------- ------ ---------------------------- ------ ---------------------------- ----------
Construction products(2) 115 8.7 % 113 9.8 % 1.8%
---------------------------- ------ ---------------------------- ------ ---------------------------- ----------
Railway products(3) 205 15.6 % 186 16.2 % 10.2%
---------------------------- ------ ---------------------------- ------ ---------------------------- ----------
Flat-rolled products(4) 302 22.9 % 290 25.2 % 4.1%
---------------------------- ------ ---------------------------- ------ ---------------------------- ----------
Tubular products(5) 542 41.2 % 486 42.2 % 11.5%
---------------------------- ------ ---------------------------- ------ ---------------------------- ----------
Other revenues(6) 56 4.3 % 71 6.2 % (21.1)%
---------------------------- ------ ---------------------------- ------ ---------------------------- ----------
Total 1,316 100.0 % 1,151 100.0 % 14.3%
---------------------------- ------ ---------------------------- ------ ---------------------------- ----------
(1) Includes slabs
(2) Includes beams, rebars
(3) Includes rails and wheels
(4) Includes commodity plate, specialty plate and other
flat-rolled products
(5) Includes large-diameter line pipes, ERW pipes and casing,
seamless pipes, casing and tubing, and other tubular products
(6) Includes scrap and services
Sales volumes of Steel, North America segment
(kt)
H1 2019 H1 2018 Change, %
----------------------------------------------- -------- -------- ----------
Steel products
----------------------------------------------- -------- -------- ----------
Semi-finished products 130 11 n/a
----------------------------------------------- -------- -------- ----------
Construction products 136 142 (4.2)%
----------------------------------------------- -------- -------- ----------
Railway products 223 208 7.2%
----------------------------------------------- -------- -------- ----------
Flat-rolled products 282 302 (6.6)%
----------------------------------------------- -------- -------- ----------
Tubular products 387 371 4.3%
----------------------------------------------- -------- -------- ----------
Total 1,158 1,034 12.0%
----------------------------------------------- -------- -------- ----------
The segment's revenues from the sale of steel products grew, a
12.0% increase was attributed to higher sales volumes and a 4.7%
increase was attributed to sales prices. This was mainly
attributable to sales of tubular, railway and flat-rolled
products.
Revenues from construction product sales edged up by 1.8%, a
6.0% increase was attributed to higher prices, while a 4.2% decline
was attributed to a drop in volumes of as a result of lower demand
for concrete reinforcing bar caused by inclement weather in the
beginning of 2019 and a softer market.
Railway product revenues climbed by 10.2%, a 7.2% increase was
driven by upticks in sales volumes and 3.0% increase was attributed
to the higher prices amid increased market share growth, along with
greater sales volumes of super premium APEX G2 rail.
Revenues from flat-rolled products increased by 4.1%, a 10.7%
increase was attributed to a rise in prices and a 6.6% decrease was
attributed to a fall in volumes amid weaker demand.
Revenues from tubular product sales grew by 11.5%, a 7.2%
increase was attributed to the higher prices and a 4.3% increase
was attributed to the higher volumes. The growth in sales volumes
was driven by the timing of completion of large-diameter pipe
orders, which was partly offset by lower OCTG demand and production
delays caused by a temporary shutdown of EVRAZ Regina's coating
operations.
Steel, North America segment cost of revenues
Steel North America segment cost of revenues
H1 2019 H1 2018
------------------------------ ------------------------------ ----------
US$m % of segment revenues US$m % of segment revenues Change, %
------------------------- ------ ---------------------- ------ ---------------------- ----------
Cost of revenues 1,153 87.6% 1,018 88.4% 13.3%
------------------------- ------ ---------------------- ------ ---------------------- ----------
Raw materials 394 29.9% 402 34.9% (2.0)%
------------------------- ------ ---------------------- ------ ---------------------- ----------
Semi-finished products 263 20.0% 207 18.0% 27.1%
------------------------- ------ ---------------------- ------ ---------------------- ----------
Auxiliary materials 120 9.1% 128 11.1% (6.3)%
------------------------- ------ ---------------------- ------ ---------------------- ----------
Services 88 6.7% 83 7.2% 6.0%
------------------------- ------ ---------------------- ------ ---------------------- ----------
Staff costs 159 12.1% 142 12.3% 12.0%
------------------------- ------ ---------------------- ------ ---------------------- ----------
Depreciation 55 4.2% 52 4.5% 5.8%
------------------------- ------ ---------------------- ------ ---------------------- ----------
Energy 62 4.7% 57 5.0% 8.8%
------------------------- ------ ---------------------- ------ ---------------------- ----------
Other* 12 0.9% (53) (4.6)% n/a
------------------------- ------ ---------------------- ------ ---------------------- ----------
* Primarily includes transportation, goods for resale, certain
taxes, changes in work in progress and fixed goods and allowances
for inventories.
In H1 2019, the Steel, North America segment's cost of revenues
rose by 13.3% YoY. The main drivers were as follows.
Raw material costs fell by 2.0%, primarily because of lower
scrap prices and OCTG production.
Costs of semi-finished products surged by 27.1% due to higher
slab costs amid increased market demand.
Auxiliary material costs fell by 6.3% due a drop in electrodes
costs of US$14.4m, which was partly offset by higher production
volumes of crude steel and finished products.
Service costs went up by 6.0%, driven by higher production
volumes, as well as an increase in coating services of US$2.1m amid
greater pipe sales.
Staff costs rose by 12.0% due to the restart of EVRAZ Portland's
tubular line.
Depreciation grew by 5.8% due to major investment projects
started to be depreciated in H1 2019.
Energy costs were higher for the reporting period, primarily due
to greater consumption of electricity to support increased
production volumes at EVRAZ Pueblo and higher cost of natural gas
at EVRAZ Portland.
Steel, North America segment gross profit
The Steel, North America segment's gross profit totalled US$163m
for H1 2019, up from US$133m a year earlier. The growth was driven
primarily by higher sales prices of tubular, railway and
flat-rolled products due to improving market conditions, albeit
partly offset by increased costs for purchased semi-finished
products and staff costs.
Operational update
Canada
-- During H1 2019, EVRAZ continued to focus on further improving
the operational performance at EVRAZ Regina's facilities following
upgrades. The mills are currently on track to meet their 2019
targets.
-- EVRAZ Red Deer's heat treat unit has been installed to meet
demand for heat-treated pipe in Western Canada. The ramp up is
scheduled to start in August.
-- EVRAZ Regina's pipe coating facility resumed full operations
in Q2 2019 and is processing orders following a fire in February
2019 that temporarily halted production.
-- In Q1 2019, Canada's government announced funding from the
federal Strategic Innovation Fund supporting multi-year capital
investments into equipment upgrades and expansion at the company's
mills in Regina, Saskatchewan, and Red Deer, Alberta, boosting
steelmaking/tubular capacity, reducing emissions and improving
efficiency.
-- Most of the provisional safeguards implemented by the
Canadian government in Q3 2018 expired in Q2 2019, following an
inquiry by the Canadian International Trade Tribunal. The
provisional safeguards allowed to expire included safeguards on
energy tubular products.
US
-- The new seamless pipe threading line at EVRAZ Pueblo is now
in operation and is producing to customer orders.
-- The EVRAZ Pueblo rail mill modernisation project continues to
advance. In H1 2019, EVRAZ reached agreements with global original
equipment manufacturers to supply the equipment for all portions of
the mill. Engineering work is on track to be completed in 2019.
-- EVRAZ Portland's spiral mill started commercial production in
Q1 2019 to fulfil customer orders.
-- In May 2019, the US lifted the 25% Section 232 tariffs on
imports of steel products from Canada and Mexico. The Canadian
government lifted its retaliatory tariffs on steel the same day.
Section 232 tariffs of 25% remain in place on several countries
outside North America, including for steel slab imported from
Russia to EVRAZ Portland.
-- In Q1 2019, the US Department of Commerce reduced from a
preliminary rate of 24% to 12% the anti-dumping duty rate imposed
on large-diameter welded pipe from Canada, which had been in place
since Q3 2018.
Coal segment
Sales review
Coal segment revenues by product
H1 2019 H1 2018
US$m % of total segment revenues US$m % of total segment revenues Change, %
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
External sales
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
Coal products 724 64.2% 801 64.4% (9.6)%
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
Coking coal 86 7.6% 72 5.8% 19.4%
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
Coal concentrate 638 56.6% 729 58.6% (12.5)%
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
Intersegment sales
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
Coal products 383 34.0% 412 33.2% (7.0)%
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
Coking coal 62 5.5% 63 5.1% (1.6)%
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
Coal concentrate 321 28.5% 349 28.1% (8.0)%
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
Other revenues 21 1.8% 31 2.4% (32.3)%
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
Total 1,128 100.0% 1,244 100.0% (9.3)%
-------------------- ------ ---------------------------- ------ ---------------------------- ----------
Sales volumes of Coal segment
(kt)
-------------------------------------- ------------------------------
H1 2019 H1 2018 Change, %
-------------------------------------- -------- -------- ----------
External sales
-------------------------------------- -------- -------- ----------
Coal products 5,585 5,599 (0.3)%
-------------------------------------- -------- -------- ----------
Coking coal 943 807 16.9%
-------------------------------------- -------- -------- ----------
Coal concentrate and other products 4,642 4,792 (3.1)%
-------------------------------------- -------- -------- ----------
Intersegment sales
-------------------------------------- -------- -------- ----------
Coal products 3,169 2,932 8.1%
-------------------------------------- -------- -------- ----------
Coking coal 952 910 4.6%
-------------------------------------- -------- -------- ----------
Coal concentrate 2,217 2,022 9.6%
-------------------------------------- -------- -------- ----------
Total, coal products 8,754 8,531 2.6%
-------------------------------------- -------- -------- ----------
The Coal segment's overall revenues were down amid lower global
sales prices, driven by availability of resources on the spot
market and reduced demand and production in Europe. In addition,
the fall in steam coal prices led to a drop in spot prices for
semi-soft coking coal grades. At the same time, prices for
high-quality hard coking coals remained relatively high.
Revenues from external sales of coal products fell, a 9.3%
decrease was attributed to the lower prices and a 0.3% decline was
attributed to lower sales volumes: coking coal volumes rose by
16.9% amid an increase in sales of coking coal from the Uskovskaya
and Mezhegeyugol mines, while coal concentrate volumes dropped by
3.1% due to lower demand on the East European markets and a lack of
available Zh grade stock in Q1 2019.
Revenues from internal sales of coal products were down 7.0%, a
15.1% decrease was attributed to the lower sales prices, while a
8.1% increase was attributed to an uptick in volumes. Coking coal
volumes rose by 4.6% due to the increased sales of the OS and K
grades to EVRAZ ZSMK, driven by the switch to a new mining method
(longwall) for K grade and sales of earlier accumulated stock. Coal
concentrate volumes grew by 9.6% due to greater sales of the OS
grade to EVRAZ NTMK, driven by a slight increase in production and
sales of earlier accumulated stock.
In H1 2019, the Coal segment's sales to the Steel segment
amounted to US$383m (34.0% of total sales), compared with US$412m
(33.2%) in H1 2018.
During the reporting period, roughly 71.7% of EVRAZ' coking coal
consumption in steelmaking came from the Group's own operations,
compared with 68.2% in H1 2018.
Coal segment cost of revenues
Coal segment cost of revenues
H1 2019 H1 2018
----------------------------- ----------------------------- ----------
US$m % of segment revenues US$m % of segment revenues Change, %
---------------------- ----- ---------------------- ----- ---------------------- ----------
Cost of revenues 543 48.1% 533 42.8% 1.9%
---------------------- ----- ---------------------- ----- ---------------------- ----------
Auxiliary materials 63 5.6% 68 5.5% (7.4)%
---------------------- ----- ---------------------- ----- ---------------------- ----------
Services 64 5.7% 60 4.8% 6.7%
---------------------- ----- ---------------------- ----- ---------------------- ----------
Transportation 192 17.0% 160 12.9% 20.0%
---------------------- ----- ---------------------- ----- ---------------------- ----------
Staff costs 107 9.5% 99 8.0% 8.1%
---------------------- ----- ---------------------- ----- ---------------------- ----------
Depreciation 83 7.4% 85 6.8% (2.4)%
---------------------- ----- ---------------------- ----- ---------------------- ----------
Energy 26 2.3% 26 2.1% 0.0%
---------------------- ----- ---------------------- ----- ---------------------- ----------
Other* 8 0.7% 35 2.8% (77.1)%
---------------------- ----- ---------------------- ----- ---------------------- ----------
* Primarily includes goods for resale, certain taxes, changes in
work in progress and finished goods, allowance for inventory, raw
materials and inter-segment unrealised profit
The main drivers of the YoY growth in the Coal segment's cost of
revenues were as follows.
The costs of auxiliary materials fell by 7.4%, mainly due to the
impact on costs of the weaker ruble and lower prices for auxiliary
materials. This was partly offset by greater consumption of
auxiliary materials at the Raspadsky open pit amid higher mining
volumes.
Costs for services climbed by 6.7% due to an increase in mining
works at the Raspadsky open pit and the growth of service costs for
longwall repositioning, although this was partly offset by the
weaker ruble.
Transportation costs grew by 20.0% in the reporting period,
primarily due to higher volumes of mined rock transportation amid
increased mining at the Raspadsky open pit and open-pit mining at
the Raspadskaya-Koksovaya mine, as well as organisation and
maintenance of temporary coal storage sites at the Raspadskaya
processing plant. This was partly offset by the depreciation of the
ruble.
Staff costs were up because of wage indexation and higher
headcount, albeit partly offset by the ruble weakening.
Depreciation and depletion costs lowered mainly due to the
weaker Russian currency.
Other costs decreased in the reporting period, mainly due to
lower goods for resale amid reduced volumes and costs of coal
product purchases, as well as the effect of ruble depreciation.
This was partly offset by higher taxes after the mineral tax rate
was increased.
Coal segment gross profit
The Coal segment's gross profit for H1 2019 amounted to US$585m,
down from US$711m a year earlier, primarily due to declining sales
prices and sales volumes, as well as higher transportation and
staff costs. This was partly offset by the positive effect that
ruble weakening had on costs.
Operational update
Systematic integrated work of the Coal segment to improve its
operational efficiency continues to bear fruit in the form of
increased production volumes. In H1 2019, EVRAZ' raw coking coal
output totalled 13.8mt, up 2.4mt YoY (+21%).
The long-term programmes aimed at improving production safety
and productivity growth are continuing:
-- Reducing downtime and increasing loads on longwalls
-- Improving the development work rate
-- Boosting preliminary degassing efficiency
-- Improving work safety (including self-combustion and
explosion safety, gas monitoring and injuries)
At the same time, the fall in prices for steam coals on the
global market placed serious pressure on the prices of semi-soft
coking coal (SSCC) during H1 2019. Under these conditions, the Coal
segment had corrected the production of SSCC grades at the
Raspadsky open pit by removing excess capacity through reducing the
services of third-party mining contractors. That made it possible
to reduce costs and prevent overproduction of SSCC.
Increasing production of hard-coking coal (HCC) and deficit
grades remains the Group's strategic plan and is being successfully
implemented. To strengthen market position and expand the product
portfolio, open-pit mining at the site of the Raspadskaya-Koksovaya
mine grew further, increasing resources of the deficit semi-hard OS
grade. In H1 2019, the Raspadskaya-Koksovaya mine successfully made
the transition from room-and-pillar mining to longwall mining to
boost the output of the K grade.
Amid increasing production volumes, the implementation of
de-bottlenecking initiatives in the areas of washing, warehouses
and logistics remains relevant for the Group.
Raspadskaya
During the reporting period, Raspadskaya's raw coking coal
output amounted to 7.1mt (up 1.7mt YoY and almost flat compared
with the peak in H2 2018). The YoY increase was caused by the
mine's planned transition from production at two longwalls to three
longwalls and increased scale of mining at the Raspadsky open pit
in Q1 2019. The Raspadskaya-Koksovaya mine successfully launched
longwall mining in Q2 2019 to boost output of the K grade.
Yuzhkuzbassugol
In H1 2019, Yuzhkuzbassugol mined 6.1mt of raw coking coal, up
0.6mt YoY. Operations are going according to the annual plan.
Mezhegeyugol
During the period, Mezhegeyugol continued to develop
room-and-pillar mining operations and paid close attention to the
growth rate of development work. Raw coking coal output totalled
0.6mt, compared with 0.5mt in H1 2018.
Key RISKS AND UNCERTAINTIES
EVRAZ is exposed to numerous risks and uncertainties in its
business. These 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.
The directors consider that the principal risks and
uncertainties as summarised below and detailed on pages 34-39 of
the EVRAZ plc 2018 annual report, copies of which are available at
www.evraz.com, remain relevant in 2019 and the mitigating actions
described continue to be appropriate.
Risks:
-- Global economic factors, industry conditions and cyclicality.
-- Product competition.
-- Cost effectiveness.
-- Compliance with trade regulations and sanctions regimes.
-- Functional currency devaluation.
-- HSE: environmental.
-- HSE: health and safety.
-- Potential government action.
-- Business interruption.
-- Cybersecurity and IT infrastructure failure.
At the same time, the management continues to monitor new
developments and implement preventative measures to minimise the
risks of any adverse effect on the Group's business.
A number of safety incidents that the Group experienced in the
first half of 2019 led to the complete review of our health and
safety programmes. The management has been focusing on determining
the causes of the incidents and preventing further incidents
through improved measures and controls.
EVRAZ also continues to monitor and assess other risks and
uncertainties that were not recognised as principal, eg employee
risks, taxation, compliance risks, social and community risks,
risks of climate change, risks related to respect for human rights
and other risks. While the impact and probability analysis suggests
that such risks could affect the Group's operations to some extent,
the management believes they are being adequately managed and does
not consider them as being capable of seriously affecting the
Group's performance, future prospects or reputation.
EVRAZ continues to actively monitor the business risk
environment and pursues strategies to mitigate the identified risks
on a continuing basis.
DIVIDS
Given the performance throughout 2019, EVRAZ has announced an
interim dividend.
On 7 August 2019, the Board of Directors voted to disburse a
total of US$508.17m, or US$0.35 per share.
The record date is 16 August 2019 and payment date is 5
September 2019.
The 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 19
August 2019. All conversions will take place on or around 21 August
2019.
DIRECTOR'S RESPONSIBILITY STATEMENT
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
Alexander Frolov
Chief Executive Officer
EVRAZ plc
7 August 2019
Definitions of selected alternative performance measures
The Group uses alternative performance measures (APMs) to
improve comparability of information between reporting periods and
business units, either by adjusting for uncontrollable or one-off
factors which impact upon IFRS measures or, by aggregating
measures, to aid the user of this report in understanding the
activity taking place across the Group's portfolio.
EBITDA
EBITDA is determined as a segment's profit/(loss) from
operations adjusted for social and social infrastructure
maintenance expenses, impairment of non-financial assets,
profit/(loss) on disposal of property, plant and equipment and
intangible assets, foreign exchange gains/(losses) and
depreciation, depletion and amortisation expense.
See Note 3 of the consolidated financial statement for
additional information and reconciliation with IFRS financial
statements.
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 gains/(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 disposals 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.
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 Change Change, %
US$m 2019 31 December 2018
-------- ----------------- ------- ----------
Cash and cash equivalents 876 1,067 (191) (17.9)
----------------------------------- -------- ----------------- ------- ----------
Cash and short-term bank deposits 876 1,067 (191) (17.9)
----------------------------------- -------- ----------------- ------- ----------
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, and the nominal effect of
cross-currency swaps on principal of ruble-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 Change Change, %
US$m 2019 31 December 2018
-------- ----------------- ------- ----------
Long-term loans, net of current portion 4,274 4,186 88 2.1
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Short-term loans and current portion of long-term loans 107 377 (270) (71.6)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Add back: Unamortised debt issue costs and fair value adjustment to
liabilities assumed in
business combination 22 20 2 10.0
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Nominal effect of cross-currency swaps on principal of
ruble-denominated notes - 49 (49) (100.0)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Lease liabilities, including current portion 123 - 123 100.0
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Finance lease liabilities, including current portion - 6 (6) (100.0)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Total debt 4,526 4,638 (112) (2.4)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
At 1 January 2019, as a result of application of IFRS 16
"Leases", the Group recognised US$118m of additional lease
liabilities, which increased total debt.
Under the previous standard, certain contracts were accounted
for as operating leases and were not recognised as either assets or
liabilities in the Group's Consolidated Statement of Financial
Position.
Net debt
Net debt represents total debt less cash and liquid short-term
financial assets, including those related to disposals classified
as held for sale. Net debt is not a measure under IFRS and should
not be considered as an alternative to other measures of financial
position. EVRAZ' calculation of net debt may be different from the
calculation used by other companies and therefore comparability may
be limited. The current calculation is different from that used for
covenant compliance calculations.
Net debt has been calculated as follows:
30 June Change Change, %
US$m 2019 31 December 2018
-------- ----------------- ------- ----------
Total debt 4,526 4,638 (112) (2.4)
--------------------------- -------- ----------------- ------- ----------
Cash and cash equivalents (876) (1,067) 191 (17.9)
--------------------------- -------- ----------------- ------- ----------
Net debt 3,650 3,571 79 2.2
--------------------------- -------- ----------------- ------- ----------
CAPEX
Capital expenditure (CAPEX) is cash expenditure on property,
plant and equipment. For internal reporting and analysis, CAPEX
includes non-cash transactions related to CAPEX.
CAPEX has been calculated as follows:
30 June 30 June Change Change, %
US$m 2019 2018
-------- -------- ------- ----------
Purchases of property, plant and equipment and intangible assets 309 226 83 36.7
------------------------------------------------------------------ -------- -------- ------- ----------
Non-cash purchases (Note 12) - 6 (6) (100.0)
------------------------------------------------------------------ -------- -------- ------- ----------
CAPEX 309 232 77 33.2
------------------------------------------------------------------ -------- -------- ------- ----------
Labour productivity, US$/t
P=S/V
S - Labour Costs (asset and A-category subsidiaries), exclusive
of tax, local currency (on Division consolidation sites with
different currencies, US$)
V - production volume, tonnes (for steel assets: V - metal
products shipped)
LTIFR
The KPI is calculated on a year-to-date basis for the company
employees only.
LTIFR = X--1000000/Y
X is the total number of occupational injuries resulted in lost
time among the company employees in the reporting period.
Fatalities are not included.
Y is the actual total number of man-hours worked by all company
employees in the reporting period.
Semi-finished products cash costs, US$/t
Cash cost of semi-finished products is defined as the production
cost less depreciation, the result is divided by production volumes
of steel semi-products. Raw materials from EVRAZ coal and iron ore
producers are accounted for on at-cost-basis. Costs of
semi-finished steel products of EVRAZ NTMK, EVRAZ ZSMK are then
weighted averaged by the total saleable semi-finished products
production volume.
Coking coal concentrate cash cost, US$/t
Cash cost of coking coal concentrate is defined as cost of
revenues less depreciation and SG&A, the result is divided by
sales volumes.
Iron ore products cash cost, US$/t
Cash cost of iron ore products is defined as cost of revenues
less depreciation and SG&A, the result is divided by sales
volumes.
Number of EBS transformations
Number of EBS transformations implemented at the key assets
during the reporting year.
Customer focus and cost-cutting effects
Each project effect is calculated as an absolute deviation of
targeted metri year to year multiplied by relevant price or volume
depending on project's focus.
EVRAZ plc
Unaudited Interim Condensed
Consolidated Financial Statements
Six-month period ended 30 June 2019
EVRAZ plc
Unaudited Interim Condensed Consolidated Financial
Statements
Six-month period ended 30 June 2019
Contents
Report on Review of Interim Condensed Consolidated Financial
Statements
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 2019 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) '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 half-yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance 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), '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 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 half-yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP,
London,
7 August 2019
Unaudited Interim Condensed Consolidated Statement of
Operations
(In millions of US dollars, except for per share
information)
Six-month period
ended 30 June
Notes 2019 2018
Revenue
Sale of goods 3 $ 5,960 $ 6,185
Rendering of services 3 180 158
--------- --------
6,140 6,343
Cost of revenue (4,183) (3,997)
Gross profit 1,957 2,346
Selling and distribution costs (446) (443)
General and administrative expenses (282) (274)
Social and social infrastructure
maintenance expenses (10) (13)
Gain/(loss) on disposal of property,
plant and equipment 2 (4)
Impairment of non-financial assets 5 (17) (20)
Foreign exchange gains/(losses),
net (273) 147
Other operating income 10 15
Other operating expenses (28) (23)
--------- --------
Profit from operations 913 1,731
Interest income 5 7
Interest expense (171) (187)
Share of profits/(losses) of joint
ventures and associates 8 5 5
Impairment of non-current financial
assets 5 (56) -
Gain/(loss) on financial assets and
liabilities, net 12 (7) 3
Gain/(loss) on disposal groups classified
as held for sale, net - (10)
Other non-operating gains/(losses),
net 1 (6)
Profit before tax 690 1,543
Income tax expense 6 (346) (398)
--------- --------
Net profit $ 344 $ 1,145
========= ========
Attributable to:
Equity holders of the parent entity $ 313 $ 1,112
Non-controlling interests 31 33
--------- --------
$ 344 $ 1,145
========= ========
Earnings/(losses) per share:
for profit/(loss) attributable to
equity holders of the parent entity,
basic, US dollars 11 $ 0.22 $ 0.77
for profit/(loss) attributable to
equity holders of the parent entity,
diluted, US dollars 11 $ 0.21 $ 0.76
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 2019 2018
Net profit $ 344 $ 1,145
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 635 (516)
Recycling of exchange difference
to profit or loss on disposal of
subsidiaries - 63
Net gains/(losses) on cash flow
hedges 27 1
Net (gains)/losses on cash flow
hedges recycled to profit or loss 12 (33) -
629 (452)
Effect of translation to presentation
currency of the Group's joint ventures
and associates 8 6 (7)
-------- ---------
Share of other comprehensive income
of joint ventures and associates
accounted for using the equity method 6 (7)
Items not to be reclassified to
profit or loss in subsequent periods
Net gains/(losses) on equity instruments
at fair value through other comprehensive
income - 59
Gains/(losses) on re-measurement
of net defined benefit liability - 2
Income tax effect - (1)
-------- ---------
- 1
Total other comprehensive income 635 (399)
-------- ---------
Total comprehensive income, net
of tax $ 979 $ 746
======== =========
Attributable to:
Equity holders of the parent entity $ 929 $ 727
Non-controlling interests 50 19
-------- ---------
$ 979 $ 746
======== =========
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 2019 2018
Assets
Non-current assets
Property, plant and equipment 7 $ 4,677 $ 4,202
Intangible assets other than goodwill 198 206
Goodwill 890 864
Investments in joint ventures and
associates 8 87 74
Deferred income tax assets 116 92
Other non-current financial assets 43 91
Other non-current assets 48 44
------------ ------------
6,059 5,573
Current assets
Inventories 1,651 1,474
Trade and other receivables 813 835
Prepayments 103 113
Loans receivable 37 29
Receivables from related parties 9 9 11
Income tax receivable 22 35
Other taxes recoverable 222 201
Other current financial assets 34 35
Cash and cash equivalents 10 876 1,067
------------ ------------
3,767 3,800
Total assets $ 9,826 $ 9,373
============ ============
Equity and liabilities
Equity
Equity attributable to equity holders
of the parent entity
Issued capital 11 $ 75 $ 75
Treasury shares 11 (169) (196)
Additional paid-in capital 2,488 2,480
Revaluation surplus 109 110
Unrealised gains and losses - 6
Accumulated profits 2,731 3,026
Translation difference (3,198) (3,820)
------------ ------------
2,036 1,681
Non-controlling interests 256 257
------------ ------------
2,292 1,938
Non-current liabilities
Long-term loans 12 4,274 4,186
Deferred income tax liabilities 399 258
Employee benefits 241 226
Provisions 243 222
Lease liabilities 89 -
Other long-term liabilities 33 38
------------ ------------
5,279 4,930
Current liabilities
Trade and other payables 1,204 1,216
Contract liabilities 341 320
Payables to related parties 9 218 122
Short-term loans and current portion
of long-term loans 12 107 377
Lease liabilities 34 -
Income tax payable 62 104
Other taxes payable 177 266
Provisions 45 35
Amounts payable under put options
for shares in subsidiaries 67 65
2,255 2,505
Total equity and liabilities $ 9,826 $ 9,373
============ ============
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
2019 2018
Cash flows from operating activities
Net profit $ 344 $ 1,145
Adjustments to reconcile net profit/(loss)
to net cash flows from operating activities:
Deferred income tax (benefit)/expense 93 38
Depreciation, depletion and amortisation 271 285
(Gain)/loss on disposal of property, plant
and equipment (2) 4
Impairment of non-financial assets 17 20
Impairment of financial assets 57 2
Foreign exchange (gains)/losses, net 273 (147)
Interest income (5) (7)
Interest expense 171 187
Share of (profits)/losses of associates
and joint ventures (5) (5)
(Gain)/loss on financial assets and liabilities,
net 7 (3)
(Gain)/loss on disposal groups classified
as held for sale, net - 10
Other non-operating (gains)/losses, net (1) 6
Changes in provisions, employee benefits
and other long-term assets and liabilities (5) (15)
Expense arising from equity-settled awards 8 8
Other 1 (2)
1,224 1,526
Changes in working capital:
Inventories (76) (301)
Trade and other receivables 57 (140)
Prepayments 16 (63)
Receivables from/payables to related parties 80 (11)
Taxes recoverable 14 4
Other assets 1 -
Trade and other payables 14 (9)
Contract liabilities 8 (114)
Taxes payable (157) 45
Other liabilities (6) (5)
Net cash flows from operating activities 1,175 932
Cash flows from investing activities
Proceeds from sale of other investments - 92
Issuance of loans receivable (6) -
Proceeds from repayment of loans receivable,
including interest - 1
Investments in associates and joint ventures
(Note 8) (3) -
Short-term deposits at banks, including
interest 4 7
Purchases of property, plant and equipment
and intangible assets (309) (226)
Proceeds from disposal of property, plant
and equipment 5 2
Proceeds from sale of disposal groups classified
as held for sale, net of cash disposed and
transaction costs - 41
Dividends received 5 6
Other investing activities, net 3 (24)
Net cash flows used in investing activities (301) (101)
Continued on the next page
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
(continued)
(In millions of US dollars)
Six-month period
ended
30 June
2019 2018
Cash flows from financing activities
Payments for the purchase of non-controlling
interests (Note 4) $ (56) $ -
Proceeds from bank loans and notes 1,233 807
Repayment of bank loans and notes, including
interest (1,642) (1,590)
Net proceeds from/(repayment of) bank overdrafts
and credit lines, including interest 2 1
Restricted deposits at banks relating to
financing activities - 13
Gain/(loss) on derivatives not designated
as hedging instruments 9 1
Gain/(loss) on hedging instruments (23) 6
Payments under leases, including interest (20) -
Payments under finance leases, including
interest - (1)
Dividends paid by the parent entity to its
shareholders (577) (617)
Other financing activities (7) (11)
Net cash flows used in financing activities (1,081) (1,391)
Effect of foreign exchange rate changes
on cash and cash equivalents 16 (4)
Net decrease in cash and cash equivalents (191) (564)
Cash and cash equivalents at beginning of
year 1,067 1,466
Cash and cash equivalents at end of period $ 876 $ 902
=========== ===========
Supplementary cash flow information:
Cash flows during the period:
Interest paid $ (157) $ (171)
Interest received 4 6
Income taxes paid (292) (270)
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 gains Accumulated Translation Non-controlling Total
capital shares capital surplus and losses profits difference Total interests Equity
--------------------- ------------------------ ------------------------ ------------ ----------- ---------------------------- ------------ ------------------------ ---------------------- ------------------------
At 31 December
2018 $ 75 $ (196) $ 2,480 $ 110 $ 6 $ 3,026 $ (3,820) $ 1,681 $ 257 $ 1,938
Net profit - - - - - 313 - 313 31 344
Reclassification
of revaluation
surplus to
accumulated
profits in
respect of the
disposed items
of property,
plant and
equipment - - - (1) - 1 - - - -
Other
comprehensive
income/(loss) - - - - (6) - 622 616 19 635
Total
comprehensive
income/(loss)
for the period - - (1) (6) 314 622 929 50 979
Acquisition of
non-controlling
interests in
subsidiaries
(Note 4) - - - - - (5) - (5) (51) (56)
Transfer of
treasury shares
to participants
of the
Incentive Plans - 27 - - - (27) - - - -
Share-based
payments - - 8 - - - - 8 - 8
Dividends
declared by the
parent entity to
its shareholders
(Note 11) - - - - - (577) - (577) - (577)
At 30 June 2019 $ 75 $ (169) $ 2,488 $ 109 $ - $ 2,731 $ (3,198) $ 2,036 $ 256 $ 2,292
===================== ======================== ======================== ============ =========== ============================ ============ ======================== ====================== ========================
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)
(In millions of US dollars)
Attributable to equity holders of the parent entity
------------------------ ---------------------------------------------------------------------------------------------------------------------------------------------------
Additional Unrealised
Issued Treasury paid-in Revaluation gains Accumulated Translation Non-controlling Total
capital shares capital surplus and losses profits difference Total interests Equity
------------------------ ------------------------ ------------------------ ------------ ----------- ---------------------------- ------------ ------------------------ ---------------------- ------------------------
At 31 December
2017 $ 1,507 $ (231) $ 2,500 $ 111 $ 39 $ 635 $ (2,777) $ 1,784 $ 242 $ 2,026
Net profit - - - - - 1,112 1,112 33 1,145
Other
comprehensive
income/(loss) - - - - 60 1 (446) (385) (14) (399)
Transfer of
realised gains
on sold equity
instruments
to accumulated
profits - - - - (89) 89 - - - -
Reclassification
of additional
paid-in capital
in respect
of the disposed
subsidiaries - - (35) - - 35 - - - -
Total
comprehensive
income/(loss)
for the period - - (35) - (29) 1,237 (446) 727 19 746
Transfer of
treasury shares
to participants
of the
Incentive Plans - 35 - - - (35) - - - -
Share-based
payments - - 8 - - - - 8 - 8
Dividends declared
by the
parent entity to
its shareholders - - - - - (617) - (617) - (617)
At 30 June 2018 $ 1,507 $ (196) $ 2,473 $ 111 $ 10 $ 1,220 $ (3,223) $ 1,902 $ 261 $ 2,163
======================== ======================== ======================== ============ =========== ============================ ============ ======================== ====================== ========================
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 2019
1. Corporate Information
These interim condensed consolidated financial statements were
authorised for issue by the Board of Directors of EVRAZ plc on 7
August 2019.
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. Until 1 August 2019 the
registered address of EVRAZ plc was 5(th) Floor, 6 St. Andrew
Street, London, EC4A 3AE, United Kingdom. The new Company's address
is 2 Portman street, London, W1H 6DU, 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.
In the six-month period ended 30 June 2019 EVRAZ plc was jointly
controlled by a group of 3 shareholders: Greenleas International
Holdings Limited (BVI), Abiglaze Limited (Cyprus) and Crosland
Global Limited (Cyprus).
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
2018, 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. Statutory accounts for the year ended 31
December 2018 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 2019
are not necessarily indicative of the results that may be expected
for the year ending 31 December 2019.
Going Concern
These interim condensed consolidated financial statements have
been prepared on a going concern basis.
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 2018, except for the adoption of new standards and
interpretations and revision of existing IAS as of 1 January
2019.
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
New/Revised Standards and Interpretations Adopted in 2019
-- IFRS 16 "Leases"
IFRS 16 supersedes IAS 17 "Leases", IFRIC 4 "Determining whether
an Arrangement contains a Lease", SIC-15 "Operating
Leases-Incentives" and SIC-27 "Evaluating the Substance of
Transactions Involving the Legal Form of a Lease". The standard
sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for most leases under a single on-balance sheet model.
The Group applied IFRS 16 "Leases" from 1 January 2019 using the
modified retrospective approach, i.e. the comparative information
was not restated. Under this approach both lease liabilities and
right-of-use assets were recognised at the date of transition to
IFRS 16 in the same amount. They were included within the Lease
liabilities and Property, plant and equipment captions of the
consolidated statement of financial position. Long-term finance
lease liabilities, which were previously presented in Other
long-term liabilities, and short-term finance lease liabilities,
which were previously presented in Trade and other payables ($3
million and $3 million at 31 December 2018, respectively), were
reclassified to the Lease liabilities caption from 1 January
2019.
The Group has elected to use the following practical expedients
proposed by the standard:
-- on initial application IFRS 16 was applied only to contracts
that were previously classified as leases;
-- on initial application initial direct costs are excluded from
the measurement of the right-of-use asset;
-- for all classes of underlying assets each lease component and
any associated non-lease components were accounted as a single
lease component; and
-- lease payments for contracts with a duration of 12 months or
less or leases for which the underlying assets are of low value
continue to be expensed to the statement of profit or loss on a
straight-line basis over the lease term. The annual payments for
such short-term leases and low-value leases approximate $4 million
and $2 million, respectively.
Main categories of contracts, which were affected by the
requirements of IFRS 16, are operating leases of gondola cars, land
underneath production facilities and certain items of machinery and
equipment.
At 1 January 2019, as a result of application of the new
standard, the Group recognised $127 million of right-of-use assets
(including $7 million of property, plant and equipment previously
recognised under the finance lease contracts and $2 million of
prepayments under lease contracts, which were both reclassified
from the respective accounts), and $124 million of lease
liabilities (including $6 million recorded as finance lease
liabilities at 31 December 2018). These lease liabilities consisted
of non-current portion ($90 million) and current portion ($34
million). Deferred income taxes were not accrued upon recognition
of right-of-use assets and lease liabilities.
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
New/Revised Standards and Interpretations Adopted in 2019
(continued)
-- IFRS 16 "Leases" (continued)
Summary of New Accounting Policies
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a
rate are recognised as expense in the period on which the event or
condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
in-substance fixed lease payments or a change in the assessment to
purchase the underlying asset.
-- Amendments to IAS 28 - Long-term Interests in Associates and
Joint Ventures
The amendments clarify that an entity applies IFRS 9 to
long-term interests in an associate or joint venture to which the
equity method is not applied but that, in substance, form part of
the net investment in the associate or joint venture (long-term
interests). This clarification is relevant because it implies that
the expected credit loss model in IFRS 9 applies to such long-term
interests.
The amendments also clarified that, in applying IFRS 9, an
entity does not take account of any losses of the associate or
joint venture, or any impairment losses on the net investment,
recognised as adjustments to the net investment in the associate or
joint venture that arise from applying IAS 28 "Investments in
Associates and Joint Ventures".
These amendments had no impact on the consolidated financial
statements as the Group does not have such long term interests in
its associate and joint venture.
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
New/Revised Standards and Interpretations Adopted in 2019
(continued)
-- Amendments to IFRS 9 - Prepayment Features with Negative
Compensation
Under IFRS 9, a debt instrument can be measured at amortised
cost or at fair value through other comprehensive income, provided
that the contractual cash flows are "solely payments of principal
and interest on the principal amount outstanding" (the "SPPI
criterion") and the instrument is held within the appropriate
business model for that classification. The amendments to IFRS 9
clarify that a financial asset passes the SPPI criterion regardless
of an event or circumstance that causes the early termination of
the contract and irrespective of which party pays or receives
reasonable compensation for the early termination of the contract.
These amendments had no impact on the consolidated financial
statements of the Group.
-- IFRIC 23 "Uncertainty over Income Tax Treatments"
The Interpretation addresses the accounting for income taxes
when tax treatments involve uncertainty that affects the
application of IAS 12 Income Taxes. The Interpretation specifically
addresses the following:
-- Whether an entity considers uncertain tax treatments
separately;
-- The assumptions an entity makes about the examination of tax
treatments by taxation authorities;
-- How an entity determines taxable profit (tax loss), tax
bases, unused tax losses, unused tax credits and tax rates;
-- How an entity considers changes in facts and
circumstances.
The Interpretation establishes that an entity has to determine
whether to consider each uncertain tax treatment separately or
together with one or more other uncertain tax treatments. The
approach that better predicts the resolution of the uncertainty
needs to be followed.
The Group applies significant judgements in identifying
uncertainties over income tax treatments. Upon adoption of the
Interpretation, the Group considered whether it has any uncertain
tax positions. The Group determined that it is probable that its
tax treatments will be accepted by the taxation authorities. The
interpretation did not have an impact on the consolidated financial
statements of the Group.
-- Amendments to IAS 19 - Plan Amendment, Curtailment or
Settlement
The amendments to IAS 19 address the accounting when a plan
amendment, curtailment or settlement occurs during a reporting
period. The amendments specify that when a plan amendment,
curtailment or settlement occurs during the annual reporting
period, an entity is required to determine the current service cost
for the remainder of the period after the plan amendment,
curtailment or settlement, using the actuarial assumptions used to
remeasure the net defined benefit liability or asset reflecting the
benefits offered under the plan and the plan assets after that
event. An entity is also required to determine the net interest for
the remainder of the period after the plan amendment, curtailment
or settlement using the net defined benefit liability or asset
reflecting the benefits offered under the plan and the plan assets
after that event, and the discount rate used to remeasure that net
defined benefit liability or asset.
These amendments had no impact on the consolidated financial
statements of the Group as it did not have any plan amendments,
curtailments, or settlements during the period.
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
New/Revised Standards and Interpretations Adopted in 2019
(continued)
-- Annual Improvements to IFRSs 2015-2017 Cycle
The amendments relate to IFRS 3 "Business Combinations", IFRS 11
"Joint Arrangements", IAS 12 "Income Taxes" and IAS 23 "Borrowing
Costs". The application of these amendments had no effect on the
Group's financial position and performance as the Group followed
the same principles in prior periods.
3. Segment Information
The following tables present measures of segment profit or loss
based on management accounts.
Six-month period ended 30 June 2019
Steel,
US$ million Steel North America Coal Other operations Eliminations Total
--------- -------------- ------- ---------------- ------------ ---------
Revenue
Sales to external
customers $ 4,371 $ 1,315 $ 266 $ 106 $ - $ 6,058
Inter-segment sales 162 - 693 151 (1,006) -
--------- -------------- ------- ---------------- ------------ ---------
Total revenue 4,533 1,315 959 257 (1,006) 6,058
========= ============== ======= ================ ============ =========
Segment result -
EBITDA $ 884 $ 68 $ 564 $ 9 $ (29) $ 1,496
========= ============== ======= ================ ============ =========
Six-month period ended 30 June 2018
Steel,
US$ million Steel North America Coal Other operations Eliminations Total
--------- -------------- ------- ---------------- ------------ ---------
Revenue
Sales to external
customers $ 4,688 $ 1,155 $ 354 $ 92 $ - $ 6,289
Inter-segment sales 175 - 695 147 (1,017) -
--------- -------------- ------- ---------------- ------------ ---------
Total revenue 4,863 1,155 1,049 239 (1,017) 6,289
========= ============== ======= ================ ============ =========
Segment result -
EBITDA $ 1,334 $ 55 $ 662 $ 11 $ (47) $ 2,015
========= ============== ======= ================ ============ =========
3. Segment Information (continued)
The following table shows a reconciliation of revenue and EBITDA
used by 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 2019
Steel,
North Other
US$ million Steel America Coal operations Eliminations Total
--------- --------- --------- ----------- ------------ ----------------
Revenue $ 4,533 $ 1,315 $ 959 $ 257 $ (1,006) $ 6,058
Reclassifications and
other adjustments (374) 1 169 (8) 294 82
Revenue per IFRS financial
statements $ 4,159 $ 1,316 $ 1,128 $ 249 $ (712) $ 6,140
EBITDA $ 884 $ 68 $ 564 $ 9 $ (29) $ 1,496
Unrealised profits adjustment 21 (2) 7 - 42 68
Reclassifications and
other adjustments 44 (6) (53) - - (15)
--------- --------- --------- ----------- ------------ ----------------
65 (8) (46) - 42 53
--------- --------- --------- ----------- ------------ ----------------
EBITDA based on IFRS
financial statements $ 949 $ 60 $ 518 $ 9 $ 13 $ 1,549
Unallocated subsidiaries (67)
----------------
$ 1,482
================
Social and social infrastructure
maintenance expenses (8) - (2) - - (10)
Depreciation, depletion
and amortisation expense (118) (70) (78) (3) - (269)
Impairment of non-financial
assets (14) (1) (2) - - (17)
Loss on disposal of property,
plant and equipment and
intangible assets 3 (1) - - 2
Foreign exchange gains/(losses),
net (23) 37 (24) 5 - (5)
--------- --------- --------- ----------- ------------ ----------------
786 29 411 11 13 1,183
Unallocated income/(expenses),
net (270)
----------------
Profit/(loss) from operations $ 913
Interest income/(expense),
net (166)
Share of profits/(losses)
of joint ventures and
associates 5
Impairment of non-current
financial assets (56)
Gain/(loss) on financial
assets and liabilities (7)
Other non-operating gains/(losses),
net 1
Profit/(loss) before
tax $ 690
================
3. Segment Information (continued)
Six-month period ended 30 June 2018
Steel,
North Other
US$ million Steel America Coal operations Eliminations Total
--------- --------- --------- ----------- ------------ ----------------
Revenue $ 4,863 $ 1,155 $ 1,049 $ 239 $ (1,017) $ 6,289
Reclassifications and
other adjustments (438) (4) 195 40 261 54
Revenue per IFRS financial
statements $ 4,425 $ 1,151 $ 1,244 $ 279 $ (756) $ 6,343
EBITDA $ 1,334 $ 55 $ 662 $ 11 $ (47) $ 2,015
Unrealised profits adjustment (61) 1 (1) - 40 (21)
Reclassifications and
other adjustments (15) (16) 9 (1) - (23)
--------- --------- --------- ----------- ------------ ----------------
(76) (15) 8 (1) 40 (44)
--------- --------- --------- ----------- ------------ ----------------
EBITDA based on IFRS
financial statements $ 1,258 $ 40 $ 670 $ 10 $ (7) $ 1,971
Unallocated subsidiaries (65)
----------------
$ 1,906
================
Social and social infrastructure
maintenance expenses (12) - (1) - - (13)
Depreciation, depletion
and amortisation expense (125) (70) (86) (3) - (284)
Impairment of non-financial
assets (20) - - - - (20)
Loss on disposal of property,
plant and equipment and
intangible assets (1) (2) (1) - - (4)
Foreign exchange gains/(losses),
net 24 (42) 9 2 - (7)
--------- --------- --------- ----------- ------------ ----------------
1,124 (74) 591 9 (7) 1,578
Unallocated income/(expenses),
net 153
----------------
Profit/(loss) from operations $ 1,731
Interest income/(expense),
net (180)
Share of profits/(losses)
of joint ventures and
associates 5
Gain/(loss) on financial
assets and liabilities 3
Gain/(loss) on disposal
groups classified as
held for sale, net (10)
Other non-operating gains/(losses),
net (6)
Profit/(loss) before
tax $ 1,543
================
In the six-month period ended 30 June 2019, the Group recognised
an allowance for net realisable value of inventory in the amount of
$32 million.
The material changes in property, plant and equipment during the
six-month period ended 30 June 2019 other than those disclosed
above are presented below:
Steel,
US$ million Steel North America Coal Other operations Total
------------------ ------------------ -------------------- ------------------- -----------------
Additions $ 138 $ 45 $ 106 $ 1 $ 290
IFRS 16
adoption:
recognition of
right-of-use
assets (Note 2) 65 52 1 2 120
3. Segment Information (continued)
The revenues from contracts with external customers for each
group of similar products and services and rental income are
presented in the following table:
Six-month period ended
30 June
US$ million 2019 2018
------------ -----------
Steel
Construction products $ 1,059 $ 1,188
Flat-rolled products 204 217
Railway products 554 484
Semi-finished products 1,206 1,346
Other steel products 178 208
Other products 193 200
Iron ore 124 123
Vanadium in slag 67 73
Vanadium in alloys and chemicals 343 393
Rendering of services 56 33
------------ -----------
3,984 4,265
Steel, North America
Construction products 115 113
Flat-rolled products 302 290
Railway products 205 186
Tubular products 542 486
Other products 136 60
Rendering of services 16 16
------------ -----------
1,316 1,151
Coal
Coal 724 801
Other products 8 17
Rendering of services 11 12
------------ -----------
743 830
Other operations
Rendering of services 97 97
$ 6,140 $ 6,343
============ ===========
In the six-month periods ended 30 June 2019 and 2018 revenue
from rendering of services included rental income of $14 million
and $2 million, respectively.
3. Segment Information (continued)
Distribution of the Group's revenues by geographical area based
on the location of customers was as follows:
Six-month period ended
30 June
US$ million 2019 2018
------------ -----------
CIS
Russia $ 2,152 $ 2,309
Ukraine 194 228
Kazakhstan 134 123
Others 146 103
------------ -----------
2,626 2,763
============ ===========
America
USA 1,031 951
Canada 347 255
Mexico 41 102
Others 32 91
------------ -----------
1,451 1,399
============ ===========
Asia
Taiwan 366 224
Philippines 184 286
Indonesia 116 228
Republic of Korea 149 269
Thailand 169 47
Japan 167 83
China 147 67
Others 140 127
------------ -----------
1,438 1,331
============ ===========
Europe
European Union 468 537
Turkey 94 149
Others 14 17
------------ -----------
576 703
============ ===========
Africa
Egypt 25 77
Kenya 15 55
Others 7 14
------------ -----------
47 146
============ ===========
Other countries 2 1
------------ -----------
$ 6,140 $ 6,343
============ ===========
4. Changes in Composition of the Group
Purchase of Non-controlling Interests
In the reporting period, the Group acquired an additional 0.69%
ownership interest in Raspadskaya, a subsidiary of the Group, for
cash consideration of $10 million. The excess of consideration over
the carrying values of non-controlling interests acquired amounting
to $1 million was charged to accumulated profits.
In addition, in June 2019 Raspadskaya purchased its own shares
in course of the tender offer for cash consideration of $46
million. The Group derecognised 2.53% of non-controlling interests
and charged to accumulated profits $4 million representing the
excess of consideration over the carrying values of non-controlling
interests acquired.
5. Impairment of Non-current Assets
For the purpose of the impairment testing as of 30 June 2019 the
Group assessed the recoverable amount of each cash-generating unit
("CGU") where indicators of impairment were identified. Also the
Group performed an analysis of its property, plant and equipment
for functional obsolescence.
The recoverable amount has been determined based on a
value-in-use calculation using cash flow projections based on the
actual operating results and business plans approved by management
and appropriate discount rates reflecting the time value of money
and risks associated with respective cash-generating units. For the
periods not covered by management business plans, cash flow
projections have been estimated by extrapolating the respective
business plans' results using a zero real growth rate. The key
assumptions used by management in the value-in-use calculations
with respect to the cash-generating units where indicators of
impairment existed are presented in the table below.
Average
price
of commodity
per Average Carrying
tonne price amount
in the of commodity Recoverable of CGU
Period Pre-tax 2(nd) per amount before
of forecast, discount half tonne of CGU, impairment,
years rate, % Commodity of 2019 in 2020 US$ million US$ million
------------- ------------ ------------- ------------- ------------- ------------- -------------
vanadium
EVRAZ Nikom 5 10.57 products $49 $32 36 35
EVRAZ Palini steel
e Bertoli 5 12.71 products $649 $623 40 39
The estimations of value in use are most sensitive to the
following assumptions:
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 of EVRAZ Nikom and EVRAZ Palini e
Bertoli cash-generating units. If the discount rates were 10%
higher, this would lead to an impairment of $12 million.
Sales and Purchase Prices
The price assumptions of the products sold and purchased by the
Group were estimated using industry research using analysts' views
published by Citigroup, CRU, Credit Suisse, Goldman Sachs,
Jefferies, JP Morgan, Macquarie, Morgan Stanley, RBC, Renaissance
Capital, Sberbank, UBS, VTB and WSD during the period from January
to June 2019. The Group expects that the nominal prices will grow
with a compound annual growth rate of (11.1)%-3.7% in 2019 - 2023
and 2.5% in 2024 and thereafter. Reasonably possible changes in
sales and purchase prices in the 2nd half of 2019 and 2020 could
lead to an impairment of EVRAZ Nikom and EVRAZ Palini e Bertoli. If
the prices were 10% lower, this would lead to an impairment of $6
million.
5. Impairment of Non-current Assets (continued)
Sales Volumes
Management assumed that the sales volumes of steel products
would increase by 16.0% in 2019 and future dynamics will be driven
by gradual market recovery and changes in assets' capacities.
Reasonably possible changes in sales volumes in the 2nd half of
2019 and 2020 could lead to an impairment of EVRAZ Nikom and EVRAZ
Palini e Bertoli. If sales volumes were 10% lower, this would lead
to an impairment of $6 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 of
EVRAZ Nikom and EVRAZ Palini e Bertoli. If the actual costs were
10% higher than those assumed for the 2nd half of 2019 and 2020,
this would lead to an impairment of $52 million.
Sensitivity Analysis
For the cash-generating units, which were not impaired in the
reporting period and for which the reasonably possible changes
could lead to impairment, the recoverable amounts would become
equal to their carrying amounts if the assumptions used to measure
the recoverable amounts changed by the following percentages:
Discount Sales Sales Cost control
rates prices volumes measures
--------- -------- --------- -------------
EVRAZ Nikom 1.6% (3.1)% (3.8)% 0.6%
EVRAZ Palini e Bertoli 0.6% (1.3)% (1.3)% 0.2%
In addition, in the six-month period ended 30 June 2019
management reassessed the most likely scenario in relation to a
recoverability of a non-current financial asset related to a
steel-rolling mill located in the Smolensk region of Russia. As a
result, the Group recognised a $56 million impairment loss.
6. Income Taxes
Major components of income tax expense were as follows:
Six-month period
ended 30 June
US$ million 2019 2018
--------- --------
Current income tax expense $ (249) $ (364)
Adjustment in respect of income tax of
previous years (4) 4
Deferred income tax benefit/(expense)
relating to origination and reversal of
temporary differences (93) (38)
Income tax expense reported in the consolidated
statement of operations $ (346) $ (398)
========= ========
In the six-month period ended 30 June 2019 and 2018, deferred
tax expense relating to the undistributed earnings of the Group's
subsidiaries amounted to $84 million and $32 million,
respectively.
7. Property, Plant and Equipment
The movement in property, plant and equipment for the six-month
period ended 30 June 2019 was as follows:
Buildings Transport Assets
and Machinery and motor Mining Other under
US$ million Land constructions and equipment vehicles assets assets construction Total
------ ---------------- -------------- ---------- -------- ------- --------------- ---------
At 31 December
2018,
cost, net of
accumulated
depreciation $ 100 $ 895 $ 1,655 $ 81 $ 1,086 $ 7 $ 378 $ 4,202
IFRS 16
adoption:
recognition of
right-of-use
assets (Note 2) - 12 40 68 - - - 120
------ ---------------- -------------- ---------- -------- ------- --------------- ---------
At 1 January
2019,
cost, net of
accumulated
depreciation $ 100 $ 907 $ 1,695 $ 149 $ 1,086 $ 7 $ 378 $ 4,322
Additions 1 - 7 - - - 282 290
Assets put into
operation - 14 138 25 26 2 (205) -
Disposals (1) - (2) - - - (1) (4)
Depreciation and
depletion
charge - (41) (159) (22) (49) (1) - (272)
Impairment
losses
recognised in
statement
of operations - (8) (5) - - - (5) (18)
Impairment
losses
reversed
through
statement of
operations - 1 - - - - - 1
Change in site
restoration
and
decommissioning
provision - 6 2 - - - - 8
Translation
difference 3 75 119 15 108 - 30 350
------ ---------------- -------------- ---------- -------- ------- --------------- ---------
At 30 June 2019,
cost, net of
accumulated
depreciation $ 103 $ 954 $ 1,795 $ 167 $ 1,171 $ 8 $ 479 $ 4,677
====== ================ ============== ========== ======== ======= =============== =========
In the six-month period ended 30 June 2019 the depreciation
expense relating to the right-of-use assets amounted to $14
million, interest expense and payments relating to the lease
liabilities amounted to $4 million. At 30 June 2019, the carrying
value of the right-of-use assets amounted to $123 million.
8. Investments in Joint Ventures and Associates
The movement in investments in joint ventures and associates
during the six-month period ended 30 June 2019 was as follows:
US$ million Timir Streamcore Other associates Total
------ ---------- ---------------- ------
At 31 December 2018 $ 17 $ 47 $ 10 $ 74
Additional investments - 3 - 3
Share of profit/(loss) (1) 3 3 5
Dividends - - (1) (1)
Translation difference 1 5 - 6
------ ---------- ---------------- ------
At 30 June 2019 $ 17 $ 58 $ 12 $ 87
====== ========== ================ ======
9. Related Party Disclosures
For the Group related parties include associates and joint
venture partners, key management personnel and other entities that
are under control or significant influence of the key management
personnel or the Group's principal shareholders. In considering
each possible related party relationship, attention is directed to
the substance of the relationship, not merely the legal form.
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 2019 2018 2019 2018
--------- -------- --------- --------
Genalta Recycling Inc. $ - $ - $ 7 $ 8
Nakhodka Trade Sea Port - - 38 39
Vtorresource-Pererabotka 2 3 217 248
Yuzhny GOK 20 14 52 48
Other entities 4 1 - 4
--------- -------- --------- --------
$ 26 $ 18 $ 314 $ 347
========= ======== ========= ========
9. Related Party Disclosures (continued)
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 2019 2018 2019 2018
-------- ------------ -------- ------------
Loans
Timir $ 8 $ 7 $ - $ -
Dividends receivable
Yuzhny GOK $ - $ 4 $ - $ -
Trade balances
Nakhodka Trade Sea Port - - 5 10
Vtorresource-Pererabotka - - 153 95
Yuzhny GOK - - 53 15
Other entities 1 - 7 2
9 11 218 122
Less: allowance for expected
credit losses - - - -
-------- ------------ -------- ------------
$ 9 $ 11 $ 218 $ 122
======== ============ ======== ============
Compensation to Key Management Personnel
In the six-month periods ended 30 June 2019 and 2018, key
management personnel totalled 30 persons. 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 2019 2018
----- -----
Salary $ 7 $ 8
Performance bonuses 7 8
Social security taxes 3 3
Share-based payments 4 4
$ 21 $ 23
===== =====
10. Cash and Cash Equivalents
Cash and cash equivalents were denominated in the following
currencies:
30 June 31 December
US$ million 2019 2018
-------- ------------
Euro $ 348 $ 540
US dollar 358 273
Russian rouble 154 215
Ukrainian hryvnia 3 24
Others 13 15
-------- ------------
$ 876 $ 1,067
======== ============
The above cash and cash equivalents mainly consist of cash at
banks.
11. Equity
Share Capital
30 June 31 December
Number of shares 2019 2018
-------------- --------------
Issued and fully paid
Ordinary shares of $0.05 each 1,506,527,294 1,506,527,294
Treasury Shares
30 June 31 December
Number of shares 2019 2018
----------- ------------
Number of treasury shares 54,620,233 63,177,187
Earnings per Share
Earnings per share are calculated by dividing the net income
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period. Diluted
earnings per share amounts are calculated by dividing the net
profit attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the period
plus the weighted average number of ordinary shares that would be
issued on the conversion of all the potential dilutive ordinary
shares into ordinary shares.
The following reflects the profit and share data used in the
basic and diluted earnings per share computations:
Six-month period
ended 30 June
--------------------------------
2019 2018
Weighted average number of ordinary shares outstanding during the period 1,445,619,355 1,435,235,898
Effect of dilution: shares under Incentive plans 15,457,701 23,934,800
--------------- ---------------
Weighted average number of ordinary shares adjusted for the effect of dilution 1,461,077,056 1,459,170,698
Profit/(loss) for the period attributable to equity holders of the parent entity,
US$ million $ 313 $ 1,112
Basic earnings/(losses) per share $ 0.22 $ 0.77
Diluted earnings/(losses) per share $ 0.21 $ 0.76
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.
Dividends
Dividends declared by EVRAZ plc during the six-month period
ended 30 June 2019 were as follows:
To holders Dividends
registered declared, US$ per
Date of declaration at US$ million share
--------------------- ------------- ------------- --------
Interim for 2019 27/02/2019 08/03/2019 577 0.40
12. Loans and Borrowings
Short-term and long-term loans and borrowings were as
follows:
30 June 31 December
US$ million 2019 2018
---------- ------------
Bank loans $ 1,388 $ 1,370
US dollar-denominated
6.50% notes due 2020 - 700
8.25% notes due 2021 750 750
6.75% notes due 2022 500 500
5.375% notes due 2023 750 750
5.25% notes due 2024 700 -
Rouble-denominated
12.95% rouble bonds due 2019 - 216
12.60% rouble bonds due 2021 238 216
Unamortised debt issue costs (22) (20)
Interest payable 77 81
---------- ------------
$ 4,381 $ 4,563
========== ============
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.
The movement in loans and borrowings were as follows:
US$ million 2019 2018
---------- ----------
1 January $ 4,563 $ 5,391
Cash changes:
Cash proceeds from bank loans and notes,
net of debt issues costs 1,233 807
Repayment of bank loans and notes, including
interest (1,642) (1,590)
Net proceeds from/(repayment of) bank
overdrafts and credit lines, including
interest 2 1
Non-cash changes:
Non-cash proceeds - 6
Interest and other charges expensed 148 167
Accrual of premiums and other charges
on early repayment of borrowings 26 1
Effect of exchange rate changes 51 (53)
30 June $ 4,381 $ 4,730
========== ==========
12. Loans and Borrowings (continued)
Issuer Substitution
On 13 March 2019, all outstanding US dollar-denominated notes
with the total nominal value of $2,700 million were transferred
from Evraz Group S.A. to EVRAZ plc.
Issue of Notes and Bonds
In April 2019, EVRAZ plc issued 5.25% US dollar-denominated
notes due 2024 in the amount of $700 million. The proceeds from the
issue of the notes were used to finance the purchase of 6.50% notes
due 2020 at the tender offer in April 2019 and make whole call in
May 2019.
Repurchase of US Dollar-Denominated Notes
In April and May 2019, the Group fully settled its 6.50% notes
due 2020 ($700 million). The premium over the carrying value on the
repurchase and other costs relating to the transaction in the total
amount of $26 million were charged to the Gain/(loss) on financial
assets and liabilities caption of the consolidated statement of
operations.
Repurchase of Rouble-Denominated Bonds
In June 2019, the Group fully settled its 12.95% rouble bonds
due 2019, there was no gain or loss on this transaction. Upon
repayment of these bonds, the related swap contracts matured and
the Group recycled $33 million of the accumulated unrecognised
gains on cash flow hedges from other comprehensive income to the
statement of operations.
Pledged Assets
The Group's pledged assets at carrying value included the
following:
30 June 31 December
US$ million 2019 2018
-------- ------------
Property, plant and equipment $ 62 $ 67
Inventory 647 629
Unutilised Borrowing Facilities
As of 30 June 2019, the Group had unutilised bank loans in the
amount of $1,872 million, including $394 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, the USA and
Canada. Russia is considered to be a developing market with higher
economic and political risks.
The unrest in the Southeastern region of Ukraine and the
economic sanctions imposed by the USA and the European Union on
Russia in 2014 and later on caused economic slowdown in Russia and
reduced access to international capital markets. Further sanctions
imposed on Russia could have an adverse impact on the Group's
business.
Steel consumption is affected by the cyclical nature of demand
for steel products and the sensitivity of that demand to worldwide
general economic conditions.
13. Commitments and Contingencies (continued)
Operating Environment of the Group (continued)
In March 2018 the United States placed 25% tariffs on imports of
most steel products from several countries, including Russia, while
granting temporary exemptions for others, including Canada, Mexico,
and the European Union. On 31 May 2018, the U.S. announced the end
of temporary exemptions for Canada, Mexico, and the European Union,
putting 25% tariffs on imports from those jurisdictions effective 1
June 2018. In response, the government of Canada introduced 25%
tariffs effective 1 July 2018 on selected steel products from the
U.S. In addition, effective 25 October 2018, the Canadian
government imposed provisional safeguard measures on certain
categories of steel products by adding a 25% surtax in cases, where
the level of imports from trading partners exceeds historical
norms. Most of those provisional safeguards expired on 29 April
2019 following an inquiry by the Canadian International Trade
Tribunal. On 20 May 2019, the United States lifted the 25% tariffs
on imports of steel products from Canada and Mexico. The Canadian
government lifted its retaliatory tariffs on steel the same
day.
Therefore, the Group's cross-border transactions between U.S.
and Canadian subsidiaries no longer face the 25% Section 232
tariffs and Canadian retaliatory tariffs. The entities of the Steel
North America segment import steel for further processing and final
products for selling to domestic customers. U.S. Section 232
tariffs remain in place against other countries, including Russia,
and U.S. subsidiaries still face those 25% tariffs on any imported
steel from those countries.
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 $75 million.
Contractual Commitments
At 30 June 2019, the Group had contractual commitments for the
purchase of production equipment and construction works for an
approximate amount of $422 million.
In 2010, the Group concluded a contract with PraxAir for the
construction of an air separation plant and for the supply of
oxygen and other gases produced by PraxAir at this plant for a
period of 20 years (extended to 25 years in 2015, when the
construction was completed). This supply contract does not fall
within the scope of IFRS 16 "Leases". At 30 June 2019, the Group
has committed expenditure of $568 million over the life of the
contract.
13. Commitments and Contingencies (continued)
Contractual Commitments (continued)
In 2018, the Group concluded a contract with Air Liquide for the
construction of an air separation plant and for the supply of
oxygen and other gases produced by Air Liquide at this plant for a
period of 20 years. The contractual price comprises a fixed
component and a variable component. The total amount of the fixed
component approximates $372 million, which is payable within 20
years starting upon commencement of production in 2021 in
proportion to the amounts of the variable component. The variable
component is determined based on the actual purchase of gases and
is estimated at $380 million during the life of the contract. Based
on management's assessment this supply contract does not fall
within the scope of IFRS 16 "Leases" as the Group has no access to
the equipment and has no rights either to operate the assets, or to
design them in order to predetermine the way of their usage. Also
it is expected that more than an insignificant amount of the
assets' output will be sold to the parties unrelated to the Group.
In addition, Air Liquide will construct the system of trunk and
auxiliary pipelines, distribution stations and other equipment for
products delivery, which will be leased by the Group for a period
of 20 years and accounted for under IFRS 16. The cost of
construction of the products delivery system is estimated at $106
million.
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 $17 million under these programmes in the
second half of 2019.
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
30 June 2019 amounted to $18 million. Preliminary estimates of the
incremental costs indicate that such costs could be up to $186
million. The Group has insurance agreements, which would be
expected to provide reimbursement of the costs to be actually
incurred up to $228 million, of which $18 million relates to the
accrued environmental provision and has been recognised in
non-current financial assets at 30 June 2019. 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 2019 to 2024, under
which it will perform works aimed at reductions in environmental
pollution and contamination. As of 30 June 2019, the costs of
implementing these programmes are estimated at $169 million.
Legal Proceedings
The Group has been and continues to be the subject of legal
proceedings, none of which has had, individually or in aggregate, a
significant effect on the Group's operations or financial position.
At 30 June 2019, possible liabilities were estimated at $34
million.
13. Commitments and Contingencies (continued)
Issued Guarantees
In June 2018, EVRAZ plc and EVRAZ West-Siberian Metallurgical
Plant issued a joint guarantee in the amount of up to 30 billion
roubles ($476 million at the exchange rate as of 30 June 2019) to
nine companies owned by Sibuglemet in respect of management
services provided by one the Group's subsidiaries to these
entities. Sibuglemet is a producer of coking coal and operator of
coal refineries in the Kemerovo region of Russia.
The management company committed to perform all management
functions including, inter alia, all the decisions required to
carry out the day-to-day operations of these coal companies, their
investment and procurement activities. The guarantee matures on 31
December 2030.
14. Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets and liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data (unobservable inputs).
The carrying amounts of financial instruments, such as cash,
short-term and long-term investments, short-term and long-term
accounts receivable, short-term accounts payable, short-term loans
receivable and payable and floating-rate bank loans, approximate
their fair value.
The Group held the following financial instruments measured at
fair value:
30 June 2019 31 December 2018
----------------------- ----------------------
Level Level Level Level Level Level
US$ million 1 2 3 1 2 3
------- ------ ------ ------ ------ ------
Liabilities measured at fair
value
Derivatives not designated
as hedging instruments - 4 - - 5 -
Hedging instruments - - - - 46 -
The following table shows fair values of the Group's bonds and
notes.
US$ million 30 June 2019 31 December 2018
------------------- -------------------
Carrying Fair Carrying Fair
amount value amount value
USD-denominated
6.50% notes due 2020 $ - $ - $ 708 $ 723
8.25% notes due 2021 775 830 777 826
6.75% notes due 2022 512 548 513 535
5.375% notes due 2023 758 791 759 754
5.25% notes due 2024 704 739 - -
Rouble-denominated
12.95% rouble bonds due 2019 - - 216 222
12.60% rouble bonds due 2021 246 263 223 241
$ 2,995 $ 3,171 $ 3,196 $ 3,301
========= ======== ========= ========
The fair value of the non-convertible bonds and notes was
determined based on market quotations (Level 1).
15. Subsequent Events
Dividends
On 7 August 2019, the Board of directors of EVRAZ plc declared
an interim dividend for 2019 in the amount of $508 million, which
represents $0.35 per share.
Issue of Bonds
In August 2019, EvrazHolding Finance, the Group's subsidiary,
issued 7.95% rouble-denominated bonds due 2024 in the amount of
20,000 million roubles ($317 million at the exchange rate at the
date of the transaction).
Sale of Subsidiary
In July 2019, the Group entered into an agreement, under which
the Group is expected to sell its wholly-owned subsidiary EVRAZ
Stratcor Inc. to a third party in September 2019. EVRAZ Stratcor
Inc. is a vanadium producer located in the USA, it was included in
the steel segment of the Group's operations. This subsidiary was
not classified as an asset held for sale in the consolidated
statement of financial position at 30 June 2019 as the sale was not
highly probable. The Group expects that the sale of this subsidiary
will not have a significant impact on the Group's consolidated
financial statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BDLLBKVFFBBD
(END) Dow Jones Newswires
August 08, 2019 02:01 ET (06:01 GMT)
Evraz (LSE:EVR)
Historical Stock Chart
From Apr 2024 to May 2024
Evraz (LSE:EVR)
Historical Stock Chart
From May 2023 to May 2024