TIDMEVR
RNS Number : 2897V
Evraz Plc
06 August 2020
EVRAZ plc
EVRAZ ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR H1
2020
6 August 2020 - EVRAZ plc ("EVRAZ" or "the Group"; LSE: EVR)
today announces its unaudited interim results for the six months
ended 30 June 2020 ("the Period").
H1 2020 HIGHLIGHTS
-- Positive free cash flow of US$31 5 million (H1 2019: US$692 million).
-- Consolidated EBITDA totalled US$1,073 million, down 27.6% YoY
from US$1,482 million in H1 2019, driving the EBITDA margin down to
21. 5 % from 24.1% due to lower vanadium, coal and steel product
prices. This was
partly offset by a US$ 251 million effect from cost-cutting and customer focus initiatives.
-- Total debt increased by US$229 million to US$5,097 million,
net debt increased by US$288 million to US$3,733 million.
-- Net profit was US$513 million, compared with US$344 million in H1 2019.
-- The cash cost of steel and raw materials in Russia was lower or flat :
o The cash cost of slabs decreased to US$210/tonne from
US$230/tonne in H1 2019
o The cash cost of washed coking coal was flat at US$34/tonne in
H1 2020 over H1 2019
o The cash cost of iron ore products was flat at US$38/tonne in
H1 2020 over H1 2019
-- An interim dividend for 2020 of US$291.37 million (US$0.20
per share) has been declared, reflecting the Board's confidence in
the Group's financial position and outlook.
Financial Highlights
(US$ million) H1 2020 H1 2019 Change, %
------------------------------------------ ------------- ----------------- ----------
Consolidated revenues 4,983 6,140 (18.8)
------------------------------------------ ------------- ----------------- ----------
Profit from operations 891 913 ( 2.4 )
------------------------------------------ ------------- ----------------- ----------
Consolidated EBITDA(1) 1,073 1,482 (27.6 )
------------------------------------------ ------------- ----------------- ----------
Net profit 513 344 4 9 .1
------------------------------------------ ------------- ----------------- ----------
Earnings per share, basic (US$) 0.3 5 0.22 5 9 . 1
------------------------------------------ ------------- ----------------- ----------
Net cash flows from operating activities 781 1,175 ( 33.5 )
------------------------------------------ ------------- ----------------- ----------
CAPEX(1) 337 309 9 . 1
------------------------------------------ ------------- ----------------- ----------
30 June 2020 31 December 2019 Change, %
------------------------------------------ ------------- ----------------- ----------
Net debt(1) 3,733 3,445 8.4
------------------------------------------ ------------- ----------------- ----------
Total assets 9,003 9,847 (8.6)
------------------------------------------ ------------- ----------------- ----------
(1) For the definition, see "Definitions of selected alternative
performance measures".
Commenting on the results, EVRAZ' Chief Executive Officer,
Alexander Frolov, said:
"The first half of 2020 was dominated by the global fight
against the COVID-19 pandemic. The restrictive measures imposed by
the governments of various countries have had a significant impact
on the level of consumption of steel products around the world.
Prices have reflected this situation, dropping sharply in
comparison with the first half of 2019.
Despite market turbulence, EVRAZ was able to achieve EBITDA of
almost US$1.1 billion, a 28% decline in year-on-year terms. This
result was achieved despite lower steel, vanadium and coking coal
prices as well as weakening market demand in North America that led
to lower sales of tubular and flat-rolled steel products. To
provide additional financial flexibility amid the COVID-19
pandemic, the Group bolstered its cash position through additional
borrowing. This resulted in a slight increase in net debt to
US$3,733 million, as at 30 June 2020 (US$3,445 million as of 31
December 2019), which together with the lower EBITDA, led to a
moderate increase in the last twelve months EBITDA to net debt
ratio to 1.7 times, compared with 1.3 times as at 31 December
2019.
Cost-cutting and productivity improvement initiatives combined
with customer focus efforts generated a total EBITDA effect of US
$251 million.
Our total CAPEX in the period was US$337 million. Amid
deteriorating Russian steel market conditions, the management
reprioritised the Group's key initiatives and development projects.
Despite this revision, the new long rail mill project at EVRAZ
continued on schedule. Overall, the Group invested US$106 million
in development CAPEX in the first half of 2020.
Given the positive results in challenging market conditions, the
Board of Directors are recommending an interim dividend for 2020 of
US$0.20 per share, totalling roughly US$291.37 million, which is in
line with the previously announced dividend policy.
In H2, EVRAZ will aim to sustain production at full capacity and
maximise sales volumes in Russia. We will focus on additional
efficiency improvements and maintain balanced and selective
approach to our investment projects."
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, 6
August 2020, at:
3 pm (London time)
5 pm (Moscow time)
10 am (New York time)
To join the call, please dial:
+44 (0)20 8089 2860 or 0800 UK
031 4838
+7 499 609 1260 or 8 800 100 Russia
9471
+1 334-777-6978 or 800-367-2403 US
Conference ID: 8876661
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, 6 August 2020, at the
following link:
https://www.evraz.com/en/investors/reports-and-results/financial-results/
Table of contents
Strategic UPDATE 2020
HEALTH, SAFETY and ENVIRONMENT
HUMAN CAPITAL
CUSTOMER FOCUS
ASSET DEVELOPMENT
EVRAZ BUSINESS SYSTEM
Impact of COVID-19
Impact on key markets
Impact on operations
Impact on liquidity and solvency and access to financing
Measures taken to protect the wellbeing and safety of employees
and local communities
Market outlook
Global markets
Russian Steel
North America
Coal
OUTLOOK FOR 2020
Financial review
Statement of operations
CAPEX and key projects
Financing and liquidity
Review of operations by Segment
Steel segment
Steel, North America segment
Coal segment
Key RISKS AND UNCERTAINTIES
DIVIDS
DIRECTOR'S RESPONSIBILITY STATEMENT
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Strategic UPDATE 2020
EVRAZ' ultimate strategic objective is to maintain its
leadership in infrastructure steel products while keeping costs
optimised throughout the business. The strategy focuses on five
areas: health, safety and the environment (HSE); human capital;
customer focus; asset development; and the EVRAZ Business
System.
HEALTH, SAFETY and ENVIRONMENT
Our employees' health and safety is EVRAZ' overriding priority.
In 2020, the main focus in this area is the project to enhance risk
management, which is being rolled out across all divisions.
Following extensive revision and development of existing
processes, the Group began training employees in how to use the new
key tools for identifying and managing risk in H1 2020. Due to the
COVID-19 pandemic, in Q2 2020, all training courses were moved
online, and are operating successfully. Detailed information about
the impact of COVID-19 and EVRAZ' response could be found in the
"Impact of COVID-19" section.
Planned measures as part of the project include the "Hunt for
Risk" initiative and a review of standard operating procedures
(chart of production operations). In addition, to maximise employee
engagement, a special "Hunt for Risk" mobile application has been
developed. This allows staff to send reports about any dangers or
threats at work directly to a central database, enabling the Group
to respond rapidly and provide direct guidance.
In this reporting period, EVRAZ recorded zero fatalities,
largely due to the sustained efforts to engage employees in risk
identification and mitigation. In addition, the long-term injury
frequency rate (LTIFR) equalled 1.42x, below the target of 1.60x
set by the management for 2020.
In early 2020, EVRAZ' management actively focused on updating
the Group's environmental strategy, including the climate change
strategy at the request of the Board of Directors and its Health,
Safety and Environmental committee . In March-June, EVRAZ held
several sessions with senior management, which included a detailed
discussion on environmental strategy and climate change.
By the end of June, the Company had completed a climate change
scenario analysis and mapped the risks and opportunities together
with impacts and mitigation measures. These were based on
recommendations from the Task Force on Climate-related Financial
Disclosures (TCFD) and considered three main climate change
scenarios from the Intergovernmental Panel on Climate Change: rises
in temperature by 1.5˚Ñ, 2˚Ñ and 4.9˚Ñ by 2100.
HUMAN CAPITAL
The Group believes that employee skill sets and engagement are
the foundation for continuous improvement at its operations. During
H1 2020, it continued its existing programmes and launched several
new initiatives in this area.
A comprehensive employee health management programme was
launched that incorporates new approaches, including identifying
risk groups and offering preventative measures for both groups and
individuals. A pilot project "Health management: Top-300" has been
launched for "Top 300" programme participants. In addition, in
response to the COVID-19 outbreak, the Group provided access to a
telemedical service for personnel in Russia, enabling them to ask
any questions about health, including coronavirus (for more about
the support given to employees during this time, see "Impact of
COVID-19").
In the reporting period, as part of the "Top 300" project, the
second intake of around 100 people completed training in early
June, and the third intake is due to start in the autumn. Due to
the COVID-19 pandemic, the training was moved online, however the
results indicate that standards have been maintained and deadlines
met. In addition, part of the training was dedicated to industrial
safety and a new standard operating procedure was devised to teach
managers about preventing injuries and accidents, including through
the use of key risk management tools like the "bow tie" diagram.
This module has been included in a "Top 1,000" programme to roll
out standard practices at managerial level. In February 2020, in
the Urals division, an online version of "Top 1,000" was launched
to train heads of units and senior workers, and the first intake is
expected to finish in late July. Those who successfully completed
the "Top 300" act as trainers on this programme.
In H1 2020, EVRAZ continued with preparations to implement a
Target Remuneration System based on standardised pay grades for
employees at production facilities, lower-level heads of units and
directors of mines. The main aim of the project is to develop and
introduce unified, fair and transparent rules and principles for
setting salaries across the Group. In 2020, the plan is to apply
pay grades in the Coal division and then complete the rollout at
all metallurgical facilities in Russia.
At the end of the reporting period, the total headcount stood at
67,582.
CUSTOMER FOCUS
In H1 2020, EVRAZ continued its work on improving customer
service and developing new products, as part of its strategic
objective to remain the leading manufacturer of infrastructure
steel.
In the reporting period, the Group launched an initiative to
digitalise sales channels. This included creating a target model of
digital sales channels, benchmarking, setting financial targets and
establishing key objectives for each channel. This initiative
consists of several main projects:
-- Steel Radar: an online resource that shows beam inventories
in traders' warehouses and enables purchase orders to be
placed.
-- EDI/EDO: EDI is a platform for placing orders and handling
administrative tasks like amending documents and invoices, while
EDO is a platform for exchanging legal documents.
-- EVRAZ Webshop: a single e-commerce platform for all types of customers.
In addition, EVRAZ is developing numerous measures aimed at
improving the accuracy of forecasting the timing of
customer orders receipt while reducing order processing time to one day.
The Group also continued to develop its programme aimed at
promoting demand for beams and structural products in construction
and improving the availability of products to clients. In H1 2020,
a project was launched to sell beam sets for constructing buildings
(car parks, logistical centres, industrial facilities, etc), while
work is under way to open a metal service centre in Noginsk.
In H1 2020, despite the market turmoil, EVRAZ maintained healthy
market shares for key products in Russia: 6 6 % for beams, 40% for
structural products, 24% for railway wheels and 68% for rails. The
Group sold 324 thousand tonnes of beams (down by 6% YoY), and of
509 thousand tonnes of rails from its Russian facilities up from
492 thousand tonnes in H1 2019 (+3% YoY).
Meanwhile, despite a slump in global demand for coal, EVRAZ sold
9.5 million tonnes of coal products in the reporting period, 0.7
million tonnes higher than in H1 2019. Stable demand for coal from
the Group's mines and an increase in own consumption drove a rise
in domestic sales, while greater demand for coking coal from China
boosted exports. In addition, long-term relationships with
customers in Japan, South Korea and Europe offset the effect of
lower demand on those markets due to COVID-19.
In North America, the combination of the pandemic and the slump
in oil prices depressed sales across the business. However, demand
for large-diameter pipes (LDP) remained steady due to existing
orders, and EVRAZ Regina achieved greater prime yields and record
production volumes in several months during the period. In the rail
and wire rod and bar segments, demand remained relatively stable
overall. Rail output was down by around 4 % YoY given lower demand
from project and distribution customers, while demand from Class I
railroads was stable due to existing contracts. Sales of LDP
reached 188 thousand tonnes in H1 2020, compared with 157 thousand
tonnes in H1 2019 . For railway products, while sales volumes
declined to 212 thousand tonnes, compared with
221 thousand tonnes, rail market share climbed to 46% from 40% in H1 2019.
In the vanadium business, EVRAZ further expanded its customer
base in Asia and the Middle East and North Africa (MENA) in H1
2020, satisfying growing demand in the steel and energy storage
segments, particularly in China, by ensuring a stable supply of
diversified products. As the Group focused more on the spot market,
its share of long-term ferrovanadium contracts dropped to 55%, down
from 70% in H1 2019. In addition, in May 2020, EVRAZ' established a
new research and development centre at East Metals, a Group
subsidiary in Switzerland. Its main objective is to support the
sustainable and diversified use of vanadium as an alloying element
in current and future steel products.
Overall, customer-oriented initiatives generated additional
EBITDA of US $168 million in the reporting period, mainly as a
result of sales efforts in railway wheels, grinding balls as well
as to improvements in logistics and supply functions
efficiency.
ASSET DEVELOPMENT
In H1 2020, EVRAZ continued to focus on developing its assets
through its efficiency improvement programme. This generated US$ 83
million of additional EBITDA during the period, mostly through
greater productivity, improved yields and numerous savings
projects.
Given the worsening conditions on the Russian steel market, the
management reprioritised several key initiatives, including the
Group's key development projects. The decision was made to postpone
execution of rail and beam mill modernisation project at EVRAZ NTMK
and execution of integrated flat casting and rolling facility
project at EVRAZ ZSMK. Updated plans for these investment projects
will be announced during Capital markets day 2020. In North
America, the EVRAZ Pueblo new long rail mill project continued
according to the schedule; and in June, the Group's Board of
Directors approved the start of the execution phase of this
project.
In the Steel segment, EVRAZ NTMK completed reconstruction work
at blast furnace no.6 . In this reconstruction, EVRAZ used the most
modern technologies. Today, the blast furnace shop of EVRAZ NTMK is
the most efficient and environmentally friendly in Russia. In
addition, EVRAZ NTMK continued installation of a gas
pressure-recovery turbine on blast furnace no.7, as part of the
initiative to reduce electricity purchases by generating own power
and completed an installation of the sixth automated railway wheel
processing line. Meanwhile, EVRAZ KGOK continued to implement the
project to develop the Sobstvenno-Kachkanarskoye deposit, which is
due to partly replace output from the Gusevogorskoye deposit.
During budget planning for 2020 in the Coal division, the
management anticipated difficulties in coal markets worldwide. On
this basis, given the significant inventories of semi-soft coking
coal reserves, the decision was made to mothball the Mezhegey mine
in 2020.
After the COVID-19 pandemic took hold in Q1 2020, the Group also
decided to halt production at Razrez Raspadsky open pit in May.
Some of the released equipment was transferred to the open pit at
the Raspadskaya-Koksovaya mine to increase output of premium
OS-grade coal, which is in high demand in Russia. Such flexibility
helped to reduce operating costs amid the market turbulence. At the
Osinnikovskaya and Alardinskaya mines, EVRAZ upgraded some
equipment to increase the longwall loads and annual output of Zh
and KS-grade coal. In addition, the project to open a longwall on
the new seam no.29 at the Esaulskaya mine was completed in June.
After launching this and stopping longwall operations on seam no.10
at the Raspadskaya mine, output of GZh-grade coal will be the same,
but the overall quality of the Group's semi-soft coking coal will
be higher.
In the Steel, North America division, several factors disrupted
operations and production at various locations in H1 2020,
beginning with a cyberattack in March followed by a steep drop in
crude oil price and then economic disruptions brought on by the
COVID-19 pandemic. In response, the management undertook numerous
measures, including idling some production facilities in Canada and
the US to support free cash flow, reducing operating costs and
optimising working capital. For more details, see the "Operational
update" section. Meanwhile, the division continued its capital
investments in equipment modernisation and expansion at Regina
(Saskatchewan) and Red Deer (Alberta) to reduce emissions and
improve efficiency. The upgrade of Regina's reheat furnace was
completed in March-April, and the mill was certified as meeting the
new nitrogen oxide requirements in May.
Overall, in the reporting period, EVRAZ invested US$ 106 million
in development CAPEX.
EVRAZ BUSINESS SYSTEM
The EVRAZ Business System (EBS) guides the Group in setting
targets, developing employees, supporting the management, promoting
corporate culture and improving processes and infrastructure. It
also coordinates "transformations": initiatives to drive continuous
improvement across the business.
In H1 2020, new transformations were launched at EVRAZ ZSMK's
oxygen production, energy and railway units and its Kaz and
Guryevsky mines. In addition, existing initiatives continued at
EVRAZ NTMK's rail mill, wide-beam production shop, energy units and
metallurgical equipment repair shop no.3, as well as at EVRAZ
KGOK's automotive shop, quarry and quarry equipment unit.
There are plans for EBS to focus on new areas, including the
supply chain and analytics. By the year-end, the Group intends to
implement 26 active phases of transformations in production areas,
including six in the Siberia division, 15 in the Urals division and
five in the Coal division.
Impact of COVID-19
EVRAZ is closely monitoring the development of the pandemic and
its impact on employees, operations and the broader stakeholder
base. The Group is committed to doing everything possible to
protect the lives and health of employees and minimise the effect
on its enterprises and the communities in which it operates.
Impact on key markets
On the global steel market, throughout H1 2020, prices continued
to slide, primarily due to the epidemiological situation in China.
In March, the coronavirus continued to spread, leading to the
lockdown of several key markets in Southeast Asia (Philippines,
Thailand, Indonesia and others).
To hedge against the risk of production disruptions, the Group
extended the order book for semi-finished products with overseas
customers where possible. Moreover, in early April, the only
accessible market was China, one of the first countries to
stabilise the coronavirus situation and restore consumer activity.
Amid such limited demand, the price decline on global markets
accelerated. However, in early May, as several countries eased
lockdown restrictions and market conditions improved, the trend
reversed and prices regained part of their losses. Please , see the
"Market outlook" section for more details about key markets
performance in H1 2020.
Impact on operations
The Group remain s closely focused on its operations, including
logistics, supply and technological processes. Despite 242
confirmed COVID-19 cases among employees as of 30 June 2020 , EVRAZ
has faced no significant issues with the production or supply of
raw materials and other goods. Shipments continued, and raw
material deliveries to enterprises were stable.
Impact on liquidity and solvency and access to financing
COVID-19 has had little effect on EVRAZ' liquidity situation.
Despite the negative market trends, operations and sales have
continued to generate sufficient operating cash flow, while the
Group has proactively addressed its upcoming obligations and
maintained a strong liquidity position. As of 30 June 2020, cash
and cash equivalents stood at around US$1.4 b illion , supported by
operating cash flow and financing initiatives. Please see section
"Financing and liquidity" for more details.
Measures taken to protect the wellbeing and safety of employees
and local communities
Since March 2020, in response to the COVID-19 pandemic, the
Group has introduced additional safety measures to protect its
people and ensure continued operations. These include:
-- Significant reduction of domestic business travel and
cancellation of overseas trips .
-- Two-week isolation with salary for employees returning from
trips abroad, either personal or work-related.
-- Remote working, as well as additional personal protection
equipment for employees who must come to work, including eye
protectors, respirators and gloves.
-- Installation of thermal imaging devices and pyrometers at
facility entrances to monitor people's temperatures.
-- Elimination where possible of large gatherings (with social
distancing when they must take place) and cancellation of all major
corporate, sporting and entertainment events.
-- Increase in supplies of antiseptic and disinfectant products
in communal areas, as well as regular sanitation of facilities and
transport.
-- Campaigns to raise awareness among employees and contractors
about behavioural guidelines, social distancing and personal
protection.
-- Access to a telemedical consultancy service.
In addition to caring for the physical health of employees and
their families, EVRAZ is carefully assessing the possible mental
impact of the preventative measures being undertaken amid the
COVID-19 pandemic. As of 30 June 2020 more than 4,500 employees of
the Group were working remotely.
As of March 2020, EVRAZ has undertaken additional measures aimed
at supporting the wellbeing and mental health of its employees
during the pandemic:
-- The corporate website has been updated with a special page
containing information about COVID-19 (
https://www.evraz.com/en/covid-19/ ) and the actions that the Group
is taking amid the pandemic. The page provides phone numbers for
24/7 corporate hotlines if employees have questions or encounter
problems. EVRAZ North America has engaged external providers for
this purpose.
-- Employees receive regular emails on topics such as how to
deal with stress and anxiety; manage remote teams effectively;
handle conflicts at home; and organise children's education and
entertainment; as well as the importance of leisure time amid
self-isolation and other restrictions.
-- Virtual meetings with senior management are being held,
allowing employee to participate and ask questions.
-- Corporate challenges are regularly being set to promote
positive change. As part of the "We Do Not Risk" social media
challenge, for every post by participants, EVRAZ is providing
antiseptic and masks to doctors at municipal hospitals in Nizhny
Tagil, Kachkanar, Novokuznetsk and Mezhdurechensk. The "What I Will
Do After Self-isolation" challenge allows employees to share their
thoughts and improve their outlook by seeing what colleagues are
planning.
-- The PR function is sending newsletters to inform employees
about the Group's work to deal with the virus, as well as global
and local events.
-- The IT function has rolled out a mobile application for
employees in Russia named "Antivirus" to promptly alert employees
of possible COVID-19 exposure. It is based on the "Stopp Corona"
application, which was developed jointly by Accenture and the
Austrian Red Cross to identify symptoms more efficiently.
In addition to these measures, the IT and HR functions are
conducting regular employee surveys to learn about their experience
of working remotely, any technical or personal problems, what help
is needed from the Company, and what can be improved.
Since the beginning of the COVID-19 pandemic, EVRAZ has
allocated more than RUB 400 million (c. US$5.8 million) as of 30
June 2020 to ensure safe working conditions for employees, as well
as to support medical and pre-school institutions in local
communities in the Sverdlovsk and Kemerovo regions, Moscow and
Tula.
The Group has financed the purchase of specialised equipment,
transport and protective gear for hospitals in the Sverdlovsk and
Kemerovo regions. In particular, Novokuznetsk's municipal clinical
infectious disease hospital No. 8 is being renovated to accommodate
a polymerase chain reaction (PCR) laboratory. It will offer
COVID-19 tests and same-day results, and its new equipment will be
able to screen for different viruses without having to be
adapted.
Market outlook
Global markets
In H1 2020 , as COVID -19 took hold in Asia and spread
worldwide, the restrictions introduced impacted the global economy
and bulk commodit y markets. Amid a downturn in demand, steel
prices, based on hot-rolled coil (HRC) China FOB contracts,
averaged US$444/tonne in the reporting period, down 13% from US$
510/tonne in H1 2019 . However, they did recover from a low of
US$405/tonne in May to US$429/tonne in June , as the Chinese
economy began to recover in Q2 2020 in response to a relaxation of
restrictions and government support. Overall, China's crude steel
production and apparent steel use increased by 2% YoY . Amid strong
domestic demand , the country's net steel exports amounted to 20
million tonnes, down 31% YoY, and overall exports to 30 million
tonne , down 14% YoY.
Despite the more positive signs in China , steel demand in the
rest of the world contracted by 9 % YoY in H1 2020, including a
fall of 13% YoY in the EU and 17% YoY in North America , while
global production ex-China shrank by 14 % YoY. At the same time,
the unprecedented support measures by the major economies are
already improving the overall environment and the steel
industry.
In H1 2020, iron ore price s , based on the 62% Fe fines China
CFR benchmark, averaged US$91/tonne, in line with H1 2019 , amid
supply disruptions in Brazil and robust demand in China in Q2 2020.
Exports from Brazil totalled 144 million tonnes , compared with the
163 million tonnes in H1 2019 , due to seasonal weather factors in
Q1 2020 and Vale's restrictions in response to the spread of
COVID-19 at the Minas Gerais mine in Q2 2020. Australia also faced
weather issues, as three tropical cyclones swept across the Pilbara
region in January-February, affecting shipments and prices,
although the country's top three producers - BHP Billiton, Rio
Tinto and FMG - ramped up output to record levels in March to meet
Chin e s e demand. Despite the pandemic and its effects, Australia
exported 422 million tonnes of iron ore in the reporting period, up
2.4% from H1 2019 .
Driven by the rapid recovery of Chin a' s steel industry in Q2
2020 , iron ore inventories declined to a historical low that
pushed prices to more than US$100/tonne in June. I n the reporting
period, the country's iron ore imports reached 547 million tonnes,
up 10% YoY.
Regarding metallurgical coal , prices hit a bottom in late H1
2020 not seen since 2016 due to demand issues from the steel
industry ( ex-China ). In Europe, parts of Asia (Japan, Korea and
Taiwan) and India, a r ou nd 25-30% of blast furnace capacity was
suspended during the reporting period due to the measures to combat
COVID-19. Overall, seaborne import s of metallurgical coal totalled
141 million tonnes , down 4% YoY. China's seaborne coking coal
imports amounted to 25.3 million tonnes , up 2% YoY, as its steel
output rose and blast furnace utilisation improved by the end of Q2
2020. Against this backdrop , hard coking coal prices averaged
US$111/tonne in June, down 27% from the US$151/tonne in January. In
H1 2020, metallurgical coal prices decreased by 34% to US$136/tonne
vs US$205/tonne during the same period of 2019.
As for vanadium, the FeV price averaged US$25.7/kgV in H1 2020,
56% lower than the US$56.3/kgV in the same period last year and 4%
below the US$26.9/kgV in H2 2019. Global vanadium demand reached an
estimated 51 thousand mtV, up 10% YoY , amid strong consumption
growth from rebar producers in China that was partly offset by a
slump in demand from the steel industry (ex-China) due to COVID-19
restrictions. Production in China increased by 10% YoY, a response
to the historically high prices in 2018-19. Persistently weak
demand in most regions outside China caused the FeV price in Europe
and North America to drop to US$ 22-23 / kgV in June, widening the
gap with the price in China of US$ 30 / kgV and prompting suppliers
to send higher volumes to China. Overall, the market is expected to
be oversupplied until Q4 2020 or Q1 2021, until demand recovers in
key segments.
Russian Steel
In H1 2020, Russian steel consumption totalled 19. 4 million
tonnes, down 11% YoY, amid lower economic activity and the
restrictions introduced to combat COVID-19 .
Demand for long products decreased by 7 % YoY . Meanwhile,
railway segment demonstrated positive dynamics. The rail market
increased significantly by 27 % mainly driven by greater orders
from Russian Railways. Demand for wheels moved up by 4% amid
steadily high demand from railcar repair companies . The
construction sector was hit hard by the COVID-19 measures, and
demand fell by 1 5 % YoY for beams, 7% YoY for rebar and 21% YoY
for structural products, while that for wire rod increased by
2%.
In the reporting period, domestic crude steel production
equalled 35. 3 million tonnes, down 3 % YoY, while exports amounted
to 14. 5 million tonnes, up 6 % YoY, as companies redirected unsold
volumes abroad .
Russian steel prices moved in accordance with the lower demand
and surplus supply. In H1 2020, based on the Moscow CPT benchmark,
the rebar price averaged US$ 390 /tonne, down 20% YoY; that of
channels US$529/tonne, down 12% YoY; that of HRC US$506/tonne, down
9% YoY; and that of plates US$507/tonne, down 10% YoY.
North America
In North America, the United States has become one of the
regions hardest hit by COVID-19 , and the measures taken in
response have significantly reduced demand for steel in the sectors
served by EVRAZ. In the reporting period, US steel product
consumption totalled 46.1 million tonnes, down 15% from the 54.2
million tonnes in H1 2019. Demand slumped by 20% YoY for long, 10%
YoY for flat and 39% YoY for tubular products. Demand for oil
country tubular goods (OCTG) shrank by 40% YoY, as drilling for new
wells contracted significantly, while the large-diameter pipe
segment was also impacted. Demand for plate retreated by 21% YoY
amid lower consumption in the manufacturing and construction
sectors, while that for rod and bar decreased by 23% YoY.
In H1 2020, US steel product imports amounted to 11.6 million
tonnes, down 19% YoY . Following production cuts amid pandemic,
domestic crude steel production decreased by 18% to 36.2mt.
Compared with H1 2019, US prices for steel products declined:
that of plate averaged US$666/tonne, down 34% YoY; of OCTG
US$1,143/tonne, down 23% YoY; and of rebar US$671/tonne, down 14%
YoY.
Coal
In the reporting period, Russian coking coal concentrate
consumption totalled 18.3 million tonnes, down 1 % YoY, as coke
production fell amid the COVID-19 situation. Coking coal exports
amounted to 10.8 million tonnes, down 16% YoY, amid decrease in
demand across all regions excluding China for the same reason .
Mining volumes reduced to 43.6 million tonnes, down 5% YoY also as
EVRAZ halted production at Razrez Raspadsky and Mezhegeyugol.
Under pressure from cuts in steel output worldwide (apart from
China), Russian prices of seaborne metallurgical coal shipments
followed international benchmarks. In H1 2020, based on the FCA
Kuzbass benchmark, the price of premium Zh-grade coking coal
averaged US$ 97 /tonne, down 38% YoY, and that of the semi-hard
GZh-grade US$77/tonne, down 29% YoY.
.
OUTLOOK FOR 2020
In H2, EVRAZ will aim to sustain production at full capacity and
maximise sales volumes in Russia. We will focus on additional
efficiency improvements and maintain balanced and selective
approach to the investment projects.
Financial review
Statement of operations
In H1 2020, EVRAZ' consolidated revenues declined by 18.8% to
US$4,983 million, compared with US$6,140 million in H1 2019,
primarily due to lower sales prices for construction, coal products
and lower flat-rolled sales volumes, as well as reduced prices and
volumes for vanadium products.
EVRAZ' consolidated EBITDA amounted to US$1,073 million during
the period, compared with US$1,482 million in H1 2019, bringing the
EBITDA margin down from 24.1% to 21.6%. The decline in EBITDA was
primarily attributable to lower steel, vanadium and coal product
sales prices, as well as lower sales of tubular and flat-rolled
steel products resulting from weakening market demand in North
America .
Free cash flow declined by 54.8% year-on-year and amounted to
US$315 million. The decline was attributable to lower EBITDA and
higher capital expenditures in H1 2020 compared to H1 2019.
In H1 2020, the Steel segment's revenues (including
inter-segment sales) dropped by 17.5% YoY to US$3,433 million, or
63.0% of the Group's total before elimination. The decrease was
mainly attributable to lower revenues from sales of vanadium and
steel products, which fell by 60.0% and 9.8% YoY respectively. This
was primarily due to a downturn in average sales prices of 56.9%
for vanadium and 8.5% for steel products, underpinned by
unfavourable market conditions. The Group's lower revenues from
sales of steel products were partly offset by higher sales volumes,
which increased from 5.7 million tonnes in H1 2019 to 6.0 million
tonnes in H1 2020, following an increase in production volumes at
Russian mills amid higher demand.
In H1 2020, revenues from the Steel, North America segment fell
by 21.8% YoY. Steel product revenues went down by 21.5%, driven by
declining sales volumes (down 15.0%) for flat-rolled, construction
and tubular steel products and lower prices (down 6.5%).
The Coal segment's revenues declined by 30.7% YoY, mainly due to
a decline in coal product sales prices by 29.8% and a decrease of
0.9% in coal product sales volumes. Coal prices followed the
downward trend set by global benchmarks during the period.
In H1 2020, the Steel segment's EBITDA decreased due to lower
prices for vanadium, construction and other steel products, and
lower sales volumes for flat products, partially offset by lower
cost of sales as well as the effect of the rouble's
depreciation.
The Steel, North America segment's EBITDA decreased due to lower
revenues from sales of flat-rolled, tubular, railway, and
construction products.
The Coal segment's EBITDA was down YoY, amid lower coal product
sales prices, while the cost of sales was largely unchanged.
Eliminations mainly reflect unrealised profits or losses that
relate to the inventories produced by the Steel segment on the
Steel, North America segment's balance sheet, and coal inventories
produced by the Coal segment on the Steel segment's balance
sheet.
Revenues,
(US$ million)
Segment H1 2020 H1 2019 Change Change, %
---------------------- -------- -------- -------- ----------
Steel 3,433 4,159 (726) (17.5)
---------------------- -------- -------- -------- ----------
Steel, North America 1,028 1,316 (288) (21.9)
---------------------- -------- -------- -------- ----------
Coal 781 1,128 (347) (30.8)
---------------------- -------- -------- -------- ----------
Other operations 206 249 (43) (17.3)
---------------------- -------- -------- -------- ----------
Eliminations (465) (71 2 ) 247 (34.7)
---------------------- -------- -------- -------- ----------
Total 4,983 6,140 (1,157) (18.8)
---------------------- -------- -------- -------- ----------
Revenues by region,
(US$ million)
Region H1 2020 H1 2019 Change Change, %
------------------------------ -------- -------- -------- ----------
Russia 1,848 2,152 (304) (14.1)
------------------------------ -------- -------- -------- ----------
Americas 1,053 1,451 (398) (27.5)
------------------------------ -------- -------- -------- ----------
Asia 1,504 1,438 66 4.6
------------------------------ -------- -------- -------- ----------
CIS (excl. Russia) 309 474 (165) (34.8)
------------------------------ -------- -------- -------- ----------
Europe 212 576 (364) (63. 2 )
------------------------------ -------- -------- -------- ----------
Africa and rest of the world 57 49 8 16.3
------------------------------ -------- -------- -------- ----------
Total 4,983 6,140 (1,157) (18.8)
------------------------------ -------- -------- -------- ----------
EBITDA*,
(US$ million)
Segment H1 2020 H1 2019 Change Change, %
---------------------- -------- -------- ------- ----------
Steel 916 949 (33) (3.5)
---------------------- -------- -------- ------- ----------
Steel, North America (21) 60 (81) n/a
---------------------- -------- -------- ------- ----------
Coal 218 518 (300) (57.9)
---------------------- -------- -------- ------- ----------
Other operations 8 9 (1) (11.1)
---------------------- -------- -------- ------- ----------
Unallocated (65) (67) 2 (3.0)
---------------------- -------- -------- ------- ----------
Eliminations 17 13 4 (30.8)
---------------------- -------- -------- ------- ----------
Total 1,073 1,482 (409) (27.6)
---------------------- -------- -------- ------- ----------
*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 2020
(US$ million)
----------------------------------------------------------------- ---------
Improving yields and raw material costs, including 63
----------------------------------------------------------------- ---------
Improving yields and raw material costs of Urals and
Siberia divisions 32
----------------------------------------------------------------- ---------
Various improvements at coal beneficiating plants and
mines 24
----------------------------------------------------------------- ---------
Improving yields and raw material costs of North American
assets and other assets 7
----------------------------------------------------------------- ---------
Increasing productivity and cost effectiveness 4
----------------------------------------------------------------- ---------
Others , including G&A costs 16
----------------------------------------------------------------- ---------
Total 83
----------------------------------------------------------------- ---------
Revenues, cost of sales and gross profit by segment
(US$ million)
Change,
H1 2020 H1 2019 Change %
-------------------------- -------- ---------- ------- --------
Steel segment
-------------------------- -------- ---------- ------- --------
Revenues 3,433 4,159 (726) (17.5)
-------------------------- -------- ---------- ------- --------
Cost of sales (2,292) ( 2,958 ) 666 (22.5)
-------------------------- -------- ---------- ------- --------
Gross profit 1,141 1,201 (6) (5.0)
-------------------------- -------- ---------- ------- --------
Steel, North America
segment
-------------------------- -------- ---------- ------- --------
Revenues 1,028 1,316 (288) (21.9)
-------------------------- -------- ---------- ------- --------
Cost of sales (936) (1,153) 217 (18.8)
-------------------------- -------- ---------- ------- --------
Gross profit 92 163 (71) (43.6)
-------------------------- -------- ---------- ------- --------
Coal segment
-------------------------- -------- ---------- ------- --------
Revenues 781 1,128 (347) (30.8)
-------------------------- -------- ---------- ------- --------
Cost of sales (537) (543) 6 (1.1)
-------------------------- -------- ---------- ------- --------
Gross profit 244 585 (341) (58.3)
-------------------------- -------- ---------- ------- --------
Other operations - gross
profit 56 54 2 3.7
-------------------------- -------- ---------- ------- --------
Unallocated - gross
profit (4) (6) 2 (33.3)
-------------------------- -------- ---------- ------- --------
Eliminations - gross
profit (34) (40 ) 6 (15.0)
-------------------------- -------- ---------- ------- --------
Total 1,495 1,957 (462) (23.6)
-------------------------- -------- ---------- ------- --------
Gross profit, expenses and results,
(US$ million)
Item H1 2020 H1 2019 Change Change, %
---------------------------------------------------------- -------- -------- ------- -----------
Gross profit 1,495 1,957 (462) (23.6)
---------------------------------------------------------- -------- -------- ------- -----------
Selling and distribution costs (421) (446) 25 (5.6)
---------------------------------------------------------- -------- -------- ------- -----------
General and administrative expenses (278) (282) 4 (1.4)
---------------------------------------------------------- -------- -------- ------- -----------
Impairment of assets (108) (17) (91) n/a
---------------------------------------------------------- -------- -------- ------- -----------
Foreign-exchange gains/(losses), net 242 (273) 515 n/a
---------------------------------------------------------- -------- -------- ------- -----------
Other operating income and expenses, net (39) (26) (13) 50.0
---------------------------------------------------------- -------- -------- ------- -----------
Profit from operations 891 913 (22) (2.4)
---------------------------------------------------------- -------- -------- ------- -----------
Interest expense, net (164) (166) 2 (1.2)
---------------------------------------------------------- -------- -------- ------- -----------
Share of losses of joint ventures and associates 3 5 (2) (40.0)
---------------------------------------------------------- -------- -------- ------- -----------
Impairment of non-current financial assets - (56) 56 (100.0)
---------------------------------------------------------- -------- -------- ------- -----------
Loss on financial assets and liabilities, net (40) (7) (33) n/a
---------------------------------------------------------- -------- -------- ------- -----------
Loss on disposal groups classified as held for sale, net 1 - 1 100.0%
---------------------------------------------------------- -------- -------- ------- -----------
Other non-operating losses, net 9 1 8 n/a
---------------------------------------------------------- -------- -------- ------- -----------
Profit before tax 700 690 10 1.4
---------------------------------------------------------- -------- -------- ------- -----------
Income tax benefit/(expense) ( 187 ) (346) 159 (4 6 . 0 )
---------------------------------------------------------- -------- -------- ------- -----------
Net profit 513 344 169 4 9 .1
---------------------------------------------------------- -------- -------- ------- -----------
In H1 2020, selling and distribution expenses decreased slightly
amid lower railroad transportation costs related to lower shipment
volumes and tariffs.
In 1H 2020, EVRAZ recognised a US$108 million impairment loss.
As a result of impairment testing at the level of the
cash-generating units, EVRAZ recognised an impairment of goodwill
of US$65 million, intangible assets of US$3 million, and property,
plant and equipment of US$31 million attributable to the Large
diameter pipes cash generating unit in the Steel, North America
segment. The impairment was caused by the reassessment of demand on
the steel, oil and commodities markets. The value-in-use models are
based on the expectation that the demand will recover in 2022.
Foreign exchange gains amounted to US$242 million, mainly
related to intra-group loans denominated in roubles and payable by
Evraz Group S.A., whose functional currency is the US dollar, to
the Russian subsidiaries, which have the rouble as their functional
currency. The depreciation of the Russian rouble against the US
dollar in H1 2020 led to exchange gains recognised on the income
statements of non-Russian subsidiaries and not offset by the
exchange losses recognised in the equity of the Russian
subsidiaries.
Net interest expense decreased to US$164 million in 1H 2020,
compared with US$166 million in 1H 2019. This was mainly due to the
management's efforts to refinance existing indebtedness on more
favourable terms during the reporting period.
The loss on financial assets and liabilities amounted to US$40
million and consisted primarily of losses on foreign currency swap
contracts.
For the reporting period, the Group had an income tax expense of
US$ 187 million, compared with US$346 million in H1 2019. The
change reflects the decline in the operating results.
Cash flow,
(US$ million)
Item H1 2020 H1 2019 Change Change, %
----------------------------------------------------------------------- -------- -------- ------- ----------
Cash flows from operating activities before changes in working capital 749 1,224 (475) (38.8)
----------------------------------------------------------------------- -------- -------- ------- ----------
Changes in working capital 32 (49) 81 n/a
----------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows from operating activities 781 1,175 (394) (33.5)
----------------------------------------------------------------------- -------- -------- ------- ----------
Short-term deposits at banks, including interest 3 4 (1) (25.0)
Purchases of property, plant and equipment and intangible assets (330) (309) (21) 6.8
Proceeds from sale of disposal groups classified as held for sale, net
of transaction costs 3 - 3 100.0
Other investing activities 5 4 1 25.0
----------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows used in investing activities (319) (301) (18) 6.0
----------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows used in financing activities (513) (1,081) 568 (52.5)
----------------------------------------------------------------------- -------- -------- ------- ----------
Effect of foreign-exchange rate changes on cash and cash equivalents (8) 16 (24) n/a
----------------------------------------------------------------------- -------- -------- ------- ----------
Net increase/(decrease) in cash and cash equivalents (59) (191) 132 (69.1)
----------------------------------------------------------------------- -------- -------- ------- ----------
Calculation of free cash flow,*
(US$ million)
----------------------------------------------------------------------------------------------------------------
Item H1 2020 H1 2019 Change Change, %
----------------------------------------------------------------------- -------- -------- ------- ----------
EBITDA 1,073 1,482 (409) (27.6)
----------------------------------------------------------------------- -------- -------- ------- ----------
EBITDA excluding non-cash items 1,071 1,487 (416) (28.0)
----------------------------------------------------------------------- -------- -------- ------- ----------
Changes in working capital 32 (49) 81 n/a
----------------------------------------------------------------------- -------- -------- ------- ----------
Income tax accrued (306) (253) (53) 20.9
----------------------------------------------------------------------- -------- -------- ------- ----------
Social and social infrastructure maintenance expenses (17) (10) (7) 70.0
----------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows from operating activities 781 1,175 (394) (33.6)
----------------------------------------------------------------------- -------- -------- ------- ----------
Interest and similar payments (137) (177) 40 (22.6)
----------------------------------------------------------------------- -------- -------- ------- ----------
Capital expenditures, including recorded in financing activities and
non-cash transactions (337) (309) (28) 9.1
----------------------------------------------------------------------- -------- -------- ------- ----------
Proceeds from sale of disposal groups classified as held for sale, net
of transaction costs 3 - 3 100.0
----------------------------------------------------------------------- -------- -------- ------- ----------
Other cash flows from investing activities 5 3 2 33.3
----------------------------------------------------------------------- -------- -------- ------- ----------
Free cash flow 315 692 (377) (54.5)
----------------------------------------------------------------------- -------- -------- ------- ----------
*For the definition of free cash flow, please refer to Annex
2.
CAPEX and key projects
During the reporting period, EVRAZ' capital expenditures rose to
US$33 7 million, compared with US$309 million in H1 2019, driven by
higher development expenses. Capital expenditure projects during H1
2020, indicated in millions of US dollars, can be summarised as
follows.
(US$ million)
DEVELOPMENT PROJECTS
---------------------------------------------------------------- -----
Steel segment
---------------------------------------------------------------- -----
Tashtagol iron ore mine upgrade at EVRAZ ZSMK mining
site
The project aim is to increase the annual ore production
of the Tashtakolsky deposit with a partial switch to
sublevel caving using mobile equipment. 13
Sobstvenno-Kachkanarsky deposit greenfield project
The project aim is to maintain production of raw ore. 8
Integrated flat casting and rolling facility at EVRAZ
ZSMK
The project aim is to improve the profitability of EVRAZ'
product portfolio by replacing semi-finished products
with hot-rolled sheets and coils 2
Rail and beam mill modernisation at EVRAZ NTMK
The project aim is to increase production of beams and
of sheet piles. 1
---------------------------------------------------------------- -----
Steel, North America segment
---------------------------------------------------------------- -----
Long rail mill at EVRAZ Pueblo
The project aim is to replace the existing rail facility
and meet the needs of customers for long rail products. 15
Electric arc furnace (EAF) repowering at EVRAZ Regina
The project aim is to increase EVRAZ Regina's prime
coil and plate production and reduce electrode consumption. 9
Coal segment
---------------------------------------------------------------- -----
Acquisition of equipment at Osinnikovskaya mine
Acquisition of equipment fully compliant with mining
and geological conditions to provide the projected longwall
load on a monthly basis. 1 7
Acquisition of equipment at Alardinskaya mine
The project aim is to reduce the time required for transition
from longwall to longwall and to increase annual production
volumes to 3.2mt. 10
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 5
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 22
MAINTENANCE PROJECTS
---------------------------------------------------------------- -----
Steel segment
---------------------------------------------------------------- -----
Major overhaul of blast furnace no. 6 at EVRAZ NTMK 47
Technical re-equipment of air heaters of blast furnace
no. 2 at EVRAZ ZSMK 6
---------------------------------------------------------------- -----
Other maintenance projects 17 8
---------------------------------------------------------------- -----
Total 337
---------------------------------------------------------------- -----
Financing and liquidity
EVRAZ began 20 20 with a total debt of US$4, 868 million.
Debt management has focused on capital markets maturities coming
due in the first quarter 2021. Specifically, in March, EVRAZ signed
a US$750 million committed syndicated facility with a group of
international banks with funds made available for one year after
signing. Once utilised, this facility will be repayable in nine
equal quarterly instalments, following a three-year grace period.
Currently, the US$750 million committed syndicated facility remains
unutilised.
In the wake of uncertainties related to the COVID-19 pandemic,
the Group decided to increase its cash safety cushion through
additional borrowing. In March, EVRAZ utilised RUB5,000 million
(c. US$72 million) under its committed credit facility with VTB.
Later, in April, it drew another RUB15,000 million (c. US$216
million) under the uncommitted credit facility with this bank.
Currency risk exposure under the first credit facility of RUB5,000
million was hedged using cross-currency swaps.
These actions were offset by scheduled repayments of bank loans
and leases, which increased total debt in H1 2020 by US$229 million
to US$5 ,097 million, as at 30 June 2020.
In H1 2020, EVRAZ paid an interim dividend to its shareholders
in the amount of US$581 million (US$0.40 per share).
During H1 2020, net debt increased by US$288 million to US$
3,733 million , compared with US$3,445 million as at 31 December
2019. Interest expense accrued on loans, bonds and notes amounted
to US$147 million during the period, compared with US$148 million
in H1 2019. Management's efforts to refinance indebtedness on more
favourable terms resulted in stable interest expense, despite the
higher total debt load.
A decline in EBITDA and a rise in net debt resulted in an
increase of the Group's major leverage metric, the ratio of net
debt to last twelve months (LTM) EBITDA, to 1.7 times as at 30 June
2020, compared with 1.3 times as at 31 December 2019.
As at 30 June 2020, various bilateral facilities with a total
outstanding principal of around US$1,467 million contained
financial maintenance covenants. Maintenance covenants under these
facilities include two key ratios calculated using EVRAZ plc's
consolidated financials: a maximum of net leverage and a minimum
EBITDA interest cover. As at 30 June 2020, EVRAZ was in full
compliance with its financial covenants.
As at 30 June 2020, cash amounted to US$1,364 million, while
short-term loans and the current portion of long-term loans
amounted to US$1,078 million. Cash balances and committed credit
facilities available to the Group allow it to comfortably cover
upcoming maturities.
Review of operations by Segment
(US$ million) Steel Steel, NA Coal Other
--------------- -------------- --------------- -------------- ------------------
H1 H1 H1 H1 H1 H1
H1 H1
2020 2019 2020 2019 2020 2019 2020 2019
--------------- ------ ------ ------- ------ ------ ------ ------ ------
Revenues 3,433 4,159 1028 1,316 781 1,128 206 249
--------------- ------ ------ ------- ------ ------ ------ ------ ------
EBITDA 916 949 (21) 60 218 518 8 9
--------------- ------ ------ ------- ------ ------ ------ ------ ------
EBITDA
margin 26.7% 22.8% (2.0%) 4.6% 27.9% 45.9% 3.9% 3.6%
--------------- ------ ------ ------- ------ ------ ------ ------ ------
CAPEX 196 135 53 63 83 109 5 2
--------------- ------ ------ ------- ------ ------ ------ ------ ------
Steel segment
Sales review
Steel segment revenues by product
H1 2020 H1 2019
--------------------------------------------------------------- -------------------------------------- ----------
% of total segment % of total segment
US$ million revenues US$ million revenues Change, %
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Steel products, external
sales 3,003 87.5 3,201 77.0 (6.2)
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Semi-finished
products(1) 1,233 35.9 1,206 29.0 2.2
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Construction
products(2) 939 27.3 1,059 25.5 (11.3)
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Railway products(3) 593 17.3 554 13.3 7.0
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Flat-rolled products(4) 68 2.0 204 4.9 (66.7)
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Other steel products(5) 170 5.0 178 4.3 (4.5)
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Steel products,
intersegment sales 25 0.7 158 3.8 (84.2)
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Including sales to
Steel, North America 20 0.6 152 3.7 (86.8)
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Iron ore products 63 1.8 124 3.0 (49.2)
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Vanadium products 165 4.8 410 9.8 (59.8)
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Other revenues 178 5.2 266 6.4 (33.5)
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
Total 3,433 100.0 4,159 100 .0 (17.5)
------------------------- ------------ ----------------------- ------------ ------------------------ ----------
(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
(thousand tonnes)
-------- --------------------
H1 2020 H1 2019 Change, %
----------------------------------------------- -------- -------- ----------
Steel products, external sales 5,975 5,730 4.3
----------------------------------------------- -------- -------- ----------
Semi-finished products 3,023 2,572 17.5
----------------------------------------------- -------- -------- ----------
Construction products 1,848 1,837 0.6
----------------------------------------------- -------- -------- ----------
Railway products 669 710 (5.8)
----------------------------------------------- -------- -------- ----------
Flat-rolled products 121 323 (62.5)
----------------------------------------------- -------- -------- ----------
Other steel products 315 288 9.4
----------------------------------------------- -------- -------- ----------
Steel products, intersegment sales 51 301 (83.1)
----------------------------------------------- -------- -------- ----------
Total steel products 6,026 6,031 (0.1)
----------------------------------------------- -------- -------- ----------
Vanadium products (tonnes of pure vanadium) 8,371 8,619 (2.9)
----------------------------------------------- -------- -------- ----------
Vanadium in slag 2,761 2,836 (2.6)
----------------------------------------------- -------- -------- ----------
Vanadium in alloys and chemicals 5,610 5,784 (3.0)
----------------------------------------------- -------- -------- ----------
Iron ore products 801 1,234 (35.1)
----------------------------------------------- -------- -------- ----------
Sinter - 533 (100.0)
----------------------------------------------- -------- -------- ----------
Pellets 801 699 14.6
----------------------------------------------- -------- -------- ----------
Other iron ore products - 2 (100.0)
----------------------------------------------- -------- -------- ----------
Geographic breakdown of external steel product sales
(US$ million)
-----------------------------------------------------------------------
H1 2020 H1 2019 Change, %
--------------------------------------- -------- -------- ----------
Russia 1,451 1,603 (9.5)
--------------------------------------- -------- -------- ----------
Asia 1,122 939 19.5
--------------------------------------- -------- -------- ----------
CIS 267 272 (62.9)
--------------------------------------- -------- -------- ----------
Europe 101 280 (4.6)
--------------------------------------- -------- -------- ----------
Africa, America and rest of the world 63 107 (41.1)
--------------------------------------- -------- -------- ----------
Total 3,003 3,201 (6.2)
--------------------------------------- -------- -------- ----------
In H1 2020, revenues from the Steel segment dropped by 17.5% to
US$3,433 million, compared with US$4,159 million in H1 2019. This
was the result of lower sales prices, primarily for flat-rolled and
construction products, as well as lower vanadium product prices and
volumes.
Revenues from external sales of semi-finished products increased
by 2.2% amid 17.5% growth in sales volumes, which was partly offset
by a 15.3% decline in average prices. The increase was mainly due
to higher volumes of slabs on the Asian market, and higher volumes
of billets on the Asian and African markets.
Revenues from sales of construction products to third parties
went down by 11.3% due to a decline of 11.9% in average prices. The
decrease was mainly due to lower sales prices for rebars on the
Russian and CIS markets, lower beam sales volumes and prices, and
lower sales volumes for angles, primarily on the Russian
market.
Revenues from external sales of railway products rose
predominantly due to increases of 12.8% in prices, partially offset
by 5.8% decline in volumes. Sales volumes declined mostly in Q2
2020 amid lower demand following restrictions imposed by the
governments during COVID-19 pandemic
External revenues from flat-rolled products fell by 66.7%,
driven by a 62.5% decrease in sales volumes. This resulted from
deteriorating demand in Europe and the disposal of EVRAZ Palini e
Bertoli in Q4 2019.
Revenues from external steel product sales in Russia decreased
by 9.5% 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 decreased from 50.1% in H1 2019 to
48.3% in H1 2020. An increase in Asia's share of sales from 29.3%
to 37.4% was due to higher sales volumes for billets and slabs.
Steel segment revenues from sales of iron ore products,
including intersegment sales, decreased by 49.2%, driven by a 35.1%
decline in sales volumes and 14.1% in sales prices. The main
decrease in sales volumes was mainly due to absence of sinter sales
to third parties due to the disposal of EvrazTransUkraina and
increased requirements for own operations.
During the reporting period, around 65.4% of EVRAZ' iron ore
consumed in steelmaking came from its own operations, compared with
69.1% in H1 2019.
Steel segment revenues from sales of vanadium products,
including intersegment sales, fell by 59.8%, due primarily to a
57.0% downturn in sales prices in line with market trends.
Ferrovanadium prices dropped along with quotations from the London
Metal Bulletin and Ryan's Notes, while vanadium slag prices fell
along with vanadium pentoxide (V(2) O(5) ) quotations.
Steel segment cost of revenues
Steel segment cost of revenues
H1 2020 H1 2019
--------------------------------- --------------------------------- ----------
US$ % of segment revenues US$ % of segment revenues Change, %
million million
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Cost of revenues 2,292 44.6 2,958 71.1 (22.5)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Raw materials 1,107 32.2 1,351 32.5 (18.1)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Iron ore 228 6.6 254 6.1 (10.2)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Coking coal 407 11.9 583 14.0 (30.2)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Scrap 302 8.8 290 7.0 4.1
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Other raw materials 170 5.0 224 5.4 (24.1)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Auxiliary materials 154 3.9 166 4.0 (7.2)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Services 116 3.4 131 3.1 (11.5)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Transportation 226 6.6 230 5.5 (1.7)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Staff costs 247 7.2 250 6.0 (1.2)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Depreciation 113 3.3 120 2.9 (5.8)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Energy 203 5.9 220 5.3 (7.7)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Other* 126 3.7 490 11.8 (74.3)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
*Includes primarily goods for resale, inter-segment unrealised
profit and certain taxes, semi-finished products and allowances for
inventories
In H1 2020, the Steel segment's cost of revenues decreased by
22.5% YoY. The main reasons for the fall in costs were as
follows:
-- The cost of raw materials fell by 18.1%, primarily due to the
lower cost of coking coal (-30.2%), driven by global market trends,
as well as lower production volumes, and the lower cost of iron ore
(+10.2%). The decrease in the cost of raw materials was also
accompanied by cost-cutting initiatives, which reduced
consumption.
-- Costs for auxiliary materials declined by 7.2% amid lower
consumption of auxiliary materials and auxiliary materials
prices.
-- Service costs declined by 11.5%, primarily driven by the
lower cost of ferrovanadium processing amid a decrease in quoted
prices.
-- Energy costs were lower due to the weaker rouble, as well as
higher levels of in-house electricity generation, and a change in
the structure of fuel utilised.
-- Other costs declined significantly by 74.3%, largely due to
the lower cost of goods for resale amid a drop in vanadium purchase
prices in 2020 compared to 2019, the lower cost of semi-finished
products due to the disposal of Palini e Bertoli in Q4 2019, a
reduction in the purchase price, and higher sales of scrap from own
production due to switching to the metal charge scheme.
Steel segment gross profit
The Steel segment's gross profit slid by 5.0% YoY, driven
primarily by lower prices for vanadium and construction products,
which were partly offset by the positive effect of lower costs.
Operational update - Russia
Urals
-- At EVRAZ NTMK, the major overhaul of blast furnace no. 6 was
completed. The project aims to support the enterprise's pig iron
smelting capacity.
-- EVRAZ NTMK finished installing its sixth automated wheel
processing line in its rail and section production unit.
-- EVRAZ NTMK made further progress in installing a gas
pressure-recovery turbine on blast furnace no. 7, as part of a
drive to reduce electricity purchases by generating own power.
Construction and setup work continues.
-- EVRAZ NTMK is implementing a major investment programme aimed
at manufacturing more high-value-added goods, increasing the
product range overall and expanding rolling capacity. The main
initiative focuses on upgrading equipment in the rail and beam
production shop.
-- EVRAZ KGOK is pressing ahead with the project to develop its
tailings storage facility, which will help the Group to remain
self-sufficient in iron ore raw materials until 2038, based on
current levels.
-- EVRAZ KGOK is also close to completing the work to increase
the depth of its tailings dump to 348.5 metres. The initiative will
help the Group to remain self-sufficient in iron ore raw materials
until 2026, based on current levels.
-- EVRAZ KGOK is undertaking a project to develop the Sobstvenno
Kachkanarskoye deposit with a view to replacing around 13 million
tonnes of annual output from the Gusevogorskoye deposit, which is
being phased out by 2024. The forestry work has been completed, the
first road is finished, and construction of the railway,
power-supply and water-removal infrastructure is ongoing.
-- New products
o KR140 crane rails have been launched
o New sizes of IPE steel profiles meeting the GOST R 57837-2017
standards are being developed, a first for EVRAZ NTMK
o Production of high-load locomotive wheels is being
developed
o Production of own EV3 freight railcar wheels for Deutsche Bahn
has been launched
o Two sizes of locomotive wheels and one size of freight railcar
wheel are being developed for the North American market
o Own EV002 railcar wheels are being developed for the domestic
market
o Own EV004 railcar wheels are being launched
Siberia
-- EVRAZ ZSMK has introduced a system for automatically managing
the chemical inputs and temperature in its electric arc furnace
unit
-- EVRAZ ZSMK has launched a temperature monitoring system at
its blast furnace no. 2 that is unrivalled in Russia
-- New products
o AU500SP screw rebar, various diameters
o A500S rebar, 9 and 11 mm in diameter
o 2 beams, 10B1 and 15V1
o Angles, 45*4
o Square billet, 16
o 2 channels, 40U and 30V-2
o RE136 rails to the AREMA standard
o NT320 rail tongue
o R65 DT350VS rails for high-speed passenger trains
Vanadium
-- EVRAZ NTMK's vanadium slag production climbed by 12% YoY in
H1 2020, mainly due to blast furnace optimisation work.
-- EVRAZ Vanady Tula's oxide production rose by 7% YoY in H1
2020 amid increased vanadium recovery, mainly due to measures to
stabilise roasting quality and improve hydrolysis.
-- EVRAZ Nikom's output of FeV 80% dropped by 10% YoY in H1
2020, amid changes in the regional sales and product mix to serve
the more active Chinese oxide market, as well as general decline in
vanadium demand due to COVID 19 restrictions (mainly in China and
Asia in Q1 2020 and Europe and North America in Q2 2020).
Steel, North America segment
Sales review
Steel, North America segment revenues by product
H1 2020 H1 2019
US$ % of total segment US$ % of total segment
million revenues million revenues Change, %
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Steel products 988 96.1 1,260 95.7 (21.6)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Semi-finished products(1) 109 10.6 96 7.3 13.5
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Construction products(2) 93 9.0 115 8.7 (19.1)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Railway products(3) 173 16.8 205 15.6 (15.6)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Flat-rolled products(4) 152 14.8 302 22.9 (49.7)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Tubular and other steel
products(5) 461 44.8 542 41.2 (14.9)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Other revenues (6) 40 3.9 56 4.3 (28.6)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Total 1,028 100.0 1,316 100.0 (21.9)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
(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 line pipes, seamless
and welded OCTG and other steel products
(6) Includes scrap and services
Sales volumes of Steel, North America segment
(thousand tonnes)
H1 2020 H1 2019 Change, %
----------------------------------------------- -------- -------- ----------
Steel products
----------------------------------------------- -------- -------- ----------
Semi-finished products 144 130 10.8
----------------------------------------------- -------- -------- ----------
Construction products 133 136 (2.2)
----------------------------------------------- -------- -------- ----------
Railway products 213 223 (4.5)
----------------------------------------------- -------- -------- ----------
Flat-rolled products 169 282 (40.1)
----------------------------------------------- -------- -------- ----------
Tubular and other steel products 348 387 (10.3)
----------------------------------------------- -------- -------- ----------
Total 1,007 1,158 (13.1)
----------------------------------------------- -------- -------- ----------
The segment's revenues from the sale of steel products fell due
to decreases in sales volumes of 13.1% and sales prices of 6.4%.
This was mainly attributable to sales of flat-rolled products,
construction and tubular products.
Revenues from semi-finished product sales rose by 13.5% due to
growth in volumes of 1 1 . 0 % and prices of 2.7% as a result of a
higher demand from a key client, contract fulfilled in H1 2020.
Revenues from construction product sales declined by 19.1% due
to a decrease in volumes of 2 . 2 % and a drop in prices of 16 . 9
%, related to reduced demand for wire products supplied to the
automotive industry.
Railway product revenues declined by 15. 6 %, driven by a fall
in sales prices by 1 1 . 1 % and volumes by 4 . 5 %, amid reduced
demand from traders, which drove significantly lower rail market
pricing in 2020.
Revenues from flat-rolled products decreased by 49.7%, due to a
40.1% decline in volumes a 9.6% fall in prices , resulting from
weakening market demand.
Revenues from tubular product sales fell by 14.9% due to a 10. 3
% and 4 . 6 decrease in volumes and prices respectively. The
reduction relates to lower large diameter (LD) US sales volumes,
and a reduction in pipe prices for line pipe (LP) and oil country
tubular goods (OCTG), amid lower market demand and higher
inventories among distributors.
Steel, North America segment cost of revenues
Steel North America segment cost of revenues
H1 2020 H1 2019
------------------------------------ --------------------------------- ------------------
US$
US$ million % of segment revenues million % of segment revenues Change, %
------------------------- ------------ ---------------------- --------- ---------------------- ------------------
Cost of revenues 936 91.0 1,153 87.6 (18.8)
------------------------- ------------ ---------------------- --------- ---------------------- ------------------
Raw materials 247 24. 0 394 29.9 (37.2)
------------------------- ------------ ---------------------- --------- ---------------------- ------------------
Semi-finished products 194 18.8 263 20.0 (26.2)
------------------------- ------------ ---------------------- --------- ---------------------- ------------------
Auxiliary materials 94 9. 1 120 9.1 (21. 6 )
------------------------- ------------ ---------------------- --------- ---------------------- ------------------
Services 80 7.7 88 6.7 (9. 1 )
------------------------- ------------ ---------------------- --------- ---------------------- ------------------
Staff costs 142 13.8 159 12.1 (10.7)
------------------------- ------------ ---------------------- --------- ---------------------- ------------------
Depreciation 50 4.8 55 4.2 (9. 1 )
------------------------- ------------ ---------------------- --------- ---------------------- ------------------
Energy 46 4.5 62 4.7 (25.8)
------------------------- ------------ ---------------------- --------- ---------------------- ------------------
Other* 83 8. 1 12 0.9% n/a
------------------------- ------------ ---------------------- --------- ---------------------- ------------------
* Primarily includes transportation, goods for resale, certain
taxes, changes in work in progress and fixed goods and allowances
for inventories.
In H1 2020, the Steel, North America segment's cost of revenues
declined by 18.9% YoY. The main drivers were as follows:
-- Raw material costs fell by 37.2%, primarily attributable to
the lower cost of scrap and lower consumption driven by a reduced
production volumes.
-- The cost of semi-finished products declined by 26.2%, due to
a reduction of consumption at Portland Flat
-- Auxiliary material costs fell by 21.6% due lower production levels at Pueblo and Canada.
-- Service costs went down by 9. 1 %, driven primarily by lower production volumes.
-- Staff costs declined by 10.7% mostly driven by the idling of
OCTG mills in Canada and the US, overall decrease in production for
other products and rotated furlough schedule for salaried
employees.
-- Energy costs fell by 25.8%, primarily due to reduced production and lower natural gas prices.
-- Other costs were up for the reporting period, primarily due
to a decrease of the work in progress and finished goods balances
compared with H1 2019 as a result of lower production volumes amid
deteriorated market conditions.
Steel, North America segment gross profit
The Steel, North America segment's gross profit totalled US$92
million for H1 2020, down from US$1 3 3 million in H1 2019. The
decline was driven primarily by lower sales volumes for flat-rolled
and OCTG due to worsening market conditions.
Operational update
Canada
-- A cyberattack in March across ENA halted production at EVRAZ
Regina for several weeks and created disruptions at the facilities
in Alberta.
-- Given the coronavirus pandemic and a sharp drop in demand
from the oil and gas industry, EVRAZ Canada instituted numerous
cost reduction measures to align business expenses and operations
with market conditions, and focused on reducing inventory.
-- The EVRAZ mills in Edmonton, Calgary, Red Deer and Camrose
were temporarily idled in late H1 2020 amid ongoing depressed
demand in the Western Canada energy industry.
-- Demand for large-diameter pipes remained steady due to
existing orders, and EVRAZ Regina achieved higher prime yields and
record production volumes for several months during the period.
-- EVRAZ Regina completed a capital project to upgrade its
reheat furnace with low emission burners in H1 2020 to meet new
regulatory requirements.
US
-- EVRAZ Portland and EVRAZ Pueblo recovered quickly following
the March cyberattack with minimal disruption to production
-- Like the Canadian operations, the US mills experienced a
decline in customer demand across various steel markets in H1 2020
due to the COVID-19 pandemic and economic downturn. EVRAZ Portland
and EVRAZ Pueblo have implemented numerous cost improvement
measures and taken action to adjust operations based on market
conditions.
-- After fulfilling existing orders, the Spiral mill at EVRAZ
Portland ceased operations in June due to a lack of new customer
orders amid the ongoing slump on the energy markets. Demand for
plate remains soft in the Western US due to COVID-19 and general
market uncertainty.
-- EVRAZ Pueblo temporarily idled its seamless pipe mill in May
in response to continuing declines in the OCTG market.
-- Demand for rail and rod/bar remained relatively stable. For
rail, while there has been a decline in project and distribution
sales, Class I railroads continued their contract purchases. For
rod and bar products, the demand remained steady with ongoing
projects and low level of distributors' inventories.
Coal segment
Sales review
Coal segment revenues by product
H1 2020 H1 2019
US$ US$
million % of total segment revenues million % of total segment revenues Change, %
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
External sales
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
Coal products 483 61.8 724 64.2 (33.3)
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
Coking coal 37 4.7 86 7.6 (57. 0 )
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
Coal concentrate 446 57.1 638 56.6 (30.1)
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
Intersegment sales
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
Coal products 281 36.0 383 34.0 (26.6)
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
Coking coal 56 7.2 62 5.5 (9. 7 )
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
Coal concentrate 225 28.8 32 2 28.5 (30.0)
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
Other revenues 17 2.2 21 1.9 (1 9 . 0 )
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
Total 781 100.0 1,128 100.0 (30.8)
-------------------- --------- ---------------------------- --------- ---------------------------- -----------
Sales volumes of Coal segment
(thousand tonnes)
-------------------------------------- ------------------------------
H1 2020 H1 2019 Change, %
-------------------------------------- -------- -------- ----------
External sales
-------------------------------------- -------- -------- ----------
Coal products 6,07 8 5,585 8.8
-------------------------------------- -------- -------- ----------
Coking coal 1,198 943 2 7 . 0
-------------------------------------- -------- -------- ----------
Coal concentrate and other products 4,880 4,642 5 . 1
-------------------------------------- -------- -------- ----------
Intersegment sales
-------------------------------------- -------- -------- ----------
Coal products 3,466 3,169 9 . 4
-------------------------------------- -------- -------- ----------
Coking coal 1,166 952 22 . 5
-------------------------------------- -------- -------- ----------
Coal concentrate 2,300 2,217 3. 7
-------------------------------------- -------- -------- ----------
Total, coal products 9,54 4 8,754 9 . 0
-------------------------------------- -------- -------- ----------
The Coal segment's overall revenues were down amid significant
instability on global markets caused by the COVID-19 pandemic and
resulting decline of business activity linked to efforts to contain
its spread. Most steel producers around the world were forced to
reduce capacity utilisation and decrease steel production, leading
to falling demand for coal. This imbalance on the market led to a
drop in coal prices and, consequently, revenues.
Revenues from external sales of coal products fell, amid a 42.1%
reduction in prices, partly offset by an 8.8% increase in sales
volumes. Coking coal revenues fell by 57. 0 % and coking coal
concentrate revenues dropped by 30.1%, amid lower pricing, but
offset in part by higher sales volumes. These were driven by strong
demand for coal on the Russian market, as well as growth in demand
for coal from China, with the latter delivering an increase in
external sales. Long-term partnerships with Japanese, Korean, and
European clients have minimised the impact of declining demand on
these markets.
Revenues from internal sales of coal products were down 26.6%,
mainly because of a 36.0% reduction in sales prices, which was
partly offset by a 9.4% uptick in volumes. Coking coal volumes rose
by 22.4%, due to increased sales of K and KS grades.
In H1 2020, the Coal segment's sales to the Steel segment
amounted to US$28 1 million (36. 0 % of total sales), compared with
US$383 million (3 3 . 9 %) in H1 2019.
During the reporting period, roughly 82.1% of EVRAZ' coking coal
consumption in steelmaking came from the Group's own operations,
compared with 71.7% in H1 2019.
Coal segment cost of revenues
Coal segment cost of revenues
H1 2020 H1 2019
--------------------------------- --------------------------------- -----------
US$ US$
million % of segment revenues million % of segment revenues Change, %
---------------------- --------- ---------------------- --------- ---------------------- -----------
Cost of revenues 537 68.8 543 48.1 (1.1)
---------------------- --------- ---------------------- --------- ---------------------- -----------
Auxiliary materials 54 6.9 63 5.6 (14. 2 )
---------------------- --------- ---------------------- --------- ---------------------- -----------
Services 24 3.1 64 5.7 (62.5)
---------------------- --------- ---------------------- --------- ---------------------- -----------
Transportation 155 19.8 192 17.0 (19. 2 )
---------------------- --------- ---------------------- --------- ---------------------- -----------
Staff costs 106 13.5 107 9.5 ( 0 . 9 )
---------------------- --------- ---------------------- --------- ---------------------- -----------
Depreciation 82 10.5 83 7.4 ( 1 . 2 )
---------------------- --------- ---------------------- --------- ---------------------- -----------
Energy 23 2 . 9 26 2.3 (1 1 . 5 )
---------------------- --------- ---------------------- --------- ---------------------- -----------
Other* 93 1 1 . 9 8 0.7 n/a
---------------------- --------- ---------------------- --------- ---------------------- -----------
* 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 slight YoY decline in the Coal segment's
cost of revenues were as follows:
-- The consumption of auxiliary materials fell by 14.2%, due
mainly to lower volumes of preparation at third-party plants, the
shutdown of production of the Raspadsky open pit from May 2020, and
a decrease in production volumes of Raspadskaya mine.
-- Costs for services declined by 62.5% due to shutdown of
production of the Raspadsky open pit from May 2020 and decreased
production at Yuzhkuzbassugol .
-- Transportation costs declined by 19.2% during the reporting
period, primarily due to the shutdown of production at the
Raspadsky open pit from May 2020 and decreased production at
Yuzhkuzbassugol, as well as the use of in-house transportation
equipment instead of third-party contractor equipment.
-- Staff costs were down because of lower mining volumes.
-- Other costs increased in the reporting period, mainly due to
higher sales of accumulated stock .
Coal segment gross profit
The Coal segment's gross profit for H1 2020 amounted to US$244
million, down from US$711 million a year earlier, primarily due to
declining sales prices .
Operational update
In H1 2020, EVRAZ produced 9.9 million tonnes of raw coking
coal, down 4.0 million tonnes
(-29% YoY).
Raspadskaya
During the reporting period, Raspadskaya mined 5.1 million
tonnes of raw coking coal, down 2.1 million tonnes (-29% YoY), as
the Raspadsky open pit stopped producing in May until market
conditions will improve .
Yuzhkuzbassugol
In H1 2020, Yuzhkuzbassugol produced 4.8 million tonnes of raw
coking coal, down 1.3 million tonnes (-22% YoY). The effects of the
COVID-19 pandemic and declining coal demand were offset by planned
longwall movements at four mines (Uskovskaya, Osinnikovskaya,
Alardinskaya and Esaulskaya).
Mezhegeyugol
During the reporting period, Mezhegeyugol mined 0.04 million
tonnes of raw coking coal, down 0.6 million tonnes (-94% YoY),
having halted operations in February. The mine is now selling
inventory and running at minimal cost until the market
recovers.
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 201 9 annual report, copies of which are available at
www.evraz.com , remain relevant in 20 20 and the mitigating actions
described continue to be appropriate.
Risks:
-- Global economic factors, industry conditions and cyclicality
-- Product competition
-- Cost effectiveness
-- Potential regulatory actions by governments, incl. trade,
anti-monopoly, anti-dumping regulation, sanctions regimes, and
other law regulations
-- Functional currency devaluation
-- HSE: environmental
-- HSE: health and safety, including the risk of mass infection
-- Business interruption
-- Digital effectiveness: effective, efficient and continued IT service
-- Capital projects and expenditures
Management continues to monitor emerging and developing risks
and to implement preventative measures to mitigate any potential
adverse effect on the Group's business.
In March 2020, the computer systems of EVRAZ North America was
hit by a ransomware attack with a noticeable impact on the systems.
In cooperation with third party consultant, all systems have been
successfully restored. The program to improve cyber security was
redesigned based on the lessons learned and is in progress of being
implemented.
In H1 2020, EVRAZ experienced fewer safety incidents amid
greater focus by the management and a transformation of its health
and safety programmes. Improvements include stronger measures to
identify risk areas and prevent further incidents. For more
details, see the "Health, Safety and Environment" section.
Since February 2020, the COVID-19 pandemic has impacted the
global economy significantly. In response, EVRAZ set up a crisis
management centre, with senior management following the situation
on a daily basis and the Board of Directors receiving regular
updates of the impact on the Group's operational, commercial and
financial situation. In addition, EVRAZ has introduced numerous
safety measures to protect its people and ensure continued
operations . The majority of the Group's businesses were relatively
unaffected by the COVID-19 pandemic. For more details, see the
"Impact of COVID-19" section.
The management of EVRAZ plc has considered the Group's cash flow
forecasts for the period to 31 December 2021 and has performed
various scenario analysis, including base, pessimistic and stress
downside testing scenarios. This considered the possible impacts of
the COVID-19 crisis on the financial results and liquidity position
of the Group.
In the most pessimistic stress scenario, which assumed results
lower than the Group has ever had since listing in 2005 with prices
for steel, iron ore and coal all significantly below management's
current forecasts, the Group maintained sufficient liquidity and
would be able to operate within its debt covenants for the period
to 31 December 2021. The Group does not reasonably anticipate that
the most pessimistic stress scenario will occur, given the
relatively limited impacts on the Group's businesses to date and
the signs of a recovery in key markets.
The Group also continues to monitor and assess other risks and
uncertainties that were not recognised as principal, such as
employee, taxation, compliance, social and community, human-rights
and other risks. While impact and probability analysis suggest that
such risks could affect EVRAZ' operations to some extent,
management believes that they are being managed adequately and does
not consider them capable of seriously affecting the Group's
performance, future prospects or reputation.
DIVIDS
Given the performance throughout 2020, EVRAZ has announced an
interim dividend.
On 5 August 2020, the Board of Directors voted to disburse a
total of US$291.37 million, or US$0.20 per share.
The record date is 21 August 2020 and payment date is 2 October 2020.
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 24
August 2020. All conversions will take place on or around 26 August
2020.
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
5 August 2020
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 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 illion 2020 31 December 2019
-------- ----------------- ------- ----------
Cash and cash equivalents 1,364 1,423 (59) (4.1)
----------------------------------- -------- ----------------- ------- ----------
Cash and short-term bank deposits 1,364 1,423 (59) (4.1)
----------------------------------- -------- ----------------- ------- ----------
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$ million 2020 31 December 2019
-------- ----------------- ------- ----------
Long-term loans, net of current portion 3,876 4,599 (723) (15.7)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Short-term loans and current portion of long-term loans 1,078 140 938 n/a
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Add back: Unamortised debt issue costs and fair value adjustment to
liabilities assumed in
business combination 19 18 1 5.6
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Nominal effect of cross-currency swaps on principal of
ruble-denominated notes 24 (6) 30 n/a
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Finance lease liabilities, including non-current portion 68 83 (15) (18.1)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Finance lease liabilities, including current portion 32 34 (2) (5.9)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Total debt 5,097 4,868 229 4.7
-------------------------------------------------------------------- -------- ----------------- ------- ----------
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$ million 2020 31 December 2019
-------- ----------------- ------- ----------
Total debt 5,097 4,868 229 4.7
--------------------------- -------- ----------------- ------- ----------
Cash and cash equivalents (1,364) (1,423) 59 (4.1)
--------------------------- -------- ----------------- ------- ----------
Net debt 3,733 3,445 288 8.4
--------------------------- -------- ----------------- ------- ----------
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:
US$ million H1 2020 H1 2019 Change Change, %
-------- -------- ------- ----------
Purchases of property, plant and equipment and intangible assets 330 309 21 6.8
-------------------------------------------------------------------------- -------- -------- ------- ----------
Purchases of purchase of property, plant and equipment on deferred terms 7 - 7 100.0
-------------------------------------------------------------------------- -------- -------- ------- ----------
CAPEX 33 7 309 28 9.0
-------------------------------------------------------------------------- -------- -------- ------- ----------
Labour productivity, US$/tonne
P=S/V
S - Labour Costs (asset and A-category subsidiaries), exclusive
of tax, local currency (on Division consolidation sites with
different currencies, US$)
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$/tonne
Cash cost of semi-finished products is defined as the production
cost less depreciation, the result is divided by production volumes
of steel semi-products. Raw materials from EVRAZ coal and iron ore
producers are accounted for on at-cost-basis. Costs of
semi-finished steel products of EVRAZ NTMK, EVRAZ ZSMK are then
weighted averaged by the total saleable semi-finished products
production volume.
Coking coal concentrate cash cost, US$/tonne
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$/tonne
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 metriñ 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 20 20
EVRAZ plc
Unaudited Interim Condensed Consolidated Financial
Statements
Six-month period ended 30 June 20 20
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 half-yearly financial
report for the six months ended 30 June 2020 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 half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The 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 half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK and Ireland), 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and 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 2020 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,
5 August 20 20
Unaudited Interim Condensed Consolidated Statement of
Operations
(In millions of US dollars, except for per share
information)
Six-month period
ended 30 June
Notes 20 20 201 9
Revenue
Sale of goods 3 $ 4,854 $ 5,960
Rendering of services 3 129 180
--------- --------
4,983 6,140
(4,18 3
Cost of revenue (3,488) )
Gross profit 1,495 1,95 7
Selling and distribution costs (421) (4 46 )
General and administrative expenses (278) (2 82 )
Social and social infrastructure
maintenance expenses (17) (10)
Gain/(loss) on disposal of property,
plant and equipment 1 2
Impairment of non-financial assets 5 (108) ( 17 )
Foreign exchange gains/(losses),
net 242 ( 2 73)
Other operating income 11 10
Other operating expenses (34) (28)
--------- --------
Profit from operations 891 913
Interest income 4 5
Interest expense (168) (171)
Share of profits/(losses) of joint
ventures and associates 8 3 5
Impairment of non-current financial
assets - (56)
Gain/(loss) on financial assets and
liabilities, net 12 ( 40 ) ( 7 )
Gain/(loss) on disposal groups classified
as held for sale, net 1 -
Other non-operating gains/(losses),
net 9 1
Profit before tax 700 690
Income tax expense 6 (187) (346)
--------- --------
Net profit $ 513 $ 344
========= ========
Attributable to:
Equity holders of the parent entity $ 506 $ 313
Non-controlling interests 7 31
--------- --------
$ 513 $ 344
========= ========
Earnings per share:
for profit attributable to equity
holders of the parent entity, basic,
US dollars 11 $ 0.35 $ 0.22
for profit attributable to equity
holders of the parent entity, diluted,
US dollars 11 $ 0.35 $ 0.21
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 20 20 201 9
Net profit $ 513 $ 344
Other comprehensive income/(loss)
Oth er comprehen sive income to
be reclassified to profit or lo
ss in subs equent periods
Exchange differences on translation
of foreign operations into presentation
currency (664) 635
Net gains/(losses) on cash flow
hedges - 27
Net (gains)/losses on cash flow
hedges recycled to profit or loss - ( 33 )
(664) 629
Effect of translation to presentation
currency of the Group's joint ventures
and associates 8 (10) 6
---------- -------
Share of other comprehensive income/(loss)
of joint ventures and associates
accounted for using the equity method (10) 6
Items not to be reclassified to
profit or loss in subsequent periods
Gains/(losses) on re-measurement
of net defined benefit liability (40) -
Income tax effect 7 -
---------- -------
(33) -
Total other comprehensive income/(loss) (707) 635
---------- -------
Total comprehensive income/(loss),
net of tax $ (194) $ 979
========== =======
Attributable to:
Equity holders of the parent entity $ (185) $ 929
Non-controlling interests (9) 50
---------- -------
$ (194) $ 979
========== =======
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 20 20 201 9
Assets
Non-current assets
Property, plant and equipment 7 $ 4,488 $ 4,925
Intangible assets other than goodwill 158 185
Goodwill 514 594
Investments in joint ventures and
associates 8 84 92
Deferred income tax assets 213 152
Other non-current financial assets 25 40
Other non-current assets 47 55
------------ ------------
5,529 6,043
Current assets
Inventories 1,298 1,480
Trade and other receivables 471 534
Prepayments 92 93
Loans receivable 1 32
Receivables from related parties 9 10 10
Income tax receivable 54 53
Other taxes recoverable 181 175
Other current financial assets 3 4
Cash and cash equivalents 10 1,364 1,423
------------ ------------
3,474 3,804
Total assets $ 9,003 $ 9,847
============ ============
Equity and liabilities
Equity
Equity attributable to equity holders
of the parent entity
Issued capital 11 $ 75 $ 75
( 154
Treasury shares 11 ) (169)
Additional paid-in capital 2 ,503 2,492
Revaluation surplus 109 109
Accumulated profits 2,094 2,217
Translation difference (3,706) (3,048)
------------ ------------
921 1,676
Non-controlling interests 212 252
------------ ------------
1,133 1,928
Non-current liabilities
Long-term loans 12 3,876 4,599
Deferred income tax liabilities 258 352
Employee benefits 291 271
Provisions 276 321
Lease liabilities 68 83
Other long-term liabilities 73 40
------------ ------------
4,842 5,666
Current liabilities
Trade and other payables 1,205 1,378
Contract liabilities 327 348
Payables to related parties 9 75 140
Short-term loans and current portion
of long-term loans 12 1,078 34
Lease liabilities 32 19
Income tax payable 84 79
Other taxes payable 146 153
Provisions 42 33
Amounts payable under put options
for shares in subsidiaries 39 69
3,028 2,253
Total equity and liabilities $ 9,003 $ 9,847
============ ============
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
These Unaudited Interim Condensed Consolidated Financial
Statements were approved by the Board of Directors on 5 August 2020
and signed on its behalf by:
Alexander Frolov, Director
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
(In millions of US dollars)
Six-month period
ended
30 June
2020 2019
Cash flows from operating activities
Net profit $ 513 $ 344
Adjustments to reconcile net profit/(loss)
to net cash flows from operating activities:
Deferred income tax (benefit)/expense (119) 93
Depreciation, depletion and amortisation 300 271
(Gain)/loss on disposal of property, plant
and equipment (1) (2)
Impairment of non-financial assets 108 17
Impairment of financial assets - 56
Foreign exchange (gains)/losses, net (242) 273
Interest income (4) (5)
Interest expense 168 171
Share of (profits)/losses of associates
and joint ventures (3) (5)
(Gain)/loss on financial assets and liabilities,
net 40 7
(Gain)/loss on disposal groups classified
as held for sale, net (1) -
Other non-operating (gains)/losses, net (9) (1)
Changes in provisions, employee benefits
and other long-term assets and liabilities (6) (5)
Expense arising from equity-settled awards 5 8
Other - 2
749 1,224
Changes in working capital:
Inventories 59 (76)
Trade and other receivables 5 57
Prepayments (3) 16
Receivables from/payables to related parties 33 80
Taxes recoverable (30) 14
Other assets - 1
Trade and other payables (49) 14
Contract liabilities (11) 8
Taxes payable 34 (157)
Other liabilities (6) (6)
Net cash flows from operating activities 781 1,175
Cash flows from investing activities
Issuance of loans receivable (1) (6)
Investments in associates and joint ventures - (3)
Short-term deposits at banks, including
interest 3 4
Purchases of property, plant and equipment
and intangible assets (330) (309)
Proceeds from disposal of property, plant
and equipment 4 5
Proceeds from sale of disposal groups classified
as held for sale, net of cash disposed and
transaction costs 3 -
Dividends received 1 5
Other investing activities, net 1 3
Net cash flows used in investing activities (319) (301)
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
2020 2019
Cash flows from financing activities
Payments for the purchase of non-controlling $ ( 22
interests (Note 4) ) $ (56)
Proceeds from bank loans and notes 921 1,233
Repayment of bank loans and notes, including
interest (778) (1,642)
Net proceeds from/(repayment of) bank overdrafts
and credit lines, including interest (26) 2
Gain/(loss) on derivatives not designated
as hedging instruments - 9
Gain/(loss) on hedging instruments - (23)
Purchases of property, plant and equipment
on deferred terms (7) -
Lease payments, including interest (17) (20)
Dividends paid by the parent entity to its
shareholders (Note 11 ) (581) (577)
Dividends paid by the Group's subsidiaries
to non-controlling shareholders (3) -
Other financing activities - (7)
Net cash flows used in financing activities (513) (1,081)
Effect of foreign exchange rate changes
on cash and cash equivalents (8) 16
Net decrease in cash and cash equivalents (59) (191)
Cash and cash equivalents at beginning of
year 1,423 1,067
Cash and cash equivalents at end of period $ 1,364 $ 876
=========== ===========
Supplementary cash flow information:
Cash flows during the period:
Interest paid $ (143) $ (157)
Interest received 3 4
Income taxes paid (included in operating
activities) (291) (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
(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
2019 $ 75 $ (169) $ 2,492 $ 109 $ - $ 2,217 $ (3,048) $ 1,676 $ 252 $ 1,928
Net profit - - - - - 506 - 506 7 513
Other
comprehensive
income/(loss) - - - - - (33) (658) (691) (16) (707)
Total
comprehensive
income/(loss)
for the period - - - - - 473 (658) (185) (9) (194)
Acquisition of
non-controlling
interests in
subsidiaries
(Note 4) - - 6 - - - - 6 (28) (22)
Transfer of
treasury shares
to participants
of the
Incentive Plans - 15 - - - (15) - - - -
Share-based
payments - - 5 - - - - 5 - 5
Dividends
declared by the
parent entity
to its
shareholders ( 581 ( 581 ( 581
(Note 11) - - - - - ) - ) - )
Dividends
declared by the
Group's
subsidiaries to
non-controlling
shareholders - - - - - - - - (3) (3)
At 30 June 2020 $ 75 $ (154) $ 2,503 $ 109 $ - $ 2,094 $ (3,706) $ 921 $ 212 $ 1,133
======== ========= =========== ====================== =========== ============ ============ ======== ================ ========
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
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 - - - - - (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.
Selected Notes
to the Unaudited Interim Condensed Consolidated Financial
Statements
Six-month period ended 30 June 2020
1. Corporate Information
These interim condensed consolidated financial statements were
authorised for issue by the Board of Directors of EVRAZ plc on 5
August 2020 .
EVRAZ plc ("EVRAZ plc" or "the Company") was incorporated on 23
September 2011 as a public company under the laws of the United
Kingdom with the registered number 7784342. The Company's
registered 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 2020 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
2019, 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 2019 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 2020
are not necessarily indicative of the results that may be expected
for the year ending 31 December 2020.
Going Concern
These interim condensed consolidated financial statements have
been prepared on a going concern basis.
The Group's financial position at 30 June 2020 including its
cash flows, liquidity position and borrowing facilities are set out
in the Financial Review section. The Group's net debt as at 30 June
2020 was $3,733 million (31 December 2019: $3,445 million) and its
cash plus committed undrawn facilities were $2,296 million (31
December 2019: $1,870 million).
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
Going Concern (continued)
As disclosed in Note 13, macroeconomic uncertainty and
instability have arisen due to the COVID--19 pandemic. However, the
majority of the Group's businesses were relatively unaffected with
no significant issues for production, supply or shipments. Over the
going concern period, we will continue to focus on operations amid
signs of a recovery in demand and, therefore, prices in key
markets. Furthermore, management has already taken actions to
increase its liquidity with a new (undrawn) syndicated facility of
$750 million having been secured with a view to the scheduled debt
repayments of the same amount in 2021 (Note 12).
The management of EVRAZ plc has considered the Group's cash flow
forecasts for the period to 31 December 2021 and has performed
various scenario analysis, including base, pessimistic and stress
downside testing scenarios. This considered the possible impacts of
the COVID-19 crisis on the financial results and liquidity position
of the Group.
In the most pessimistic stress scenario, which assumed results
lower than the Group has ever had since listing in 2005 with prices
for steel, iron ore and coal all significantly below management's
current forecasts, the Group maintained sufficient liquidity and
would be able to operate within its debt covenants for the period
to 31 December 2021. The Group does not reasonably anticipate that
the most pessimistic stress scenario will occur, given the
relatively limited impacts on the Group's businesses to date and
the signs of a recovery in key markets.
Based on this analysis and other currently available facts and
circumstances directors and management have a reasonable
expectation that the Company and the Group have adequate resources
to continue as a going concern.
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 2019, except for the adoption of new standards and
interpretations and revision of existing IAS as of 1 January
2020.
New/Revised Standards and Interpretations Adopted in 2020
-- Amendments to IFRS 3: Definition of a Business
The amendment to IFRS 3 "Business Combinations" clarifies that
to be considered a business, an integrated set of activities and
assets must include, at a minimum, an input and a substantive
process that together significantly contribute to the ability to
create output. Furthermore, it clarified that a business can exist
without including all of the inputs and processes needed to create
outputs. These amendments had no impact on the consolidated
financial statements of the Group, but may impact future periods
should the Group enter into any business combinations.
-- Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate
Benchmark Reform
The amendments to IFRS 9 and IAS 39 "Financial Instruments:
Recognition and Measurement" provide a number of reliefs, which
apply to all hedging relationships that are directly affected by
interest rate benchmark reform. A hedging relationship is affected
if the reform gives rise to uncertainties about the timing and or
amount of benchmark-based cash flows of the hedged item or the
hedging instrument. These amendments had no material impact on the
consolidated financial statements of the Group.
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
New/Revised Standards and Interpretations Adopted in 2020
(continued)
-- Amendments to IAS 1 and IAS 8: Definition of Material
The amendments provide a new definition of material that states
"information is material if omitting, misstating or obscuring it
could reasonably be expected to influence decisions that the
primary users of general purpose financial statements make on the
basis of those financial statements, which provide financial
information about a specific reporting entity." The amendments
clarify that materiality will depend on the nature or magnitude of
information, either individually or in combination with other
information, in the context of the financial statements. A
misstatement of information is material if it could reasonably be
expected to influence decisions made by the primary users. These
amendments had no impact on the consolidated financial statements
of the Group.
-- Amendments to References to the Conceptual Framework in IFRS
Standards
The revised Conceptual Framework includes some new concepts,
provides updated definitions and recognition criteria for assets
and liabilities and clarifies some important concepts. These
amendments had no impact on the consolidated financial statements
of the Group.
3. Segment Information
The following tables present measures of segment profit or loss
based on management accounts.
Six-month period ended 30 June 2020
Steel,
US$ million Steel North America Coal Other operations Eliminations Total
--------- -------------- ------- ---------------- ------------ ---------
Revenue
Sales to external
customers $ 3,392 $ 1,028 $ 498 $ 65 $ - $ 4,983
Inter-segment sales 41 - 283 141 (465) -
--------- -------------- ------- ---------------- ------------ ---------
Total revenue 3,433 1,028 781 206 (465) 4,983
========= ============== ======= ================ ============ =========
Segment result -
EBITDA $ 919 $ (19) $ 206 $ 9 $ 17 $ 1,132
========= ============== ======= ================ ============ =========
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
========= ============== ======= ================ ============ =========
In the 1(st) half of 2020, chief operating decision makers
ceased to review the amounts of revenue reported by managements
accounts. Instead of them, the revenue based on IFRS is used for
performance analysis. The comparative information for the six-month
period ended 30 June 2020 has not been restated since it contains
currently used IFRS measures.
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 2020
Steel,
North Other
US$ million Steel America Coal operations Eliminations Total
--------- --------- ------- ----------- ------------ ----------------
Revenue per IFRS financial
statements $ 3,433 $ 1,028 $ 781 $ 206 $ (465) $ 4,983
EBITDA $ 919 $ (19) $ 206 $ 9 $ 17 $ 1 ,132
Unrealised profits adjustment (26) - 2 - - (24)
Reclassifications and
other adjustments 23 (2) 10 (1) - 30
--------- --------- ------- ----------- ------------ ----------------
(3) (2) 12 (1) - 6
--------- --------- ------- ----------- ------------ ----------------
EBITDA based on IFRS
financial statements $ 916 $ (21) $ 218 $ 8 $ 17 $ 1,138
Unallocated subsidiaries (65)
----------------
$ 1,073
================
Social and social infrastructure
maintenance expenses (12) - (1) - - (13)
Depreciation, depletion
and amortisation expense (123) (72) (100) (3) - (298)
Impairment of non-financial
assets (3) (105) - - - (108)
Loss on disposal of property,
plant and equipment and
intangible assets 2 (1) - - - 1
Foreign exchange gains/(losses),
net 28 (39) 73 - - 62
--------- --------- ------- ----------- ------------ ----------------
808 (238) 190 5 17 717
Unallocated income/(expenses),
net 174
----------------
Profit/(loss) from operations $ 891
Interest income/(expense),
net (164)
Share of profits/(losses)
of joint ventures and
associates 3
Gain/(loss) on financial
assets and liabilities (40)
Gain/(loss) on disposal
groups classified as
held for sale, net 1
Other non-operating gains/(losses),
net 9
Profit/(loss) before
tax $ 700
================
3. Segment Information (continued)
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 (1 1 8) (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
================
In the six-month period ended 30 June 2020 and 2019, the Group
recognised an allowance for net realisable value of inventory in
the amount of $Nil and $32 million, respectively.
The material changes in property, plant and equipment during the
six-month period ended 30 June 2020 other than those disclosed
above are presented below:
Steel,
US$ million Steel North America Coal Other operations Unallocated Total
------- -------------- ------- ---------------- ----------- -------
Additions $ 187 $ 46 $ 110 $ - $ 1 $ 344
The material changes in property, plant and equipment during the
six-month period ended 30 June 2019 were as follows:
Steel,
US$ million Steel North America Coal Other operations Unallocated Total
------------------ ------------------ -------------------- ------------------- ------------------- ------------------
Additions $ 138 $ 45 $ 106 $ 1 $ - $ 290
IFRS 16
adoption:
recognition
of
right-of-use
assets 65 52 1 2 - 1 20
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 20 20 201 9
------------ -----------
Steel
Construction products $ 939 $ 1,059
Flat-rolled products 68 204
Railway products 593 554
Semi-finished products 1 ,233 1,206
Other steel products 170 178
Other products 125 193
Iron ore 63 124
Vanadium in slag 31 67
Vanadium in alloys and chemicals 133 343
Rendering of services 37 56
------------ -----------
3,392 3,984
Steel, North America
Construction products 93 115
Flat-rolled products 15 2 302
Railway products 173 205
Tubular products 45 2 542
Other products 1 41 136
Rendering of services 17 16
------------ -----------
1,028 1,316
Coal
Coal 483 724
Other products 5 8
Rendering of services 10 11
------------ -----------
498 743
Other operations
Rendering of services 65 97
$ 4 ,983 $ 6 ,140
============ ===========
In the six-month periods ended 30 June 2020 and 2019 revenue
from rendering of services included rental income of $13 million
and $14 million, respectively.
3. Segment Information (continued)
Distribution of the Group's revenues by geographical area based
on the location of customers was as follows:
Six-month period ended
30 June
US$ million 20 20 201 9
----------- ------------
CIS
Russia $ 1,848 $ 2 ,152
Kazakhstan 151 134
Ukraine 31 194
Others 127 146
----------- ------------
2,157 2,626
=========== ============
America
USA 638 1,031
Canada 391 347
Mexico 15 41
Others 9 32
----------- ------------
1,053 1,451
=========== ============
Asia
China 524 147
Taiwan 242 366
Philippines 191 184
Indonesia 137 116
Republic of Korea 133 149
Japan 47 167
Thailand 29 169
Others 201 140
----------- ------------
1,504 1,438
=========== ============
Europe
European Union 150 46 8
Turkey 57 94
Others 5 1 4
----------- ------------
212 576
=========== ============
Africa
Kenya 34 15
Egypt 5 25
----------- ------------
Others 17 7
----------- ------------
56 47
=========== ============
Other countries 1 2
----------- ------------
$ 4,983 $ 6 ,140
=========== ============
4. Changes in Composition of the Group
Purchase of Non-controlling Interests
In the six-month period ended 30 June 2020, the Group acquired
an additional 2.3% ownership interest in Raspadskaya, a subsidiary
of the Group, for cash consideration of $22 million. The excess of
the carrying values of non-controlling interests acquired over
consideration amounting to $6 million was credited to additional
paid-in capital.
4. Changes in Composition of the Group (continued)
Purchase of Non-controlling Interests (continued)
In the six-month period ended 30 June 2019, 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.
Exercise of Put Option by Non-controlling Shareholders
In June 2020, the non-controlling shareholder, which had a 39.98
% ownership interest in Mezhegeyugol, a coal subsidiary of the
Group, sold its interest to the Group. In March 2017, when the
Group received the rights to the beneficial interests relating to
this non-controlling interest following the signing of a put option
agreement, this interest was derecognised and the put option
liability of $60 million was accrued by the Group. From March 2017
and until the put option exercise the Group accrued $9 million
interest on this liability. The consideration for the purchased
non-controlling interest comprised of a non-cash settlement of a
loan owed to the Group with a carrying value of $30 million, which
approximated the fair value, and $39 million of cash consideration,
which was unpaid at 30 June 2020.
5. Impairment of Non-current Assets
For the purpose of the impairment testing as of 30 June 2020 the
Group assessed the recoverable amount of each cash-generating unit
("CGU") where indicators of impairment were identified. Also the
Group performed an analysis of its property, plant and equipment
for functional obsolescence .
The recoverable amount has been determined based on a
value-in-use calculation using cash flow projections based on the
actual operating results and business plans approved by management
and appropriate discount rates reflecting the time value of money
and risks associated with respective cash-generating units. For the
periods not covered by management business plans, cash flow
projections have been estimated by extrapolating the respective
business plans' results using a zero real growth rate. The key
assumptions used by management in the impairment tests with respect
to the cash-generating units where indicators of impairment existed
are presented in the table below.
Average
price
of commodity
per Average Carrying
tonne price amount
in the of commodity Recoverable of CGU
Period Pre-tax 2(nd) per amount before
of forecast, discount half tonne of CGU, impairment,
years rate, % Commodity of 2020 in 2021 US$ million US$ million
------------- ------------ ------------- ------------- ------------- ------------- -------------
Steel North
America
Large
diameter steel
pipes 5 9 .82 products $1,300 $1,085 444 543
Oil Country
Tubular steel
Goods 5 10.03 products 979 1,171 432 34 3
steel
Long products 5 10.53 products 733 789 720 53 0
Flat-rolled steel
products 5 10.58 products 580 755 291 2 18
Seamless steel
pipes 5 12.61 products 693 1,195 142 4 1
Raspadskaya 5 13.74 coal mining 38 49 1 , 613 745
5 . Impairment of Non-current Assets (continued)
As a result of impairment testing, the Group recognised a $ 99
million impairment loss with respect to the Large diameter pipes
cash-generating unit, which was allocated to goodwill ($65 million)
, intangible assets ($3 million) and property, plant and equipment
($31 million) . The impairment was caused by the reassessment of
demand on the steel, oil and commodities markets. The value-in-use
models are based on the expectation that the demand will recover in
2022.
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 additional impairment of the Large diameter
pipes cash-generating unit. If the discount rates were 10% higher,
this would lead to an additional impairment of $53 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, Morgan Stanley, RBC, Renaissance Capital,
Sberbank, UBS, VTB and WSD during the period from April to June
2020. The Group expects that the nominal prices will grow with a
compound annual growth rate of (8. 3 )%-2.5% in 2020 - 2024 and
2.0% in 202 5 and thereafter. Reasonably possible changes in sales
and purchase prices in the 2nd half of 2020 and 2021 could lead to
an an additional impairment of the Large diameter pipes
cash-generating unit. If the prices were 10% lower, this would lead
to an additional impairment of $ 49 million.
Sales Volumes
Management assumed that the sales volumes of steel products
would de crease by 22.1% in 2020 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
2020 and 2021 could lead to an additional impairment of the Large
diameter pipes cash-generating unit. If sales volumes were 10%
lower, this would lead to an additional impairment of $ 1
million.
Cost Control Measures
The recoverable amounts of cash-generating units are based on
the business plans approved by management. A reasonably possible
deviation of cost from these plans could lead to an additional
impairment of the Large diameter pipes cash-generating unit. If the
actual costs were 10% higher than those assumed for the 2nd half of
2020 and 2021, this would lead to an additional impairment of $79
million.
Sensitivity Analysis
There were no cash-generating units, which were not impaired in
the reporting period and for which any reasonably possible changes
could lead to impairment. Consequently, information on changes in
the assumptions used to measure the recoverable amounts that could
lead that the recoverable amounts would become equal to their
carrying amounts is not disclosed.
6. Income Taxes
Major components of income tax expense were as follows:
Six-month period
ended 30 June
US$ million 20 20 201 9
--------- --------
$ ( 300
Current income tax expense ) $ (249)
Adjustment in respect of income tax of
previous years ( 6 ) (4)
Deferred income tax benefit/(expense)
relating to origination and reversal of
temporary differences 1 19 (93)
Income tax expense reported in the consolidated $ ( 187
statement of operations ) $ (346)
========= ========
In the six-month period ended 30 June 2020 and 2019, deferred
tax benefit/( expense) relating to the undistributed earnings of
the Group's subsidiaries amounted to $22 million and $(84) million,
respectively.
7. Property, Plant and Equipment
The movement in property, plant and equipment (including
right-of-use assets) for the six-month period ended 30 June 2020
was as follows:
Buildings Transport Assets
and Machinery and motor Mining Other under
US$ million Land constructions and equipment vehicles assets assets construction Total
------ ---------------- -------------- ---------- ------- ------- ---------------- ---------
At 31 December
2019,
cost, net of
accumulated
depreciation $ 102 $ 956 $ 1,854 $ 169 $ 1,160 $ 9 $ 675 $ 4,925
Additions - - 3 1 - - 340 344
Assets put into
operation - 14 195 15 32 1 (257) -
Disposals - (1) (3) - - - - (4)
Depreciation and
depletion
charge - (38) (173) (24) (34) (1) - (270)
Impairment
losses
recognised in
statement
of operations - - (35) - - - (5) (40)
Impairment
losses
reversed
through
statement of
operations - - - - - - 1 1
Government
grants - - - - - - (6) (6)
Translation
difference (5) (94) (155) (16) (135) - (57) (462)
------ ---------------- -------------- ---------- ------- ------- ---------------- ---------
At 30 June 2020,
cost, net of
accumulated
depreciation $ 97 $ 837 $ 1,686 $ 145 $ 1,023 $ 9 $ 691 $ 4,488
====== ================ ============== ========== ======= ======= ================ =========
In the six-month periods ended 30 June 2020 and 2019, the
depreciation expense relating to the right-of-use assets amounted
to $15 million and $14 million, respectively, i nterest expense and
payments relating to the lease liabilities amounted to $3 million
and $4 million , respectively . At 30 June 2020 and 31 December
2019, the carrying value of the right-of-use assets amounted to $95
million and $115 million , respectively. They were mostly
represented by Transport and motor vehicles and Machinery and
equipment.
8. Investments in Joint Ventures and Associates
The movement in investments in joint ventures and associates
during the six-month period ended 30 June 2020 was as follows:
US$ million Timir Streamcore Other associates Total
------ ---------- ---------------- ------
At 31 December 2019 $ 17 $ 63 $ 12 $ 92
Share of profit/(loss) - 2 1 3
Dividends - - (1) (1)
Translation difference (2) (7) (1) ( 10 )
------ ---------- ---------------- ------
At 30 June 2020 $ 15 $ 58 $ 11 $ 84
====== ========== ================ ======
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 2020 2019 2020 2019
--------- -------- --------- --------
Genalta Recycling Inc. $ - $ - $ 7 $ 7
Nakhodka Trade Sea Port - - 37 38
Vtorresource-Pererabotka 2 2 154 217
Yuzhny GOK 3 20 - 52
Other entities 1 4 - -
--------- -------- --------- --------
$ 6 $ 26 $ 198 $ 314
========= ======== ========= ========
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 2020 2019 2020 2019
-------- ------------ -------- ------------
Loans
Timir $ 9 $ 9 $ - $ -
Sale of investments
Streamcore $ - $ - $ 5 $ 5
Trade balances
Nakhodka Trade Sea Port - - 7 7
Vtorresource-Pererabotka - 1 60 5
Yuzhny GOK 1 - 1 1
Other entities - - 2 1
10 10 19
Less: allowance for expected
credit losses - - - -
-------- ------------ -------- ------------
$ 10 $ 10 $ 75 $ 19
======== ============ ======== ============
Compensation to Key Management Personnel
In the six-month periods ended 30 June 2020 and 2019, key
management personnel totalled 28 and 30 persons, respectively.
Total compensation to key management personnel was included in
general and administrative expenses and consisted of the following
in the six-month periods ended 30 June:
US$ million 2020 2019
----- -----
Salary $ 7 $ 7
Performance bonuses 4 7
Social security taxes 2 3
Share-based payments 5 4
$ 18 $ 21
===== =====
10. Cash and Cash Equivalents
Cash and cash equivalents were denominated in the following
currencies:
30 June 31 December
US$ million 2020 2019
---------- ------------
US dollar $ 1,027 $ 774
Euro 182 484
Russian rouble 146 134
Others 9 31
---------- ------------
$ 1,364 $ 1,423
========== ============
The above cash and cash equivalents mainly consist of cash at
banks.
11. Equity
Share Capital
30 June 31 December
Number of shares 2020 2019
-------------- --------------
Issued and fully paid
Ordinary shares of $0.05 each 1,506,527,294 1,506,527,294
Treasury Shares
30 June 31 December
Number of shares 20 20 20 19
----------- ------------
Number of treasury shares 49,654,691 54,620,233
Earnings per Share
Earnings per share are calculated by dividing the net income
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period. Diluted
earnings per share amounts are calculated by dividing the net
profit attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the period
plus the weighted average number of ordinary shares that would be
issued on the conversion of all the potential dilutive ordinary
shares into ordinary shares.
The following reflects the profit and share data used in the
basic and diluted earnings per share computations:
Six-month period
ended 30 June
-------------------------------------
2020 2019
Weighted average number of ordinary shares outstanding during the period 1,453,216,654 1,445,619,355
Effect of dilution: share s under Incentive plans 8,770,53 7 15,457,701
-------------------- ---------------
Weighted average number of ordinary shares adjusted for the effect of dilution 1,461,987,191 1,461,077,056
Profit for the period attributable to equity holders of the parent entity, US$
million $ 506 $ 313
Basic earnings per share $ 0.35 $ 0.22
Diluted earnings per share $ 0.35 $ 0.21
11. Equity (continued)
Earnings per Share (continued)
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 2020 were as follows:
To holders Dividends
registered declared, US$ per
Date of declaration at US$ million share
--------------------- ------------- ------------- --------
26/02/2020 06/03/2020 581 0.40
12. Loans and Borrowings
Short-term and long-term loans and borrowings were as
follows:
30 June 31 December
US$ million 20 20 201 9
----------- ------------
Bank loans $ 1 ,686 $ 1, 404
US dollar-denominated
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 700 700
Rouble-denominated
12.60% rouble bonds due 2021 214 242
7.95% rouble bonds due 2024 286 323
Unamortised debt issue costs (1 9 ) (18)
Interest payable 87 88
----------- ------------
$ 4,954 $ 4,739
=========== ============
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. During the 1(st) half
of 2020 the Group was in compliance with all financial and
non-financial covenants.
12. Loans and Borrowings (continued)
The movement in loans and borrowings were as follows:
US$ million 20 20 201 9
---------- ----------
1 January $ 4,739 $ 4,563
Cash changes:
Cash proceeds from bank loans and notes,
net of debt issues costs 921 1,233
Repayment of bank loans and notes, including
interest (778) (1,642)
Net proceeds from/(repayment of) bank
overdrafts and credit lines, including
interest (26) 2
Non-cash changes:
Interest and other charges expensed 147 148
Accrual of premiums and other charges
on early repayment of borrowings - 26
Effect of exchange rate changes (49) 51
30 June $ 4,954 $ 4,381
========== ==========
Pledged Assets
The Group's pledged assets at carrying value included the
following:
30 June 31 December
US$ million 2020 2019
-------- ------------
Property, plant and equipment $ 72 $ 72
Inventory 476 512
Unutilised Borrowing Facilities
As of 30 June 2020, the Group had unutilised bank loans in the
amount of $1,741 million, including $932 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.
The coronavirus (COVID--19) pandemic outbreak has significantly
affected the world economy, including steel production, oil and
gas, and construction industry. The increased market volatility may
have an impact on the Group's financial position, earnings and cash
flows in 2020 and beyond. Management closely monitors the
development of the economic situation and undertakes all necessary
measures to maintain 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 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 $59 million.
Contractual Commitments
At 30 June 2020, the Group had contractual commitments for the
purchase of production equipment and construction works for an
approximate amount of $ 303 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 2020, the Group
has committed expenditure of $520 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 $386 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 $359 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 $93
million.
In 2019, the Group concluded a contract with Xcel Energy Inc.
for the supply of electricity for a period of 22 years. The Group
is committed to purchase from 1 January 2022 at least 500,000 MWh
annually on a take-or-pay basis at rates ranging from 3.90 to 4.90
cents/kWh. The rates can be adjusted for gas prices. The total
amount of this commitment at the unadjusted rates approximates $440
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 $12 million under these programmes in the
second half of 2020.
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 2020 amounted to $16 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 $16 million relates to the
accrued environmental provision and has been recognised in
non-current financial assets and current receivables at 30 June
2020. 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 2020 to 2025, under
which it will perform works aimed at reductions in environmental
pollution and contamination. As of 30 June 2020, the costs of
implementing these programmes are estimated at $253 million.
13. Commitments and Contingencies (continued)
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 2020, p ossible liabilities were estimated at $ 20
million.
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 ($476 million at the exchange rate as of 30 June 2019) to
nine companies owned by Sibuglemet in respect of management
services provided by one the Group's subsidiaries to these
entities. Sibuglemet is a producer of coking coal and operator of
coal refineries in the Kemerovo region of Russia. The management
company committed to perform all management functions including,
inter alia, all the decisions required to carry out the day-to-day
operations of these coal companies, their investment and
procurement activities. The maturity of the guarantee was set for
31 December 2030.
In May 2020, the Group issued a notification about termination
of the management services contract from 15 November 2020. The
guarantee will continue to be effective 3 years after the date of
termination.
14. Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets and liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data (unobservable inputs).
The carrying amounts of financial instruments, such as cash,
short-term and long-term investments, short-term and long-term
accounts receivable, short-term accounts payable, short-term loans
receivable and payable and floating-rate bank loans, approximate
their fair value.
The Group held the following financial instruments measured at
fair value:
31 December 201
30 June 20 20 9
----------------------- ----------------------
Level Level Level Level Level Level
US$ million 1 2 3 1 2 3
------- ------ ------ ------ ------ ------
Assets measured at fair value
Derivatives not designated
as hedging instruments - 5 - - 17 -
Liabilities measured at fair
value
Derivatives not designated
as hedging instruments - 32 - - 6 -
14. Fair Value of Financial Instruments (continued)
The following table shows fair values of the Group's bonds and
notes.
30 June 20 20 31 December 201
US$ million 9
------------------- -------------------
Carrying Fair Carrying Fair
amount value amount value
USD-denominated
8.25% notes due 2021 $ 777 $ 806 $ 776 $ 825
6.75% notes due 2022 516 548 513 555
5.375% notes due 2023 760 814 759 819
5.25% notes due 2024 706 770 705 770
Rouble-denominated
12. 60 % rouble bonds due
20 21 222 232 250 268
7.95% rouble bonds due 20
2 4 295 314 333 346
$ 3,276 $ 3,484 $ 3,336 $ 3,583
========= ======== ========= ========
The fair value of the non-convertible bonds and notes was
determined based on market quotations (Level 1).
15. Subsequent Events
Dividends
On 5 August 2020, the Board of directors of EVRAZ plc declared
dividends in the amount of $291 million, which represents $0.20 per
share.
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 KELFBBVLBBBV
(END) Dow Jones Newswires
August 06, 2020 02:00 ET (06:00 GMT)
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