TIDMEVR
RNS Number : 0506L
Evraz Plc
30 August 2012
EVRAZ ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR H1
2012
30 August 2012 - EVRAZ plc ("EVRAZ" or "the Company") (LSE: EVR)
today announces its unaudited interim results for the six months
ended 30 June 2012 ("the Period").
HIGHLIGHTS
Six months to 30 2012 2011 Change
June
(US$ million)
---------------------- -------- ------------ --------
Consolidated revenue 7,619 8,380 (9.1)%
Consolidated EBITDA 1,175 1,629 (27.9)%
Net profit/(Loss) (50) 263 (119)%
Operating cashflow 1,089 1,594 (31.7)%
Earnings per share,
(US$) (0.03) 0.21 (114)%
Interim dividend
per share 11c 6.7c 64%
---------------------- -------- ------------ --------
30 June 31 December
2012 2011
---------------------- -------- ------------ --------
Net debt 6,070 6,442 (5.8)%
Total assets 17,432 16,975 2.7%
---------------------- -------- ------------ --------
Mining:
-- Production of saleable iron ore products 10.5 million tonnes (+1% vs. H1 2011)
-- Raw coking coal production 4.0 million tonnes (+11%)
-- Raw steam coal production 0.7 million tonnes (-49%)
-- Mining segment revenue(1) US$1,383 million (-32%)
Steel:
-- Crude steel production 8.4 million tonnes (-2%)
-- Total external steel sales volumes 7.7 million tonnes (-3%)
-- Steel segment revenue(1) US$7,019 million (-6%)
Vanadium:
-- Primary vanadium production (vanadium in slag) 11,369 tonnes (+12%)
-- External vanadium product sales volumes 9,665 tonnes (-13%)
-- Vanadium segment revenue(1) US$263 million (-18%)
Corporate developments:
-- Railway products division was established to further enhance customer relationships
-- Five-year contract signed with Russian Railways
-- New labour agreement in place in South Africa
-- EVRAZ plc shares included in MSCI UK Index series from 1 June 2012
Investments:
-- Capital expenditure of US$565 million (vs. US$462 million in H1 2011)
-- Rail mill modernisation at EVRAZ ZSMK well advanced to
increase volumes and quality of rails from Q1 2013
-- Implementation of pulverised coal injection projects to
reduce consumption of coking coal and natural gas in blast furnace
production from early 2013
-- Capacity and product mix expansion in the North American tubular and rail sectors
-- Development of Yerunakovskaya VIII mine, production to commence in H2 2013
Financial:
-- US$600 million 5-year notes issued in April 2012 at 7.4% rate
-- Amendments to financial covenants in syndicated loan
facilities that provide greater financial flexibility (net leverage
ratio increased to 3.5, interest coverage ratio decreased to
3.0).
Dividends:
-- EVRAZ declares an interim dividend of US$0.11/ordinary share
of EVRAZ plc
-- Ex-dividend date - 5 September 2012, record date - 7
September 2012; deadline for currency election - 10 September 2012;
fixing of FX rate date - 20 September 2012; payment date - 5
October 2012.
(1) Including intersegment revenues
Chief Executive Officer's Report
EVRAZ achieved a creditable performance in the first half of
2012 despite the volatile macroeconomic environment and negative
trends in the markets for global steel and global steelmaking raw
materials. At the Company's London Investor Day in June 2012 we set
out our plan to maximise long term shareholder value creation by
adopting five interrelated strategies which will enhance the degree
of vertical integration within EVRAZ and thereby further improve
our robust cost position in global steel production. Earlier in the
year we were pleased to welcome Alexander Izosimov to the Board as
an independent non-executive director and, through the adoption of
a number of compliance initiatives, we have also strengthened our
corporate governance credentials in general.
Outside the Company, the global economy is still uncertain and
we therefore remain cautious about prospects for the rest of 2012,
however EVRAZ's strong foundation for future growth ensures that
the long term outlook for the Company remains positive.
H1 2012 market environment and business performance
The mining segment of our business is a key long term growth
driver for EVRAZ, despite the short to medium term pressures on
pricing. Iron ore production continued to run at full utilisation
levels during H1 2012, coking coal production maintained its
recovery towards target levels, while steam coal production was
negatively affected by longwall repositionings in the period. The
mining segment's main customer remains EVRAZ's own steel
operations.
During the Period steel prices continued their slight decrease
compared to the second half of 2011. Against this background of
market uncertainty, we continued to run our Russian steelmaking
facilities at full capacity and our major international plants in
North America, Europe and South Africa at high levels of
utilisation.
The steel sector in Russia has been resilient during the Period
with demand driven by private sector construction activity as well
as by Russian Government-financed infrastructure projects. A
seasonal improvement in the Russian construction market, which has
led to 9.5% higher demand levels than H1 2011, has caused supply
constraints and allowed us to slightly increase prices for
construction steel in the Russian market from May 2012.
Demand for rails in Russia also remained strong, but our sales
volumes were negatively affected by a planned five-month stoppage
to modernise our rail and beam mill at EVRAZ ZSMK which is
scheduled to last until October.
Demand in North America remains strong, especially for rails,
whilst margins for tubular products in the region also remain high.
We have been successful in implementing our strategy of expanding
into high value added steel products (such as head hardened rails,
premium connection OCTG tubes and heat treated seamless pipe) and
we were able to successfully increase internal supply our of our
steel slabs out of Russia to serve our operations in Europe and
North America.
After the end of the Period, we lost a month of production at
EVRAZ Highveld Steel and Vanadium in South Africa due to industrial
action in July and August 2012. This dispute has now been
satisfactorily resolved and a new labour agreement has been
reached.
Strategic development
As the result of a process started in 2011, we formulated five
key strategies which embody our long term objective to improve
returns and ensure a transition towards a stronger platform for the
future of the Company. These were set out at our Investor Day in
June 2012 and concern: health and safety of our employees,
development of human capital, customer focus, increasing efficiency
through the EVRAZ Business System, and growth of the business.
During the Period we have made progress in all five elements.
Safety remains a key priority for the Company. While we have
made some progress in this area over the past two years, we still
have a long way to go. Our aim is to change the attitude to HSE
issues of our employees at all levels and the safety programmes
initiated at EVRAZ's principal sites in 2011 have been further
extended in the period.
Despite these efforts and investments, our Lost Time Injury
Frequency Rate, the principal measure of our safety performance,
increased by 16% during the Period compared to the first half of
2011. Tragically, we have recorded 11 separate fatal accidents at
our operations during the Period. The management team and I are
resolute in our determination to address the underlying causes of
any critical or near-miss incidents at our operations, with the
ultimate objective of operating a zero harm environment.
Growth over the next five years will be largely driven by the
expansion in mining which aims to produce 22 million tonnes of iron
ore products and 15 million tonnes of coking coal per annum by
2016, thereby increasing our self-coverage in iron ore to 120% and
to more than 130% in coking coal. We believe these iron ore and
coking coal investments continue to offer an attractive rate of
return in spite of the uncertain outlook for commodity prices.
Another important source of growth is through an improvement to
the product mix as a result of significantly increasing the share
of high value added products in our steel business' portfolio.
Investments in this area include the rail mill reconstruction at
EVRAZ ZSMK, the building of two new construction steel mills in the
south of Russia and Kazakhstan, an upgrade of the wheel shop at
EVRAZ NTMK and modernisation of rail and tubular mills North
America. Each of these projects has made demonstrable progress
during the Period.
The pulverised coal injection projects, scheduled for completion
at the end of 2012 at EVRAZ NTMK and early 2013 at EVRAZ ZSMK, will
increase our energy efficiency substantially, thereby reducing the
need for natural gas and reduce our coking coal consumption by 20%.
The positive impact of these projects will be significant to the
Company in most market scenarios because the main driver for
profitability from these investments is a sustained reduction in
the consumption of natural gas usage by our operations.
Corporate Governance
Since our admission to the FTSE 100 in December 2011, we have
undertaken a number of initiatives to further strengthen our
corporate governance. These include the adoption of a new Code of
Business Conduct which we are currently rolling out across the
Group and initiatives to ensure compliance with the UK Bribery Act,
such as training, more detailed policies and internal procedures
for employees. Furthermore, we strengthened our Board with the
appointment of Alexander Izosimov as an independent non-executive
director in February 2012.
Outlook
The global economy and, in turn, the steel industry, remain very
volatile and we continue to be cautious on the outlook for the
remainder of 2012. Due to our low position on the global cost
curve, our steelmaking capacity continues to operate at high
utilisation rates and we expect our steel production volumes in Q3
2012 to be broadly in line with Q2 2012. Export prices continue to
decline, while we have slightly increased prices for construction
steel products in the Russian market in June-September 2012.
The volumes of export sales are currently booked for slightly
over one month's production and inventories at traders and at our
mills and ports remain low. Whilst we expect that 2012 will
continue to provide challenging short-term headwinds for our
business, we are committed to investing in our future growth
through increasing mining volumes, improving product mix and
reducing costs. Although the full benefit of these investments is
expected to be realised in the medium to long term, we anticipate
some positive impact in H2 2012.
I continue to believe that we have the right strategy for our
business and, allied with our strong and experienced management
team, we are well positioned for the future.
Financial Review
Six months to 30 2012 2011 Change
June
(US$ million)
------------------------ ------- ------ --------
Revenue 7,619 8,380 (9.1)%
EBITDA 1,175 1,629 (27.9)%
EBITDA margin 15.4% 19.4% (20.6)%
Profit from operations 430 859 (49.9)%
Net profit/(loss) (50) 263 (119)%
Earnings per share,
(US$) (0.03) 0.21 (114)%
30 June 31 December
2012 2011
-------- ------------
Net debt 6,070 6,442 (5.8)%
---------- ------ ------ -------
EVRAZ's consolidated revenues for the Period decreased by 9.1%
to US$7,619 million compared with US$8,380 million for the first
six months of 2011. Approximately half the decrease was a result of
reduced steel sales volumes and prices.
EVRAZ's sales volumes of steel products to third parties
decreased from 7.9 million tonnes in H1 2011 to 7.7 million tonnes
in H12012, primarily as a result of the fall in demand for steel
products in Europe. Sales volumes in Russia and Ukraine, export
sales volumes from Russian and Ukrainian operations, sales volumes
from South African operations and North American operations
remained broadly flatin H1 2012 compared to H12011.
Average steel sales prices decreased by 3% in H1 2012 compared
to H1 2011 reflecting softening demand in most of our major
markets.
Geographic breakdown of consolidated revenues (based on location
of customer)
Six months to 30 June
---------------------------------------------------------------------------------------
2012 2011 2012 v 2011
------------------ ------------------------------------------- ----------------------
US$ % of US$ % of
million total million total % change
-------------------- --------- ------- ---------------------- ------------------- ----------------------
Russia 3,157 41.4% 3,346 39.9% (5.6)%
Americas 1,804 23.7% 1,858 22.2% (2.9)%
Asia 1,151 15.1% 1,178 14.1% (2.3)%
Europe 741 9.7% 1,081 12.9% (31.5)%
CIS (excl. Russia) 526 6.9% 624 7.4% (15.7)%
Africa 238 3.1% 290 3.5% (17.9)%
Rest of the world 2 0.1% 3 0.0% 0%
-------------------- --------- ------- ---------------------- ------------------- ----------------------
Total 7,619 100% 8,380 100% (9.1)%
-------------------- --------- ------- ---------------------- ------------------- ----------------------
Revenues from sales in Russia decreased in H1 2012 due to lower
sales of mining products to third parties and lower average steel
prices compared with H1 2011 (-US$16/t on average).
However, in H1 2012 Russian revenues increased as a proportion
of total revenue due to relatively stable sales of Russian
construction and railway products. Revenues from non-Russian sales
decreased by 11.4% to US$4,462 million compared with US$5,034
million in H1 2011 and also decreased as a percentage of total
revenues to 58.6%, compared with 60.1%, largely due to weakness in
European sales.
In the first six months of 2012, the consolidated cost of
revenues amounted to US$6,029 million compared with US$6,183
million in H1 2011. The effect of weakening of local currencies
against the US dollar contributed to the decrease in costs in H1
2012 compared with the same period of 2011. This was however
partially offset by a higher depreciation, depletion and
amortisation charge caused by an increase in the mineral deposits
depletion base following updated reserve evaluations in June
2011.
The reduction in consolidated revenues and a much smaller
reduction in cost of revenue resulted in gross profit decreasing by
27.6% from US$2,197 million in H1 2011 to US$1,590 million in H1
2012.
Selling and distribution costs increased by US$68 million to
US$621 million during the Period, the main reasons being a change
in sales terms in Russia from FCA to CPT starting April 2011
(resulting in a corresponding increase in revenues) as well as
rising rail tariffs.
Consolidated EBITDA decreased to US$1,175 million in H1 2012
compared to US$1,629 million in H1 2011, with an EBITDA margin of
15.4% and 19.4% respectively. The H1 2012 result was helped by the
fact that the softening of steel selling prices lagged behind the
reduction in production expenditures caused mostly by declining raw
materials prices and a decrease in conversion costs resulting from
rouble depreciation in Q2 2012.
Profit from operations decreased from US$859 million, or 10.3%
of consolidated revenues, for H1 2011, to US$430 million, or 5.6%
of consolidated revenues, for 1H 2012. The reduction in profit from
operations is mainly attributable to: the drop in gross profit, the
increase in selling and distribution costs, a special impairment,
offset by the impact of foreign exchange movements.
Impairment of assets was US$80 million in H1 2012, compared to
US$32 million in H1 2011. The larger impairment charge was mostly
due to a reduction in the sales pricing outlook for EVRAZ DMZP. We
consider the impairment in H1 2012 to be largely special and the
result of uncertain economic conditions in the period.
Foreign exchange gains amounted to US$28 million in H1 2012,
compared to a loss of US$220 million in H1 2011. These foreign
exchange effects are mostly due to inter-company loans between
Russian subsidiaries whose functional currency is the rouble, and
other subsidiaries whose functional currency is the US dollar.
These foreign exchange gains are a reflection of fluctuations in
the RUB/USD exchange rate, so that the Company's accumulated profit
would only be permanently affected by a long term movement in the
exchange rates.
Interest expense decreased by 18.1% to US$317 million in the
Period compared with US$387 million in the corresponding period of
2011, mostly due to the incentivised conversion of US$650 million
of convertible bonds in June 2011, which were bearing coupons of
7.25%. Other factors in the reduction include: the effect of a
weaker rouble on the rouble bond coupons, refinancing of certain
bank loans at lower rates, lower average utilisation of revolving
lines of credit. The reported interest expense does not include
realised gains on the cross-currency swaps related to the rouble
bonds issued by our Russian subsidiaries. This realised gain in H1
2012 was US$42 million, giving an adjusted interest expense of
US$275 million. This realised gain was accounted for in other
non-operating gains and losses.
In H1 2012, income tax expense amounted to US$136 million
compared with an income tax expense of US$210 million in H1 2011.
EVRAZ's effective tax rate, defined as income tax expense as a
percentage of profit before tax, increased to 158% in the six
months of 2012 from 44.4% in the first six months of 2011. The main
reason for our large effective tax rate in H1 2012 was that
deferred tax assets for stand-alone tax loss carryforwards at EVRAZ
Highveld Steel and Vanadium, EVRAZ DMZP and EVRAZ Group S.A. are
not recognised in the accounts as it is not currently considered
probable that these tax losses will be recovered from future
profits in the time frame allowed by the respective tax laws.
Cash flow and debt
The net cash inflow from operating activities during H1 2012 was
US$1,089 million (H1 2011: US$1,594) and primarily reflects a
weaker gross profit.
Capital expenditure was US$565 million in H1 2012 compared with
US$462 million in H1 2011. The capital expenditure in H1 2012
consisted of US$320 million investment in EVRAZ's steel businesses
and a further US$225 million investment in EVRAZ's mining segment.
The major project in the mining segment included development of
Yerunakovskaya VIII and in the steel segment the reconstruction of
the rail mill in EVRAZ ZSMK and introduction of PCI at both Russian
mills, which should contribute positively to the Company's results
from H2 2012.
In H1 2012 there was a net cash inflow from financing activities
of US$359 million. This is mostly the result of drawing on
available credit lines in late June to increase the available cash
balance. As a result cash and cash equivalents totalled US$1,763
million at 30 June 2012, against US$1,155 million as at 30 June
2011. This relatively large cash balance was created to reduce
refinancing risk related to the repayment of approximately US$500
million equivalent of rouble bonds in March 2013 as well as US$534
million of Eurobonds due in April 2013. EVRAZ has placed the
majority of the cash in excess of necessary working capital
requirements in flexible interest bearing deposits with
creditworthy institutions.
Free cash flow generation in H1 2012 was US$362 million (H1
2011: US$781 million), as a result of lower operating results as
well as higher capital expenditure.
As at 30 June 2012, total debt amounted to US$7,833 million
compared to US$7,245 million as of 31 December 2011. This was the
result of drawing on available credit lines to increase the cash
balance. In April 2012 we issued US$600 million of 2017 Eurobonds
as a further step in extending debt maturities. As at the period
end, the average maturity of our debt stood at 4.1 years.
Net debt at the end of the Period decreased 5.8% to US$6,070
million compared with US$6,442 million as of 31 December 2011,
reflecting our robust cash flow despite the challenging operating
environment.
EVRAZ has a longer term target net leverage ratio of below 2.
The net leverage ratio is defined as net debt divided by LTM
EBITDA, where LTM stands for last twelve months. The net leverage
ratio as at 30 June 2012 was 2.53 (31 December 2011: 2.27). This is
mainly the result of falling EBITDA. In view of this situation, in
June 2012 EVRAZ agreed a resetting of the testing levels for
maintenance covenants in a number of banking facilities to secure
greater financial flexibility. The limit for the net leverage ratio
is now 3.5.
At 30 June 2012, the Company's total debt to LTM EBITDA ratio
increased above the level of 3.0, which triggered restrictions on
further increasing total debt pursuant to the covenants of some of
the Company's borrowings until the ratio falls to below 3.0.
However, new borrowings are allowed for refinancing and other
purposes defined in the facilities' documentation. Given EVRAZ's
large cash balance it is not expected that the business of the
Company will be affected by this restriction.
Liquidity and funding
As of 30 June 2012, EVRAZ had unutilised borrowing facilities of
US$912 million, including US$163 million of committed facilities.
Committed facilities consisted of credit facilities available for
Russian and North American operations in the amounts of US$161
million and US$2 million, respectively. Uncommitted facilities
consisted of revolving credit lines of US$539 million with
international banks for export trade financing at East Metals A.G.
and credit facilities available for South African, European,
Russian and North American operations in the amounts of US$48
million, US$107 million, US$40 million and US$15 million,
respectively.
Term debt maturities due during the period to 30 June 2014 total
US$1,332 million. EVRAZ's current liquidity (as of 30 June 2012
cash of US$1,763 million and US$912 million of unutilised borrowing
facilities, of which approximately US$300 million of cash is needed
as working capital) is more than sufficient to cover these
repayments. The Company's forecasts, taking into account possible
changes in trading performance, show that EVRAZ will be able to
operate within the level of its current debt facilities for the
foreseeable future.
Furthermore, in an effort to diversify EVRAZ's sources of
funding, the Company has requested, and the credit committee of one
of its' major lenders has approved in August 2012, a project
finance facility for the development of the first phase of the
Mezhegey coal reserves. If finalised, this will be the Company's
first non-recourse project finance facility and a possible pattern
for funding future greenfield projects. The expected structure of
this funding will not affect the compliance with current
covenants.
Dividend
The Board has declared an ordinary interim dividend of 11 cents
per share, compared to 6.7 cents per share equivalent ordinary
interim dividend as paid on Evraz Group S.A. shares and GDRs for
the same period last year.
This dividend reflects cash flow generation in H1 2012 and
confidence in the longer-term outlook for the Company, in spite of
the current challenging operating environment.
Outlook
The uncertain economic environment in Europe should not have a
significant direct effect on the Company as European operations
account for less than 9.7% of total revenue. However, the Company's
business as a whole will be affected if the repercussions of
economic uncertainty in Europe were to impact the global economy
substantially.
The Company's results in H2 2012 will be affected by the delayed
effect of the reduction in steel prices in Q2 2012 (due to a lag of
up to two months, particularly for export sales, between the fixing
of a price in a sales contract and when revenue is recognised) and
the continuing softness in prices. Industrial action at EVRAZ
Highveld Steel and Vanadium and a decrease in rail sales resulting
from the project of modernisation of the rail mill at EVRAZ ZSMK
will also negatively affect H2 2012 performance.
The Company continues to review longer-term spending plans, and
expects H2 2012 capital expenditure to be in the range of
US$650-$750 million. EVRAZ is continuing to invest in projects that
it expects to positively impact the Company's profits from H2 2012
and 2013, giving EVRAZ confidence in achieving its' goals of growth
and deleveraging.
As disclosed at the Investor Day on 19 June 2012, EVRAZ expects
its net leverage ratio to increase at the end of 2012 (but within
the limits set by our covenants) before falling in 2013 as the
positive effects of capital expenditure investments begin to be
realised.
Review of operATIONS
Mining segment
Markets performance
Iron ore
Iron ore prices during the first half of 2012 were negatively
impacted by weakening steel demand and falling Chinese steel prices
which in turn depressed prices for steel input materials such as
iron ore.
Iron ore prices declined 8% during the H1 2012, however despite
the softening demand and pricing environment, prices have remained
above their October 2011 lows of $117 per tonne and remain
significantly above their historic levels.
The medium to long term prices for iron ore are expected to
stabilise as Chinese economic and infrastructure growth recovers,
driving demand for steel as the effects of Chinese Government
stimulus packages start to filter through.
Coking coal
Coking coal prices remained relatively flat in H1 2012 in spite
of decreasing global demand for steel, which in turn negatively
impacted coking coal consumption.
During the start of Q3 2012, coking coal prices have fallen
sharply following Australian miners returning to production after
industrial action and as a result of the weakening demand
outlook.
EVRAZ performance
Mining segment results
Six months to 30 June 2012 2011 Change
(US$ million)
------------------------ ------ ------ --------
Revenues 1,383 2,040 (32.2)%
Profit from operations 72 715 (89.9)%
EBITDA 417 962 (56.7)%
EBITDA margin 30.2% 47.2% (17.0)%
------------------------ ------ ------ --------
Mining Segment Sales*
Six months to 30 June
2012 2011 2012 v 2011
US$ million % of total US$ million % of total % change
------------ ----------- --------------- ----------- -------------------
Iron ore products 928 67.1% 1,292 63.4% (28.2)%
Iron ore concentrate 249 18.0% 377 18.5% (34.0)%
Sinter 241 17.4% 306 15.0% (21.2)%
Pellets 328 23.7% 453 22.2% (27.6)%
Other 110 8.0% 156 7.7% (29.5)%
Coal products 391 28.3% 703 34.4% (44.4)%
Raw coking coal 36 2.6% 121 5.9% (70.2)%
Coking coal concentrate 319 23.1% 487 23.9% (34.5)%
Raw steam coal 7 0.5% 25 1.2% (72.0)%
Steam coal concentrate 29 2.1% 70 3.4% (58.6)%
Other revenues 64 4.6% 445 2.2% 42.2%
------------ ----------- --------------- ----------- -------------------
Total 1,383 100.0% 2,040 100.0% (32.2)%
------------------------- ------------ ----------- --------------- ----------- -------------------
Six months to 30 June 2012 2011 Change
('000 tonnes)
------------------------- ------ ------- --------
Iron ore products 9,335 10,101 (7.6)%
Iron ore concentrate 2,679 3,145 (14.8)%
Sinter 2,364 2,227 6.2%
Pellets 2,944 3,090 (4.7)%
Other 1,348 1,639 (17.8)%
Coal products 3,014 4,942 (39.0)%
Raw coking coal 437 1,190 (63.3)%
Coking coal concentrate 2,155 2,471 (12.8)%
Raw steam coal 199 681 (70.8)%
Steam coal concentrate 223 600 (62.8)%
------------------------- ------ ------- --------
* Including intersegment sales, excluding Mapoch mine sales to
EVRAZ Highveld Steel and Vanadium Limited
Mining segment revenues decreased by 32.2% to US$1,383 million
in H1 2012 compared to US$2,040 million in H1 2011. This reflected
a significant fall in prices of iron ore and coking coal in the
Period compared with the corresponding period of 2011.
Mining segment sales volumes of iron ore products decreased by
7.6% in H1 2012 compared to H1 2011. Sales volumes of coking coal
concentrate decreased by 12.8%, while sales volumes of steam coal
concentrate decreased by 62.8% in H1 2012 compared with H1 2011.
Total sales volumes of coal products decreased by 39.0%, caused
mostly by increased consumption of own coal in the production of
concentrate and reduced steam coal mining in Q1 2012.
In H1 2012 mining segment sales to the steel segment amounted to
US$1,027 million, or 74% of mining segment sales, compared with
US$1,433 million, or 70% of mining segment sales, in H1 2011.
In H1 2012, EVRAZ's iron ore requirements were self-covered by
approximately 101% compared with 99% in H1 2011 and with 106% in H2
2011. Self-coverage in coking coal was 69% in H1 2012 compared with
62% in H1 2011 and 49% in H2 2011. Approximately 38% and 48% of
third party sales by the mining segment were to customers in Russia
in H1 2012 and 2011 respectively. The increase in the percentage of
third party sales outside Russia is primarily attributable to a
significant reduction of iron ore and coal sales volumes to third
parties in Russia.
Mining segment gross profit dropped to US$206 million in H1 2012
compared with US$949 million in H1 2011, representing a gross
profit margin of 14.9% of mining segment revenues in H1 2012
compared with 46.6% in the same period of 2011. The decrease in the
gross profit margin reflected lower prices for steel and mining
products and higher depletion charges.
Operational update - Mining segment
Mining: Iron Ore
An investment project to build up the capacity of EVRAZ KGOK to
reach 55 million tonnes of crude ore per annum (+10% capacity) is
progressing according to plan. It is expected to be completed in
December 2012. We are also on schedule with
Sobstvenno-Kachkanarskoye ore deposit (SKD) project at EVRAZ KGOK:
in Q2 2012 a cut-off parameter report (TEO of conditions) and an
estimation of resources report for 6.9 billion tonnes of iron ore
were approved by the Russian Ministry of Natural Resources (GKZ);
the SKD design and engineering works are well in progress (80%
complete) and in Q4 2012 are expected to be submitted for approval
by the state construction expertise.
Evrazruda, another iron ore mining company, in Q2 2012 completed
a scoping study and is launching the major reconstruction of the
Sheregesh iron ore mine to gradually increase its production of ore
by 2.5 times and in 2016 to reach a capacity of 4.8 million tonnes
per annum. At the Tashtagol mine a successfully commissioned
back-fill mining process gave access to extra 32 million tonnes of
iron-reach resources (44% Fe content). Evrazruda also completed the
debottlenecking programme at the Abagur benefication plant, which
improved the quality and reliability of the plant's operations,
especially in severe Siberian winters.
Cost savings and operational improvements stayed in focus of our
mining division. In H1 2012 the following positive economic effects
were realised from these initiatives: US$10.5 million at EVRAZ
VGOK, US$3.0 million at EVRAZ KGOK and US$4.0 million at Evrazruda.
This was achieved through increase in labour productivity and more
effective cost control measures. In Q2 2012 a special programme of
operational improvements was developed for Evrazruda with the help
of international mining consultants. Started in 2012, the programme
is expected to drive up labor productivity by 15% by 2014 thus
increasing production by 1.6 million tonnes per annum.
Mining: Coal
The development of the Yerunakovskaya VIII coking coal mine
within EVRAZ's existing Yuzhkuzbasugol portfolio of mines is the
largest ongoing investment project, aimed at increasing production
capacity by 2 million tonnes per annum. Construction of the
Yerunakovskaya VIII is proceeding as planned and is expected to
enter production in the second half of 2013.
The coal division is also preparing to launch the first phase of
the greenfield coking coal mining project at Mezhegey. It is
expected that at this stage we will mine approximately 1.5 million
tonnes of additional run-of-mine coking coal starting from
2014.
Assisted by US and Australian consultants, EVRAZ has initiated
the programme of New Technologies for Coal Mining (NTCM-programme).
From April to June the mining assets of Yuzhkuzbassugol were
examined which led to a wide set of initiatives including:
effective degasification and ventilation, higher rates of
development, quick longwall changeovers and highly mechanised roof
bolting. Programme start is scheduled for Q3 2012.
In H1 2012 EVRAZ introduced a debottlenecking programme for key
mines of Yuzhkuzbasugol in order to stabilise and improve their
production as compared to 2011.
Additionally in H1 2012, three full sets of longwall equipment
(roof supports, shearers, face conveyors and supplementary
equipment) were purchased for mines Alardinskaya and Uskovskaya.
This is expected to have a major positive effect for coking coal
production in H2 2012 and later periods.
Resources of the Yuzhkuzbasugol Gramoteinskaya mine grew by 220
million tonnes of steam coal by purchasing the license for
Mencherepsky-Severny deposit.
Steel Segment
Markets Performance
The declining steel prices seen in H2 2011 continued into the
first half of 2012, led by the economic uncertainty within the Euro
zone, global Asian overproduction and weakening Chinese demand
growth.
Global crude steel production grew 4.9% during H1 2012 compared
to H2 2011 with Chinese output increasing by 7.6% in the first half
this year. Global crude steel production is expected to remain flat
in the second half of 2012. However, there have been indications
that Chinese steel mills might have to begin to contract production
levels due diminishing margins. A decrease in Chinese steel output
is expected to have a beneficial effect on global steel prices.
The Chinese Government's stimulus package, currently estimated
at up to US$1.1 trillion, would support long-term steel demand.
Given the lasting economic uncertainty within the Euro zone and
traditional seasonal weakness for steel over the summer month, the
market for steel globally is expected to remain challenging during
the second half of the year.
Steel prices in Russia and the CIS remained steady in the first
half of 2012 with billet prices rising by 0.9% and slab prices with
5.7%. Crude steel output increased by 4.7%, whereas finished steel
production rose by 2.1% with finished steel apparent consumption
increasing at a rate of 3.8%. Long-term consumption growth for long
steel products in Russia and the CIS is expected to be underpinned
by a necessity to modernise infrastructure in the region,
significant residential construction potential and a number of
international events in Russia over the coming years including the
2014 Winter Olympics and 2018 FIFA World Cup.
US economic indicators in the first half of 2012 have shown
early signs of economic recovery, with demand for durable goods
remaining strong and residential construction increasing.
North American demand for large diameter steel pipes is expected
to growth at 4.0% annual growth rate between 2012 and 2016 and
prices in North America for flat rolled and pipe products improved
marginally during H1 2012. US crude steel production in the first
half of the year increased by 5.8% with finished steel production
increasing by 6.0% and apparent finished steel consumption by 4.8%.
Pricing environment remained challenging with hot rolled coils
price falling by 9.5% and rebar prices stable with a slight 0.3%
increase.
Within Europe steel output and utilisation rates continued to
decline during the first half of 2012 as a result of the on-going
economic uncertainty within the Euro zone and concerns about the
strength of European manufacturing. The decline in steel prices in
Europe was further exacerbated by oversupply. European crude steel
production increased by 4.0% with finished steel production
slightly higher by 0.2% and apparent finished steel consumption
marginally lower by 0.1%. Overall the environment resulted in rebar
price decrease of 3.1%, however, hot rolled coils prices went up by
6.5%. Without a resolution to the European crisis, the market for
European steel is expected to remain difficult during the second
half of 2012 with the normal seasonal weakness.
South African crude steel production increased by 3.3% in the
first half of 2012. Finished steel production rose 4.5% and
apparent finished steel consumption fell by 0.9% for the same
period. Pricing environment remained challenging with prices
slightly down for the period.
EVRAZ performance
Steel segment results
Six months to 30 June 2012 2011 Change
(US$ million)
------------------------ ------ ------ -------
Revenues* 7,019 7,492 (6.3)%
Profit from operations 386 376 2.7%
EBITDA 699 744 (6.0)%
EBITDA margin 10.0% 9.9% 0.1%
------------------------ ------ ------ -------
*Segment revenues include intersegment sales
Six months ended 30 June
---------------------------------------------------------------------------------
2012 2011 2012 v 2011
------------------------------ ----------------------------------- ------------
US$ million % of total US$ million % of total % change
---------------------------- ------------ ---------------- ----------------- ---------------- ------------
Steel products
Construction products (1) 2,174 31.0% 2,129 28.4% 2.1%
Railway products (2) 996 14.2% 999 13.3% (0.3)%
Flat-rolled products (3) 1,257 17.9% 1,499 20.0% (16.1)%
Tubular products (4) 596 8.4% 607 8.1% (1.8)%
Semi-finished products (5) 1,044 14.9% 1,204 16.1% (13.3)%
Other steel products (6) 257 3.7% 294 3.9% (12.6)%
Other revenues (7) 695 9.9% 760 10.2% (8.6)%
------------ ---------------- ----------------- ---------------- ------------
Total 7,019 100% 7,492 100% (6.3)%
---------------------------- ------------ ---------------- ----------------- ---------------- ------------
(1) Includes rebars, wire rods, wire, H-beams, channels and
angles.
(2) Includes rail and wheels.
(3) Includes plates and coils.
(4) Includes large diameter, ERW, seamless pipes and casing.
(5) Includes billets, slabs, pig iron, pipe blanks and
blooms.
(6) Includes rounds, grinding balls, mine uprights and
strips.
(7) Includes coke and coking products, refractory products,
ferroalloys.
Six months to 30 June 2012 2011 Change
('000 tonnes)
------------------------ ------ ------ -------
Steel products
Construction products 2,844 2,714 4.8%
Railway products 1,053 1,072 (1.8)%
Flat-rolled products 1,425 1,534 (7.1)%
Tubular products 389 422 (7.8)%
Semi-finished products 1,722 1,904 (9.6)%
Other steel products 314 333 (5.7)%
------ ------ -------
Total 7,747 7,979 (2.9)%
------------------------ ------ ------ -------
* Including intersegment sales
Steel segment revenues decreased by 6.3% to US$7,019 million in
H1 2012 compared with US$7,492 million in H1 2011. Steel segment
revenues were affected by decreasing prices for steel products and
lower sales volumes during the Period.
Consolidated crude steel production decreased by 6%, mainly due
to scheduled capital repairs, maintenance work and modernisation at
Russian steel mills. The proportion of revenue attributable to
sales of construction products increased as the result of growth in
sales volumes of beams, rebars and wires whilst sales of railway
products slightly increased as a proportion of total revenue due to
higher average prices and higher sales volumes of wheels and
tyres.
Sales of flat-rolled products (primarily plates) decreased due
to a significant decline in prices and volumes, in particular in
Europe.
The proportion of revenues attributable to sales of tubular
products slightly increased primarily due to higher average prices
for tubular products.
The proportion of revenues attributable to sales of
semi-finished products decreased primarily due to a significant
reduction in sales volumes of pipe blanks, which were replaced by
additional volumes of construction products sold in Russia.
Revenues from sales of other steel products (mainly rounds,
grinding balls and mine uprights sold in Russia) slightly decreased
as a proportion of steel segment revenues due a more than average
decline in sales prices and volumes.
Revenues attributable to non-steel sales decreased as a
proportion of steel segment sales primarily due to a decline in
sales volumes and prices of coke.
For the six months ended 30 June 2012 and 2011, steel segment
sales to the mining segment totalled US$79 million and US$89
million respectively. The decrease is attributable to lower sales
prices and volumes.
Revenues from sales in Russia amounted to 43% of steel segment
revenues in H1 2012, compared with approximately 41% in H1 2011.
The increased share of revenues from sales in Russia is primarily
attributable to the higher sales of construction products and
stable sales of railway products.
Steel segment cost of revenues decreased to 81.9% of steel
segment revenues, or US$5,749 million, in H1 2012 from 83.2% of
steel segment revenues, or US$6,237 million, in H1 2011. The
decrease in cost of revenue in monetary terms is attributable to a
significant decline in prices for all main raw materials (in
particular prices for coking coal and iron ore), positive effect of
rouble depreciation and a decrease in production volumes of steel
products (net of re-rolled volumes within the group).
Steel segment gross profit increased by 1.1% from US$1,255
million in H1 2011 to US$1,270 million in the same period of 2012.
At the same time, gross profit margin increased from 16.8% to 18.1%
in H1 2011 and 2012, respectively, reflecting lower cost of raw
materials and the benefit of rouble depreciation.
Operational update - Steel segment
Steel: Russia
We are in the final implementation stage of the pulverised coal
injection (PCI) project, which will allow EVRAZ's Russian steel
operations to reduce costs by using less coking coal and natural
gas in blast furnace production. PCI is expected to be launched at
EVRAZ NTMK by the end of 2012 and at EVRAZ ZSMK during H1 2013.
Reconstruction of the continuous casting machine #3, along with
the earlier construction of ladle furnace #4 and the revamp of
blast furnace #5 at EVRAZ NTMK allowed an increase in steel
products production capacity from 4.2 to 4.5 million tonnes of
steel per annum.
Completion of the modernisation of the rail and beam mill at
EVRAZ NTMK led to an improvement in quality, which significantly
increased rail wear resistance. This quality improvement allowed
the Company to achieve significant price increase for rails
produced at EVRAZ NTMK from April 2012. The plant also broadened
its' product range to include new types of wheels and wide beams,
which included wheels that qualifies for sale on the North American
market.
At EVRAZ ZSMK rail and beam mill modernisation is proceeding in
line with the plan. Mill was stopped for reconstruction in April
and is expected to be restarted in October. New technology will
allow mastering of new rails with head hardening. It is expected
that the production of homologated rails will start in the first
half of 2013 and sales will start in the second half of 2013.
The EVRAZ ZSMK power plant upgrade is on track to be completed
by 2014. It will allow to increase power generation by 54.6% in
2015 vs. 2011, reaching capacity of 3.75 billion kw/h per year by
2015.
Steel: International
North American steel business of EVRAZ achieved record highs
both in steel output and sales of rails during the first half of
2012. Rail quality improvement project is on track, starting to
positively impact EBITDA from 2013. During H1 2012, the expansion
to the heat treat facility in Calgary was commenced. On operational
side first pass yields gained across the North American pipe
business due to a number of implemented improvements. The Portland
spiral mill returned back to operations after having been idle for
3 years.
Within EVRAZ's European steel operations the loss making heavy
section mill at EVRAZ Vitkovice was shutdown effective from
February 2012.
EVRAZ Highveld Steel (South Africa) launched an optimisation
programme to reduce fixed costs, the benefits of which are expected
to be effective from Q4 2012. Starting June EVRAZ implemented a
number of initiatives to improve working shift schedules which will
result in increased workplace safety, reduced overtime and higher
productivity. The company successfully resolved the industrial
dispute which occurred during that period.
At EVRAZ Steel Ukraine a programme of operational improvements
to double EBITDA was approved in the first half of 2012. At EVRAZ
DMZ blast furmace production was stabilized and improved. Following
implementation of the Customer Focus pillar of our strategy EVRAZ
DMZ has developed new sections for European and the Middle Eastern
markets.
Vanadium segment
Markets performance
Vanadium is a key element in the steel making process, with the
majority of globally produced vanadium used as an alloying agent to
increase steel strength. As a result, demand for vanadium is
closely linked to steel production levels, in particular high
strength steels.
Ferrovanadium prices continued to perform strongly during the
first half of 2012, reaching $25.6 per kg V (European Fe-V price)
at the end of June and registering a 10% increase during the
Period. However, prices still remain 10% below the prices achieved
in August-September 2011. Ferrovanadium prices follow a smooth
pattern with relatively low volatility. No major price spikes have
been registered since 2009-2010 as producers of high strength and
specialty steel begin to substitute other material (e.g. niobium)
for vanadium.
Chinese building regulations remain the potential upside driver
for the industry. In mid-2011, the Chinese government instituted a
directive that mandated the use of vanadium-containing Grade 3
rebar in all new building designs. Market analysts estimate that
upgrading 90 million tonnes of Grade 2 rebar to Grade 3 standard
using vanadium would add 27 thousand tonnes of annual demand (35%
of current total global consumption).
EVRAZ performance
Vanadium segment results
Six months to 30 June 2012 2011 Change
(US$ million)
----------------------- ----- ------- --------
Revenues 263 320 (17.8)%
Loss from operations (19) (19) 0%
EBITDA 4 (3) 233.3%
EBITDA margin 1.5% (0.9)% 2.4%
----------------------- ----- ------- --------
Six months to 30 June
------------------------------------------------------------------
2012 2011 2012 v 2011
------------------------- ------------------------- ------------
US$ million % of total US$ million % of total % change
---------------------------------- ------------ ----------- ------------ ----------- ------------
Vanadium in slag 1 0.4% 17 5.3% (94.1)%
Vanadium in alloys and chemicals 258 98.1% 297 92.8% (13.1)%
Other revenues 4 1.5% 6 1.9% (33.3)%
------------ ----------- ------------ ----------- ------------
Total 263 100% 320 100.0% 17.8%
---------------------------------- ------------ ----------- ------------ ----------- ------------
Six months to 30 June 2012 2011 Change
('000 tonnes of pure Vanadium)
--------------------------------- ----- ----- --------
Vanadium products 10.0 11.5 (13.0)%
Vanadium in slag 0.1 1.5 (93.3)%
Vanadium in alloys and
chemicals 9.9 10.0 (1.0)%
--------------------------------- ----- ----- --------
* Including intersegment sales
Vanadium segment revenues decreased by 17.8% to US$263 million
in H1 2012, compared with US$320 million in H1 2011, reflecting
decreased sales volumes and prices of vanadium products. Sales
volumes of the vanadium segment decreased from 11.5 thousand tonnes
of pure vanadium in H1 2011 to 10.0 thousand tonnes of pure
vanadium in H1 2012 primarily due to the shift of vanadium slag
sales to the H2 2012, while sales of high-margin vanadium alloys
and chemicals matched the levels of the same period of 2011.
Vanadium segment cost of revenues decreased to 92.0% of vanadium
segment revenues, or US$242 million, in H1 2012 from 95.0% of
vanadium segment revenues, or US$304 million, in H1 2011. The
decrease in vanadium segment cost of revenues was attributable to a
decrease in production volumes, lower cost of raw materials and the
depreciation of local currencies against the US dollar.
Gross profit of the vanadium segment increased from US$16
million in H1 2011 to US$21 million in H1 2012, the result being a
gross profit margin of 8.0 % of vanadium segment revenues in H1
2012 compared with 5.0% in the same period of 2011. The increase in
the gross profit margin is explained by a higher decline of the
segment costs compared to a reduction of the segment revenues.
Operational update - Vanadium segment
As a result of operational improvements EVRAZ Vanady-Tula
operation achieved record productivity levels of around 40 tonnes
of V2O5 per day during H1 2012, which represents a 15% improvement
compared to production rates when EVRAZ purchased the asset in
2010.
Additionally EVRAZ Stratcor vanadium plant in Arkansas commenced
its' project to use EVRAZ's own vanadium slag, to increase synergy
levels within the EVRAZ group.
EVRAZ performance
Other operations segment results
Six months to 30 June 2012 2011 Change
(US$ million)
------------------------ ------ ------ -------
Revenues 541 482 12.2%
Profit from operations 71 74 (4.1)%
Adjusted EBITDA 94 83 13.3%
Adjusted EBITDA margin 17.4% 17.2% 0.2%
------------------------ ------ ------ -------
EVRAZ's other operations include logistics, port services, power
and heat generation and supporting activities.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties affecting EVRAZ were set
out in detail under the heading Principal Risks and Uncertainties
on pages 26 to 29 of the Annual Report 2011. The principal risks of
the Company are unchanged from those identified in the Annual
Report but we provide the following update on those risks which
impacted the Company during the Period and which we expect to be
most significant for the rest of the year:
-- Global economic and industry conditions
EVRAZ Steel, Mining and Vanadium operations are highly dependent
and sensitive to the global macroeconomic environment. The risk to
EVRAZ operations can impact differently dependent on the regions of
activity and on EVRAZ's products, finished, semi-finished or
commodities. This risk has potential impact on price and volumes.
As EVRAZ operations have a high level of fixed costs, global
economic and industry conditions will have significant impact on
operational performance. EVRAZ has a focused investment priority
aimed at reducing and managing fixed costs and reducing direct
costs by expanding its self-coverage of key raw material inputs
with the objective of being among the lowest cost producers in the
sector.
-- Dependency on certain key markets
EVRAZ revenues are substantially derived from customers in
Russia, around 40% and North America, around 24%, and as a result
EVRAZ commercial success is closely aligned to the operating and
economic environment in these two regions. The strategic risks and
opportunities within these two regions are regularly reviewed; key
risks and opportunities are the quality and nature of the Company's
product portfolio, relative cost effectiveness and the
sustainability of industry sector market positioning together with
effective in-house and external distribution networks and developed
customer awareness and anticipation, complemented by a mix of
medium and long term contracts and exploring adjacent regional
markets for potential development.
-- Political actions
Possible adverse consequences from specific or general political
actions that may hinder the Company's long term strategic planning
and business objectives with consequences that may affect access to
international financial markets resulting in deterioration of
EVRAZ's operational performance and financial condition. The
Company's business Code of Conduct seeks to guide and enshrine
proper business practice with all EVRAZ's counterparties and
stakeholders and in addition promote diligent attention to all
local and international regulations, laws and taxation regimes.
-- Capital expenditure financing
Steel production and mining are both capital intensive
operational activities requiring both continuing maintenance and
development capital expenditure, in addition to capital expenditure
focused on improving the Company's cost effectiveness and
increasing self-coverage of the Company's primary raw material
inputs. These intended and planned investments are aligned to the
Company's expectations and forward business performance with
resulting Free Cash Flow before capital expenditure and planned
liquidity. The risks that events or economic issues outside those
factored into the Company's forward business plans, may negatively
impact the Company's anticipated Free Cash Flow could cause certain
elements of the planned capital expenditure to be re-phased,
deferred or abandoned with consequential impact on the group's
planned future performance. The Company has developed various
stressed business scenarios to assess the Company's ability to meet
capital expenditure requirements both for maintaining current
operations as well as commissioning key projects.
-- Health, safety and environmental (HSE) issues
EVRAZ operations are subject to a wide range of HSE laws,
regulations and standards, the breach of any of which may result in
fines, penalties or other sanctions. Such action could have a
material adverse effect on the Company's business, financial
condition and future business prospects. Further, HSE is a
functional area where there is continual introduction of new laws,
regulations and sanctions New regulatory activity could result in
elements of EVRAZ's operations becoming uneconomic. Given that HSE
risks can be critical, HSE issues have direct oversight at Board
level and HSE procedures and material priorities have primary
hearing at all internal management level meetings
-- Labour & community relations
EVRAZ business depends on good labour relations with its
employees. Labour disputes, restrictive labour and employment laws,
and increasing costs relating to scarce skilled labour could have a
major impact on EVRAZ business performance. Overall EVRAZ seeks to
maintain good labour relations with its employees and where
appropriate with employee representatives, including unions. The
risks from industrial disputes and poor employer reputation in the
communities in the vicinity of the Company's operations can be
economically damaging. The Company and its local operations are
generally active and visible in their localities, and timely and
regular contact is maintained with employees and employee
representatives at all sites and places of operation.
Whistleblowing facilities are active at all locations and processes
are in place to positively handle Human Resource and employment
issues. Where issues develop into unavoidable industrial disputes,
processes are in place to mitigate the effect of any such action,
maintain the continuing communication with employee representatives
and if appropriate with employees directly to ensure speedy and
equitable resolution of such disputes, as demonstrated by the
resolution of the recent South African industrial disruption
-- Business interruption
EVRAZ's mining, smelting, and refining operations are subject to
a number of operational risks which could cause prolonged
shut-downs or production delays. Any such event could have a
material adverse effect on the Company's operating performance,
production, financial condition and future prospects. In addition,
long term business interruption may result in loss of customers,
competitive advantage being compromised and damage to the Company's
reputation. To mitigate such risks the Company has defined and
established business continuity plans, procedures and protocols.
The Company carries certain business interruption insurance, except
of particular mining events. These plans, procedures and protocols
are subject to regular review and audit of their appropriateness
and effectiveness
-- Treasury and Taxation
EVRAZ, as with many large and multi-national corporates faces a
variety of treasury and taxation risks including liquidity, credit
access, currency fluctuation, and interest rate and tax compliance
risks. EVRAZ employs skilled specialists both internal and external
to manage and mitigate such risks and the management of such risks
is embedded in the established management internal controls.
Oversight of the key risks is reported within the monthly Board
reports and by the review of compliance of such internal controls
by a management independent internal audit function, which reports
to the Audit Committee as a whole and individually to Audit
Committee members and senior executive management by way of monthly
internal audit reports.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that to the best of our knowledge this
consolidated interim financial information has been prepared in
accordance with lAS 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 Giacomo Baizini
Chief Executive Officer Chief Financial Officer
29 August 2012
Appendix 1
EBITDA
EBITDA represents profit from operations plus depreciation,
depletion and amortisation, impairment of assets, loss (gain) on
disposal of property, plant and equipment, and foreign exchange
loss (gain). EVRAZ presents an EBITDA because it considers EBITDA
to be an important supplemental measure of its operating
performance and believes that EBITDA is frequently used by
securities analysts, investors and other interested parties in the
evaluation of companies in the same industry. EBITDA is not a
measure of financial performance under IFRS and it should not be
considered as an alternative to net profit as a measure of
operating performance or to cash flows from operating activities as
a measure of liquidity. EVRAZ's calculation of EBITDA may be
different from the calculation used by other companies and
therefore comparability may be limited. EBITDA has limitations as
an analytical tool and potential investors should not consider it
in isolation, or as a substitute for an analysis of our operating
results as reported under IFRS. Some of these limitations
include:
-- EBITDA does not reflect the impact of financing or financing
costs on EVRAZ's operating performance, which can be significant
and could further increase if EVRAZ were to incur more debt.
-- EBITDA does not reflect the impact of income taxes on EVRAZ's operating performance.
-- EBITDA does not reflect the impact of depreciation and
amortisation on EVRAZ's operating performance. The assets of
EVRAZ's businesses which are being depreciated and/or amortised
will have to be replaced in the future and such depreciation and
amortisation expense may approximate the cost of replacement of
these assets in the future. EBITDA, due to the exclusion of these
costs, does not reflect EVRAZ's future cash requirements for these
replacements. EBITDA also does not reflect the impact of a loss on
disposal of property, plant and equipment.
Reconciliation of profit (loss) from operations to EBITDA is as
follows:
Six months to 30 June
--------------------------
2012 2011
------------ ------------
(US$ million)
------------------------------------------------ --------------------------
Consolidated EBITDA reconciliation
Profit from operations 430 859
Add:
Depreciation, depletion and amortisation 668 501
Impairment of assets 80 32
Loss on disposal of property, plant
& equipment 25 17
Foreign exchange loss/(gain) (28) 220
------------ ------------
Consolidated EBITDA 1,175 1,629
============ ============
Steel segment EBITDA reconciliation
Profit from operations 386 376
Add:
Depreciation and amortisation 257 288
Impairment of assets 64 7
Loss on disposal of property, plant
& equipment 17 13
Foreign exchange loss/(gain) (25) 60
------------ ------------
Steel segment EBITDA 699 744
============ ============
Mining segment EBITDA reconciliation
(Loss)/profit from operations 72 715
Add:
Depreciation, depletion and amortisation 364 175
Impairment of assets 15 33
Loss on disposal of property, plant
& equipment 8 4
Foreign exchange loss/(gain) (42) 35
------------ ------------
Mining segment EBITDA 417 962
============ ============
Vanadium segment EBITDA reconciliation
Loss from operations (19) (19)
Add:
Depreciation and amortisation 23 17
Impairment of assets 0 0
Foreign exchange loss 0 (1)
------------ ------------
Vanadium segment EBITDA 4 (3)
============ ============
Other operations EBITDA reconciliation
Profit from operations 71 74
Add:
Depreciation and amortisation 21 20
Impairment of assets 1 (8)
Loss on disposal of property, plant
& equipment 0 0
Foreign exchange gain 1 (3)
------------ ------------
Other operations EBITDA 94 83
============ ============
Unallocated EBITDA reconciliation
Profit from operations (130) (239)
Add:
Depreciation and amortisation 3 1
Foreign exchange gain 38 129
------------ ------------
Unallocated EBITDA (89) (109)
============ ============
Intersegment eliminations
Profit from operations 50 (48)
------------ ------------
Eliminations EBITDA 50 (48)
============ ============
Appendix 2
Liquidity
Liquidity is not a measure under IFRS and it should not be
considered as an alternative to other measures of financial
position. EVRAZ's calculation of Liquidity may be different from
the calculation used by other companies and therefore comparability
may be limited.
30 June 31 December
2012 2011
----------- -------------
(US$ million)
------------------------------------------------- --------------------------
Liquidity Calculation
Cash and cash equivalents 1,763 801
Amounts available under credit facilities 912 1,322
Short-term bank deposits 0 2
------------ ------------
Total estimated liquidity 2,675 2,125
============ ============
Appendix 3
Net Debt
Net Debt represents long-term loans, net of current portion,
plus short-term loans and current portion of long--term loans, plus
finance lease liabilities, including current portion of finance
lease liabilities, less cash and cash equivalents (excluding
restricted deposits). Net Debt is not a measure under IFRS and it
should not be considered as an alternative to other measures of
financial position. EVRAZ's calculation of Net Debt may be
different from the calculation used by other companies and
therefore comparability may be limited.
Net Debt has been calculated as follows:
30 June 31 December
2012 2011
------------ -------------
(US$ million)
----------------------------------------------- ---------------------------
Net Debt Calculation
Add:
Long-term loans, net of current portion 6,271 6,593
Short-term loans and current portion
of long-term loans 1,531 613
Finance lease liabilities, including
current portion
Less: 31 39
Short-term bank deposits 0 (2)
Cash and cash equivalents (1,763) (801)
------------- ------------
Net Debt 6,070 6,442
============= ============
EVRAZ plc
Unaudited Interim Condensed Consolidated Financial
Statements
Six-month period ended 30 June 2012
Contents
Report on Review of Interim Condensed Consolidated Financial
Statements
Unaudited Interim Condensed Consolidated Financial
Statements
Unaudited Interim Condensed Consolidated Statement of
Operations
Unaudited Interim Condensed Consolidated Statement of
Comprehensive Income
Unaudited Interim Condensed Consolidated Statement of Financial
Position
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
Unaudited Interim Condensed Consolidated Statement of Changes in
Equity
Selected Notes to the Unaudited Interim Condensed Consolidated
Financial Statements
Independent Review Report to EVRAZ plc
Introduction
We have been engaged by EVRAZ plc (the Company) to review the
condensed set of financial statements in the interim report for the
six months ended 30 June 2012 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
14. We have read the other information contained in the Interim
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Services
Authority. As disclosed in note 2, the annual financial statements
of the Group are prepared in accordance with IFRSs as adopted by
the European Union. The condensed set of financial statements
included in this interim financial report has been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK and Ireland), 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim report for the six months ended 30 June 2012 is not
prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
Ernst & Young LLP
London
August 29, 2012
The maintenance and integrity of the EVRAZ plc web site is the
responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial information since it was
initially presented on the web site.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions
Unaudited Interim Condensed Consolidated Statement of
Operations
(In millions of US dollars, except for per share
information)
Six-month period
ended 30 June
------ -------------------
Notes 2012 2011
------ --------- --------
Revenue
Sale of goods $ 7,440 $ 8,221
Rendering of services 179 159
--------- --------
7,619 8,380
Cost of revenue (6,029) (6,183)
Gross profit 1,590 2,197
Selling and distribution costs (621) (553)
General and administrative expenses (428) (443)
Social and social infrastructure
maintenance expenses (21) (26)
Loss on disposal of property, plant
and equipment (25) (17)
Impairment of assets 7 (80) (32)
Foreign exchange gains/(losses),
net 28 (220)
Other operating income 33 18
Other operating expenses (46) (65)
--------- --------
Profit from operations 430 859
Interest income 8 7
Interest expense (317) (387)
Share of profits/(losses) of joint
ventures and associates 8 6 39
Gain/(loss) on financial assets and
liabilities, net (26) (48)
Gain/(loss) on disposal groups classified
as held for sale, net (2) 1
Other non-operating gains/(losses),
net (13) 2
Profit before tax 86 473
Income tax expense 6 (136) (210)
--------- --------
Net profit/(loss) $ (50) $ 263
========= ========
Attributable to:
Equity holders of the parent entity $ (38) $ 258
Non-controlling interests (12) 5
--------- --------
$ (50) $ 263
========= ========
Earnings per share:
basic and diluted, for profit/(loss)
attributable to equity holders of
the parent entity, US dollars 11 $ (0.03) $ 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 2012 2011
------
Net profit/(loss) $ (50) $ 263
Other comprehensive income
Effect of translation to presentation
currency (116) 706
Net gains/(losses) on available-for-sale
financial assets 6 (13)
Net (gains)/losses on available-for-sale
financial assets reclassified to
profit or loss - 13
Income tax effect - -
--------- --------
6 -
Decrease in revaluation surplus
in connection with the impairment
of property, plant and equipment - (1)
Income tax effect - -
--------- --------
- (1)
Effect of translation to presentation
currency of the Group's joint ventures
and associates 8 4 60
--------- --------
Share of other comprehensive income
of joint ventures and associates
accounted for using the equity method 4 60
Total other comprehensive income/(loss) (106) 765
--------- --------
Total comprehensive income/(loss),
net of tax $ (156) $ 1,028
========= ========
Attributable to:
Equity holders of the parent entity $ (144) $ 987
Non-controlling interests (12) 41
--------- --------
$ (156) $ 1,028
========= ========
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 2012 2011
------ ------------- -------------
Assets
Non-current assets
Property, plant and equipment 7 $ 7,936 $ 8,306
Intangible assets other than goodwill 771 838
Goodwill 5 2,175 2,180
Investments in joint ventures and
associates 8 565 663
Deferred income tax assets 80 79
Other non-current financial assets 54 53
Other non-current assets 106 107
------------- -------------
11,687 12,226
Current assets
Inventories 2,226 2,188
Trade and other receivables 957 971
Prepayments 200 176
Loans receivable 10 44
Receivables from related parties 9 13 8
Income tax receivable 33 83
Other taxes recoverable 280 412
Other current financial assets 86 57
Cash and cash equivalents 10 1,763 801
------------- -------------
5,568 4,740
Assets of disposal groups classified
as held for sale 177 9
------------- -------------
5,745 4,749
------------- -------------
Total assets $ 17,432 $ 16,975
============= =============
Equity and liabilities
Equity
Equity attributable to equity holders
of the parent entity
Issued capital 11 $ 1,340 $ 1,338
Treasury shares 11 (1) (8)
Additional paid-in capital 2,298 2,289
Revaluation surplus 171 171
Unrealised gains and losses 6 -
Accumulated profits 3,285 3,606
Translation difference (1,963) (1,851)
------------- -------------
5,136 5,545
Non-controlling interests 212 236
------------- -------------
5,348 5,781
Non-current liabilities
Long-term loans 12 6,271 6,593
Deferred income tax liabilities 972 1,020
Finance lease liabilities 12 26
Employee benefits 290 296
Provisions 300 285
Other long-term liabilities 346 285
------------- -------------
8,191 8,505
Current liabilities
Trade and other payables 1,384 1,460
Advances from customers 137 154
Short-term loans and current portion
of long-term loans 12 1,531 613
Payables to related parties 9 185 98
Income tax payable 74 92
Other taxes payable 183 188
Current portion of finance lease liabilities 2 13
Provisions 63 53
Amounts payable under put options
for shares of subsidiaries - 9
Dividends payable by the parent entity
to its shareholders 228 -
Dividends payable by the Group's subsidiaries
to non-controlling shareholders 8 9
------------- -------------
3,795 2,689
Liabilities directly associated with
disposal groups classified as held
for sale 98 -
------------- -------------
3,893 2,689
------------- -------------
Total equity and liabilities $ 17,432 $ 16,975
============= =============
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
(In millions of US dollars)
Six-month period
ended
30 June
2012 2011
---------- -------
Cash flows from operating activities
Net profit/(loss) $ (50) $ 263
Adjustments to reconcile net profit/(loss)
to net cash flows from operating activities:
Deferred income tax (benefit)/expense (30) (12)
Depreciation, depletion and amortisation 668 501
Loss on disposal of property, plant and
equipment 25 17
Impairment of assets 80 32
Foreign exchange (gains)/losses, net (28) 220
Interest income (8) (7)
Interest expense 317 387
Share of (profits)/losses of associates
and joint ventures (6) (39)
(Gain)/loss on financial assets and liabilities,
net 26 48
(Gain)/loss on disposal groups classified
as held for sale, net 2 (1)
Other non-operating (gains)/losses, net 13 (2)
Bad debt expense 10 29
Changes in provisions, employee benefits
and other long-term assets and liabilities (61) (3)
Expense arising from the equity-settled
awards 8 15
Share-based payments under cash-settled
awards - (1)
Other (2) -
964 1,447
Changes in working capital:
Inventories (38) (343)
Trade and other receivables (14) 67
Prepayments (31) 2
Receivables from/payables to related parties 91 25
Taxes recoverable 186 (23)
Other assets (55) 2
Trade and other payables (53) 373
Advances from customers (15) (27)
Taxes payable (17) 81
Other liabillities 71 (10)
Net cash flows from operating activities 1,089 1,594
Cash flows from investing activities
Issuance of loans receivable to related
parties (3) -
Issuance of loans receivable - (1)
Proceeds from repayment of loans receivable,
including interest 4 3
Purchases of subsidiaries, net of cash acquired - (6)
Proceeds from sale of subsidiaries 9 -
Restricted deposits at banks in respect
of investing activities (13) -
Short-term deposits at banks, including
interest 6 4
Purchases of property, plant and equipment
and intangible assets (565) (462)
Proceeds from disposal of property, plant
and equipment 4 2
Proceeds from sale of disposal groups classified
as held for sale, net of transaction costs 2 1
Dividends received 86 2
Net cash flows used in investing activities (470) (457)
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
(continued)
(In millions of US dollars)
Six-month period
ended
30 June
2012 2011
---------------------------- ----------------------------
Cash flows from financing activities
Purchase of treasury shares in the course
of the Group's reorganisation (Note 11) $ (4) $ (15)
Sale of treasury shares - 3
Purchases of non-controlling interests (Note
4) - (51)
Proceeds from bank loans and notes 2,072 1,995
Repayment of bank loans and notes, including
interest (1,807) (2,630)
Net proceeds from/(repayment of) bank overdrafts
and credit lines, including interest 93 (24)
Payments under covenants reset (7) -
Gain on derivatives not designated as hedging
instruments 42 26
Collateral under swap contracts (21) 4
Payments under finance leases, including
interest (9) (10)
Net cash flows from/(used in) financing
activities 359 (702)
Effect of foreign exchange rate changes
on cash and cash equivalents (16) 37
Net increase/(decrease) in cash and cash
equivalents 962 472
Cash and cash equivalents at beginning of
year 801 683
---------------------------- ----------------------------
Cash and cash equivalents at end of period $ 1,763 $ 1,155
============================ ============================
Supplementary cash flow information:
Cash flows during the period:
Interest paid $ (271) $ (315)
Interest received 3 4
Income taxes paid by the Group (134) (210)
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 Legal gains Accumulated Translation Non-controlling Total
capital shares capital surplus reserve and losses profits difference Total interests Equity
------------------------ ---------------------- ------------------------ ---------------------- -------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2011 $ 1,338 $ (8) $ 2,289 $ 171 $ - $ - $ 3,606 $ (1,851) $ 5,545 $ 236 $ 5,781
Net
profit/(loss) - - - - - - (38) - (38) (12) (50)
Other
comprehensive
income/(loss) - - - - - 6 - (112) (106) - (106)
Total
comprehensive
income/(loss)
for the period - - - - - 6 (38) (112) (144) (12) (156)
Issue of shares
in the
course of the
Group's
reorganisation
(Notes 4, 11) 2 (4) - - - - 8 - 6 (10) (4)
Acquisition of
non-controlling
interests in
existing
subsidiaries
(Note 4) - - 1 - - - (30) - (29) (6) (35)
Non-controlling
interests
arising on sale
of ownership
interests in
subsidiaries - - - - - - - - - 1 1
Contribution of
a
non-controlling
shareholder to
share capital
of the Group's
subsidiary - - - - - - - - - 3 3
Buyback of own
shares by
a joint
venture's
subsidiary
(Note 8) - - - - - - (22) - (22) - (22)
Transfer of
treasury shares
to participants
of the
Incentive Plan
(Note 11) - 11 - - - - (11) - - - -
Share-based
payments - - 8 - - - - - 8 - 8
Dividends
declared by the
parent entity
to its
shareholders
(Note 11) - - - - - - (228) - (228) - (228)
------------------------ ---------------------- ------------------------ ---------------------- -------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 30 June 2012 $ 1,340 $ (1) $ 2,298 $ 171 $ - $ 6 $ 3,285 $ (1,963) $ 5,136 $ 212 $ 5,348
======================== ====================== ======================== ====================== ==================== ==================== ============================ ========================== ======================== ====================== ========================
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 Legal gains Accumulated Translation Non-controlling Total
capital shares capital surplus reserve and losses profits difference Total interests Equity
---------------------- ---------------------- ------------------------ ---------------------- --------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2010 $ 375 $ - $ 1,742 $ 180 $ 36 $ - $ 4,570 $ (1,214) $ 5,689 $ 247 $ 5,936
Net profit/(loss) - - - - - - 258 - 258 5 263
Other
comprehensive
income/(loss) - - - (1) - - - 730 729 36 765
Reclassification
of revaluation
surplus to
accumulated
profits in
respect of the
disposed items
of property,
plant and
equipment - - - (5) - - 5 - - - -
Total
comprehensive
income/(loss)
for the period - - - (6) - - 263 730 987 41 1,028
Acquisition of
non-controlling
interests in
existing
subsidiaries - - - - - (18) - (18) (33) (51)
Purchase of
treasury shares - (15) - - - - - - (15) - (15)
Transfer of
treasury shares
to participants
of the
Incentive Plan - 11 - - - - (11) - - - -
Sale of treasury
shares - 3 - - - - - - 3 - 3
Conversion of
bonds - - 551 - - - - - 551 - 551
Share-based
payments - - 15 - - - - - 15 - 15
Dividends
declared by the
Group's
subsidiaries to
non-controlling
shareholders - - - - - - - - - (1) (1)
---------------------- ---------------------- ------------------------ ---------------------- --------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 30 June 2011 $ 375 $ (1) $ 2,308 $ 174 $ 36 $ - $ 4,804 $ (484) $ 7,212 $ 254 $ 7,466
====================== ====================== ======================== ====================== ===================== ==================== ============================ ========================== ======================== ====================== ========================
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
EVRAZ plc
Selected Notes
to the Unaudited Interim Condensed Consolidated Financial
Statements
Six-month period ended 30 June 2012
1. Corporate Information
These interim condensed consolidated financial statements were
authorised for issue by the Board of Directors of EVRAZ plc on 29
August 2012.
EVRAZ plc ("EVRAZ plc" or "the Company") was incorporated on 23
September 2011 as a public company under the laws of the United
Kingdom with the registered number 7784342. The Company's
registered office is at 5(th) Floor, 6 St. Andrew Street, London,
EC4A 3AE, United Kingdom.
As a result of the reorganisation implemented by way of the
share exchange offer made by the Company for the shares of Evraz
Group S.A. in November 2011, the Company became a new parent entity
of Evraz Group S.A. (Luxembourg), a holding company which owns
steel production, mining and trading companies. Consequently, these
interim condensed consolidated financial statements have been
prepared as a continuation of the existing group using the pooling
of interests method.
The Company, together with its subsidiaries (the "Group"), is
involved in the production and distribution of steel and related
products and coal and iron ore mining. In addition, the Group
produces vanadium products. The Group is one of the largest steel
producers globally.
Lanebrook Limited (Cyprus) is the ultimate controlling party of
the Company.
Going Concern
These interim condensed consolidated financial statements have
been prepared on a going concern basis.
The Group's activities in all of its operating segments continue
to be affected by the uncertainty and instability of the current
economic environment. In this volatile environment management
continues to monitor and take steps to proactively address
potential issues. As part of these steps in the first half of 2012,
management increased its future financial flexibility by
renegotiating some of its financial covenants with certain bank
lenders.
The directors and management have a reasonable expectation that
the Group will be in compliance with its financial covenants and
has adequate resources to continue in operational existence for the
foreseeable future.
2. Significant Accounting Policies
Basis of Preparation
These interim condensed consolidated financial statements have
been prepared in accordance with International Accounting Standard
("IAS") 34 "Interim Financial Reporting". 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 2011, which were prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union.
The comparative figures as of 31 December 2011 are not the
Company's statutory accounts for the year ended 31 December 2011 in
terms of Section 435 of the Companies Act 2006. Statutory accounts
for the year ended 31 December 2011, in respect of which the audit
report 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. Statutory accounts for the year ended 31 December 2011
have been filed with the Registrar of Companies.
Operating results for the six-month period ended 30 June 2012
are not necessarily indicative of the results that may be expected
for the year ending 31 December 2012.
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 2011, except for the adoption of new standards and
interpretations and revision of the existing IAS as of 1 January
2012.
New/Revised Standards and Interpretations Adopted in 2012:
-- IFRS 7 - Disclosures - Transfers of Financial Assets
(Amendment)
The amendment to IFRS 7 that enhances disclosures for financial
assets. These disclosures relate to assets transferred (as defined
under IAS 39). If the assets transferred are not derecognised
entirely in the financial statements, an entity has to disclose
information that enables users of financial statements to
understand the relationship between those assets which are not
derecognised and their associated liabilities. If those assets are
derecognised entirely, but the entity retains a continuing
involvement, disclosures have to be provided that enable users of
financial statements to evaluate the nature of, and risks
associated with, the entity's continuing involvement in those
derecognised assets.
The amendments described above did not have any impact on the
accounting policies, financial position or performance of the
Group. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
3. Segment Information
The following tables present measures of segment profit or loss
based on management accounts.
Six-month period ended 30 June 2012
US$ million Steel Mining Vanadium Other Eliminations Total
--------- ------- -------- ------- -------------- ---------
Revenue
Sales to external customers $ 7,188 $ 157 $ 106 $ 94 $ - $ 7,545
Inter-segment sales 177 1,171 147 334 (1,829) -
--------- ------- -------- ------- -------------- ---------
Total revenue 7,365 1,328 253 428 (1,829) 7,545
========= ======= ======== ======= ============== =========
Segment result - EBITDA $ 662 $ 404 $ 38 $ 101 $ (52) $ 1,153
========= ======= ======== ======= ============== =========
Six-month period ended 30 June 2011
US$ million Steel Mining Vanadium Other Eliminations Total
--------- ------- -------- ------ -------------- ---------
Revenue
Sales to external customers $ 7,880 $ 306 $ 134 $ 82 $ - $ 8,402
Inter-segment sales 211 1,558 154 344 (2,267) -
--------- ------- -------- ------ -------------- ---------
Total revenue 8,091 1,864 288 426 (2,267) 8,402
========= ======= ======== ====== ============== =========
Segment result - EBITDA $ 698 $ 891 $ 32 $ 71 $ (37) $ 1,655
========= ======= ======== ====== ============== =========
3. Segment Information (continued)
The following table shows a reconciliation of revenue and EBITDA
used by the management for decision making and revenue and profit
or loss before tax per the consolidated financial statements
prepared under IFRS.
Six-month period ended 30 June 2012
US$ million Steel Mining Vanadium Other Eliminations Total
------------------ -------------------- -------------------- -------------------- ------------------- --------------------
Revenue $ 7,365 $ 1,328 $ 253 $ 428 $ (1,829) $ 7,545
Forecasted vs. actual
revenue 24 2 2 (8) - 20
Reclassifications and
other adjustments (370) 53 8 121 242 54
Revenue per IFRS
financial
statements $ 7,019 $ 1,383 $ 263 $ 541 $ (1,587) $ 7,619
EBITDA $ 662 $ 404 $ 38 $ 101 $ (52) $ 1,153
Forecasted vs.
actual
EBITDA - 10 1 2 - 13
Exclusion of
management
services from
segment
result 50 24 2 2 - 78
Unrealised profits
adjustment (48) - - - 102 54
Reclassifications
and
other adjustments 35 (21) (37) (11) - (34)
------------------ -------------------- -------------------- -------------------- ------------------- --------------------
37 13 (34) (7) 102 111
------------------ -------------------- -------------------- -------------------- ------------------- --------------------
EBITDA based on IFRS
financial statements $ 699 $ 417 $ 4 $ 94 $ 50 $ 1,264
Unallocated
subsidiaries (89)
--------------------
$ 1,175
====================
Depreciation,
depletion
and amortisation
expense (257) (364) (23) (21) - (665)
Impairment of
assets (64) (15) - (1) - (80)
Gain/(loss) on
disposal
of property,
plant
and equipment and
intangible
assets (17) (8) - - - (25)
Foreign exchange
gains/(losses),
net 25 42 - (1) - 66
------------------ -------------------- -------------------- -------------------- ------------------- --------------------
386 72 (19) 71 50 471
Unallocated
income/(expenses),
net (41)
--------------------
Profit/(loss) from
operations $ 430
Interest
income/(expense),
net (309)
Share of
profits/(losses)
of joint ventures
and
associates 6
Gain/(loss) on
financial
assets and
liabilities (26)
Gain/(loss) on
disposal
groups classified
as
held for sale (2)
Other
non-operating
gains/(losses),
net (13)
--------------------
Profit/(loss) before
tax $ 86
====================
3. Segment Information (continued)
Six-month period ended 30 June 2011
US$ million Steel Mining Vanadium Other Eliminations Total
--------------------- --------------------- --------------------- -------------------- -------------------- --------------------
Revenue $ 8,091 $ 1,864 $ 288 $ 426 $ (2,267) $ 8,402
Forecasted vs. actual
revenue 55 (11) (4) (7) - 33
Reclassifications and
other adjustments (654) 187 36 63 313 (55)
Revenue per IFRS
financial
statements $ 7,492 $ 2,040 $ 320 $ 482 $ (1,954) $ 8,380
EBITDA $ 698 $ 891 $ 32 $ 71 $ (37) $ 1,655
Forecasted vs.
actual
EBITDA 37 (8) 2 7 - 38
Exclusion of
management
services from
segment
result 41 22 2 1 - 66
Unrealised profits
adjustment 13 - (3) - (11) (1)
Reclassifications
and
other adjustments (45) 57 (36) 4 - (20)
--------------------- --------------------- --------------------- -------------------- -------------------- --------------------
46 71 (35) 12 (11) 83
--------------------- --------------------- --------------------- -------------------- -------------------- --------------------
EBITDA based on IFRS
financial statements $ 744 $ 962 $ (3) $ 83 $ (48) $ 1,738
Unallocated
subsidiaries (109)
--------------------
$ 1,629
====================
Depreciation,
depletion
and amortisation
expense (288) (175) (17) (20) - (500)
Impairment of
assets (7) (33) - 8 - (32)
Gain/(loss) on
disposal
of property,
plant
and equipment and
intangible
assets (13) (4) - - - (17)
Foreign exchange
gains/(losses),
net (60) (35) 1 3 - (91)
--------------------- --------------------- --------------------- -------------------- -------------------- --------------------
376 715 (19) 74 (48) 989
Unallocated
income/(expenses),
net (130)
--------------------
Profit/(loss) from
operations $ 859
Interest
income/(expense),
net (380)
Share of
profits/(losses)
of joint ventures
and
associates 39
Gain/(loss) on
financial
assets and
liabilities (48)
Loss on disposal
groups
classified as
held
for sale 1
Other
non-operating
gains/(losses),
net 2
--------------------
Profit/(loss) before
tax $ 473
====================
In the six-month period ended 30 June 2012, the Group made a
reversal of the allowance for net realisable value in the amount of
$24 million.
3. Segment Information (continued)
The material changes in property, plant and equipment during the
six-month period ended 30 June 2012 other than those disclosed
above are presented below:
US$ million Steel Mining Vanadium Other Total
------- ------- -------- ------ -------
Additions $ 323 $ 220 $ 6 $ 25 $ 574
4. Purchases/Sales of Ownership Interests in Subsidiaries
Purchase of Non-controlling Interests in Evraz Group S.A.
On 17 February 2012, the Group purchased the remaining global
depository receipts, representing 96,607.67 shares of Evraz Group
S.A., for $4 million and exchanged them for the newly issued shares
of EVRAZ plc. Since that date Evraz Group S.A. became a
wholly-owned subsidiary of EVRAZ plc and a non-controlling interest
amounting to $10 million was derecognised.
Increased Share in the Mezhegey Project
On 28 June 2012, the Group acquired an additional 9.996%
ownership interest in Actionfield Limited, which holds and operates
the Mezhegey coal field project. As a result, the Group increased
its share in the project to approximately 60.016%.
The fair value of the consideration amounted to $36 million. It
was agreed to settle the liabilities for the purchase by an offset
with a loan receivable by the Group. The excess of the fair value
of an ownership interest acquired over its carrying value amounting
to $30 million was charged to accumulated profits.
Business Combination
On 1 January 2012, the Group obtained control over the operating
activities of Kachkanar Heat and Power Plant (Russia), for which
the Group paid $20 million in 2011. Goodwill arising on this
business combination amounted to $3 million.
5. Goodwill
The table below presents a movement in the carrying amount of
goodwill during the reporting period.
Carrying
US$ million amount
-----------
At 31 December 2011 $ 2,180
Goodwill recognised on acquisition of subsidiaries
(Note 4) 3
Adjustment to contingent consideration (3)
Translation difference (5)
-----------
At 30 June 2012 $ 2,175
===========
As of 30 June 2012, goodwill was tested for impairment in
respect of cash-generating units where indicators of impairment
have been identified.
For the purpose of the goodwill impairment testing the Group
assessed the recoverable amount of each cash-generating unit, which
demonstrated the performance below the expected levels. The
recoverable amount has been determined based on a value-in-use
calculation using cash flow projections based on the actual
operating results and business plans approved by management and
appropriate discount rates reflecting time value of money and risks
associated with respective cash-generating units. For the periods
not covered by management business plans, cash flow projections
have been estimated by extrapolating the respective business plans
results using a zero real growth rate.
The key assumptions used by management in the value-in-use
calculations for cash-generating units containing the goodwill are
presented in the table below.
Average
price of
Period Pre-tax the commodity
of forecast, discount per tonne
years rate, % Commodity in 2013
-------------- ---------- --------------- ---------------
Evraz Palini e Bertoli 5 12.95 steel plates EUR670
vanadium
Evraz Vanady-Tula 5 13.40 products $23,630
ferrovanadium
Vametco 5 13.64 products $29,911
ferrovanadium
Nikom, a.s. 5 13.97 products $27,900
Evraz Highveld Steel and ferrovanadium
Vanadium Limited 5 12.48 products $28,085
steel products $879
The calculations 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. Reasonable changes in discount
ratescould lead to an additional impairment at EVRAZ Highveld Steel
and Vanadium Limited, EVRAZ Dnepropetrovsk Steel Works, and
Evrazruda. If discount rates were 10% higher, this would lead to an
additional impairment of $103 million. The recoverable amount of
EVRAZ Highveld Steel and Vanadium Limited based on the discount
rates applied exceeds its carrying amount by $22 million.
Sales Prices
The prices of the products sold by the Group were estimated
using industry research. The Group expects that the nominal prices
will grow with a compound annual gross rate of 4% in 2013- 2016,
3.0% in 2017 and thereafter. If the prices assumed for the 2nd half
of 2012 and 2013 in the impairment test were 10% lower, this would
lead to additional impairment of $166 million at EVRAZ Highveld
Steel and Vanadium Limited, EVRAZ Dnepropetrovsk Steel Works,
Evrazruda. The recoverable amount of EVRAZ Highveld Steel and
Vanadium Limited based on the sales prices applied exceeds its
carrying amount by $22 million.
Sales Volumes
Management assumed that the sales volume of steel products would
increase by 6% during 2013 and then would grow evenly during the
following four years to reach normal asset capacity thereafter. If
the sales volumes were 10% lower than those assumed for the 2nd
half of 2012 and 2013 in the impairment test, this would lead to
additional impairment of $66 million at EVRAZ Highveld Steel and
Vanadium Limited, EVRAZ Dnepropetrovsk Steel Works and Evrazruda.
The recoverable amount of EVRAZ Highveld Steel and Vanadium Limited
cash-generating unit based on the sales volumes applied exceeds its
carrying amount by $22 million.
Cost ControlMeasures
The recoverable amounts of cash-generating units are based on
the business plans approved by management. A reasonable deviation
of cost from these plans could lead to an additional impairment at
EVRAZ Highveld Steel and Vanadium Limited, EVRAZ Dnepropetrovsk
Steel Works and Evrazruda. If the actual costs were 10% higher than
those assumed for the 2nd half of 2012 and 2013 in the impairment
test, this would lead to an additional impairment of $232 million.
The recoverable amount of EVRAZ Highveld Steel and Vanadium Limited
based on the cost control measures applied exceeds its carrying
amounts by $22 million.
6. Income Taxes
Major components of income tax expense for the six-month periods
ended 30 June were as follows:
Six-month period
ended 30 June
US$ million 2012 2011
--------- --------
Current income tax expense $ (206) $ (247)
Adjustment in respect of income tax of
previous years 40 25
Deferred income tax benefit/(expense)
relating to origination and reversal of
temporary differences 30 12
Income tax expense reported in the consolidated
statement of operations $ (136) $ (210)
========= ========
7. Property, Plant and Equipment
The movement in property, plant and equipment for the six-month
period ended 30 June 2012 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
2011,
cost, net of
accumulated
depreciation $ 187 $ 1,640 $ 3,440 $ 281 $ 1,708 $ 23 $ 1,027 $ 8,306
Assets acquired
in
business
combinations - 6 7 - - - - 13
Additions - - 3 - 18 1 552 574
Assets put into
operation - 34 233 37 140 2 (446) -
Disposals - (7) (17) (2) (4) - (5) (35)
Depreciation and
depletion
charge - (75) (260) (22) (290) (4) - (651)
Impairment
losses
recognised in
statement
of operations - (18) (34) - (15) - (2) (69)
Impairment
losses
reversed
through
statement of
operations - - - - - - 1 1
Transfer to/from
assets held for
sale (1) (2) - (111) - - - (114)
Change in site
restoration
and
decommissioning
provision - 1 - - 21 - - 22
Translation
difference (2) (21) (46) (5) (15) - (22) (111)
------ ---------------- -------------- ---------- ------- ------- ---------------- ---------
At 30 June 2012,
cost, net of
accumulated
depreciation $ 184 $ 1,558 $ 3,326 $ 178 $ 1,563 $ 22 $ 1,105 $ 7,936
====== ================ ============== ========== ======= ======= ================ =========
Change in Estimate
On 1 April 2012, the Group has updated its mining plans relating
mostly to the extraction of coking coal reserves. Consequently, the
depreciation and depletion charge in the first half of 2012 is
lower by $143 million compared to the amount that would have been
charged in accordance with the previous mining plans.
Impairment of Cash-Generating Units
As of 30 June 2012, cash-generating units which demonstrated the
performance below the expected levels were tested for impairment.
The recoverable amount of such cash-generating units has been
determined based on a value-in-use calculation using cash flow
projections based on the actual operating results and business
plans approved by management and appropriate discount rates
reflecting time value of money and risks associated with respective
cash-generating units. For the periods not covered by management
business plans, cash flow projections have been estimated by
extrapolating the respective business plans results using a zero
real growth rate.
As a result, the Group recognised an impairment loss of $62
million. The most part of this loss ($49 million) relates to EVRAZ
Dnepropetrovsk Steel Works (Ukraine).
The key assumptions used by management in the value-in-use
calculations for EVRAZ Dnepropetrovsk Steel Works are presented in
the table below.
Average
price of
Period Pre-tax the commodity
of forecast, discount per tonne
years rate, % Commodity in 2013
-------------- ---------- --------------- ---------------
EVRAZ Dnepropetrovsk Steel
Works 5 12.95 steel products $719
8. Investments in Joint Ventures and Associates
The movement in investments in joint ventures and associates
during the six-month period ended 30 June 2012 was as follows:
US$ million Corber Streamcore Other associates Total
------- ---------- ---------------- -------
At 31 December 2011 $ 621 $ 24 $ 18 $ 663
Share of profit/(loss) (5) 6 - 1
Reversal of impairment of investments - 5 - 5
Dividends paid (86) - - (86)
Acquisition of non-controlling
interests (22) - - (22)
Translation difference 5 (1) - 4
------- ---------- ---------------- -------
At 30 June 2012 $ 513 $ 34 $ 18 $ 565
======= ========== ================ =======
In the six-month period ended 30 June 2012, share of
profit/(loss) of joint ventures and associates which is reported in
the statement of operations comprised the following:
US$ million 2012
------------------------
Share of profit/(loss) $ 1
Reversal of impairment of investments 5
------------------------
Share of profits/(losses) of joint ventures and
associates recognised in the consolidated statement
of operations 6
========================
Buyback of Shares by Raspadskaya
In 2012, Raspadskaya, a subsidiary of Corber, the Group's joint
venture, made a buyback of 9.94% of its shares from shareholders.
At the end of February 2012, Corber sold 48,351,712 shares back to
Raspadskaya for $248 million. As a result of the buyback, Corber
effectively acquired an additional 1.95% share in Raspadskaya and
its ownership interest increased to 81.95%. The Group has a 50%
interest in Corber.
The Group's share in the excess of the amounts of consideration
over the carrying values of non-controlling interests acquired
amounting to $22 million was charged to accumulated profits of the
Group.
9. Related Party Disclosures
For the Group related parties include associates and joint
venture partners, key management personnel and other entities that
are under the control or significant influence of the key
management personnel, the Group's ultimate parent or its
shareholders. In considering each possible related party
relationship, attention is directed to the substance of the
relationship, not merely the legal form.
Related parties may enter into transactions which unrelated
parties may not, and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties.
Amounts owed by/to related parties were as follows:
Amounts due from Amounts due to
related parties related parties
---------------------- ----------------------
30 June 31 December 30 June 31 December
US$ million 2012 2011 2012 2011
-------- ------------ -------- ------------
Kazankovskaya $ 21 $ 21 $ - $ -
Raspadsky Ugol 3 2 29 39
Vtorresource-Pererabotka 2 - 49 -
Yuzhny GOK 6 5 101 46
Other entities 11 9 6 13
43 37 185 98
Less: allowance for doubtful
accounts (30) (29) - -
-------- ------------ -------- ------------
$ 13 $ 8 $ 185 $ 98
======== ============ ======== ============
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 2012 2011 2012 2011
--------- -------- --------- --------
Interlock Security Services $ - $ - $ 24 $ 22
Kazankovskaya - - - 5
Raspadsky Ugol 5 6 61 124
Vtorresource-Pererabotka 6 - 226 -
Yuzhny GOK 33 19 67 102
Other entities 3 4 16 11
--------- -------- --------- --------
$ 47 $ 29 $ 394 $ 264
========= ======== ========= ========
Vtorresource-Pererabotka is a newly acquired subsidiary of the
Group's joint venture. It sells scrap metal to the Group.
Compensation to Key Management Personnel
In the six-month periods ended 30 June 2012 and 2011, key
management personnel totalled 54 persons. Total compensation to key
management personnel was included in general and administrative
expenses and consisted of the following in the six-month periods
ended 30 June:
US$ million 2012 2011
----- -----
Salary $ 11 $ 10
Performance bonuses 10 5
Social security taxes 3 1
Termination benefits - 1
Share-based payments 4 8
$ 28 $ 25
===== =====
10. Cash and Cash Equivalents
Cash and cash equivalents were denominated in the following
currencies:
30 June 31 December
US$ million 2012 2011
---------- ------------
US dollar $ 1,257 $ 314
Russian rouble 290 262
Euro 105 89
South African rand 32 80
Ukrainian hryvnia 21 25
Canadian dollar 57 21
Czech koruna 1 6
Other - 4
---------- ------------
$ 1,763 $ 801
========== ============
The above cash and cash equivalents mainly consist of cash at
banks.
11. Equity
Share Capital
30 June 31 December
Number of shares 2012 2011
-------------- --------------
Issued and fully paid
Ordinary shares of $1 each 1,339,929,360 1,337,560,713
In 2012, the Group completed the corporate reorganisation
commenced in 2011, which has been implemented by means of the share
exchange. During the reporting period, EVRAZ plc issued 2,368,647
ordinary shares.
Number of shares Number of shares Ownership
issued by EVRAZ of Evraz Group interest
Date of exchange plc S.A. exchanged exchanged
----------------------- ----------------- ----------------- -----------
Total at 31 December
2011 1,337,560,713 148,617,857.00 99.82%
30 January 2012 839,388 93,265.33 0.06%
8 February 2012 659,790 73,310.00 0.05%
17 February 2012 869,469 96,607.67 0.07%
----------------- ----------------- -----------
Total at 30 June 2012 1,339,929,360 148,881,040.00 100.00%
================= ================= ===========
Treasury Shares
In the six-month period ended 30 June 2012, the Group purchased
869,469 treasury shares for $4 million and transferred 1,487,347
shares to participants of the Incentive Plan. The cost of treasury
shares gifted under the Incentive Plan, amounting to $11 million,
was charged to accumulated profits. As of 30 June 2012, the Group
had 157,532 treasury shares.
Earnings per Share
Earnings per share are calculated by dividing the net income
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period. Diluted
earnings per share amounts are calculated by dividing the net
profit attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the period
plus the weighted average number of ordinary shares that would be
issued on the conversion of all the potential dilutive ordinary
shares into ordinary shares.
The following reflects the profit/(loss) and share data used in
the basic and diluted earnings per share computations:
Six-month period
ended 30 June
---------------------------------------
2012 2011
--------------------- ----------------
Weighted average number of ordinary shares outstanding during the period 1,337,900,998 1,251,022,275
Effect of dilution: share-based awards - 2,528,118
--------------------- ----------------
Weighted average number of ordinary shares adjusted for the effect of
dilution 1,337,900,998 1,253,550,393
===================== ================
Profit/(loss) for the period attributable to equity holders of the parent
entity, US$ million $ (38) $ 258
Earnings/(losses) per share, basic and diluted $ (0.03) $ 0.21
In 2011, share-based awards had a dilutive effect. In the
six-month period ended 30 June 2012, the Group reported net loss.
Consequently, they were antidilutive.
The weighted average number of ordinary shares outstanding and
earnings per share for the six-month period ended 30 June 2011 have
been recalculated on the basis of the weighted average number of
ordinary shares of Evraz Group S.A. outstanding during the period
multiplied by the share exchange ratio.
There have been no other transactions involving ordinary shares
or potential ordinary shares between the reporting date and the
date of completion of these consolidated financial statements.
Dividends
In May 2012, the Annual General Meeting of EVRAZ plc approved
final dividends for 2011 in the amount of $228 million, which
represents $0.17 per share. The dividends were fully paid in July
2012.
12. Loans and Borrowings
Short-term and long-term loans and borrowings were as
follows:
30 June 31 December
US$ million 2012 2011
---------- ------------
Bank loans $ 2,634 $ 2,613
8.875 per cent notes due 2013 534 534
8.25 per cent notes due 2015 577 577
7.40 per cent notes due 2017 600 -
9.5 per cent notes due 2018 509 509
6.75 per cent notes due 2018 850 850
13.5 per cent bonds due 2014 609 621
9.25 per cent bonds due 2013 457 466
9.95 per cent bonds due 2015 457 466
8.40 per cent bonds due 2016 609 621
Liabilities under bonds assumed in business
combination 1 1
Unamortised debt issue costs (122) (133)
Interest payable 87 81
---------- ------------
$ 7,802 $ 7,206
========== ============
Some of the loan agreements and terms and conditions of notes
provide for certain covenants in respect of Evraz Group S.A. and
its subsidiaries. The covenants impose restrictions in respect of
certain transactions and financial ratios, including restrictions
in respect of indebtedness and profitability.
At 30 June 2012, the Group had the maximum level of borrowings
allowed by terms of certain loans. Temporarily, the Group's ability
to increase its debt by attracting new borrowings will be limited.
However, new borrowings are allowed for refinancing and other
purposes defined in the facilities' documentation.
Pledged Assets
The Group pledged its rights under some export contracts as
collateral under the loan agreements. All proceeds from sales of
steel pursuant to these contracts can be used to satisfy the
obligations under the loan agreements in the event of a
default.
At 30 June 2012 and 31 December 2011, the Group had inventory
with a carrying value of $380 million and $250 million,
respectively, pledged as collateral under the loan agreements.
Issue of Notes and Bonds
In April 2012, the Group issued notes for the amount of $600
million due in 2017. The notes bear semi-annual coupon at the
annual rate of 7.40% and must be redeemed at their principal amount
on 24 April 2017. The proceeds from the issue of the notes were
used for the repayment of certain bank loans.
Unutilised Borrowing Facilities
As of 30 June 2012, the Group had unutilised bank loans in the
amount of $912 million.
13. Commitments and Contingencies
Operating Environment of the Group
The Group is one of the largest vertically integrated steel
producers globally and the largest steel producer in Russia. The
Group's major subsidiaries are located in Russia, Ukraine, the
European Union, the USA, Canada and the Republic of South Africa.
Russia and Ukraine are considered to be emerging markets with
higher economic and political risks. Steel consumption is affected
by the cyclical nature of demand for steel products and the
sensitivity of that demand to worldwide general economic
conditions.
The global economic recession resulted in a significantly lower
demand for steel products and decreased profitability. In 2012, the
sovereign debt problems in Europe added extra volatility to
commodity and financial markets and led to an additional
uncertainty in the process of recovery of the global economy.
The global economic climate continues to be unstable and this
may negatively affect the Group's results and financial position in
a manner not currently determinable.
Taxation
Russian and Ukrainian tax, currency and customs legislation is
subject to varying interpretations, and changes, which can occur
frequently. Management's interpretation of such legislation as
applied to the transactions and activity of the Group may be
challenged by the relevant regional and federal authorities.
Management believes that it has paid or accrued all taxes that
are applicable. Where uncertainty exists, the Group has accrued tax
liabilities based on management's best estimate of the probable
outflow of resources embodying economic benefits, which will be
required to settle these liabilities. Possible liabilities which
were identified by management at the end of the reporting period as
those that can be subject to different interpretations of the tax
laws and other regulations and are not accrued in these financial
statements could be up to approximately $42 million.
Contractual Commitments
At 30 June 2012, the Group had contractual commitments for the
purchase of production equipment and construction works for an
approximate amount of $553 million.
In 2010, the Group concluded an agreement for the supply of
oxygen, nitrogen and argon by a third party 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 252 million euro. The agreement is within the scope of
IFRIC 4 "Determining whether an Arrangement Contains a Lease". At
30 June 2012, the lease had not commenced.
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. In the second half
2012, the Group plans to spend approximately $91 million under
these programmes.
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. Management believes that any pending
environmental claims or proceedings will not have a material
adverse effect on its financial position and results of
operations.
In the period from 2012 to 2017, the Group is committed to spend
approximately $308 million under the environmental programmes.
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.
14. Subsequent Events
Sale of a Subsidiary
On 1 August 2012, the Group sold to its parent a controlling
interest in a loss-making coke-chemical plant located in Ukraine.
Cash consideration amounted to $4. According to the agreement with
the parent, the latter will transfer to the Group cash proceeds
from the further sale of this subsidiary to a third party if this
sale occurs within 6 months after the disposal by the Group.
Interim Dividends
On 29 August 2012, the Board of directors of EVRAZ plc declared
interim dividends for 2012 in the amount of $0.11 per share, which
represents a distribution of approximately $147 million.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GMGZRMLRGZZZ
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