TIDMEVR
RNS Number : 7180M
Evraz Plc
29 August 2013
EVRAZ ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR H1
2013
29 August 2013 - EVRAZ plc ("EVRAZ" or "the Company") (LSE: EVR)
today announces its unaudited interim results for the six months
ended 30 June 2013 ("the Period").
H1 2013 HIGHLIGHTS
Commenting on the interim results in respect of 2013, Alexander
Frolov, Chief Executive of EVRAZ, stated:
"While our sales volumes were broadly flat at 7.8 million tonnes
in H1 2013, the financial results inevitably reflect the weaker
steel price environment, with revenues decreasing 3% vs. H1 2012 to
US$7,362 million and EBITDA declining to US$939 million.
During the reporting period we successfully delivered on three
key investment projects: the commissioning of the new coking coal
mine Yerunakovskaya VIII, the launch of the modernised rail mill at
EVRAZ ZSMK and the introduction of PCI technology at EVRAZ NTMK.
Each of these undertakings represents an important milestone in our
strategy to develop our raw material base, enhance our product
portfolio and preserve our low cost position in the global
steelmaking industry. At the same time, in the face of challenging
conditions for the global steel sector, we have revised and further
adjusted our expansion plans in order to significantly increase the
flexibility of future capital expenditure".
Six months to 30 June
(US$ million) 2013 2012 Change
------------------------------------------ ------------- ----------------- --------
Consolidated revenue 7,362 7,619 (3.4)%
------------------------------------------ ------------- ----------------- --------
Consolidated EBITDA 939 1,184 (20.7)%
------------------------------------------ ------------- ----------------- --------
Net loss (122) (46) 165.2%
------------------------------------------ ------------- ----------------- --------
Loss per share, (US$) (0.07) (0.03) 133.3%
------------------------------------------ ------------- ----------------- --------
Net cash flows from operating activities 628 1,089 (42.3)%
------------------------------------------ ------------- ----------------- --------
CAPEX 492 565 (12.9)%
------------------------------------------ ------------- ----------------- --------
30 June 2013 31 December 2012
------------------------------------------ ------------- ----------------- --------
Net debt 7,043 6,376 10.5%
------------------------------------------ ------------- ----------------- --------
Total assets 18,821 17,805 5.7%
------------------------------------------ ------------- ----------------- --------
Steel:
-- Steel segment revenue of US$6,416 million (-9% vs. H1 2012)
-- Crude steel production of 8.1 million tonnes (-3%)
-- Full capacity utilisation in Russia for construction long
products due to healthy domestic demand
-- Total external sales of steel products of 7.8 million tonnes (+1%)
-- Temporary growth in sales of semi-finished products to
reverse once the production ramp up at EVRAZ ZSMK's rail mill is
complete by Q2 2014
Mining:
-- Mining segment revenue of US$1,622 million (vs. US$1,383
million in H1 2012) including US$228 million effect from the
consolidation of Raspadskaya
-- Raw coking coal production of 9.1 million tonnes (vs. 4.0
million tonnes in H1 2012) including 4.0 million tonnes from
Raspadskaya
-- Production of saleable iron ore products stable at 10.5 million tonnes
Vanadium:
-- Vanadium segment revenue of US$268 million (+2% vs. H1 2012)
-- Primary vanadium production (vanadium in slag) of 10,836 tonnes (-5%)
-- External vanadium product sales volumes of 8,612 tonnes
(-11%) reflected the timing of receipt of the Russian export
license
Investments:
-- Capital expenditure of US$492 million (vs. US$565 million in
H1 2012) following delivery of several major investment projects in
the period (rail mill modernisation, PCI project and commissioning
of Yerunakovskaya VIII mine) and as a result of the capex
optimisation programme
-- Capital expenditure for 2013 revised down to US$0.9-1.0
billion compared with initial budget of US$1.3 billion
-- Rail mill modernisation at EVRAZ ZSMK completed in January 2013 and currently being ramped-up
-- PCI project at EVRAZ NTMK fully reached design parameters in
May 2013, while construction work on PCI at EVRAZ ZSMK
continued
-- Yerunakovskaya VIII coking coal mine launched in February
2013, while development of Mezhegey coking coal deposit
continued
-- Approaching the commissioning of Vostochny rolling mill in Kazakhstan
M&A developments:
-- Acquisition of a controlling interest in Raspadskaya coal
mining company in January 2013 for US$964 million, satisfied
through the issue of equity, warrants and staged cash payments,
bringing effective interest to 82%
-- Acquired 51% stake in joint venture - Timir iron ore project
from Alrosa in April 2013 in staged cash consideration of ca.
US$160 million
Debt and liquidity:
-- Net debt of US$7,043 million vs. US$6,376 million as at 31
December 2012 including additional US$453 million of net debt
contributed in H1 2013 due to the consolidation of Raspadskaya
-- Cash and short-term deposits of US$1,537 million
-- Placed US$1,000 million Eurobonds due in 2020 with the lowest
ever coupon rate achieved by EVRAZ of 6.50% p.a.
-- Prepaid US$950 million structured credit facility due 2015
with certain covenants on net leverage
-- In July 2013 Fitch affirmed long-term issuer default ratings
of Evraz Group S.A. and EVRAZ plc at BB- with stable outlook
Dividends:
-- The Board has not recommended the payment of an interim dividend in respect of H1 2013.
Chief Executive Officer's Report
While our sales volumes were broadly flat at 7.8 million tonnes
in H1 2013, the financial results inevitably reflect the weaker
steel price environment, with revenues decreasing 3% vs. H1 2012 to
US$7,362 million and EBITDA declining to US$939 million.
During the reporting period we successfully delivered on three
key investment projects: the commissioning of the new coking coal
mine Yerunakovskaya VIII, the launch of the modernised rail mill at
EVRAZ ZSMK and the introduction of PCI technology at EVRAZ NTMK.
Each of these undertakings represents an important milestone in our
strategy to develop our raw material base, enhance our product
portfolio and preserve our low cost position in the global
steelmaking industry. At the same time, in the face of challenging
conditions for the global steel sector, we have revised and further
adjusted our expansion plans in order to significantly increase the
flexibility of future capital expenditure.
Overview of Health, Safety and Environmental performance
The safety of our employees is of paramount importance. It is
with the deepest regret that I have to report that, despite the
consistent efforts being undertaken throughout the Company, 10
employees lost their lives as a result of work related accidents at
EVRAZ's operations in H1 2013. All of these accidents have been
thoroughly investigated and analysed in order to avoid reoccurrence
and identify other workplace accident risks.
Some of the principal causes of injuries at our sites relate to
slips, trips and falls on flat surfaces and, to combat this, we
have developed a new safety standard for walkways that will be
comprehensively implemented at the Company's production sites this
year. Workplace lighting is also being upgraded.
H1 2013 market environment
H1 2013 was challenging for the steel industry. After modest
signs of recovery at the start of the year steel prices continued
on a downward path, ultimately decreasing to levels substantially
below the 2012 average by the end of the period. Global iron ore
and coking coal prices also declined during H1 2013, influenced by
steel prices and concerns regarding the prospect of new supplies
coming on stream at the end of 2013 and in 2014. Expectations of
lower growth in Chinese steel production and consumption also
adversely affected sentiment.
Russian steel demand expanded over the period and approached
record levels during the summer months, with demand 4.3% higher
compared to the first half of 2012. However, disappointing Russian
macroeconomic lead indicators heightened concerns of deterioration
in economic growth, while mounting imports of construction steel
products from Ukraine and Belarus capped the positive domestic
price trends and effectively prevented Russian steel mills from
taking full advantage of a favourable domestic market.
North American steel market conditions remained difficult given
a lack of consistent pricing power for key industry players, a
softening of the outlook for demand growth and the consequent
under-utilisation of capacity. While aggregate US industrial
production remained strong in H1 2013, steel consumption was muted
with a number of major steel consumers continuing to work down
excess inventories.
European demand for flat products continued to deteriorate,
putting the already thin spread between slab and plate prices under
considerable pressure.
Steel segment
We benefit from an attractive product mix which is being further
enhanced and developed in areas such as rails and construction long
products in Russia, and tubular, long and rail products in North
America. These businesses are well positioned to take advantage of
ambitious infrastructure projects and the development of railways
in Russia, as well as the domestic shale gas and oil activity in
the USA.
One of the milestones of H1 2013 was the successful launch of
the rail mill at EVRAZ ZSMK following a major modernisation
programme. The EVRAZ ZSMK rail mill is capable of producing head
hardened rails, including 100 metre rails suitable for high speed
railways. Ramp-up to the full annualised capacity of 950,000 tonnes
is expected by Q2 2014.
In order to strengthen our global leadership in rail production,
we are also progressing with a rail mill project in EVRAZ North
America which will allow us to improve rail quality, increase the
mill's capacity and expand technical customer support and product
development. The modernisation programme is proceeding as planned
with project completion expected in mid-2014.
Another highlight of the reporting period is the introduction of
pulverised coal injection (PCI) at EVRAZ NTMK that will mitigate
the risks of rising energy and of raw material costs in order to
preserve our low cost position in steelmaking. The positive impact
of this project on our cost base is applicable to the majority of
market scenarios due to the delivery of a sustained reduction in
the consumption of natural gas and coking coal. As initially
planned, in the first half of 2013 the PCI equipment reached the
designed parameters reducing consumption of natural gas and coke by
42% and 22% respectively, while increasing pig iron production
capacity by 100,000 tonnes per annum. The cost saving effect is
approximately US$10 per tonne of crude steel. We have also made
further progress with the introduction of PCI at EVRAZ ZSMK.
As part of the actions taken to streamline our business model,
we decided to temporarily idle our Italian plate rolling mill EVRAZ
Palini e Bertoli, which has been suffering from the overall
weakness of the Eurozone economy. This releases valuable working
capital.
In addition, we are progressing well with plans to sell our
Czech subsidiary EVRAZ Vitkovice Steel and expect to update the
market by the end of Q3 2013 on that process. We also continue to
work with the potential buyer of EVRAZ Highveld Steel and Vanadium
and the due diligence process is currently in progress. An update
on the sale of EVRAZ Highveld Steel and Vanadium is expected in Q4
2013.
Mining segment
In coking coal mining, where the Company enjoys the long-term
competitive advantage of being a large scale, low cost producer, we
continued the integration of Raspadskaya and delivered on
previously announced organic growth options. For example, the
development of the Yerunakovskaya-VIII mine was launched in
February ahead of schedule and below budget. This coking coal mine
has a nameplate capacity of 2.5 million tonnes per annum with an
estimated cash cost of raw coal production of US$40 per tonne, one
of the lowest among CIS coal mines.
In addition, we continued work on the Mezhegey Phase I coking
coal project which will ensure long-term access to hard coking coal
reserves.
In the iron ore mining division we continued to focus on cost
savings and operational improvement programmes during the period.
At our key iron ore mining asset, EVRAZ KGOK, we succeeded in
maintaining cash costs of iron ore products at US$53 per tonne
(before by-products), firmly securing the position of the asset as
a low cost operation. Asset restructuring, primarily of underground
iron ore mines, is also underway at Evrazruda following the closure
of the Irba mine and further actions with regard to certain other
Evrazruda mines are under review.
Looking longer term, EVRAZ has entered the Timir iron ore
partnership to develop iron ore deposits in Southern Yakutia.
Timir's large iron ore resources and proximity to existing
infrastructure provide for the efficient development of the project
as a low cost operation. The realisation of the Timir project is
fully in line with the Company's strategy of securing attractively
priced supplies of raw materials and is expected to replace the
gradually depleting reserves of Evrazruda over the next 5-10
years.
Furthermore, we continue to explore options with regard to our
non-core assets in both coal and iron ore with the objective of
disposal or of minimizing their impact of on overall company
performance.
Vanadium segment
The Vanadium segment managed to demonstrate positive performance
due to strong global prices for ferrovanadium despite a decrease in
sales volumes as a result of delays in obtaining the necessary
export approvals.
Capital expenditure
We have managed to substantially increase the flexibility of our
capital expenditure as a result of the completion of a series of
important projects in our investment pipeline, such as the new
coking coal mine Yerunakovskaya VIII, the launch of the modernised
rail mill at EVRAZ ZSMK and the introduction of PCI technology at
EVRAZ NTMK. In addition, in the face of challenging times for the
global steelmaking industry, management has revised and adjusted
further expansion plans.
Our capital expenditure for 2013 is reduced from the budgeted
US$1.3 billion down to US$0.9-1.0 billion (including Raspadskaya).
We have temporarily lowered our spending on non-essential
maintenance, and as a result, maintenance capex is currently
estimated at US$460-470 million for 2013 compared with initial
estimates of US$600-650 million.
Outlook
We remain confident in the strong long-term fundamentals of our
business model. While fully recognising the scale of challenges
currently being faced by the global steelmaking industry we believe
that the actions being implemented across all of our operations and
which are focused on cost reduction, efficiency improvements, the
lowering of capital expenditure and the streamlining of our
business model will provide a safe passage through the current
period of turbulence and economic uncertainty.
Alexander Frolov
Chief Executive Officer
EVRAZ plc
Financial Review
Giacomo Baizini, Chief Financial Officer, commented: "Whilst
recognising that leverage is growing mainly due to falling EBITDA;
as a result of prudent refinancing, proactive management of
covenant compliance, operational improvements and the expected
proceeds from disposals; we believe the company has sufficient
liquidity to weather the current period of reduced profitability
with confidence."
Overview
As a result of the challenging conditions in the market for
steel and steelmaking raw materials, the Company recorded a net
loss of US$122 million for H1 2013, compared to a net loss of US$46
million in H1 2012. Falling prices in H1 2013 caused revenue to
decline by 3.4% to US$7,362 million; consequently gross profit fell
by 7.1% to US$1,485 million and EBITDA decreased by 21% to US$939
million.
Free cash flow for the period was negative at US$(87) million.
As a result of this and the effect of the consolidation of
Raspadskaya's debt, net debt increased to $7,043 million. As of
today we have no debt with maintenance covenants that require
testing before H2 2014.
As of 30 June 2013, the Company's cash and short-term deposits
amounted toUS$1,537 million, compared to short-term debt of
US$1,574 million.
Corporate developments
As part of a strategic realignment of our asset base, the Group
decided to dispose of EVRAZ Highveld Steel and Vanadium and the
EVRAZ Vitkovice Steel operations. Accordingly these assets are
accounted for as assets held for sale as at the end of the
period.
In January 2013, we completed the acquisition of a controlling
interest in the Raspadskaya coal company for US$964 million, a
transaction which was primarily financed by equity accompanied bya
US$202 million cash component payable in equal quarterly
instalments ending on 15 January 2014.
In addition, in April 2013 we acquired a 51% stake in Timir, a
joint-venture with Alrosa (shareholder agreement gives joint
control), created for the development of major iron ore deposits in
Yakutia, Russia, for RUB4,950 million (ca. US$160 million) payable
in quarterly instalments until 15 July 2014.
Statement of Operations
Revenues
(US$ million)
-----------------------------------------------------------------
Segment H1 2013 H1 2012 Change Relative change
------------------ -------- -------- ------- ----------------
Steel 6,416 7,019 (603) (8.6)%
------------------ -------- -------- ------- ----------------
Mining 1,622 1,383 239 17.3%
------------------ -------- -------- ------- ----------------
Vanadium 268 263 5 1.9%
------------------ -------- -------- ------- ----------------
Other operations 465 541 (76) (14.0)%
------------------ -------- -------- ------- ----------------
Eliminations (1,409) (1,587) 178 (11.2)%
------------------ -------- -------- ------- ----------------
Total 7,362 7,619 (257) (3.4)%
------------------ -------- -------- ------- ----------------
Group revenues for H1 2013 decreased by 3.4% to US$7,362
million, with revenues from the Group's steel segment (excluding
intersegment sales) amounting to US$5,732 million or 78% of total
Group's revenue.
Steel sales volumes remained largely unchanged at 7.8 million
tonnes compared to 7.7 million tonnes in H1 2012. The decline in
revenues was largely due to a decrease in prices, in line with the
general negative trend in steel pricing. Average Steel segment
revenue per tonne decreased by 10% in H1 2013 compared to H1 2012
reflecting concerns regarding China's growth prospects and ongoing
economic problems in the Eurozone. Prices of flat rolled products
were hit particularly hard by the stagnation in the Eurozone and
shrinking spreads between semi-finished and final products in the
USA.
Steel revenues were also impacted by a temporary change in the
Group's product mix during H1 2013 due to the ramp up of the new
rail mill at EVRAZ ZSMK which resulted in an increase in the sales
of lower margin semi-finished products. This trend is expected to
reverse once the rail mill reaches full output by Q2 2014.
Mining revenues rose 17.3% to US$1,622 million in the period,
compared to US$1,383 million in the first half of 2012. This growth
in revenues was primarily the result of the consolidation of
Raspadskaya.
Revenue by region
(US$ million)
Region H1 2013 H1 2012 Change Relative change
------------------- -------- -------- ------- ----------------
Russia 3,137 3,157 (20) (0.6)%
------------------- -------- -------- ------- ----------------
Americas 1,616 1,804 (188) (10.4)%
------------------- -------- -------- ------- ----------------
Asia 1,050 1,151 (101) (8.8)%
------------------- -------- -------- ------- ----------------
Europe 766 741 25 3.4%
------------------- -------- -------- ------- ----------------
CIS 539 526 13 2.5%
------------------- -------- -------- ------- ----------------
Africa 250 238 12 5.0%
------------------- -------- -------- ------- ----------------
Rest of the world 4 2 2 100.0%
------------------- -------- -------- ------- ----------------
Total 7,362 7,619 (257) (3.4)%
------------------- -------- -------- ------- ----------------
EBITDA
(US$ million)
-----------------------------------------------------------------
Segment H1 2013 H1 2012 Change Relative change
------------------ -------- -------- ------- ----------------
Steel 651 706 (55) (7.8)%
------------------ -------- -------- ------- ----------------
Mining 354 419 (65) (15.5)%
------------------ -------- -------- ------- ----------------
Vanadium 34 4 30 750.0%
------------------ -------- -------- ------- ----------------
Other operations 61 94 (33) (35.1)%
------------------ -------- -------- ------- ----------------
Unallocated (100) (89) (11) 12.4%
------------------ -------- -------- ------- ----------------
Eliminations (61) 50 (111) n/m
------------------ -------- -------- ------- ----------------
Total 939 1,184 (245) (20.7)%
------------------ -------- -------- ------- ----------------
As a result of declining steel prices, particularly for flat
rolled products in Europe and the USA, and the temporary change to
the company's product mix, EBITDA for H1 2013 was US$939 million
compared to US$1,184 million in H1 2012. The negative impact of the
decline in revenues in the Steel segment was partially offset by
lower raw material costs.
Mining EBITDA was negatively impacted by falling prices and
slightly lower volumes of iron ore sales (while production was
stable) and, in particular, coking coal.
The increase in Vanadium EBITDA from US$4 million in H1 2012 to
US$34 million in H1 2013 largely reflected the recovery in prices
of vanadium products.
The decrease in the other operations segment is attributable to
the disposal of our transport subsidiary EvrazTrans at the end of
2012.
Cost of revenues, expenses and results
(US$ million)
--------------------------------------------------------------------------------------------------------
Item H1 2013 H1 2012 Change Relative change
--------------------------------------------------------- -------- -------- ------- ----------------
Cost of revenue (5,877) (6,020) 143 (2.4)%
--------------------------------------------------------- -------- -------- ------- ----------------
Gross profit 1,485 1,599 (114) (7.1)%
--------------------------------------------------------- -------- -------- ------- ----------------
Selling and distribution costs (618) (621) 3 (0.5)%
--------------------------------------------------------- -------- -------- ------- ----------------
General and administrative expenses (448) (428) (20) 4.7%
--------------------------------------------------------- -------- -------- ------- ----------------
Impairment of assets (7) (80) 73 (91.3)%
--------------------------------------------------------- -------- -------- ------- ----------------
Foreign exchange gains/(losses), net (177) 28 (205) n/m
--------------------------------------------------------- -------- -------- ------- ----------------
Other operating income and expenses (52) (59) 7 (11.9)%
--------------------------------------------------------- -------- -------- ------- ----------------
Profit from operations 183 439 (256) (58.3)%
--------------------------------------------------------- -------- -------- ------- ----------------
Interest expense (377) (322) (55) 17.1%
--------------------------------------------------------- -------- -------- ------- ----------------
Gain/(loss) on derecognition of equity investments, net 89 0 89 n/m
--------------------------------------------------------- -------- -------- ------- ----------------
Gain/(loss) on financial assets and liabilities, net (71) (26) (45) 173.1%
--------------------------------------------------------- -------- -------- ------- ----------------
Gain on disposal group classified as held for sale, net 54 (2) 56 n/m
--------------------------------------------------------- -------- -------- ------- ----------------
Other non-operating gains/(losses), net 16 1 15 n/m
--------------------------------------------------------- -------- -------- ------- ----------------
Profit/(loss) before tax (106) 90 (196) n/m
--------------------------------------------------------- -------- -------- ------- ----------------
Income tax benefit/(expense) (16) (136) 120 (88.2)%
--------------------------------------------------------- -------- -------- ------- ----------------
Net loss (122) (46) (76) 165.2%
--------------------------------------------------------- -------- -------- ------- ----------------
The Group's cost of revenue decreased by 2.4% to US$5,877
million in H1 2013 compared withUS$6,020 million in H1 2012. This
was mostly due to a 20% fall in raw material costs and a 19%
reduction in depreciation charges which, in turn, were partially
offset by higher staff, transportation and other miscellaneous
costs.
A detailed breakdown of the cost of revenue can be seen in the
following table:
(US$ million)
-----------------------------------------------------------------------------------------------------
% of % of
Item H1 2013 revenue H1 2012 revenue Change Relative change
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Revenue 7,362 7,619 (257) (3)%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Cost of revenue 5,877 80% 6,020 79% (143) (2)%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Raw materials, incl. 1,778 24% 2,222 29% (444) (20)%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Iron ore 336 4% 330 4% 6 2%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Coking coal 362 5% 620 8% (258) (42)%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Scrap 710 10% 925 12% (215) (23)%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Other raw materials 370 5% 347 5% 23 7%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Semi-finished products 216 3% 225 3% (9) (4)%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Auxiliary materials 505 7% 447 6% 58 13%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Services 401 6% 332 4% 69 21%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Goods for resale 301 4% 259 3% 42 16%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Transportation 454 6% 379 5% 75 20%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Staff costs 985 13% 847 11% 138 16%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Depreciation 486 7% 602 8% (116) (19)%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Electricity 295 4% 278 4% 17 6%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Natural gas 225 3% 216 3% 9 4%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
Other costs 231 3% 213 3% 18 8%
------------------------------ -------- ---------- -------- ---------- ------- ----------------
In the reporting period, the foreign exchange effect did not
have any material impact on costs compared to H1 2012.
The cost of raw materials, the largest single cost item,
decreased by US$444 million in H1 2013 driven mostly by lower
coking coal and scrap costs which fell by US$258 million and US$215
million respectively. The reduction in coking coal costs in H1 2013
was attributable to lower volumes of coking coal purchased from the
market following the disposal of the Ukrainian coking plant DKHZ in
2012 (US$72 million), the consolidation of Raspadskaya (US$42
million), higher intragroup supplies of coal by Yuzhkuzbassugol
(US$24 million) and a more than 20% reduction in the price of
purchased coking coal (approximately US$120 million). A decrease in
scrap costs in the period was primarily due to lower volumes of
purchases from third parties, resulting in a saving of US$150
million in Russia and North America, in addition to lower prices
which accounted for a further US$65 million reduction.
The costs for semi-finished products fell by 4% primarily due to
lower prices, which were partially compensated by higher volumes
purchased from third parties.
However, auxiliary material costs increased by 13%, or US$58
million, due to the consolidation of Raspadskaya, which accounted
for US$53 million of additional costs.
Expenditure on services increased by 21%, or US$69 million,
primarily as a result of higher volumes of coal processed at third
party coal washing facilities which increased costs by US$24
million, the consolidation of Raspadskaya which added US$13
million, as well as repairs and maintenance costs and industrial
services at North American, Russian and vanadium operations.
The costof goods for resale increased by 16%, or by US$42
million, to US$301 million in H1 2013. The increase of US$28
million is due to the purchase by EVRAZ Metal Inprom, the Company's
retail trading arm, of more third party products to meet customer
demand, while a further US$14 million was the result of a power
supply company, MetalEnergo Finance, increasing the volumes of heat
resold.
Transportation costs increased by 20%, or by US$75 million, due
to the consolidation of Raspadskaya which added US$39 million in
costs and a US$21 million charge due to a change in the delivery
basis for the supply of iron ore between the Group's Russian
operations from FCA ("free carrier") to CPT ("customer paid to").
In addition, transportation costs were further impacted by the
disposal of the Group's rail transportation subsidiary EvrazTrans
in December 2012, which accounted for US$28 million of costs in H1
2012.
Staff costs increased by 16%, or by US$138 million, due to the
consolidation of Raspadskaya, which was responsible for 7% or US$61
million of the rise, and higher wages at the Group's other
operations, which rose in accordance with collective bargaining
agreements and accounted for 9% or US$77 million of the
increase.
Total depreciation, depletion and amortisation in cost of goods
sold amounted to US$486 million in H1
2013 compared to US$602 million in H1 2012. The decrease is
mainly due to a lower depletion expense at Yuzhkuzbassugol driven
by a revision of the accounting basis for mineral reserves in June
2012 and January 2013. Management excluded from the calculation of
the depletion charge the future estimated development costs of
deposits not expected to be developed earlier than 2040-2070. This
is more in line with industry practice, and better reflects the
costs to develop the deposits currently being exploited.
Electricity costs increased by 6%, or by US$17 million,
primarily due to higher electricity prices across all regions with
the exception of North America. Natural gas expenditure also
increased by 4% due to higher average prices (+9%) which were
partially offset by the reduced consumption of gas at EVRAZ NTMK
following the implementation of the PCI technology.
An increase in other costs by 8% is mostly driven by the
consolidation of Raspadskaya.
Selling and distribution expenses were 0.5% lower than in H1
2012, despite the consolidation of Raspadskaya, largely due to
reduced long distance sales, the suspension of amortisation of
intangibles for assets classified as held for sale, and a lower bad
debt expense due to improved cash collection from those
municipalities which use heat and electricity produced by the
Group's subsidiaries.
General and administrative expenses increased by 4.7% in H1 2013
primarily reflecting the consolidation of Raspadskaya, which was
partially offset by a decline in bonus accrual together with a
reduction in expenses at Evrazruda and EVRAZ Highveld Steel and
Vanadium as a result of significant cost saving initiatives.
Foreign exchange gains/(losses) moved from a US$28 million gain
in H1 2012 to a US$(177) million loss in H1 2013. This, in large
part, is due to currency fluctuations in respect of intra group
debt where the entities involved have different functional
currencies. There is no IFRS concept of a Group's functional
currency, therefore the gains/(losses) of one subsidiary do not
have offsetting entries in the Statement of Operations of another
subsidiary with a different functional currency and thus cannot be
eliminated on consolidation. This, for example, is the case between
Russian subsidiaries which have the Rouble as the functional
currency and our non-Russian entities with other respective
functional currencies.
Interest expenses incurred by the Group have fallen steadily
over the last two years as a result of the refinancing of debt at
lower interest rates on a comparative basis. The increase in
interest expenses from US$322 million in H1 2012 to US$377 million
in H1 2013, as reported in the financial statements, is mostly
caused by the consolidation of Raspadskaya (US$21 million) and the
cost of the early repayment of a pre-export facility (US$18
million).
In accordance with IFRS 3 "Business Combinations" with regard to
a business combination achieved in stages, the acquirer shall
remeasure its previously held equity interest in the acquiree at
its acquisition-date fair value and recognise the resulting gain or
loss in the income statement. In H1 2013 the Group recorded a US$94
million gain on derecognition of the equity interest in Raspadskya
held before the business combination.
Losses on financial assets and liabilities for H1 2013 amounted
to US$(71) million and were dominated by a loss of US$(88) million
on the change in fair value of derivatives - currency and interest
rate swaps for Rouble bonds.
In H1 2013, the Company accrued an income tax expense of US$16
million, notwithstanding a loss before tax of US$(106) million.
This was mostly due to losses at certain subsidiaries that could
not be offset against profits of other subsidiaries, as well as the
fact that some expenses are not deductible for tax purposes.
In H1 2013, the Company reported a US$(122) million net loss,
compared to a net loss of US$(46) million in H1 2012.
Cash flow
Cash Flow
(US$ million)
----------------------------------------------------------------------------------------------------------------------
Item H1 2013 H1 2012 Change Relative change
---------------------------------------------------------------------- -------- -------- -------- ----------------
Cash flows from operating activities before change in working capital 757 964 (207) (21.5)%
---------------------------------------------------------------------- -------- -------- -------- ----------------
Changes in working capital (129) 125 (254) n/m
---------------------------------------------------------------------- -------- -------- -------- ----------------
Net cash flows from operating activities 628 1,089 (461) (42.3)%
---------------------------------------------------------------------- -------- -------- -------- ----------------
Short-term deposits at banks, including interest 680 6 674 n/m
---------------------------------------------------------------------- -------- -------- -------- ----------------
Purchases of property, plant and equipment and intangible assets (492) (565) 73 (12.9)%
---------------------------------------------------------------------- -------- -------- -------- ----------------
Other investing activities 50 89 (39) (43.8%)
---------------------------------------------------------------------- -------- -------- -------- ----------------
Net cash flows from / (used in) investing activities 238 (470) 708 n/m
---------------------------------------------------------------------- -------- -------- -------- ----------------
Net cash flows from / (used in) financing activities (670) 359 (1,029) n/m
---------------------------------------------------------------------- -------- -------- -------- ----------------
Effect of foreign exchange rate changes on cash and cash equivalents (49) (16) (33) 206.3%
---------------------------------------------------------------------- -------- -------- -------- ----------------
Net increase in cash and cash equivalents 147 962 (815) (84.7)%
---------------------------------------------------------------------- -------- -------- -------- ----------------
Cash flows from operating activities before changes in working
capital fell by 21.5% in H1 2013 to US$757 million reflecting lower
product prices in H1 2013 compared to H1 2012.
In H1 2013 US$129 million was tied up in working capital,
reflecting the seasonality of our business while in H1 2012 US$125
million was released primarily due to inflow from taxes recoverable
of US$186 million.
Calculation of Free Cash Flow
(US$ million)
--------------------------------------------------------------------------------------------- --------
Item H1 2013
--------------------------------------------------------------------------------------------- --------
EBITDA (excluding non-cash items) 904
--------------------------------------------------------------------------------------------- --------
Changes in working capital (150)
--------------------------------------------------------------------------------------------- --------
Income tax paid (126)
--------------------------------------------------------------------------------------------- --------
Net Cash flows from operating activities 628
--------------------------------------------------------------------------------------------- --------
Interest paid & covenant reset charges & conversion premiums & premiums on early repurchase
of bonds & realised gain on swaps & interest income & debt issue costs (273)
--------------------------------------------------------------------------------------------- --------
Capital expenditure (492)
--------------------------------------------------------------------------------------------- --------
Short-term deposits of acquiree (at the date of business combination) -
--------------------------------------------------------------------------------------------- --------
Purchases of subsidiaries, net of cash acquired 66
--------------------------------------------------------------------------------------------- --------
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs (1)
--------------------------------------------------------------------------------------------- --------
Other cash flows from investing activities (15)
--------------------------------------------------------------------------------------------- --------
Free Cash Flow (87)
--------------------------------------------------------------------------------------------- --------
Free cash flow for the period was a negative US$(87) million as
cash generated from operations was channelled into continuing
investment to upgrade and maintain our asset base.
Capex and key projects
In H1 2013 we reduced our total capital expenditure to US$492
million compared to US$565 million in H1 2012 in order to preserve
cash. In H1 2013 we finalised the modernisation of the rail mill at
EVRAZ ZSMK, commissioned the Yerunakovskaya VIII coking coal mine
and saw our PCI project at EVRAZ NTMK become fully operational. We
also made good progress with the Mezhegey Phase I and the Vostochny
rolling millprojects, while the Yuzhniy rolling mill project was
put on hold in light of the current market environment.
A summary of our capital expenditure for H1 2013 in millions of
USD is as follows:
Construction of Yerunakovskaya 43 Production of 2.5 million tonnes
VIII mine of raw coking coal per annum.
Ramp-up to be completed by Q1
2014
-------------------------------- ---- ---------------------------------------
EVRAZ ZSMK rail mill 35 Launched after modernisation programme
modernisation in January 2013, ramp-up to be
completed by Q2 2014
-------------------------------- ---- ---------------------------------------
Mezhegey (Phase I) 21 Additional 1.3 million tonnes
p.a. of coking coal
-------------------------------- ---- ---------------------------------------
Vostochniy Rolling Mill 18 Additional production capacity
(Kazakhstan) for long products used in the
construction industry. Hot tests
to start in Q4 2013
-------------------------------- ---- ---------------------------------------
PCI at EVRAZ ZSMK 17 Reduction of coke and natural
gas consumption in blast furnaces.
To be completed by 2014 year end
-------------------------------- ---- ---------------------------------------
Other investment projects 105
-------------------------------- ---- ---------------------------------------
Maintenance 253
-------------------------------- ---- ---------------------------------------
Total 492
-------------------------------- ---- ---------------------------------------
Financing and liquidity
As at 30 June 2013, EVRAZ's total debt amounted to US$8,606
million compared with US$8,440 million as at 31 December 2012. The
Company's net debt increased to US$7,043 million from US$6,376
million at the start of the year, largely due to the consolidation
of Raspadskaya which added US$453 million to net debt.
In March 2013, we offered holders of 9.25% Rouble-denominated
notes with put in 2013 the option to either put the notes back to
the Company at a nominal value or accept a new coupon of 8.75% per
annum until 20 March 2015. As a result of the offer, we placed
RUB2,735 million (US$89 million) worth of bonds bearing the new
coupon and put option date, and repurchased RUB12,265 million
(US$399 million) of the notes, using cash accumulated for this
purpose on bank deposits. In April-May 2013, we additionally placed
RUB1,150 million of repurchased notesback in the market.
In April 2013, we issued US$1,000 million of 7-year Eurobonds
due 2020 bearing an interest rate of 6.50% per annum, the lowest
coupon EVRAZ has ever achieved. The issue proceeds were used to
refinance US$534 million of the 2013 Eurobonds and to prepay the
remaining US$759 million of the US$950 million structured credit
facility due 2015. The prepayment of the facility allowed us to
both extend the consolidated debt maturities profile and reduce the
liquidity risk arising out of potential non-compliance with the
maintenance covenants. We have also signed amendments to the
remaining bilateral bank facilities totalling approximatelyUS$260
million that contained a number of financial covenants. The
adjustment to the financial covenants removed some of the covenants
and suspended testing of the remaining financial covenants until
the end of H1 2014.
The interest expense accrued in respect of loans, bonds and
notes was US$377 million for H1 2013, compared to US$322 million
for H1 2012.
Our cash and short-term deposits as at 30 June 2013 of US$1,537
million and expected cash flow from potential disposals compared
with a short-term debt of US$1,574 million gives us confidence in
our financial position.
In July 2013 Fitch affirmed long-term issuer default ratings of
EVRAZ plc and Evraz Group S.A. at BB- with stable outlook.
Restatement of 2012 Financial Statements
During the preparation of the H1 2013 results we identified a
classification error in the 2012 annual financial statements which
related to foreign exchange movements attributable to certain
subsidiaries disposed of in 2012. These foreign exchange losses had
not been recycled from the equity reserve back through the
statement of operations, as required by the relevant accounting
standard. The error represents a one-off non-cash item, does not
affect 2012 EBITDA, CAPEX, free cash flow, or net assets of the
Company, and does not have an impact on the measurement of any of
the group's covenants. For more details, please refer to Note 2 of
the Financial statements.
IAS 19 "Employee Benefits", which was revised in 2011 and became
effective for annual periods beginning on or after 1 January 2013,
introduced full recognition of defined benefit obligations in the
statement of financial position whereas under the previous standard
we accounted for a part of the obligation relating to unrealized
actuarial gains/losses under the corridor approach. The revised
standard also changed the accounting for certain components of
defined benefit obligations. The comparatives for the half-year
results have been restated to reflect this revision to the standard
and for further details see Note 2 of the interim condensed
consolidated financial statements.
Dividends
The Board has not recommended the payment of a dividend in
respect of H1 2013.
Giacomo Baizini
Chief Financial Officer
EVRAZ plc
Review of operATIONS by SEGMENT
STEEL
Markets performance in H1 2013
Global crude steel production grew 2.7% during H1 2013 compared
to H1 2012, led by an 8.5% increase in Chinese output. However,
steel prices remained weak due to excessive capacity in both the
Eurozone and China, the perception of softening economic growth in
China and a longer term shift to a less resource intensive growth
model as well as due to sluggish demand in the Eurozone.
The global steel market is expected to remain challenging during
the second half of the year as structural problems continue to
dominate the industry, with estimated global capacity utilisation
to remain at 75%.
In H1 2013, crude steel output in Russia decreased by 2.9%
compared to H1 2012, whereas apparent consumption of finished steel
products grew by 4.3%. The construction industry remains the key
driver of demand for steel products, demonstrating healthy growth
of 13.1%. Long-term growth of steel product consumption in Russia
and CIS is expected to be driven by substantial investments in
infrastructure and railway modernisation. However, steel prices in
Russia were not immune to the general weakness in global markets
and followed the decreasing trend in H1 2013.
US crude steel production in the first half of the year
decreased by 6.3% compared to H1 2012, with apparent consumption of
finished steel products declining by 2.9%. Additionally, the
pricing environment remained challenging with hot rolled coil
prices falling by 7.3%, in spite of an increasingly positive US
economic outlook, although rebar prices were relatively stable with
only a 0.2% decrease over the period.
European crude steel production declined by 5.2% in H1 2013
compared to H1 2012 with apparent consumption of finished steel
products declining by 4.4%. On-going macro-economic uncertainty
resulted in average rebar and hot rolled coil price decreases of
9.7% and 6.6% respectively. Furthermore, capacity utilisation rates
remained below 70%. In spite of this, there are early signs of an
improving outlook for H2 2013 on the back of expected increases in
public sector spending and the announcement of several significant
new construction projects.
South Africa's apparent steel consumption in the first half of
2013 was in line with the corresponding period of 2012. Pricing in
USD remained relatively flat when compared to Q4 2012, but that was
mainly a reflection of the Rand weakening by over 9% in Q2 2013
compared to Q4 2012, rather than of underlying demand.
Sales review
Steel Segment Revenues
(US$ million) Six months ended 30 June
---------------------------------
2013 2012 Change
--------------------- --------- --------- -----------
To third parties 6,355 6,898 (7.9)%
--------------------- --------- --------- -----------
To mining segment 45 79 (43.0)%
--------------------- --------- --------- -----------
To vanadium segment 1 1 0.0%
--------------------- --------- --------- -----------
To other operations 15 41 (63.4)%
--------------------- --------- --------- -----------
Total Steel segment 6,416 7,019 (8.6)%
--------------------- --------- --------- -----------
Steel Segment Revenues by Products
Six months ended 30 June
------------------------------------------------------------------------------------------
2013 2012 2013 v 2012
------------------------------------- ------------------------------------- ------------
US$ % of total segment US$ % of total segment
million revenue million revenue % change
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Steel products, external
sales 5,732 89.4% 6,296 89.7% (9.0)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Semi-finished
products(1) 1,014 15.8% 1,044 14.9% (2.9)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Construction products(2) 2,063 32.2% 2,170 30.9% (4.9)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Railway products(3) 828 12.9% 992 14.1% (16.5)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Flat-rolled products(4) 1,033 16.1% 1,255 17.9% (17.7)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Tubular products(5) 568 8.9% 595 8.5% (4.5)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Other steel products(6) 226 3.5% 240 3.4% (5.8)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Steel products,
intersegment sales 27 0.4% 27 0.4% 0.0%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Other revenues(7) 657 10.2% 696 9.9% (5.6)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Total 6,416 100.0% 7,019 100.0% (8.6)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
(1) Includes billets, slabs, pig iron, pipe blanks and other
semi-finished products
(2) Includes rebars, wire rods, wire, beams, channels and
angles
(3) Includes rail, wheels, tyres and other railway products
(4) Includes commodity plate, specialty plate and other
flat-rolled products
(5) Includes large diameter line pipes, ERW pipes and casing,
seamless pipes, casing and tubing, other tubular products
(6) Includes rounds, grinding balls, mine uprights and
strips
(7) Includes coke and coking products, refractory products,
ferroalloys, scrap, energy, services and Mapochs mine's iron ore
fines
Sales Volumes of Steel Segment
('000 tonnes) Six months to 30 June
------ ------------------------
2013 2012 Change
-------------------------------- ------ ---------- ------------
Steel products, external sales 7,753 7,714 0.5%
-------------------------------- ------ ---------- ------------
Semi-finished products 1,945 1,721 13.0%
-------------------------------- ------ ---------- ------------
Construction products 2,810 2,838 (1.0)%
-------------------------------- ------ ---------- ------------
Railway products 887 1,050 (15.5)%
-------------------------------- ------ ---------- ------------
Flat-rolled products 1,391 1,423 (2.2)%
-------------------------------- ------ ---------- ------------
Tubular products 427 389 9.8%
-------------------------------- ------ ---------- ------------
Other steel products 293 293 0.0%
-------------------------------- ------ ---------- ------------
Intersegment sales 34 33 3.0%
-------------------------------- ------ ---------- ------------
Total 7,787 7,747 0.5%
-------------------------------- ------ ---------- ------------
Geographic Breakdown of External Steel Products' Sales
US$ million 000 t
------------------------------ ------------------------------
H1 2013 H1 2012 Change, % H1 2013 H1 2012 Change, %
-------------- -------- -------- ---------- -------- -------- ----------
Russia 2,421 2,605 (7.1)% 3,240 3,324 (2.5)%
-------------- -------- -------- ---------- -------- -------- ----------
Americas 1,367 1,582 (13.6)% 1,349 1,345 0.3%
-------------- -------- -------- ---------- -------- -------- ----------
Asia 840 1,068 (21.3)% 1,555 1,732 (10.2)%
-------------- -------- -------- ---------- -------- -------- ----------
Europe 529 492 7.5% 838 632 32.6%
-------------- -------- -------- ---------- -------- -------- ----------
CIS 351 336 4.5% 466 406 14.8%
-------------- -------- -------- ---------- -------- -------- ----------
Africa & RoW 224 213 5.2% 305 275 10.9%
-------------- -------- -------- ---------- -------- -------- ----------
Total 5,732 6,296 (9.0)% 7,753 7,714 0.5%
-------------- -------- -------- ---------- -------- -------- ----------
The Steel segment's revenues decreased by 8.6% to US$6,416
million in H1 2013 compared to US$7,019 million in H1 2012, which
was largely a result of lower steel product prices during the
period.
Revenues attributable to sales of semi-finished products
decreased due to a decline in export sale prices, despite an
increase in sales volumes of Russian semi-finished products
following EVRAZ ZSMK's rail mill modernisation and ramp up.
Railway products revenues also fell as a result of lower sales
volumes during the ramp up of the modernised EVRAZ ZSMK's rail
mill. In spite of lower sales volumes, prices for railway products
remained resilient in H1 2013 compared to H1 2012.
Revenue from tubular product sales slightly decreased in H1 2013
as higher volumes, particularly of large diameter line pipes, were
unable to offset the fall in prices of tubular products.
Lower prices for construction products, flat-rolled products and
other steel products led to a fall in sales revenues, in spite of
relatively stable production volumes. Prices of flat rolled
products were particularly impacted by continuing economic
stagnation in the Eurozone and shrinking spreads in the USA.
Russian sales accounted for 42% of external steel product sales
revenues in H1 2013, compared with approximately 41% in H1 2012.
The slightly higher share of revenues from steel sales in Russia
was attributable to the relatively stable sales volumes to the
construction industry and more resilient domestic prices.
Operational update - Steel segment
Steel products: Russia
H1 2013 crude steel output in Russia was broadly flat, compared
to H1 2012, at almost 6 million tonnes. However, results varied
greatly across different product groups. Production of finished
steel products decreased by 8%, although this was fully offset by
the 14% output growth of semi-finished products. These changes to
production levels were caused by the large scale modernisation of
the rail mill at EVRAZ ZSMK in 2012, which led to a temporary
decrease in production of railway products, and the shutdown of the
plate rolling mill at EVRAZ ZSMK in H1 2013.
In general, our Russian steelmaking facilities continued to
operate at utilisation rates which were close to full capacity
during H1 2013.
The PCI project at EVRAZ NTMK reached full capacity in May 2013
and its implementation allows for coke and natural gas consumption
rates per tonne of pig iron to be reduced from 405 kg to 315 kg and
from 130 m3/t to 75 m3/t, or by 22% and 42%, respectively, based on
the use of 133 kg PCI coal per tonne of pig iron. The savings
effect is ca. US$10 per tonne of crude steel.
During H1 2013, the company also performed a week-long
maintenance programme at one of EVRAZ NTMK's blast furnaces to
configure it for a PCI technology upgrade in due course and boost
the overall pig iron capacity from 5.1 up to 5.2 million tonnes per
annum. During this time, EVRAZ NTMK additionally undertook a series
of measures to enhance flexibility and improve productivity at a
casting machine.
Works on the PCI project at EVRAZ ZSMK continued in H1 2013,
however the project's development schedule was extended in order to
decrease the capital expenditure requirements in the current
year.
Additionally during the period, the Company decided to shut down
the plate rolling mill at EVRAZ ZSMK, due to the marginal nature of
its products in the current market environment.
Railway products: Russia
The key highlight of H1 2013 at EVRAZ's railway business was the
re-commencement of the rail mill at EVRAZ ZSMK in January 2013,
following completion of its large scale modernisation programme.
Since January the rail mill has been ramping up steadily and is
expected to reach its annualised full capacity of 950,000 tonnes by
Q2 2014. Following successful lab tests, head hardened rails from
the new rail mill were delivered to the Russian Railways for
certification. The process of certification is expected to be
completed by the end of 2013 and will pave the way for commercial
sales of head hardened rails.
The rail mill at EVRAZ NTMK also operated at a high run rate
during H1 2013, increasing its deliveries of rails to Russia and
CIS region by 4% compared to H1 2012.
Russian Railways continues to be a major customer of rails
produced by EVRAZ accounting for 80% of shipments from both rail
mills.
In H1 2013, EVRAZ enjoyed solid results at our wheel making
business, despite a certain weakness in the railcar industry, due
to our long-term contract with Uralvagonzavod, the largest producer
of railcars in Russia.
Additionally in March 2013, EVRAZ successfully completed the
preliminary qualifications required to become a supplier of railway
wheels to Deutsche Bahn. Although a schedule for final testing and
approval of the wheels has yet to be determined, this represents an
important step towards achieving a strategic goal of entering the
European railway market. To this end, EVRAZ and GHH-Valdunes signed
an agency agreement in June 2013 relating to the sale and marketing
of EVRAZ's railway freight wheels in Europe through
GHH-Valdunes.
Steel: North America
In H1 2013 crude steel output at the North American operations
declined by 9.2% compared to H1 2012 due to maintenance works at
EVRAZ Pueblo in Q2 2013, inventory optimisation and several
unplanned production outages in Q1 2013. Meanwhile, output of
finished steel products increased by 3.6% in H1 2013, driven by
growth in flat-rolled and construction products.
The key focus of the flat product group, in the period, was
enhancing capacity utilisation. To this end, EVRAZ North America is
currently finalising works to increase the rolling speed at EVRAZ
Claymont which should improve productivity and provide capacity for
higher output levels when the order book is strong. In addition,
the Company has been carrying out the scoping works on
debottlenecking and capacity expansion projects at the Portland and
Regina facilities; however, no final decision on the implementation
of these projects has been made.
In tubular products, the company concentrated on productivity
rates of the seamless mill at Pueblo, with the first pass yield
currently running sustainably at improved levels and reducing
conversion costs. The heat treating investment project at the
Calgary mill of EVRAZ North America progressed well through H1 2013
and the company placed orders for several key pieces of equipment.
The premium threading investment is on track to begin delivering
additional volumes, at lower costs, during H2 2013.
The key investment project of the long product group in H1 2013
was the modernisation of the rail mill at Pueblo to improve product
quality and increase production capacity to 526,000 tonnes per
annum. The capacity of the rolling facility was increased by 10% as
a result of the rolling automation and enhancements to the reheat
furnace. In addition, the Company commenced installation works for
new automated nondestructive test equipment, which are expected to
be completed by mid-2014.
Steel: Ukraine
In H1 2013 crude steel output of EVRAZ DMZ Petrovskogo increased
by 15% compared to H1 2012.
During the period, EVRAZ DMZ Petrovskogo increased its
consumption of proprietary coal in its coke production from 49% to
66%, whilst also improving the quality of coke and increasing
productivity of its blast furnaces. Additionally, several new
product lines (profiles) were designed and produced to meet the
requirements of European customers.
Following an optimisation programme and heightened focus on
increasing in-house consumption of steelmaking materials, EVRAZ
Bagliykoks reached its highest loading of coke oven batteries in
the last 5 years, at 97%.
Steel: Europe
Crude steel output at EVRAZ Vitkovice Steel was affected by the
planned on-and-off method of production at the facility and
resulted in 35.7% decrease compared to H1 2012. The facility's
rolling mill remained operational throughout the period. In July
2013 EVRAZ Vitkovice's steelmaking shop was idled for annual
maintenance and the summer break.
EVRAZ Palini e Bertoli was operating as normal during H1 2013,
but had to adjust its output level to reflect subdued market
demand, with 192,000 tonnes of plates produced. In July 2013, the
Company announced that operations of EVRAZ Palini e Bertoli would
be temporarily suspended, until further notice, due to the weak
European plate market.
Steel: South Africa
In H1 2013, EVRAZ Highveld Steel and Vanadium was still
overcoming the effects of 2012's industrial action and
transportation strike. Additionally, operating results were
impacted by management of energy usage in response to growing
electricity unit rates applicable during winter peak demand
hours.
MINING
Markets performance in H1 2013
Iron ore
The Seaborne iron ore market began 2013 positively, with prices
reaching ca.US$160/t China CFR (62% Fe) in late February, driven by
short term inventory movements and Chinese steel mills restocking
in Q4 2012 and Q1 2013. However, the positive price trend moderated
from March 2013 onwards with spot prices falling to a US$130-140/t
and continuing to gradually decline into the summer months. China
CFR price stood at US$117/t at the end of June 2013, representing a
20% decline year-to-date, although with inventories again running
low there is potential for restocking over the coming months.
Over the medium term the key catalysts for iron ore prices will
be China's ability to sustain industrial commodity demand and the
rate of capacity increases from major Australian and Brazilian iron
ore producers.
Coking coal
Seaborne spot coking coal prices steadily declined during H1
2013, in the face of both cyclical and structural headwinds.
Australia Queensland FOB HCC spot price reached US$138/t at the end
of June, representing a year to date decline of 15%.
Coking coal price in the Russian domestic market remained flat
in H1 2013, despite downward pressure from global steel markets.
However, due to the continuing weak steel industry fundamentals
domestic coal prices had declined 12% by the end of July 2013.
Sales review
Mining Segment Revenues
(US$ million) Year ended 30 June
------------------------
2013 2012 Change
---------------------- ------ ------ --------
To third parties 605 341 77,4%
---------------------- ------ ------ --------
To steel segment 1,005 1,027 (2.1)%
---------------------- ------ ------ --------
To other operations 12 15 (20.0)%
---------------------- ------ ------ --------
Total Mining segment 1,622 1,383 17.3%
---------------------- ------ ------ --------
Mining Segment Revenues by Products
Year ended 30 June
-----------------------------------------------------------------------------------
2013 2012 2013 v 2012
--------------------------------- ---------------------------------- ------------
% of total segment % of total segment
US$ million revenue US$ million revenue % change
--------------------- ------------ ------------------- ------------ -------------------- ------------
External sales
--------------------- ------------ ------------------- ------------ -------------------- ------------
Iron ore products* 195 12.0% 188 13.6% 3.7%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Iron ore
concentrate - 0.0% 1 0.1% (100.0)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Sinter 6 0.4% 7 0.5% (14.3)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Pellets 70 4.3% 70 5.0% (0.0)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Other** 119 7.3% 110 8.0% 8.2%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Coal products 371 22.9% 113 8.2% 228.3%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Raw coking coal 23 1.4% - 0.0% n/a
--------------------- ------------ ------------------- ------------ -------------------- ------------
Coking coal
concentrate 259 16.1% 81 5.9% 219.8%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Raw steam coal 12 0.7% 3 0.2% 300.0%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Steam coal
concentrate 77 4.7% 29 2.1% 165.5%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Intersegment sales
--------------------- ------------ ------------------- ------------ -------------------- ------------
Iron ore products 638 39.3% 740 53.5% (13.8)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Iron ore
concentrate 244 15.0% 248 17.9% (1.6)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Sinter 156 9.6% 234 16.9% (33.3)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Pellets 238 14.7% 258 18.7% (7.8)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Coal products 344 21.2% 278 20.1% 23.7%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Raw coking coal 85 5.2% 36 2.6% 136.1%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Coking coal
concentrate 255 15.8% 238 17.2% 7.1%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Raw steam coal 4 0.2% 4 0.3% 0.0%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Other revenues** 74 4.6% 64 4.6% 15.6%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Total 1,622 100.0% 1,383 100.0% 17.3%
--------------------- ------------ ------------------- ------------ -------------------- ------------
* External sales of iron ore produced at the Mapochs mine, part
of EVRAZ Highveld, are accounted for in the Steel segment
** Includes crushed stone
Sales Volumes of Mining Segment
('000 tonnes)
H1 2013 H1 2012 Change
--------------------------------- -------- -------- --------
External sales
--------------------------------- -------- -------- --------
Iron ore products 2,133 2,002 6.5%
--------------------------------- -------- -------- --------
Iron ore concentrate 1 10 (90.0)%
--------------------------------- -------- -------- --------
Sinter 55 63 (12.7)%
--------------------------------- -------- -------- --------
Pellets 607 583 4.1%
--------------------------------- -------- -------- --------
Other 1,470 1,346 9.2%
--------------------------------- -------- -------- --------
Coal products 3,755 834 350.2%
--------------------------------- -------- -------- --------
Raw coking coal 375 - n/a
--------------------------------- -------- -------- --------
Coking coal concentrate 2,431 558 335.7%
--------------------------------- -------- -------- --------
Raw steam coal 351 53 562.3%
--------------------------------- -------- -------- --------
Steam coal concentrate 598 223 168.2%
--------------------------------- -------- -------- --------
Intersegment sales
--------------------------------- -------- -------- --------
Iron ore products* 6,892 7,334 (6.0)%
--------------------------------- -------- -------- --------
Iron ore concentrate 2,452 2,670 (8.2)%
--------------------------------- -------- -------- --------
Sinter 1,950 2,301 (15.3)%
--------------------------------- -------- -------- --------
Pellets 2,488 2,361 5.4%
--------------------------------- -------- -------- --------
Other 2 2 0.0%
--------------------------------- -------- -------- --------
Coal products 3,646 2,179 67.3%
--------------------------------- -------- -------- --------
Raw coking coal 1,363 434 214.1%
--------------------------------- -------- -------- --------
Coking coal concentrate 2,179 1,599 36.3%
--------------------------------- -------- -------- --------
Raw steam coal 104 146 (28.8)%
--------------------------------- -------- -------- --------
Total, iron ore products* 9,025 9,336 (3.3)%
--------------------------------- -------- -------- --------
Total, coal products 7,401 3,013 145.6%
--------------------------------- -------- -------- --------
* External sales of iron ore produced at the Mapochs mine, part
of EVRAZ Highveld, are accounted for in the Steel segment
Total mining segment revenues increased by 17.3% to US$1,622
million in H1 2013 compared to US$1,383 million in H1 2012,
primarily as a result of additional volumes from the consolidation
of Raspadskaya in January 2013, which offset the decrease in iron
ore and coking coal prices.
External sales volumes of iron ore products increased by 6.5% in
H1 2013 compared to H1 2012 driven by higher volumes from EVRAZ
Sukha Balka, while intersegment sales volumes decreased by 6.0%
primarily as a result of changes to intersegment product handling
and processing procedures. The preparations for closure of the Irba
mine at Evrazruda also contributed to lower iron ore volumes being
supplied to the Steel segment.
External sales volumes of coal products increased in H1 2013 by
350% due to an additional 2 million tonnes of coking coal
concentrate from Raspadskaya and higher sales of steam coal
products following the repositioning of longwalls at
Kusheyakovskaya and Gramoteinskaya steam coal mines in H1 2012.
In H1 2013, Mining segment sales to the Steel segment amounted
to US$1,005 million and 62.0% of sales, compared to US$1,027
million and 74.3% of sales, in H1 2012. The lower share of sales to
the Steel segment reflects the additional coal volumes sold to
market from Raspadskaya.
During the period, approximately 69% and 68% of EVRAZ's
respective iron ore and coking consumption was satisfied by the
Group's own operations compared with 71% and 48% (including coal
from Raspadskaya) in H1 2012.
Third party sales by the Mining segment to customers in Russia
in H1 2013 increased to approximately 40% compared to 38% in the
corresponding period last year. The increase is primarily
attributable to the consolidation of Raspadskaya in H1 2013.
Approximately 60% of sales of Raspadskaya in H1 2013 were to
customers in Russia.
Operational update - Mining segment
Mining: Iron Ore
In H1 2013, the output of iron ore products totalled 10.5
million tonnes with the 2.5% decline in Russian output being more
than offset by the 10% increase in production at Ukrainian and
South African assets.
Cost savings and operational improvement programmes remained the
focus of the iron ore division. These included actions aimed at the
optimisation of land tax payments and the enhancement of railway
transportation terms, which along with other measures contributed
US$23 million of savings in the reporting period.
In February 2013, the Company finalised the project
documentation and received the relevant state approvals for the
development of the Sobstvenno-Kachkanarskoye deposit. Following a
thorough review of the options for the deposit, management
redesigned the development plans in order to mitigate short term
pressures while preserving its long term investment case. As a
result, the project's development timeline has been extended, with
commencement of production postponed from 2015 to 2017 and the
estimated total investment budget to bring the mine to production
reduced from US$240 million to US$150 million.
On 1 July 2013 the Company permanently shut down the high cost
Irba mine at Evrazruda. This initiative is part of a wider
strategic plan targeting the closure and/or disposal of less
efficient operations while focussing on the development of more
efficient mines at Evrazruda to improve productivity and
sustainably achieve economies of scale at a reasonably low cost.
EVRAZ expects that the loss of production from closed mines will be
largely offset by additional volumes from modernised operations
such as the Sheregesh mine, where output is expected to increase by
2.5 times by 2018 to 4.8 million tonnes per annum. These measures
should result in lowering the Company's cash cost position and
support long run economically efficient vertical integration.
In April 2013, EVRAZ acquired a 51% stake in the joint venture,
Timir, which holds licences to four iron ore deposits in Southern
Yakutia with total reserves under the Russian geological categories
of A+B+C1 of 3.5 billion tonnes of iron ore. Among these deposits,
the Tayozhnoye deposit is considered to be the most attractive with
341 million tonnes of fully explored reserves for open pit mining,
ore grades of 38-40% Fe and close proximity to existing rail and
power infrastructure. In H1 2013, the scoping study for the project
was finalised, with current estimates indicating a mining capacity
at the Tayozhnoye open pit of 15 million tonnes of iron ore per
annum. The Company expects that active construction works at the
deposit will not commence until, at the earliest, 2015.
Mining: Coal
In H1 2013, EVRAZ's raw coking coal output totalled 9.1 million
tonnes which was 5.1 million tonnes higher than in H1 2012. The
primary non-organic driver of the growth of raw coking coal output
was the consolidation of Raspadskaya coal mining company in January
2013.
Yuzhkuzbassugol mined 5.1 million tonnes of coking coal in H1
2013, a 28% increase compared to 4.0 million tonnes in H1 2012,
following the launch and ramp-up of the Yerunakovskaya VIII mine,
which was commissioned ahead of schedule and below budget.
Additionally, the Alardinskaya mine has operated at an increased
capacity since the beginning of the year and the Uskovskaya mine
demonstrated solid performance while it was closed for longwall
repositioning during part of H1 2012. The growth of output in H1
2013 fully offset the loss of production from the Ossinikovskaya
mine where a flood in March 2013 tragically killed 4 people and led
to a month long suspension. The Alardinsklaya mine also briefly
halted production for a period in March and April as a result of a
fire.
The Company remains on track to meet its target of mining 1
million tonnes of raw coal at the Yerunakovkaya VIII mine in 2013
and fully ramping-up the mine by the beginning of 2014. In H1 2013,
Yuzhkuzbassugol received a new set of longwall equipment and its
installation is scheduled to be completed in Q4 2013.
In July 2013 a trial of a SAP ERP management system started at
Yuzhkuzbassugol. The system allows for the automation of most of
the basic functions of the mine relating to finance and accounting,
logistics, supply and material requirements planning and the cost
of repairs. The project is planned to be completed in Q4 2013 and
if successful, may allow a single SAP template be applied to all
EVRAZ mining operations, providing the Company with more accurate
information and enhancing existing systems.
In H1 2013, raw coking coal output from Raspadskaya amounted to
4 million tonnes, 15% higher than in H1 2012, including 1.1 million
tonnes of raw coal mined at the Raspadskaya mine. However, these
increases were below targets, due to weak seaborne market demand
and the suspension of operations at the Raspadskaya underground
mine in May-June 2013 due to excessive carbon monoxide levels in
certain areas of the mine. Having completed the necessary actions
to rectify the situation, Raspadskaya resumed the mining operations
at the underground mine on 5 July 2013.
In the reporting period EVRAZ continued to focus on efficiency
improvement programmes at all of its mines. These include a
shortened longwall repositioning schedule at the Uskovskaya mine,
more efficient gas draining drilling and cutting down operating and
capital expenses at Yuzhkuzbassugol.
EVRAZ continued the development of the Mezhegey Phase I project
during the period. In H1 2013, the Company finalised design and
engineering project plans, which have been submitted for approval
to the relevant state agencies. The construction works of key
industrial facilities and power infrastructure, which started in
2012, are scheduled to be completed by the end of Q3 2013. First
coal is expected to be mined in October 2013. The bulk of
production from the mine will be consumed by EVRAZ ZSMK.
The Company reiterates its forecast over 10 million tonnes of
raw coking coal production at the Yuzhkuzbassugol mines, while
reducing guidance for Raspadskaya to 8 million tonnes of raw coal
from 9.3 million tonnes.
In H1 2013, production from our steam coal mines were heavily
affected by the suspension of the Gramoteinskaya mine in Q4 2012
and longwall repositioning at the Kusheyakovskaya mine in Q1
2013.
VANADIUM
Markets performance in H1 2013
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 (FeV) prices demonstrated a strong performance in
Q1 2013, fuelled in part by a rally in China, and approached ca.
US$33/kg, only to decrease to US$27/kg in May 2013 and then
stabilise at this level leading into the summer months. FeV spot
price stood at US$27.2/t at the end of June, representing a 3%
decline year to date.
FeV prices are expected to show moderate growth in H2 2013 as
producers' inventories are reduced and traders lack the required
quantities of material.
Sales review
Vanadium Segment Revenues
(US$ million)
Six months ended 30 June
---------------------------------
2013 2012 Change
------------------------ --------- --------- -----------
To third parties 256 253 1.2%
------------------------ --------- --------- -----------
To steel segment 12 10 20.0%
------------------------ --------- --------- -----------
Total Vanadium segment 268 263 1.9%
------------------------ --------- --------- -----------
Vanadium Segment Revenues by Products
Six months ended 30 June
--------------------------------------------------------------------------------------------
2013 2012 2013 v 2012
-------------------------------------- -------------------------------------- ------------
% of total segment % of total segment
US$ million revenue US$ million revenue % change
------------------------ ------------ ------------------------ ------------ ------------------------ ------------
External sales
------------------------ ------------ ------------------------ ------------ ------------------------ ------------
Vanadium products 253 94.4% 252 95.8% 0.4%
------------------------ ------------ ------------------------ ------------ ------------------------ ------------
Vanadium in slag 1 0.4% 1 0.4% 0.0%
------------------------ ------------ ------------------------ ------------ ------------------------ ------------
Vanadium in alloys and
chemicals 252 94% 251 95.4% 0.4%
------------------------ ------------ ------------------------ ------------ ------------------------ ------------
Intersegment sales,
vanadium products 10 3.7% 7 2.7% 42.9%
------------------------ ------------ ------------------------ ------------ ------------------------ ------------
Other revenues 5 1.9% 4 1.5% 25.0%
------------------------ ------------ ------------------------ ------------ ------------------------ ------------
Total 268 100.0% 263 100.0% 1.9%
------------------------ ------------ ------------------------ ------------ ------------------------ ------------
Sales volumes of vanadium segment
(tonnes of pure Vanadium)
H1 2013 H1 2012 Change
----------------------------------- -------- -------- --------
External sales
----------------------------------- -------- -------- --------
Vanadium products 8,612 9,665 (10.9)%
----------------------------------- -------- -------- --------
Vanadium in slag 192 66 190.9%
----------------------------------- -------- -------- --------
Vanadium in alloys and chemicals 8,420 9,599 (12.3)%
----------------------------------- -------- -------- --------
Intersegment sales 346 288 20.1%
----------------------------------- -------- -------- --------
Total 8,958 9,953 (10.0)%
----------------------------------- -------- -------- --------
Vanadium segment revenues increased by 1.9% to US$268 million in
H1 2013 compared to US$263 million in H1 2012 reflecting increase
in sales prices of vanadium products, which more than offset the
decrease in sales volumes. Sales volumes of the Vanadium segment
decreased by 10% as a result of lower sales of vanadium slag by
EVRAZ NTMK to China, while waiting for an export license, and
proportionally lower purchases of vanadium pentoxide for further
processing into FeV at third party facilities in China and the
USA.
Operational update - Vanadium segment
In H1 2013, the vanadium facilities of the Company demonstrated
strong operational results, producing 10,836 tonnes of vanadium in
slag and 8,730 tonnes of final vanadium products.
The key highlights of the reporting period include the
implementation of the project at EVRAZ Vanady Tula's pulp
filtration plant to improve working conditions, increase
mechanisation, cut operational losses and increase pentoxide
production volumes, which nears completion.
The project to enable the processing of vanadium slag supplied
from EVRAZ NTMK at EVRAZ Stratcor, to alleviate feed shortages, is
progressing on schedule with construction works expected to be
completed by the end of 2013.
OTHER BUSINESSES
EVRAZ's other operations include trading, logistics, port
services, electricity and heat generation and other auxiliary
activities.
Sales review
(US$ million) Six months ended 30 June
---------------------------------
2013 2012 Change
-------------------------------- --------- -------- ------------
To third parties 147 127 15.7%
To steel segment 203 308 (34.1)%
To mining segment 115 106 8.5%
Total Other operations segment 465 541 (14.0)%
-------------------------------- --------- -------- ------------
Revenues from other operations decreased by 14.0% to US$465
million in H1 2013 as compared to US$541 million in H1 2012,
principally driven by the disposal of the Evraztrans business in
2012. Revenue of other operations segment includes the following
(sales figures shown below include sales within the same
segment):
-- Evraztrans (until its disposal by EVRAZ on 12 December 2012)
acted as a railway transport provider for EVRAZ's Steel segment.
Sales of EvrazTrans (including Russian and Ukrainian operations)
amounted to US$85 million in H1 2012. EvrazTrans derived the
majority of its revenue from inter--segment sales, which accounted
for 88% of its revenue in H1 2012. Following the sale, EVRAZ
retained a smaller part of the business related to the
transportation of pellets from EVRAZ KGOK to EVRAZ NTMK. In H1 2013
EVRAZ mostly used third party providers for transportation of its
goods.
-- Sales of EVRAZ Nakhodka Trade Sea Port, which provides
various sea port services to the Company, totaled US$45 million
both in H1 2013 and in H1 2012. Intersegment sales accounted for
44% of the revenue in H1 2012, while in H1 2013 all port services
related to handling of EVRAZ's export products were rendered under
the contract with the Russian Railways, which resulted in the
higher third party sales of other operations in H1 2013.
-- Metallenergofinance ("MEF") supplies electricity to EVRAZ's
steel and mining segments as well as third parties. MEF's sales
amounted to US$219 million in H1 2013 compared to US$204 million in
H1 2012. Intersegment sales accounted for 78% and 79% of MEF's
revenue in H1 2013 and H1 2012 respectively.
-- Sinano Ship Management ("Sinano") provides sea freight
services to EVRAZ's steel segment. Sinano's sales totaled US$61
million in H1 2013 and US$64 million in H1 2012, with intersegment
sales accounting for almost 93% in H1 2013 and 98% in H1 2012 of
its revenue.
-- ZapSib Power Plant (including Central Power Plant) is an
energy-generating branch of EVRAZ ZSMK which supplies electricity
and heat to EVRAZ ZSMK and third party customers. Its revenue
amounted to US$96 million in H1 2013 compared with US$94 million in
H1 2012. Intersegment sales accounted for 84% and 76% of ZapSib
Power Plant revenue in H1 2013 and H1 2012 respectively.
Operational update - Other businesses
In H1 2013, EVRAZ Metall Inprom, a retail trading arm of EVRAZ,
retained one of the leading positions in the warehousing and
distribution of ferrous metals in Russia with a share of 11.5%. The
company sold about ca. 970,000 tonnes of rolled products in the
reporting period, which is by 6.2% higher compared to the same
period of the last year.
In the reporting period, EVRAZ continued to expand the number of
rolled steel product deliveries which used trucks, helping our
clients to save on transportation costs, shortening delivery times
and increasing flexibility in terms of volumes ordered. The
customer focused strategy of the company led to growth of the total
number of active clients by 3% in H1 2013 compared to H1 2012.
In H1 2013 EVRAZ continued with operational improvements at key
power generating facilities. The ZapSib Power Plant, at EVRAZ ZSMK,
upgrade is on track to be completed by 2016 and will increase power
generation by 48% to 3.6 billion kw/h per annum from the current
capacity of 2.4 billion kw/h. The 2013 design for power generation
amounts to 3.2 billion kw/h.
Cargo turnover at the EVRAZ Nakhodka Trade Sea Port (NMTP)
increased by 85,000 tonnes (+2%) in H1 2013 The Group remains on
track to increase the annual coal loading capacity of the port to 5
million tonnes by 2015.
COST OF REVENUE AND GROSS PROFIT
Cost of Revenue and Gross Profit by Segments
Six months ended 30 June
----------------------------------------------------------------------------------------
2013 2012 2013 v 2012
------------------------------------ ------------------------------------ ------------
US$ million % of segment revenues US$ million % of segment revenues % change
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Steel segment
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenue (5,245) 81.7% (5,742) 81.8% (8.7)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Gross profit 1,171 18.3% 1,277 18.2% (8.3)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Mining segment
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenue (1,321) 81.4% (1,175) 85.0% 12.4%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Gross profit 301 18.6% 208 15.0% 44.7%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Vanadium segment
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenue (205) 76.5% (242) 92.0% (15.3)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Gross profit 63 23.5% 21 8.0% 200.0%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Other operations segment
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenue (380) 81.7% (401) 74.1% (5.2)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Gross profit 85 18.3% 140 25.9% (39.3)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Unallocated
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenue (6) 2 n/m
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Gross profit (6) 2 n/m
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Eliminations - cost of
revenue 1,280 1,538 (16.8)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Eliminations - gross
profit (129) (49) 163.3%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Consolidated cost of
revenue (5,877) 79.8% (6,020) 79.0% (2.4)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Consolidated gross profit 1,485 20.2% 1,599 21.0% (7.1)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
EVRAZ's consolidated cost of revenue amounted to US$5,877
million, representing 79.8% of the Company's consolidated revenues,
in the first six months of 2013 compared to US$6,020 million, or
79.0% of consolidated revenues, in the first six months of 2012.
The decrease in the gross profit margin in the six months ended 30
June 2013 compared to the six months ended 30 June 2013 was
primarily due to lower average prices of steel products.
Steel Segment Cost of Revenue
Six months ended 30 June
--------------------------------------------------------------------------------------
2013 2012 2013 v 2012
----------------------------------- ----------------------------------- ------------
US$ million % of segment revenue US$ million % of segment revenue % change
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Cost of revenue 5,245 81.7% 5,742 81.8% (8.7)%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Raw materials 2,708 42.3% 3,192 45.5% (15.2)%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Iron ore 961 15.0% 1,074 15.3% (10.5)%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Coking coal 674 10.5% 847 12.1% (20.4)%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Scrap 710 11.1% 925 13.2% (23.2)%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Other raw materials 363 5.7% 346 4.9% 4.9%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Semi-finished products 214 3.3% 222 3.2% (3.6)%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Transportation 258 4.0% 269 3.8% (4.1)%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Staff costs 548 8.5% 515 7.3% 6.4%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Depreciation 221 3.4% 217 3.1% 1.8%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Energy 471 7.3% 492 7.0% (4.3)%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
Other* 825 12.9% 835 11.9% (1.2)%
-------------------------- ------------ --------------------- ------------ --------------------- ------------
*Includes repairs and maintenance, industrial services,
auxiliary materials, goods for resale, taxes in cost of revenue,
and effect of changes in work-in-progress and finished goods
inventories.
EVRAZ's steel segment cost of revenue decreased to US$5,245
million or 81.7% of steel segment revenue in the first six months
of 2013, compared to US$5,742 million or 81.8% of steel segment
revenue in the first six months of 2012.
The principal factors affecting the change in the steel segment
cost of revenue, in absolute terms, in the six months ended 30 June
2013 compared to the six months ended 30 June 2012 were as
follows:
-- Raw material costs decreased by 15.2% due to a decline in
prices for all main raw materials (particularly iron ore, coking
coal, scrap) accompanied by decrease in production volumes of crude
steel by 3%. Other factors influencing this decrease included a
higher proportion of own coking coal consumption, as a result of
higher production volumes at YuKU, and additional volumes from the
consolidation of Raspadskaya and disposal of DKHZ (consumption of
coal in H1 2012 of US$72 million).
-- Costs of semi-finished products decreased by 3.6% due to
lower average prices, which was partially compensated for by higher
volumes purchased from third parties.
-- Transportation costs decreased by 4.1% due to a change in
contract terms between TC Evrazholding and the Russian Railways
resulting in all transportation costs relating to sales of rails
reported as selling expenses in H1 2013, while in H1 2012 some
costs related to rent of third party wagons were reported in cost
of revenues (US$7 million). This decrease was accompanied by lower
intercompany sales and related transportation costs between Russian
steel operations (US$4 million).
-- Staff costs increased by 6.4% largely due to higher wages and
salaries of production staff which rose, in accordance with the
trade union agreements.
-- Depreciation and depletion costs increased by 1.8% primarily
due to capitalisation of expenses following the completion of major
investment projects at EVRAZ ZSMK and EVRAZ NTMK.
-- Energy costs decreased by 4.3%, which was primarily
attributable to reduced consumption volume of natural gas at ZSMK
(-US$23 million) due to classification of the results of Central
Heat and Power Plant in Other operations segment in H1 2013 and
NTMK (-US$11 million) as a result of PCI implementation. This
decrease was partially offset by higher electricity and natural gas
prices.
-- Other costs decreased by 1.2% due to an increase in stock of
goods in ports in H1 2013, while there was a destocking in H1
2012.
Steel segment gross profit decreased by 8.3% to US$1,171 million
in the first six months of 2013 from US$1,277 million in the first
six months of 2012. Gross profit margin amounted to 18.3% of steel
segment revenue in the six months ended 30 June 2013 compared with
18.2% in the corresponding period last year, reflecting the decline
in steel segment revenues by 8.6%, while cost of revenues decrease
by 8.7%.
Mining Segment Cost of Revenue and Gross Profit
Six months ended 30 June
--------------------------------------------------------------------------------------
2013 2012 2013 v 2012
----------------------------------- ----------------------------------- ------------
US$ million % of segment revenue US$ million % of segment revenue % change
----------------- ------------ --------------------- ------------ --------------------- ------------
Cost of revenue 1,321 81.4% 1,175 85.0% 12.4%
----------------- ------------ --------------------- ------------ --------------------- ------------
Raw materials 47 2.9% 87 6.3% (46.0)%
----------------- ------------ --------------------- ------------ --------------------- ------------
Transportation 203 12.5% 117 8.5% 73.5%
----------------- ------------ --------------------- ------------ --------------------- ------------
Staff costs 366 22.6% 267 19.3% 37.1%
----------------- ------------ --------------------- ------------ --------------------- ------------
Depreciation 243 15.0% 356 25.7% (31.7)%
----------------- ------------ --------------------- ------------ --------------------- ------------
Energy 156 9.6% 130 9.4% 20.0%
----------------- ------------ --------------------- ------------ --------------------- ------------
Other* 306 18.8% 218 15.8% 40.4%
----------------- ------------ --------------------- ------------ --------------------- ------------
* Includes primarily contractor services and materials for
maintenance and repairs and certain taxes
The mining segment cost of revenue increased to US$1,321 million
or 81.4% of mining segment revenue in the six months ended 30 June
2013 compared with US$1,175 million or 85.0% of mining segment
revenue in the six months ended 30 June 2012.
The principal factors affecting the change in mining segment
cost of revenue, in absolute terms, in the six months ended 30 June
2013 compared to the six months ended 30 June 2012 were:
-- Raw material costs decreased by 46.0% primarily due to switch
to a tolling scheme of sinter production by EVRAZ VGOK instead of
purchasing the raw material from EVRAZ NTMK (-US$24 million), and
decrease of third party coal purchases for production of
concentrate by Yuzhkuzbassugol (-US$9 million).
-- Transportation costs increased by 73.5% due to the
consolidation of Raspadskaya (+US$39 million), increased export
sales of iron ore and coal (+US$17 million), change in contract
terms from FCA to CPT for supply of iron ore between EVRAZ ZSMK and
Evrazruda (+US$11 million) and EVRAZ VGOK (+US$10 million) and an
increase in Russian railway tariffs.
-- Staff costs increased by 37.1%. The increase was largely
attributable to consolidation of Raspadskaya (US$61 million) and
the increase in wages and salaries in accordance with trade union
agreements.
-- Depreciation and depletion costs decreased by 31.7% mainly
due to a lower depreciation and depletion expense at
Yuzhkuzbassugol caused by a revaluation of reserves in June 2012
and January 2013 (net effect of US$154 million) and a significant
reduction in depreciaton at Evrazruda due to impairment of assets
(net effect of US$23 million) This decrease was partially offset by
an increase of depreciation due to consolidation of Raspadskaya
(US$66 million).
-- Energy costs increased by 20% primarily due to higher
electricity and natural gas prices, the consolidation of
Raspadskaya (+US$7 million) and higher production volumes at
Yuzhkuzbassugol and EVRAZ KGOK.
-- Other costs increased by 40.4%, primarily due to the
consolidation of Raspadskaya (+US$79 million) and higher processed
volumes of concentrate at third party facilities by Yuzhkuzbassugol
(+US$24 million).
The Mining segment's gross profit increased to US$301 million in
the six months ended 30 June 2013 from US$208 million in the six
months ended 30 June 2012. The increase in the gross profit margin
in the first six months of 2013compared to the first six months of
2012 was primarily attributable to lower depreciation and depletion
at Yuzhkuzbassugol and additional profit from consolidation of
Raspadskaya (US$24 million).
Vanadium Segment Cost of Revenue and Gross Profit
Six months ended 30 June
--------------------------------------------------------------------------------------
2013 2012 2013 v 2012
----------------------------------- ----------------------------------- ------------
US$ million % of segment revenue US$ million % of segment revenue % change
----------------- ------------ --------------------- ------------ --------------------- ------------
Cost of revenue 205 76.5% 242 92.0% (15.3)%
----------------- ------------ --------------------- ------------ --------------------- ------------
Raw materials 38 14.2% 64 24.3% (40.6)%
----------------- ------------ --------------------- ------------ --------------------- ------------
Staff costs 33 12.3% 31 11.8% 6.5%
----------------- ------------ --------------------- ------------ --------------------- ------------
Depreciation 7 2.6% 11 4.2% (36.4)%
----------------- ------------ --------------------- ------------ --------------------- ------------
Energy 33 12.3% 31 11.8% 6.5%
----------------- ------------ --------------------- ------------ --------------------- ------------
Other 94 35.1% 105 39.9% (10.5)%
----------------- ------------ --------------------- ------------ --------------------- ------------
The vanadium segment cost of revenue decreased by 15.3% to
US$205 million, or 76.5% of vanadium segment revenue, in the six
months ended 30 June 2013 from US$242 million, or 92.0% of vanadium
segment revenue, in the six months ended 30 June 2012. The decrease
in EVRAZ's vanadium segment's cost of revenue in the first six
months of 2013 as compared to the first six months of 2012, in
absolute terms, was attributable to a decrease in sales volumes as
discussed in the Vanadium segment revenues above.
In H1 2013, gross profit of EVRAZ's vanadium segment increased
to US$63 million compared with US$21 million in H1 2012 primarily
due to higher prices for vanadium products.
Other operations segment cost of revenue and gross profit
The other operations segment's cost of revenue amounted to 81.7%
of other operations revenue, or US$380 million, in the first six
months of 2013 compared to 74.1%, or US$401 million, in the first
six months of 2012.
The major components of cost of revenue at EVRAZ Nakhodka Trade
Sea Port are staff and inventory costs. The major components of
EvrazTrans' cost of revenue in H1 2012 were rental and maintenance
of railway cars. The major component of MEF's cost of revenue is
the purchase of electricity from power generating companies. The
major components of ZapSib Power Plant's cost of revenue are steam
coal for power generation, depreciation and staff costs; while the
major component of Sinano's cost of revenue is ship hire fees.
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 28 to 31 of the Annual Report 2012. The majority of
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 factors, industry conditions and cost effectiveness
EVRAZ Steel, Mining and Vanadium operations are highly dependent
and sensitive to the global macroeconomic environment, with
economic conditions in China and Europe being of particular
importance. The risk to EVRAZ's operations can be different
dependent on the regions of activity and on EVRAZ's products;
finished, semi-finished or commodities. The global supply and
demand balance for steel and particularly for iron ore and
metallurgical coal has the potential to significantly affect both
product prices and volumes across all markets. Fluctuations in
RUR/USD exchange rates and other foreign currencies can negatively
impact performance and liquidity. As EVRAZ's operations have a high
level of fixed costs, global economic and industry conditions have
significant impact on the Company's operational performance and
liquidity. EVRAZ has a focused investment policy aimed at
reducing and managing fixed costs and reducing direct costs by
expanding the Company's self-coverage of key raw material inputs
with the objective of being among the sector's lowest cost
producers.
-- Health, safety and environmental (HSE) issues
Safety risks are inherent to the Company's principal business
activities of steelmaking and mining. Further, 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 actions could have a material adverse effect on the
Company's business, financial condition and business prospects. HSE
is a functional area where new laws, regulations and sanctions are
continuously introduced. 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 issues are given top priority
at all internal management level meetings. EVRAZ has instigated a
programme to improve the management of safety risks across all
business units with the objective of embedding a new safety,
harm-free culture at all management and operational levels.
Management KPIs include a material factor for safety performance.
Safety training has been reviewed with the aim of providing strong
and professional safety leadership. For all new projects an
operational safety assessment is undertaken as a first step to the
engineering design and project approval.
-- Dependency on certain key markets
EVRAZ revenues are substantially derived from customers in
Russia, around 43% and North America, around 22%, 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 regions are regularly reviewed. The
review includes consideration of 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 (EVRAZ Metal Inprom) and external distribution
networks.
-- Capital projects and expenditure
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 and external market expectations for each particular
project and to maximise levels of investment returns. 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 Company's planned future
performance. The Company has developed various stressed business
scenarios to assess the Company's ability to meet or flex capital
expenditure requirements both for maintaining current operations as
well as for commissioning key projects. Project delivery is closely
monitored against project plans resulting in high level action to
manage project investment both for timely delivery and for planned
project expenditure.
-- Human Resources
EVRAZ management and employees represent a key resource and are
critical to the delivery of the Company's objectives. The principal
related risk is the quality and availability of critical
operational and business skills. Associated risks involve
selection, recruitment, training and retention of employees and
qualified executives. Succession planning is a key feature of
EVRAZ's human resources management. However, in certain regions and
for particular business units where there is a general skill
scarcity, succession planning cannot anticipate all management
risks. The scarcity of experienced and skilled mining professionals
is a particular risk. The Russian exposure is especially
accentuated in the remoteness and in the harsh seasonal climatic
conditions of certain of the Company's mining operations.
Generally, union relations are largely stable; a costly stoppage
that EVRAZ experienced in South Africa in 2012 related rather to
local conditions than to EVRAZ's industrial relations activity.
EVRAZ seeks to meet its leadership and skill needs through
retention of its employees, internal promotion, structured
professional internal mentoring and external development
programmes.
-- Potential Actions by Governments
EVRAZ operates in a number of countries and there is a risk that
governments or government agencies could adopt new laws,
regulations or other requirements which could have an adverse
impact on the Company's operations and business. Such developments
could have the effect of limiting the Company's ability to obtain
financing in international markets.
EVRAZ and its executive teams are members of various national
industry bodies and, as a result, contribute to the thinking of
such bodies and, when appropriate, participate in relevant
discussions with political and regulatory authorities.
-- 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
for 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 other large and multi-national corporates,
faces various treasury and taxation risks including liquidity,
credit access, currency fluctuations, 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 with such internal
controls by an 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.
EVRAZ's ability to incur debt is limited mainly to refinancing
due to its existing Eurobond covenants. While EVRAZ has a total
funding cap, the flexibility built into the Company's capital and
maintenance expenditure permits EVRAZ to maintain its liquidity
availability at a low level of cash generation. EVRAZ's corporate
finance team and the directors regularly and pro-actively review
all funding requirements and exposures.
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
28 August 2013
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 ended 30 June
---------------------------
2013 2012
------------- ------------
(US$ million)
------------------------------------------------- ---------------------------
Consolidated EBITDA reconciliation
------------------------------------------------- ---------------------------
Profit from operations 183 439
------------------------------------------------- ------------- ------------
Add:
------------------------------------------------- ------------- ------------
Depreciation, depletion and amortisation 562 668
------------------------------------------------- ------------- ------------
Impairment of assets 7 80
------------------------------------------------- ------------- ------------
Loss on disposal of property, plant & equipment 10 25
------------------------------------------------- ------------- ------------
Foreign exchange loss/(gain) 177 (28)
------------------------------------------------- ------------- ------------
Consolidated EBITDA 939 1,184
------------------------------------------------- ------------- ------------
Steel segment EBITDA reconciliation
------------------------------------------------- ------------- ------------
Profit from operations 356 393
------------------------------------------------- ------------- ------------
Add:
------------------------------------------------- ------------- ------------
Depreciation and amortisation 277 257
------------------------------------------------- ------------- ------------
Impairment of assets (32) 64
------------------------------------------------- ------------- ------------
Loss on disposal of property, plant & equipment 8 17
------------------------------------------------- ------------- ------------
Foreign exchange loss/(gain) 42 (25)
------------------------------------------------- ------------- ------------
Steel segment EBITDA 651 706
------------------------------------------------- ------------- ------------
Mining segment EBITDA reconciliation
------------------------------------------------- ------------- ------------
Profit from operations 72 74
------------------------------------------------- ------------- ------------
Add:
------------------------------------------------- ------------- ------------
Depreciation, depletion and amortisation 257 364
------------------------------------------------- ------------- ------------
Impairment of assets 39 15
------------------------------------------------- ------------- ------------
Loss on disposal of property, plant & equipment 2 8
------------------------------------------------- ------------- ------------
Foreign exchange loss/(gain) (16) (42)
------------------------------------------------- ------------- ------------
Mining segment EBITDA 354 419
------------------------------------------------- ------------- ------------
Vanadium segment EBITDA reconciliation
------------------------------------------------- ------------- ------------
(Loss)/profit from operations 27 (19)
------------------------------------------------- ------------- ------------
Add:
------------------------------------------------- ------------- ------------
Depreciation and amortisation 7 23
------------------------------------------------- ------------- ------------
Vanadium segment EBITDA 34 4
------------------------------------------------- ------------- ------------
Other operations EBITDA reconciliation
------------------------------------------------- ------------- ------------
Profit from operations 45 71
------------------------------------------------- ------------- ------------
Add:
------------------------------------------------- ------------- ------------
Depreciation and amortisation 17 21
------------------------------------------------- ------------- ------------
Impairment of assets 0 1
------------------------------------------------- ------------- ------------
Gain on disposal of property, plant & equipment (1) 0
------------------------------------------------- ------------- ------------
Foreign exchange (gain)/loss 0 1
------------------------------------------------- ------------- ------------
Other operations EBITDA 61 94
------------------------------------------------- ------------- ------------
Unallocated EBITDA reconciliation
------------------------------------------------- ------------- ------------
Loss from operations (256) (130)
------------------------------------------------- ------------- ------------
Add:
------------------------------------------------- ------------- ------------
Depreciation and amortisation 4 3
------------------------------------------------- ------------- ------------
Loss on disposal of property, plant & equipment 1 0
------------------------------------------------- ------------- ------------
Foreign exchange (gain)/loss 151 38
------------------------------------------------- ------------- ------------
Unallocated EBITDA (100) (89)
------------------------------------------------- ------------- ------------
Intersegment eliminations
------------------------------------------------- ------------- ------------
Eliminations of intersegment EBITDA (61) 50
------------------------------------------------- ------------- ------------
Eliminations EBITDA (61) 50
------------------------------------------------- ------------- ------------
Appendix 2
Cash and short-term bank deposits
Cash and short-term bank deposits 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 Cash and short-term
bank deposits may be different from the calculation used by other
companies and therefore comparability may be limited.
30 June 2013 31 December 2012
------------- -------------------
(US$ million)
----------------------------------------------------- ----------------------------------
Cash and short-term bank deposits Calculation
----------------------------------------------------- ----------------------------------
Cash and cash equivalents 1,471 1,320
----------------------------------------------------- ----------------- ---------------
Cash of disposal groups classified as held for sale 66 70
----------------------------------------------------- ----------------- ---------------
Short-term bank deposits 0 674
----------------------------------------------------- ----------------- ---------------
Cash and short-term bank deposits 1,537 2,064
----------------------------------------------------- ----------------- ---------------
Appendix 3
Free Cash Flow
Free Cash Flow represents EBITDA, net of non-cash items, less
changes in working capital, income tax paid, interest paid and
covenant reset charges, conversion premiums, premiums on early
repurchase of bonds and realised gain on swaps, interest income and
debt issue costs, less capital expenditure, short-term deposits of
acquiree (at the date of business combination), purchases of
subsidiaries, net of cash acquired, proceeds from sale of disposal
groups classified as held for sale, net of transaction costs, plus
other cash flows from investing activities. Free Cash Flow 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 Free Cash Flow may be different from the calculation
used by other companies and therefore comparability may be
limited.
Free Cash Flow has been calculated as follows:
Free Cash Flow Calculation 30 June 2013
--------------------------------------------------------------------------------------------- --------------
(US$ million)
--------------------------------------------------------------------------------------------- --------------
EBITDA (excluding non-cash items) 904
--------------------------------------------------------------------------------------------- --------------
Changes in working capital (150)
--------------------------------------------------------------------------------------------- --------------
Income tax paid (126)
--------------------------------------------------------------------------------------------- --------------
Net cash flows from operating activities 628
--------------------------------------------------------------------------------------------- --------------
Net interest and similar payments (273)
--------------------------------------------------------------------------------------------- --------------
Capital expenditure (492)
--------------------------------------------------------------------------------------------- --------------
Short-term deposits of acquiree (at the date of business combination) -
--------------------------------------------------------------------------------------------- --------------
Purchases of interest in associates, joint ventures and subsidiaries, net of cash acquired 66
--------------------------------------------------------------------------------------------- --------------
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs (1)
--------------------------------------------------------------------------------------------- --------------
Other cash flows from investing activities (15)
--------------------------------------------------------------------------------------------- --------------
Free Cash Flow (87)
--------------------------------------------------------------------------------------------- --------------
Appendix 4
Total Debt
Total Debt represents nominal value of loans and borrowings plus
unpaid interest, finance lease liabilities, loans of assets
classified as held for sale, the nominal effect of cross-currency
swaps on principal of rouble-denominated notes. Total Debt is not a
measure under IFRS and it should not be considered as an
alternative to other measures of financial position. EVRAZ's
calculation of Total Debt may be different from the calculation
used by other companies and therefore comparability may be limited.
The current calculation shall not be considered for covenant
compliance reasons.
Total Debt has been calculated as follows:
Total Debt Calculation 30 June 2013 31 December 2012
------------- -----------------
(US$ million)
--------------------------------------------------------------------------------- --------------------------------
Long-term loans, net of current portion 6,750 6,373
--------------------------------------------------------------------------------- ------------- -----------------
Short-term loans and current portion of long-term loans 1,453 1,783
--------------------------------------------------------------------------------- ------------- -----------------
Add back: Unamortised debt issue costs 78 116
--------------------------------------------------------------------------------- ------------- -----------------
Nominal effect of cross-currency swaps on principal of rouble-denominated notes 193 76
--------------------------------------------------------------------------------- ------------- -----------------
Loans of assets classified as held for sale 120 79
--------------------------------------------------------------------------------- ------------- -----------------
Finance lease liabilities, including current portion 12 13
--------------------------------------------------------------------------------- ------------- -----------------
Total Debt under new methodology 8,606 8,440
--------------------------------------------------------------------------------- ------------- -----------------
Nominal effect of cross-currency swaps on principal of rouble-denominated notes n/a (76)
--------------------------------------------------------------------------------- ------------- -----------------
Unamortised debt issue costs n/a (116)
--------------------------------------------------------------------------------- ------------- -----------------
Total Debt, as previously reported n/a 8,248
--------------------------------------------------------------------------------- ------------- -----------------
Appendix 5
Net Debt
Net Debt represents total debt less cash and liquid short-term
financial assets, including those related to disposal groups
classified as held for sale. Net Debt is not a measure under IFRS
and 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. The current calculation
shall not be considered for covenant compliance reasons.
Net Debt has been calculated as follows:
Net Debt Calculation 30 June 2013 31 December 2012
------------- -----------------
(US$ million)
-------------------------------------------- --------------------------------
Total Debt 8,606 8,440
-------------------------------------------- ------------- -----------------
Short-term bank deposits (0) (674)
-------------------------------------------- ------------- -----------------
Cash and cash equivalents (1,471) (1,320)
-------------------------------------------- ------------- -----------------
Cash of assets classified as held for sale (66) (70)
-------------------------------------------- ------------- -----------------
Collateral under swaps (26) -
-------------------------------------------- ------------- -----------------
Net Debt under new methodology 7,043 6,376
-------------------------------------------- ------------- -----------------
Liabilities/(assets) under swaps n/a (76)
-------------------------------------------- ------------- -----------------
Unamortised debt issue costs n/a (116)
-------------------------------------------- ------------- -----------------
Net Debt, as previously reported n/a 6,184
-------------------------------------------- ------------- -----------------
EVRAZ plc
Unaudited Interim Condensed Consolidated Financial
Statements
Six-month period ended 30 June 2013
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 2013 which comprises the Interim Condensed
Consolidated Statement of Operations, Interim Condensed
Consolidated Statement of Comprehensive Income, Interim Condensed
Consolidated Statement of Financial Position, Interim Condensed
Consolidated Statement of Cash Flows, Interim Condensed
Consolidated Statement of Changes in Equity and related notes 1 to
15. We have read the other information contained in the Interim
report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim report in accordance with the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority. As disclosed in note 2, the annual financial statements
of the Group are prepared in accordance with IFRSs as adopted by
the European Union. The condensed set of financial statements
included in this interim financial report has been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements 2410 (UK and Ireland), 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim report for the six months ended 30 June 2013 is not
prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
28 August 2013
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 2013 2012
restated*
--------- ----------
Revenue
Sale of goods $ 7,142 $ 7,440
Rendering of services 220 179
--------- ----------
7,362 7,619
Cost of revenue (5,877) (6,020)
Gross profit 1,485 1,599
Selling and distribution costs (618) (621)
General and administrative expenses (448) (428)
Social and social infrastructure
maintenance expenses (22) (21)
Loss on disposal of property, plant
and equipment (10) (25)
Impairment of assets 5 (7) (80)
Foreign exchange gains/(losses),
net (177) 28
Other operating income 48 33
Other operating expenses (68) (46)
--------- ----------
Profit from operations 183 439
Interest income 16 8
Interest expense (377) (322)
Share of profits/(losses) of joint
ventures and associates 8 3 6
Gain/(loss) on derecognition of equity
investments, net 4 89 -
Gain/(loss) on financial assets and
liabilities, net (71) (26)
Gain/(loss) on disposal groups classified
as held for sale, net 54 (2)
Other non-operating gains/(losses),
net (3) (13)
Profit/(loss) before tax (106) 90
Income tax expense 6 (16) (136)
--------- ----------
Net loss $ (122) $ (46)
========= ==========
Attributable to:
Equity holders of the parent entity $ (111) $ (34)
Non-controlling interests (11) (12)
--------- ----------
$ (122) $ (46)
========= ==========
Earnings per share:
basic and diluted, for profit/(loss)
attributable to equity holders of
the parent entity, US dollars 11 $ (0.07) $ (0.03)
* The amounts shown here do not correspond to the financial
statements for the six-month period ended 30 June 2012 and reflect
adjustments made in connection with the obligatory change in the
accounting policies (Note 2).
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of
Comprehensive Income
(In millions of US dollars)
Six-month period
ended 30 June
Notes 2013 2012
restated*
-------- ----------
Net loss $ (122) $ (46)
Other comprehensive income
Other comprehensive income to be
reclassified to profit or loss in
subsequent periods
Exchange differences on translation
of foreign operations into presentation
currency (414) (116)
Recycling of exchange difference
to profit or loss (Note 4) 68 -
Net gains/(losses) on available-for-sale
financial assets 4 6
Effect of translation to presentation
currency of the Group's joint ventures
and associates 8 (10) 4
-------- ----------
Share of other comprehensive income
of joint ventures and associates
accounted for using the equity method (10) 4
Items not to be reclassified to
profit or loss in subsequent periods
Decrease in revaluation surplus
in connection with the impairment
of property, plant and equipment (5) -
Income tax effect 1 -
-------- ----------
(4) -
Total other comprehensive loss (356) (106)
-------- ----------
Total comprehensive loss, net of
tax $ (478) $ (152)
======== ==========
Attributable to:
Equity holders of the parent entity $ (430) $ (140)
Non-controlling interests (48) (12)
-------- ----------
$ (478) $ (152)
======== ==========
* The amounts shown here do not correspond to the financial
statements for the six-month period ended 30 June 2012 and reflect
adjustments made in connection with the obligatory change in the
accounting policies (Note 2).
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of Financial
Position
(In millions of US dollars)
30 June 31 December
Notes 2013 2012
restated*
------------- -------------
Assets
Non-current assets
Property, plant and equipment 7 $ 9,773 $ 7,792
Intangible assets other than goodwill 545 586
Goodwill 2,131 2,180
Investments in joint ventures and
associates 8 187 551
Deferred income tax assets 147 143
Other non-current financial assets 139 92
Other non-current assets 81 64
------------- -------------
13,003 11,408
Current assets
Inventories 1,851 1,978
Trade and other receivables 1,050 895
Prepayments 125 143
Loans receivable 9 19
Receivables from related parties 9 14 12
Income tax receivable 71 59
Other taxes recoverable 245 329
Other current financial assets 66 712
Cash and cash equivalents 10 1,471 1,320
------------- -------------
4,902 5,467
Assets of disposal groups classified
as held for sale 916 930
------------- -------------
5,818 6,397
------------- -------------
Total assets $ 18,821 $ 17,805
============= =============
Equity and liabilities
Equity
Equity attributable to equity holders
of the parent entity
Issued capital 11 $ 1,473 $ 1,340
Treasury shares (1) (1)
Additional paid-in capital 11 2,310 1,820
Revaluation surplus 169 173
Other reserves 11 156 -
Unrealised gains and losses 9 5
Accumulated profits 2,893 3,004
Translation difference (1,743) (1,424)
------------- -------------
5,266 4,917
Non-controlling interests 509 200
------------- -------------
5,775 5,117
Non-current liabilities
Long-term loans 12 6,750 6,373
Deferred income tax liabilities 1,036 927
Finance lease liabilities 10 11
Employee benefits 611 578
Provisions 265 257
Other long-term liabilities 320 170
------------- -------------
8,992 8,316
Current liabilities
Trade and other payables 1,224 1,412
Advances from customers 122 157
Short-term loans and current portion
of long-term loans 12 1,453 1,783
Payables to related parties 9 451 257
Income tax payable 82 48
Other taxes payable 216 195
Current portion of finance lease liabilities 2 2
Provisions 29 32
Dividends payable by the Group's subsidiaries
to non-controlling shareholders 8 8
------------- -------------
3,587 3,894
Liabilities directly associated with
disposal groups classified as held
for sale 467 478
------------- -------------
4,054 4,372
------------- -------------
Total equity and liabilities $ 18,821 $ 17,805
============= =============
* The amounts shown here do not correspond to the 2012 financial
statements and reflect adjustments made in connection with the
obligatory change in the accounting policies and a correction of a
prior period error (Note 2).
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
2013 2012
restated*
-------- ---------
Cash flows from operating activities
Net loss $ (122) $ (46)
Adjustments to reconcile net profit/(loss)
to net cash flows from operating activities:
Deferred income tax (benefit)/expense (131) (30)
Depreciation, depletion and amortisation 562 668
Loss on disposal of property, plant and
equipment 10 25
Impairment of assets 7 80
Foreign exchange (gains)/losses, net 177 (28)
Interest income (16) (8)
Interest expense 377 322
Share of (profits)/losses of associates
and joint ventures (3) (6)
Gain/(loss) on derecognition of equity investments,
net (89) -
(Gain)/loss on financial assets and liabilities,
net 71 26
(Gain)/loss on disposal groups classified
as held for sale, net (54) 2
Other non-operating (gains)/losses, net 3 13
Bad debt expense (1) 10
Changes in provisions, employee benefits
and other long-term assets and liabilities (43) (70)
Expense arising from the equity-settled
awards 11 8
Other (2) (2)
757 964
Changes in working capital:
Inventories 86 (38)
Trade and other receivables (176) (14)
Prepayments 15 (31)
Receivables from/payables to related parties 94 91
Taxes recoverable 68 186
Other assets (3) (55)
Trade and other payables (224) (53)
Advances from customers (32) (15)
Taxes payable 42 (17)
Other liabilities 1 71
Net cash flows from operating activities 628 1,089
Cash flows from investing activities
Issuance of loans receivable to related
parties (1) (3)
Issuance of loans receivable (1) -
Proceeds from repayment of loans receivable,
including interest 1 4
Purchases of subsidiaries, net of cash acquired
(Note 4) 82 -
Purchase of interest in a joint venture
(Note 8) (16) -
Restricted deposits at banks in respect
of investing activities (1) (13)
Short-term deposits at banks, including
interest 680 6
Purchases of property, plant and equipment
and intangible assets (492) (565)
Proceeds from disposal of property, plant
and equipment 3 4
Proceeds from sale of disposal groups classified
as held for sale, net of transaction costs (1) 11
Dividends received 1 86
Other investing activities, net (17) -
Net cash flows from/(used in) investing
activities 238 (470)
* The amounts shown here do not correspond to the financial
statements for the six-month period ended 30 June 2012 and reflect
adjustments made in connection with the obligatory change in the
accounting policies (Note 2).
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
(continued)
(In millions of US dollars)
Six-month period
ended
30 June
2013 2012
restated*
----------- -----------
Cash flows from financing activities
Purchase of treasury shares in the course
of the Group's reorganisation $ - $ (4)
Proceeds from bank loans and notes 1,776 2,072
Repayment of bank loans and notes, including
interest (2,849) (1,807)
Net proceeds from/(repayment of) bank overdrafts
and credit lines, including interest 412 93
Payments under covenants reset - (7)
Gain on derivatives not designated as hedging
instruments 19 42
Collateral under swap contracts (26) (21)
Payments under finance leases, including
interest (2) (9)
Net cash flows from/(used in) financing
activities (670) 359
Effect of foreign exchange rate changes
on cash and cash equivalents (49) (16)
Net increase/(decrease) in cash and cash
equivalents 147 962
Cash and cash equivalents at beginning of
year 1,320 801
----------- -----------
Add back: decrease in cash of disposal groups
classified as assets held for sale 4 -
----------- -----------
Cash and cash equivalents at end of period $ 1,471 $ 1,763
=========== ===========
Supplementary cash flow information:
Cash flows during the period:
Interest paid $ (302) $ (271)
Interest received 17 3
Income taxes paid by the Group (126) (134)
* The amounts shown here do not correspond to the financial
statements for the six-month period ended 30 June 2012 and reflect
adjustments made in connection with the obligatory change in the
accounting policies (Note 2).
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of Changes in
Equity
(In millions of US dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Attributable to equity holders of the parent entity
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additional Unrealised
Issued Treasury paid-in Revaluation Other gains Accumulated Translation Non-controlling Total
capital shares capital surplus reserves and losses profits difference Total interests Equity
------------------------ ---------------------- ------------------------ ---------------------- ---------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2012 (as
reported) $ 1,340 $ (1) $ 1,820 $ 173 $ - $ 5 $ 3,356 $ (1,520) $ 5,173 $ 200 $ 5,373
Correction of a
prior period
error (Note 2) - - - - - - (96) 96 - - -
Change in
accounting
policies
(Note 2) - - - - - - (256) - (256) - (256)
------------------------ ---------------------- ------------------------ ---------------------- ---------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2012 (as
restated) 1,340 (1) 1,820 173 - 5 3,004 (1,424) 4,917 200 5,117
Net loss - - - - - - (111) - (111) (11) (122)
Other
comprehensive
income/(loss) - - - (4) - 4 - (319) (319) (37) (356)
Total
comprehensive
income/(loss)
for the period - - - (4) - 4 (111) (319) (430) (48) (478)
Issue of shares
(Note 4) 133 - 478 - 156 - - - 767 - 767
Acquisition of
non-controlling
interests in
existing
subsidiaries
(Note 4) - - 1 - - - - - 1 (3) (2)
Non-controlling
interests
arising on
acquisition
of subsidiaries - - - - - - - - - 360 360
Share-based
payments - - 11 - - - - - 11 - 11
At 30 June 2013 $ 1,473 $ (1) $ 2,310 $ 169 $ 156 $ 9 $ 2,893 $ (1,743) $ 5,266 $ 509 $ 5,775
======================== ====================== ======================== ====================== ====================== ==================== ============================ ========================== ======================== ====================== ========================
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 Other gains Accumulated Translation Non-controlling Total
capital shares capital surplus reserves and losses profits difference Total interests Equity
------------------------ ---------------------- ------------------------ ---------------------- -------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2011 (as
reported) $ 1,338 $ (8) $ 2,289 $ 171 $ - $ - $ 3,606 $ (1,851) $ 5,545 $ 236 $ 5,781
Change in
accounting
policies
(Note 2) - - - - - - (200) 5 (195) - (195)
------------------------ ---------------------- ------------------------ ---------------------- -------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2011 (as
restated) 1,338 (8) 2,289 171 - - 3,406 (1,846) 5,350 236 5,586
Net loss
(restated)* - - - - - - (34) - (34) (12) (46)
Other
comprehensive
income/(loss) - - - - - 6 - (112) (106) - (106)
Total
comprehensive
income/(loss)
for the period
(restated)* - - - - - 6 (34) (112) (140) (12) (152)
Issue of shares
in the
course of the
Group's
reorganisation 2 (4) - - - - 8 - 6 (10) (4)
Acquisition of
non-controlling
interests in
existing
subsidiaries - - 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 - - - - - - (22) - (22) - (22)
Transfer of
treasury shares
to participants
of the
Incentive Plan - 11 - - - - (11) - - - -
Share-based
payments - - 8 - - - - - 8 - 8
Dividends
declared by the
parent entity
to its
shareholders - - - - - - (228) - (228) - (228)
------------------------ ---------------------- ------------------------ ---------------------- -------------------- -------------------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 30 June 2012
(restated)* $ 1,340 $ (1) $ 2,298 $ 171 $ - $ 6 $ 3,089 $ (1,958) $ 4,945 $ 212 $ 5,157
======================== ====================== ======================== ====================== ==================== ==================== ============================ ========================== ======================== ====================== ========================
* The amounts shown here do not correspond to the financial
statements for the six-month period ended 30 June 2012 and reflect
adjustments made in connection with the obligatory change in the
accounting policies (Note 2).
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Selected Notes
to the Unaudited Interim Condensed Consolidated Financial
Statements
Six-month period ended 30 June 2013
1. Corporate Information
These interim condensed consolidated financial statements were
authorised for issue by the Board of Directors of EVRAZ plc on 28
August 2013.
EVRAZ plc ("EVRAZ plc" or "the Company") was incorporated on 23
September 2011 as a public company under the laws of the United
Kingdom with the registered number 7784342. The Company's
registered office is at 5(th) Floor, 6 St. Andrew Street, London,
EC4A 3AE, United Kingdom.
The Company, together with its subsidiaries (the "Group"), is
involved in the production and distribution of steel and related
products and coal and iron ore mining. In addition, the Group
produces vanadium products. The Group is one of the largest steel
producers globally.
Lanebrook Limited (Cyprus) is the ultimate controlling party of
the Company.
Going Concern
These interim condensed consolidated financial statements have
been prepared on a going concern basis.
The Group's activities in all of its operating segments continue
to be affected by the uncertainty and instability of the current
economic environment. In response the Group implemented a number of
cost cutting initiatives, reduced capital expenditures and
significantly reduced the level of debt subject to financial
maintenance covenants.
Based on the currently available facts and circumstances the
directors and management have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future.
2. Significant Accounting Policies
Basis of Preparation
These interim condensed consolidated financial statements have
been prepared in accordance with International Accounting Standard
("IAS") 34 "Interim Financial Reporting", as adopted by the
European Union. Accordingly, these interim condensed consolidated
financial statements do not include all the information and
disclosures required for a complete set of financial statements,
and should be read in conjunction with the Group's annual
consolidated financial statements for the year ended 31 December
2012, which were prepared in accordance with International
Financial Reporting Standards, as adopted by the European Union,
and also in conjunction with the explanation of the correction of a
prior period error below as to how certain of those comparative
figures have been restated to reclassify from other comprehensive
loss to loss for the period, the cumulative amount of exchange
differences relating to the foreign operations that were disposed
of in 2012.
The comparative figures as of 31 December 2012 are not the
Company's statutory accounts for the year ended 31 December 2012 in
terms of Section 435 of the Companies Act 2006. Statutory accounts
for the year ended 31 December 2012, 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 2012 have been filed with the
Registrar of Companies.
Operating results for the six-month period ended 30 June 2013
are not necessarily indicative of the results that may be expected
for the year ending 31 December 2013.
Restatement of Financial Statements
Correction of a Prior Period Error
According to IAS 21 "The Effects of Changes in Foreign Exchange
Rates" on the disposal of a foreign operation, the cumulative
amount of the exchange differences relating to that foreign
operation, recognised in other comprehensive income and accumulated
in the separate component of equity, should be reclassified from
equity to profit or loss (as a reclassification adjustment) when
the gain or loss on disposal is recognised. In 2013, the Group
discovered that in 2012 it did not reclassify the accumulated
exchange losses in the amount of $96 million on the disposal of its
subsidiaries - Dneprodzerzhinsk Coke Chemical Plant and Prichaly
Kominterna. As such, the Group corrected this prior period error
and has disclosed the restated consolidated statements of
operations and comprehensive income, the statement of financial
position and the relevant extract from the statement of changes in
equity for the year ended 31 December 2012 below.
The correction of this error does not affect the Group's
compliance with financial covenants at 31 December 2012.
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Obligatory Change in the Accounting Policies Following the
Amendments to IAS 19
Amended IAS 19 "Employee Benefits", which is effective for
annual periods beginning on or after 1 January 2013, introduced a
full recognition of deficit/(surplus) of a defined benefit
obligation in the statement of financial position, net presentation
of interest on the defined benefit liabilities and assets, new
presentation of changes in defined benefit obligations and plan
assets and additional disclosure requirements. These amendments are
required to be applied retrospectively. As such, in these interim
consolidated financial statements the Group adjusted the balances
starting from the earliest prior period presented and the results
of its operations for the respective periods.
The effects of the restatements on the previously reported
amounts are set out below.
Statement of Operations Year ended 31 December 2012
Reclassification Change in
of accumulated accounting
As previously exchange policies
reported losses Restated
-------------- ----------------- ------------ ---------
Revenue
Sale of goods $ 14,367 $ - $ - $ 14,367
Rendering of services 359 - - 359
-------------- ----------------- ------------ ---------
14,726 - - 14,726
Cost of revenue (11,797) - 15 (11,782)
Gross profit 2,929 - 15 2,944
Selling and distribution costs (1,211) - - (1,211)
General and administrative
expenses (860) - - (860)
Social and social infrastructure
maintenance expenses (51) - - (51)
Loss on disposal of property,
plant and equipment (56) - - (56)
Impairment of assets (413) - - (413)
Foreign exchange gains/(losses),
net (41) - - (41)
Other operating income 75 - - 75
Other operating expenses (129) - - (129)
-------------- ----------------- ------------ ---------
Profit from operations 243 - 15 258
Interest income 23 - - 23
Interest expense (645) - (9) (654)
Share of profits/(losses)
of joint ventures and associates 1 - - 1
Gain/(loss) on financial assets
and liabilities, net 164 - - 164
Gain/(loss) on disposal groups
classified as held for sale,
net 114 (96) - 18
Other non-operating gains/(losses),
net (6) - - (6)
Profit/(loss) before tax (106) (96) 6 (196)
Income tax benefit/(expense) (229) - - (229)
-------------- ----------------- ------------ ---------
Net profit/(loss) $ (335) $ (96) $ 6 $ (425)
============== ================= ============ =========
Attributable to:
Equity holders of the parent
entity $ (308) $ (96) $ 6 $ (398)
Non-controlling interests (27) - - (27)
-------------- ----------------- ------------ ---------
$ (335) $ (96) $ 6 $ (425)
============== ================= ============ =========
Earnings/(losses) per share:
for profit/(loss) attributable
to equity holders of the parent
entity, US dollars, basic
and diluted $ (0.23) $ (0.07) $ - $ (0.30)
2. Significant Accounting Policies
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Comprehensive
Income Year ended 31 December 2012
Reclassification Change in
of accumulated accounting
As previously exchange policies
reported losses Restated
Net loss $ (335) $ (96) $ 6 $ (425)
Other comprehensive
income/(loss)
Effect of translation to
presentation
currency 286 - - 286
Reclassification of cumulative
amount of the exchange
differences
relating to the disposal of
subsidiaries to profit or
loss - 96 - 96
Net gains/(losses) on
available-for-sale
financial assets 4 - - 4
Actuarial losses recognised
in the period - - (74) (74)
Income tax effect - - 14 14
---------------------- ---------------------- ------------ ---------------------
4 96 (60) 40
Recognition of net actuarial
gains/(losses) by the Group's
joint ventures and associates - - (2) (2)
Net gains/(losses) on
available-for-sale
financial assets of the
Group's
joint ventures and associates 1 - - 1
Effect of translation to
presentation
currency of the Group's joint
ventures and associates 44 - - 44
---------------------- ---------------------- ------------ ---------------------
Share of other comprehensive
income/(loss) of joint
ventures
and associates accounted for
using the equity method 45 - (2) 43
Total other comprehensive
income/(loss) 335 96 (62) 369
---------------------- ---------------------- ------------ ---------------------
Total comprehensive
income/(loss),
net of tax $ - $ - $ (56) $ (56)
====================== ====================== ============ =====================
Attributable to:
Equity holders of the parent
entity $ 28 $ - $ (56) $ (28)
Non-controlling interests (28) - - (28)
---------------------- ---------------------- ------------ ---------------------
$ - $ - $ (56) $ (56)
====================== ====================== ============ =====================
Statement of Changes in
Equity 31 December 2012
Reclassification Change in
of accumulated accounting
As previously exchange policies
reported losses Restated
Accumulated profits $ 3,356 $ (96) $ (256) $ 3,004
Translation difference (1,520) 96 - (1,424)
2. Significant Accounting Policies
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Statement of Financial Position 31 December 2012
Reclassification Change
of accumulated in accounting
As previously exchange policies
reported losses Restated
-------------- ----------------- --------------- -------------
Assets
Non-current assets
Property, plant and equipment $ 7,792 $ - $ - $ 7,792
Intangible assets other than
goodwill 586 - - 586
Goodwill 2,180 - - 2,180
Investments in joint ventures
and associates 561 - (10) 551
Deferred income tax assets 66 - 77 143
Other non-current financial
assets 92 - - 92
Other non-current assets 103 - (39) 64
-------------- ----------------- --------------- -------------
11,380 - 28 11,408
Current assets -
Inventories 1,978 - - 1,978
Trade and other receivables 895 - - 895
Prepayments 143 - - 143
Loans receivable 19 - - 19
Receivables from related
parties 12 - - 12
Income tax receivable 59 - - 59
Other taxes recoverable 329 - - 329
Other current financial assets 712 - - 712
Cash and cash equivalents 1,320 - - 1,320
-------------- ----------------- --------------- -------------
5,467 - - 5,467
Assets of disposal groups
classified as held for sale 930 - - 930
-------------- ----------------- --------------- -------------
6,397 - - 6,397
-------------- ----------------- --------------- -------------
Total assets $ 17,777 $ - $ 28 $ 17,805
============== ================= =============== =============
Equity and liabilities
Equity
Equity attributable to equity
holders of the parent entity
Issued capital $ 1,340 $ - - $ 1,340
Treasury shares (1) - - (1)
Additional paid-in capital 1,820 - - 1,820
Revaluation surplus 173 - - 173
Unrealised gains and losses 5 - - 5
Accumulated profits 3,356 (96) (256) 3,004
Translation difference (1,520) 96 - (1,424)
-------------- ----------------- --------------- -------------
5,173 - (256) 4,917
Non-controlling interests 200 - - 200
-------------- ----------------- --------------- -------------
5,373 - (256) 5,117
Non-current liabilities
Long-term loans $ 6,373 $ - $ - $ 6,373
Deferred income tax liabilities 927 - - 927
Finance lease liabilities 11 - - 11
Employee benefits 294 - 284 578
Provisions 257 - - 257
Other long-term liabilities 170 - - 170
------------- -------- --------- -------------
8,032 - 284 8,316
Current liabilities
Trade and other payables 1,412 - - 1,412
Advances from customers 157 - - 157
Short-term loans and current
portion of long-term loans 1,783 - - 1,783
Payables to related parties 257 - - 257
Income tax payable 48 - - 48
Other taxes payable 195 - - 195
Current portion of finance
lease liabilities 2 - - 2
Provisions 32 - - 32
Dividends payable by the
Group's subsidiaries to non-controlling
shareholders 8 - - 8
------------- -------- --------- -------------
3,894 - - 3,894
Liabilities directly associated
with disposal groups classified
as held for sale 478 - - 478
------------- -------- --------- -------------
4,372 - - 4,372
------------- -------- --------- -------------
Total equity and liabilities $ 17,777 $ - $ 28 $ 17,805
============= ======== ========= =============
2. Changes in Accounting Policies
Basis of Preparation (continued)
Restatement of Financial Statements (continued)
Six-month period ended 30 June
Statement of Operations 2012
Change in
As previously accounting
reported policies Restated
-------------- ------------ ---------
Revenue
Sale of goods $ 7,440 $ - $ 7,440
Rendering of services 179 - 179
-------------- ------------ ---------
7,619 - 7,619
Cost of revenue (6,029) 9 (6,020)
Gross profit 1,590 9 1,599
-
Selling and distribution costs (621) - (621)
General and administrative expenses (428) - (428)
Social and social infrastructure
maintenance expenses (21) - (21)
Loss on disposal of property,
plant and equipment (25) - (25)
Impairment of assets (80) - (80)
Foreign exchange gains/(losses),
net 28 - 28
Other operating income 33 - 33
Other operating expenses (46) - (46)
-------------- ------------ ---------
Profit from operations 430 9 439
-
Interest income 8 - 8
Interest expense (317) (5) (322)
Share of profits/(losses) of joint
ventures and associates 6 - 6
Gain/(loss) on financial assets
and liabilities, net (26) - (26)
Gain/(loss) on disposal groups
classified as held for sale, net (2) (2)
Other non-operating gains/(losses),
net (13) (13)
Profit before tax 86 4 90
Income tax benefit/(expense) (136) - (136)
-------------- ------------ ---------
Net loss $ (50) $ 4 $ (46)
============== ============ =========
Attributable to:
Equity holders of the parent entity $ (38) $ 4 $ (34)
Non-controlling interests (12) - (12)
-------------- ------------ ---------
$ (50) $ 4 $ (46)
============== ============ =========
Earnings/(losses) per share:
for profit/(loss) attributable
to equity holders of the parent
entity, US dollars, basic and
diluted $ (0.03) $ - $ (0.03)
2. Significant Accounting Policies
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 2012, except for the adoption of new standards and
interpretations and revision of the existing IAS as of 1 January
2013.
New/Revised Standards and Interpretations Adopted in 2013:
-- Amendments to IAS 19 "Employee Benefits"
IAS 19 (revised) includes a number of amendments to the
accounting for defined benefit plans, including actuarial gains and
losses that are now recognised in other comprehensive income and
permanently excluded from profit and loss; expected returns on plan
assets that are no longer recognised in profit or loss, instead,
there is a requirement to recognise interest on the net defined
benefit liability (asset) in profit or loss, calculated using the
discount rate used to measure the defined benefit obligation, and;
unvested past service costs are now recognised in profit or loss at
the earlier of when the amendment occurs or when the related
restructuring or termination costs are recognised. Other amendments
include new disclosures, such as, quantitative sensitivity
disclosures. The amended standard is required to be applied
retrospectively. The effects of the application of the revised IAS
19 are disclosed in the Basis of Preparation above.
-- Amendments to IFRS 7 "Financial Instruments: Disclosures" -
Offsetting Financial Assets and Financial Liabilities
The amendment requires an entity to disclose information about
rights to set-off financial instruments and related arrangements
(e.g., collateral agreements). The disclosures would provide users
with information that is useful in evaluating the effect of netting
arrangements on an entity's financial position. The new disclosures
are required for all recognised financial instruments that are set
off in accordance with IAS 32. The disclosures also apply to
recognised financial instruments that are subject to an enforceable
master netting arrangement or similar agreement, irrespective of
whether the financial instruments are set off in accordance with
IAS 32.
-- IFRS 13 "Fair Value Measurement"
IFRS 13 establishes a single source of guidance under IFRS for
all fair value measurements. IFRS 13 does not change when an entity
is required to use fair value, but rather provides guidance on how
to measure fair value under IFRS when fair value is required or
permitted. IFRS 13 also requires specific disclosures on fair
values, some of which replace existing disclosure requirements in
other standards, including IFRS 7 "Financial Instruments:
Disclosures". Some of these disclosures are specifically required
for financial instruments by IAS 34.16A(j), thereby affecting the
interim condensed consolidated financial statements period.
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
-- Amendments to IAS 1 "Presentation of Financial Statements" -
Changes to the Presentation of Other Comprehensive Income
The amendments to IAS 1 introduce a grouping of items presented
in other comprehensive income (OCI). Items that could be
reclassified (or recycled) to profit or loss at a future point in
time (e.g., net gain on hedge of net investment, exchange
differences on translation of foreign operations, net movement on
cash flow hedges and net loss or gain on available-for-sale
financial assets) now have to be presented separately from items
that will never be reclassified (e.g., actuarial gains and losses
on defined benefit plans and revaluation of land and
buildings).
The amendment to IAS 1 clarifies the difference between
voluntary additional comparative information and the minimum
required comparative information. An entity must include
comparative information in the related notes to the financial
statements when it voluntarily provides comparative information
beyond the minimum required comparative period. The additional
voluntarily comparative information does not need to be presented
in a complete set of financial statements.
An opening statement of financial position (known as the 'third
balance sheet') must be presented when an entity applies an
accounting policy retrospectively, makes retrospective
restatements, or reclassifies items in its financial statements,
provided any of those changes has a material effect on the
statement of financial position at the beginning of the preceding
period. The amendment clarifies that a third balance sheet does not
have to be accompanied by comparative information in the related
notes. Under IAS 34, the minimum items required for interim
condensed financial statements do not include a third balance
sheet.
-- IFRIC 20 "Stripping Costs in the Production Phase of a
Surface Mine"
This Interpretation applies to waste removal (stripping) costs
incurred in surface mining activity, during the production phase of
the mine.
If the benefit from the stripping activity will be realised in
the current period, an entity is required to account for the
stripping activity costs as part of the cost of inventory. When the
benefit is the improved access to ore, the entity recognises these
costs as a non-current asset, only if certain criteria are met.
This is referred to as the 'stripping activity asset'. The
stripping activity asset is accounted for as an addition to, or as
an enhancement of, an existing asset.
If the costs of the stripping activity asset and the inventory
produced are not separately identifiable, the entity allocates the
cost between the two assets using an allocation method based on a
relevant production measure.
After initial recognition, the stripping activity asset is
carried at its cost or revalued amount less depreciation or
amortisation and less impairment losses, in the same way as the
existing asset of which it is a part.
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
-- Amendments to standards following the May 2012 "Improvements
to IFRS" project
Except for IAS 19 (revised), the amendments described above did
not have a significant impact on the financial position or
performance of the Group. The Group has not early adopted any other
standard, interpretation or amendment that has been issued but is
not yet effective.
3. Segment Information
The following tables present measures of segment profit or loss
based on management accounts.
Six-month period ended 30 June 2013
US$ million Steel Mining Vanadium Other Eliminations Total
--------- ------- -------- ------- ------------ ---------
Revenue
Sales to external customers $ 6,641 $ 372 $ 148 $ 100 $ - $ 7,261
Inter-segment sales 179 1,185 140 235 (1,739) -
--------- ------- -------- ------- ------------ ---------
Total revenue 6,820 1,557 288 335 (1,739) 7,261
========= ======= ======== ======= ============ =========
Segment result - EBITDA $ 530 $ 248 $ 27 $ 36 $ (34) $ 807
========= ======= ======== ======= ============ =========
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
========= ======= ======== ======= ============ =========
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 2013
US$ million Steel Mining Vanadium Other Eliminations Total
--------- --------- -------- ------- ------------ -----------------
Revenue $ 6,820 $ 1,557 $ 288 $ 335 $ (1,739) $ 7,261
Reclassifications and
other adjustments (404) 65 (20) 130 330 101
Revenue per IFRS financial
statements $ 6,416 $ 1,622 $ 268 $ 465 $ (1,409) $ 7,362
EBITDA $ 530 $ 248 $ 27 $ 36 $ (34) $ 807
Exclusion of management
services from segment
result 75 23 2 2 - 102
Unrealised profits
adjustment 8 - (1) - (27) (20)
Reclassifications and
other adjustments 38 83 6 23 - 150
--------- --------- -------- ------- ------------ -----------------
121 106 7 25 (27) 232
--------- --------- -------- ------- ------------ -----------------
EBITDA based on IFRS
financial statements $ 651 $ 354 $ 34 $ 61 $ (61) $ 1,039
Unallocated subsidiaries (100)
-----------------
$ 939
=================
Depreciation, depletion
and amortisation expense (277) (257) (7) (17) - (558)
Impairment of assets 32 (39) - - - (7)
Gain/(loss) on disposal
of property, plant
and equipment and intangible
assets (8) (2) - 1 - (9)
Foreign exchange gains/(losses),
net (42) 16 - - - (26)
--------- --------- -------- ------- ------------ -----------------
356 72 27 45 (61) 339
Unallocated income/(expenses),
net (156)
-----------------
Profit/(loss) from
operations $ 183
Interest income/(expense),
net (361)
Share of profits/(losses)
of joint ventures and
associates 3
Gain/(loss) on derecognition
of equity investments,
net 89
Gain/(loss) on financial
assets and liabilities (71)
Gain/(loss) on disposal
groups classified as
held for sale 54
Other non-operating
gains/(losses), net (3)
-----------------
Profit/(loss) before
tax $ (106)
=================
3. Segment Information (continued)
Six-month period ended 30 June 2012 (restated)
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 42 (19) (37) (11) - (25)
------------------ -------------------- -------------------- -------------------- ------------------- --------------------
44 15 (34) (7) 102 120
------------------ -------------------- -------------------- -------------------- ------------------- --------------------
EBITDA based on IFRS
financial statements $ 706 $ 419 $ 4 $ 94 $ 50 $ 1,273
Unallocated
subsidiaries (89)
--------------------
$ 1,184
====================
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
------------------ -------------------- -------------------- -------------------- ------------------- --------------------
393 74 (19) 71 50 480
Unallocated
income/(expenses),
net (41)
--------------------
Profit/(loss) from
operations $ 439
Interest
income/(expense),
net (314)
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 $ 90
====================
In the six-month period ended 30 June 2013, the Group made a
reversal of the allowance for net realisable value in the amount of
$16 million.
The material changes in property, plant and equipment during the
six-month period ended 30 June 2013 other than those disclosed
above are presented below:
US$ million Steel Mining Vanadium Other Total
------------------ ---------------- ------------------- ------------------ ---------------
Additions $ 224 $ 205 $ 14 $ 18 $ 461
Acquired in business
combination - 2,628 - - 2,628
4. Purchases/Sales of Ownership Interests in Subsidiaries
Acquisition of Controlling Interest in Corber
In October 2012, EVRAZ plc concluded a preliminary agreement
with Adroliv Investments Limited for an acquisition of a 50%
ownership interest in Corber subject to the receipt of regulatory
approvals and fulfillment of certain other conditions. On 16
January 2013, all the conditions were met and the Group obtained
control over the entity. As a result, Corber became a wholly owned
subsidiary of the Group on 16 January 2013.
Management believes that this acquisition will increase the
Group's coking coal self-coverage and generate substantial
operational synergies to the Group, including the optimal use of
various coal grades.
The purchase consideration includes 132,653,006 shares of EVRAZ
plc issued on 16 January 2013, warrants to subscribe for an
additional 33,944,928 EVRAZ plc shares exercisable at zero price in
the period from 17 January to 17 April 2014 and a cash
consideration of $202 million to be paid in equal quarterly
installments to 15 January 2014. Fair value of the consideration
transferred totalled to $964 million, including $611 million
relating to the shares issued, $156 million representing the fair
value of the warrants and $197 million of present value of the cash
component of the purchase consideration. The fair value of shares
and warrants was determined by reference to the market value of
EVRAZ plc shares at the date of acquisition.
In accordance with IFRS 3 "Business Combinations" in a business
combination achieved in stages, the acquirer shall remeasure its
previously held equity interest in the acquiree at its
acquisition-date fair value and recognise the resulting gain or
loss in the income statement. The fair value of the equity interest
previously held by an acquirer is further added to the purchase
consideration in the purchase price calculation. The fair value of
the equity interest previously held by the Group was $658 million.
The fair value of the investment in Corber was determined using the
market price of shares of Raspadskaya at the date of acquisition of
an additional 50% share in Corber.
The Group recorded a $94 million gain on derecognition of the
equity interest in Corber held before the business combination.
This gain was determined as follows:
16 January
US$ million 2013
----------
Fair value of shares held before the business
combination $ 658
Less: carrying value of the investment in
the joint venture at the date of business
combination based on equity method of accounting
(Note 8) (496)
Less: accumulated foreign exchange losses
of the acquiree attributed to the Group's
share in the joint venture (68)
----------
Gain on derecognition of equity investment $ 94
==========
4. Purchases/Sales of Ownership Interests in Subsidiaries (continued)
Acquisition of a Controlling Interest in Corber (continued)
The acquisition of a controlling interest in Corber was
accounted for based on provisional values as the Group, as of the
date of authorisation of issue of these financial statements, has
not completed a purchase price allocation in accordance with IFRS 3
"Business Combinations".
The table below sets forth the provisional fair values of
Corber's consolidated identifiable assets, liabilities and
contingent liabilities at the date of acquisition:
16 January
US$ million 2013
-------------
Mineral reserves and property, plant and equipment $ 2,628
Other non-current assets 71
Inventories 102
Accounts and notes receivable 134
Cash 144
-------------
Total assets 3,079
Deferred income tax liabilities 363
Non-current liabilities 614
Current liabilities 123
-----------------------
Total liabilities 1,100
Non-controlling interests 357
-----------------------
Net assets $ 1,622
=======================
Purchase consideration $ 1,622
Cash flow on acquisition for the six-month period ended 30 June
2013 was as follows:
US$ million
Net cash acquired with the subsidiary $ 144
Cash paid (51)
---------
Net cash inflow $ 93
=========
As of 30 June 2013, the unpaid purchase consideration was $151
million.
For the period from 16 January 2013 to 30 June 2013, Corber
reported a net loss amounting to $82 million.
Acquisition of a Controlling Interest in MediaHolding
Provincia
In the six-month period ended 30 June 2013, the Group acquired
an additional 45.5% ownership interest in MediaHolding Provincia
for a cash consideration of $11 million. The fair value of the
equity interest previously held by the Group (30%) was $4 million.
The Group recorded a $5 million loss on derecognition of the equity
interest in MediaHolding Provincia held before the business
combination. The Group recognised $3 million of goodwill on the
transaction. Subsequently, the Group acquired all non-controlling
interests settled by the transfer of property and recognised the
excess of the carrying value of the acquired non-controlling
interests over the amount of consideration amounting to $1 million
in additional paid-in capital.
Disclosure of Other Information in Respect of Business
Combinations
If this business combination had occurred as of the beginning of
2013, the revenue and net profit/(loss) of the combined entity
would have been $7,388 million and $(129) million,
respectively.
5. Impairment of Non-current Assets
For the purpose of the impairment testing as of 30 June 2013 the
Group assessed the recoverable amount of each cash-generating unit
("CGU") where indicators of impairment were identified.
The recoverable amount has been determined based on a
value-in-use calculation using cash flow projections based on the
actual operating results and business plans approved by management
and appropriate discount rates reflecting time value of money and
risks associated with respective cash-generating units. For the
periods not covered by management business plans, cash flow
projections have been estimated by extrapolating the respective
business plans results using a zero real growth rate.
The key assumptions used by management in the value-in-use
calculations with respect to the cash-generating units to which the
goodwill was allocated are presented in the table below.
Average Average
price price
Period Pre-tax of of commodity Recoverable Carrying
of discount commodity per tonne amount amount
forecast, rate, per tonne in 2014 of CGU, of CGU,
years % Commodity in 2013 US$ million US$ million
------------ ---------- -------------- ------------ ------------- ------------- -------------
EVRAZ Palini
e Bertoli 5 13.82 steel plates EUR487 EUR504 267 189
EVRAZ vanadium
Vanady-Tula 5 12.99 products $21,598 22,720 229 110
ferrovanadium
Vametco 5 13.87 products $27,077 $30,827 256 39
EVRAZ Nikom, ferrovanadium
a.s. 5 12.17 products $23,303 $24,538 48 40
EVRAZ Inc.
NA Canada - steel
Calgary unit 5 11.72 products $1,290 $1,341 456 378
EVRAZ Inc.
NA
cash-generating
units:
EVRAZ Claymont steel
Steel 5 12.92 products $788 $832 341 299
steel
EVRAZ Pueblo 5 11.20 products $1,258 $1,322 167 129
steel
EVRAZ Camrose 5 11.72 products $1,169 $1,244 309 187
5. Impairment of Non-current Assets (continued)
Average Average
Pre-tax price price of
Period discount of commodity commodity
of forecast, rate, per tonne per tonne
years % Commodity in 2013 in 2014
-------------- ---------- -------------------- -------------- -----------
EVRAZ Dnepropetrovsk
Iron and Steel Works 5 12.98 steel products $579 $647
EVRAZ Nizhny Tagil Iron
& Steel Plant 5 12.99 steel products $664 $688
EVRAZ United West-Siberian
Iron & Steel Plant 5 13.26 steel products $525 $577
steel mill
EVRAZ Caspian Steel 5 12.00 under construction $509 $557
steel mill
EVRAZ Yuzhny Stan 5 12.00 under construction $553 $604
EVRAZ Bagleykoks 5 15.11 coke $225 $246
ferrovanadium
Strategic Minerals Corporation 5 12.92 products $38,560 $42,995
Yuzhkuzbassugol 18 13.14 coal $82 $93
undeveloped
Mezhegeyugol 30 14.00 coal field $121 $128
EVRAZ Kachkanarsky
Mining-and-Processing
Integrated Works 8 14.59 ore $77 $82
EVRAZ Sukha Balka 20 15.39 ore $64 $66
EVRAZ Vysokogorsky
Mining-and-Processing
Integrated Works 1 11.67 ore $93 -
14.59
Evrazruda 21 -15.61 ore $81 $93
EVRAZ Nakhodka Trade
Seaport 5 12.99 port services $11 $11
Raspadskaya 23 12.65 coal $75 $74
In addition, the Group determined that there were indicators of
impairment in other cash generating units and tested them for
impairment using the following assumptions.
Discount Rates
Discount rates reflect the current market assessment of the
risks specific to each cash-generating unit. The discount rates
have been determined using the Capital Asset Pricing Model and
analysis of industry peers. Reasonably possible changes in discount
rates could lead to an additional impairment at EVRAZ United
West-Siberian Iron & Steel Plant, EVRAZ Yuzhkuzbassugol,
Raspadskaya, EVRAZ Dnepropetrovsk Iron and Steel Works and EVRAZ
Claymont cash-generating units. If the discount rates were 10%
higher, this would lead to an additional impairment of
$479million.
5. Impairment of Non-current Assets (continued)
Sales Prices
The prices of the products sold by the Group were estimated
using industry research. The Group expects that the nominal prices
will grow with a compound annual growth rate of 0.9%-5.9% in 2013 -
2017 and 3.0% in 2018 and thereafter. Reasonably possible changes
in sales prices could lead to an additional impairment at EVRAZ
United West-Siberian Iron & Steel Plant, EVRAZ Dnepropetrovsk
Iron and Steel Works and EVRAZ Nikom cash-generating units. If the
prices assumed for the 2(nd) half of 2013 and 2014 were 10% lower,
this would lead to an additional impairment of $392 million.
Sales Volumes
Management assumed that the sales volumes of steel products
would increase by 2.6% in 2014 and would grow evenly during the
following four years to reach normal asset capacity utilisation
thereafter. Reasonably possible changes in sales volumes could lead
to an additional impairment at EVRAZ United West-Siberian Iron
& Steel Plant and EVRAZ Dnepropetrovsk Iron and Steel Works
cash-generating units. If the sales volumes were 10% lower than
those assumed for the 2(nd) half of 2013 and 2014, this would lead
to an additional impairment of $210 million.
Cost Control Measures
The recoverable amounts of cash-generating units are based on
the business plans approved by management. A reasonably possible
deviation of cost from these plans could lead to an additional
impairment at EVRAZ United West-Siberian Iron & Steel Plant,
EVRAZ Dnepropetrovsk Iron and Steel Works, EVRAZ Bagleykoks and
EVRAZ Nikom cash-generating units. If the actual costs were 10%
higher than those assumed for the 2(nd) half of 2013 and 2014, this
would lead to an additional impairment of $669 million.
The unit's recoverable amount would become equal to its carrying
amount if the assumptions used to measure the recoverable amount
changed as follows:
Discount Sales Sales Cost control
rates prices volumes measures
--------- -------- --------- -------------
EVRAZ United West-Siberian
Iron & Steel Plant 0.28% (0.14)% (0.31)% 0.09%
EVRAZ Yuzhkuzbassugol 5.60% - - -
Raspadskaya 4.90 % - - -
EVRAZ Nikom - (8.65)% - 4.77%
EVRAZ Dnepropetrovsk Iron
and Steel Works 11.07% (9.48)% (11.61)% 5.02%
EVRAZ Bagleykoks - - - 9.20%
EVRAZ Claymont Steel 8.35% - - -
5. Impairment of Non-current Assets (continued)
The summary of impairment losses recognition and reversals is
presented below.
Six-month period ended 30 June
2013
Goodwill Property,
and intangible plant and
US$ million assets equipment Total
---------------- ----------- -------
Kazankovskaya $ (14) $ - $ (14)
Yuzhkuzbassugol - (54) (54)
Evrazruda - 31 31
EVRAZ Dnepropetrovsk Iron and
Steel Works - 38 38
Others, net - (13) (13)
$ (14) $ 2 $ (12)
================ =========== =======
The major drivers that led to the reversal of impairment were
the changes in the costs forecasts and weighted average cost of
capital.
In addition to the reversal of impairment losses recognised as a
result of the impairment testing at the level of cash-generating
units, the Group made a write-off of certain functionally obsolete
items of property, plant and equipment.
6. Income Taxes
Major components of income tax expense were as follows:
Six-month period
ended 30 June
US$ million 2013 2012
--------- --------
Current income tax expense $ (149) $ (206)
Adjustment in respect of income tax of
previous years 2 40
Deferred income tax benefit/(expense)
relating to origination and reversal of
temporary differences 131 30
Income tax expense reported in the consolidated
statement of operations $ (16) $ (136)
========= ========
7. Property, Plant and Equipment
The movement in property, plant and equipment for the six-month
period ended 30 June 2013 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
2012,
cost, net of
accumulated
depreciation $ 181 $ 1,607 $ 3,188 $ 177 $ 1,446 $ 16 $ 1,177 $ 7,792
Assets acquired
in
business
combinations - 119 241 45 1,976 5 249 2,635
Additions 3 1 2 2 18 - 439 465
Assets put into
operation - 59 513 16 76 2 (666) -
Disposals - (4) (10) (1) - - (1) (16)
Depreciation and
depletion
charge - (76) (273) (21) (124) (3) - (497)
Impairment
losses
recognised in
statement
of operations (1) (6) (10) (1) (39) - (29) (86)
Impairment
losses
reversed
through
statement of
operations - 14 26 - 52 - 1 93
Impairment
losses
recognised in
other
comprehensive
income - (1) - - (2) - (2) (5)
Change in site
restoration
and
decommissioning
provision - 1 - - 9 - - 10
Translation
difference (7) (99) (191) (15) (231) (1) (74) (618)
------ ---------------- -------------- ---------- ------- ------- ---------------- ---------
At 30 June 2013,
cost, net of
accumulated
depreciation $ 176 $ 1,615 $ 3,486 $ 202 $ 3,181 $ 19 $ 1,094 $ 9,773
====== ================ ============== ========== ======= ======= ================ =========
7. Property, Plant and Equipment (continued)
On 1 January 2013, the Group changed its estimation of useful
lives of property, plant and equipment, which resulted in a $28
million decrease in depreciation expense as compared to the amounts
that would have been charged had no change in estimate occurred. In
addition, the Group updated its mining plans relating mostly to the
extraction of coking coal reserves. Consequently, the depletion
charge in the six-month period ended 30 June 2013 is lower by $75
million compared to the amount that would have been charged in
accordance with the previous mining plans.
8. Investments in Joint Ventures and Associates
The movement in investments in joint ventures and associates
during the six-month period ended 30 June 2013 was as follows:
US$ million Corber Timir Streamcore Other associates Total
------- ------- ---------- ---------------- -------
At 31 December 2012 (restated) $ 497 $ - $ 36 $ 18 $ 551
Additional investments - 149 - - 149
Share of profit/(loss) - - 3 - 3
Dividends paid - - - (1) (1)
Acquisition of controlling
interests (Note 4) (496) - - (9) (505)
Translation difference (1) (8) (2) 1 (10)
------- ------- ---------- ---------------- -------
At 30 June 2013 $ - $ 141 $ 37 $ 9 $ 187
======= ======= ========== ================ =======
Timir Iron Ore Project
On 3 April 2013, the Group acquired a 51% ownership interest in
the joint venture with Alrosa for the development of 4 iron ore
deposits in the southern part of the Yakutia region in Russia. The
Group's consideration for this stake amounts to 4,950 million
roubles (approximately $160 million) payable in installments to 15
July 2014. Total investments in the first phase of the Timir
project are estimated at $1.8 billion during the period from 2013
to 2018, with major investments starting from 2017. The Group and
Alrosa are expected to finance the Timir project on a pro rata
basis.
The acquisition of an interest in Timir was accounted for based
on provisional values as the Group, as of the date of authorisation
of issue of these financial statements, has not completed purchase
price allocation. The Group accounted for its interest in Timir
under the equity method.
The table below sets forth the provisional fair values of
Timir's consolidated identifiable assets, liabilities and
contingent liabilities at the date of acquisition:
3 April
US$ million 2013
-----------
Mineral reserves and property, plant and equipment $ 336
Accounts and notes receivable 2
Cash 2
-----------
Total assets 340
Deferred income tax liabilities 27
Non-current liabilities 7
Current liabilities 25
-----------
Total liabilities 59
-----------
Net assets 281
===========
Net assets attributable to 51% ownership interest 143
Purchase consideration $ 149
-----------
Goodwill $ 6
===========
9. Related Party Disclosures
For the Group related parties include associates and joint
venture partners, key management personnel and other entities that
are under the control or significant influence of the key
management personnel, the Group's ultimate parent or its
shareholders. In considering each possible related party
relationship, attention is directed to the substance of the
relationship, not merely the legal form.
Amounts owed by/to related parties were as follows:
Amounts due from Amounts due to
related parties related parties
---------------------- ----------------------
30 June 31 December 30 June 31 December
US$ million 2013 2012 2013 2012
-------- ------------ -------- ------------
Kazankovskaya $ - $ 23 $ - $ -
Raspadsky Ugol - 2 - 42
Vtorresource-Pererabotka 2 3 45 45
Yuzhny GOK 9 4 248 163
Liability to management
of Raspadskaya for the
acquisition of Corber
(Note 4) - - 150 -
Other entities 14 14 8 7
25 46 451 257
Less: allowance for doubtful
accounts (11) (34) - -
-------- ------------ -------- ------------
$ 14 $ 12 $ 451 $ 257
======== ============ ======== ============
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 2013 2012 2013 2012
--------- -------- --------- --------
Interlock Security Services $ - $ - $ 27 $ 24
Raspadsky Ugol - 5 5 61
Vtorresource-Pererabotka 7 6 205 226
Yuzhny GOK 34 33 71 67
Other entities 5 3 20 16
--------- -------- --------- --------
$ 46 $ 47 $ 328 $ 394
========= ======== ========= ========
In the six-month period ended 30 June 2013, Kazankovskaya and
Raspadsky Ugol, a subsidiary of Raspadskaya, ceased to be related
parties as the Group obtained control over these entities (Note
4).
Compensation to Key Management Personnel
In the six-month periods ended 30 June 2013 and 2012, key
management personnel totalled 57 and 54 persons, respectively.
Total compensation to key management personnel was included in
general and administrative expenses and consisted of the following
in the six-month periods ended 30 June:
US$ million 2013 2012
----- -----
Salary $ 13 $ 11
Performance bonuses - 10
Social security taxes 2 3
Share-based payments 5 4
$ 20 $ 28
===== =====
10. Cash and Cash Equivalents
Cash and cash equivalents were denominated in the following
currencies:
30 June 31 December
US$ million 2013 2012
---------- ------------
US dollar $ 1,068 $ 855
Russian rouble 325 347
Ukrainian hryvnia 42 9
Euro 22 17
South African rand 9 10
Canadian dollar 3 80
Other 2 2
---------- ------------
$ 1,471 $ 1,320
========== ============
The above cash and cash equivalents mainly consist of cash at
banks.
At 30 June 2013 and 31 December 2012, the assets of disposal
groups classified as held for sale included cash amounting to $66
million and $70 million, respectively.
11. Equity
Share Capital
30 June 31 December
Number of shares 2013 2012
-------------- --------------
Issued and fully paid
Ordinary shares of $1 each 1,472,582,366 1,339,929,360
Share Issue
On 16 January 2013, EVRAZ plc issued 132,653,006 shares in
connection with the acquisition a controlling interest in Corber
(Note 4).
These shares were valued at their market quotation at the date
of acquisition of Corber. The excess of the market value of shares
issued over their nominal value in the amount of $478 million was
recognised in a merger reserve under section 612 of the Companies
Act 2006 as all of the criteria for merger relief have been
satisfied.
The purchase consideration for Corber includes warrants to
subscribe for an additional 33,944,928 EVRAZ plc shares exercisable
at zero price in the period from 17 January to 17 April 2014. The
number of the shares to be issued under these warrants is
adjustable for dividends that could be paid during the period from
the date of issue of the warrants until the date of their exercise.
The fair value of warrants issued amounting to $156 million was
credited to a separate reserve within equity.
Earnings per Share
Earnings per share are calculated by dividing the net income
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period. Diluted
earnings per share amounts are calculated by dividing the net
profit attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the period
plus the weighted average number of ordinary shares that would be
issued on the conversion of all the potential dilutive ordinary
shares into ordinary shares.
11. Equity (continued)
Earnings per Share (continued)
The following reflects the profit/(loss) and share data used in
the basic and diluted earnings per share computations:
Six-month period
ended 30 June
------------------------------
2013 2012
Weighted average number of ordinary shares outstanding during the period 1,492,577,321 1,337,900,998
Profit/(loss) for the period attributable to equity holders of the parent entity, US$
million $ (111) $ (34)
Earnings/(losses) per share, basic and diluted $ (0.07) $ (0.03)
The warrants issued in connection with the acquisition of a
controlling interest in Corber (Note 4) are included in the
calculation of basic earnings per share starting from the date of
their issue.
As the Group reported net losses in the six-month periods ended
30 June 2013 and 2012, the share-based awards were
antidilutive.
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
The Board of directors decided not to declare a final dividend
for 2012 and this decision was approved by the Annual General
Meeting of shareholders of EVRAZ plc in June 2013.
12. Loans and Borrowings
Short-term and long-term loans and borrowings were as
follows:
30 June 31 December
US$ million 2013 2012
---------- ------------
Bank loans $ 2,203 $ 2,562
European commercial papers 247 242
8.875 per cent notes due 2013 - 534
8.25 per cent notes due 2015 577 577
7.40 per cent notes due 2017 600 600
9.5 per cent notes due 2018 509 509
6.75 per cent notes due 2018 850 850
6.50 per cent notes due 2020 1,000 -
13.5 per cent bonds due 2014 611 658
9.25 per cent bonds due 2013 - 494
8.75 per cent bonds due 2015 119 -
9.95 per cent bonds due 2015 459 494
8.40 per cent bonds due 2016 611 658
Liabilities under 7.75 per cent bonds
due 2017 assumed in business combination 400 -
Other liabilities 9 1
Unamortised debt issue costs (78) (116)
Interest payable 86 93
---------- ------------
$ 8,203 $ 8,156
========== ============
12. Loans and Borrowings (continued)
At 30 June 2013 and 31 December 2012, the liabilities of
disposal groups classified as held for sale included bank loans
amounting to $120 million and $79 million, respectively.
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.
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 2013 and 31 December 2012, the Group had inventory
with a carrying value of $205 million and $319 million,
respectively, pledged as collateral under the loan agreements.
Extension of the 9.25% Notes Due 2013
In March 2013, the holders of 9.25% rouble-denominated notes
received an option to accept a new coupon of 8.75% per annum till
20 March 2015 or put the notes back to the Group at a nominal
value. By 26 March 2013, the date of the expiration of the option,
the Group re-purchased back notes totalling 12,265 million roubles
($399 million at the exchange rate as of the date of the
transaction). The remaining notes with the aggregate principal
amount of 2,735 million roubles ($84 million at the exchange rate
as of 30 June 2013) continue to be traded on the Moscow
Exchange.
The Group has a right to resell the repurchased notes on the
market at any time and at its own discretion. In April and May
2013, the Group resold part of the notes for 100 roubles each and
received 1,150 million roubles ($35 million at the exchange rate as
of 30 June 2013).
Issue of Notes and Bonds
In April 2013, the Group issued notes for the amount of $1,000
million due in 2020. The notes bear semi-annual coupon at the
annual rate of 6.50% and must be redeemed at their principal amount
on 22 April 2020. The proceeds from the issue of the notes were
used for the repayment of the 8.875% notes maturing on 24 April
2013, as well as certain bank loans.
Compliance with Financial Covenants
At 30 June 2013, the Group had $404 million liabilities under
loan agreements which contained financial restrictions which could
have been breached upon the issue of the interim consolidated
financial statements. The Group repaid these liabilities in full
and terminated the loan agreements in July 2013.
Unutilised Borrowing Facilities
As of 30 June 2013, the Group had unutilised bank loans in the
amount of $863 million, including $358 million of committed
facilities.
13. Commitments and Contingencies
Operating Environment of the Group
The Group is one of the largest vertically integrated steel
producers globally and the largest steel producer in Russia. The
Group's major subsidiaries are located in Russia, Ukraine, the
European Union, the USA, Canada and the Republic of South Africa.
Russia, Ukraine and the Republic of South Africa are considered to
be developing markets with higher economic and political risks.
Steel consumption is affected by the cyclical nature of demand for
steel products and the sensitivity of that demand to worldwide
general economic conditions.
The global economic recession resulted in a significantly lower
demand for steel products and decreased profitability. 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 $74 million.
Contractual Commitments
At 30 June 2013, the Group had contractual commitments for the
purchase of production equipment and construction works for an
approximate amount of $474 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 2013, 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. The Group budgeted
to spend approximately $108 million under these programmes in the
second half of 2013.
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 addition, the Group has committed to various environmental
protection programmes covering periods from 2013 to 2022, under
which the Group will perform works aimed at reductions in
environmental pollution and contamination. As of 30 June 2013, the
costs of implementing these programmes are estimated at $293
million.
13. Commitments and Contingencies (continued)
Legal Proceedings
The Group has been and continues to be the subject of legal
proceedings, none of which has had, individually or in aggregate, a
significant effect on the Group's operations or financial
position.
14. Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets and liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data (unobservable inputs).
The carrying amounts of financial instruments, such as cash,
short-term and long-term investments, short-term accounts
receivable and payable, short-term loans receivable and payable and
promissory notes, approximate their fair value.
The Group held the following financial instruments measured at
fair value:
30 June 2013 31 December 2012
---------------------- ----------------------
Level Level Level Level Level Level
US$ million 1 2 3 1 2 3
------ ------ ------ ------ ------ ------
Assets measured at fair
value
Available-for-sale financial
assets 25 - - 21 - -
Derivatives not designated
as hedging instruments - - - - 2 -
Liabilities measured at
fair value
Derivatives not designated
as hedging instruments - 220 - - 115 -
Deferred consideration
payable for the acquisition
of Inprom - - - 10 - -
Contingent consideration
payable for the acquisition
of Stratcor - - 12 - - 12
The following table shows fair values of the Group's bonds and
notes at 30 June 2013.
Carrying Fair
US$ million amount value
---------- ----------
European commercial papers $ 247 $ 247
8.25 per cent notes due 2015 566 618
7.40 per cent notes due 2017 605 612
9.5 per cent notes due 2018 503 550
6.75 per cent notes due 2018 854 828
6.50 per cent notes due 2020 1,007 916
13.5 per cent bonds due 2014 627 663
8.75 per cent bonds due 2015 122 122
9.95 per cent bonds due 2015 465 472
8.40 per cent bonds due 2016 614 603
Liabilities under 7.75 per cent bonds
due 2017 assumed in business combination 403 407
$ 6,013 $ 6,038
========== ==========
The fair value of the non-convertible bonds and notes was
determined based on market quotations.
15. Subsequent Events
There are no events subsequent to the reporting period which
require disclosure in these interim condensed financial
statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR ZMGZRKLVGFZG
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