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RNS Number : 6271H
Evraz Plc
05 August 2021
EVRAZ plc
UNAUDITED INTERIM FINANCIAL RESULTS FOR H1 2021
5 August 2021 - EVRAZ plc ("EVRAZ" or "the Group"; LSE: EVR)
today announces its unaudited interim financial results for the six
months ended 30 June 2021 ("the Period").
H1 2021 HIGHLIGHTS
-- The Group reported solid free cash flow(1) of US$836 million,
compared with US$315 million in H1 2020.
-- Consolidated EBITDA(1) totalled US$2,082 million, up 94.0%
YoY from US$1,073 million in H1 2020. The EBITDA margin(1) rose to
33.7% from 21.5% in H1 2020. Supporting factors included higher
steel, vanadium and coal product sales prices. Cost-cutting and
customer focus initiatives also generated an effect of US$2 56
million in EBITDA.
-- Total debt(1) dropped by US$307 million to US$4,676 million,
while net debt(1) fell by US$95 million to US$3,261 million.
-- Net profit totalled US$1,212 million, compared with US$513 million in H1 2020.
-- The cash cost of steel and raw materials in Russia was the following:
o The cash cost of slabs(1) increased to US$283/t from US$210/t
in H1 2020
o The cash cost of washed coking coal(1) increased to US$36/t
from US$34/t in H1 2020
o The cash cost of iron ore products(1) increased to US$40/t
from US$38/t in H1 2020
-- An interim dividend for 2021 of US$802.3 million (US$0.55 per
share) has been declared, reflecting the Board's confidence in the
Group's financial position and outlook.
Financial Highlights
(US$ million) H1 2021 H1 2020 Change, %
------------------------------------------ ------------- ----------------- ----------
Consolidated revenues 6,178 4,983 24.0
------------------------------------------ ------------- ----------------- ----------
Profit from operations 1,749 891 96.3
------------------------------------------ ------------- ----------------- ----------
Consolidated EBITDA(1) 2,082 1,073 94.0
------------------------------------------ ------------- ----------------- ----------
Net profit 1,212 513 n/a
------------------------------------------ ------------- ----------------- ----------
Earnings per share, basic (US$) 0.82 0.35 n/a
------------------------------------------ ------------- ----------------- ----------
Net cash flows from operating activities 1,410 781 80.5
------------------------------------------ ------------- ----------------- ----------
Free cash flow (1) 836 315 n/a
------------------------------------------ ------------- ----------------- ----------
CAPEX(1) 430 337 27.6
------------------------------------------ ------------- ----------------- ----------
30 June 2021 31 December 2020 Change, %
------------------------------------------ ------------- ----------------- ----------
Net debt(1) 3,261 3,356 (2.8)
------------------------------------------ ------------- ----------------- ----------
Total assets 9,125 8,710 4.8
------------------------------------------ ------------- ----------------- ----------
(1) For the definition, see "Definitions of selected alternative
performance measures".
Commenting on the results, EVRAZ' Chief Executive Officer,
Alexander Frolov, said:
"The recovery on the global steel market observed since the
second half of 2020 accelerated in the first half of 2021. Activity
in steel-consuming industries continued returning to pre-pandemic
levels, driving steel prices and demand.
Amid this rebound, EVRAZ achieved EBITDA of US$2.1 billion, up
94% year-on-year and a half-year record for the last decade.
Contributing to this were higher steel, vanadium and coal product
sales prices, as well as our cost-cutting and productivity
improvement initiatives and customer focus efforts, which generated
a total effect of US$2 56 million in EBITDA.
In the reporting period, we continued to implement our main
development initiatives. The upgrade of the rail and beam mill at
EVRAZ NTMK and construction of new long rail mill at EVRAZ Pueblo
projects continued according to schedule and made good progress.
Overall CAPEX stood at US$430 million, including US$258 million for
development projects.
In addition, we improved our debt position, reducing net debt by
US$95 million to US$3,261 million. This brought our ratio of net
debt to last twelve months (LTM) EBITDA to 1.0x.Given the positive
results in favourable market conditions, the Board of Directors is
recommending an interim dividend for 2021 of US$0.55 per share,
totalling around US$802.3 million, which is in line with the
dividend policy.
EVRAZ' core value s are health and safety of its people.
Regretfully, I have to report that there were six fatalities on our
premises in the first half of 2021. These are tragedies that should
not happen. We are making every possible effort to achieve our
strategic goal of zero fatalities. The root causes of these
fatalities have been thoroughly investigated and corrective
measures introduced to mitigate further risks.
As for the demerger of our coal business - we've made further
progress here and confirming our intention to complete transaction
by the end of the year, subject to receiving all necessary
approvals. The details will be announced later in due course.
In the second half of 2021, we expect global markets to remain
fairly healthy, despite a possible correction in steel prices."
FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements", which
include all statements other than statements of historical facts,
including, without limitation, any statements preceded by, followed
by or that include the words "targets", "believes", "expects",
"aims", "intends", "will", "may", "anticipates", "would", "could"
or similar expressions or the negative thereof. Such
forward-looking statements involve known and unknown risks,
uncertainties and other important factors beyond the Group's
control that could cause the actual results, performance or
achievements of the Group to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking, including, among others, the achievement of
anticipated levels of profitability, growth, cost and synergy of
recent acquisitions, the impact of competitive pricing, the ability
to obtain necessary regulatory approvals and licenses, the impact
of developments in the Russian economic, political and legal
environment, volatility in stock markets or in the price of the
Group's shares or GDRs, financial risk management and the impact of
general business and global economic conditions. Such
forward-looking statements are based on numerous assumptions
regarding the Group's present and future business strategies and
the environment in which the Group will operate in the future. By
their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. These
forward-looking statements speak only as at the date as of which
they are made, and each of EVRAZ and the Group expressly disclaims
any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statements contained herein to
reflect any change in EVRAZ's or the Group's expectations with
regard thereto or any change in events, conditions or circumstances
on which any such statements are based. Neither the Group, nor any
of its agents, employees or advisors intends or has any duty or
obligation to supplement, amend, update or revise any of the
forward-looking statements contained in this document.
CONFERENCE CALL
A conference call to discuss the results, hosted by Alexander
Frolov, CEO, and Nikolay Ivanov, CFO, will be held on Thursday, 5
August 2021, at:
2 pm (London time)
4 pm (Moscow time)
9 am (New York time)
To join the call, please dial:
+44 (0)330 336 9434 or 0800 UK
279 7209
+7 495 646 9190 or 8 10 8002 Russia
8675011
+1 929-477-0402 or 888-254-3590 US
Conference ID: 6980327
To avoid any technical inconvenience, it is recommended that
participants dial in 10 minutes before the start of the call.
An audio webcast will be available at the following link
(pre-registration needed):
https://www.webcast-eqs.com/evraz20210805
The presentation for the call will be available on the Group's
website, www.evraz.com , on Thursday, 5 August 2021, at the
following link:
https://www.evraz.com/en/investors/reports-and-results/financial-results/
Table of contents
Strategic UPDATE 2021
HEALTH, SAFETY and ENVIRONMENT
HUMAN CAPITAL
CUSTOMER FOCUS
ASSET DEVELOPMENT
EVRAZ BUSINESS SYSTEM
Update on potential demerger of coal assets
Impact of COVID-19
Impact on key markets
Impact on operations
Impact on liquidity, solvency and access to financing
Measures taken to protect the wellbeing and safety of employees
and local communities
Market outlook
Financial review
Statement of operations
CAPEX and key projects
Financing and liquidity
Review of operations by Segment
Steel segment
Steel, North America segment
Coal segment
KEY RISKS AND UNCERTAINTIES
DIVIDS
DIRECTOR'S RESPONSIBILITY STATEMENT
Definitions of selected alternative performance measures
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Strategic UPDATE 2021
EVRAZ' ultimate strategic objective is to maintain its
leadership in infrastructure steel products while keeping costs
optimised throughout the business. The strategy focuses on five
areas: health, safety and the environment (HSE); human capital;
customer focus; asset development; and the EVRAZ Business
System.
HEALTH, SAFETY and ENVIRONMENT
In the reporting period, EVRAZ regretfully recorded six
fatalities. This situation is unacceptable to the Board and
management. The Group will continue to do its utmost to achieve its
strategic goal of zero fatalities. EVRAZ will put additional e orts
into building a stringent safety culture and improve its safety
practices at each facility of the Group .
The lost time injury frequency rate (LTIFR) was 1.16x, which is
within the target of 1.36x set by the management.
In H1 2021, EVRAZ entered the final stage of its risk management
project. Staff training has been completed and the acquired
knowledge and tools are now being rolled out across the Group.
In addition, divisional programmes were established to achieve
the third stage of the Bradley Curve safety culture (Independent)
in the reporting period. The programmes are now being
implemented.
Another important milestone was the introduction of various
criteria to motivate safe employee behaviour. They are used to
determine the quarterly bonus amount and also affect the annual
salary review.
In H1 2021, the active promotion of the Hunt for Risk mobile
app, which was launched in the summer of 2020, led to continued
growth in the number of users. There are currently around 11,000
users. Overall, since its launch, roughly 50,000 risks have been
identified. These numbers indicate a high level of employee
engagement. During the reporting period, additional tools were
developed and implemented to encourage staff to search for new
risks. For example, points earned through the app can now be used
to pay for mobile phone service.
During the reporting period, the HSE function entered the active
phase of its transformation project. Safety management processes
will be reviewed with a view to reducing red tape, digitalising the
main HSE processes and introducing automation options.
As part of its efforts to prevent the spread of COVID-19, in H1
2021, EVRAZ carried out a vaccination awareness campaign for
employees that is still under way. In a short time, the Group was
able to mobilise its staff and accelerate the rate of vaccination
at its facilities. For detailed information about the impact of the
pandemic and EVRAZ' response, see the "Impact of COVID-19"
section.
In February 2021, EVRAZ published its 2020 annual report, which
included a new set of environmental targets for the period up to
2030 (with 2019 as the baseline year). They cover four aspects:
water, waste, atmospheric emissions and greenhouse gas (GHG)
indicators. At the Group's steelmaking assets, the goals include
reducing Scope 1 and Scope 2 GHG emissions per tonne of steel
produced by 20%, reducing atmospheric emissions from steel
production by 33%, closing the water supply cycle, as well as
recycling 95% of general and metallurgical waste. At the mining
assets, they include recycling 50% of mining waste and utilising
75% of the methane released in the degassing process.
During the reporting period, EVRAZ continued to implement
initiatives aimed at reducing its environmental impact. EVRAZ NTMK
completed a project to eliminate the discharge of wastewater from
its coke production. All excess water and storm runoff is now
collected in a 15,000 cubic metre retention pond and returned to
the production cycle. This project represents an important step
towards achieving the goal of creating a fully closed water supply
cycle by 2030.
In H1 2021, the Coal segment put into operation four flare units
as part of the project to utilise methane that is released during
degassing. Two were installed at the Alardinskaya mine and two at
the Yerunakovskaya-8 mine.
The Raspadskaya mine launched two new stormwater treatment
facilities. Rainwater and snowmelt runoff are now treated and used
to reduce dust on haul roads. The existing water treatment facility
was upgraded and the new modern module also began operating at the
Alardinskaya mine in June 2021.
In addition, the Group signed a cooperation agreement with
Gazprom Neft to develop technologies to produce, transport, store
and use hydrogen, as well as to reduce carbon dioxide (CO(2) )
emissions.
As part of its efforts to improve biodiversity within its
operational footprint, EVRAZ implemented several large tree and
shrub planting projects.
HUMAN CAPITAL
EVRAZ understands that its people are the driving force behind
its operational improvement efforts. During H1 2021, it continued
to implement its existing programmes focused on employee skill sets
and engagement and launched several new initiatives in this
area.
The Group has started to test its Learning Management System
(LMS), which encompasses all types of training and development
courses. The aim is to make the learning and development process
transparent and accessible for all personnel, from managers to
employees. Future plans include switching the 360-degree assessment
to the new LMS platform.
During the reporting period, EVRAZ introduced the "Top 3,000"
programme, which cascades the existing "Top 1,000" corporate
management programme down to the level of shop heads. The "Top
3,000" programme is currently being piloted in the Siberia division
with an initial wave of 75 people. One difference in this project
is that it uses internal trainers selected from among the Group's
employees.
EVRAZ also launched a system for preparing and certifying
internal trainers to teach such topics as human capital management
and the EVRAZ Business System.
In H1 2021, the third "Top 300" group and the Urals division's
first "Top 100" group completed their training.
The Group also continued to work with the educational
institutions that are preparing professionals to work in the
industry. During the reporting period, employees, schoolchildren
and university students took part in the EVRAZ WorldSkills
corporate championship.
In addition, the Group continued to roll out its programme to
promote healthy lifestyles and healthcare in the Urals division. As
part of these efforts, during the reporting period, the initial
results of the "Health Management: Top 300" programme were
reviewed. The first stage of the "Workshop Doctor" employee health
programme was also completed. Preparations are under way to launch
similar programmes in the Siberia division.
EVRAZ completed the first step of forming its new five-year
social investment and charity strategy, which involved conducting
research in local communities. The interviews covered such topics
as the environment and urban development. The second step is to
finalise the strategy.
EVRAZ is also supporting the ongoing construction of a
cardiology centre in Kachkanar and an infectious disease hospital
in Novokuznetsk.
In early 2021, as part of the recruitment function's
transformation process, the Urals recruitment centre was
established. Its primary focus is to find staff for investment
projects and to support the operations of the division. In
addition, the recruitment function was enhanced at the IT
subsidiaries to support the Digital transformation projects. The
automation of the recruitment process is under way, including
refining specific tasks in the HuntFlow system. In addition, the
roll-out of the Candidate Personal Account project to the divisions
continues.
In H1 2021, a target remuneration system was rolled-out at the
Urals and Siberia divisions. In addition, the performance
assessment approach, criteria and procedures were developed for the
regular individual salary review for workers and line managers. The
stage of automating the assessment was also completed. In addition,
the Coal division continued to introduce the grading system.
CUSTOMER FOCUS
In H1 2021, EVRAZ worked to further improve customer service and
develop new products as part of its strategic objective to remain
the leading manufacturer of infrastructural steel.
The Group continued to develop its programme aimed at promoting
demand for beams and structural products in construction and
improving the availability of products to clients. This included a
project to sell pre-engineered sets of buildings (car parks,
logistical centres, industrial facilities and so on). The metal
service centre in Noginsk, which launched in 2020, continued to
serve customers. They include small metal fabrication facilities
that do not have their own automated CNC line and large plants that
need to increase production without investing in the purchase of
expensive equipment. The metal service centre in Noginsk fully
meets customer needs and processes orders faster and with greater
precision than most fabrication facilities.
The hub in Nizhny Tagil, which launched in 2020 to improve
availability of beams for customers, continued to work at full
capacity in H1 2021. The hub places a priority on orders for rare
profiles that are hard to find on the market.
In the reporting period, EVRAZ continued its initiatives to
digitalise sales channels. For example, it worked to improve the
Steel Radar project (an online resource that shows beam inventories
in traders' warehouses and enables purchase orders to be placed).
The website saw a significant increase in traffic and received its
first live orders. The Group also continued to implement the EVRAZ
Webshop project, which offers a single e--commerce platform for all
types of customers.
In H1 2021, EVRAZ maintained healthy market shares for key
products in Russia: 69% for beams, 40% for structural products, 32%
for railway wheels and 96% for rails. The Group sold 404 thousand
tonnes of beams (up 24.7% YoY), 376 thousand tonnes of structural
products (up 4.6% YoY), more than 111 thousand tonnes of railway
wheels and wheel blanks (up 25.1%) and 356 thousand tonnes of rails
from its Russian facilities (down 30.1% YoY, mainly because of
lower demand in Russia and CIS).
In addition, in June 2021, EVRAZ and Russian Railways agreed to
join efforts in reducing GHG emissions through manufacturing and
operating rails made of steel with a low carbon footprint.
Together, the two companies will partner to manufacture 'green
rails' in Russia from steel that has a 75% lower carbon emission
footprint than the traditional blast furnace/converter technology.
To deliver on that target, EVRAZ ZSMK will overhaul the resource
base of its steel production facilities, adjusting the technologies
and processes that it uses.
In the Coal segment, EVRAZ sold 5.2 million tonnes of coal
concentrate to third parties in the reporting period, which was
5.5% higher than in H1 2020 following greater mining volumes and
better logistics efforts. In addition, stable demand for coal from
the Group's steelmaking operations and an increase in consumption
on export markets also supported sales. However, overall sales
volumes of coal products decreased by 0.7 million tonnes YoY as
additional efforts to sell out raw coal stockpiles in anticipation
of a further drop in prices resulted in higher than usual sales of
raw coal in H1 2020. In addition, a longwall move at the
Alardinskaya mine in H1 2021 lowered raw coal availability compared
with the previous year.
In North America, sales of OCTG and small-diameter products in
H1 2021 were 26% lower YoY than in H1 2020, as the Calgary mills
and Pueblo seamless operation were idle for most of the reporting
period. However, amid higher drilling volumes, the upturn in oil
prices, and active customer re-stocking in North America, both
mills have restarted in late H1 2021, ahead of schedule. In the
construction segment, demand for steel products improved in H1
2021, driving EVRAZ' rod and bar production up by 9% YoY. In the
rail segment, while market demand remained relatively stable
overall, EVRAZ' rail output fell by 16% YoY, primarily because of
the impact of unplanned downtime driven by the steam explosion at
EVRAZ Pueblo's steelmaking operations at the end of May. The lost
rail volumes are expected to be recovered in H2 2021.
In the vanadium business, EVRAZ maintained its position as a key
and reliable supplier, covering increased demand from the steel
industry in Europe, the Americas and Asia. These regions
experienced a swift recovery after a period of extremely low
activity in Q2--Q3 2020 due to pandemic-related restrictions.
Following its strategy, the Group is expanding the customer base
and actively participating in spot trading, while selling roughly
55% of its total volumes under long-term contracts. In addition,
EVRAZ continued its efforts to promote and develop micro-alloyed,
higher strength steel usage in various applications to
significantly reduce the carbon footprint of steel-consuming
industries via its R&D centre.
Overall, customer-focus initiatives generated additional EBITDA
of US $1 74 million in the reporting period. This was mainly
because of the sales efforts in beams as well as improvements in
the efficiency of the logistics and supply functions.
ASSET DEVELOPMENT
In H1 2021, EVRAZ continued to implement its main investment
projects. In the Steel segment, EVRAZ NTMK continued the design
work for the upgrade of its rail and beam mill and started initial
construction. In June, EVRAZ and the government of the Kemerovo
region signed a cooperation agreement as part of the construction
of the integrated at casting and rolling facility at EVRAZ ZSMK.
The Group is currently reviewing the options for this project and
will make a final decision on resuming its implementation later.
Meanwhile, EVRAZ KGOK continued to implement the project to develop
the Sobstvenno-Kachkanarskoye deposit, which is due to partly
replace the output from the Gusevogorskoye deposit. The first
mining operations started in January 2021.
In addition, in the Sverdlovsk region's Titanium Valley special
economic zone, Allegro - a joint venture of EVRAZ and the Rail
Service industrial group - launched construction of a new railway
wheel mill.
In Coal segment, a programme was launched to purchase mining
equipment with the aim to replace contractors at the
Raspadskaya-Koksovaya open pit to improve productivity
In the Steel, North America segment, EVRAZ Pueblo's new long
rail mill project continued according to schedule. The general
contractor for the construction and installation work has been
selected. Capital investments to modernise equipment and expand
production capacity also progressed at EVRAZ Regina in Saskatchewan
and EVRAZ Red Deer in Alberta.
In H1 2021, EVRAZ continued to focus on developing its assets
through its efficiency improvement programme. This generated US$ 82
million of additional EBITDA during the period, mostly through
greater productivity, improved yields and numerous savings
projects.
Also, in the reporting period, EVRAZ invested US$258 million in
development CAPEX.
EVRAZ BUSINESS SYSTEM
The EVRAZ Business System (EBS) guides the Group in setting
targets, developing employees, supporting the management, promoting
corporate culture and improving processes and infrastructure. It
also coordinates 'transformations': initiatives to drive continuous
improvement across the business.
The digital transformation initiative is the most significant
one that the EBS team is currently involved in at the Group. As of
H1 2021, the coverage perimeter included 180 projects capable of
generating a total annual effect of around US$150 million in
EBITDA.
In the Steel, North America segment, EVRAZ Pueblo continued the
EBS deployment at its steelmaking and rail facilities. At the steel
mill, each employee contributed more than three ideas on average to
generate an overall expected effect of US$3 4 million in EBITDA.
There has been a high level of employee engagement in the EBS
roll-out.
In the Steel segment, the main business units in the Urals
division have completed their EBS transformation projects. By the
end of H2 2021, the Coal segment also expects to complete its EBS
transformation projects.
Other important ongoing work included a major project to
eliminate red tape in internal processes. In H1 2021, a total of
267 areas were selected for reducing internal bureaucracy to
improve productivity. The plan is to resolve 165 of these this
year. The executive team and vice presidents are overseeing 108 of
these initiatives. Since the start of the year, 39 cases have been
resolved and 56 are under way. The remaining cases are in the area
of responsibility of the divisions.
Update on potential demerger of coal assets
Further to the updates on 26 January and 15 April 2021,
management continues to work on the structure for the potential
demerger of the Company's coal assets (the "Potential Demerger")
which, following completion of the previously announced
consolidation, essentially all now sit under PJSC Raspadskaya
("Raspadskaya").
The Board of EVRAZ believes the Potential Demerger of
Raspadskaya could create significant long-term value by allowing
each business to pursue dedicated strategic, capital allocation and
ESG objectives
On completion of the Potential Demerger, EVRAZ plans to continue
to satisfy the majority of its coal supply requirements, through
purchases of coal on arm's length terms from Raspadskaya.
It is currently envisaged that the Potential Demerger will be
completed by December 2021, subject to receiving all necessary
approvals; the precise timing will be communicated to shareholders
in due course. There can be no assurance that the Potential
Demerger will be undertaken and the Board will keep shareholders
updated through further announcements as appropriate. Regardless of
whether the Potential Demerger is undertaken, it is intended that
Raspadskaya will continue to be listed on the Moscow Exchange and
EVRAZ will continue to be listed on the Premium Segment of the
London Stock Exchange.
Impact of COVID-19
EVRAZ is closely monitoring the pandemic and its impact on
employees, operations and the broader stakeholder base. The Group
is committed to doing everything possible to protect the lives and
health of its employees, as well as to minimise the effect on its
enterprises and the communities in which it operates.
Impact on key markets
The recovery in the global steel market observed since H2 2020
has accelerated in 2021. Activity levels in steel-consuming
industries have continued to bounce back. This resulted in an
improvement in steel prices and higher demand.
For more details about the performance of key markets in H1
2021, please see the "Market outlook" section.
Impact on operations
The Group remains keenly focused on its operations, including
logistics, supply and technological processes. Despite having
around 350 active COVID-19 cases among employees as of 30 June
2021, EVRAZ has faced no significant issues with the production or
supply of raw materials and other goods. Shipments have continued
and raw material deliveries to enterprises have remained
stable.
Impact on liquidity, solvency and access to financing
In H1 2021, the pandemic had little effect on EVRAZ' liquidity
situation. Amid positive market trends, operations and sales
generated robust operating cash flow. The Group has proactively
addressed its upcoming obligations and maintained a strong
liquidity position. As of 30 June 2021, cash and cash equivalents
stood at around US$1.4 billion, supported by operating cash flow
and financing initiatives. For more details, please see the
"Financing and liquidity" section.
Measures taken to protect the wellbeing and safety of employees
and local communities
After a general improvement in the epidemiological situation in
Q1 2021, global COVID--19 infection rates have been rising since
May, including in the regions where EVRAZ operates.
To prevent the spread of the disease, the Group is implementing
a vaccination campaign. This has helped to achieve a decent level
of collective immunity in Russia of above 60%. To support medical
professionals, EVRAZ has arranged regular donations of oxygen,
medical supplies and personal protective equipment to regional
hospitals.
In addition, the Group continues to implement the measures that
it introduced in 2020 to prevent the spread of COVID-19. These
include:
-- Reducing domestic business travel and overseas trips.
-- Remote working, as well as providing additional personal
protective equipment for employees who must come to work, including
eye protectors, respirators and gloves.
-- Using thermal imaging devices and pyrometers at facility
entrances to monitor people's temperatures.
-- Using different approaches to all major corporate, sporting
and entertainment events (online or offline), depending on the
particular situation and imposed restrictions.
-- Increasing supplies of antiseptic and disinfectant products
in communal areas, as well as regularly sanitising facilities and
transport.
-- Holding campaigns to raise awareness among employees and
contractors about behavioural guidelines, social distancing and
personal protection.
In addition to caring for the physical health of employees and
their families, EVRAZ is carefully assessing the possible mental
impact of the preventative measures being undertaken amid the
pandemic. As of 30 June 2021, more than 1,700 employees of the
Group were working remotely.
In H1 2021, EVRAZ has allocated more than US$7 million to ensure
safe working conditions for employees, as well as to support
medical and pre-school institutions in local communities.
Market outlook
GLOBAL MARKETS
In H1 2021, the ongoing influx of monetary and fiscal stimulus
helped the global economy to continue recovering from the pandemic.
Steel mills increased production in expectation of more robust
demand from the construction and manufacturing sectors. At the same
time, steel demand outstripped supply. Against this backdrop, steel
prices continued to skyrocket to multi-year highs despite
relatively high raw material prices. Based on hot-rolled coil (HRC)
China FOB contracts, steel prices averaged US$830/t in the
reporting period, up 81% from US$459/t in H1 2020. Following the
Chinese market, steel prices rose in North America, Europe and the
CIS.
Overall, in H1 2021, world crude steel production climbed by 14%
YoY and is back to pre-pandemic levels . This was driven mainly by
countries outside China, where steel output rose by 18% YoY. In
China, steel production increased by 12% YoY.
For the rest of the year, the steel market may face the effect
of the Chinese government's initiatives to reduce carbon emissions,
its fight against "unreasonably" high commodity prices, as well as
an expected decline in domestic demand from China. The country's
stated goals of achieving peak carbon emissions by 2025 for the
steel industry will further affect production.
Steel prices look unsustainable at current levels and there is a
possibility of a gradual price decline in the coming months.
In late H1 2021, coking coal prices reached new highs due to
solid demand amid the global economic recovery. Hard coking coal
(HCC) prices rose to US$200/t (FOB Australia), compared with an
average of US$141/t in H1 2020. China's ban on coal imports from
Australia disrupted its import demand and reshuffled trade flows,
increasing price volatility. Unable to fill the gap, buyers in
China have had to offer much greater prices to incentivise supply
from non-Australian markets and high-cost domestic producers. In
addition, the news of a suspension of coal mining operations in
some regions and mine audits drove domestic coking coal prices
higher. This expanded the CFR China/FOB Australia premium to
unsustainably wide US$100/t. By the end of June, the HCC CFR China
price was already above US$300/t. In H1 2021, Chinese coking coal
imports fell by 42% YoY.
Australian production and exports have remained volatile. India
has become a critical market; Australia's exports to the country
doubled in H1 2021. There has been solid growth in other Asian
markets, as well. Overall, coking coal prices are expected to
remain high in 2021 amid tight supply and healthy demand. Because
of China's ongoing import ban, its domestic coal prices might stay
well above the Australian benchmark.
Iron ore prices averaged nearly US$200/t in the reporting period
and set a new record in early May. Solid demand from China, weak
supply and a favourable macroeconomic environment drove the upward
trend. The supply side has been unable to respond to the high
prices. Rio Tinto has experienced production problems, resulting in
a lower supply of medium-grade fines. In H1 2021, Australia's iron
ore exports declined by 6% YoY. While exports from Brazil have been
rising steadily in 2021, Vale still cannot reach its 2019 levels.
From the demand side, Chinese crude steel production reached a new
record in Q2 2021, which supported raw material prices. In the
meantime, China signalled more efforts to fight commodity price
inflation and keep on track with environmental issues, which is
intensifying the price volatility. Iron ore prices might remain
elevated through the end of 2021.
In H1 2021, the MB FeV benchmark averaged US$33.4/kgV, an
increase of 29% YoY. In June, prices returned to the highest levels
seen since May 2019 because of tightening supply in Europe and
improving demand. The availability of alloys in Europe has been
limited since Q4 2020 because China has been importing large
volumes of material amid a better demand outlook. Additional
factors include shipping delays, especially from Asia, and surging
freight rates.
Global vanadium demand reached an estimated 61 thousand mtV, up
16% YoY. A strong recovery of steel output was seen in most regions
outside China, as demand from the automotive and construction
segments almost reached pre-pandemic levels. Demand in China alone
increased by 20%, driven by higher rebar production and growing
demand for vanadium-based energy storage. Stronger demand globally,
together with shipping delays and lower output caused by equipment
maintenance at several major producers, caused ferrovanadium prices
to rise to around US$39/kgV in Europe in June. Overall, the market
is expected to be fairly balanced in the medium term, subject to a
continued demand recovery in key industries.
RUSSIAN STEEL
In H1 2021, Russian steel consumption totalled 21.3 million
tonnes, up 7% YoY, because of improving economic activity.
In some sectors, domestic steel consumption climbed by 15-25%.
Demand for structural products increased by 5% YoY, which leads to
higher sales from EVRAZ. In addition, the size of beam market grew
by 18% YoY and 15% above the same period in 2019. Demand for wheels
remained steadily high, but the rail market lost its steam due to
slowing demand in Russia and CIS.
In the reporting period, domestic crude steel production
equalled 38. 2 million tonnes, up 9 % YoY
P rices surged by 70--100% from the levels seen at the end of
2020. The most significant increase was in the prices for sheets,
which in turn supported higher prices for beams. The export premium
for slabs over squares climbed by US$200/t, while the prices for
rebar and structural steel rose by 70-80%. The difference in the
prices for slabs and billets was caused by the more rapid recovery
among consumers of flat-rolled products.
In H1 2021, the Moscow CPT benchmark rebar price averaged
US$803/t, up 63% YoY, while the average HRC price was US$889/t, up
108%. In the first half of June, export prices for Russian metal
products began to decline after having been on the rise since
February. The stabilisation of retail prices is associated with
uncertainty in the primary market, which only intensified amid the
news that Russia was introducing export duties on ferrous metals
effective from 1 August 2021. The duties will be in effect through
the end of December 2021. These duties consist of a 15% base rate
and also a metal-specific rate per tonne of steelmaking raw
materials, semi-finished and rolled-steel products, which are
exported outside the Eurasian Economic Union.
COAL
In the reporting period, Russian coking coal concentrate
consumption totalled 19. 5 million tonnes, up 3% YoY, as coke
production increased amid recovery after pandemic. Coking coal
exports amounted to 12.3 million tonnes, up 6% YoY, amid increase
in demand across all regions . Mining volumes increa sed to 50.4
million tonnes, up 14% YoY.
Russian prices of metallurgical coal followed international
benchmarks during the reporting period. Prices started to rise more
rapidly in Q2 2021. In H1 2021, the FCA Kuzbass benchmark price for
premium Zh-grade coking coal averaged US$101/t, up 3% YoY. The
average price for the semi-hard GZh-grade was US$83/t, up 6% YoY.
Market participants expect a significant increase in domestic
prices in Q3 2021.
Overall, after a challenging year in 2020, EVRAZ saw
improvements in domestic coal demand in H1 2021, which was
supported by a recovery in companies' mining volumes. In terms of
demand, the most active recovery on the Group's premium markets was
seen in Q2 2021. Customers in Europe did not reduce their
purchases. While demand from India remains significant, there have
been problems with logistics. During the reporting period, EVRAZ
also faced challenging geological conditions, which slightly
affected production volumes. The Company tried to maximize spot
sales to China, but the priority was to fulfil contractual
obligations with long-term clients.
NORTH AMERICA
In H1 2021, North American steel markets continued to recover
from the impact of COVID-19, driven by strength in the automotive,
non-residential construction and industrial sectors. Domestic steel
production rose to 45.1 million tonnes, up 15% YoY, while US steel
product imports amounted to 14.7 million tonnes, up 19% YoY.
Capacity utilisation rates at US steel mills rose to 83% at the end
of June 2021, a two-year high. Tight domestic mill supply and low
service centre inventories contributed to strong price increases:
in the reporting period, on average, prices of carbon plate and
hot-rolled coil soared by 108% and 154% YoY, respectively, to
US$1,125/t and US$1,349/t.
The market for long products saw some recovery during H1 2021.
Total apparent demand for all long products rose by 10% YoY.
Estimated demand on the rail market was 522 thousand tonnes,
unchanged from H1 2020, as growth in domestic production offset
lower import volumes. Estimated total demand in the rod and bar
market was approximately 1.6 million tonnes, roughly flat YoY.
Although total rod and bar demand remained flat, strength in the
construction sector as well as supply-side constraints created a
favourable environment for EVRAZ North American operations. Wire
rod prices averaged US$990/t, up 30% YoY, and rebar prices averaged
US$904/t, up 35% YoY.
Regarding energy end markets, the WTI crude benchmark neared
five-year highs in June, as oil demand recovered and OPEC managed
output tightly. While total drilling activity remained below
pre-pandemic levels, upstream oil and gas operators continued to
deploy more rigs, driving demand for OCTG and line pipe. Total
monthly OCTG consumption reached 280 thousand tonnes in June, up
99% from June 2020. In H1 2021, ERW OCTG and line pipe prices
increased alongside substrate prices, averaging US$1,475/t and
US$1,895/t, up 26% and 59% YoY, respectively. Average seamless OCTG
prices rose by 16% YoY to US$1,654/t. Continued improvement in
North American energy tubular products is expected through H2 2021,
as oil prices are forecast to remain elevated and crude oil supply
tight.
Financial review
Statement of operations
In H1 2021, EVRAZ' consolidated revenues climbed by 24.0% YoY to
US$6,178 million, compared with US$4,983 million in H1 2020. The
increase was caused primarily by higher sales prices for
construction and semi-finished products, as well as greater prices
and volumes for vanadium products.
EVRAZ' consolidated EBITDA amounted to US$2,082 million during
the period, compared with US$1,073 million in H1 2020, boosting the
EBITDA margin from 21.5% to 33.7%. The increase in EBITDA was
primarily attributable to higher steel, vanadium and coal product
sales prices.
Free cash flow surged by 165% YoY to US$836 million. This
includes the effects of working capital outflow amid rising prices,
as well as increase in capital expenditures in H1 2021 compared to
H1 2020 and foreign exchange losses amounted to US$30 million .
In H1 2021, the Steel segment's revenues (including intersegment
sales) rose by 34.3% YoY to US$$4,612 million, or 69.3% of the
Group's total before elimination. The increase was mainly
attributable to higher revenues from steel and vanadium products,
which climbed by 33.2% and 39.4% YoY respectively. This was
primarily because average sales prices advanced by 28.9% for steel
products and by 28.6% for vanadium. The Group's higher revenues
from sales of steel products were partly offset by lower sales
volumes, which edged down from 6.0 million tonnes in H1 2020 to 5.8
million tonnes in H1 2021 following a decrease in production
volumes at Russian mills.
In H1 2021, revenues from the Steel, North America segment
decreased by 5.4% YoY to US$972 million. Steel product revenues
retreated by 6.5% YoY, driven by a 19% reduction in sales volumes
primarily in the tubular and other steel products category, mostly
offset by a 12.5% increase in sales prices.
The Coal segment's revenues increased by 6.4% YoY to US$831
million, mainly driven by an increase of 14.1% in coal product
sales prices and a decrease of 7.7% in coal product sales volumes.
Coal prices followed the upward trend set by global benchmarks
during the period.
In H1 2021, higher prices for construction, semi-finished
products and vanadium almost doubled the Steel segment's EBITDA,
despite increasing cost of sales.
The Steel, North America segment's EBITDA increased driven by a
significant reduction of cost of sales YoY, which more than offset
a marginal decrease in revenues.
The Coal segment's EBITDA rose YoY, as sales prices followed
higher global benchmarks.
Revenues
(US$ million)
Segment H1 2021 H1 2020 Change Change, %
---------------------- --------------------- -------- --------------------- ----------
Steel 4,612 3,433 1,179 34.3
---------------------- --------------------- -------- --------------------- ----------
Steel, North America 972 1,028 (56) (5.4)
---------------------- --------------------- -------- --------------------- ----------
Coal 831 781 50 6.4
---------------------- --------------------- -------- --------------------- ----------
Other operations 238 206 32 15.5
---------------------- --------------------- -------- --------------------- ----------
Eliminations (475) (465) (10) (2.2)
---------------------- --------------------- -------- --------------------- ----------
Total 6,178 4,983 1,195 24.0
---------------------- --------------------- -------- --------------------- ----------
Revenues by region
(US$ million)
Region H1 2021 H1 2020 Change Change, %
------------------------------ -------------- -------- ------- ----------
Russia 2,468 1,848 620 33.5
------------------------------ -------------- -------- ------- ----------
Asia 1,589 1,504 85 5.7
------------------------------ -------------- -------- ------- ----------
Americas 1,206 1,053 153 14.5
------------------------------ -------------- -------- ------- ----------
Europe 455 212 243 n/a
------------------------------ -------------- -------- ------- ----------
CIS (excl. Russia) 404 309 95 30.7
------------------------------ -------------- -------- ------- ----------
Africa and rest of the world 56 57 (1) (1.8)
------------------------------ -------------- -------- ------- ----------
Total 6,178 4,983 1,195 24.0
------------------------------ -------------- -------- ------- ----------
EBITDA*
(US$ million)
Segment H1 2021 H1 2020 Change Change, %
---------------------- -------- -------- ------- ----------
Steel 1,763 916 847 92
---------------------- -------- -------- ------- ----------
Steel, North America 53 (21) 74 n/a
---------------------- -------- -------- ------- ----------
Coal 342 218 124 57
---------------------- -------- -------- ------- ----------
Other operations 6 8 (2) (25)
---------------------- -------- -------- ------- ----------
Unallocated (69) (65) (4) 6
---------------------- -------- -------- ------- ----------
Eliminations (13) 17 (30) n/a
---------------------- -------- -------- ------- ----------
Total 2,082 1,073 1,009 94
---------------------- -------- -------- ------- ----------
* For the definition of EBITDA, please refer to "Definitions of
selected alternative performance measures".
The following table details the effect of the Group's
cost-cutting initiatives:
Effect of Group's cost-cutting initiatives in H1
2021
(US$ million)
-------------------------------------------------- ---
Increasing productivity and cost effectiveness 79
-------------------------------------------------- ---
Improving auxiliary materials and service costs 3
-------------------------------------------------- ---
Total 82
-------------------------------------------------- ---
Revenues, cost of sales and gross profit by segment
(US$ million)
Change,
H1 2021 H1 2020 Change %
---------------------- ------------------ -------- ------- --------
Steel segment
---------------------- ------------------ -------- ------- --------
Revenues 4,612 3,433 1,179 34.3
---------------------- ------------------ -------- ------- --------
Cost of sales (2,594) (2,292) (302) 13.2
---------------------- ------------------ -------- ------- --------
Gross profit 2,018 1,141 877 76.9
---------------------- ------------------ -------- ------- --------
Steel, North America
segment
---------------------- ------------------ -------- ------- --------
Revenues 972 1,028 (56) (5.4)
---------------------- ------------------ -------- ------- --------
Cost of sales (821) (936) 115 (12.3)
---------------------- ------------------ -------- ------- --------
Gross profit 151 92 59 64.1
---------------------- ------------------ -------- ------- --------
Coal segment
---------------------- ------------------ -------- ------- --------
Revenues 831 781 50 6.4
---------------------- ------------------ -------- ------- --------
Cost of sales (443) (537) 94 (17.5)
---------------------- ------------------ -------- ------- --------
Gross profit 388 244 144 59.0
---------------------- ------------------ -------- ------- --------
Other operations -
gross profit 81 56 25 44.6
---------------------- ------------------ -------- ------- --------
Unallocated - gross
profit (5) (4) (1) 25.0
---------------------- ------------------ -------- ------- --------
Eliminations - gross
profit (88) (34) (54) n/a
---------------------- ------------------ -------- ------- --------
Total 2,545 1,495 1,050 70.2
---------------------- ------------------ -------- ------- --------
Gross profit, expenses and results
(US$ million)
Item H1 2021 H1 2020 Change Change, %
------------------------------------------------------------------ -------- -------- ------- ----------
Gross profit 2,545 1,495 1,050 70.2
------------------------------------------------------------------ -------- -------- ------- ----------
Selling and distribution costs (414) (421) 7 (1.7)
------------------------------------------------------------------ -------- -------- ------- ----------
General and administrative expenses (288) (278) (10) 3.6
------------------------------------------------------------------ -------- -------- ------- ----------
Impairment of non-financial assets (4) (108) 104 (96.3)
------------------------------------------------------------------ -------- -------- ------- ----------
Foreign-exchange gains/(losses), net (30) 242 (272) n/a
------------------------------------------------------------------ -------- -------- ------- ----------
Social and social infrastructure maintenance expenses (16) (17) 1 (5.9)
------------------------------------------------------------------ -------- -------- ------- ----------
Gains/(losses) on disposal of property, plant and equipment, net (1) 1 (2) n/a
------------------------------------------------------------------ -------- -------- ------- ----------
Other operating income and expenses, net (43) (23) (20) 87.0
------------------------------------------------------------------ -------- -------- ------- ----------
Profit from operations 1,749 891 858 96.3
------------------------------------------------------------------ -------- -------- ------- ----------
Interest expense, net (121) (164) 43 (26.2)
------------------------------------------------------------------ -------- -------- ------- ----------
Share of losses of joint ventures and associates 5 3 2 66.7
------------------------------------------------------------------ -------- -------- ------- ----------
Loss on financial assets and liabilities, net (4) (40) 36 (90.0)
------------------------------------------------------------------ -------- -------- ------- ----------
Loss on disposal groups classified as held for sale, net 2 1 1 100.0
------------------------------------------------------------------ -------- -------- ------- ----------
Other non-operating losses, net - 9 (9) (100.0)
------------------------------------------------------------------ -------- -------- ------- ----------
Profit before tax 1,631 700 931 n/a
------------------------------------------------------------------ -------- -------- ------- ----------
Income tax expense (419) (187) (232) n/a
------------------------------------------------------------------ -------- -------- ------- ----------
Net profit 1,212 513 699 n/a
------------------------------------------------------------------ -------- -------- ------- ----------
In H1 2021, EVRAZ recognised a US$4 million impairment loss.
There were no indicators of impairment at the level of the Group's
cash-generating units. EVRAZ recognised losses in relation to
impairment of certain functionally obsolete items of property,
plant and equipment.
Foreign exchange losses amounted to US$30 million. They were
mainly related to intra--group loans denominated in rubles and
payable by Evraz Group S.A., whose functional currency is the US
dollar, to the Russian subsidiaries, which have the ruble as their
functional currency. The appreciation of the Russian ruble against
the US dollar in H1 2021 led to foreign exchange losses being
recognised on the income statements of non--Russian subsidiaries
that were not offset by the foreign exchange gains recognised in
the equity of the Russian subsidiaries
Net interest expense decreased to US$121 million in H1 2021,
compared with US$164 million in H1 2020. This was mainly because of
the management's efforts to refinance existing indebtedness on more
favourable terms. In H1 2021, the 8.25% notes denominated in US
dollars with a carrying value of US$765 million and 12.6%
ruble-denominated bonds with a carrying value of US$214 million
were repaid and replaced with long-term bank loans taken at lower
rates.
In the reporting period, the Group had an income tax expense of
US$419 million, compared with US$187 million in H1 2020. The change
reflects mostly the significant improvement in operating
results.
Cash flow
(US$ million)
Item H1 2021 H1 2020 Change Change, %
----------------------------------------------------------------------------- -------- -------- ------- ----------
Cash flows from operating activities before changes in working capital 1,664 749 915 n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Changes in working capital (254) 32 (286) n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows from operating activities 1,410 781 629 80.5
----------------------------------------------------------------------------- -------- -------- ------- ----------
Short-term deposits at banks, including interest 2 3 (1) (33.3)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Purchases of property, plant and equipment and intangible assets (428) (330) (98) 29.7
----------------------------------------------------------------------------- -------- -------- ------- ----------
Proceeds from sale of disposal groups classified as held for sale, net of
transaction costs 2 3 (1) (33.3)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Other investing activities (3) 5 (8) n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows used in investing activities (427) (319) (108) 33.9
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows used in financing activities (1,189) (513) (676) n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Effect of foreign-exchange rate changes on cash and cash equivalents (6) (8) 2 (25.0)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net increase/(decrease) in cash and cash equivalents (212) (59) (153) n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Calculation of free cash flow*
(US$ million)
Item H1 2021 H1 2020 Change Change, %
----------------------------------------------------------------------------- -------- -------- ------- ----------
EBITDA 2,082 1,073 1,009 94.0
----------------------------------------------------------------------------- -------- -------- ------- ----------
EBITDA excluding non-cash items 2,102 1,07 1 1,031 96.3
----------------------------------------------------------------------------- -------- -------- ------- ----------
Changes in working capital (254) 32 (286) n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Income tax accrued (422) (306) (116) 37.9
----------------------------------------------------------------------------- -------- -------- ------- ----------
Social and social infrastructure maintenance expenses (16) (17) 1 (5.9)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Net cash flows from operating activities 1,410 781 629 80.5
----------------------------------------------------------------------------- -------- -------- ------- ----------
Interest and similar payments (143) (137) (6) 4.4
----------------------------------------------------------------------------- -------- -------- ------- ----------
Capital expenditures, including recorded in financing activities and
non-cash transactions (430) (337) (93) 27.6
----------------------------------------------------------------------------- -------- -------- ------- ----------
Proceeds from sale of disposal groups classified as held for sale, net of
transaction costs 2 3 (1) (33.3)
----------------------------------------------------------------------------- -------- -------- ------- ----------
Other cash flows from investing activities (3) 5 (8) n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
Free cash flow 836 315 521 n/a
----------------------------------------------------------------------------- -------- -------- ------- ----------
* For the definition of free cash flow, please refer to
"Definitions of selected alternative performance measures".
CAPEX and key projects
During the reporting period, EVRAZ' capital expenditures rose to
US$430 million, compared with US$337 million in H1 2020, driven by
higher development expenses. Capital expenditure projects during H1
2021, indicated in millions of US dollars, can be summarised as
follows.
(US$ million)
DEVELOPMENT PROJECTS
------------------------------------------------------------- ----
Steel segment
------------------------------------------------------------- ----
Sobstvenno-Kachkanarsky deposit greenfield project
The project aim is to maintain production of raw
iron ore 20
Tashtagol iron ore mine upgrade at EVRAZ ZSMK mining
site
The project aim is to increase the annual iron ore
production of the Tashtagolsky deposit with a partial
switch to sublevel caving using mobile equipment 18
Rail and beam mill modernisation at EVRAZ NTMK
The project aim is to increase production of beams
and sheet piles 7
Transfer of direct coke oven gas for cleaning in
capture shop no. 3 at EVRAZ NTMK
The project aim is to decrease air emissions 6
Integrated flat casting and rolling facility at
EVRAZ ZSMK
The project aim is to improve the profitability
of EVRAZ' product portfolio by replacing semi-finished
products with hot-rolled sheets and coils 2
Construction of uncompressed gas recovery turbines
for blast furnace no. 7 at EVRAZ NTMK
The project aim is to increase own electricity
generation 1
------------------------------------------------------------- ----
Steel, North America segment
------------------------------------------------------------- ----
Long rail mill at EVRAZ Pueblo
The project aim is to replace the existing rail
facility and meet the needs of customers for long
rail products 107
Electric arc furnace (EAF) repowering at EVRAZ Regina
The project aim is to increase EVRAZ Regina's prime
coil and plate production and reduce electrode consumption 5
Coal segment
------------------------------------------------------------- ----
Access and development of reserves in the Uskovskaya
mine's seam no. 48
The project aim is to prepare the reserves in seam
no. 48 for mining 28
Acquisition of equipment at Alardinskaya mine
The project aim is to reduce the time required for
transition from longwall to longwall and to increase
annual production volumes to 3.2mt. 16
Acquisition of equipment at Osinnikovskaya mine
The project aim is to acquire equipment that fully
complies with the mining and geological conditions
to provide the projected monthly longwall load 2
Other development projects 46
MAINTENANCE CAPEX 172
------------------------------------------------------------- ----
TOTAL 430
------------------------------------------------------------- ----
Financing and liquidity
EVRAZ began 2021 with total debt of US$4,983 million.
In January, the Group repaid at maturity US$735 million in
outstanding principal of its Eurobonds due in 2021. In March, to
compensate for the reduction in liquidity, EVRAZ drew US$750
million under the committed syndicated facility that it signed with
a group of international banks in early 2020.
In February, EVRAZ ZSMK signed a new US$200 million credit
facility with SberBank. In March, it used US$67 million of the
available funds.
In March, the Group repaid at maturity RUB15,000 million
(roughly US$ 201 million) in outstanding principal of its
ruble-denominated bonds due in 2021.
EVRAZ NTMK and EVRAZ ZSMK repaid a total of around US$ 517
million of their outstanding bank debt of varying maturities.
In June, the Group repurchased US$40 million in outstanding
principal of its Eurobonds due in 2022.
During H1 2021, EVRAZ successfully continued preparation for the
potential demerger of its Coal assets. The Group rebalanced its
debt between the Steel and Coal divisions and obtained necessary
creditor approvals, including Eurobond consent solicitation from
the majority of holders of its Eurobonds due in 2022, 2023 and
2024.
Raspadskaya took a US$200 million long-term loan with Alfa Bank
and a US$200 million long-term loan with SberBank with the interest
rate linked to certain ESG metrics.
As a result of these actions, as well as scheduled repayments of
bank loans and leases in H1 2021, total debt fell by US$307 million
to US$4 ,676 million as at 30 June 2021.
In H1 2021, EVRAZ paid two interim dividends to its
shareholders: US$437 million (US$0.30 per share) in April and
US$292 million (US$0.20 per share) in June.
Net debt dropped by US$95 million to US$ 3,261 million ,
compared with US$3,356 million as at 31 December 2020.
Interest expense accrued on loans, bonds and notes amounted to
US$108 million during the period, compared with US$147 million in
H1 2020. The repayment of the Eurobonds due in 2021 and ruble bonds
due in 2021, which had high coupon rates, together with the
management's efforts to reduce total debt and refinance
indebtedness on favourable terms, led to the significant reduction
of interest expense compared with H1 2020.
The higher EBITDA amid a strong market recovery and lower net
debt resulted in a significant reduction in the Group's major
leverage metric, the ratio of net debt to last twelve months (LTM)
EBITDA, to 1.0 as of 30 June 2021, compared with 1.5 as of 31
December 2020.
As at 30 June 2021, various bilateral facilities with a total
outstanding principal of around US$1,746 million contained
financial maintenance covenants tested at the level of EVRAZ plc,
including a maximum net leverage and a minimum EBITDA interest
cover.
New debt facilities of Raspadskaya contain financial maintenance
covenants tested on consolidated financials of Raspadskaya,
including a maximum net leverage and a minimum EBITDA interest
cover.
As at 30 June 2021, EVRAZ and its subsidiaries were in full
compliance with the financial covenants.
As at 30 June 2021, cash and cash equivalents amounted to
US$1,415 million, while short-term loans and the current portion of
long-term loans amounted to US$536 million. Cash balances and
committed credit facilities (US$264 million) available to the Group
comfortably cover upcoming maturities.
Review of operations by Segment
(US$ million) Steel Steel, NA Coal Other
--------------- -------------- --------------- -------------- ------------------
H1 H1 H1 H1 H1 H1
H1 H1
2021 2020 2021 2020 2021 2020 2021 2020
--------------- ------ ------ ------ ------- ------ ------ ------ ------
Revenues 4,612 3,433 972 1028 831 781 238 206
--------------- ------ ------ ------ ------- ------ ------ ------ ------
EBITDA 1,763 916 53 (21) 342 218 6 8
--------------- ------ ------ ------ ------- ------ ------ ------ ------
EBITDA
margin 38.2% 26.7% 5.5% (2.0%) 41.2% 27.9% 2.5% 3.9%
--------------- ------ ------ ------ ------- ------ ------ ------ ------
CAPEX 213 196 10 2* 53 112 83 3 5
--------------- ------ ------ ------ ------- ------ ------ ------ ------
* Including effects from grants
Steel segment
Sales review
Steel segment revenues by product
H1 2021 H1 2020
--------------------------------------------------------------- ------------------------------------- -----------
% of total segment % of total segment
US$ million revenues US$ million revenues Change, %
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Steel products, external
sales 4,001 86.7 3,003 87.5 33.2
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Semi-finished
products(1) 1,693 36.7 1,233 35.9 37.3
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Construction
products(2) 1,460 31.6 939 27.3 55. 5
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Railway products(3) 482 10.5 593 17.3 (18. 7 )
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Flat-rolled products(4) 105 2.3 68 2.0 5 4 . 4
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Other steel products(5) 261 5.7 170 5.0 53.5
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Steel products,
intersegment sales 13 0.3 25 0.7 (4 8 . 0 )
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Including sales to
Steel, North America 4 0.1 20 0.6 ( 80 . 0 )
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Iron ore products 101 2.2 63 1.8 6 0 . 3
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Vanadium products 23 0 5.0 165 4.8 39 . 4
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Other revenues 26 7 5.8 178 5.2 49. 4
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
Total 4,612 100.0 3,433 100.0 34.3
------------------------- ------------ ----------------------- ------------ ----------------------- -----------
(1) Includes billets, slabs, pig iron, pipe blanks and other
semi-finished products
(2) Includes rebars, wire rods, wire, beams, channels and
angles
(3) Includes rails, wheels, tyres and other railway products
(4) Includes commodity plate and other flat-rolled products
(5) Includes rounds, grinding balls, mine uprights and strips,
and tubular products
Sales volumes of Steel segment
(thousand tonnes)
-------- ---------------------
H1 2021 H1 2020 Change, %
----------------------------------------------- -------- -------- -----------
Steel products, external sales 5,795 5,975 (3.0)
----------------------------------------------- -------- -------- -----------
Semi-finished products 2,845 3,023 (5.9)
----------------------------------------------- -------- -------- -----------
Construction products 1,914 1,848 3.6
----------------------------------------------- -------- -------- -----------
Railway products 564 669 (15.7)
----------------------------------------------- -------- -------- -----------
Flat-rolled products 113 121 (6.6)
----------------------------------------------- -------- -------- -----------
Other steel products 359 315 14.0
----------------------------------------------- -------- -------- -----------
Steel products, intersegment sales 15 51 (70.6)
----------------------------------------------- -------- -------- -----------
Total steel products 5,810 6,026 (3.6)
----------------------------------------------- -------- -------- -----------
Vanadium products (tonnes of pure vanadium) 9,374 8,371 12.0
----------------------------------------------- -------- -------- -----------
Vanadium in slag 2,759 2,761 (0.1)
----------------------------------------------- -------- -------- -----------
Vanadium in alloys and chemicals 6,615 5,610 17.9
----------------------------------------------- -------- -------- -----------
Iron ore products (pellets) 648 801 (19.1)
----------------------------------------------- -------- -------- -----------
Geographic breakdown of external steel product sales
(US$ million)
------------------------------------------------------------------------------------------
H1 2021 H1 2020 Change, %
---------------------------------------- ------------------- -------- -----------------
Russia 1,915 1,451 32.0
---------------------------------------- ------------------- -------- -----------------
Asia 1,224 1,122 9.1
---------------------------------------- ------------------- -------- -----------------
CIS 307 267 1 5 . 0
---------------------------------------- ------------------- -------- -----------------
Europe 301 101 n/a
---------------------------------------- ------------------- -------- -----------------
Africa, Americas and rest of the world 254 63 n/a
---------------------------------------- ------------------- -------- -----------------
Total 4,001 3,003 33.2
---------------------------------------- ------------------- -------- -----------------
In H1 2021, the Steel segment's revenues climbed by 34.3% YoY to
US$4,612 million, compared with US$3,433 million in H1 2020. This
was the result of higher sales prices, primarily for construction
products and semi-finished products, as well as greater vanadium
product prices and volumes.
Revenues from external sales of semi-finished products rose by
37.3% YoY. This was driven by a 43.2% increase in average prices,
which was partly offset by a 5.9% decrease in sales volumes. The
primary factor was a surge of 62.4% in the average prices of
slabs.
Revenues from sales of construction products to third parties
jumped by 55.4% YoY amid an increase of 51.8% in average prices.
This was caused mainly by higher sales prices for rebars on the
Russian and CIS markets, greater beam sales prices and volumes, as
well as higher sales prices for channels, primarily on the CIS
markets.
Revenues from external sales of railway products decreased
because of reductions of 15.7% in sales volumes and 3.1% in sales
prices. The drop in sales volumes was caused mostly by lower sales
of rails amid reduced demand in Russia and CIS.
External revenues from flat-rolled products surged by 54.4% YoY,
driven by a 54.5% upswing in sales prices.
Revenues from external steel product sales in Russia climbed by
32.0% YoY, primarily because of higher prices and greater demand.
The share of the Russian market in total external steel product
sales decreased from 48.3% in H1 2020 to 47.9% in H1 2021. Asia's
share of sales fell from 37.4% to 30.6% because of lower sales
volumes for billets.
Steel segment revenues from sales of iron ore products,
including intersegment sales, surged by 60.3%, driven by an 79.4%
jump in sales prices and a 19.1% decline in sales volumes. The main
decrease in sales volumes was caused by a deficit of iron ore,
unplanned equipment downtimes and logistics restrictions.
During the reporting period, around 66.9% of EVRAZ' iron ore
consumed in steelmaking came from its own operations, compared with
65.4% in H1 2020.
Steel segment revenues from sales of vanadium products,
including intersegment sales, climbed by 39.4%, due primarily to a
27.8% increase in sales prices. Vanadium product prices followed
market trends higher, including the London Metal Bulletin and
Ryan's Notes benchmarks.
Steel segment cost of revenues
Steel segment cost of revenues
H1 2021 H1 2020
--------------------------------- --------------------------------- ----------
US$ % of segment revenues US$ % of segment revenues Change, %
million million
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Cost of revenues 2,594 56.2 2,292 44.6 13.2
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Raw materials 1,299 28.2 1,107 32.2 17.3
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Iron ore 355 7.7 228 6.6 55.7
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Coking coal 423 9.2 407 11.9 3.9
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Scrap 316 6.8 302 8.8 4.6
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Other raw materials 205 4.4 170 5.0 20.6
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Auxiliary materials 144 3.1 154 3.9 (6.5)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Services 118 2.5 116 3.4 1.7
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Transportation 177 3.8 226 6.6 (21.7)
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Staff costs 251 5.4 247 7.2 1.6
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Depreciation 125 2.7 113 3.3 10.6
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Energy 204 4.4 203 5.9 0.5
-------------------------- --------- ---------------------- --------- ---------------------- ----------
Other* 27 6 6.0 126 3.7 n/a
-------------------------- --------- ---------------------- --------- ---------------------- ----------
* Primarily includes goods for resale, intersegment unrealised
profit and certain taxes, semi-finished products and allowances for
inventories
In H1 2021, the Steel segment's cost of revenues increased by
13.1% YoY. The main reasons for the growth in costs were as
follows:
-- The cost of raw materials rose by 17.3%, primarily because of
the higher cost of iron ore (56.2%), which was driven by global
market trends.
-- Costs for auxiliary materials fell by 6.5% amid lower
auxiliary material consumption and prices.
-- Transportation costs dropped by 21.7%, primarily due to lower railway tariffs.
-- Depreciation costs increased by 10.6%, mainly because of
higher depreciation at EVRAZ ZSMK after fixed assets were upgraded
to improve their technical condition.
-- Other costs jumped by 118.3%, largely because of lower cost
of goods for resale amid an increase in purchase prices in H1 2021
compared with H1 2020.
Steel segment gross profit
The Steel segment's gross profit surged by 76.9% YoY, driven
primarily by higher prices for construction, semi-finished and
vanadium products. This was partly offset by the negative effect of
higher costs.
Steel, North America segment
Sales review
Steel, North America segment revenues by product
H1 2021 H1 2020
US$ % of total segment US$ % of total segment
million revenues million revenues Change, %
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Steel products 924 95.0 988 96.1 (6.5)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Semi-finished products(1) 1 0.1 109 10.6 (99.1)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Construction products(2) 134 13.8 93 9.0 44.1
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Railway products(3) 185 19.0 173 16.8 6.9
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Flat-rolled products(4) 357 36.7 152 14.8 n/a
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Tubular and other steel
products(5) 246 25.3 461 44.8 (46.6)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Other revenues (6) 49 5.0 40 3.9 22.5
--------------------------- --------- -------------------------- --------- --------------------------- ----------
Total 972 100.0 1,028 100.0 (5.4)
--------------------------- --------- -------------------------- --------- --------------------------- ----------
(1) Includes slabs
(2) Includes beams and rebars
(3) Includes rails and wheels
(4) Includes commodity plate, specialty plate and other
flat-rolled products
(5) Includes large-diameter line pipes, ERW line pipes, seamless
and welded OCTG and other steel products
(6) Includes scrap and services
Sales volumes of Steel, North America segment
(thousand tonnes)
H1 2021 H1 2020 Change, %
----------------------------------- -------- -------- ----------
Steel products
----------------------------------- -------- -------- ----------
Semi-finished products - 144 (100.0)
----------------------------------- -------- -------- ----------
Construction products 148 133 11.3
----------------------------------- -------- -------- ----------
Railway products 191 213 (10.3)
----------------------------------- -------- -------- ----------
Flat-rolled products 311 169 84.0
----------------------------------- -------- -------- ----------
Tubular and other steel products 165 348 (52.6)
----------------------------------- -------- -------- ----------
Total 815 1,007 (19.1)
----------------------------------- -------- -------- ----------
The Steel, North America segment's revenues from the sale of
steel products declined by 5.4% YoY amid a 19.0% decrease in sales
volumes, mostly offset by a 12.5% increase in sales prices. The
reduction in volumes was mainly attributable to sales of tubular
and semi-finished products, which was partially compensated by
increased sales of flat-rolled and construction products.
Revenues from semi-finished product sales dropped to almost zero
following the fulfilment of a contract with a key customer in
2020.
Revenues from construction product sales rose by 44.1% YoY due
to growth an 11.3% increase in volumes accompanied by a 32.8%
improvement in selling prices. The upward trend was driven by
greater market demand amid economic recovery and government
stimulus for infrastructure projects.
Railway product revenues increased by 6.9%, driven by a growth
in sales prices of 17.2%, partly offset by a decrease in sales
volumes of 10.3%.
Revenues from flat-rolled products soared by 134.9% amid a 84.0%
increase in volumes supported by rapid market improvement and a
50.9%increase in sales prices.
Revenues from tubular and other steel product sales fell by
46.6% YoY due to a 52.6% drop in sales volumes, partially offset by
a 6.0% uptick in sales prices. The reduction in volumes was caused
by the idling of the spiral mills following completion of 2020
orders.
Steel, North America segment cost of revenues
Steel, North America segment cost of revenues
H1 2021 H1 2020
------------------------------------ --------------------------------- ----------
US$
US$ million % of segment revenues million % of segment revenues Change, %
------------------------- ------------ ---------------------- --------- ---------------------- ----------
Cost of revenues 821 84.5 936 91.0 (12.3)
------------------------- ------------ ---------------------- --------- ---------------------- ----------
Raw materials 395 40.6 247 24.0 59.9
------------------------- ------------ ---------------------- --------- ---------------------- ----------
Semi-finished products 19 2.0 194 18.8 (90.2)
------------------------- ------------ ---------------------- --------- ---------------------- ----------
Auxiliary materials 86 8.8 94 9.1 (8.5)
------------------------- ------------ ---------------------- --------- ---------------------- ----------
Services 66 6.8 80 7.7 (17.5)
------------------------- ------------ ---------------------- --------- ---------------------- ----------
Staff costs 105 10.8 142 13.8 (26.1)
------------------------- ------------ ---------------------- --------- ---------------------- ----------
Depreciation 42 4.3 50 4.8 (16.0)
------------------------- ------------ ---------------------- --------- ---------------------- ----------
Energy 54 5.6 46 4.5 17.4
------------------------- ------------ ---------------------- --------- ---------------------- ----------
Other* 54 5.6 83 8.1 (34.9)
------------------------- ------------ ---------------------- --------- ---------------------- ----------
* Primarily includes transportation, goods for resale, certain
taxes, changes in work in progress and fixed goods and allowances
for inventories
In H1 2021, the Steel, North America segment's cost of revenues
declined by 12.3% YoY. The main drivers were as follows:
-- Raw material costs surged by 59.9%, which was primarily
attributable to the higher cost of scrap metal. The increase in
scrap prices was offset by reduced consumption amid lower
production volumes.
-- The cost of semi-finished products dropped by 90.2% driven by
a completion of a key customer contract in 2020 and by replacement
of externally purchased semi-finished products with internally
produced material.
-- Auxiliary material costs fell by 8.5% amid lower production levels of tubular products.
-- Service costs dropped by 17.5%, driven primarily by lower production volumes.
-- Staff costs declined by 26.1%, mostly driven by the idling of
the OCTG mills in Canada, Portland tubular mill and Pueblo seamless
mill at the end of Q2 2020. In the beginning of Q2 2021, Pueblo
seamless mill was restarted , followed by a restart of the Calgary
mill in the end of the quarter amid improving market conditions and
the filing of the OCTG trade case in Canada.
-- Energy costs rose by 17.4%, primarily because of higher
natural gas prices driven by the inclement weather in the US in Q1
2021.
-- Other costs decreased in the reporting period, driven
primarily by the idling of mills. This factor was partly offset by
higher utility rates in 2021.
Steel, North America segment gross profit
The Steel, North America segment's gross profit totalled US$151
million in the reporting period, up from US$92 million in H1 2020.
The increase was driven primarily by a significant reduction in
costs of sales, which more than offset a marginal decline in
revenues.
Coal segment
Sales review
Coal segment revenues by product
H1 2021 H1 2020
US$ US$
million % of total segment revenues million % of total segment revenues Change, %
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
External sales
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
Coal products 545 65.6 483 61.8 12.8
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
Coking coal 32 3.9 37 4.7 (13.5)
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
Coal concentrate 513 61.7 446 57.1 15.0
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
Intersegment sales
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
Coal products 275 33.1 281 36.0 (2.1)
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
Coking coal 60 7.2 56 7.2 7.1
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
Coal concentrate 215 25.9 225 28.8 (4.4)
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
Other revenues 11 1.3 17 2.2 (35.3)
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
Total 831 100 781 100.0 6.4
-------------------- --------- ---------------------------- --------- ---------------------------- ----------
Sales volumes of Coal segment
(thousand tonnes)
-------------------------------------- ------------------------------
H1 2021 H1 2020 Change, %
-------------------------------------- -------- -------- ----------
External sales
-------------------------------------- -------- -------- ----------
Coal products 5,585 6,078 (8.1)
-------------------------------------- -------- -------- ----------
Coking coal 438 1,198 (63.4)
-------------------------------------- -------- -------- ----------
Coal concentrate and other products 5,147 4,880 5.5
-------------------------------------- -------- -------- ----------
Intersegment sales
-------------------------------------- -------- -------- ----------
Coal products 3,222 3,466 (7.0)
-------------------------------------- -------- -------- ----------
Coking coal 1,144 1,166 (1.9)
-------------------------------------- -------- -------- ----------
Coal concentrate 2,078 2,300 (9.7)
-------------------------------------- -------- -------- ----------
Total, coal products 8,807 9,544 (7.7)
-------------------------------------- -------- -------- ----------
Revenues from external sales of coal products increased amid a
20.9% upswing in prices. This was partly offset by an 8.1% decrease
in sales volumes. Coking coal revenues fell by 13.5% and coking
coal concentrate revenues increased by 15.0%, amid higher pricing.
This was supported in part by higher sales volumes of coking coal
concentrate amid strong demand for coal on the Russian market, as
well as growth in demand for coal from China.
Revenues from internal sales of coal products edged down 2.1%,
mainly because of a 7.0% reduction in sales volumes, which was
partly offset by a 4.9% growth in sales prices. Coking coal volumes
dropped by 1.9% amid decreased sales of the K grade.
In H1 2021, the Coal segment's sales to the Steel segment
amounted to US$275 million (33.0% of total sales), compared with
US$281 million (36.0%) in H1 2020.
During the reporting period, roughly 73.1% of EVRAZ' coking coal
consumption in steelmaking came from the Group's own operations,
compared with 82.1% in H1 2020.
Coal segment cost of revenues
Coal segment cost of revenues
H1 2021 H1 2020
--------------------------------- --------------------------------- ----------
US$ US$
million % of segment revenues million % of segment revenues Change, %
---------------------- --------- ---------------------- --------- ---------------------- ----------
Cost of revenues 443 53.3 537 68.8 (17.5)
---------------------- --------- ---------------------- --------- ---------------------- ----------
Auxiliary materials 73 8.8 54 6.9 35.1
---------------------- --------- ---------------------- --------- ---------------------- ----------
Services 29 3.5 24 3.1 20.8
---------------------- --------- ---------------------- --------- ---------------------- ----------
Transportation 134 16.1 155 19.8 (13.5)
---------------------- --------- ---------------------- --------- ---------------------- ----------
Staff costs 111 13.4 106 13.5 4.7
---------------------- --------- ---------------------- --------- ---------------------- ----------
Depreciation 84 10.1 82 10.5 2.4
---------------------- --------- ---------------------- --------- ---------------------- ----------
Energy 24 2.9 23 2.9 4.3
---------------------- --------- ---------------------- --------- ---------------------- ----------
Other* (12) (1.4) 93 11.9 n/a
---------------------- --------- ---------------------- --------- ---------------------- ----------
* Primarily includes goods for resale, certain taxes, changes in
work in progress and finished goods, allowance for inventory, raw
materials and intersegment unrealised profit
The main drivers of the slight YoY decline in the Coal segment's
cost of revenues were as follows:
-- The consumption of auxiliary materials rose by 35.1% amid
higher longwall move costs at the Raspadskaya mine.
-- Costs for services climbed by 20.8% because of higher costs
for gas drainage at the Raspadskaya mine.
-- Transportation costs fell by 13.5% during the reporting
period, primarily because of lower tariffs for the supply of
railway wagons.
-- Staff costs were up because of higher mining volumes.
-- Other costs decreased in the reporting period, mainly because
of an increase in raw materials of own production.
Coal segment gross profit
In H1 2021, the Coal segment's gross profit amounted to US$388
million, up from US$244 million a year earlier, primarily because
of the surge in sales prices .
KEY RISKS AND UNCERTAINTIES
EVRAZ is exposed to numerous risks and uncertainties in its
business. These may affect its ability to execute its strategy
effectively in the remaining six months of the financial year and
could cause the actual results to differ materially from expected
and historical results.
The directors consider that the principal risks and
uncertainties as summarised below and detailed on pages 92-95 of
the EVRAZ plc 2020 annual report, copies of which are available at
www.evraz.com , remain relevant in 2021 and the mitigating actions
described continue to be appropriate.
Risks:
-- Global economic factors, industry conditions and cyclicality
-- Product competition
-- Cost effectiveness
-- Potential regulatory actions by governments, including trade,
anti-monopoly and anti-dumping regulations, sanctions regimes, and
other laws and regulations
-- Functional currency devaluation
-- HSE: environmental
-- HSE: health and safety
-- Business interruption
-- Digital e ectiveness, as well as e ective, efficient and continuous IT service
-- Capital projects and expenditures
The management continues to monitor emerging and developing
risks and to implement preventative measures to mitigate any
potential adverse effect on the Group's business.
In H1 2021, EVRAZ experienced a few safety incidents, including
a steam explosion at the EVRAZ Pueblo steelmaking facility in May
that injured eight employees. The management is committed to
transforming and enhancing the focus of the Group's health and
safety programmes. Improvements include stronger measures to
identify risk areas and prevent further incidents. For more
details, see the "Health, Safety and Environment" section.
Despite favourable market conditions, the pandemic has still
affected the global economy significantly. In 2020, EVRAZ
established a crisis management centre. The senior management
continue to monitor the situation daily. The Board of Directors
receives regular updates about the impact on the Group's
operational, commercial and financial situation. EVRAZ has numerous
safety measures in place to protect its people and ensure continued
operations. Throughout H1 2021, the Group worked to prevent the
spread of COVID-19 at its assets. EVRAZ is taking all necessary
efforts to vaccinate employees and identify infections promptly. A
significant part of the office staff is still working remotely.
Most of the Group's businesses were relatively unaffected by the
pandemic. For more details, see the "Impact of COVID-19"
section.
Given the heightened attention to the environmental aspects of
its operations around the world, EVRAZ increased the weighting of
the HSE: environmental risk factor in 2020. The Group is developing
and implementing numerous programmes to reduce harmful emissions
and mitigate the negative environmental impacts of production. The
decision-making process in place at EVRAZ considers the goals set
in the Group's Environmental Strategy 2030.
The Environmental Strategy 2030 serves as a roadmap for
improving environmental performance by assessing climate risks,
applying best environmental practices and working to meet
stakeholder expectations. In February 2021, the environmental
impact mitigation goals of this strategy were published in the 2020
annual report.
During H1 2021 there was a very significant increase in demand
for and prices of almost all of the Group's products leading to the
Group's strong financial performance. The management of EVRAZ plc
has considered the Group's cash flow forecasts for the period to 31
December 2022 being its going concern assessment period,
forecasting both liquidity and covenant compliance. It has
evaluated various financial performance scenarios, including a base
case, a pessimistic case reflecting a reduction in forecast prices
below current market expectations and additional scenarios
reflecting the possible demerger of the coal business. All these
scenarios included the scheduled repayment of debt and the effect
of the new export duties imposed by the government of the Russian
Federation from 1 August to 31 December 2021. None of these
scenarios take advantage of actions at management's disposal to
further strengthen forecast liquidity, including the deferral of
uncommitted capital expenditure.
EVRAZ also continues to monitor and assess other risks and
uncertainties that were not recognised as principal, including
employee, taxation, compliance, social and community, human-rights
and other risks. While impact and probability analysis suggest that
such risks could affect the Group's operations to some extent, the
management believes that they are being managed adequately and does
not consider them capable of seriously affecting the performance,
future prospects or reputation of EVRAZ.
DIVIDS
Given the performance throughout 2021, EVRAZ has announced an
interim dividend.
On 4 August 2021, the Board of Directors voted to disburse a
total of US$802. 3 million, or US$0.55 per share.
The record date is 13 August 2021 and payment date is 10
September 2021.
The interim dividend will be paid in US dollars, unless a
shareholder elects to receive dividends in UK pounds sterling or
euros. The last date for submitting a currency election will be 16
August 2021. All conversions will take place on or around 18 August
2021.
DIRECTOR'S RESPONSIBILITY STATEMENT
The directors confirm that, to the best of their knowledge,
these interim condensed consolidated financial statements have been
prepared in accordance with International Accounting Standard 34 as
adopted by the UK and that the interim management report includes a
fair review of the information required by DTR 4.2.7 and DTR 4.2.8,
namely:
An indication of important events that have occurred during the
first six months and their impact on the consolidated interim
financial information, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and material related party transactions in the first six months and
any material changes in the related party transactions described in
the last annual report.
By order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
4 August 2021
Definitions of selected alternative performance measures
The Group uses alternative performance measures (APMs) to
improve comparability of information between reporting periods and
business units, either by adjusting for uncontrollable or one-off
factors which impact upon IFRS measures or, by aggregating
measures, to aid the user of this report in understanding the
activity taking place across the Group's portfolio.
EBITDA
EBITDA is determined as a segment's profit/(loss) from
operations adjusted for social and social infrastructure
maintenance expenses, impairment of assets, profit/(loss) on
disposal of property, plant and equipment and intangible assets,
foreign exchange gains/(losses) and depreciation, depletion and
amortisation expense.
The EBITDA margin is calculated by dividing EBITDA by
revenue.
EBITDA is not a measure under IFRS and should not be considered
as an alternative to other measures of financial position. EVRAZ'
calculation of EBITDA may be different from the calculation used by
other companies and therefore comparability may be limited.
See Note 3 of the consolidated financial statement for
additional information and reconciliation with IFRS financial
statements.
Free cash flow
Free cash flow represents EBITDA, net of non-cash items, less
changes in working capital, income tax paid, interest paid and
covenant reset charges, conversion premiums, premiums on early
repurchase of bonds and realised gains/(losses) on interest
payments under swap contracts, interest income and debt issue
costs, less capital expenditure, including recorded in financing
activities, purchases of subsidiaries, net of cash acquired,
proceeds from sale of disposals classified as held for sale, net of
transaction costs, less purchases of treasury shares for
participants of the incentive plans, plus other cash flows from
investing activities.
Free cash flow is not a measure under IFRS and should not be
considered as an alternative to other measures of financial
position. EVRAZ' calculation of free cash flow may be different
from the calculation used by other companies and therefore
comparability may be limited.
See Calculation of free cash flow table in the Financial review
section for additional information reconciliation with IFRS
financial statements.
Cash and short-term bank deposits
Cash and short-term bank deposits is not a measure under IFRS
and should not be considered as an alternative to other measures of
financial position. EVRAZ' calculation of cash and short--term bank
deposits may be different from the calculation used by other
companies and therefore comparability may be limited.
Cash and short-term bank deposits calculation
30 June Change Change, %
(US$ million) 2021 31 December 2020
-------- ----------------- ------- ----------
Cash and cash equivalents 1,415 1,627 (212) (13.0)
----------------------------------- -------- ----------------- ------- ----------
Cash and short-term bank deposits 1,415 1,627 (212) (13.0)
----------------------------------- -------- ----------------- ------- ----------
Total debt
Total debt represents the nominal value of loans and borrowings
plus unpaid interest, finance lease liabilities, loans of assets
classified as held for sale, and the nominal effect of
cross-currency swaps on principal of ruble-denominated notes. Total
debt is not a measure under IFRS and should not be considered as an
alternative to other measures of financial position. EVRAZ'
calculation of total debt may be different from the calculation
used by other companies and therefore comparability may be limited.
The current calculation is different from that used for covenant
compliance calculations.
Total debt has been calculated as follows:
30 June Change Change, %
(US$ million) 2021 31 December 2020
-------- ----------------- ------- ----------
Long-term loans, net of current portion 4,002 3,759 243 6.5
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Short-term loans and current portion of long-term loans 536 1,078 (542) (50.3)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Add back: Unamortised debt issue costs and fair value adjustment to
liabilities assumed in
business combination 22 16 6 37.5
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Nominal effect of cross-currency swaps on principal of
ruble-denominated notes 35 43 (8) (18.6)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Finance lease liabilities, including non-current portion 50 57 (7) (12.3)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Finance lease liabilities, including current portion 31 30 1 3.3
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Total debt 4,676 4,983 (307) (6.2)
-------------------------------------------------------------------- -------- ----------------- ------- ----------
Net debt
Net debt represents total debt less cash and liquid short-term
financial assets, including those related to disposals classified
as held for sale. Net debt is not a measure under IFRS and should
not be considered as an alternative to other measures of financial
position. EVRAZ' calculation of net debt may be different from the
calculation used by other companies and therefore comparability may
be limited. The current calculation is different from that used for
covenant compliance calculations.
Net debt has been calculated as follows:
30 June Change Change, %
(US$ million) 2021 31 December 2020
-------- ----------------- ------- ----------
Total debt 4,676 4,983 (307) (6.2)
--------------------------- -------- ----------------- ------- ----------
Cash and cash equivalents (1,415) (1,627) 212 (13.0)
--------------------------- -------- ----------------- ------- ----------
Net debt 3,261 3,356 (95) (2.8)
--------------------------- -------- ----------------- ------- ----------
CAPEX
Capital expenditure (CAPEX) is cash expenditure on property,
plant and equipment. For internal reporting and analysis, CAPEX
includes non-cash transactions related to CAPEX.
CAPEX has been calculated as follows:
(US$ million) H1 2021 H1 2020 Change Change, %
-------- -------- ------- ----------
Purchases of property, plant and equipment and intangible assets 428 330 98 29.7
------------------------------------------------------------------ -------- -------- ------- ----------
Purchases of property, plant and equipment on deferred terms 2 7 (5) (71.4)
------------------------------------------------------------------ -------- -------- ------- ----------
CAPEX 430 337 93 27.6
------------------------------------------------------------------ -------- -------- ------- ----------
Labour productivity, US$/t
P=S/V
S - Labour Costs (asset and A-category subsidiaries), exclusive
of tax, local currency (on Division consolidation sites with
different currencies, US$)
V - production volume, tonnes (for steel assets: V - metal
products shipped
Lost time injury frequency rate (LTIFR)
The KPI is calculated on a year-to-date basis for the company
employees only.
LTIFR = X--1000000/Y
X is the total number of occupational injuries resulted in lost
time among the Group's employees in the reporting period.
Fatalities are not included.
Y is the actual total number of man-hours worked by all Group
employees in the reporting period.
Semi-finished products cash costs, US$/t
Cash cost of semi-finished products is defined as the production
cost less depreciation. The result is divided by production volumes
of semi-finished steel products. Raw materials from EVRAZ coal and
iron ore producers are accounted for on at-cost-basis. Costs of
semi-finished steel products of EVRAZ NTMK and EVRAZ ZSMK are then
weighted averaged by the total production volume of saleable
semi-finished products.
Coking coal concentrate cash cost, US$/t
Cash cost of coking coal concentrate is defined as cost of
revenues less depreciation and SG&A. The result is divided by
sales volumes.
Iron ore products cash cost, US$/t
Cash cost of iron ore products is defined as cost of revenues
less depreciation and SG&A. The result is divided by sales
volumes.
Number of EBS transformations
Number of EBS transformations implemented at the key assets
during the reporting year.
Customer focus and cost-cutting effects
Each project effect is calculated as an absolute deviation of
targeted metric year to year multiplied by relevant price or volume
depending on project's focus.
EVRAZ plc
Unaudited Interim Condensed
Consolidated Financial Statements
Six-month period ended 30 June 20 21
EVRAZ plc
Unaudited Interim Condensed Consolidated Financial
Statements
Six-month period ended 30 June 20 21
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 ....................
INDEPENT REVIEW REPORT TO EVRAZ PLC
Conclusion
We have been engaged by EVRAZ plc (the Company) to review the
condensed set of financial statements in the half-yearly financial
report for the six months ended 30 June 2021 which comprises the
Interim Condensed Consolidated Statement of Operations, Interim
Condensed Consolidated Statement of Comprehensive Income, Interim
Condensed Consolidated Statement of Financial Position, Interim
Condensed Consolidated Statement of Cash Flows, Interim Condensed
Consolidated Statement of Changes in Equity and related notes 1 to
15. We have read the other information contained in the half yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
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. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
As disclosed in note 2, the annual financial statements of the
Group will be prepared in accordance with UK adopted IFRSs. The
condensed set of financial statements included in this half-yearly
financial report has been prepared in accordance with UK adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly report, we are responsible for
expressing to the Company a conclusion on the condensed set of
financial statement in the half-yearly financial report. Our
conclusion, based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
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.
Ernst & Young LLP
London
4 August 2021
Unaudited Interim Condensed Consolidated Statement of
Operations
(In millions of US dollars, except for per share
information)
Six-month period
ended 30 June
Notes 20 21 2020
Revenue
Sale of goods 3 $ 6,055 $ 4,854
Rendering of services 3 123 129
--------- --------
6,178 4,983
Cost of revenue (3,633) (3,488)
Gross profit 2,545 1,495
Selling and distribution costs (414) (421)
General and administrative expenses (288) (278)
Social and social infrastructure
maintenance expenses (16) (17)
Gains/(losses) on disposal of property,
plant and equipment, net (1) 1
Impairment of non-financial assets 5 (4) (108)
Foreign exchange gains/(losses),
net (30) 242
Other operating income 6 11
Other operating expenses (49) (34)
--------- --------
Profit from operations 1,749 891
Interest income 3 4
Interest expense (124) (168)
Share of profits/(losses) of joint
ventures and associates 8 5 3
Gains/(losses) on financial assets
and liabilities, net (4) ( 40 )
Gains/(losses) on disposal groups
classified as held for sale, net 2 1
Other non-operating gains/(losses),
net - 9
Profit before tax 1,631 700
Income tax expense 6 (419) (187)
--------- --------
Net profit $ 1,212 $ 513
========= ========
Attributable to:
Equity holders of the parent entity $ 1,198 $ 506
Non-controlling interests 14 7
--------- --------
$ 1,212 $ 513
========= ========
Earnings per share:
for profit attributable to equity
holders of the parent entity, basic,
US dollars 11 $ 0. 82 $ 0.35
for profit attributable to equity
holders of the parent entity, diluted,
US dollars 11 $ 0. 82 $ 0.35
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of
Comprehensive Income
(In millions of US dollars)
Six-month period
ended 30 June
Notes 20 2 1 20 20
Net profit $ 1,212 $ 513
Other comprehensive income/(loss)
Oth er comprehen sive income to
be reclassified to profit or lo
ss in subs equent periods
Exchange differences on translation
of foreign operations into presentation
currency 1 19 (664)
Effect of translation to presentation
currency of the Group's joint ventures
and associates 8 2 (10)
--------- --------
12 1 (674)
Items not to be reclassified to
profit or loss in subsequent periods
Gains/(losses) on re-measurement
of net defined benefit liability 44 (40)
Income tax effect (11) 7
--------- --------
33 (33)
Total other comprehensive income/(loss),
net of tax 154 (707)
--------- --------
Total comprehensive income/(loss),
net of tax $ 1,366 $ (194)
========= ========
Attributable to:
Equity holders of the parent entity $ 1 ,348 $ (185)
Non-controlling interests 18 (9)
--------- --------
$ 1,366 $ (194)
========= ========
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of Financial
Position
(In millions of US dollars)
30 June 31 December
Notes 20 2 1 20 20
Assets
Non-current assets
$ 4,48
Property, plant and equipment 7 5 $ 4 ,314
Intangible assets other than goodwill 140 138
Goodwill 460 457
Investments in joint ventures and
associates 8 91 79
Deferred income tax assets 2 39 245
Other non-current financial assets 23 26
Other non-current assets 51 45
----------- -------------
5,48 9 5,304
Current assets
Inventories 1,363 1,085
Trade and other receivables 529 378
Prepayments 76 80
Receivables from related parties 9 11 10
Income tax receivable 34 46
Other taxes recoverable 196 178
Other current financial assets 12 2
Cash and cash equivalents 10 1,415 1,627
----------- -------------
3,636 3,406
$ 9,1
Total assets 2 5 $ 8,710
=========== =============
Equity and liabilities
Equity
Equity attributable to equity holders
of the parent entity
Issued capital 11 $ 75 $ 75
Treasury shares 11 (148) (154)
Additional paid-in capital 2,516 2,510
Revaluation surplus 109 109
Accumulated profits 2,6 99 2,187
(3,81
Translation difference 9 ) (3,936)
----------- -------------
1,4 32 791
Non-controlling interests 154 129
----------- -------------
1,5 86 920
Non-current liabilities
Long-term loans 12 4,002 3,759
Deferred income tax liabilities 2 5 6 253
Employee benefits 2 12 240
Provisions 2 78 272
Lease liabilities 50 57
Other long-term liabilities 104 102
----------- -------------
4,902 4,683
Current liabilities
Trade and other payables 1,429 1,264
Contract liabilities 251 314
Payables to related parties 9 36 38
Short-term loans and current portion
of long-term loans 12 536 1,078
Lease liabilities 31 30
Income tax payable 9 6 108
Other taxes payable 201 169
Provisions 5 7 41
Amounts payable under put options
for shares in subsidiaries 4 - 65
2,637 3,107
Total liabilities 7,539 7,790
----------- -------------
$ 9,1
Total equity and liabilities 2 5 $ 8,710
=========== =============
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
These Unaudited Interim Condensed Consolidated Financial
Statements were approved by the Board of Directors on 4 August 2021
and signed on its behalf by:
Alexander Frolov, Director
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
(In millions of US dollars)
Six-month period
ended
30 June
202 1 20 20
Cash flows from operating activities
Net profit $ 1,212 $ 513
Adjustments to reconcile net profit/(loss)
to net cash flows from operating activities:
Deferred income tax (benefit)/expense (3) (119)
Depreciation, depletion and amortisation 282 300
(Gain)/loss on disposal of property, plant
and equipment 1 (1)
Impairment of non-financial assets 4 108
Foreign exchange (gains)/losses, net 30 (242)
Interest income (3) (4)
Interest expense 124 168
Share of (profits)/losses of associates
and joint ventures (5) (3)
(Gain)/loss on financial assets and liabilities,
net 4 40
(Gain)/loss on disposal groups classified
as held for sale, net (2) (1)
Other non-operating (gains)/losses, net - (9)
Changes in provisions, employee benefits
and other long-term assets and liabilities 14 (6)
Expense arising from equity-settled awards 6 5
1,6 6 4 749
Changes in working capital:
Inventories (241) 59
Trade and other receivables (14 5 ) 5
Prepayments 6 (3)
Receivables from/payables to related parties (1) 33
Taxes recoverable - (30)
Other assets (1 0 ) -
Trade and other payables 192 (49)
Contract liabilities (6 9 ) (11)
Taxes payable 1 5 34
Other liabilities (1) (6)
Net cash flows from operating activities 1,41 0 781
Cash flows from investing activities
Issuance of loans receivable - (1)
Short-term deposits at banks, including
interest 2 3
Purchases of property, plant and equipment
and intangible assets (428) (330)
Proceeds from disposal of property, plant
and equipment 2 4
Contributions to associates/joint ventures (5) -
Proceeds from sale of disposal groups classified
as held for sale, net of cash disposed and
transaction costs 2 3
Dividends received - 1
Other investing activities, net - 1
Net cash flows used in investing activities (4 27 ) (319)
Continued on the next page
Unaudited Interim Condensed Consolidated Statement of Cash
Flows
(continued)
(In millions of US dollars)
Six-month period
ended
30 June
202 1 20 20
Cash flows from financing activities
Payments for the purchase of non-controlling $ ( 22
interests (Note 4) $ (38) )
Proceeds from bank loans and notes (Note
12 ) 1,698 921
Repayment of bank loans and notes, including
interest (Note 12 ) (2,097) (778)
Net proceeds from/(repayment of) bank overdrafts
and credit lines, including interest (Note
12 ) 2 (26)
Payments under covenants reset (Note 12
) (10) -
Gain/(loss) on derivatives not designated
as hedging instruments 6 -
Purchases of property, plant and equipment
on deferred terms (2) (7)
Lease payments, including interest (15) (17)
Dividends paid by the parent entity to its
shareholders (Note 11 ) (729) (581)
Dividends paid by the Group's subsidiaries
to non-controlling shareholders (4) (3)
Net cash flows used in financing activities (1,189) (513)
Effect of foreign exchange rate changes
on cash and cash equivalents (6) (8)
Net decrease in cash and cash equivalents (2 12 ) (59)
Cash and cash equivalents at beginning of
year 1,627 1,423
Cash and cash equivalents at end of period $ 1,4 15 $ 1,364
============ ===========
Supplementary cash flow information:
Cash flows during the period:
Interest paid $ (139) $ (143)
Interest received 2 3
Income taxes paid (included in operating
activities) (424) (291)
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of Changes in
Equity
(In millions of US dollars)
Attributable to equity holders of the parent entity
--------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additional Unrealised
Issued Treasury paid-in Revaluation gains Accumulated Translation Non-controlling Total
capital shares capital surplus and losses profits difference Total interests Equity
--------------------- ------------------------ ------------------------ ---------------------- ----------- ---------------------------- -------------------------- ---------------------- ---------------------- ----------------------
At 31 December
20 20 $ 75 $ (154) $ 2,510 $ 109 $ - $ 2,187 $ (3,936) $ 791 $ 129 $ 920
Net profit - - - - - 1,198 - 1,198 14 1,212
Other
comprehensive
income/(loss) - - - - - 33 11 7 1 50 4 1 54
Total
comprehensive
income/(loss) 1,3 1,3
for the period - - - - - 1, 231 11 7 48 18 66
Acquisition of
non-controlling
interests in
subsidiaries
(Note 4) - - - - - (19) - (19) (19) (38)
Reversal of
derecognition
of
non-controlling
interest
in subsidiaries
(Note 4) - - - - - 35 - 35 30 65
Transfer of
treasury shares
to participants
of the
Incentive Plans - 6 - - - ( 6 ) - - - -
Share-based
payments - - 6 - - - - 6 - 6
Dividends
declared by the
parent entity
to its
shareholders
(Note 11) - - - - - (729) - (729) - (729)
Dividends
declared by the
Group's
subsidiaries to
non-controlling ( 4
shareholders - - - - - - - - ) (4)
$ (1 $ 2,6 $ (3,81 $ 1,4 $ 1,5
At 30 June 202 1 $ 75 48 ) $ 2,516 $ 109 $ - 99 9 ) 32 $ 154 86
===================== ======================== ======================== ====================== =========== ============================ ========================== ====================== ====================== ======================
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Unaudited Interim Condensed Consolidated Statement of Changes in
Equity (continued)
(In millions of US dollars)
Attributable to equity holders of the parent entity
--------------------- ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Additional Unrealised
Issued Treasury paid-in Revaluation gains Accumulated Translation Non-controlling Total
capital shares capital surplus and losses profits difference Total interests Equity
--------------------- ------------------------ ------------------------ ---------------------- ----------- ---------------------------- -------------------------- ------------------------ ---------------------- ------------------------
At 31 December
2019 $ 75 $ (169) $ 2,492 $ 109 $ - $ 2,217 $ (3,048) $ 1,676 $ 252 $ 1,928
Net profit - - - - - 506 - 506 7 513
Other
comprehensive
income/(loss) - - - - - (33) (658) (691) (16) (707)
Total
comprehensive
income/(loss)
for the period - - - - - 473 (658) (185) (9) (194)
Acquisition of
non-controlling
interests in
subsidiaries
(Note 4) - - 6 - - - - 6 (28) (22)
Transfer of
treasury shares
to participants
of the
Incentive Plans - 15 - - - (15) - - - -
Share-based
payments - - 5 - - - - 5 - 5
Dividends
declared by the
parent entity
to its ( 581 ( 581
shareholders - - - - - ( 581 ) - ) - )
Dividends
declared by the
Group's
subsidiaries to
non-controlling
shareholders - - - - - - - - (3) (3)
At 30 June 2020 $ 75 $ (154) $ 2,503 $ 109 $ - $ 2,094 $ (3,706) $ 921 $ 212 $ 1,133
===================== ======================== ======================== ====================== =========== ============================ ========================== ======================== ====================== ========================
The accompanying notes form an integral part of these unaudited
interim condensed consolidated financial statements.
Selected Notes
to the Unaudited Interim Condensed Consolidated Financial
Statements
Six-month period ended 30 June 2021
1. Corporate Information
These interim condensed consolidated financial statements were
authorised for issue by the Board of Directors of EVRAZ plc on 4
August 2021 .
EVRAZ plc ("EVRAZ plc" or "the Company") was incorporated on 23
September 2011 as a public company under the laws of the United
Kingdom with the registered number 7784342. The Company's
registered address is 2 Portman street, London, W1H 6DU, United
Kingdom.
The Company, together with its subsidiaries (the "Group"), is
involved in the production and distribution of steel and related
products and coal and iron ore mining. In addition, the Group
produces vanadium products. The Group is one of the largest steel
producers globally.
In the six-month period ended 30 June 2021 EVRAZ plc was jointly
controlled by a group of 3 shareholders: Greenleas International
Holdings Limited (BVI), Abiglaze Limited (Cyprus) and Crosland
Global Limited (Cyprus).
2. Significant Accounting Policies
Basis of Preparation
The annual financial statements of EVRAZ plc will be prepared in
accordance with United Kingdom adopted international accounting
standards ("UK adopted IFRSs") . These interim condensed
consolidated financial statements have been prepared in accordance
with UK adopted International Accounting Standard ("IAS") 34
"Interim Financial Reporting". Accordingly, these interim condensed
consolidated financial statements do not include all the
information and disclosures required for a complete set of
financial statements, and should be read in conjunction with the
Group's annual consolidated financial statements for the year ended
31 December 2020.
The interim condensed consolidated financial statements do not
constitute statutory accounts as defined by Section 435 of the
Companies Act 2006. Statutory accounts for the year ended 31
December 2020 have been filed with the Registrar of Companies. The
auditor's report under section 495 of the Companies Act 2006 in
relation to those accounts was unqualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis without qualifying their report and did not contain a
statement under section 498(2) or (3) of the Companies Act
2006.
Operating results for the six-month period ended 30 June 2021
are not necessarily indicative of the results that may be expected
for the year ending 31 December 2021.
Going Concern
These interim condensed consolidated financial statements have
been prepared on a going concern basis.
As disclosed in Note 13, macroeconomic uncertainty and
instability have arisen due to the COVID--19 pandemic. However, the
majority of the Group's businesses continue to be relatively
unaffected with no significant issues for production, supply or
shipments.
Moreover, during the first half of 2021 there was a very
significant increase in demand for and prices of almost all of the
Group's products leading to the Group's strong financial
performance.
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
Going Concern (continued)
The management of EVRAZ plc has considered the Group's cash flow
forecasts for the period to 31 December 2022 being its going
concern assessment period, forecasting both liquidity and covenant
compliance. It has evaluated various financial performance
scenarios, including a base case, a pessimistic case reflecting a
reduction in forecast prices below current market expectations and
additional scenarios reflecting the possible demerger of the coal
business (Note 2). All these scenarios included the scheduled
repayment of debt (Note 12) and the effect of the new export duties
imposed by the government of the Russian Federation from 1 August
to 31 December 2021 (Note 15). None of these scenarios take
advantage of actions at management's disposal to further strengthen
forecast liquidity, including the deferral of uncommitted capital
expenditure.
Based on this analysis and other currently available facts and
circumstances directors and management have a reasonable
expectation that the Company and the Group have adequate resources
to continue as a going concern.
Possible Demerger of the Coal Business
In January 2021, the Board of directors agreed to proceed with
the possible demerger of the coal business headed by Raspadskaya.
However, at 30 June 2021 it was still uncertain whether this
transaction would be finally approved by shareholders and
executed.
The coal segment meets the criteria of a major business line,
consequently, if executed, this demerger shall be treated as
discontinued operations. Management believes that at 30 June 2021
and at the date of authorisation of these consolidated financial
statements for issue the coal segment did not represent a
discontinued operation as certain procedures requiring the approval
of 75%+1 of EVRAZ plc's shareholders have not been executed, thus
the demerger is not yet considered as highly probable within 1
year.
As such, the classification, measurement and presentation
requirements of IFRS 5 "Non-current Assets Held for Sale and
Discontinued Operations" should not be applied in the consolidated
financial statements for the 6-month period ended 30 June 2021.
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 2020, except for the adoption of new standards and
interpretations and revisions of existing IAS as of 1 January
2021.
New/Revised Standards and Interpretations Adopted in 2021
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, IFRS 16:
Interest Rate Benchmark Reform, phase 2
Over the past few years global financial regulators developed a
reform aimed at replacement of benchmark interbank offered rates
("IBORs"), such as LIBOR and EURIBOR, with new "official" benchmark
rates, known as alternative risk-free rates. This reform caused
changes to financial reporting requirements under IFRS. The
International Accounting Standards Board tackled the changes in two
phases.
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
New/Revised Standards and Interpretations Adopted in 2021
(continued)
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, IFRS 16:
Interest Rate Benchmark Reform, phase 2 ( continued)
Phase 1 amended specific hedge accounting requirements where
uncertainty could arise in the run-up to transition;
Phase 2 addressed potential financial reporting issues that may
arise when IBORs are either reformed or replaced.
In 2017 it was announced that LIBOR, one of the most widely used
benchmarks, will be discontinued after December 2021 (subsequently
amended to June 2023), as panel banks will no longer be required to
submit the quotes used to construct it.
The Group has a number of short-term and long-term borrowings
with variable interest rates. It is expected that IBORs will be
replaced by Secured Overnight Financing Rate ("SOFR"). All new loan
agreements contain appropriate fallback language.
3. Segment Information
The following tables present measures of segment profit or loss
based on management accounts.
Six-month period ended 30 June 2021
Steel,
US$ million Steel North America Coal Other operations Eliminations Total
--------- -------------- ------- ---------------- ------------ ---------
Revenue
Sales to external
customers $ 4,581 $ 972 $ 556 $ 69 $ - $ 6,178
Inter-segment sales 31 - 275 169 (475) -
--------- -------------- ------- ---------------- ------------ ---------
Total revenue 4,612 972 831 238 (475) 6,178
========= ============== ======= ================ ============ =========
Segment result -
EBITDA $ 1,811 $ 64 $ 346 $ 5 $ (12) $ 2,214
Six-month period ended 30 June 2020
Steel,
US$ million Steel North America Coal Other operations Eliminations Total
--------- -------------- ------- ---------------- ------------ ---------
Revenue
Sales to external
customers $ 3,392 $ 1,028 $ 498 $ 65 $ - $ 4,983
Inter-segment sales 41 - 283 141 (465) -
--------- -------------- ------- ---------------- ------------ ---------
Total revenue 3,433 1,028 781 206 (465) 4,983
========= ============== ======= ================ ============ =========
Segment result -
EBITDA $ 919 $ (19) $ 206 $ 9 $ 17 $ 1,132
3. Segment Information (continued)
The following table shows a reconciliation of revenue and EBITDA
used by management for decision making and revenue and profit or
loss before tax per the consolidated financial statements prepared
under IFRS.
Six-month period ended 30 June 2021
Steel,
North Other
US$ million Steel America Coal operations Eliminations Total
--------- -------- ------- ----------- ------------ ----------------
Revenue per IFRS financial
statements $ 4,612 $ 972 $ 831 $ 238 $ (475) $ 6,178
EBITDA $ 1,811 $ 64 $ 346 $ 5 $ (12) $ 2,214
Unrealised profits adjustment (4) - 4 - (1) (1)
Reclassifications and
other adjustments (44) (11) (8) 1 - (62)
--------- -------- ------- ----------- ------------ ----------------
(48) (11) (4) 1 (1) (63)
--------- -------- ------- ----------- ------------ ----------------
EBITDA based on IFRS
financial statements $ 1,763 $ 53 $ 342 $ 6 $ (13) $ 2,151
Unallocated subsidiaries (69)
----------------
$ 2,082
================
Social and social infrastructure
maintenance expenses (12) - (2) - - (14)
Depreciation, depletion
and amortisation expense (134) (61) (83) (2) - (280)
Impairment of non-financial
assets (2) - (2) - - (4)
Loss on disposal of property,
plant and equipment and
intangible assets - - (1) - - (1)
Foreign exchange gains/(losses),
net (27) 15 26 - - 14
--------- -------- ------- ----------- ------------ ----------------
1,588 7 280 4 (13) 1,797
Unallocated income/(expenses),
net (48)
----------------
Profit/(loss) from operations $ 1,749
Interest income/(expense),
net (121)
Share of profits/(losses)
of joint ventures and
associates 5
Gain/(loss) on financial
assets and liabilities (4)
Gain/(loss) on disposal
groups classified as
held for sale, net 2
Profit/(loss) before
tax $ 1,631
================
3. Segment Information (continued)
Six-month period ended 30 June 2020
Steel,
North Other
US$ million Steel America Coal operations Eliminations Total
--------- --------- ------- ----------- ------------ ----------------
Revenue per IFRS financial
statements $ 3,433 $ 1,028 $ 781 $ 206 $ (465) $ 4,983
EBITDA $ 919 $ (19) $ 206 $ 9 $ 17 $ 1 ,132
Unrealised profits adjustment (26) - 2 - - (24)
Reclassifications and
other adjustments 23 (2) 10 (1) - 30
--------- --------- ------- ----------- ------------ ----------------
(3) (2) 12 (1) - 6
--------- --------- ------- ----------- ------------ ----------------
EBITDA based on IFRS
financial statements $ 916 $ (21) $ 218 $ 8 $ 17 $ 1,138
Unallocated subsidiaries (65)
----------------
$ 1,073
================
Social and social infrastructure
maintenance expenses (12) - (1) - - (13)
Depreciation, depletion
and amortisation expense (123) (72) (100) (3) - (298)
Impairment of non-financial
assets (3) (105) - - - (108)
Loss on disposal of property,
plant and equipment and
intangible assets 2 (1) - - - 1
Foreign exchange gains/(losses),
net 28 (39) 73 - - 62
--------- --------- ------- ----------- ------------ ----------------
808 (238) 190 5 17 717
Unallocated income/(expenses),
net 174
----------------
Profit/(loss) from operations $ 891
Interest income/(expense),
net (164)
Share of profits/(losses)
of joint ventures and
associates 3
Gain/(loss) on financial
assets and liabilities (40)
Gain/(loss) on disposal
groups classified as
held for sale, net 1
Other non-operating gains/(losses),
net 9
Profit/(loss) before
tax $ 700
================
In the six-month period ended 30 June 2021 and 2020, the Group
reversed an allowance for net realisable value of inventory of $1
million and $Nil, respectively.
The material changes in property, plant and equipment during the
six-month period ended 30 June 2021 other than those disclosed
above are presented below:
Steel,
US$ million Steel North America Coal Other operations Unallocated Total
------- -------------- ------ ---------------- ----------- -------
Additions $ 181 $ 141 $ 71 $ - $ - $ 393
The material changes in property, plant and equipment during the
six-month period ended 30 June 2020 were as follows:
Steel,
US$ million Steel North America Coal Other operations Unallocated Total
------- -------------- ------- ---------------- ----------- -------
Additions $ 187 $ 46 $ 110 $ - $ 1 $ 344
3. Segment Information (continued)
The revenues from contracts with external customers for each
group of similar products and services and rental income are
presented in the following table:
Six-month period ended
30 June
US$ million 20 21 2020
----------- ------------
Steel
Construction products $ 1,460 $ 939
Flat-rolled products 105 68
Railway products 482 593
Semi-finished products 1,693 1 ,233
Other steel products 261 170
Other products 208 125
Iron ore 101 63
Vanadium in slag 37 31
Vanadium in alloys and chemicals 193 133
Rendering of services 41 37
----------- ------------
4,581 3,392
Steel, North America
Construction products 134 93
Flat-rolled products 357 15 2
Railway products 18 5 173
Tubular products 236 45 2
Other products 49 1 41
Rendering of services 11 17
----------- ------------
972 1,028
Coal
Coal 545 483
Other products 9 5
Rendering of services 2 10
----------- ------------
556 498
Other operations
Rendering of services 69 65
$ 6,178 $ 4 ,983
=========== ============
In the six-month periods ended 30 June 2021 and 2020 revenue
from rendering of services included rental income of $12 million
and $13 million, respectively.
3. Segment Information (continued)
Distribution of the Group's revenues by geographical area based
on the location of customers was as follows:
Six-month period ended
30 June
US$ million 20 21 2020
------------ -----------
CIS
Russia $ 2,468 $ 1,848
Kazakhstan 231 151
Ukraine 92 31
Others 81 127
------------ -----------
2 ,872 2,157
============ ===========
America
USA 609 638
Canada 385 391
Mexico 159 15
Others 53 9
------------ -----------
1 ,206 1,053
============ ===========
Asia
Taiwan 548 242
China 250 524
Philippines 199 191
Indonesia 152 137
Republic of Korea 119 133
Thailand 114 29
Japan 66 47
Vietnam 54 26
Others 87 175
------------ -----------
1,589 1,504
============ ===========
Europe
European Union 247 150
Turkey 193 57
Others 15 5
------------ -----------
455 212
============ ===========
Africa
Kenya 46 34
Egypt 10 5
Others - 17
------------ -----------
56 56
============ ===========
Other countries - 1
------------ -----------
$ 6,178 $ 4,983
============ ===========
4. Changes in Composition of the Group
Purchase of Non-controlling Interests
In 2020, in the course of the Group's business and ownership
structure reorganisation by way of purchase of Yuzhkuzbassugol by
Raspadskaya from NTMK, the Group recognised liabilities of
Raspadskaya amounting to $65 million to non-controlling
shareholders who voted against or did not vote for this decision.
Also the Group derecognised the non-controlling interests relating
to the shareholders, which have a put option over their holding
(4.25% of the total shares of Raspadskaya), with the carrying value
of $30 million. The difference between the amount of the recognised
liability and the carrying value of the derecognised
non-controlling interests was charged to accumulated profits.
On 1 February 2021, Raspadskaya completed the collection of the
share repurchase requests from eligible non-controlling
shareholders. The actual number of shares to be repurchased
amounted to 2.51% of Raspadskaya's share capital, which is equal to
a $38 million liability. On expiry of the put option in February
2021 the related amounts recognised in 2020 were reversed and the
purchase of non-controlling interests ($19 million) was recorded.
The excess of consideration over the carrying values of
non-controlling interests acquired amounting to $19 million was
charged to the consolidated accumulated profits.
In the six-month period ended 30 June 2020, the Group acquired
an additional 2.3% ownership interest in Raspadskaya for cash
consideration of $22 million. The excess of the carrying values of
non-controlling interests acquired over consideration amounting to
$6 million was credited to additional paid-in capital.
Exercise of Put Option by Non-controlling Shareholders
In June 2020, the non-controlling shareholder, which had a 39.98
% ownership interest in Mezhegeyugol, a coal subsidiary of the
Group, sold its interest to the Group. In March 2017, when the
Group received the rights to the beneficial interests relating to
this non-controlling interest following the signing of a put option
agreement, this interest was derecognised and the put option
liability of $60 million was accrued by the Group. From March 2017
and until the put option exercise the Group accrued $9 million
interest on this liability. The consideration for the purchased
non-controlling interest comprised of a non-cash settlement of a
loan owed to the Group with a carrying value of $30 million, which
approximated the fair value, and $39 million of cash consideration,
which was paid in the second half of 2020.
5. Impairment of Non-current Assets
The Group performs impairment testing when indicators of
impairment are identified. In the six-month period ended 30 June
2021, there were no indicators of impairment identified at the
Group's cash-generating units level, even after taking into
consideration new export duties introduced by the government of the
Russian Federation (Note 15). However, the Group analysed its
property, plant and equipment for functional obsolescence and, as a
result, recognised $4 million of impairment loss.
In the comparative period (6 months ended 30 June 2020) as a
result of impairment testing the Group recognised a $ 99 million
impairment loss with respect to the Large diameter pipes
cash-generating unit, which was allocated to goodwill ($65 million)
, intangible assets ($3 million) and property, plant and equipment
($31 million) . The impairment was caused by the reassessment of
demand on the steel, oil and commodities markets. In addition, the
Group recognised and reversed losses in relation to impairment of
certain functionally obsolete items of property, plant and
equipment.
6. Income Taxes
Major components of income tax expense were as follows:
Six-month period
ended 30 June
US$ million 20 21 2020
--------- ----------
$ (4 2 1
Current income tax expense ) $ ( 300 )
Adjustment in respect of income tax of
previous years (1) ( 6 )
Deferred income tax benefit/(expense)
relating to origination and reversal of
temporary differences 3 1 19
Income tax expense reported in the consolidated
statement of operations $ (419) $ ( 187 )
========= ==========
In the six-month period ended 30 June 2021 and 2020, deferred
tax benefit/( expense) relating to the undistributed earnings of
the Group's subsidiaries amounted to $(43) million and $22 million,
respectively.
7. Property, Plant and Equipment
The movement in property, plant and equipment (including
right-of-use assets) for the six-month period ended 30 June 2021
was as follows:
Buildings Transport Assets
and Machinery and motor Mining Other under
US$ million Land constructions and equipment vehicles assets assets construction Total
----- ---------------- -------------- ---------- ------- ------- --------------- ---------
At 31 December
2020,
cost, net of
accumulated
depreciation $ 97 $ 883 $ 1,544 $ 126 $ 974 $ 10 $ 680 $ 4,314
Reclassifications
between
categories - (45) 45 - - - - -
Additions - - - 10 - - 383 393
Assets put into
operation - 36 174 15 22 - (247) -
Disposals - (1) (1) - - - (1) (3)
Depreciation and
depletion charge - (39) (178) (20) (38) (2) - (277)
Impairment losses
recognised in
statement
of operations - - (2) - (1) - (1) (4)
Change in site
restoration
and
decommissioning
provision - - - - 1 - - 1
Government grants - - - - - - (22) (22)
Translation
difference 1 18 28 1 2 2 - 13 83
----- ---------------- -------------- ---------- ------- ------- --------------- ---------
At 30 June 2021,
cost, net of
accumulated $ 4,48
depreciation $ 98 $ 852 $ 1,610 $ 132 $ 9 80 $ 8 $ 80 5 5
===== ================ ============== ========== ======= ======= =============== =========
In the six-month periods ended 30 June 2021 and 2020, the
depreciation expense relating to the right-of-use assets amounted
to $ 13 million and $15 million, respectively, and i nterest
expense and payments relating to the lease liabilities amounted to
$2 million and $3 million , respectively . At 30 June 2021 and 31
December 2020, the carrying value of the right-of-use assets
amounted to $ 81 million and $82 million , respectively. They were
mostly represented by Transport and motor vehicles and Machinery
and equipment.
8. Investments in Joint Ventures and Associates
The movement in investments in joint ventures and associates
during the six-month period ended 30 June 2021 was as follows:
US$ million Timir Streamcore Other associates Total
------- ---------- ---------------- -------
At 31 December 2020 $ 14 $ 54 $ 11 $ 79
Additions - - 5 5
Share of profit/(loss) - 3 2 5
Translation difference - 1 1 2
------- ---------- ---------------- -------
At 30 June 2021 $ 14 $ 58 $ 19 $ 91
======= ========== ================ =======
9. Related Party Disclosures
For the Group related parties include associates and joint
venture partners, key management personnel and other entities that
are under control or significant influence of the key management
personnel or the Group's principal shareholders. In considering
each possible related party relationship, attention is directed to
the substance of the relationship, not merely the legal form.
Transactions with related parties were as follows for the six-month
periods ended 30 June :
Sales to Purchases from
related parties related parties
-------------------
US$ million 2021 2020 2021 2020
--------- -------- --------- --------
Genalta Recycling Inc. $ - $ - $ 4 $ 7
Nakhodka Trade Sea Port - - 37 37
Vtorresource-Pererabotka 2 2 320 154
Yuzhny GOK 5 3 - -
Other entities - 1 - -
--------- -------- --------- --------
$ 7 $ 6 $ 361 $ 198
========= ======== ========= ========
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 2021 2020 2021 2020
-------- ------------ -------- ------------
Loans
Timir $ 9 $ 9 $ - $ -
Trade balances
Nakhodka Trade Sea Port - - 6 10
Vtorresource-Pererabotka - - 28 28
Other entities 2 1 2 -
11 10 36 38
Less: allowance for expected
credit losses - - - -
-------- ------------ -------- ------------
$ 11 $ 10 $ 36 $ 38
======== ============ ======== ============
Compensation to Key Management Personnel
In the six-month periods ended 30 June 2021 and 2020, key
management personnel totalled 27 and 28 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 2021 2020
----- -----
Salary $ 6 $ 7
Performance bonuses 7 4
Social security taxes 2 2
Share-based payments 3 5
$ 18 $ 18
===== =====
10. Cash and Cash Equivalents
Cash and cash equivalents were denominated in the following
currencies:
30 June 31 December
US$ million 2021 2020
----------- ------------
US dollar $ 1,226 $ 1,461
Euro 50 34
Russian rouble 1 24 124
Others 15 8
----------- ------------
$ 1,4 15 $ 1,627
=========== ============
The above cash and cash equivalents mainly consist of cash at
banks.
11. Equity
Share Capital
30 June 31 December
Number of shares 202 1 20 20
-------------- --------------
Issued and fully paid
Ordinary shares of $0.05 each 1,506,527,294 1,506,527,294
Treasury Shares
30 June 31 December
Number of shares 20 21 20 20
------------- ------------
Number of treasury shares 47, 83 7,582 49,654,691
In the six-month period ended 30 June 2021, 1,817,109 shares
with an associated cost of $6 million were transferred to
participants of Incentive Plans.
Earnings per Share
Earnings per share are calculated by dividing the net income
attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period. Diluted
earnings per share amounts are calculated by dividing the net
profit attributable to ordinary equity holders by the weighted
average number of ordinary shares outstanding during the period
plus the weighted average number of ordinary shares that would be
issued on the conversion of all the potential dilutive ordinary
shares into ordinary shares.
The following reflects the profit and share data used in the
basic and diluted earnings per share computations:
Six-month period
ended 30 June
-------------------------------------
2021 2020
Weighted average number of ordinary shares outstanding during the period 1,457,354,488 1,453,216,654
Effect of dilution: share s under Incentive plans 7,351,094 8,770,53 7
---------------- -------------------
Weighted average number of ordinary shares adjusted for the effect of dilution 1,464,705,582 1,461,987,191
Profit for the period attributable to equity holders of the parent entity, US$
million $ 1 ,198 $ 506
Basic earnings per share $ 0 . 82 $ 0.35
Diluted earnings per share $ 0. 82 $ 0.35
11. Equity (continued)
Earnings per Share (continued)
There have been no other transactions involving ordinary shares
or potential ordinary shares between the reporting date and the
date of completion of these interim condensed consolidated
financial statements.
Dividends
Dividends declared by EVRAZ plc during the six-month period
ended 30 June 2021 were as follows:
To holders Dividends
registered declared, US$ per
Date of declaration at US$ million share
--------------------- ------------- ------------- --------
24/02/2021 12/03/2021 437 0.30
15/04/2021 28/05/2021 292 0.20
12. Loans and Borrowings
Short-term and long-term loans and borrowings were as
follows:
30 June 31 December
US$ million 2021 Non-current Current 2020 Non-current Current
-------- ------------ -------- ------------ ------------ --------
$ 2
Bank loans $ 2,324 ,298 $ 26 $ 1,608 $ 1,554 $ 54
US dollar-denominated
8.25% notes due 2021 - - - 735 - 735
6.75% notes due 2022 460 - 460 500 500 -
5.375% notes due
2023 750 750 - 750 750 -
5.25% notes due 2024 700 700 - 700 700 -
Rouble-denominated
12.60% rouble bonds
due 2021 - - - 203 - 203
7.95% rouble bonds
due 2024 276 276 - 271 271 -
Unamortised debt
issue costs (22) (22) - (16) (16) -
Interest payable 50 - 50 86 - 86
-------- ------------ -------- ------------ ------------ --------
$ 4,538 $ 4,002 $ 536 $ 4,837 $ 3,759 $ 1,078
======== ============ ======== ============ ============ ========
Some of the loan agreements and terms and conditions of notes
provide for certain covenants in respect of EVRAZ plc and its
subsidiaries. The covenants impose restrictions in respect of
certain transactions and financial ratios, including restrictions
in respect of indebtedness and profitability. During the 1(st) half
of 2021 the Group was in compliance with all financial and
non-financial covenants. In the reporting period the Group paid $10
million in connection with the covenants reset relating to the
potential demerger of the coal assets (Note 2). These charges will
be amortised during the term of the respective notes and bank
loans.
12. Loans and Borrowings (continued)
The movement in loans and borrowings were as follows:
US$ million 20 21 20 20
---------- ----------
1 January $ 4,837 $ 4,739
Cash changes:
Cash proceeds from bank loans and notes,
net of debt issues costs 1,698 921
Repayment of bank loans and notes, including
interest (2,097) (778)
Net proceeds from/(repayment of) bank
overdrafts and credit lines, including
interest 2 (26)
Covenants reset charges (10) -
Non-cash changes:
Interest and other charges expensed 109 147
Effect of exchange rate changes (1) (49)
30 June $ 4,538 $ 4,954
========== ==========
Repurchase of Notes and Bonds
In the six-month period ended 30 June 2021, the Group fully
settled its 8.25% notes and 12.6% rouble-denominated bonds, which
were due in 2021. There was no gain or loss on these transactions.
In addition, the Group settled $40 million of 6.75% notes due 2022,
which resulted in a $1 million loss included in the Gain/(loss) on
financial assets and liabilities caption of the consolidated income
statement.
Pledged Assets
The Group's pledged assets at carrying value included the
following:
30 June 31 December
US$ million 2021 2020
-------- ------------
Property, plant and equipment $ 57 $ 47
Inventory 466 414
Unutilised Borrowing Facilities
As of 30 June 2021, the Group had unutilised bank loans in the
amount of $1,333 million, including $264 million of committed
facilities.
13. Commitments and Contingencies
Operating Environment of the Group
The Group is one of the largest vertically integrated steel
producers globally and the largest steel producer in Russia. The
Group's major subsidiaries are located in Russia, the USA and
Canada. Russia is considered to be a developing market with higher
economic and political risks.
The unrest in the Southeastern region of Ukraine and the
economic sanctions imposed by the USA and the European Union on
Russia in 2014 and later on caused economic slowdown in Russia and
reduced access to international capital markets. Further sanctions
imposed on Russia could have an adverse impact on the Group's
business.
Steel consumption is affected by the cyclical nature of demand
for steel products and the sensitivity of that demand to worldwide
general economic conditions.
The coronavirus (COVID--19) pandemic outbreak has significantly
affected the world economy, including steel production, oil and
gas, and construction industry. The increased market volatility may
have an impact on the Group's financial position, earnings and cash
flows in 2021 and beyond. Management closely monitors the
development of the economic situation and undertakes all necessary
measures to maintain the sustainability of the Group's business in
the current circumstances.
The global economic climate continues to be unstable and this
may negatively affect the Group's results and financial position in
a manner not currently determinable.
Taxation
Russian tax, currency and customs legislation is subject to
varying interpretations, and changes, which can occur frequently.
Management's interpretation of such legislation as applied to the
transactions and activity of the Group may be challenged by the
relevant regional and federal authorities.
Management believes that it has paid or accrued all taxes that
are applicable. Where uncertainty exists, the Group has accrued tax
liabilities based on management's best estimate of the probable
outflow of resources embodying economic benefits, which will be
required to settle these liabilities. Possible liabilities which
were identified by management at the end of the reporting period as
those that can be subject to different interpretations of the tax
laws and other regulations and are not accrued in these financial
statements could be up to approximately $35 million.
Contractual Commitments
At 30 June 2021, the Group had contractual commitments for the
purchase of production equipment and construction works for an
approximate amount of $ 858 million (31 December 2020: $462
million) . T hese commitments include $438 million ( 31 December
2020: $202 million) relating to the Palmer project - a construction
of a new rail mill in Pueblo (Colorado, USA) with an expected
completion date in the 2nd quarter of 2023.
In 2010, the Group concluded a contract with PraxAir for the
construction of an air separation plant and for the supply of
oxygen and other gases produced by PraxAir at this plant for a
period of 20 years (extended to 25 years in 2015, when the
construction was completed). This supply contract does not fall
within the scope of IFRS 16 "Leases". At 30 June 2021, the Group
has committed expenditure of $5 01 million over the life of the
contract.
13. Commitments and Contingencies (continued)
Contractual Commitments (continued)
In 2018, the Group concluded a contract with Air Liquide for the
construction of an air separation plant and for the supply of
oxygen and other gases produced by Air Liquide at this plant for a
period of 20 years. The contractual price comprises a fixed
component and a variable component. The total amount of the fixed
component approximates $4 92 million, which is payable within 20
years starting upon commencement of production in 2021 in
proportion to the amounts of the variable component. The variable
component is determined based on the actual purchase of gases and
is estimated at $382 million during the life of the contract. Based
on management's assessment this supply contract does not fall
within the scope of IFRS 16 "Leases" as the Group has no access to
the equipment and has no rights either to operate the assets, or to
design them in order to predetermine the way of their usage. Also
it is expected that more than an insignificant amount of the
assets' output will be sold to the parties unrelated to the Group.
In 2021, the construction was completed and the supply of oxygen
and other gases will start from August 2021. In addition, Air
Liquide constructed the system of trunk and auxiliary pipelines,
distribution stations and other equipment for products delivery,
which will be leased by the Group from 1 July 2021 for a period of
20 years and accounted for under IFRS 16. The discounted lease
payments are estimated at $8 million.
In 2019, the Group concluded a contract with Xcel Energy Inc.
for the supply of electricity for a period of 22 years. The Group
is committed to purchase from 1 January 2022 at least 500,000 MWh
annually on a take-or-pay basis at rates ranging from 3.90 to 4.90
cents/kWh. The rates can be adjusted for gas prices. The total
amount of this commitment at the unadjusted rates approximates $440
million.
Social Commitments
The Group is involved in a number of social programmes aimed to
support education, healthcare and social infrastructure development
in towns where the Group's assets are located. The Group budgeted
to spend approximately $ 4 million under these programmes in the
second half of 2021.
Environmental Protection
In the course of the Group's operations, the Group may be
subject to environmental claims and legal proceedings. The
quantification of environmental exposures requires an assessment of
many factors, including changing laws and regulations, improvements
in environmental technologies, the quality of information available
related to specific sites, the assessment stage of each site
investigation, preliminary findings and the length of time involved
in remediation or settlement.
The Group has a number of environmental claims and proceedings
which are at an early stage of investigation. Environmental
provisions in relation to these proceedings that were recognised at
30 June 2021 amounted to $ 25 million. Preliminary estimates of the
incremental costs indicate that such costs could be up to $ 148
million. The Group has insurance agreements, which would be
expected to provide reimbursement of the costs to be actually
incurred up to $228 million, of which $ 25 million relates to the
accrued environmental provision and has been recognised in
non-current financial assets and current receivables at 30 June
2021. Management believes that, as of now, an economic outflow of
the additional costs is not probable and any pending environmental
claims or proceedings will not have a material adverse effect on
its financial position and results of operations.
In addition, the Group has committed to various environmental
protection programmes covering periods from 2021 to 202 6 , under
which it will perform works aimed at reductions in environmental
pollution and contamination. As of 30 June 2021, the costs of
implementing these programmes are estimated at $ 224 million.
13. Commitments and Contingencies (continued)
Legal Proceedings
The Group has been and continues to be the subject of legal
proceedings, none of which has had, individually or in aggregate, a
significant effect on the Group's operations or financial position.
At 30 June 2021, the unrecognised p ossible liabilities were
estimated at $ 15 million.
Issued Guarantees
In June 2018, EVRAZ plc and EVRAZ West-Siberian Metallurgical
Plant issued a joint guarantee in the amount of up to 30 billion
roubles ($415 million at the exchange rate as of 30 June 2021) to 9
companies owned by Sibuglemet in respect of management services
provided by one the Group's subsidiaries to these entities.
Sibuglemet is a producer of coking coal and operator of coal
refineries in the Kemerovo region of Russia. The management company
committed to perform all management functions including, inter
alia, all the decisions required to carry out the day-to-day
operations of these coal companies, their investment and
procurement activities. The maturity of the guarantee was set for
31 December 2030.
On 15 November 2020, the management services contract was
terminated. The guarantee will continue to be effective 3 years
after the date of termination.
14. Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and
disclosing the fair value of financial instruments by valuation
technique:
-- Level 1: quoted prices (unadjusted) in active markets for
identical assets and liabilities;
-- Level 2: other techniques for which all inputs which have a
significant effect on the recorded fair value are observable,
either directly or indirectly; and
-- Level 3: techniques which use inputs which have a significant
effect on the recorded fair value that are not based on observable
market data (unobservable inputs).
The carrying amounts of financial instruments, such as cash,
short-term and long-term investments, short-term and long-term
accounts receivable, short-term accounts payable, short-term loans
receivable and payable and floating-rate bank loans, approximate
their fair value.
The Group held the following financial instruments measured at
fair value:
30 June 20 21 31 December 2020
----------------------- ----------------------
Level Level Level Level Level Level
US$ million 1 2 3 1 2 3
------- ------ ------ ------ ------ ------
Assets measured at fair value
Derivatives not designated
as hedging instruments - 3 - - 2 -
Liabilities measured at fair
value
Derivatives not designated
as hedging instruments - 55 - - 49 -
14. Fair Value of Financial Instruments (continued)
The following table shows fair values of the Group's bonds and
notes.
US$ million 30 June 20 21 31 December 2020
------------------- -------------------
Carrying Fair Carrying Fair
amount value amount value
USD-denominated
8.25% notes due 2021 $ - $ - $ 762 $ 767
6.75% notes due 2022 473 489 514 543
5.375% notes due 2023 758 806 761 818
5.25% notes due 2024 703 766 707 778
Rouble-denominated
12. 60 % rouble bonds due
20 21 - - 210 213
7.95% rouble bonds due 20
2 4 285 292 279 297
$ 2,219 $ 2,353 $ 3,233 $ 3,416
========= ======== ========= ========
The fair value of the non-convertible bonds and notes was
determined based on market quotations (Level 1).
15. Subsequent Events
Export Duties
Effective from 1 August 2021 export duties on ferrous metals
were introduced by the government of the Russian Federation. The
duties will be in effect through the end of December 2021. These
duties consist of a 15% base rate and also a metal-specific rate
per tonne of steelmaking raw materials, semi-finished and
rolled-steel products, which are exported outside the Eurasian
Economic Union.
The Group expects that the new duties system will negatively
impact its financial results in the 2(nd) half of 2021 but is not
expected to impact the recoverability of the Group's non-current
assets. The magnitude of these effects will be dependent on prices
realised in the period in which these duties are in effect, as well
as the balance of domestic and export sales.
Dividends
On 4 August 2021, the Board of directors of EVRAZ plc declared
dividends in the amount of $802 million, which represents $0.55 per
share.
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