REG - Evraz Plc - Annual Financial Report <Origin Href="QuoteRef">EVRE.L</Origin> - Part 2
15/03/2016 07:06
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(14.1)%
Total
2,270
100.0%
3,160
100.0%
(28.2)%
* Includes beams, rebars and structural tubing
** Includes rails and wheels
*** Includes commodity plate, specialty plate and other flat-rolled products
**** Includes large-diameter line pipes, ERW pipes and casing, seamless pipes,
casing and tubing
***** Includes scrap and services
Steel, North America segment cost of revenue
Cost of revenue decreased by 24.5% year-on-year in 2015. The main drivers were
as follows:
• Raw material costs decreased by 32.2%, primarily due to lower
consumption of raw materials (scrap, coke, ferroalloys and other). The main
reasons for this were lower volumes of crude steel and finished products, such
as OCTG, flat and wire rod, cost-cutting initiatives that reduced consumption,
and declining raw material prices.
• Costs of semi-finished products fell by 39.9%, amid prices for slab
purchased and lower production volumes of tubular products.
• Auxiliary materials dropped by 19.8%, as a cost-cutting plan was
implemented and production volumes of crude steel and finished products
dropped compared with 2014.
• Service costs declined by 5.3%, as production volumes in 2015 fell
year-on-year.
• Energy costs fell, driven by decreased production volumes, a decline in
energy consumption, and lower tariffs for energy and natural gas.
Steel North America segment cost of revenue
2015 2014
US$ million % of segment revenue US$ million % of segment revenue Change, %
Cost of revenue 1,980 87.2% 2,623 83.0% (24.5)%
Raw materials 643 28.3% 962 30.4% (33.2)%
Semi-finished products 354 15.6% 589 18.6% (39.9)%
Auxiliary materials 162 7.1% 202 6.4% (19.8)%
Services 160 7.0% 169 5.3% (5.3)%
Staff costs 265 11.7% 301 9.5% (12.0)%
Depreciation 107 4.7% 114 3.6% (6.1)%
Energy 106 4.7% 154 4.9% (31.2)%
Other* 183 8.1% 132 4.3% (38.6)%
(38.6)%
*Includes primarily goods for resale, certain taxes and allowances for
inventories, transportation
Steel, North America segment gross profit
Gross profit totalled US$290 million in 2015, down from US$537 million in
2014. The decline was due to lower sales revenues amid the downturn on the
OCTG and flat product markets.
Coal segment
Sales review
Overall revenues decreased amid a reduction in sales prices, reflecting
decreased global demand and greater output in other coal-exporting countries.
Sales volumes also decreased, as the Group mined less raw coal in accordance
with the annual schedule of longwall moves. Non-core steam coal production was
suspended in 2014. And decommissioning of the only remaining steam coal mine
among EVRAZ's Russian coal assets started.
In 2015, prices in rouble terms increased year-on-year due to higher prices in
Russia and a shift in shipments in favour of more expensive grades. However,
due to the sharp rouble depreciation, when re-calculated in US dollars, prices
in 2015 were lower than those in 2014.
Revenues from internal sales of coal products decreased due to lower average
sales prices (down 12.7%) and sales volumes (down 8.0%). The decrease in coal
consumption in 2015 compared with 2014 resulted from reduced coal consumption
at EVRAZ ZSMK after the shutdown of two coke batteries and launch of the PCI
plant.
Revenues from external sales of coal products decreased, mainly due to lower
prices (down 16.3%) and sales volumes (down 3.4%).
In 2015, Coal segment sales to the Steel segment amounted to US$419 million
and 39.2% of sales, compared with US$528 million and 40.1% in 2014.
During the reporting period, c.53% of EVRAZ's coking coal consumption in
steelmaking came from the Group's own operations, compared with 54% in 2014.
The decline in Russian sales of coking coal products from 6.2mt in 2014 to
5.2mt in 2015 is mainly attributable to the decreased demand for coking coal
from Russian steelmaking companies who have started to use more of their own
captive coal supply. The decreased demand from Russian steelmakers is also
driven by the decline in steel production volumes in Russia and introduction
of PCI.
External sales
Coal products 601 56.2% 722 54.8% (16.8)%
Coking coal 58 5.4% 78 5.9% (25.6)%
Coal concentrate 543 50.8% 605 45.9% (10.2)%
Steam coal - - 39 3.0% (100.0)%
Inter-segment sales
Coal products 391 36.6% 493 37.4% (20.7)%
Coking coal 47 4.4% 85 6.4% (44.7)%
Coal concentrate 344 32.2% 408 31.0% (15.7)%
Other revenues 76 7.2% 103 7.8% (26.2)%
Total 1,068 100% 1,318 100% (19.0)%
31.0%
(15.7)%
Other revenues
76
7.2%
103
7.8%
(26.2)%
Total
1,068
100%
1,318
100%
(19.0)%
Coal segment cost of revenue
The main factors affecting the decrease in the segment's cost of revenues
compared with 2014 were as follows:
• The cost of auxiliary materials and services decreased in 2015,
primarily due to the rouble weakness (down US$10 million and US$25 million
respectively), as well as the effect of asset optimisations and cost-cutting
initiatives.
• Transportation costs declined due to lower sales volumes and
transportation costs from Russian entities as a result of the rouble
devaluation.
• Staff costs decreased due to the rouble weakness (down US$114
million).
• Depreciation and depletion costs decreased, mostly due to lower
depreciation and depletion expenses at Yuzhkuzbassugol caused by the revision
and detailing of future mining plans and lower depletion of mineral deposits
(down US$17 million). This was also accompanied by a fall in depreciation in
US dollar terms due to the rouble weakness (down US$89 million).
• Energy costs fell due to the effect of currency movements (down US$21
million), partly offset by higher electricity prices in local currencies (up
US$8 million).
• Other costs increased, primarily due to changes in taxes,
work-in-progress and stocks of finished goods and the effect of the rouble
weakness.
Coal segment cost of revenue
2015 2014
US$ million % of segment revenue US$ million % of segment revenue Change, %
Cost of revenue 749 70.1% 1,040 78.9% (28.0)%
Auxiliary materials 106 9.9% 152 11.5% (30.3)%
Services 74 6.9% 103 7.8% (28.2)%
Transportation 146 13.7% 154 11.7% (5.2)%
Staff costs 194 18.2% 305 23.1% (36.4)%
Depreciation 156 14.6% 259 19.7% (39.8)%
Energy 38 3.5% 51 3.9% (25.5)%
Other* 35 3.3% 16 1.2% 118.8%
118.8%
*Includes primarily goods for resale and certain taxes, allowance for
inventory and raw materials
Coal segment gross profit
The Coal segment's gross profit amounted to US$319 million in 2015, up from
US$278 million in 2014. The gross profit margin rose, primarily due to the
rouble depreciation's influence on costs, lower depreciation and depletion,
and cost-cutting initiative.
APPENDIX
Key RISKS AND UNCERTAINTIES
EVRAZ is exposed to numerous risks and uncertainties that exist in its
business that may affect its ability to execute its strategy effectively in
2016 and could cause the actual results to differ materially from expected and
historical results.
Despite the ongoing market volatility described in the Market Outlook section,
the Directors consider that the principal risks and uncertainties as
summarised below and detailed in the EVRAZ plc 2015 Annual Report on pages 28
to 31, copies of which are available at
http://www.evraz.com/investors/annual_reports/, are relevant in 2016 and the
mitigating actions described are appropriate.
Key risks:
Global economic factors, industry conditions EVRAZ' operations are dependent on the global macroeconomic environment and economic and industry conditions, e.g. the global supply and demand balance for steel and particularly for iron ore and coking coal, which can affect both product prices and
volumes across all markets. As EVRAZ' operations involve substantial fixed costs, global economic and industry conditions can impact the Group's operational performance.
Competition Excessive supply in global market and greater competition.Increasing competition in the rail product segment from Mechel and a new rail producer in Kazakhstan.
Cost effectiveness The majority of the Group's steel production remains sensitive to costs and prices.Maintaining a low-cost position is one of EVRAZ' key business objectives in steelmaking and the iron ore and coking coal mining businesses. Key steel and coking coal assets
are in the first quartile of the cost curve, which helps to maintain profitability even during market downturns
Treasury: availability of finance Impact from the possible introduction of limitations on repatriation of foreign-currency export revenues, as well as additional regulations or limitations on cross-border capital flows.Potential government action, including economic sanctions impacting
Russian entities, might increase the Group's capital market risk regarding additional funding.
Functional currency devaluation Any significant fluctuation in subsidiaries' functional currencies relative to the US dollar could have a significant effect on the Group's financial accounts, which might impact its ability to borrow
HSE: environmental Steel and mining production carry an inherent risk of environmental impact and incidents relating to issues as diverse as water usage, quality of water discharged, air emissions, waste recycling, tailing management, air emissions (including greenhouse
gases), and community satisfaction. Consequently, EVRAZ faces risks including regulatory fines, penalties, adverse impact on reputation and, in the extreme, the withdrawal of plant environmental licences, which would curtail operations indefinitely
HSE: health, safety Potential danger of fire, explosions and electrocution, as well as risks specific to individual mines: methane levels, rock falls and other accidents could lead to outage or production delays, loss of qualified personnel, loss of material, equipment or
product, or extensive damage compensation.Breach of any HSE laws, regulations and standards may result in fines, penalties, suspension of production, or other sanctions.Prolonged outages or production delays, especially in coal mining, could have a
material adverse effect on the Group's operating performance.
Potential actions by governments New laws, regulations or other requirements could limit the Group's ability to obtain financing in international markets, sell its products and purchase equipment. Risk of capital controls that affect the Group in terms of free flow of capital.EVRAZ may
also be adversely affected by government sanctions against Russian business or otherwise reducing its ability to conduct business with counterparties.Risk of adverse geopolitical situation in countries of operation.
Business interruption Prolonged outages or production delays, especially in coal mining, could have a material adverse effect on the Group's operating performance, production, financial condition and future prospects. In addition, long term business interruption may result in a
loss of customers and competitive advantage, and damage to the Group's reputation.
Business interruption
Prolonged outages or production delays, especially in coal mining, could have
a material adverse effect on the Group's operating performance, production,
financial condition and future prospects. In addition, long term business
interruption may result in a loss of customers and competitive advantage, and
damage to the Group's reputation.
EVRAZ monitors these risks and actively pursues strategies to mitigate them on
an ongoing basis.
DIRECTOR'S RESPONSIBILITY STATEMENT
Each of the directors whose names and functions are listed on pages 104-107 of
the Annual report confirm that to the best of their knowledge:
- the consolidated financial statements of EVRAZ plc, prepared in
accordance with International Financial Reporting Standards as adopted by the
European Union, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole (the 'Group');
- the management report required by DTR 4.1.8R includes a fair review of
the development and performance of the business and the position of the
Company and the Group, together with a description of the principal risks and
uncertainties that they face.
By order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
14 March 2016
EVRAZ plc
Consolidated Statement of Operations
(In millions of US dollars, except for per share information)
Year ended 31 December
2015 2014 2013
Continuing operations
Revenue
Sale of goods $ 8,552 $ 12,745 $ 14,071
Rendering of services 215 316 340
8,767 13,061 14,411
Cost of revenue (6,595) (9,734) (11,501)
Gross profit 2,172 3,327 2,910
Selling and distribution costs (795) (1,009) (1,213)
General and administrative expenses (474) (743) (877)
Social and social infrastructure maintenance expenses (28) (30) (50)
Loss on disposal of property, plant and equipment (41) (48) (47)
Impairment of assets (441) (540) (563)
Foreign exchange gains/(losses), net (367) (1,005) (258)
Other operating income 28 35 53
Other operating expenses (78) (88) (116)
Loss from operations (24) (101) (161)
Interest income 9 17 23
Interest expense (475) (563) (699)
Share of profits/(losses) of joint ventures and associates (20) 10 8
Gain/(loss) on derecognition of equity investments, net - - 89
Gain/(loss) on financial assets and liabilities, net (48) (583) (43)
Gain/(loss) on disposal groups classified as held for sale, net 21 136 131
Loss of control over a subsidiary (167) - -
Other non-operating gains/(losses), net (3) - 15
Loss before tax (707) (1,084) (637)
Income tax benefit/(expense) (12) (194) 86
Net loss $ (719) $ (1,278) $ (551)
Attributable to:
Equity holders of the parent entity $ (644) $ (1,175) $ (504)
Non-controlling interests (75) (103) (47)
$ (719) $ (1,278) $ (551)
Earnings/(losses) per share:
for profit/(loss) attributable to equity holders of the parent entity, basic and diluted, US dollars $ (0.45) $ (0.78) $ (0.34)
EVRAZ plc
Consolidated Statement of Comprehensive Income
(In millions of US dollars)
Year ended 31 December
2015 2014 2013
Net loss $ (719) $ (1,278) $ (551)
Other comprehensive income/(loss)
Othercomprehensiveincometobereclassifiedtoprofitorlossin subsequentperiods
Exchange differences on translation of foreign operations into presentation currency (820) (1,918) (375)
Exchange differences recycled to profit or loss 142 (66) 90
Net gains/(losses) on available-for-sale financial assets - (12) 7
(678) (1,996) (278)
Effect of translation to presentation currency of the Group's joint ventures and associates (27) (79) (11)
(27) (79) (11)
Items not to be reclassified to profit or loss in subsequent periods
Gains/(losses) on re-measurement of net defined benefit liability 1 (33) 119
Income tax effect (5) 15 (30)
(4) (18) 89
Decrease in revaluation surplus in connection with the impairment of property, plant and equipment (1) - (9)
Income tax effect - - 2
(1) - (7)
Total other comprehensive loss (710) (2,093) (207)
Total comprehensive loss, net of tax $ (1,429) $ (3,371) $ (758)
Attributable to:
Equity holders of the parent entity $ (1,340) $ (3,164) $ (677)
Non-controlling interests (89) (207) (81)
$ (1,429) $ (3,371) $ (758)
EVRAZ plc
Consolidated Statement of Financial Position
(In millions of US dollars)
.
31 December
2015 2014 2013
Assets
Non-current assets
Property, plant and equipment $ 4,302 $ 5,796 $ 9,490
Intangible assets other than goodwill 324 441 588
Goodwill 1,176 1,541 1,988
Investments in joint ventures and associates 74 121 191
Deferred income tax assets 119 97 86
Other non-current financial assets 79 98 144
Other non-current assets 56 40 62
6,130 8,134 12,549
Current assets
Inventories 899 1,372 1,744
Trade and other receivables 447 654 915
Prepayments 50 82 124
Loans receivable 5 24 21
Receivables from related parties 6 53 13
Income tax receivable 44 23 59
Other taxes recoverable 127 158 283
Other current financial assets 35 40 71
Cash and cash equivalents 1,375 1,086 1,604
2,988 3,492 4,834
Assets of disposal groups classified as held for sale 1 4 302
2,989 3,496 5,136
Total assets $ 9,119 $ 11,630 $ 17,685
Equity and liabilities
Equity
Equity attributable to equity holders of the parent entity
Issued capital $ 1,507 $ 1,507 $ 1,473
Treasury shares (305) - (1)
Additional paid-in capital 2,501 2,481 2,326
Revaluation surplus 124 155 162
Other reserves - - 156
Unrealised gains and losses - - 12
Accumulated profits 644 1,299 2,589
Translation difference (4,335) (3,644) (1,685)
136 1,798 5,032
Non-controlling interests 133 218 431
269 2,016 5,463
Non-current liabilities
Long-term loans 5,850 5,470 6,041
Deferred income tax liabilities 352 471 841
Employee benefits 301 364 492
Provisions 146 173 254
Other long-term liabilities 116 442 230
6,765 6,920 7,858
Current liabilities
Trade and other payables 1,070 1,379 1,488
Advances from customers 228 155 180
Short-term loans and current portion of long-term loans 497 761 1,816
Payables to related parties 143 108 458
Income tax payable 17 86 57
Other taxes payable 107 151 203
Provisions 23 41 45
Dividends payable by the Group's subsidiaries to non-controlling shareholders - - 5
2,085 2,681 4,252
Liabilities directly associated with disposal groups classified as held for sale - 13 112
2,085 2,694 4,364
Total equity and liabilities $ 9,119 $ 11,630 $ 17,685
EVRAZ plc
Consolidated Statement of Cash Flows
(In millions of US dollars)
Year ended 31 December
2015 2014 2013
Cash flows from operating activities
Net loss $ (719) $ (1,278) $ (551)
Adjustments to reconcile net profit/(loss) to net cash flows from operating activities:
Deferred income tax (benefit)/expense (Note 8) (87) (163) (335)
Depreciation, depletion and amortisation (Note 7) 585 833 1,114
Loss on disposal of property, plant and equipment 41 48 47
Impairment of assets 441 540 563
Foreign exchange (gains)/losses, net 367 1,005 258
Interest income (9) (17) (23)
Interest expense 475 563 699
Share of (profits)/losses of associates and joint ventures 20 (10) (8)
(Gain)/loss on derecognition of equity investments, net - - (89)
(Gain)/loss on financial assets and liabilities, net 48 583 43
(Gain)/loss on disposal groups classified as held for sale, net (21) (136) (131)
Loss of control over a subsidiary 167 - -
Other non-operating (gains)/losses, net 3 - (15)
Bad debt expense 18 41 8
Changes in provisions, employee benefits and other long-term assets and liabilities (56) (62) (68)
Expense arising from equity-settled awards (Note 21) 20 30 25
Other - (1) (2)
1,293 1,976 1,535
Changes in working capital:
Inventories 204 (87) 229
Trade and other receivables 55 (1) 65
Prepayments 9 (2) 15
Receivables from/payables to related parties 66 (246) 131
Taxes recoverable (34) 33 48
Other assets (3) 11 (17)
Trade and other payables 3 150 (135)
Advances from customers 100 27 30
Taxes payable (72) 100 4
Other liabilities 1 (4) (5)
Net cash flows from operating activities 1,622 1,957 1,900
Cash flows from investing activities
Issuance of loans receivable to related parties (2) (4) (2)
Issuance of loans receivable (2) - (2)
Proceeds from repayment of loans receivable, including interest 7 3 3
Purchases of subsidiaries, net of cash acquired (Note 4) - (102) 31
Purchases of interest in associates/joint ventures (Note 11) - (29) (61)
Restricted deposits at banks in respect of investing activities (3) 1 (2)
Short-term deposits at banks, including interest 4 8 677
Purchases of property, plant and equipment and intangible assets (423) (612) (902)
Proceeds from disposal of property, plant and equipment 10 14 7
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs (Note 12) 44 311 1
Dividends received - 2 1
Other investing activities, net 6 19 (15)
Net cash flows used in investing activities (359) (389) (264)
EVRAZ plc
Consolidated Statement of Cash Flows
(continued)
(In millions of US dollars)
Year ended 31 December
2015 2014 2013
Cash flows from financing activities
Purchase of treasury shares (Note 20) $ (339) $ (13) $ (6)
Proceeds from issue of shares by a subsidiary to non-controlling shareholders 6 - -
Proceeds from loans provided by related parties - 267 -
Repayment of loans provided by related parties - (251) -
Dividends paid by the parent entity to its shareholders (Note 20) - (90) -
Dividends paid by the Group's subsidiaries to non-controlling shareholders - (3) (1)
Sale of non-controlling interests (Note 4) 1 - -
Proceeds from bank loans and notes 3,801 2,579 1,976
Repayment of bank loans and notes, including interest (3,961) (3,223) (3,978)
Net proceeds from/(repayment of) bank overdrafts and credit lines, including interest (9) (942) 621
Payments for purchase of property, plant and equipment on deferred terms (5) (42) -
Gain/(loss) on derivatives not designated as hedging instruments (Note 25) (464) (94) 51
Gain/(loss) on hedging instruments (Note 25) 5 - -
Collateral under swap contracts (Note 18) 7 14 (21)
Payments under finance leases, including interest (1) (1) (8)
Other financing activities (3) (12) (1)
Net cash flows used in financing activities (962) (1,811) (1,367)
Effect of foreign exchange rate changes on cash and cash equivalents (12) (282) (48)
Net increase/(decrease) in cash and cash equivalents 289 (525) 221
Cash and cash equivalents at the beginning of the year 1,086 1,604 1,382
Add back: decrease/(increase) in cash of disposal groups classified as assets held for sale (Note 12) - 7 1
Cash and cash equivalents at the end of the year $ 1,375 $ 1,086 $ 1,604
Supplementary cash flow information:
Cash flows during the year:
Interest paid $ (443) $ (517) $ (586)
Interest received 4 10 23
Income taxes paid by the Group (204) (263) (249)
EVRAZ plc
Condensed Consolidated Statement of Changes in Equity
(In millions of US dollars)
Attributable to equity holders of the parent entity
Issued Treasury shares Additional paid-incapital Revaluation surplus Other Unrealised gains and losses Accumulated profits Translation difference Total Non-controlling interests Total equity
capital reserves
At 31 December 2014 $1,507 $- $2,481 $155 $- $- $1,299 $(3,644) $1,798 $218 $2,016
Net loss - - - - - - (644) - (644) (75) (719)
Other comprehensive income/(loss) - - - (1) - - (4) (691) (696) (14) (710)
Reclassification of revaluation surplus to accumulated profits in respect of the disposed subsidiaries - - - (28) - - 28 - - - -
Reclassification of revaluation surplus to accumulated profits in respect of the disposed items of property, plant and equipment - - - (2) - - 2 - - - -
Total comprehensive income/(loss) for the period - - - (31) - - (618) (691) (1,340) (89) (1,429)
Derecognition of non-controlling interests in connection with the loss of control over a subsidiary (Note 4) - - - - - - - - - (4) (4)
Non-controlling interests arising on sale of ownership interests in subsidiaries (Note 4) - - - - - - (3) - (3) 2 (1)
Contribution of a non-controlling shareholder to share capital of the Group's subsidiary - - - - - - - - - 6 6
Purchase of treasury shares (Note 20) - (336) - - - - (3) - (339) - (339)
Transfer of treasury shares to participants of the Incentive Plans (Notes 20 and 21) - 31 - - - - (31) - - - -
Share-based payments (Note 21) - - 20 - - - - - 20 - 20
At 31 December 2015 $1,507 $(305) $2,501 $124 $- $- $644 $(4,335) $136 $133 $269
EVRAZ plc Consolidated Statement of Changes in Equity (continued)
(In millions of US dollars)
Attributable to equity holders of the parent entity
Issued Treasury shares Additional paid-incapital Revaluation surplus Other Unrealised gains and losses Accumulated profits Translation difference Total Non-controlling interests Total equity
capital reserves
At 31 December 2013 $1,473 $(1) $2,326 $162 $156 $12 $2,589 $(1,685) $5,032 $431 $5,463
Net loss - - - - - - (1,175) - (1,175) (103) (1,278)
Other comprehensive income/(loss) - - - - - (12) (18) (1,959) (1,989) (104) (2,093)
Reclassification of revaluation surplus to accumulated profits in respect of the disposed items of property, plant and equipment - - - (7) - - 7 - - - -
Total comprehensive income/(loss) for the period - - - (7) - (12) (1,186) (1,959) (3,164) (207) (3,371)
Issue of shares (Note 20) 34 - 122 - (156) - - - - - -
Acquisition of non-controlling interests in subsidiaries (Note 4) - - 3 - - - - - 3 (3) -
Purchase of treasury shares (Note 20) - (13) - - - - - - (13) -
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