REG - Evraz Plc - Half-year Report
05/08/2021 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20210805:nRSE6271Ha&default-theme=true
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$256 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$256 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 values 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 279 7209 UK
+7 495 646 9190 or 8 10 8002 8675011 Russia
+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
(https://www.webcast-eqs.com/evraz20210805)
The presentation for the call will be available on the Group's website,
www.evraz.com (http://www.evraz.com) , on Thursday, 5 August 2021, at the
following link:
https://www.evraz.com/en/investors/reports-and-results/financial-results/
(https://www.evraz.com/en/investors/reports-and-results/financial-results/%0d)
Table of contents
Strategic UPDATE 2021 (#_Toc78792053)
HEALTH, SAFETY and ENVIRONMENT (#_Toc78792054)
HUMAN CAPITAL (#_Toc78792055)
CUSTOMER FOCUS (#_Toc78792056)
ASSET DEVELOPMENT (#_Toc78792057)
EVRAZ BUSINESS SYSTEM (#_Toc78792058)
Update on potential demerger of coal assets (#_Toc78792059)
Impact of COVID-19 (#_Toc78792060)
Impact on key markets (#_Toc78792061)
Impact on operations (#_Toc78792062)
Impact on liquidity, solvency and access to financing (#_Toc78792063)
Measures taken to protect the wellbeing and safety of employees and local
communities (#_Toc78792064)
Market outlook (#_Toc78792065)
Financial review (#_Toc78792066)
Statement of operations (#_Toc78792067)
CAPEX and key projects (#_Toc78792068)
Financing and liquidity (#_Toc78792069)
Review of operations by Segment (#_Toc78792070)
Steel segment (#_Toc78792071)
Steel, North America segment (#_Toc78792072)
Coal segment (#_Toc78792073)
KEY (#_Toc78792074) RISKS AND UNCERTAINTIES (#_Toc78792074)
DIVIDENDS (#_Toc78792075)
DIRECTOR'S RESPONSIBILITY STATEMENT (#_Toc78792076)
Definitions of selected alternative performance measures (#_Toc78792077)
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (#_Toc78792078)
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 efforts 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$174
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 flat 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$34 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
Prices 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 increased 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)
H1 2021 H1 2020 Change 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 2 3 (1) (33.3)
transaction costs
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 1,071 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 (430) (337) (93) 27.6
transactions
Proceeds from sale of disposal groups classified as held for sale, net of 2 3 (1) (33.3)
transaction costs
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 20
The project aim is to maintain production of raw iron ore
Tashtagol iron ore mine upgrade at EVRAZ ZSMK mining site 18
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
Rail and beam mill modernisation at EVRAZ NTMK 7
The project aim is to increase production of beams and sheet piles
Transfer of direct coke oven gas for cleaning in capture shop no. 3 at EVRAZ 6
NTMK
The project aim is to decrease air emissions
Integrated flat casting and rolling facility at EVRAZ ZSMK 2
The project aim is to improve the profitability of EVRAZ' product portfolio by
replacing semi-finished products with hot-rolled sheets and coils
Construction of uncompressed gas recovery turbines for blast furnace no. 7 at 1
EVRAZ NTMK
The project aim is to increase own electricity generation
Steel, North America segment
Long rail mill at EVRAZ Pueblo 107
The project aim is to replace the existing rail facility and meet the needs of
customers for long rail products
Electric arc furnace (EAF) repowering at EVRAZ Regina 5
The project aim is to increase EVRAZ Regina's prime coil and plate production
and reduce electrode consumption
Coal segment
Access and development of reserves in the Uskovskaya mine's seam no. 48 28
The project aim is to prepare the reserves in seam no. 48 for mining
Acquisition of equipment at Alardinskaya mine 16
The project aim is to reduce the time required for transition from longwall to
longwall and to increase annual production volumes to 3.2mt.
Acquisition of equipment at Osinnikovskaya mine 2
The project aim is to acquire equipment that fully complies with the mining
and geological conditions to provide the projected monthly longwall load
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 2021 H1 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 213 196 102* 53 112 83 3 5
*Including effects from grants
Steel segment
Sales review
Steel segment revenues by product
H1 2021 H1 2020
US$ million % of total segment revenues US$ million % of total segment 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 54.4
Other steel products(5) 261 5.7 170 5.0 53.5
Steel products, intersegment sales 13 0.3 25 0.7 (48.0)
Including sales to Steel, North America 4 0.1 20 0.6 (80.0)
Iron ore products 101 2.2 63 1.8 60.3
Vanadium products 230 5.0 165 4.8 39.4
Other revenues 267 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)
9,374 8,371 12.0
Vanadium products (tonnes of pure vanadium)
Vanadium in slag 2,759 2,761 (0.1)
Vanadium in alloys and chemicals 6,615 5,610 17.9
648 801 (19.1)
Iron ore products (pellets)
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 15.0
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* 276 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 revenues US$ % of total segment revenues Change, %
million million
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$ million % of segment revenues US$ % of segment revenues Change, %
million
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$92 million in H1 2020. The increase was driven
primarily by a significant reduction in costs of sales, which more than offset
a marginal decline in revenues.
Coal segment
Sales review
Coal segment revenues by product
H1 2021 H1 2020
US$ % of total segment revenues US$ % of total segment revenues Change, %
million million
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$281 million (36.0%) in H1
2020.
During the reporting period, roughly 73.1% of EVRAZ' coking coal consumption
in steelmaking came from the Group's own operations, compared with 82.1% in H1
2020.
Coal segment cost of revenues
Coal segment cost of revenues
H1 2021 H1 2020
US$ % of segment revenues US$ % of segment revenues Change, %
million million
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 (http://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 effectiveness, as well as effective, 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.
DIVIDENDS
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
(US$ million) 30 June 31 December 2020 Change Change, %
2021
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:
(US$ million) 30 June 31 December 2020 Change Change, %
2021
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 22 16 6 37.5
liabilities assumed in business combination
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:
(US$ million) 30 June 31 December 2020 Change Change, %
2021
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 2021
EVRAZ plc
Unaudited Interim Condensed Consolidated Financial Statements
Six-month period ended 30 June 2021
Contents
Report on Review of Interim Condensed Consolidated Financial Statements
Unaudited Interim Condensed Consolidated Financial Statements
Unaudited Interim Condensed Consolidated Statement of Operations
...............................................
Unaudited Interim Condensed Consolidated Statement of Comprehensive Income
.............................
Unaudited Interim Condensed Consolidated Statement of Financial Position
.....................................
Unaudited Interim Condensed Consolidated Statement of Cash Flows
..............................................
Unaudited Interim Condensed Consolidated Statement of Changes in Equity
.....................................
Selected Notes to the Unaudited Interim Condensed Consolidated Financial
Statements ....................
INDEPENDENT REVIEW REPORT TO EVRAZ PLC
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 2021 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, 11 $ 0.82 $ 0.35
US dollars
for profit attributable to equity holders of the parent entity, diluted, 11 $ 0.82 $ 0.35
US dollars
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 2021 2020
Net profit $ 1,212 $ 513
Other comprehensive income/(loss)
Other comprehensive income to be reclassified to profit or loss in subsequent
periods
Exchange differences on translation of foreign operations into presentation 119 (664)
currency
Effect of translation to presentation currency of the Group's joint ventures 8 2 (10)
and associates
121 (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)
Notes 30 June 31 December
2021 2020
Assets
Non-current assets
Property, plant and equipment 7 $ 4,485 $ 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 239 245
Other non-current financial assets 23 26
Other non-current assets 51 45
5,489 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
Total assets $ 9,125 $ 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 2,699 2,187
Translation difference (3,819) (3,936)
1,432 791
Non-controlling interests 154 129
1,586 920
Non-current liabilities
Long-term loans 12 4,002 3,759
Deferred income tax liabilities 256 253
Employee benefits 212 240
Provisions 278 272
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 96 108
Other taxes payable 201 169
Provisions 57 41
Amounts payable under put options for shares in subsidiaries 4 - 65
2,637 3,107
Total liabilities 7,539 7,790
Total equity and liabilities $ 9,125 $ 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
2021 2020
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 14 (6)
liabilities
Expense arising from equity-settled awards 6 5
1,664 749
Changes in working capital:
Inventories (241) 59
Trade and other receivables (145) 5
Prepayments 6 (3)
Receivables from/payables to related parties (1) 33
Taxes recoverable - (30)
Other assets (10) -
Trade and other payables 192 (49)
Contract liabilities (69) (11)
Taxes payable 15 34
Other liabilities (1) (6)
Net cash flows from operating activities 1,410 781
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 2 3
disposed and transaction costs
Dividends received - 1
Other investing activities, net - 1
Net cash flows used in investing activities (427) (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
2021 2020
Cash flows from financing activities
Payments for the purchase of non-controlling interests (Note 4) $ (38) $ (22)
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 2 (26)
interest (Note 12)
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 (212) (59)
Cash and cash equivalents at beginning of year 1,627 1,423
Cash and cash equivalents at end of period $ 1,415 $ 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
Issued Treasury shares Additional Revaluation surplus Unrealised gains and losses Accumulated profits Translation difference Total Non-controlling interests Total
capital
paid-in Equity
capital
At 31 December 2020 $ 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) - - - - - 33 117 150 4 154
Total comprehensive income/(loss) for the period - - - - - 1,231 117 1,348 18 1,366
Acquisition of non-controlling interests in subsidiaries - - - - - (19) - (19) (19) (38)
(Note 4)
Reversal of derecognition of non-controlling interest in - - - - - 35 - 35 30 65
subsidiaries
(Note 4)
Transfer of treasury shares to participants of the - 6 - - - (6) - - - -
Incentive Plans
Share-based payments - - 6 - - - - 6 - 6
Dividends declared by the parent entity to its - - - - - (729) - (729) - (729)
shareholders (Note 11)
Dividends declared by the Group's subsidiaries to non - - - - - - - - (4) (4)
-controlling shareholders
At 30 June 2021 $ 75 $ (148) $ 2,516 $ 109 $ - $ 2,699 $ (3,819) $ 1,432 $ 154 $ 1,586
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
Issued Treasury shares Additional Revaluation surplus Unrealised gains and losses Accumulated profits Translation difference Total Non-controlling interests Total
capital
paid-in Equity
capital
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 - - - - - 473 (658) (185) (9) (194)
the period
Acquisition of non-controlling interests - - 6 - - - - 6 (28) (22)
in subsidiaries (Note 4)
Transfer of treasury shares to - 15 - - - (15) - - - -
participants of the Incentive Plans
Share-based payments - - 5 - - - - 5 - 5
Dividends declared by the parent entity to - - - - - (581) - (581) - (581)
its shareholders
Dividends declared by the Group's - - - - - - - - (3) (3)
subsidiaries to non-controlling
shareholders
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
US$ million Steel Steel, Coal Other operations Eliminations Total
North America
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
US$ million Steel Steel, Coal Other operations Eliminations Total
North America
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
US$ million Steel Steel, Coal Other operations Eliminations Total
North America
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
US$ million Steel Steel, Coal Other operations Eliminations Total
North America
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 $Nil,
respectively.
The material changes in property, plant and equipment during the six-month
period ended 30 June 2021 other than those disclosed above are presented
below:
US$ million Steel Steel, Coal Other operations Unallocated Total
North America
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:
US$ million Steel Steel, Coal Other operations Unallocated Total
North America
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 2021 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 357 152
Railway products 185 173
Tubular products 236 452
Other products 49 141
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 2021 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 2021 2020
Current income tax expense $ (421) $ (300)
Adjustment in respect of income tax of previous years (1) (6)
Deferred income tax benefit/(expense) relating to origination and reversal of 3 119
temporary differences
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 $22 million, respectively.
7. Property, Plant and Equipment
The movement in property, plant and equipment (including right-of-use assets)
for the six-month period ended 30 June 2021 was as follows:
US$ million Land Buildings Machinery and equipment Transport and motor vehicles Mining assets Other assets Assets under construction Total
and constructions
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 22 - 13 83
At 30 June 2021, cost, net of accumulated depreciation $ 98 $ 852 $ 1,610 $ 132 $ 980 $ 8 $ 805 $ 4,485
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 interest 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
US$ million 30 June 31 December 30 June 31 December
2021
2021
2020 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 2020
US$ million 2021
US dollar $ 1,226 $ 1,461
Euro 50 34
Russian rouble 124 124
Others 15 8
$ 1,415 $ 1,627
The above cash and cash equivalents mainly consist of cash at banks.
11. Equity
Share Capital
Number of shares 30 June 31 December 2020
2021
Issued and fully paid
Ordinary shares of $0.05 each 1,506,527,294 1,506,527,294
Treasury Shares
Number of shares 30 June 31 December 2020
2021
Number of treasury shares 47,837,582 49,654,691
In the six-month period ended 30 June 2021, 1,817,109 shares with an
associated cost of $6 million were transferred to participants of Incentive
Plans.
Earnings per Share
Earnings per share are calculated by dividing the net income attributable to
ordinary shareholders by the weighted average number of ordinary shares in
issue during the period. Diluted earnings per share amounts are calculated by
dividing the net profit attributable to ordinary equity holders by the
weighted average number of ordinary shares outstanding during the period plus
the weighted average number of ordinary shares that would be issued on the
conversion of all the potential dilutive ordinary shares into ordinary shares.
The following reflects the profit and share data used in the basic and diluted
earnings per share computations:
Six-month period
ended 30 June
2021 2020
Weighted average number of ordinary shares outstanding during the period 1,457,354,488 1,453,216,654
Effect of dilution: shares under Incentive plans 7,351,094 8,770,537
Weighted average number of ordinary shares adjusted for the effect of dilution 1,464,705,582 1,461,987,191
Profit for the period attributable to equity holders of the parent entity, US$ $ 1,198 $ 506
million
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:
Date of declaration To holders registered at Dividends declared, US$ million US$ per 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:
US$ million 30 June 2021 Non-current Current 31 December 2020 Non-current Current
Bank loans $ 2,324 $ 2,298 $ 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 2021 2020
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 2 (26)
interest
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 $1 million loss included
in the Gain/(loss) on financial assets and liabilities caption of
the consolidated income statement.
Pledged Assets
The Group's pledged assets at carrying value included the following:
US$ million 30 June 31 December 2020
2021
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). These 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 $501 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 $492 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 2026, 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
possible 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 ($415 million at the
exchange rate as of 30 June 2021) to 9 companies owned by Sibuglemet in
respect of management services provided by one the Group's subsidiaries to
these entities. Sibuglemet is a producer of coking coal and operator of coal
refineries in the Kemerovo region of Russia. The management company committed
to perform all management functions including, inter alia, all the decisions
required to carry out the day-to-day operations of these coal companies, their
investment and procurement activities. The maturity of the guarantee was set
for 31 December 2030.
On 15 November 2020, the management services contract was terminated.
The guarantee will continue to be effective 3 years after the date of
termination.
14. Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and disclosing the fair
value of financial instruments by valuation technique:
§ Level 1: quoted prices (unadjusted) in active markets for identical assets
and liabilities;
§ Level 2: other techniques for which all inputs which have a significant
effect on the recorded fair value are observable, either directly or
indirectly; and
§ Level 3: techniques which use inputs which have a significant effect on the
recorded fair value that are not based on observable market data (unobservable
inputs).
The carrying amounts of financial instruments, such as cash, short-term and
long-term investments, short-term and long-term accounts receivable,
short-term accounts payable, short-term loans receivable and payable and
floating-rate bank loans, approximate their fair value.
The Group held the following financial instruments measured at fair value:
30 June 2021 31 December 2020
US$ million Level 1 Level 2 Level 3 Level 1 Level 2 Level 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 2021 31 December 2020
Carrying amount Fair Carrying amount Fair
value 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 2021 - - 210 213
7.95% rouble bonds due 2024 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR BZLLBFVLLBBKRecent news on Evraz
See all newsREG-EVRAZ plc DISCONTINUATION OF DISCLOSURE VIA PRIMARY INFORMATION PROVIDER
AnnouncementREG-EVRAZ plc CLARIFICATION ON ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS FOR 2022
AnnouncementREG-EVRAZ plc EVRAZ plc announces that the Appointment and the Amendments adopted as part of the Consent Solicitation for its outstanding U.S.$700,000,000 5.250 per cent. notes due 2024 have become effective
AnnouncementREG-EVRAZ plc EVRAZ plc announces results of the Consent Solicitation for its outstanding U.S.$700,000,000 5.250 per cent. notes due 2024
AnnouncementREG-EVRAZ plc EVRAZ plc announces that the Appointment and the Amendments adopted as part of the Consent Solicitation for its outstanding notes due 2023 have become effective
Announcement