REG - Evraz Plc - Half Yearly Report <Origin Href="QuoteRef">EVRE.L</Origin> - Part 4
27/08/2015 07:03
- Part 4: For the preceding part double click ID:nRSa2282Xc
(1) (2) (1) (5) (77)
Transfer to assets held for sale (6) (10) (4) - - - - (20)
Change in site restoration and decommissioning provision - 2 (1) - 22 - - 23
Translation difference (2) (6) (31) (1) (17) - (8) (65)
At 30 June 2015, cost, net of accumulated depreciation $ 115 $ 1,078 $ 2,243 $ 101 $ 1,637 $ 16 $ 415 $ 5,605
8. Investments in Joint Ventures and Associates
The movement in investments in joint ventures and associates during the six-month period ended 30 June 2015 was as
follows:
US$ million Timir Streamcore Other associates Total
At 31 December 2014 $ 82 $ 29 $ 10 $ 121
Share of profit/(loss) (29) 2 (1) (28)
Translation difference - 1 - 1
At 30 June 2015 $ 53 $ 32 $ 9 $ 94
9. Related Party Disclosures
For the Group related parties include associates and joint venture partners, key management personnel and other entities
that are under the control or significant influence of the key management personnel, the Group's ultimate parent or its
shareholders. In considering each possible related party relationship, attention is directed to the substance of the
relationship, not merely the legal form.
Amounts owed by/to related parties were as follows:
Amounts due from Amounts due to
related parties related parties
US$ million 30 June 31 December 2014 30 June 31 December 2014
2015 2015
Vtorresource-Pererabotka $ - $ 11 $ 25 $ 5
Yuzhny GOK 9 37 113 96
Other entities 8 7 4 7
17 55 142 108
Less: allowance for doubtful accounts (2) (2) - -
$ 15 $ 53 $ 142 $ 108
In the first half of 2014, the Ukrainian hryvnia depreciated against US dollar by 48%. As a result, the Group recognised a
$85 million foreign exchange loss on the balances and transactions with Yuzhny GOK in the six months ended 30 June 2014.
Transactions with related parties were as follows for the six-month periods ended 30 June:
Sales to Purchases fromrelated parties
related parties
US$ million 2015 2014 2015 2014
Genalta Recycling Inc. $ - $ - $ 8 $ 11
Interlock Security Services - - 13 22
Vtorresource-Pererabotka 5 10 167 229
Yuzhny GOK 15 25 35 142
Other entities 1 2 3 16
$ 21 $ 37 $ 226 $ 420
On 1 April 2014, the Group received a non-interest bearing loan of 2,935 million Ukrainian hryvnias ($267 million at the
exchange rate as of the date of disbursement) from Standart IP, an entity under control of one of the major shareholders.
The proceeds were used for the purposes of short-term liquidity management for a Ukrainian subsidiary. The loan was fully
repaid in several installments by 10 April 2014.
Compensation to Key Management Personnel
In the six-month periods ended 30 June 2015 and 2014, key management personnel totalled 42 and 51 persons, respectively.
Total compensation to key management personnel was included in general and administrative expenses and consisted of the
following in the six-month periods ended 30 June:
US$ million 2015 2014
Salary $ 8 $ 12
Performance bonuses 6 14
Social security taxes 3 3
Share-based payments 5 7
Termination benefits - 1
$ 22 $ 37
10. Cash and Cash Equivalents
Cash and cash equivalents were denominated in the following currencies:
US$ million 30 June 2015 31 December 2014
US dollar $ 887 $ 943
Russian rouble 53 108
Ukrainian hryvnia 38 3
Others 18 32
$ 996 $ 1,086
The above cash and cash equivalents mainly consist of cash at banks.
11. Equity
Share Capital
Number of shares 30 June2015 31 December 2014
Issued and fully paid
Ordinary shares of $1 each 1,506,527,294 1,506,527,294
Treasury Shares
Number of shares 30 June2015 31 December 2014
Number of treasury shares 98,532,528 -
On 31 March 2015, the Board resolved to announce a return of capital to be effected by a tender offer to shareholders at
$3.10 per share in the amount of up to $375 million. In April 2015, EVRAZ plc repurchased 108,458,508 own shares ($336
million). The Group incurred $3 million of transaction costs, which were charged to accumulated profits.
Subsequently, 9,925,980 shares were transferred to the participants of Incentive Plans. The cost of treasury shares
transferred to the participants of Incentive Plans, amounted to $31 million.
In 2014, the Group purchased 7,252,575 shares of EVRAZ plc for $13 million and transferred 7,251,922 shares to the
participants of Incentive Plans. The cost of treasury shares transferred to the participants of Incentive Plans, amounting
to $13 million, was charged to accumulated profits.
Earnings per Share
Earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted average
number of ordinary shares in issue during the period. Diluted earnings per share amounts are calculated by dividing the net
profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the
period plus the weighted average number of ordinary shares that would be issued on the conversion of all the potential
dilutive ordinary shares into ordinary shares.
The following reflects the profit and share data used in the basic and diluted earnings per share computations:
Six-month period
ended 30 June
2015 2014
Weighted average number of ordinary shares outstanding during the period 1,466,710,794 1,505,402,864
Effect of dilution: share options 34,505,010 25,615,845
Weighted average number of ordinary shares adjusted for the effect of dilution 1,501,215,804 1,531,018,709
Profit for the period attributable to equity holders of the parent entity, US$ million $ 19 $ 52
Basic earnings per share $ 0.01 $ 0.03
Diluted earnings per share $ 0.01 $ 0.03
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.
12. Loans and Borrowings
Short-term and long-term loans and borrowings were as follows:
US$ million 30 June2015 31 December2014
Bank loans $ 1,707 $ 1,662
8.25% notes due 2015 129 138
7.40% notes due 2017 600 600
9.5% notes due 2018 509 509
6.75% notes due 2018 850 850
7.5% senior secured notes due 2019 350 350
6.50% notes due 2020 1,000 1,000
8.75% bonds due 2015 - 69
9.95% bonds due 2015 195 267
8.40% bonds due 2016 360 356
Liabilities under 7.75% bonds due 2017 assumed in business combination 392 392
Fair value adjustment to liabilities assumed in business combination 18 20
Other liabilities - 1
Unamortised debt issue costs (54) (57)
Interest payable 73 74
$ 6,129 $ 6,231
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.
Pledged Assets
The Group pledged its rights under some export contracts as collateral under the loan agreements. All proceeds from sales
of steel pursuant to these contracts can be used to satisfy the obligations under the loan agreements in the event of a
default.
At 30 June 2015 and 31 December 2014, the Group had inventory with a carrying value of $42 million and $25 million,
respectively, pledged as collateral under the loan agreements.
At 30 June 2015, 100% shares of Mezhegeyugol and EVRAZ Caspian Steel were pledged as collateral under bank loans with a
carrying value of $247 million. These subsidiaries represented 2.6% of the consolidated assets at 30 June 2015 and had $53
million of external revenues in the reporting period.
Partial Repurchase of the 9.95% Bonds Due 2015
In April 2015, the Group partially repurchased 9.95% notes due 2015 for a cash consideration of $80 million. The nominal
value of the repurchased notes was $81 million. As a result, the Group recognised a $1 million gain within gain/(loss) on
financial assets and liabilities caption of the consolidated statement of operations.
Unutilised Borrowing Facilities
As of 30 June 2015, the Group had unutilised bank loans in the amount of $1,340 million, including $272 million of
committed facilities.
13. Commitments and Contingencies
Operating Environment of the Group
The Group is one of the largest vertically integrated steel producers globally and the largest steel producer in Russia.
The Group's major subsidiaries are located in Russia, Ukraine, the USA and Canada. Russia and Ukraine are considered to be
developing markets with higher economic and political risks. Steel consumption is affected by the cyclical nature of demand
for steel products and the sensitivity of that demand to worldwide general economic conditions.
The global economic recession resulted in a significantly lower demand for steel products and decreased profitability. In
addition, the political crisis over Ukraine led to an additional uncertainty in the global economy. The unrest in the
Southeastern region of Ukraine and the economic sanctions imposed on Russia caused the depreciation of national currencies,
economic slowdown, deterioration of liquidity in the banking sector, and tighter credit conditions within Russia and
Ukraine. In addition, the decreased crude oil prices have a negative impact on the Russian economy. The combination of the
above resulted in reduced access to capital, a higher cost of capital, increased inflation and uncertainty regarding
economic growth. If the Ukrainian crisis broadens and further sanctions are imposed on Russia, this could have an adverse
impact on the Group's business.
Management believes it is taking appropriate measures to support 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 and Ukrainian tax, currency and customs legislation is subject to varying interpretations, and changes, which can
occur frequently. Management's interpretation of such legislation as applied to the transactions and activity of the Group
may be challenged by the relevant regional and federal authorities.
Management believes that it has paid or accrued all taxes that are applicable. Where uncertainty exists, the Group has
accrued tax liabilities based on management's best estimate of the probable outflow of resources embodying economic
benefits, which will be required to settle these liabilities. Possible liabilities which were identified by management at
the end of the reporting period as those that can be subject to different interpretations of the tax laws and other
regulations and are not accrued in these financial statements could be up to approximately $22 million.
Contractual Commitments
At 30 June 2015, the Group had contractual commitments for the purchase of production equipment and construction works for
an approximate amount of $118 million.
In 2010, the Group concluded a contract for the construction of an air separation plant and for the supply of oxygen and
other gases produced by a third party at this plant for a period of 20 years. Due to a change in plans of the third party
provider and in management's assessment of the extent of sales of gases to third parties the Group no longer considers this
supply contract to fall within the scope of IFRIC 4 "Determining whether an Arrangement Contains a Lease". The Group has a
committed expenditure of $442 million over the life of the contract.
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 $42 million under
these programmes in the second half of 2015.
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 31 December 2014 amounted to $8 million. Preliminary
estimates available of the incremental costs indicate that such costs could be up to $89 million. The Group has insurance
agreements, which will provide partial reimbursement of the costs actually incurred. 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 2015 to 2022,
under which the Group will perform works aimed at reductions in environmental pollution and contamination. As of 30 June
2015, the costs of implementing these programmes are estimated at $144 million.
Legal Proceedings
The Group has been and continues to be the subject of legal proceedings, none of which has had, individually or in
aggregate, a significant effect on the Group's operations or financial position.
14. Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation
technique:
§ Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
§ Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable,
either directly or indirectly; and
§ Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on
observable market data (unobservable inputs).
The carrying amounts of financial instruments, such as cash, short-term and long-term investments, short-term accounts
receivable and payable, short-term loans receivable and payable and promissory notes, approximate their fair value.
The Group held the following financial instruments measured at fair value:
30 June 2015 31 December 2014
US$ million Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets measured at fair value
Available-for-sale financial assets 12 - - 17 - -
Liabilities measured at fair value
Derivatives not designated as hedging instruments - 536 - - 713 -
Contingent consideration payable for the acquisition of Stratcor - - 2 - - 2
The following table shows fair values of the Group's bonds and notes.
US$ million 30 June 2015 31 December 2014
Carrying amount Fairvalue Carrying amount Fairvalue
8.25 per cent notes due 2015 $ 129 $ 132 $ 139 $ 140
7.40 per cent notes due 2017 606 617 606 531
9.50 per cent notes due 2018 509 538 507 471
6.75 per cent notes due 2018 857 833 856 730
7.50 per cent bonds due 2019 345 348 345 345
6.50 per cent notes due 2020 1,008 921 1,008 801
8.75 per cent bonds due 2015 - - 71 70
9.95 per cent bonds due 2015 199 198 271 250
8.40 per cent bonds due 2016 362 351 358 299
Liabilities under 7.75 per cent bonds due 2017 assumed in business combination 414 382 417 278
$ 4,429 $ 4,320 $ 4,578 $ 3,915
The fair value of the non-convertible bonds and notes was determined based on market quotations (Level 1).
15. Subsequent Events
Issue of Bonds
On 1 July 2015, the Group completed a placement of bonds in the total amount of 15,000 million Russian roubles
(approximately $270 million), which bear interest of 12.95% per annum and have next put date on 26 June 2019. To manage the
currency exposure, the Group entered into a series of cross currency swap contracts with several banks under which it
agreed to deliver US-dollar denominated interest payments at the rates ranging from 5.90% to 6.55% per annum plus the
notional amount, totaling approximately US$265 million, in exchange for rouble-denominated interest payments at the rate of
12.95% per annum plus notional, totaling 14,948 million roubles.
New Bank Loans
In July and August 2015, the Group borrowed $425 million of long-term loans from the Russian banks.
Repayment of Bonds
On 17 July 2015, the Group partially repurchased 8.40% rouble-denominated bonds due 2016 with the principal of 4,792
million roubles ($84 million) for a cash consideration 4,696 million roubles ($82.5 million).
This information is provided by RNS
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