EVRAZ plc
EVRAZ ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR H1 2020
6 August 2020 - EVRAZ plc ("EVRAZ" or "the Group"; LSE: EVR) today announces its unaudited interim results for the six months ended 30 June 2020 ("the Period").
H1 2020 HIGHLIGHTS
• Positive free cash flow of US$315 million (H1 2019: US$692 million).
• Consolidated EBITDA totalled US$1,073 million, down 27.6% YoY from US$1,482 million in H1 2019, driving the EBITDA margin down to 21.5% from 24.1% due to lower vanadium, coal and steel product prices. This was partly offset by a US$251 million effect from cost-cutting and customer focus initiatives.
• Total debt increased by US$229 million to US$5,097 million, net debt increased by US$288 million to US$3,733 million.
• Net profit was US$513 million, compared with US$344 million in H1 2019.
• The cash cost of steel and raw materials in Russia was lower or flat:
o The cash cost of slabs decreased to US$210/tonne from US$230/tonne in H1 2019
o The cash cost of washed coking coal was flat at US$34/tonne in H1 2020 over H1 2019
o The cash cost of iron ore products was flat at US$38/tonne in H1 2020 over H1 2019
• An interim dividend for 2020 of US$291.37 million (US$0.20 per share) has been declared, reflecting the Board's confidence in the Group's financial position and outlook.
Financial Highlights
|
(US$ million) |
H1 2020 |
H1 2019 |
Change, % |
|
Consolidated revenues |
4,983 |
6,140 |
(18.8) |
|
Profit from operations |
891 |
913 |
(2.4) |
|
Consolidated EBITDA1 |
1,073 |
1,482 |
(27.6) |
|
Net profit |
513 |
344 |
49.1 |
|
Earnings per share, basic (US$) |
0.35 |
0.22 |
59.1 |
|
Net cash flows from operating activities |
781 |
1,175 |
(33.5) |
|
CAPEX1 |
337 |
309 |
9.1 |
|
|
30 June 2020 |
31 December 2019 |
Change, % |
|
Net debt1 |
3,733 |
3,445 |
8.4 |
|
Total assets |
9,003 |
9,847 |
(8.6) |
1 For the definition, see "Definitions of selected alternative performance measures".
Commenting on the results, EVRAZ' Chief Executive Officer, Alexander Frolov, said:
"The first half of 2020 was dominated by the global fight against the COVID-19 pandemic. The restrictive measures imposed by the governments of various countries have had a significant impact on the level of consumption of steel products around the world. Prices have reflected this situation, dropping sharply in comparison with the first half of 2019.
Despite market turbulence, EVRAZ was able to achieve EBITDA of almost US$1.1 billion, a 28% decline in year-on-year terms. This result was achieved despite lower steel, vanadium and coking coal prices as well as weakening market demand in North America that led to lower sales of tubular and flat-rolled steel products. To provide additional financial flexibility amid the COVID-19 pandemic, the Group bolstered its cash position through additional borrowing. This resulted in a slight increase in net debt to US$3,733 million, as at 30 June 2020 (US$3,445 million as of 31 December 2019), which together with the lower EBITDA, led to a moderate increase in the last twelve months EBITDA to net debt ratio to 1.7 times, compared with 1.3 times as at 31 December 2019.
Cost-cutting and productivity improvement initiatives combined with customer focus efforts generated a total EBITDA effect of US$251 million.
Our total CAPEX in the period was US$337 million. Amid deteriorating Russian steel market conditions, the management reprioritised the Group's key initiatives and development projects. Despite this revision, the new long rail mill project at EVRAZ continued on schedule. Overall, the Group invested US$106 million in development CAPEX in the first half of 2020.
Given the positive results in challenging market conditions, the Board of Directors are recommending an interim dividend for 2020 of US$0.20 per share, totalling roughly US$291.37 million, which is in line with the previously announced dividend policy.
In H2, EVRAZ will aim to sustain production at full capacity and maximise sales volumes in Russia. We will focus on additional efficiency improvements and maintain balanced and selective approach to our investment projects."
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, 6 August 2020, at:
3 pm (London time)
5 pm (Moscow time)
10 am (New York time)
To join the call, please dial:
|
+44 (0)20 8089 2860 or 0800 031 4838 |
UK |
|
+7 499 609 1260 or 8 800 100 9471 |
Russia |
|
+1 334-777-6978 or 800-367-2403 |
US |
Conference ID: 8876661
To avoid any technical inconvenience, it is recommended that participants dial in 10 minutes before the start of the call.
The presentation for the call will be available on the Group's website, www.evraz.com, on Thursday, 6 August 2020, at the following link:
https://www.evraz.com/en/investors/reports-and-results/financial-results/
Table of contents
HEALTH, SAFETY and ENVIRONMENT
Impact on liquidity and solvency and access to financing
Measures taken to protect the wellbeing and safety of employees and local communities
Review of operations by Segment
DIRECTOR'S RESPONSIBILITY STATEMENT
UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Strategic UPDATE 2020
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
Our employees' health and safety is EVRAZ' overriding priority. In 2020, the main focus in this area is the project to enhance risk management, which is being rolled out across all divisions.
Following extensive revision and development of existing processes, the Group began training employees in how to use the new key tools for identifying and managing risk in H1 2020. Due to the COVID-19 pandemic, in Q2 2020, all training courses were moved online, and are operating successfully. Detailed information about the impact of COVID-19 and EVRAZ' response could be found in the "Impact of COVID-19" section.
Planned measures as part of the project include the "Hunt for Risk" initiative and a review of standard operating procedures (chart of production operations). In addition, to maximise employee engagement, a special "Hunt for Risk" mobile application has been developed. This allows staff to send reports about any dangers or threats at work directly to a central database, enabling the Group to respond rapidly and provide direct guidance.
In this reporting period, EVRAZ recorded zero fatalities, largely due to the sustained efforts to engage employees in risk identification and mitigation. In addition, the long-term injury frequency rate (LTIFR) equalled 1.42x, below the target of 1.60x set by the management for 2020.
In early 2020, EVRAZ' management actively focused on updating the Group's environmental strategy, including the climate change strategy at the request of the Board of Directors and its Health, Safety and Environmental committee. In March-June, EVRAZ held several sessions with senior management, which included a detailed discussion on environmental strategy and climate change.
By the end of June, the Company had completed a climate change scenario analysis and mapped the risks and opportunities together with impacts and mitigation measures. These were based on recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) and considered three main climate change scenarios from the Intergovernmental Panel on Climate Change: rises in temperature by 1.5˚Ñ, 2˚Ñ and 4.9˚Ñ by 2100.
HUMAN CAPITAL
The Group believes that employee skill sets and engagement are the foundation for continuous improvement at its operations. During H1 2020, it continued its existing programmes and launched several new initiatives in this area.
A comprehensive employee health management programme was launched that incorporates new approaches, including identifying risk groups and offering preventative measures for both groups and individuals. A pilot project "Health management: Top-300" has been launched for "Top 300" programme participants. In addition, in response to the COVID-19 outbreak, the Group provided access to a telemedical service for personnel in Russia, enabling them to ask any questions about health, including coronavirus (for more about the support given to employees during this time, see "Impact of COVID-19").
In the reporting period, as part of the "Top 300" project, the second intake of around 100 people completed training in early June, and the third intake is due to start in the autumn. Due to the COVID-19 pandemic, the training was moved online, however the results indicate that standards have been maintained and deadlines met. In addition, part of the training was dedicated to industrial safety and a new standard operating procedure was devised to teach managers about preventing injuries and accidents, including through the use of key risk management tools like the "bow tie" diagram. This module has been included in a "Top 1,000" programme to roll out standard practices at managerial level. In February 2020, in the Urals division, an online version of "Top 1,000" was launched to train heads of units and senior workers, and the first intake is expected to finish in late July. Those who successfully completed the "Top 300" act as trainers on this programme.
In H1 2020, EVRAZ continued with preparations to implement a Target Remuneration System based on standardised pay grades for employees at production facilities, lower-level heads of units and directors of mines. The main aim of the project is to develop and introduce unified, fair and transparent rules and principles for setting salaries across the Group. In 2020, the plan is to apply pay grades in the Coal division and then complete the rollout at all metallurgical facilities in Russia.
At the end of the reporting period, the total headcount stood at 67,582.
CUSTOMER FOCUS
In H1 2020, EVRAZ continued its work on improving customer service and developing new products, as part of its strategic objective to remain the leading manufacturer of infrastructure steel.
In the reporting period, the Group launched an initiative to digitalise sales channels. This included creating a target model of digital sales channels, benchmarking, setting financial targets and establishing key objectives for each channel. This initiative consists of several main projects:
· Steel Radar: an online resource that shows beam inventories in traders' warehouses and enables purchase orders to be placed.
· EDI/EDO: EDI is a platform for placing orders and handling administrative tasks like amending documents and invoices, while EDO is a platform for exchanging legal documents.
· EVRAZ Webshop: a single e-commerce platform for all types of customers.
In addition, EVRAZ is developing numerous measures aimed at improving the accuracy of forecasting the timing of customer orders receipt while reducing order processing time to one day.
The Group also continued to develop its programme aimed at promoting demand for beams and structural products in construction and improving the availability of products to clients. In H1 2020, a project was launched to sell beam sets for constructing buildings (car parks, logistical centres, industrial facilities, etc), while work is under way to open a metal service centre in Noginsk.
In H1 2020, despite the market turmoil, EVRAZ maintained healthy market shares for key products in Russia: 66% for beams, 40% for structural products, 24% for railway wheels and 68% for rails. The Group sold 324 thousand tonnes of beams (down by 6% YoY), and of 509 thousand tonnes of rails from its Russian facilities up from 492 thousand tonnes in H1 2019 (+3% YoY).
Meanwhile, despite a slump in global demand for coal, EVRAZ sold 9.5 million tonnes of coal products in the reporting period, 0.7 million tonnes higher than in H1 2019. Stable demand for coal from the Group's mines and an increase in own consumption drove a rise in domestic sales, while greater demand for coking coal from China boosted exports. In addition, long-term relationships with customers in Japan, South Korea and Europe offset the effect of lower demand on those markets due to COVID-19.
In North America, the combination of the pandemic and the slump in oil prices depressed sales across the business. However, demand for large-diameter pipes (LDP) remained steady due to existing orders, and EVRAZ Regina achieved greater prime yields and record production volumes in several months during the period. In the rail and wire rod and bar segments, demand remained relatively stable overall. Rail output was down by around 4% YoY given lower demand from project and distribution customers, while demand from Class I railroads was stable due to existing contracts. Sales of LDP reached 188 thousand tonnes in H1 2020, compared with 157 thousand tonnes in H1 2019. For railway products, while sales volumes declined to 212 thousand tonnes, compared with 221 thousand tonnes, rail market share climbed to 46% from 40% in H1 2019.
In the vanadium business, EVRAZ further expanded its customer base in Asia and the Middle East and North Africa (MENA) in H1 2020, satisfying growing demand in the steel and energy storage segments, particularly in China, by ensuring a stable supply of diversified products. As the Group focused more on the spot market, its share of long-term ferrovanadium contracts dropped to 55%, down from 70% in H1 2019. In addition, in May 2020, EVRAZ' established a new research and development centre at East Metals, a Group subsidiary in Switzerland. Its main objective is to support the sustainable and diversified use of vanadium as an alloying element in current and future steel products.
Overall, customer-oriented initiatives generated additional EBITDA of US$168 million in the reporting period, mainly as a result of sales efforts in railway wheels, grinding balls as well as to improvements in logistics and supply functions efficiency.
ASSET DEVELOPMENT
In H1 2020, EVRAZ continued to focus on developing its assets through its efficiency improvement programme. This generated US$83 million of additional EBITDA during the period, mostly through greater productivity, improved yields and numerous savings projects.
Given the worsening conditions on the Russian steel market, the management reprioritised several key initiatives, including the Group's key development projects. The decision was made to postpone execution of rail and beam mill modernisation project at EVRAZ NTMK and execution of integrated flat casting and rolling facility project at EVRAZ ZSMK. Updated plans for these investment projects will be announced during Capital markets day 2020. In North America, the EVRAZ Pueblo new long rail mill project continued according to the schedule; and in June, the Group's Board of Directors approved the start of the execution phase of this project.
In the Steel segment, EVRAZ NTMK completed reconstruction work at blast furnace no.6. In this reconstruction, EVRAZ used the most modern technologies. Today, the blast furnace shop of EVRAZ NTMK is the most efficient and environmentally friendly in Russia. In addition, EVRAZ NTMK continued installation of a gas pressure-recovery turbine on blast furnace no.7, as part of the initiative to reduce electricity purchases by generating own power and completed an installation of the sixth automated railway wheel processing line. Meanwhile, EVRAZ KGOK continued to implement the project to develop the Sobstvenno-Kachkanarskoye deposit, which is due to partly replace output from the Gusevogorskoye deposit.
During budget planning for 2020 in the Coal division, the management anticipated difficulties in coal markets worldwide. On this basis, given the significant inventories of semi-soft coking coal reserves, the decision was made to mothball the Mezhegey mine in 2020.
After the COVID-19 pandemic took hold in Q1 2020, the Group also decided to halt production at Razrez Raspadsky open pit in May. Some of the released equipment was transferred to the open pit at the Raspadskaya-Koksovaya mine to increase output of premium OS-grade coal, which is in high demand in Russia. Such flexibility helped to reduce operating costs amid the market turbulence. At the Osinnikovskaya and Alardinskaya mines, EVRAZ upgraded some equipment to increase the longwall loads and annual output of Zh and KS-grade coal. In addition, the project to open a longwall on the new seam no.29 at the Esaulskaya mine was completed in June. After launching this and stopping longwall operations on seam no.10 at the Raspadskaya mine, output of GZh-grade coal will be the same, but the overall quality of the Group's semi-soft coking coal will be higher.
In the Steel, North America division, several factors disrupted operations and production at various locations in H1 2020, beginning with a cyberattack in March followed by a steep drop in crude oil price and then economic disruptions brought on by the COVID-19 pandemic. In response, the management undertook numerous measures, including idling some production facilities in Canada and the US to support free cash flow, reducing operating costs and optimising working capital. For more details, see the "Operational update" section. Meanwhile, the division continued its capital investments in equipment modernisation and expansion at Regina (Saskatchewan) and Red Deer (Alberta) to reduce emissions and improve efficiency. The upgrade of Regina's reheat furnace was completed in March-April, and the mill was certified as meeting the new nitrogen oxide requirements in May.
Overall, in the reporting period, EVRAZ invested US$106 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.
In H1 2020, new transformations were launched at EVRAZ ZSMK's oxygen production, energy and railway units and its Kaz and Guryevsky mines. In addition, existing initiatives continued at EVRAZ NTMK's rail mill, wide-beam production shop, energy units and metallurgical equipment repair shop no.3, as well as at EVRAZ KGOK's automotive shop, quarry and quarry equipment unit.
There are plans for EBS to focus on new areas, including the supply chain and analytics. By the year-end, the Group intends to implement 26 active phases of transformations in production areas, including six in the Siberia division, 15 in the Urals division and five in the Coal division.
Impact of COVID-19
EVRAZ is closely monitoring the development of 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 employees and minimise the effect on its enterprises and the communities in which it operates.
Impact on key markets
On the global steel market, throughout H1 2020, prices continued to slide, primarily due to the epidemiological situation in China. In March, the coronavirus continued to spread, leading to the lockdown of several key markets in Southeast Asia (Philippines, Thailand, Indonesia and others).
To hedge against the risk of production disruptions, the Group extended the order book for semi-finished products with overseas customers where possible. Moreover, in early April, the only accessible market was China, one of the first countries to stabilise the coronavirus situation and restore consumer activity. Amid such limited demand, the price decline on global markets accelerated. However, in early May, as several countries eased lockdown restrictions and market conditions improved, the trend reversed and prices regained part of their losses. Please, see the "Market outlook" section for more details about key markets performance in H1 2020.
Impact on operations
The Group remainsclosely focused on its operations, including logistics, supply and technological processes. Despite 242 confirmed COVID-19 cases among employees as of 30 June 2020, EVRAZ has faced no significant issues with the production or supply of raw materials and other goods. Shipments continued, and raw material deliveries to enterprises were stable.
Impact on liquidity and solvency and access to financing
COVID-19 has had little effect on EVRAZ' liquidity situation. Despite the negative market trends, operations and sales have continued to generate sufficient operating cash flow, while the Group has proactively addressed its upcoming obligations and maintained a strong liquidity position. As of 30 June 2020, cash and cash equivalents stood at around US$1.4 billion, supported by operating cash flow and financing initiatives. Please see section "Financing and liquidity" for more details.
Measures taken to protect the wellbeing and safety of employees and local communities
Since March 2020, in response to the COVID-19 pandemic, the Group has introduced additional safety measures to protect its people and ensure continued operations. These include:
• Significant reduction of domestic business travel and cancellation of overseas trips.
• Two-week isolation with salary for employees returning from trips abroad, either personal or work-related.
• Remote working, as well as additional personal protection equipment for employees who must come to work, including eye protectors, respirators and gloves.
• Installation of thermal imaging devices and pyrometers at facility entrances to monitor people's temperatures.
• Elimination where possible of large gatherings (with social distancing when they must take place) and cancellation of all major corporate, sporting and entertainment events.
• Increase in supplies of antiseptic and disinfectant products in communal areas, as well as regular sanitation of facilities and transport.
• Campaigns to raise awareness among employees and contractors about behavioural guidelines, social distancing and personal protection.
• Access to a telemedical consultancy service.
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 COVID-19 pandemic. As of 30 June 2020 more than 4,500 employees of the Group were working remotely.
As of March 2020, EVRAZ has undertaken additional measures aimed at supporting the wellbeing and mental health of its employees during the pandemic:
• The corporate website has been updated with a special page containing information about COVID-19 (https://www.evraz.com/en/covid-19/) and the actions that the Group is taking amid the pandemic. The page provides phone numbers for 24/7 corporate hotlines if employees have questions or encounter problems. EVRAZ North America has engaged external providers for this purpose.
• Employees receive regular emails on topics such as how to deal with stress and anxiety; manage remote teams effectively; handle conflicts at home; and organise children's education and entertainment; as well as the importance of leisure time amid self-isolation and other restrictions.
• Virtual meetings with senior management are being held, allowing employee to participate and ask questions.
• Corporate challenges are regularly being set to promote positive change. As part of the "We Do Not Risk" social media challenge, for every post by participants, EVRAZ is providing antiseptic and masks to doctors at municipal hospitals in Nizhny Tagil, Kachkanar, Novokuznetsk and Mezhdurechensk. The "What I Will Do After Self-isolation" challenge allows employees to share their thoughts and improve their outlook by seeing what colleagues are planning.
• The PR function is sending newsletters to inform employees about the Group's work to deal with the virus, as well as global and local events.
• The IT function has rolled out a mobile application for employees in Russia named "Antivirus" to promptly alert employees of possible COVID-19 exposure. It is based on the "Stopp Corona" application, which was developed jointly by Accenture and the Austrian Red Cross to identify symptoms more efficiently.
In addition to these measures, the IT and HR functions are conducting regular employee surveys to learn about their experience of working remotely, any technical or personal problems, what help is needed from the Company, and what can be improved.
Since the beginning of the COVID-19 pandemic, EVRAZ has allocated more than RUB400 million (c. US$5.8 million) as of 30 June 2020 to ensure safe working conditions for employees, as well as to support medical and pre-school institutions in local communities in the Sverdlovsk and Kemerovo regions, Moscow and Tula.
The Group has financed the purchase of specialised equipment, transport and protective gear for hospitals in the Sverdlovsk and Kemerovo regions. In particular, Novokuznetsk's municipal clinical infectious disease hospital No. 8 is being renovated to accommodate a polymerase chain reaction (PCR) laboratory. It will offer COVID-19 tests and same-day results, and its new equipment will be able to screen for different viruses without having to be adapted.
Market outlook
Global markets
In H1 2020, as COVID-19 took hold in Asia and spread worldwide, the restrictions introduced impacted the global economy and bulk commodity markets. Amid a downturn in demand, steel prices, based on hot-rolled coil (HRC) China FOB contracts, averaged US$444/tonne in the reporting period, down 13% from US$510/tonne in H1 2019. However, they did recover from a low of US$405/tonne in May to US$429/tonne in June, as the Chinese economy began to recover in Q2 2020 in response to a relaxation of restrictions and government support. Overall, China's crude steel production and apparent steel use increased by 2% YoY. Amid strong domestic demand, the country's net steel exports amounted to 20 million tonnes, down 31% YoY, and overall exports to 30 million tonne, down 14% YoY.
Despite the more positive signs in China, steel demand in the rest of the world contracted by 9% YoY in H1 2020, including a fall of 13% YoY in the EU and 17% YoY in North America, while global production ex-China shrank by 14% YoY. At the same time, the unprecedented support measures by the major economies are already improving the overall environment and the steel industry.
In H1 2020, iron ore prices, based on the 62% Fe fines China CFR benchmark, averaged US$91/tonne, in line with H1 2019, amid supply disruptions in Brazil and robust demand in China in Q2 2020. Exports from Brazil totalled 144 million tonnes, compared with the 163 million tonnes in H1 2019, due to seasonal weather factors in Q1 2020 and Vale's restrictions in response to the spread of COVID-19 at the Minas Gerais mine in Q2 2020. Australia also faced weather issues, as three tropical cyclones swept across the Pilbara region in January-February, affecting shipments and prices, although the country's top three producers - BHP Billiton, Rio Tinto and FMG - ramped up output to record levels in March to meet Chinese demand. Despite the pandemic and its effects, Australia exported 422 million tonnes of iron ore in the reporting period, up 2.4% from H1 2019.
Driven by the rapid recovery of China's steel industry in Q2 2020, iron ore inventories declined to a historical low that pushed prices to more than US$100/tonne in June. In the reporting period, the country's iron ore imports reached 547 million tonnes, up 10% YoY.
Regarding metallurgical coal, prices hit a bottom in late H1 2020 not seen since 2016 due to demand issues from the steel industry (ex-China). In Europe, parts of Asia (Japan, Korea and Taiwan) and India, around 25-30% of blast furnace capacity was suspended during the reporting period due to the measures to combat COVID-19. Overall, seaborne imports of metallurgical coal totalled 141 million tonnes, down 4% YoY. China's seaborne coking coal imports amounted to 25.3 million tonnes, up 2% YoY, as its steel output rose and blast furnace utilisation improved by the end of Q2 2020. Against this backdrop, hard coking coal prices averaged US$111/tonne in June, down 27% from the US$151/tonne in January. In H1 2020, metallurgical coal prices decreased by 34% to US$136/tonne vs US$205/tonne during the same period of 2019.
As for vanadium, the FeV price averaged US$25.7/kgV in H1 2020, 56% lower than the US$56.3/kgV in the same period last year and 4% below the US$26.9/kgV in H2 2019. Global vanadium demand reached an estimated 51 thousand mtV, up 10% YoY, amid strong consumption growth from rebar producers in China that was partly offset by a slump in demand from the steel industry (ex-China) due to COVID-19 restrictions. Production in China increased by 10% YoY, a response to the historically high prices in 2018-19. Persistently weak demand in most regions outside China caused the FeV price in Europe and North America to drop to US$22-23/kgV in June, widening the gap with the price in China of US$30/kgV and prompting suppliers to send higher volumes to China. Overall, the market is expected to be oversupplied until Q4 2020 or Q1 2021, until demand recovers in key segments.
Russian Steel
In H1 2020, Russian steel consumption totalled 19.4 million tonnes, down 11% YoY, amid lower economic activity and the restrictions introduced to combat COVID-19.
Demand for long products decreased by 7% YoY. Meanwhile, railway segment demonstrated positive dynamics. The rail market increased significantly by 27% mainly driven by greater orders from Russian Railways. Demand for wheels moved up by 4% amid steadily high demand from railcar repair companies.The construction sector was hit hard by the COVID-19 measures, and demand fell by 15% YoY for beams, 7% YoY for rebar and 21% YoY for structural products, while that for wire rod increased by 2%.
In the reporting period, domestic crude steel production equalled 35.3 million tonnes, down 3% YoY, while exports amounted to 14.5 million tonnes, up 6% YoY, as companies redirected unsold volumes abroad.
Russian steel prices moved in accordance with the lower demand and surplus supply. In H1 2020, based on the Moscow CPT benchmark, the rebar price averaged US$390/tonne, down 20% YoY; that of channels US$529/tonne, down 12% YoY; that of HRC US$506/tonne, down 9% YoY; and that of plates US$507/tonne, down 10% YoY.
North America
In North America, the United States has become one of the regions hardest hit by COVID-19, and the measures taken in response have significantly reduced demand for steel in the sectors served by EVRAZ. In the reporting period, US steel product consumption totalled 46.1 million tonnes, down 15% from the 54.2 million tonnes in H1 2019. Demand slumped by 20% YoY for long, 10% YoY for flat and 39% YoY for tubular products. Demand for oil country tubular goods (OCTG) shrank by 40% YoY, as drilling for new wells contracted significantly, while the large-diameter pipe segment was also impacted. Demand for plate retreated by 21% YoY amid lower consumption in the manufacturing and construction sectors, while that for rod and bar decreased by 23% YoY.
In H1 2020, US steel product imports amounted to 11.6 million tonnes, down 19% YoY. Following production cuts amid pandemic, domestic crude steel production decreased by 18% to 36.2mt.
Compared with H1 2019, US prices for steel products declined: that of plate averaged US$666/tonne, down 34% YoY; of OCTG US$1,143/tonne, down 23% YoY; and of rebar US$671/tonne, down 14% YoY.
Coal
In the reporting period, Russian coking coal concentrate consumption totalled 18.3 million tonnes, down 1% YoY, as coke production fell amid the COVID-19 situation. Coking coal exports amounted to 10.8 million tonnes, down 16% YoY, amid decrease in demand across all regions excluding China for the same reason. Mining volumes reduced to 43.6 million tonnes, down 5% YoY also as EVRAZ halted production at Razrez Raspadsky and Mezhegeyugol.
Under pressure from cuts in steel output worldwide (apart from China), Russian prices of seaborne metallurgical coal shipments followed international benchmarks. In H1 2020, based on the FCA Kuzbass benchmark, the price of premium Zh-grade coking coal averaged US$97/tonne, down 38% YoY, and that of the semi-hard GZh-grade US$77/tonne, down 29% YoY.
.
OUTLOOK FOR 2020
In H2, EVRAZ will aim to sustain production at full capacity and maximise sales volumes in Russia. We will focus on additional efficiency improvements and maintain balanced and selective approach to the investment projects.
Financial review
Statement of operations
In H1 2020, EVRAZ' consolidated revenues declined by 18.8% to US$4,983 million, compared with US$6,140 million in H1 2019, primarily due to lower sales prices for construction, coal products and lower flat-rolled sales volumes, as well as reduced prices and volumes for vanadium products.
EVRAZ' consolidated EBITDA amounted to US$1,073 million during the period, compared with US$1,482 million in H1 2019, bringing the EBITDA margin down from 24.1% to 21.6%. The decline in EBITDA was primarily attributable to lower steel, vanadium and coal product sales prices, as well as lower sales of tubular and flat-rolled steel products resulting from weakening market demand in North America.
Free cash flow declined by 54.8% year-on-year and amounted to US$315 million. The decline was attributable to lower EBITDA and higher capital expenditures in H1 2020 compared to H1 2019.
In H1 2020, the Steel segment's revenues (including inter-segment sales) dropped by 17.5% YoY to US$3,433 million, or 63.0% of the Group's total before elimination. The decrease was mainly attributable to lower revenues from sales of vanadium and steel products, which fell by 60.0% and 9.8% YoY respectively. This was primarily due to a downturn in average sales prices of 56.9% for vanadium and 8.5% for steel products, underpinned by unfavourable market conditions. The Group's lower revenues from sales of steel products were partly offset by higher sales volumes, which increased from 5.7 million tonnes in H1 2019 to 6.0 million tonnes in H1 2020, following an increase in production volumes at Russian mills amid higher demand.
In H1 2020, revenues from the Steel, North America segment fell by 21.8% YoY. Steel product revenues went down by 21.5%, driven by declining sales volumes (down 15.0%) for flat-rolled, construction and tubular steel products and lower prices (down 6.5%).
The Coal segment's revenues declined by 30.7% YoY, mainly due to a decline in coal product sales prices by 29.8% and a decrease of 0.9% in coal product sales volumes. Coal prices followed the downward trend set by global benchmarks during the period.
In H1 2020, the Steel segment's EBITDA decreased due to lower prices for vanadium, construction and other steel products, and lower sales volumes for flat products, partially offset by lower cost of sales as well as the effect of the rouble's depreciation.
The Steel, North America segment's EBITDA decreased due to lower revenues from sales of flat-rolled, tubular, railway, and construction products.
The Coal segment's EBITDA was down YoY, amid lower coal product sales prices, while the cost of sales was largely unchanged.
Eliminations mainly reflect unrealised profits or losses that relate to the inventories produced by the Steel segment on the Steel, North America segment's balance sheet, and coal inventories produced by the Coal segment on the Steel segment's balance sheet.
|
Revenues, (US$ million) |
||||
|
|
||||
|
Segment |
H1 2020 |
H1 2019 |
Change |
Change, % |
|
Steel |
3,433 |
4,159 |
(726) |
(17.5) |
|
Steel, North America |
1,028 |
1,316 |
(288) |
(21.9) |
|
Coal |
781 |
1,128 |
(347) |
(30.8) |
|
Other operations |
206 |
249 |
(43) |
(17.3) |
|
Eliminations |
(465) |
(712) |
247 |
(34.7) |
|
Total |
4,983 |
6,140 |
(1,157) |
(18.8) |
|
Revenues by region, (US$ million) |
||||
|
|
||||
|
Region |
H1 2020 |
H1 2019 |
Change |
Change, % |
|
Russia |
1,848 |
2,152 |
(304) |
(14.1) |
|
Americas |
1,053 |
1,451 |
(398) |
(27.5) |
|
Asia |
1,504 |
1,438 |
66 |
4.6 |
|
CIS (excl. Russia) |
309 |
474 |
(165) |
(34.8) |
|
Europe |
212 |
576 |
(364) |
(63.2) |
|
Africa and rest of the world |
57 |
49 |
8 |
16.3 |
|
Total |
4,983 |
6,140 |
(1,157) |
(18.8) |
|
EBITDA*, (US$ million) |
||||
|
|
||||
|
Segment |
H1 2020 |
H1 2019 |
Change |
Change, % |
|
Steel |
916 |
949 |
(33) |
(3.5) |
|
Steel, North America |
(21) |
60 |
(81) |
n/a |
|
Coal |
218 |
518 |
(300) |
(57.9) |
|
Other operations |
8 |
9 |
(1) |
(11.1) |
|
Unallocated |
(65) |
(67) |
2 |
(3.0) |
|
Eliminations |
17 |
13 |
4 |
(30.8) |
|
Total |
1,073 |
1,482 |
(409) |
(27.6) |
*For the definition of EBITDA, please refer to Annex 1
The following table details the effect of the Group's cost-cutting initiatives.
|
Effect of Group's cost-cutting initiatives in H1 2020 |
|
|
Improving yields and raw material costs, including
|
63 |
|
Improving yields and raw material costs of Urals and Siberia divisions |
32 |
|
Various improvements at coal beneficiating plants and mines |
24 |
|
Improving yields and raw material costs of North American assets and other assets |
7 |
|
Increasing productivity and cost effectiveness |
4 |
|
Others, including G&A costs |
16 |
|
Total |
83 |
Revenues, cost of sales and gross profit by segment
(US$ million)
|
|
H1 2020 |
|
H1 2019 |
|
Change |
Change, % |
|
Steel segment |
|
|
|
|
|
|
|
Revenues |
3,433 |
|
4,159 |
|
(726) |
(17.5) |
|
Cost of sales |
(2,292) |
|
(2,958) |
|
666 |
(22.5) |
|
Gross profit |
1,141 |
|
1,201 |
|
(6) |
(5.0) |
|
Steel, North America segment |
|
|
|
|
|
|
|
Revenues |
1,028 |
|
1,316 |
|
(288) |
(21.9) |
|
Cost of sales |
(936) |
|
(1,153) |
|
217 |
(18.8) |
|
Gross profit |
92 |
|
163 |
|
(71) |
(43.6) |
|
Coal segment |
|
|
|
|
|
|
|
Revenues |
781 |
|
1,128 |
|
(347) |
(30.8) |
|
Cost of sales |
(537) |
|
(543) |
|
6 |
(1.1) |
|
Gross profit |
244 |
|
585 |
|
(341) |
(58.3) |
|
Other operations - gross profit |
56 |
|
54 |
|
2 |
3.7 |
|
Unallocated - gross profit |
(4) |
|
(6) |
|
2 |
(33.3) |
|
Eliminations - gross profit |
(34) |
|
(40) |
|
6 |
(15.0) |
|
Total |
1,495 |
|
1,957 |
|
(462) |
(23.6) |
Gross profit, expenses and results,
(US$ million)
|
Item |
H1 2020 |
H1 2019 |
Change |
Change, % |
|
Gross profit |
1,495 |
1,957 |
(462) |
(23.6) |
|
Selling and distribution costs |
(421) |
(446) |
25 |
(5.6) |
|
General and administrative expenses |
(278) |
(282) |
4 |
(1.4) |
|
Impairment of assets |
(108) |
(17) |
(91) |
n/a |
|
Foreign-exchange gains/(losses), net |
242 |
(273) |
515 |
n/a |
|
Other operating income and expenses, net |
(39) |
(26) |
(13) |
50.0 |
|
Profit from operations |
891 |
913 |
(22) |
(2.4) |
|
Interest expense, net |
(164) |
(166) |
2 |
(1.2) |
|
Share of losses of joint ventures and associates |
3 |
5 |
(2) |
(40.0) |
|
Impairment of non-current financial assets |
- |
(56) |
56 |
(100.0) |
|
Loss on financial assets and liabilities, net |
(40) |
(7) |
(33) |
n/a |
|
Loss on disposal groups classified as held for sale, net |
1 |
- |
1 |
100.0% |
|
Other non-operating losses, net |
9 |
1 |
8 |
n/a |
|
Profit before tax |
700 |
690 |
10 |
1.4 |
|
Income tax benefit/(expense) |
(187) |
(346) |
159 |
(46.0) |
|
Net profit |
513 |
344 |
169 |
49.1 |
In H1 2020, selling and distribution expenses decreased slightly amid lower railroad transportation costs related to lower shipment volumes and tariffs.
In 1H 2020, EVRAZ recognised a US$108 million impairment loss. As a result of impairment testing at the level of the cash-generating units, EVRAZ recognised an impairment of goodwill of US$65 million, intangible assets of US$3 million, and property, plant and equipment of US$31 million attributable to the Large diameter pipes cash generating unit in the Steel, North America segment. The impairment was caused by the reassessment of demand on the steel, oil and commodities markets. The value-in-use models are based on the expectation that the demand will recover in 2022.
Foreign exchange gains amounted to US$242 million, mainly related to intra-group loans denominated in roubles and payable by Evraz Group S.A., whose functional currency is the US dollar, to the Russian subsidiaries, which have the rouble as their functional currency. The depreciation of the Russian rouble against the US dollar in H1 2020 led to exchange gains recognised on the income statements of non-Russian subsidiaries and not offset by the exchange losses recognised in the equity of the Russian subsidiaries.
Net interest expense decreased to US$164 million in 1H 2020, compared with US$166 million in 1H 2019. This was mainly due to the management's efforts to refinance existing indebtedness on more favourable terms during the reporting period.
The loss on financial assets and liabilities amounted to US$40 million and consisted primarily of losses on foreign currency swap contracts.
For the reporting period, the Group had an income tax expense of US$187 million, compared with US$346 million in H1 2019. The change reflects the decline in the operating results.
Cash flow,
(US$ million)
|
Item |
H1 2020 |
H1 2019 |
Change |
Change, % |
|||
|
Cash flows from operating activities before changes in working capital |
749 |
1,224 |
(475) |
(38.8) |
|||
|
Changes in working capital |
32 |
(49) |
81 |
n/a |
|||
|
Net cash flows from operating activities |
781 |
1,175 |
(394) |
(33.5) |
|||
|
Short-term deposits at banks, including interest |
3 |
4 |
(1) |
(25.0) |
|||
|
Purchases of property, plant and equipment and intangible assets |
(330) |
(309) |
(21) |
6.8 |
|||
|
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs |
3 |
- |
3 |
100.0 |
|||
|
Other investing activities |
5 |
4 |
1 |
25.0 |
|||
|
Net cash flows used in investing activities |
(319) |
(301) |
(18) |
6.0 |
|||
|
Net cash flows used in financing activities |
(513) |
(1,081) |
568 |
(52.5) |
|||
|
Effect of foreign-exchange rate changes on cash and cash equivalents |
(8) |
16 |
(24) |
n/a |
|||
|
Net increase/(decrease) in cash and cash equivalents |
(59) |
(191) |
132 |
(69.1) |
|||
|
Calculation of free cash flow,*
|
|||||||
|
Item |
H1 2020 |
H1 2019 |
Change |
Change, % |
|||
|
EBITDA |
1,073 |
1,482 |
(409) |
(27.6) |
|||
|
EBITDA excluding non-cash items |
1,071 |
1,487 |
(416) |
(28.0) |
|||
|
Changes in working capital |
32 |
(49) |
81 |
n/a |
|||
|
Income tax accrued |
(306) |
(253) |
(53) |
20.9 |
|||
|
Social and social infrastructure maintenance expenses |
(17) |
(10) |
(7) |
70.0 |
|||
|
Net cash flows from operating activities |
781 |
1,175 |
(394) |
(33.6) |
|||
|
Interest and similar payments |
(137) |
(177) |
40 |
(22.6) |
|||
|
Capital expenditures, including recorded in financing activities and non-cash transactions |
(337) |
(309) |
(28) |
9.1 |
|||
|
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs |
3 |
- |
3 |
100.0 |
|||
|
Other cash flows from investing activities |
5 |
3 |
2 |
33.3 |
|||
|
Free cash flow |
315 |
692 |
(377) |
(54.5) |
|||
*For the definition of free cash flow, please refer to Annex 2.
CAPEX and key projects
During the reporting period, EVRAZ' capital expenditures rose to US$337 million, compared with US$309 million in H1 2019, driven by higher development expenses. Capital expenditure projects during H1 2020, indicated in millions of US dollars, can be summarised as follows.
(US$ million)
|
DEVELOPMENT PROJECTS |
|
|
Steel segment |
|
|
Tashtagol iron ore mine upgrade at EVRAZ ZSMK mining site The project aim is to increase the annual ore production of the Tashtakolsky deposit with a partial switch to sublevel caving using mobile equipment. |
13 |
|
Sobstvenno-Kachkanarsky deposit greenfield project The project aim is to maintain production of raw ore. |
8 |
|
Integrated flat casting and rolling facility at EVRAZ ZSMK The project aim is to improve the profitability of EVRAZ' product portfolio by replacing semi-finished products with hot-rolled sheets and coils |
2 |
|
Rail and beam mill modernisation at EVRAZ NTMK The project aim is to increase production of beams and of sheet piles. |
1 |
|
Steel, North America segment |
|
|
Long rail mill at EVRAZ Pueblo The project aim is to replace the existing rail facility and meet the needs of customers for long rail products. |
15 |
|
Electric arc furnace (EAF) repowering at EVRAZ Regina The project aim is to increase EVRAZ Regina's prime coil and plate production and reduce electrode consumption. |
9 |
|
Coal segment |
|
|
Acquisition of equipment at Osinnikovskaya mine Acquisition of equipment fully compliant with mining and geological conditions to provide the projected longwall load on a monthly basis.
|
17 |
|
Acquisition of equipment at Alardinskaya mine The project aim is to reduce the time required for transition from longwall to longwall and to increase annual production volumes to 3.2mt.
|
10
|
|
Access and development of reserves in the Uskovskaya mine's seam no. 48 The project aim is to prepare the reserves in seam no. 48 for mining |
5 |
|
Access and development of reserves in the Esaulskaya mine's seam no. 29a The project aim is to relocate mining operations from seam no. 26 to seam no. 29a |
4 |
|
Other development projects |
22 |
|
MAINTENANCE PROJECTS |
|
|
Steel segment |
|
|
Major overhaul of blast furnace no. 6 at EVRAZ NTMK |
47 |
|
Technical re-equipment of air heaters of blast furnace no. 2 at EVRAZ ZSMK |
6 |
|
Other maintenance projects |
178 |
|
Total |
337 |
Financing and liquidity
EVRAZ began 2020 with a total debt of US$4,868 million.
Debt management has focused on capital markets maturities coming due in the first quarter 2021. Specifically, in March, EVRAZ signed a US$750 million committed syndicated facility with a group of international banks with funds made available for one year after signing. Once utilised, this facility will be repayable in nine equal quarterly instalments, following a three-year grace period. Currently, the US$750 million committed syndicated facility remains unutilised.
In the wake of uncertainties related to the COVID-19 pandemic, the Group decided to increase its cash safety cushion through additional borrowing. In March, EVRAZ utilised RUB5,000 million
(c. US$72 million) under its committed credit facility with VTB. Later, in April, it drew another RUB15,000 million (c. US$216 million) under the uncommitted credit facility with this bank. Currency risk exposure under the first credit facility of RUB5,000 million was hedged using cross-currency swaps.
These actions were offset by scheduled repayments of bank loans and leases, which increased total debt in H1 2020 by US$229 million to US$5,097 million, as at 30 June 2020.
In H1 2020, EVRAZ paid an interim dividend to its shareholders in the amount of US$581 million (US$0.40 per share).
During H1 2020, net debt increased by US$288 million to US$3,733 million, compared with US$3,445 million as at 31 December 2019. Interest expense accrued on loans, bonds and notes amounted to US$147 million during the period, compared with US$148 million in H1 2019. Management's efforts to refinance indebtedness on more favourable terms resulted in stable interest expense, despite the higher total debt load.
A decline in EBITDA and a rise in net debt resulted in an increase of the Group's major leverage metric, the ratio of net debt to last twelve months (LTM) EBITDA, to 1.7 times as at 30 June 2020, compared with 1.3 times as at 31 December 2019.
As at 30 June 2020, various bilateral facilities with a total outstanding principal of around US$1,467 million contained financial maintenance covenants. Maintenance covenants under these facilities include two key ratios calculated using EVRAZ plc's consolidated financials: a maximum of net leverage and a minimum EBITDA interest cover. As at 30 June 2020, EVRAZ was in full compliance with its financial covenants.
As at 30 June 2020, cash amounted to US$1,364 million, while short-term loans and the current portion of long-term loans amounted to US$1,078 million. Cash balances and committed credit facilities available to the Group allow it to comfortably cover upcoming maturities.
Review of operations by Segment
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|||||
|
(US$ million) |
Steel |
Steel, NA |
Coal |
Other |
|||||
|
|
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
|
|
|
|
Revenues |
3,433 |
4,159 |
1028 |
1,316 |
781 |
1,128 |
206 |
249 |
|
|
EBITDA |
916 |
949 |
(21) |
60 |
218 |
518 |
8 |
9 |
|
|
EBITDA margin |
26.7% |
22.8% |
(2.0%) |
4.6% |
27.9% |
45.9% |
3.9% |
3.6% |
|
|
CAPEX |
196 |
135 |
53 |
63 |
83 |
109 |
5 |
2 |
|
Steel segment
Sales review
|
Steel segment revenues by product |
||||||
|
|
H1 2020 |
H1 2019 |
|
|||
|
|
US$ million |
% of total segment revenues |
US$ million |
% of total segment revenues |
Change, % |
|
|
Steel products, external sales |
3,003 |
87.5 |
3,201 |
77.0 |
(6.2) |
|
|
Semi-finished products1 |
1,233 |
35.9 |
1,206 |
29.0 |
2.2 |
|
|
Construction products2 |
939 |
27.3 |
1,059 |
25.5 |
(11.3) |
|
|
Railway products3 |
593 |
17.3 |
554 |
13.3 |
7.0 |
|
|
Flat-rolled products4 |
68 |
2.0 |
204 |
4.9 |
(66.7) |
|
|
Other steel products5 |
170 |
5.0 |
178 |
4.3 |
(4.5) |
|
|
Steel products, intersegment sales |
25 |
0.7 |
158 |
3.8 |
(84.2) |
|
|
Including sales to Steel, North America |
20 |
0.6 |
152 |
3.7 |
(86.8) |
|
|
Iron ore products |
63 |
1.8 |
124 |
3.0 |
(49.2) |
|
|
Vanadium products |
165 |
4.8 |
410 |
9.8 |
(59.8) |
|
|
Other revenues |
178 |
5.2 |
266 |
6.4 |
(33.5) |
|
|
Total |
3,433 |
100.0 |
4,159 |
100.0 |
(17.5) |
|
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, tubular products
|
Sales volumes of Steel segment |
|
|
|
|
(thousand tonnes) |
|
|
|
|
|
H1 2020 |
H1 2019 |
Change, % |
|
Steel products, external sales |
5,975 |
5,730 |
4.3 |
|
Semi-finished products |
3,023 |
2,572 |
17.5 |
|
Construction products |
1,848 |
1,837 |
0.6 |
|
Railway products |
669 |
710 |
(5.8) |
|
Flat-rolled products |
121 |
323 |
(62.5) |
|
Other steel products |
315 |
288 |
9.4 |
|
Steel products, intersegment sales |
51 |
301 |
(83.1) |
|
Total steel products |
6,026 |
6,031 |
(0.1) |
|
Vanadium products (tonnes of pure vanadium) |
8,371 |
8,619 |
(2.9) |
|
Vanadium in slag |
2,761 |
2,836 |
(2.6) |
|
Vanadium in alloys and chemicals |
5,610 |
5,784 |
(3.0) |
|
Iron ore products |
801 |
1,234 |
(35.1) |
|
Sinter |
- |
533 |
(100.0) |
|
Pellets |
801 |
699 |
14.6 |
|
Other iron ore products |
- |
2 |
(100.0) |
|
Geographic breakdown of external steel product sales (US$ million)
|
|||
|
|
H1 2020 |
H1 2019 |
Change, % |
|
Russia |
1,451 |
1,603 |
(9.5) |
|
Asia |
1,122 |
939 |
19.5 |
|
CIS |
267 |
272 |
(62.9) |
|
Europe |
101 |
280 |
(4.6) |
|
Africa, America and rest of the world |
63 |
107 |
(41.1) |
|
Total |
3,003 |
3,201 |
(6.2) |
In H1 2020, revenues from the Steel segment dropped by 17.5% to US$3,433 million, compared with US$4,159 million in H1 2019. This was the result of lower sales prices, primarily for flat-rolled and construction products, as well as lower vanadium product prices and volumes.
Revenues from external sales of semi-finished products increased by 2.2% amid 17.5% growth in sales volumes, which was partly offset by a 15.3% decline in average prices. The increase was mainly due to higher volumes of slabs on the Asian market, and higher volumes of billets on the Asian and African markets.
Revenues from sales of construction products to third parties went down by 11.3% due to a decline of 11.9% in average prices. The decrease was mainly due to lower sales prices for rebars on the Russian and CIS markets, lower beam sales volumes and prices, and lower sales volumes for angles, primarily on the Russian market.
Revenues from external sales of railway products rose predominantly due to increases of 12.8% in prices, partially offset by 5.8% decline in volumes. Sales volumes declined mostly in Q2 2020 amid lower demand following restrictions imposed by the governments during COVID-19 pandemic
External revenues from flat-rolled products fell by 66.7%, driven by a 62.5% decrease in sales volumes. This resulted from deteriorating demand in Europe and the disposal of EVRAZ Palini e Bertoli in Q4 2019.
Revenues from external steel product sales in Russia decreased by 9.5% YoY, primarily due to lower prices, which was partly offset by greater demand. The share of the Russian market in total external steel product sales decreased from 50.1% in H1 2019 to 48.3% in H1 2020. An increase in Asia's share of sales from 29.3% to 37.4% was due to higher sales volumes for billets and slabs.
Steel segment revenues from sales of iron ore products, including intersegment sales, decreased by 49.2%, driven by a 35.1% decline in sales volumes and 14.1% in sales prices. The main decrease in sales volumes was mainly due to absence of sinter sales to third parties due to the disposal of EvrazTransUkraina and increased requirements for own operations.
During the reporting period, around 65.4% of EVRAZ' iron ore consumed in steelmaking came from its own operations, compared with 69.1% in H1 2019.
Steel segment revenues from sales of vanadium products, including intersegment sales, fell by 59.8%, due primarily to a 57.0% downturn in sales prices in line with market trends. Ferrovanadium prices dropped along with quotations from the London Metal Bulletin and Ryan's Notes, while vanadium slag prices fell along with vanadium pentoxide (V2O5) quotations.
Steel segment cost of revenues
|
Steel segment cost of revenues |
|||||
|
|
|
||||
|
|
H1 2020 |
H1 2019 |
|
||
|
|
US$ million |
% of segment revenues |
US$ million |
% of segment revenues |
Change, % |
|
Cost of revenues |
2,292 |
44.6 |
2,958 |
71.1 |
(22.5) |
|
Raw materials |
1,107 |
32.2 |
1,351 |
32.5 |
(18.1) |
|
Iron ore |
228 |
6.6 |
254 |
6.1 |
(10.2) |
|
Coking coal |
407 |
11.9 |
583 |
14.0 |
(30.2) |
|
Scrap |
302 |
8.8 |
290 |
7.0 |
4.1 |
|
Other raw materials |
170 |
5.0 |
224 |
5.4 |
(24.1) |
|
Auxiliary materials |
154 |
3.9 |
166 |
4.0 |
(7.2) |
|
Services |
116 |
3.4 |
131 |
3.1 |
(11.5) |
|
Transportation |
226 |
6.6 |
230 |
5.5 |
(1.7) |
|
Staff costs |
247 |
7.2 |
250 |
6.0 |
(1.2) |
|
Depreciation |
113 |
3.3 |
120 |
2.9 |
(5.8) |
|
Energy |
203 |
5.9 |
220 |
5.3 |
(7.7) |
|
Other* |
126 |
3.7 |
490 |
11.8 |
(74.3) |
*Includes primarily goods for resale, inter-segment unrealised profit and certain taxes, semi-finished products and allowances for inventories
In H1 2020, the Steel segment's cost of revenues decreased by 22.5% YoY. The main reasons for the fall in costs were as follows:
· The cost of raw materials fell by 18.1%, primarily due to the lower cost of coking coal (-30.2%), driven by global market trends, as well as lower production volumes, and the lower cost of iron ore (+10.2%). The decrease in the cost of raw materials was also accompanied by cost-cutting initiatives, which reduced consumption.
· Costs for auxiliary materials declined by 7.2% amid lower consumption of auxiliary materials and auxiliary materials prices.
· Service costs declined by 11.5%, primarily driven by the lower cost of ferrovanadium processing amid a decrease in quoted prices.
· Energy costs were lower due to the weaker rouble, as well as higher levels of in-house electricity generation, and a change in the structure of fuel utilised.
· Other costs declined significantly by 74.3%, largely due to the lower cost of goods for resale amid a drop in vanadium purchase prices in 2020 compared to 2019, the lower cost of semi-finished products due to the disposal of Palini e Bertoli in Q4 2019, a reduction in the purchase price, and higher sales of scrap from own production due to switching to the metal charge scheme.
Steel segment gross profit
The Steel segment's gross profit slid by 5.0% YoY, driven primarily by lower prices for vanadium and construction products, which were partly offset by the positive effect of lower costs.
Operational update - Russia
Urals
· At EVRAZ NTMK, the major overhaul of blast furnace no. 6 was completed. The project aims to support the enterprise's pig iron smelting capacity.
· EVRAZ NTMK finished installing its sixth automated wheel processing line in its rail and section production unit.
· EVRAZ NTMK made further progress in installing a gas pressure-recovery turbine on blast furnace no. 7, as part of a drive to reduce electricity purchases by generating own power. Construction and setup work continues.
· EVRAZ NTMK is implementing a major investment programme aimed at manufacturing more high-value-added goods, increasing the product range overall and expanding rolling capacity. The main initiative focuses on upgrading equipment in the rail and beam production shop.
· EVRAZ KGOK is pressing ahead with the project to develop its tailings storage facility, which will help the Group to remain self-sufficient in iron ore raw materials until 2038, based on current levels.
· EVRAZ KGOK is also close to completing the work to increase the depth of its tailings dump to 348.5 metres. The initiative will help the Group to remain self-sufficient in iron ore raw materials until 2026, based on current levels.
· EVRAZ KGOK is undertaking a project to develop the Sobstvenno Kachkanarskoye deposit with a view to replacing around 13 million tonnes of annual output from the Gusevogorskoye deposit, which is being phased out by 2024. The forestry work has been completed, the first road is finished, and construction of the railway, power-supply and water-removal infrastructure is ongoing.
· New products
o KR140 crane rails have been launched
o New sizes of IPE steel profiles meeting the GOST R 57837-2017 standards are being developed, a first for EVRAZ NTMK
o Production of high-load locomotive wheels is being developed
o Production of own EV3 freight railcar wheels for Deutsche Bahn has been launched
o Two sizes of locomotive wheels and one size of freight railcar wheel are being developed for the North American market
o Own EV002 railcar wheels are being developed for the domestic market
o Own EV004 railcar wheels are being launched
Siberia
· EVRAZ ZSMK has introduced a system for automatically managing the chemical inputs and temperature in its electric arc furnace unit
· EVRAZ ZSMK has launched a temperature monitoring system at its blast furnace no. 2 that is unrivalled in Russia
· New products
o AU500SP screw rebar, various diameters
o A500S rebar, 9 and 11 mm in diameter
o 2 beams, 10B1 and 15V1
o Angles, 45*4
o Square billet, 16
o 2 channels, 40U and 30V-2
o RE136 rails to the AREMA standard
o NT320 rail tongue
o R65 DT350VS rails for high-speed passenger trains
Vanadium
· EVRAZ NTMK's vanadium slag production climbed by 12% YoY in H1 2020, mainly due to blast furnace optimisation work.
· EVRAZ Vanady Tula's oxide production rose by 7% YoY in H1 2020 amid increased vanadium recovery, mainly due to measures to stabilise roasting quality and improve hydrolysis.
· EVRAZ Nikom's output of FeV 80% dropped by 10% YoY in H1 2020, amid changes in the regional sales and product mix to serve the more active Chinese oxide market, as well as general decline in vanadium demand due to COVID 19 restrictions (mainly in China and Asia in Q1 2020 and Europe and North America in Q2 2020).
Steel, North America segment
Sales review
|
Steel, North America segment revenues by product |
|||||
|
|
|
||||
|
|
H1 2020 |
H1 2019 |
|
||
|
|
US$ million |
% of total segment revenues |
US$ million |
% of total segment revenues |
Change, % |
|
Steel products |
988 |
96.1 |
1,260 |
95.7 |
(21.6) |
|
Semi-finished products1 |
109 |
10.6 |
96 |
7.3 |
13.5 |
|
Construction products2 |
93 |
9.0 |
115 |
8.7 |
(19.1) |
|
Railway products3 |
173 |
16.8 |
205 |
15.6 |
(15.6) |
|
Flat-rolled products4 |
152 |
14.8 |
302 |
22.9 |
(49.7) |
|
Tubular and other steel products5 |
461 |
44.8 |
542 |
41.2 |
(14.9) |
|
Other revenues6 |
40 |
3.9 |
56 |
4.3 |
(28.6) |
|
Total |
1,028 |
100.0 |
1,316 |
100.0 |
(21.9) |
1 Includes slabs
2 Includes beams, 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 2020 |
H1 2019 |
Change, % |
|
Steel products |
|
|
|
|
Semi-finished products |
144 |
130 |
10.8 |
|
Construction products |
133 |
136 |
(2.2) |
|
Railway products |
213 |
223 |
(4.5) |
|
Flat-rolled products |
169 |
282 |
(40.1) |
|
Tubular and other steel products |
348 |
387 |
(10.3) |
|
Total |
1,007 |
1,158 |
(13.1) |
The segment's revenues from the sale of steel products fell due to decreases in sales volumes of 13.1% and sales prices of 6.4%. This was mainly attributable to sales of flat-rolled products, construction and tubular products.
Revenues from semi-finished product sales rose by 13.5% due to growth in volumes of 11.0% and prices of 2.7% as a result of a higher demand from a key client, contract fulfilled in H1 2020.
Revenues from construction product sales declined by 19.1% due to a decrease in volumes of 2.2% and a drop in prices of 16.9%, related to reduced demand for wire products supplied to the automotive industry.
Railway product revenues declined by 15.6%, driven by a fall in sales prices by 11.1% and volumes by 4.5%, amid reduced demand from traders, which drove significantly lower rail market pricing in 2020.
Revenues from flat-rolled products decreased by 49.7%, due to a 40.1% decline in volumes a 9.6% fall in prices , resulting from weakening market demand.
Revenues from tubular product sales fell by 14.9% due to a 10.3% and 4.6 decrease in volumes and prices respectively. The reduction relates to lower large diameter (LD) US sales volumes, and a reduction in pipe prices for line pipe (LP) and oil country tubular goods (OCTG), amid lower market demand and higher inventories among distributors.
Steel, North America segment cost of revenues
|
Steel North America segment cost of revenues |
|||||
|
|
|
||||
|
|
H1 2020 |
H1 2019 |
|
||
|
|
US$ million |
% of segment revenues |
US$ million |
% of segment revenues |
Change, % |
|
Cost of revenues |
936 |
91.0 |
1,153 |
87.6 |
(18.8) |
|
Raw materials |
247 |
24.0 |
394 |
29.9 |
(37.2) |
|
Semi-finished products |
194 |
18.8 |
263 |
20.0 |
(26.2) |
|
Auxiliary materials |
94 |
9.1 |
120 |
9.1 |
(21.6) |
|
Services |
80 |
7.7 |
88 |
6.7 |
(9.1) |
|
Staff costs |
142 |
13.8 |
159 |
12.1 |
(10.7) |
|
Depreciation |
50 |
4.8 |
55 |
4.2 |
(9.1) |
|
Energy |
46 |
4.5 |
62 |
4.7 |
(25.8) |
|
Other* |
83 |
8.1 |
12 |
0.9% |
n/a |
* Primarily includes transportation, goods for resale, certain taxes, changes in work in progress and fixed goods and allowances for inventories.
In H1 2020, the Steel, North America segment's cost of revenues declined by 18.9% YoY. The main drivers were as follows:
· Raw material costs fell by 37.2%, primarily attributable to the lower cost of scrap and lower consumption driven by a reduced production volumes.
· The cost of semi-finished products declined by 26.2%, due to a reduction of consumption at Portland Flat
· Auxiliary material costs fell by 21.6% due lower production levels at Pueblo and Canada.
· Service costs went down by 9.1%, driven primarily by lower production volumes.
· Staff costs declined by 10.7% mostly driven by the idling of OCTG mills in Canada and the US, overall decrease in production for other products and rotated furlough schedule for salaried employees.
· Energy costs fell by 25.8%, primarily due to reduced production and lower natural gas prices.
· Other costs were up for the reporting period, primarily due to a decrease of the work in progress and finished goods balances compared with H1 2019 as a result of lower production volumes amid deteriorated market conditions.
Steel, North America segment gross profit
The Steel, North America segment's gross profit totalled US$92 million for H1 2020, down from US$133 million in H1 2019. The decline was driven primarily by lower sales volumes for flat-rolled and OCTG due to worsening market conditions.
Operational update
Canada
· A cyberattack in March across ENA halted production at EVRAZ Regina for several weeks and created disruptions at the facilities in Alberta.
· Given the coronavirus pandemic and a sharp drop in demand from the oil and gas industry, EVRAZ Canada instituted numerous cost reduction measures to align business expenses and operations with market conditions, and focused on reducing inventory.
· The EVRAZ mills in Edmonton, Calgary, Red Deer and Camrose were temporarily idled in late H1 2020 amid ongoing depressed demand in the Western Canada energy industry.
· Demand for large-diameter pipes remained steady due to existing orders, and EVRAZ Regina achieved higher prime yields and record production volumes for several months during the period.
· EVRAZ Regina completed a capital project to upgrade its reheat furnace with low emission burners in H1 2020 to meet new regulatory requirements.
US
· EVRAZ Portland and EVRAZ Pueblo recovered quickly following the March cyberattack with minimal disruption to production
· Like the Canadian operations, the US mills experienced a decline in customer demand across various steel markets in H1 2020 due to the COVID-19 pandemic and economic downturn. EVRAZ Portland and EVRAZ Pueblo have implemented numerous cost improvement measures and taken action to adjust operations based on market conditions.
· After fulfilling existing orders, the Spiral mill at EVRAZ Portland ceased operations in June due to a lack of new customer orders amid the ongoing slump on the energy markets. Demand for plate remains soft in the Western US due to COVID-19 and general market uncertainty.
· EVRAZ Pueblo temporarily idled its seamless pipe mill in May in response to continuing declines in the OCTG market.
· Demand for rail and rod/bar remained relatively stable. For rail, while there has been a decline in project and distribution sales, Class I railroads continued their contract purchases. For rod and bar products, the demand remained steady with ongoing projects and low level of distributors' inventories.
Coal segment
Sales review
|
Coal segment revenues by product |
|||||
|
|
|
||||
|
|
H1 2020 |
H1 2019 |
|
||
|
|
US$ million |
% of total segment revenues |
US$ million |
% of total segment revenues |
Change, % |
|
External sales |
|
|
|
|
|
|
Coal products |
483 |
61.8 |
724 |
64.2 |
(33.3) |
|
Coking coal |
37 |
4.7 |
86 |
7.6 |
(57.0) |
|
Coal concentrate |
446 |
57.1 |
638 |
56.6 |
(30.1) |
|
Intersegment sales |
|
|
|
|
|
|
Coal products |
281 |
36.0 |
383 |
34.0 |
(26.6) |
|
Coking coal |
56 |
7.2 |
62 |
5.5 |
(9.7) |
|
Coal concentrate |
225 |
28.8 |
322 |
28.5 |
(30.0) |
|
Other revenues |
17 |
2.2 |
21 |
1.9 |
(19.0) |
|
Total |
781 |
100.0 |
1,128 |
100.0 |
(30.8) |
|
Sales volumes of Coal segment |
|
|
|
|
(thousand tonnes) |
|
||
|
|
H1 2020 |
H1 2019 |
Change, % |
|
External sales |
|
|
|
|
Coal products |
6,078 |
5,585 |
8.8 |
|
Coking coal |
1,198 |
943 |
27.0 |
|
Coal concentrate and other products |
4,880 |
4,642 |
5.1 |
|
Intersegment sales |
|
|
|
|
Coal products |
3,466 |
3,169 |
9.4 |
|
Coking coal |
1,166 |
952 |
22.5 |
|
Coal concentrate |
2,300 |
2,217 |
3.7 |
|
Total, coal products |
9,544 |
8,754 |
9.0 |
The Coal segment's overall revenues were down amid significant instability on global markets caused by the COVID-19 pandemic and resulting decline of business activity linked to efforts to contain its spread. Most steel producers around the world were forced to reduce capacity utilisation and decrease steel production, leading to falling demand for coal. This imbalance on the market led to a drop in coal prices and, consequently, revenues.
Revenues from external sales of coal products fell, amid a 42.1% reduction in prices, partly offset by an 8.8% increase in sales volumes. Coking coal revenues fell by 57.0% and coking coal concentrate revenues dropped by 30.1%, amid lower pricing, but offset in part by higher sales volumes. These were driven by strong demand for coal on the Russian market, as well as growth in demand for coal from China, with the latter delivering an increase in external sales. Long-term partnerships with Japanese, Korean, and European clients have minimised the impact of declining demand on these markets.
Revenues from internal sales of coal products were down 26.6%, mainly because of a 36.0% reduction in sales prices, which was partly offset by a 9.4% uptick in volumes. Coking coal volumes rose by 22.4%, due to increased sales of K and KS grades.
In H1 2020, the Coal segment's sales to the Steel segment amounted to US$281 million (36.0% of total sales), compared with US$383 million (33.9%) in H1 2019.
During the reporting period, roughly 82.1% of EVRAZ' coking coal consumption in steelmaking came from the Group's own operations, compared with 71.7% in H1 2019.
Coal segment cost of revenues
|
Coal segment cost of revenues |
|||||
|
|
|
||||
|
|
H1 2020 |
H1 2019 |
|
||
|
|
US$ million |
% of segment revenues |
US$ million |
% of segment revenues |
Change, % |
|
Cost of revenues |
537 |
68.8 |
543 |
48.1 |
(1.1) |
|
Auxiliary materials |
54 |
6.9 |
63 |
5.6 |
(14.2) |
|
Services |
24 |
3.1 |
64 |
5.7 |
(62.5) |
|
Transportation |
155 |
19.8 |
192 |
17.0 |
(19.2) |
|
Staff costs |
106 |
13.5 |
107 |
9.5 |
(0.9) |
|
Depreciation |
82 |
10.5 |
83 |
7.4 |
(1.2) |
|
Energy |
23 |
2.9 |
26 |
2.3 |
(11.5) |
|
Other* |
93 |
11.9 |
8 |
0.7 |
n/a |
* Primarily includes goods for resale, certain taxes, changes in work in progress and finished goods, allowance for inventory, raw materials and inter-segment 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 fell by 14.2%, due mainly to lower volumes of preparation at third-party plants, the shutdown of production of the Raspadsky open pit from May 2020, and a decrease in production volumes of Raspadskaya mine.
· Costs for services declined by 62.5% due to shutdown of production of the Raspadsky open pit from May 2020 and decreased production at Yuzhkuzbassugol.
· Transportation costs declined by 19.2% during the reporting period, primarily due to the shutdown of production at the Raspadsky open pit from May 2020 and decreased production at Yuzhkuzbassugol, as well as the use of in-house transportation equipment instead of third-party contractor equipment.
· Staff costs were down because of lower mining volumes.
· Other costs increased in the reporting period, mainly due to higher sales of accumulated stock.
Coal segment gross profit
The Coal segment's gross profit for H1 2020 amounted to US$244 million, down from US$711 million a year earlier, primarily due to declining sales prices.
Operational update
In H1 2020, EVRAZ produced 9.9 million tonnes of raw coking coal, down 4.0 million tonnes
(-29% YoY).
Raspadskaya
During the reporting period, Raspadskaya mined 5.1 million tonnes of raw coking coal, down 2.1 million tonnes (-29% YoY), as the Raspadsky open pit stopped producing in May until market conditions will improve.
Yuzhkuzbassugol
In H1 2020, Yuzhkuzbassugol produced 4.8 million tonnes of raw coking coal, down 1.3 million tonnes (-22% YoY). The effects of the COVID-19 pandemic and declining coal demand were offset by planned longwall movements at four mines (Uskovskaya, Osinnikovskaya, Alardinskaya and Esaulskaya).
Mezhegeyugol
During the reporting period, Mezhegeyugol mined 0.04 million tonnes of raw coking coal, down 0.6 million tonnes (-94% YoY), having halted operations in February. The mine is now selling inventory and running at minimal cost until the market recovers.
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 34-39 of the EVRAZ plc 2019 annual report, copies of which are available at www.evraz.com, remain relevant in 2020 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, incl. trade, anti-monopoly, anti-dumping regulation, sanctions regimes, and other law regulations
· Functional currency devaluation
· HSE: environmental
· HSE: health and safety, including the risk of mass infection
· Business interruption
· Digital effectiveness: effective, efficient and continued IT service
· Capital projects and expenditures
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 March 2020, the computer systems of EVRAZ North America was hit by a ransomware attack with a noticeable impact on the systems. In cooperation with third party consultant, all systems have been successfully restored. The program to improve cyber security was redesigned based on the lessons learned and is in progress of being implemented.
In H1 2020, EVRAZ experienced fewer safety incidents amid greater focus by the management and a transformation of its 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.
Since February 2020, the COVID-19 pandemic has impacted the global economy significantly. In response, EVRAZ set up a crisis management centre, with senior management following the situation on a daily basis and the Board of Directors receiving regular updates of the impact on the Group's operational, commercial and financial situation. In addition, EVRAZ has introduced numerous safety measures to protect its people and ensure continued operations. The majority of the Group's businesses were relatively unaffected by the COVID-19 pandemic. For more details, see the "Impact of COVID-19" section.
The management of EVRAZ plc has considered the Group's cash flow forecasts for the period to 31 December 2021 and has performed various scenario analysis, including base, pessimistic and stress downside testing scenarios. This considered the possible impacts of the COVID-19 crisis on the financial results and liquidity position of the Group.
In the most pessimistic stress scenario, which assumed results lower than the Group has ever had since listing in 2005 with prices for steel, iron ore and coal all significantly below management's current forecasts, the Group maintained sufficient liquidity and would be able to operate within its debt covenants for the period to 31 December 2021. The Group does not reasonably anticipate that the most pessimistic stress scenario will occur, given the relatively limited impacts on the Group's businesses to date and the signs of a recovery in key markets.
The Group also continues to monitor and assess other risks and uncertainties that were not recognised as principal, such as employee, taxation, compliance, social and community, human-rights and other risks. While impact and probability analysis suggest that such risks could affect EVRAZ' operations to some extent, management believes that they are being managed adequately and does not consider them capable of seriously affecting the Group's performance, future prospects or reputation.
DIVIDENDS
Given the performance throughout 2020, EVRAZ has announced an interim dividend.
On 5 August 2020, the Board of Directors voted to disburse a total of US$291.37 million, or US$0.20 per share.
The record date is 21 August 2020 and payment date is 2 October 2020.
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 24 August 2020. All conversions will take place on or around 26 August 2020.
DIRECTOR'S RESPONSIBILITY STATEMENT
The directors confirm that, to the best of their knowledge, this consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:
An indication of important events that have occurred during the first six months and their impact on the consolidated interim financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
By order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
5 August 2020
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.
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.
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 2020 |
31 December 2019 |
Change
|
Change, %
|
|
|
|
|
|
|||
|
Cash and cash equivalents |
1,364 |
1,423 |
(59) |
(4.1) |
|
|
Cash and short-term bank deposits |
1,364 |
1,423 |
(59) |
(4.1) |
|
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 2020 |
31 December 2019 |
Change
|
Change, %
|
|
|
|
|
||
|
Long-term loans, net of current portion |
3,876 |
4,599 |
(723) |
(15.7) |
|
Short-term loans and current portion of long-term loans |
1,078 |
140 |
938 |
n/a |
|
Add back: Unamortised debt issue costs and fair value adjustment to liabilities assumed in business combination |
19 |
18 |
1 |
5.6 |
|
Nominal effect of cross-currency swaps on principal of ruble-denominated notes |
24 |
(6) |
30 |
n/a |
|
Finance lease liabilities, including non-current portion |
68 |
83 |
(15) |
(18.1) |
|
Finance lease liabilities, including current portion |
32 |
34 |
(2) |
(5.9) |
|
Total debt |
5,097 |
4,868 |
229 |
4.7 |
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 2020 |
31 December 2019 |
Change
|
Change, %
|
|
|
|
|
||
|
Total debt |
5,097 |
4,868 |
229 |
4.7 |
|
Cash and cash equivalents |
(1,364) |
(1,423) |
59 |
(4.1) |
|
Net debt |
3,733 |
3,445 |
288 |
8.4 |
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 2020 |
H1 2019 |
Change
|
Change, %
|
|
|
|
|
||
|
Purchases of property, plant and equipment and intangible assets |
330 |
309 |
21 |
6.8 |
|
Purchases of purchase of property, plant and equipment on deferred terms |
7 |
- |
7 |
100.0 |
|
CAPEX |
337 |
309 |
28 |
9.0 |
Labour productivity, US$/tonne
P=S/V
S - Labour Costs (asset and A-category subsidiaries), exclusive of tax, local currency (on Division consolidation sites with different currencies, US$)
V - production volume, tonnes (for steel assets: V - metal products shipped)
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 company employees in the reporting period. Fatalities are not included.
Y is the actual total number of man-hours worked by all company employees in the reporting period.
Semi-finished products cash costs, US$/tonne
Cash cost of semi-finished products is defined as the production cost less depreciation, the result is divided by production volumes of steel semi-products. Raw materials from EVRAZ coal and iron ore producers are accounted for on at-cost-basis. Costs of semi-finished steel products of EVRAZ NTMK, EVRAZ ZSMK are then weighted averaged by the total saleable semi-finished products production volume.
Coking coal concentrate cash cost, US$/tonne
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$/tonne
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 metriñ 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 2020
EVRAZ plc
Unaudited Interim Condensed Consolidated Financial Statements
Six-month period ended 30 June 2020
Contents
Report on Review of Interim Condensed Consolidated Financial Statements
Unaudited Interim Condensed Consolidated Financial Statements
Unaudited Interim Condensed Consolidated Statement of Operations ...............................................
Unaudited Interim Condensed Consolidated Statement of Comprehensive Income .............................
Unaudited Interim Condensed Consolidated Statement of Financial Position .....................................
Unaudited Interim Condensed Consolidated Statement of Cash Flows ..............................................
Unaudited Interim Condensed Consolidated Statement of Changes in Equity .....................................
Selected Notes to the Unaudited Interim Condensed Consolidated Financial Statements ....................
Independent Review Report to EVRAZ plc
Introduction
We have been engaged by EVRAZ plc (the Company) to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 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.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, 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. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410 (UK and Ireland), 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP,
London,
5 August 2020
Unaudited Interim Condensed Consolidated Statement of Operations
(In millions of US dollars, except for per share information)
|
|
|
Six-month period ended 30 June |
|
|
|
Notes |
2020 |
2019 |
|
Revenue |
|
|
|
|
Sale of goods |
3 |
$ 4,854 |
$ 5,960 |
|
Rendering of services |
3 |
129 |
180 |
|
|
|
4,983 |
6,140 |
|
Cost of revenue |
|
(3,488) |
(4,183) |
|
Gross profit |
|
1,495 |
1,957 |
|
|
|
|
|
|
Selling and distribution costs |
|
(421) |
(446) |
|
General and administrative expenses |
|
(278) |
(282) |
|
Social and social infrastructure maintenance expenses |
|
(17) |
(10) |
|
Gain/(loss) on disposal of property, plant and equipment |
|
1 |
2 |
|
Impairment of non-financial assets |
5 |
(108) |
(17) |
|
Foreign exchange gains/(losses), net |
|
242 |
(273) |
|
Other operating income |
|
11 |
10 |
|
Other operating expenses |
|
(34) |
(28) |
|
Profit from operations |
|
891 |
913 |
|
|
|
|
|
|
Interest income |
|
4 |
5 |
|
Interest expense |
|
(168) |
(171) |
|
Share of profits/(losses) of joint ventures and associates |
8 |
3 |
5 |
|
Impairment of non-current financial assets |
|
- |
(56) |
|
Gain/(loss) on financial assets and liabilities, net |
12 |
(40) |
(7) |
|
Gain/(loss) on disposal groups classified as held for sale, net |
|
1 |
- |
|
Other non-operating gains/(losses), net |
|
9 |
1 |
|
Profit before tax |
|
700 |
690 |
|
|
|
|
|
|
Income tax expense |
6 |
(187) |
(346) |
|
Net profit |
|
$ 513 |
$ 344 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
Equity holders of the parent entity |
|
$ 506 |
$ 313 |
|
Non-controlling interests |
|
7 |
31 |
|
|
|
$ 513 |
$ 344 |
|
Earnings per share: |
|
|
|
|
for profit attributable to equity holders of the parent entity, basic, US dollars |
11 |
$ 0.35 |
$ 0.22 |
|
for profit attributable to equity holders of the parent entity, diluted, US dollars |
11 |
$ 0.35 |
$ 0.21 |
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 |
2020 |
2019 |
|
|
|
|
|
|
Net profit |
|
$ 513 |
$ 344 |
|
|
|
|
|
|
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 currency |
|
(664) |
635 |
|
Net gains/(losses) on cash flow hedges |
|
- |
27 |
|
Net (gains)/losses on cash flow hedges recycled to profit or loss |
|
- |
(33) |
|
|
|
(664) |
629 |
|
|
|
|
|
|
Effect of translation to presentation currency of the Group's joint ventures and associates |
8 |
(10) |
6 |
|
Share of other comprehensive income/(loss) of joint ventures and associates accounted for using the equity method |
|
(10) |
6 |
|
|
|
|
|
|
Items not to be reclassified to profit or loss in subsequent periods |
|
|
|
|
|
|
|
|
|
Gains/(losses) on re-measurement of net defined benefit liability |
|
(40) |
- |
|
Income tax effect |
|
7 |
- |
|
|
|
(33) |
- |
|
|
|
|
|
|
Total other comprehensive income/(loss) |
|
(707) |
635 |
|
Total comprehensive income/(loss), net of tax |
|
$ (194) |
$ 979 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of the parent entity |
|
$ (185) |
$ 929 |
|
Non-controlling interests |
|
(9) |
50 |
|
|
|
$ (194) |
$ 979 |
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 2020 |
31 December 2019 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
7 |
$ 4,488 |
$ 4,925 |
|
Intangible assets other than goodwill |
|
158 |
185 |
|
Goodwill |
|
514 |
594 |
|
Investments in joint ventures and associates |
8 |
84 |
92 |
|
Deferred income tax assets |
|
213 |
152 |
|
Other non-current financial assets |
|
25 |
40 |
|
Other non-current assets |
|
47 |
55 |
|
|
|
5,529 |
6,043 |
|
Current assets |
|
|
|
|
Inventories |
|
1,298 |
1,480 |
|
Trade and other receivables |
|
471 |
534 |
|
Prepayments |
|
92 |
93 |
|
Loans receivable |
|
1 |
32 |
|
Receivables from related parties |
9 |
10 |
10 |
|
Income tax receivable |
|
54 |
53 |
|
Other taxes recoverable |
|
181 |
175 |
|
Other current financial assets |
|
3 |
4 |
|
Cash and cash equivalents |
10 |
1,364 |
1,423 |
|
|
|
3,474 |
3,804 |
|
Total assets |
|
$ 9,003 |
$ 9,847 |
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
Equity |
|
|
|
|
Equity attributable to equity holders of the parent entity |
|
|
|
|
Issued capital |
11 |
$ 75 |
$ 75 |
|
Treasury shares |
11 |
(154) |
(169) |
|
Additional paid-in capital |
|
2,503 |
2,492 |
|
Revaluation surplus |
|
109 |
109 |
|
Accumulated profits |
|
2,094 |
2,217 |
|
Translation difference |
|
(3,706) |
(3,048) |
|
|
|
921 |
1,676 |
|
Non-controlling interests |
|
212 |
252 |
|
|
|
1,133 |
1,928 |
|
Non-current liabilities |
|
|
|
|
Long-term loans |
12 |
3,876 |
4,599 |
|
Deferred income tax liabilities |
|
258 |
352 |
|
Employee benefits |
|
291 |
271 |
|
Provisions |
|
276 |
321 |
|
Lease liabilities |
|
68 |
83 |
|
Other long-term liabilities |
|
73 |
40 |
|
|
|
4,842 |
5,666 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
1,205 |
1,378 |
|
Contract liabilities |
|
327 |
348 |
|
Payables to related parties |
9 |
75 |
140 |
|
Short-term loans and current portion of long-term loans |
12 |
1,078 |
34 |
|
Lease liabilities |
|
32 |
19 |
|
Income tax payable |
|
84 |
79 |
|
Other taxes payable |
|
146 |
153 |
|
Provisions |
|
42 |
33 |
|
Amounts payable under put options for shares in subsidiaries |
|
39 |
69 |
|
|
|
3,028 |
2,253 |
|
Total equity and liabilities |
|
$ 9,003 |
$ 9,847 |
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 5 August 2020 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 |
|
|
|
2020 |
2019 |
|
Cash flows from operating activities |
|
|
|
Net profit |
$ 513 |
$ 344 |
|
Adjustments to reconcile net profit/(loss) to net cash flows from operating activities: |
|
|
|
Deferred income tax (benefit)/expense |
(119) |
93 |
|
Depreciation, depletion and amortisation |
300 |
271 |
|
(Gain)/loss on disposal of property, plant and equipment |
(1) |
(2) |
|
Impairment of non-financial assets |
108 |
17 |
|
Impairment of financial assets |
- |
56 |
|
Foreign exchange (gains)/losses, net |
(242) |
273 |
|
Interest income |
(4) |
(5) |
|
Interest expense |
168 |
171 |
|
Share of (profits)/losses of associates and joint ventures |
(3) |
(5) |
|
(Gain)/loss on financial assets and liabilities, net |
40 |
7 |
|
(Gain)/loss on disposal groups classified as held for sale, net |
(1) |
- |
|
Other non-operating (gains)/losses, net |
(9) |
(1) |
|
Changes in provisions, employee benefits and other long-term assets and liabilities |
(6) |
(5) |
|
Expense arising from equity-settled awards |
5 |
8 |
|
Other |
- |
2 |
|
|
749 |
1,224 |
|
Changes in working capital: |
|
|
|
Inventories |
59 |
(76) |
|
Trade and other receivables |
5 |
57 |
|
Prepayments |
(3) |
16 |
|
Receivables from/payables to related parties |
33 |
80 |
|
Taxes recoverable |
(30) |
14 |
|
Other assets |
- |
1 |
|
Trade and other payables |
(49) |
14 |
|
Contract liabilities |
(11) |
8 |
|
Taxes payable |
34 |
(157) |
|
Other liabilities |
(6) |
(6) |
|
Net cash flows from operating activities |
781 |
1,175 |
|
Cash flows from investing activities |
|
|
|
Issuance of loans receivable |
(1) |
(6) |
|
Investments in associates and joint ventures |
- |
(3) |
|
Short-term deposits at banks, including interest |
3 |
4 |
|
Purchases of property, plant and equipment and intangible assets |
(330) |
(309) |
|
Proceeds from disposal of property, plant and equipment |
4 |
5 |
|
Proceeds from sale of disposal groups classified as held for sale, net of cash disposed and transaction costs |
3 |
- |
|
Dividends received |
1 |
5 |
|
Other investing activities, net |
1 |
3 |
|
Net cash flows used in investing activities |
(319) |
(301) |
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 |
|
|
|
2020 |
2019 |
|
Cash flows from financing activities |
|
|
|
Payments for the purchase of non-controlling interests (Note 4) |
$ (22) |
$ (56) |
|
Proceeds from bank loans and notes |
921 |
1,233 |
|
Repayment of bank loans and notes, including interest |
(778) |
(1,642) |
|
Net proceeds from/(repayment of) bank overdrafts and credit lines, including interest |
(26) |
2 |
|
Gain/(loss) on derivatives not designated as hedging instruments |
- |
9 |
|
Gain/(loss) on hedging instruments |
- |
(23) |
|
Purchases of property, plant and equipment on deferred terms |
(7) |
- |
|
Lease payments, including interest |
(17) |
(20) |
|
Dividends paid by the parent entity to its shareholders (Note 11) |
(581) |
(577) |
|
Dividends paid by the Group's subsidiaries to non-controlling shareholders |
(3) |
- |
|
Other financing activities |
- |
(7) |
|
Net cash flows used in financing activities |
(513) |
(1,081) |
|
|
|
|
|
Effect of foreign exchange rate changes on cash and cash equivalents |
(8) |
16 |
|
|
|
|
|
Net decrease in cash and cash equivalents |
(59) |
(191) |
|
Cash and cash equivalents at beginning of year |
1,423 |
1,067 |
|
Cash and cash equivalents at end of period |
$ 1,364 |
$ 876 |
|
Supplementary cash flow information: |
|
|
|
Cash flows during the period: |
|
|
|
Interest paid |
$ (143) |
$ (157) |
|
Interest received |
3 |
4 |
|
Income taxes paid (included in operating activities) |
(291) |
(292) |
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 paid-in capital |
Revaluation surplus |
Unrealised gains and losses |
Accumulated profits |
Translation difference |
Total |
Non-controlling interests |
Total Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2019 |
$ 75 |
$ (169) |
$ 2,492 |
$ 109 |
$ - |
$ 2,217 |
$ (3,048) |
$ 1,676 |
$ 252 |
$ 1,928 |
|
|
Net profit |
- |
- |
- |
- |
- |
506 |
- |
506 |
7 |
513 |
|
|
Other comprehensive income/(loss) |
- |
- |
- |
- |
- |
(33) |
(658) |
(691) |
(16) |
(707) |
|
|
Total comprehensive income/(loss) for the period |
- |
- |
- |
- |
- |
473 |
(658) |
(185) |
(9) |
(194) |
|
|
Acquisition of non-controlling interests in subsidiaries (Note 4) |
- |
- |
6 |
- |
- |
- |
- |
6 |
(28) |
(22) |
|
|
Transfer of treasury shares to participants of the Incentive Plans |
- |
15 |
- |
- |
- |
(15) |
- |
- |
- |
- |
|
|
Share-based payments |
- |
- |
5 |
- |
- |
- |
- |
5 |
- |
5 |
|
|
Dividends declared by the parent entity to its shareholders (Note 11) |
- |
- |
- |
- |
- |
(581) |
- |
(581) |
- |
(581) |
|
|
Dividends declared by the Group's subsidiaries to non-controlling shareholders |
- |
- |
- |
- |
- |
- |
- |
- |
(3) |
(3) |
|
|
At 30 June 2020 |
$ 75 |
$ (154) |
$ 2,503 |
$ 109 |
$ - |
$ 2,094 |
$ (3,706) |
$ 921 |
$ 212 |
$ 1,133 |
|
The accompanying notes form an integral part of these unaudited interim condensed consolidated financial statements.
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 paid-in capital |
Revaluation surplus |
Unrealised gains and losses |
Accumulated profits |
Translation difference |
Total |
Non-controlling interests |
Total Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2018 |
$ 75 |
$ (196) |
$ 2,480 |
$ 110 |
$ 6 |
$ 3,026 |
$ (3,820) |
$ 1,681 |
$ 257 |
$ 1,938 |
|
|
Net profit |
- |
- |
- |
- |
- |
313 |
- |
313 |
31 |
344 |
|
|
Reclassification of revaluation surplus to accumulated profits in respect of the disposed items of property, plant and equipment |
- |
- |
- |
(1) |
- |
1 |
- |
- |
- |
- |
|
|
Other comprehensive income/(loss) |
- |
- |
- |
- |
(6) |
- |
622 |
616 |
19 |
635 |
|
|
Total comprehensive income/(loss) for the period |
- |
- |
|
(1) |
(6) |
314 |
622 |
929 |
50 |
979 |
|
|
Acquisition of non-controlling interests in subsidiaries (Note 4) |
- |
- |
- |
- |
- |
(5) |
- |
(5) |
(51) |
(56) |
|
|
Transfer of treasury shares to participants of the Incentive Plans |
- |
27 |
- |
- |
- |
(27) |
- |
- |
- |
- |
|
|
Share-based payments |
- |
- |
8 |
- |
- |
- |
- |
8 |
- |
8 |
|
|
Dividends declared by the parent entity to its shareholders |
- |
- |
- |
- |
- |
(577) |
- |
(577) |
- |
(577) |
|
|
At 30 June 2019 |
$ 75 |
$ (169) |
$ 2,488 |
$ 109 |
$ - |
$ 2,731 |
$ (3,198) |
$ 2,036 |
$ 256 |
$ 2,292 |
|
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 2020
1. Corporate Information
These interim condensed consolidated financial statements were authorised for issue by the Board of Directors of EVRAZ plc on 5 August 2020.
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 2020 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
These interim condensed consolidated financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 "Interim Financial Reporting", as adopted by the European Union. Accordingly, these interim condensed consolidated financial statements do not include all the information and disclosures required for a complete set of financial statements, and should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 December 2019, which were prepared in accordance with International Financial Reporting Standards, as adopted by the European Union.
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 2019 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 2020 are not necessarily indicative of the results that may be expected for the year ending 31 December 2020.
Going Concern
These interim condensed consolidated financial statements have been prepared on a going concern basis.
The Group's financial position at 30 June 2020 including its cash flows, liquidity position and borrowing facilities are set out in the Financial Review section. The Group's net debt as at 30 June 2020 was $3,733 million (31 December 2019: $3,445 million) and its cash plus committed undrawn facilities were $2,296 million (31 December 2019: $1,870 million).
2. Significant Accounting Policies (continued)
Basis of Preparation (continued)
Going Concern (continued)
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 were relatively unaffected with no significant issues for production, supply or shipments. Over the going concern period, we will continue to focus on operations amid signs of a recovery in demand and, therefore, prices in key markets. Furthermore, management has already taken actions to increase its liquidity with a new (undrawn) syndicated facility of $750 million having been secured with a view to the scheduled debt repayments of the same amount in 2021 (Note 12).
The management of EVRAZ plc has considered the Group's cash flow forecasts for the period to 31 December 2021 and has performed various scenario analysis, including base, pessimistic and stress downside testing scenarios. This considered the possible impacts of the COVID-19 crisis on the financial results and liquidity position of the Group.
In the most pessimistic stress scenario, which assumed results lower than the Group has ever had since listing in 2005 with prices for steel, iron ore and coal all significantly below management's current forecasts, the Group maintained sufficient liquidity and would be able to operate within its debt covenants for the period to 31 December 2021. The Group does not reasonably anticipate that the most pessimistic stress scenario will occur, given the relatively limited impacts on the Group's businesses to date and the signs of a recovery in key markets.
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.
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 2019, except for the adoption of new standards and interpretations and revision of existing IAS as of 1 January 2020.
New/Revised Standards and Interpretations Adopted in 2020
§ Amendments to IFRS 3: Definition of a Business
The amendment to IFRS 3 "Business Combinations" clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial statements of the Group, but may impact future periods should the Group enter into any business combinations.
§ Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform
The amendments to IFRS 9 and IAS 39 "Financial Instruments: Recognition and Measurement" provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and or amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments had no material impact on the consolidated financial statements of the Group.
2. Significant Accounting Policies (continued)
Changes in Accounting Policies (continued)
New/Revised Standards and Interpretations Adopted in 2020 (continued)
§ Amendments to IAS 1 and IAS 8: Definition of Material
The amendments provide a new definition of material that states "information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity." The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the consolidated financial statements of the Group.
§ Amendments to References to the Conceptual Framework in IFRS Standards
The revised Conceptual Framework includes some new concepts, provides updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts. These amendments had no impact on the consolidated financial statements of the Group.
3. Segment Information
The following tables present measures of segment profit or loss based on management accounts.
Six-month period ended 30 June 2020
|
US$ million |
Steel |
Steel, North America |
Coal |
Other operations |
Eliminations |
Total |
|
Revenue |
|
|
|
|
|
|
|
Sales to external customers |
$ 3,392 |
$ 1,028 |
$ 498 |
$ 65 |
$ - |
$ 4,983 |
|
Inter-segment sales |
41 |
- |
283 |
141 |
(465) |
- |
|
Total revenue |
3,433 |
1,028 |
781 |
206 |
(465) |
4,983 |
|
|
|
|
|
|
|
|
|
Segment result - EBITDA |
$ 919 |
$ (19) |
$ 206 |
$ 9 |
$ 17 |
$ 1,132 |
Six-month period ended 30 June 2019
|
US$ million |
Steel |
Steel, North America |
Coal |
Other operations |
Eliminations |
Total |
|
Revenue |
|
|
|
|
|
|
|
Sales to external customers |
$ 4,371 |
$ 1,315 |
$ 266 |
$ 106 |
$ - |
$ 6,058 |
|
Inter-segment sales |
162 |
- |
693 |
151 |
(1,006) |
- |
|
Total revenue |
4,533 |
1,315 |
959 |
257 |
(1,006) |
6,058 |
|
|
|
|
|
|
|
|
|
Segment result - EBITDA |
$ 884 |
$ 68 |
$ 564 |
$ 9 |
$ (29) |
$ 1,496 |
In the 1st half of 2020, chief operating decision makers ceased to review the amounts of revenue reported by managements accounts. Instead of them, the revenue based on IFRS is used for performance analysis. The comparative information for the six-month period ended 30 June 2020 has not been restated since it contains currently used IFRS measures.
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 2020
|
US$ million |
Steel |
Steel, North America |
Coal |
Other operations |
Eliminations |
Total |
|
Revenue per IFRS financial statements |
$ 3,433 |
$ 1,028 |
$ 781 |
$ 206 |
$ (465) |
$ 4,983 |
|
|
|
|
|
|
|
|
|
EBITDA |
$ 919 |
$ (19) |
$ 206 |
$ 9 |
$ 17 |
$ 1,132 |
|
Unrealised profits adjustment |
(26) |
- |
2 |
- |
- |
(24) |
|
Reclassifications and other adjustments |
23 |
(2) |
10 |
(1) |
- |
30 |
|
|
(3) |
(2) |
12 |
(1) |
- |
6 |
|
EBITDA based on IFRS financial statements |
$ 916 |
$ (21) |
$ 218 |
$ 8 |
$ 17 |
$ 1,138 |
|
Unallocated subsidiaries |
|
|
|
|
|
(65) |
|
|
|
|
|
|
|
$ 1,073 |
|
|
|
|
|
|
|
|
|
Social and social infrastructure maintenance expenses |
(12) |
- |
(1) |
- |
- |
(13) |
|
Depreciation, depletion and amortisation expense |
(123) |
(72) |
(100) |
(3) |
- |
(298) |
|
Impairment of non-financial assets |
(3) |
(105) |
- |
- |
- |
(108) |
|
Loss on disposal of property, plant and equipment and intangible assets |
2 |
(1) |
- |
- |
- |
1 |
|
Foreign exchange gains/(losses), net |
28 |
(39) |
73 |
- |
- |
62 |
|
|
808 |
(238) |
190 |
5 |
17 |
717 |
|
Unallocated income/(expenses), net |
|
|
|
|
|
174 |
|
Profit/(loss) from operations |
|
|
|
|
|
$ 891 |
|
|
|
|
|
|
|
|
|
Interest income/(expense), net |
|
|
|
|
|
(164) |
|
Share of profits/(losses) of joint ventures and associates |
|
|
|
|
|
3 |
|
Gain/(loss) on financial assets and liabilities |
|
|
|
|
|
(40) |
|
Gain/(loss) on disposal groups classified as held for sale, net |
|
|
|
|
|
1 |
|
Other non-operating gains/(losses), net |
|
|
|
|
|
9 |
|
Profit/(loss) before tax |
|
|
|
|
|
$ 700 |
3. Segment Information (continued)
Six-month period ended 30 June 2019
|
US$ million |
Steel |
Steel, North America |
Coal |
Other operations |
Eliminations |
Total |
|
Revenue |
$ 4,533 |
$ 1,315 |
$ 959 |
$ 257 |
$ (1,006) |
$ 6,058 |
|
Reclassifications and other adjustments |
(374) |
1 |
169 |
(8) |
294 |
82 |
|
Revenue per IFRS financial statements |
$ 4,159 |
$ 1,316 |
$ 1,128 |
$ 249 |
$ (712) |
$ 6,140 |
|
|
|
|
|
|
|
|
|
EBITDA |
$ 884 |
$ 68 |
$ 564 |
$ 9 |
$ (29) |
$ 1,496 |
|
Unrealised profits adjustment |
21 |
(2) |
7 |
- |
42 |
68 |
|
Reclassifications and other adjustments |
44 |
(6) |
(53) |
- |
- |
(15) |
|
|
65 |
(8) |
(46) |
- |
42 |
53 |
|
EBITDA based on IFRS financial statements |
$ 949 |
$ 60 |
$ 518 |
$ 9 |
$ 13 |
$ 1,549 |
|
Unallocated subsidiaries |
|
|
|
|
|
(67) |
|
|
|
|
|
|
|
$ 1,482 |
|
|
|
|
|
|
|
|
|
Social and social infrastructure maintenance expenses |
(8) |
- |
(2) |
- |
- |
(10) |
|
Depreciation, depletion and amortisation expense |
(118) |
(70) |
(78) |
(3) |
- |
(269) |
|
Impairment of non-financial assets |
(14) |
(1) |
(2) |
- |
- |
(17) |
|
Loss on disposal of property, plant and equipment and intangible assets |
- |
3 |
(1) |
- |
- |
2 |
|
Foreign exchange gains/(losses), net |
(23) |
37 |
(24) |
5 |
- |
(5) |
|
|
786 |
29 |
411 |
11 |
13 |
1,183 |
|
Unallocated income/(expenses), net |
|
|
|
|
|
(270) |
|
Profit/(loss) from operations |
|
|
|
|
|
$ 913 |
|
|
|
|
|
|
|
|
|
Interest income/(expense), net |
|
|
|
|
|
(166) |
|
Share of profits/(losses) of joint ventures and associates |
|
|
|
|
|
5 |
|
Impairment of non-current financial assets |
|
|
|
|
|
(56) |
|
Gain/(loss) on financial assets and liabilities |
|
|
|
|
|
(7) |
|
Other non-operating gains/(losses), net |
|
|
|
|
|
1 |
|
Profit/(loss) before tax |
|
|
|
|
|
$ 690 |
In the six-month period ended 30 June 2020 and 2019, the Group recognised an allowance for net realisable value of inventory in the amount of $Nil and $32 million, respectively.
The material changes in property, plant and equipment during the six-month period ended 30 June 2020 other than those disclosed above are presented below:
|
US$ million |
Steel |
Steel, North America |
Coal |
Other operations |
Unallocated |
Total |
|
Additions |
$ 187 |
$ 46 |
$ 110 |
$ - |
$ 1 |
$ 344 |
The material changes in property, plant and equipment during the six-month period ended 30 June 2019 were as follows:
|
US$ million |
Steel |
Steel, North America |
Coal |
Other operations |
Unallocated |
Total |
|
Additions |
$ 138 |
$ 45 |
$ 106 |
$ 1 |
$ - |
$ 290 |
|
IFRS 16 adoption: recognition of right-of-use assets |
65 |
52 |
1 |
2 |
- |
120 |
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 |
2020 |
2019 |
|
|
|
|
|
Steel |
|
|
|
Construction products |
$ 939 |
$ 1,059 |
|
Flat-rolled products |
68 |
204 |
|
Railway products |
593 |
554 |
|
Semi-finished products |
1,233 |
1,206 |
|
Other steel products |
170 |
178 |
|
Other products |
125 |
193 |
|
Iron ore |
63 |
124 |
|
Vanadium in slag |
31 |
67 |
|
Vanadium in alloys and chemicals |
133 |
343 |
|
Rendering of services |
37 |
56 |
|
|
3,392 |
3,984 |
|
Steel, North America |
|
|
|
Construction products |
93 |
115 |
|
Flat-rolled products |
152 |
302 |
|
Railway products |
173 |
205 |
|
Tubular products |
452 |
542 |
|
Other products |
141 |
136 |
|
Rendering of services |
17 |
16 |
|
|
1,028 |
1,316 |
|
Coal |
|
|
|
Coal |
483 |
724 |
|
Other products |
5 |
8 |
|
Rendering of services |
10 |
11 |
|
|
498 |
743 |
|
Other operations |
|
|
|
Rendering of services |
65 |
97 |
|
|
|
|
|
|
$ 4,983 |
$ 6,140 |
In the six-month periods ended 30 June 2020 and 2019 revenue from rendering of services included rental income of $13 million and $14 million, respectively.
3. Segment Information (continued)
Distribution of the Group's revenues by geographical area based on the location of customers was as follows:
|
|
Six-month period ended 30 June |
|
|
US$ million |
2020 |
2019 |
|
|
|
|
|
CIS |
|
|
|
Russia |
$ 1,848 |
$ 2,152 |
|
Kazakhstan |
151 |
134 |
|
Ukraine |
31 |
194 |
|
Others |
127 |
146 |
|
|
2,157 |
2,626 |
|
America |
|
|
|
USA |
638 |
1,031 |
|
Canada |
391 |
347 |
|
Mexico |
15 |
41 |
|
Others |
9 |
32 |
|
|
1,053 |
1,451 |
|
Asia |
|
|
|
China |
524 |
147 |
|
Taiwan |
242 |
366 |
|
Philippines |
191 |
184 |
|
Indonesia |
137 |
116 |
|
Republic of Korea |
133 |
149 |
|
Japan |
47 |
167 |
|
Thailand |
29 |
169 |
|
Others |
201 |
140 |
|
|
1,504 |
1,438 |
|
Europe |
|
|
|
European Union |
150 |
468 |
|
Turkey |
57 |
94 |
|
Others |
5 |
14 |
|
|
212 |
576 |
|
Africa |
|
|
|
Kenya |
34 |
15 |
|
Egypt |
5 |
25 |
|
Others |
17 |
7 |
|
|
56 |
47 |
|
Other countries |
1 |
2 |
|
|
$ 4,983 |
$ 6,140 |
4. Changes in Composition of the Group
Purchase of Non-controlling Interests
In the six-month period ended 30 June 2020, the Group acquired an additional 2.3% ownership interest in Raspadskaya, a subsidiary of the Group, 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.
4. Changes in Composition of the Group (continued)
Purchase of Non-controlling Interests (continued)
In the six-month period ended 30 June 2019, the Group acquired an additional 0.69% ownership interest in Raspadskaya, a subsidiary of the Group, for cash consideration of $10 million. The excess of consideration over the carrying values of non-controlling interests acquired amounting to $1 million was charged to accumulated profits.
In addition, in June 2019 Raspadskaya purchased its own shares in course of the tender offer for cash consideration of $46 million. The Group derecognised 2.53% of non-controlling interests and charged to accumulated profits $4 million representing the excess of consideration over the carrying values of non-controlling interests acquired.
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 $39 million of cash consideration, which was unpaid at 30 June 2020.
5. Impairment of Non-current Assets
For the purpose of the impairment testing as of 30 June 2020 the Group assessed the recoverable amount of each cash-generating unit ("CGU") where indicators of impairment were identified. Also the Group performed an analysis of its property, plant and equipment for functional obsolescence.
The recoverable amount has been determined based on a value-in-use calculation using cash flow projections based on the actual operating results and business plans approved by management and appropriate discount rates reflecting the time value of money and risks associated with respective cash-generating units. For the periods not covered by management business plans, cash flow projections have been estimated by extrapolating the respective business plans' results using a zero real growth rate. The key assumptions used by management in the impairment tests with respect to the cash-generating units where indicators of impairment existed are presented in the table below.
|
|
Period of forecast, years |
Pre-tax discount rate, % |
Commodity |
Average price of commodity per tonne in the 2nd half of 2020 |
Average price of commodity per tonne in 2021 |
Recoverable amount of CGU, US$ million |
Carrying amount of CGU before impairment, US$ million |
|
|
|
|
|
|
|
|
|
|
Steel North America |
|
|
|
|
|
|
|
|
Large diameter pipes |
5 |
9.82 |
steel products |
$1,300 |
$1,085 |
444 |
543 |
|
Oil Country Tubular Goods |
5 |
10.03 |
steel products |
979 |
1,171 |
432 |
343 |
|
Long products |
5 |
10.53 |
steel products |
733 |
789 |
720 |
530 |
|
Flat-rolled products |
5 |
10.58 |
steel products |
580 |
755 |
291 |
218 |
|
Seamless pipes |
5 |
12.61 |
steel products |
693 |
1,195 |
142 |
41 |
|
Raspadskaya |
5 |
13.74 |
coal mining |
38 |
49 |
1,613 |
745 |
5. Impairment of Non-current Assets (continued)
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. The value-in-use models are based on the expectation that the demand will recover in 2022.
The estimations of value in use are most sensitive to the following assumptions:
Discount Rates
Discount rates reflect the current market assessment of the risks specific to each cash-generating unit. The discount rates have been determined using the Capital Asset Pricing Model and analysis of industry peers. Reasonably possible changes in discount rates could lead to an additional impairment of the Large diameter pipes cash-generating unit. If the discount rates were 10% higher, this would lead to an additional impairment of $53 million.
Sales and Purchase Prices
The price assumptions of the products sold and purchased by the Group were estimated using industry research using analysts' views published by Citigroup, CRU, Credit Suisse, Goldman Sachs, Jefferies, JP Morgan, Morgan Stanley, RBC, Renaissance Capital, Sberbank, UBS, VTB and WSD during the period from April to June 2020. The Group expects that the nominal prices will grow with a compound annual growth rate of (8.3)%-2.5% in 2020 - 2024 and 2.0% in 2025 and thereafter. Reasonably possible changes in sales and purchase prices in the 2nd half of 2020 and 2021 could lead to an an additional impairment of the Large diameter pipes cash-generating unit. If the prices were 10% lower, this would lead to an additional impairment of $49 million.
Sales Volumes
Management assumed that the sales volumes of steel products would decrease by 22.1% in 2020 and future dynamics will be driven by gradual market recovery and changes in assets' capacities. Reasonably possible changes in sales volumes in the 2nd half of 2020 and 2021 could lead to an additional impairment of the Large diameter pipes cash-generating unit. If sales volumes were 10% lower, this would lead to an additional impairment of $1 million.
Cost Control Measures
The recoverable amounts of cash-generating units are based on the business plans approved by management. A reasonably possible deviation of cost from these plans could lead to an additional impairment of the Large diameter pipes cash-generating unit. If the actual costs were 10% higher than those assumed for the 2nd half of 2020 and 2021, this would lead to an additional impairment of $79 million.
Sensitivity Analysis
There were no cash-generating units, which were not impaired in the reporting period and for which any reasonably possible changes could lead to impairment. Consequently, information on changes in the assumptions used to measure the recoverable amounts that could lead that the recoverable amounts would become equal to their carrying amounts is not disclosed.
6. Income Taxes
Major components of income tax expense were as follows:
|
|
Six-month period ended 30 June |
|
|
US$ million |
2020 |
2019 |
|
Current income tax expense |
$ (300) |
$ (249) |
|
Adjustment in respect of income tax of previous years |
(6) |
(4) |
|
Deferred income tax benefit/(expense) relating to origination and reversal of temporary differences |
119 |
(93) |
|
|
|
|
|
Income tax expense reported in the consolidated statement of operations |
$ (187) |
$ (346) |
In the six-month period ended 30 June 2020 and 2019, deferred tax benefit/(expense) relating to the undistributed earnings of the Group's subsidiaries amounted to $22 million and $(84) million, respectively.
7. Property, Plant and Equipment
The movement in property, plant and equipment (including right-of-use assets) for the six-month period ended 30 June 2020 was as follows:
|
US$ million |
Land |
Buildings and constructions |
Machinery and equipment |
Transport and motor vehicles |
Mining assets |
Other assets |
Assets under construction |
Total |
|
At 31 December 2019, cost, net of accumulated depreciation |
$ 102 |
$ 956 |
$ 1,854 |
$ 169 |
$ 1,160 |
$ 9 |
$ 675 |
$ 4,925 |
|
Additions |
- |
- |
3 |
1 |
- |
- |
340 |
344 |
|
Assets put into operation |
- |
14 |
195 |
15 |
32 |
1 |
(257) |
- |
|
Disposals |
- |
(1) |
(3) |
- |
- |
- |
- |
(4) |
|
Depreciation and depletion charge |
- |
(38) |
(173) |
(24) |
(34) |
(1) |
- |
(270) |
|
Impairment losses recognised in statement of operations |
- |
- |
(35) |
- |
- |
- |
(5) |
(40) |
|
Impairment losses reversed through statement of operations |
- |
- |
- |
- |
- |
- |
1 |
1 |
|
Government grants |
- |
- |
- |
- |
- |
- |
(6) |
(6) |
|
Translation difference |
(5) |
(94) |
(155) |
(16) |
(135) |
- |
(57) |
(462) |
|
At 30 June 2020, cost, net of accumulated depreciation |
$ 97 |
$ 837 |
$ 1,686 |
$ 145 |
$ 1,023 |
$ 9 |
$ 691 |
$ 4,488 |
In the six-month periods ended 30 June 2020 and 2019, the depreciation expense relating to the right-of-use assets amounted to $15 million and $14 million, respectively, interest expense and payments relating to the lease liabilities amounted to $3 million and $4 million, respectively. At 30 June 2020 and 31 December 2019, the carrying value of the right-of-use assets amounted to $95 million and $115 million, respectively. They were mostly represented by Transport and motor vehicles and Machinery and equipment.
8. Investments in Joint Ventures and Associates
The movement in investments in joint ventures and associates during the six-month period ended 30 June 2020 was as follows:
|
US$ million |
Timir |
Streamcore |
Other associates |
Total |
|
At 31 December 2019 |
$ 17 |
$ 63 |
$ 12 |
$ 92 |
|
Share of profit/(loss) |
- |
2 |
1 |
3 |
|
Dividends |
- |
- |
(1) |
(1) |
|
Translation difference |
(2) |
(7) |
(1) |
(10) |
|
At 30 June 2020 |
$ 15 |
$ 58 |
$ 11 |
$ 84 |
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 |
||
|
US$ million |
2020 |
2019 |
2020 |
2019 |
|
|
|
|
|
|
|
Genalta Recycling Inc. |
$ - |
$ - |
$ 7 |
$ 7 |
|
Nakhodka Trade Sea Port |
- |
- |
37 |
38 |
|
Vtorresource-Pererabotka |
2 |
2 |
154 |
217 |
|
Yuzhny GOK |
3 |
20 |
- |
52 |
|
Other entities |
1 |
4 |
- |
- |
|
|
|
|
|
|
|
|
$ 6 |
$ 26 |
$ 198 |
$ 314 |
Amounts owed by/to related parties were as follows:
|
|
Amounts due from |
Amounts due to |
||
|
US$ million |
30 June |
31 December 2019 |
30 June |
31 December 2019 |
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
Timir |
$ 9 |
$ 9 |
$ - |
$ - |
|
|
|
|
|
|
|
Sale of investments |
|
|
|
|
|
Streamcore |
$ - |
$ - |
$ 5 |
$ 5 |
|
|
|
|
|
|
|
Trade balances |
|
|
|
|
|
Nakhodka Trade Sea Port |
- |
- |
7 |
7 |
|
Vtorresource-Pererabotka |
- |
1 |
60 |
5 |
|
Yuzhny GOK |
1 |
- |
1 |
1 |
|
Other entities |
- |
- |
2 |
1 |
|
|
10 |
10 |
|
19 |
|
Less: allowance for expected credit losses |
- |
- |
- |
- |
|
|
$ 10 |
$ 10 |
$ 75 |
$ 19 |
Compensation to Key Management Personnel
In the six-month periods ended 30 June 2020 and 2019, key management personnel totalled 28 and 30 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 |
2020 |
2019 |
|
|
|
|
|
Salary |
$ 7 |
$ 7 |
|
Performance bonuses |
4 |
7 |
|
Social security taxes |
2 |
3 |
|
Share-based payments |
5 |
4 |
|
|
$ 18 |
$ 21 |
10. Cash and Cash Equivalents
Cash and cash equivalents were denominated in the following currencies:
|
US$ million |
30 June 2020 |
31 December 2019 |
|
|
|
|
|
US dollar |
$ 1,027 |
$ 774 |
|
Euro |
182 |
484 |
|
Russian rouble |
146 |
134 |
|
Others |
9 |
31 |
|
|
$ 1,364 |
$ 1,423 |
The above cash and cash equivalents mainly consist of cash at banks.
11. Equity
Share Capital
|
Number of shares |
30 June 2020 |
31 December 2019 |
|
|
|
|
|
Issued and fully paid |
|
|
|
Ordinary shares of $0.05 each |
1,506,527,294 |
1,506,527,294 |
Treasury Shares
|
Number of shares |
30 June 2020 |
31 December 2019 |
|
|
|
|
|
Number of treasury shares |
49,654,691 |
54,620,233 |
Earnings per Share
Earnings per share are calculated by dividing the net income attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the potential dilutive ordinary shares into ordinary shares.
The following reflects the profit and share data used in the basic and diluted earnings per share computations:
|
|
Six-month period |
|
|
|
2020 |
2019 |
|
Weighted average number of ordinary shares outstanding during the period |
1,453,216,654 |
1,445,619,355 |
|
Effect of dilution: shares under Incentive plans |
8,770,537 |
15,457,701 |
|
Weighted average number of ordinary shares adjusted for the effect of dilution |
1,461,987,191 |
1,461,077,056 |
|
|
|
|
|
Profit for the period attributable to equity holders of the parent entity, US$ million |
$ 506 |
$ 313 |
|
Basic earnings per share |
$ 0.35 |
$ 0.22 |
|
Diluted earnings per share |
$ 0.35 |
$ 0.21 |
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 2020 were as follows:
|
Date of declaration |
To holders registered at |
Dividends declared, US$ million |
US$ per share |
|
|
|
|
|
|
26/02/2020 |
06/03/2020 |
581 |
0.40 |
|
|
|
|
|
12. Loans and Borrowings
Short-term and long-term loans and borrowings were as follows:
|
US$ million |
30 June 2020 |
31 December 2019 |
|
|
|
|
|
Bank loans |
$ 1,686 |
$ 1,404 |
|
|
|
|
|
US dollar-denominated |
|
|
|
8.25% notes due 2021 |
750 |
750 |
|
6.75% notes due 2022 |
500 |
500 |
|
5.375% notes due 2023 |
750 |
750 |
|
5.25% notes due 2024 |
700 |
700 |
|
|
|
|
|
Rouble-denominated |
|
|
|
12.60% rouble bonds due 2021 |
214 |
242 |
|
7.95% rouble bonds due 2024 |
286 |
323 |
|
|
|
|
|
Unamortised debt issue costs |
(19) |
(18) |
|
Interest payable |
87 |
88 |
|
|
|
|
|
|
$ 4,954 |
$ 4,739 |
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 1st half of 2020 the Group was in compliance with all financial and non-financial covenants.
12. Loans and Borrowings (continued)
The movement in loans and borrowings were as follows:
|
US$ million |
2020 |
2019 |
|
|
|
|
|
1 January |
$ 4,739 |
$ 4,563 |
|
|
|
|
|
Cash changes: |
|
|
|
Cash proceeds from bank loans and notes, net of debt issues costs |
921 |
1,233 |
|
Repayment of bank loans and notes, including interest |
(778) |
(1,642) |
|
Net proceeds from/(repayment of) bank overdrafts and credit lines, including interest |
(26) |
2 |
|
|
|
|
|
Non-cash changes: |
|
|
|
Interest and other charges expensed |
147 |
148 |
|
Accrual of premiums and other charges on early repayment of borrowings |
- |
26 |
|
Effect of exchange rate changes |
(49) |
51 |
|
|
|
|
|
30 June |
$ 4,954 |
$ 4,381 |
Pledged Assets
The Group's pledged assets at carrying value included the following:
|
US$ million |
30 June 2020 |
31 December 2019 |
|
|
|
|
|
Property, plant and equipment |
$ 72 |
$ 72 |
|
Inventory |
476 |
512 |
Unutilised Borrowing Facilities
As of 30 June 2020, the Group had unutilised bank loans in the amount of $1,741 million, including $932 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 2020 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 $59 million.
Contractual Commitments
At 30 June 2020, the Group had contractual commitments for the purchase of production equipment and construction works for an approximate amount of $303 million.
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 2020, the Group has committed expenditure of $520 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 $386 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 $359 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 addition, Air Liquide will construct the system of trunk and auxiliary pipelines, distribution stations and other equipment for products delivery, which will be leased by the Group for a period of 20 years and accounted for under IFRS 16. The cost of construction of the products delivery system is estimated at $93 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 $12 million under these programmes in the second half of 2020.
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 2020 amounted to $16 million. Preliminary estimates of the incremental costs indicate that such costs could be up to $186 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 $16 million relates to the accrued environmental provision and has been recognised in non-current financial assets and current receivables at 30 June 2020. 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 2020 to 2025, under which it will perform works aimed at reductions in environmental pollution and contamination. As of 30 June 2020, the costs of implementing these programmes are estimated at $253 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 2020, possible liabilities were estimated at $20 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 ($476 million at the exchange rate as of 30 June 2019) to nine companies owned by Sibuglemet in respect of management services provided by one the Group's subsidiaries to these entities. Sibuglemet is a producer of coking coal and operator of coal refineries in the Kemerovo region of Russia. The management company committed to perform all management functions including, inter alia, all the decisions required to carry out the day-to-day operations of these coal companies, their investment and procurement activities. The maturity of the guarantee was set for 31 December 2030.
In May 2020, the Group issued a notification about termination of the management services contract from 15 November 2020. The guarantee will continue to be effective 3 years after the date of termination.
14. Fair Value of Financial Instruments
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
§ Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities;
§ Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and
§ Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data (unobservable inputs).
The carrying amounts of financial instruments, such as cash, short-term and long-term investments, short-term and long-term accounts receivable, short-term accounts payable, short-term loans receivable and payable and floating-rate bank loans, approximate their fair value.
The Group held the following financial instruments measured at fair value:
|
|
30 June 2020 |
31 December 2019 |
||||
|
US$ million |
Level 1 |
Level 2 |
Level 3 |
Level 1 |
Level 2 |
Level 3 |
|
|
|
|
|
|
|
|
|
Assets measured at fair value |
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
- |
5 |
- |
- |
17 |
- |
|
|
|
|
|
|
|
|
|
Liabilities measured at fair value |
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments |
- |
32 |
- |
- |
6 |
- |
14. Fair Value of Financial Instruments (continued)
The following table shows fair values of the Group's bonds and notes.
|
US$ million |
30 June 2020 |
31 December 2019 |
||
|
|
Carrying amount |
Fair value |
Carrying amount |
Fair value |
|
|
|
|
|
|
|
USD-denominated |
|
|
|
|
|
8.25% notes due 2021 |
$ 777 |
$ 806 |
$ 776 |
$ 825 |
|
6.75% notes due 2022 |
516 |
548 |
513 |
555 |
|
5.375% notes due 2023 |
760 |
814 |
759 |
819 |
|
5.25% notes due 2024 |
706 |
770 |
705 |
770 |
|
|
|
|
|
|
|
Rouble-denominated |
|
|
|
|
|
12.60% rouble bonds due 2021 |
222 |
232 |
250 |
268 |
|
7.95% rouble bonds due 2024 |
295 |
314 |
333 |
346 |
|
|
|
|
|
|
|
|
$ 3,276 |
$ 3,484 |
$ 3,336 |
$ 3,583 |
The fair value of the non-convertible bonds and notes was determined based on market quotations (Level 1).
15. Subsequent Events
Dividends
On 5 August 2020, the Board of directors of EVRAZ plc declared dividends in the amount of $291 million, which represents $0.20 per share.
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