TIDMEVR
RNS Number : 0967C
Evraz Plc
11 April 2013
EVRAZ ANNOUNCES PRELIMINARY AUDITED FINANCIAL RESULTS FOR
2012
11 April 2013 - EVRAZ plc ("EVRAZ" or "the Company") (LSE: EVR)
today announces its preliminary audited results for the year ended
31 December 2012 ("the Period").
The financial information contained in this document for the
year ended 31 December 2012 does not constitute statutory accounts
as defined in section 435 of the Companies Act 2006. The audited
statutory accounts for the year ended 31 December 2011 have been
delivered to the Registrar of Companies and those for 2012 will be
delivered following the Company's annual general meeting convened
for 13 June 2013.
The auditor has reported on the statutory accounts for year
ended 31 December 2012. The auditor's report was unqualified.
2012 HIGHLIGHTS
Alexander Frolov, CEO commented on the financial results of
EVRAZ: "The year 2012 was characterised by challenging trading
conditions for the global steelmaking industry. Although some
recovery was seen during the first half of the year, there was a
significant deterioration in sentiment towards the year end. As a
result, steel and raw material markets remained highly volatile
with global steel industry capacity experiencing substantial
underutilisation.
"The subdued steel and raw materials pricing environment
impacted EVRAZ's financial performance. Although the Company
demonstrated respectable operating results, we experienced a 10%
decline in revenues to US$14,726 million against 2011, while EBITDA
was 31% lower at US$2,012 million."
Full year to 31 December
(US$ million) 2012 2011 Change
-------------------------- ----------------- ----------------- --------
Consolidated revenue 14,726 16,400 (10.2)%
-------------------------- ----------------- ----------------- --------
Consolidated EBITDA 2,012 2,898 (30.6)%
-------------------------- ----------------- ----------------- --------
Net profit/(Loss) (335) 453 n.a.
-------------------------- ----------------- ----------------- --------
Earnings/(loss) per
share, (US$) (0.23) 0.36 n.a.
-------------------------- ----------------- ----------------- --------
Operating cash flow 2,143 2,647 (19.0)%
-------------------------- ----------------- ----------------- --------
CAPEX 1,261 1,281 (1.6)%
-------------------------- ----------------- ----------------- --------
31 December 2012 31 December 2011
-------------------------- ----------------- ----------------- --------
Net debt(1) 6,184 6,442 (4.0)%
-------------------------- ----------------- ----------------- --------
Total assets 17,777 16,975 4.7%
-------------------------- ----------------- ----------------- --------
(1) Hereinafter debt and cash balances include the amounts held
at operations that were classified as assets/liabilities held for
sale, which were separately presented in the statement of financial
position as of 31 December 2012, and include US$70 million of cash
and cash equivalents and US$79 million of debt.
Steel:
-- Crude steel production 15.9 million tonnes (-5% vs. 2011)
-- Total external sales of steel products 15.3 million tonnes (-1%)
-- Steel segment revenue US$13,543 million (-8%)
Mining:
-- Production of saleable iron ore products 20.8 million tonnes (-2%)
-- Raw coking coal production 8.5 million tonnes (+35%)
-- Raw steam coal production 2.3 million tonnes (-23%)
Vanadium:
-- Primary vanadium production (vanadium in slag) 21,060 tonnes (+2%)
-- External vanadium product sales volumes 21,100 tonnes (-21%)
-- Vanadium segment revenue US$520 million (-22%)
Investments:
-- Capital expenditure of US$1,261 million (vs. US$1,281 million in 2011)
-- Rail mill modernisation at EVRAZ ZSMK completed
-- PCI project at EVRAZ NTMK completed while construction works on PCI at EVRAZ ZSMK continued
-- Capacity and product mix expansion in the North American tubular and rail sectors
-- Yerunakovskaya VIII coking coal mine launched in February 2013
M&A developments:
-- Acquisition of a controlling interest in Raspadskaya coal
mining company in January 2013 for US$964 million, satisfied
through equity and cash consideration, bringing effective interest
to 82%
-- Sale of EvrazTrans for US$306 million cash consideration
while securing long-term railway transportation needs of Russian
operations
-- Executed non-binding term sheet for potential sale of EVRAZ Highveld in March 2013
-- Acquired 51% stake in Timir iron ore project from Alrosa in April 2013 for ca. US$160 million
Debt and liquidity:
-- Net debt US$ 6,184 million vs. US$6,442 million as at 31 December 2011
-- Cash and deposits US$2,064 million
-- Placed US$600 million 5-year Eurobonds and US$250 million ECP
-- Secured project financing of US$195 million for Mezhegey coking coal project
-- Deleted maintenance covenant in the 2015 Eurobond issue. No
public debt remains with maintenance covenants
-- Agreed amendments to financial covenants in banking debt
Corporate developments:
-- Adoption of a new Code of Business Conduct and the Group's
anticorruption policies and initiatives to ensure compliance with
the UK Bribery Act
-- Alexander Izosimov appointed as Independent Non-Executive Director
-- Enhanced composition of the Audit and Remuneration Committees
towards the goal of best corporate governance practice
-- Inclusion in MSCI UK and MSCI World Indices in May 2012
Dividends:
-- Interim dividend of 11 cents per share
-- The Board has recommended not to pay a final dividend for
2012 due to the deterioration in the market environment, and
consequently our performance, in H2 2012
CHAIRMAN'S STATEMENT
The year 2012 proved to be another challenging phase for the
global steelmaking industry which operated in a highly uncertain
and volatile environment. Despite this, EVRAZ delivered creditable
operational and financial results which serve to illustrate the
intrinsic resilience of the Company.
Corporate Governance
Since our admission to the FTSE 100 in December 2011, we have
undertaken a number of initiatives to further strengthen our
corporate governance. These include the adoption of a new Code of
Business Conduct which is currently being embedded across the
Group, together with specific anti-corruption policies and
initiatives designed to ensure compliance with the UK Bribery Act,
including improved training and the implementation of refined
internal procedures for employees.
Furthermore, we have strengthened our Board with the appointment
of Alexander Izosimov as an independent non-executive director in
February 2012, thereby increasing the ratio of independent
directors on the Board to 50%. We have also introduced changes to
the composition of the Audit and Remuneration Committees in order
to accommodate a better representation of independent non-executive
directors.
I have every confidence that the professional experience,
leadership skills, integrity and balance of interests reflected in
the membership of the current Board and Committees represents the
right blend to promote the development of the Company and set
ambitious challenges for management.
As the Chairman of the Board I fully recognise the importance of
ensuring that my fellow Directors understand and take into account
the views of our investors while deliberating Board decisions. In
order to facilitate and strengthen the relations and communication
between shareholders and the Board, Sir Michael Peat, our Senior
Independent Non-Executive Director, began a programme of proactive
communications with our major investors. In particular, Sir Michael
has held a number of meetings with representatives of large
investment funds which have been mandated to vote and/or engage in
dialogue on behalf of investment institutions on matters related to
corporate governance and sustainability.
Health, Safety and Environment ("HSE")
Regretfully, the number of fatalities increased in the reporting
year despite our focus and ongoing investment in safety programmes.
Sadly, there have also been some additional fatalities since the
beginning of the year. This experience reinforces my view that the
Board still has much to do to drive the all-important changes to
mindsets and safety culture within our operations. We remain
committed to further improvements in the Company's HSE policies
alongside increased training for employees and a continuation of
our zero-tolerance policy with regard to non-compliance with safety
rules. Led by the Board's HSE Committee, we have already drawn up
additional programmes to mitigate the risk of such accidents in the
future and the Board will continue to provide leadership in this
area, monitoring HSE performance and working closely with
management.
Furthermore we are fostering and overseeing a programme which
will result in a more comprehensive level of non-financial
reporting, including the publication of greenhouse gas emissions in
anticipation of the introduction of the new UK regulation. Our
intention is to create a sound platform designed to ensure
responsible and sustainable development on the part of the
Company.
Strategy
The Board's priorities in the prevailing business climate remain
to preserve the Company's long-term competitive advantages and
protect shareholder value in the face of diverse potential
macroeconomic scenarios. Having reviewed and refined our strategic
development plan we chose to concentrate our efforts on programmes
designed to promote operational excellence at existing facilities,
while adhering to strict capital disciplines with regard to new
projects.
We are approaching the conclusion of a major modernisation
programme at our Russian steelmaking facilities and are currently
commissioning a number of mining projects.
One of the principal highlights related to the purchase of a
controlling interest in the Raspadskaya coking coal company, a
transaction that establishes EVRAZ as the largest producer of
coking coal in Russia. The approximately US$964 million
acquisition, which will yield major benefits through enhanced
vertical integration, was primarily funded through equity, thereby
avoiding a commensurate cash outflow. The transaction was
successfully completed in mid-January 2013. A key objective for the
Board during 2013 is to ensure the smooth integration of
Raspadskaya into EVRAZ's operating model and to maximise the
operational synergies.
We constantly monitor the progress of major investment projects
versus initial expectations and external market factors, a process
that allows us to maintain flexibility in conjunction with our long
term approach of sustaining a balance between financial stability,
growth and shareholder returns.
In addition, management continued to focus on streamlining our
business model and assessing options designed to increase free cash
flow. In line with this, we disposed of EvrazTrans, a transport
subsidiary, to a third party for cash consideration of
approximately US$306 million. This divestment enabled us to exit
from a non-core asset while securing our transportation needs for
the foreseeable future on attractive terms. The Board intends to
pursue further attractive opportunities to improve return on
capital employed. We gave careful consideration to the performance
of our assets and the strategic options available and decided to
classify certain underperforming assets as assets-held-for-sale,
namely EVRAZ Vitkovice Steel and EVRAZ Highveld Steel and Vanadium,
thereby paving the way for ongoing options. In March 2013 we made
the next step in this process by announcing the execution of a
non-binding term sheet on the sale of our stake in EVRAZ Highveld
to a consortium of South African investors.
Dividends
In 2012, EVRAZ continued to make dividend payments in line with
the Company's stated dividend policy of targeting a long-term
average dividend payout ratio of at least 25% of consolidated net
profit adjusted for non-recurring items. In July 2012, following
shareholder approval at the AGM,
EVRAZ paid a final dividend in respect of 2011 in the amount of
17 cents per share (US$228 million in total). In addition, in
August 2012, EVRAZ's Board declared an interim dividend of 11 cents
per share (US$147 million in total) based on the results for the
first half of 2012. The Board, having reviewed the results in
respect of the financial year to 31 December 2012 and after taking
into account the substantial deterioration in the respective prices
of steel and steel raw materials towards the year-end, has decided
to forgo the recommendation of a final dividend in respect of 2012
in order to preserve the financial standing of the Company and
provide greater flexibility to manage the current market
environment.
EVRAZ's 20th Anniversary
Two decades ago my partners and I set up a small trading house
which has evolved into one of the largest global steelmaking
companies in the world with operations spanning four continents and
seven countries. The scale of growth and the success of the Company
would have been inconceivable had it not been for the hard work and
dedicated support of our stakeholders - shareholders, employees,
clients and trading partners. I would like to take this opportunity
to express the Board's sincere appreciation and congratulate you
all on this shared anniversary. I am confident that the Company is
well placed to continue to deliver value to all stakeholders
through the delivery of operational excellence and sound financial
results.
Alexander Abramov
Chairman of the Board
EVRAZ plc
Chief Executive Officer's Report
The year 2012 was characterised by challenging trading
conditions for the global steelmaking industry. Although some
recovery was seen during the first half of the year, there was a
significant deterioration in sentiment towards the year end. As a
result, steel and raw material markets remained highly volatile
with global steel industry capacity experiencing substantial
underutilisation.
The subdued steel and raw materials pricing environment impacted
EVRAZ's financial performance. Although the Company demonstrated
respectable operating results, we experienced a 10% decline in
revenues to US$14,726 million against 2011, while EBITDA was 31%
lower at US$2,012 million.
Overview of Health, Safety and Environmental performance
Throughout 2012 we brought a strong focus to bear on safety and
risk management but, although we have made some progress in this
area over recent years, we still have a long way to go.
In order to improve the accuracy of our statistics in respect of
lost time incidents we pursued a rigorous policy of zero-tolerance
with regard to the concealment and/or misrepresentation of health
and safety incidents throughout the year. Although the Lost Time
Injury Frequency Rate indicator showed an increase in 2012 compared
with 2011, we believe that this partly reflected the consequent
increase in reporting activity. However, I am firmly of the opinion
that the efforts brought to bear by management on health and safety
issues, typified by an intensified focus on the thorough
investigation of all incidents prior to the implementation of
necessary corrective actions across the Group, will ultimately lead
to sustainable improvement in this area.
Tragically, we recorded 25 separate fatal accidents at our
operations in 2012 and 6 more since the beginning of 2013. We
continue to implement additional training and improve our HSE
culture to ensure that relevant issues are addressed in a timely
and adequate manner. The underlying causes of any accidents are now
evaluated and shortcomings addressed on a more consistent basis,
with the ultimate objective of operating a zero harm environment.
Our current priority is to appreciably heighten our employees'
awareness and understanding of HSE issues at all levels.
2012 market environment and business performance
During 2012 the global macro environment remained highly
imbalanced and uncertain in both the emerging and developed
markets. Many countries faced deep financial issues, encompassing
the sovereign debt crisis and economic difficulties in the
Eurozone, uncertainty in relation to the fiscal cliff in the US and
a slowdown in the Chinese economy, particularly during the second
half of the year, all of which weighed on world markets. As a
result, overall world economic growth decelerated in the reporting
year.
The negative macro sentiment affected almost all commodity
markets, with the steel market proving no exception. The demand
outlook for steel products deteriorated substantially during the
course of the year. Volatility in steelmaking raw material prices
promoted caution and led to destocking on the part of market
participants.
As a result of these factors, a promising start to 2012 gave way
to a year characterised by challenges and we are therefore cautious
about near-term prospects. However, EVRAZ's strong competitive cost
base, superior operating efficiency and flexible investment
programme enable me to view the Company's long-term outlook with
confidence.
Steel segment
Global steel prices continued to soften throughout much of 2012
with steel demand subdued as a result of the uncertain
macroeconomic environment. Despite this, we continued to run our
Russian and North American steelmaking facilities at high levels of
utilisation due to the cost efficient nature of our operations and
the resilience of some of our niche products.
EVRAZ derives significant benefits from its ability to adjust
production plans and strategically adapt output to meet market
conditions. The location of key steelmaking facilities allows the
Company to efficiently deliver steel products to Russia, CIS, Asia
and Middle East regions, thus taking full advantage of a favourable
situation in a particular geographical market. In Russia we
decreased the ratio of export sales during 2012 in order to take
advantage of the ongoing momentum in steel demand from the domestic
construction industry.
Good progress was made in terms of our commercial objectives and
management's focus on maintaining our position as a low cost
producer was reflected in the ongoing implementation of pulverised
coal injection (PCI).
We also undertook a large scale modernisation programme in our
railway product group which necessitated the suspension of
operations at the EVRAZ ZSMK rail mill from April 2012 to January
2013. The rail mill is now fully operational and, as a result,
EVRAZ has increased its overall rail capacity in Russia to 1.5
million tonnes per annum and improved the quality and other
characteristics of the rails produced. In addition, we established
a separate division for railway products in order to concentrate
the operational and sales effort, as well as to focus on product
development in this important market.
We derive considerable benefits from the favourable locations of
our steel facilities in the Western US and Canada which allow us to
offer customers shorter lead times than competitors and save on
transportation costs. This proved particularly important during
2012 when demand in North America remained strong, especially for
rails, while regional prices for tubular products also held firm.
We have successfully implemented our expansion into high value
added steel products (such as head hardened rails, premium
connection OCTG tubes and heat treated seamless pipe) and we also
succeeded in increasing the internal supply of steel slabs in
Russia to serve our operations in Europe and North America.
Poor end-user sentiment continued to dominate European markets
as the weak economic outlook and financial uncertainty persisted
amid attempts to find a solution to the Eurozone debt crisis.
Our performance in South Africa during 2012 was negatively
impacted by industrial action, which interrupted production in
mid-year before giving way to a prolonged ramp up period. Overall
demand for steel in the African region proved sluggish. As part of
our continued effort to improve allocation of capital, we decided
to dispose of our South African steel operation - EVRAZ Highveld
and signed a non-binding term sheet in March 2013.
Mining segment
During the year we completed a number of significant initiatives
which, we believe, will secure cost efficient long-term supplies of
iron ore and coking coal for our core Russian steelmaking
facilities.
We achieved a solid performance in iron ore, reflected in
relatively flat production year-on-year, together with the
continuation of a high self-coverage ratio. The principal highlight
was the successful ramp up of EVRAZ KGOK to 56 million tonnes of
iron ore per annum (9.7 million tonnes of saleable products) -- the
lowest cost asset in the Company's iron ore mining portfolio. This
was accompanied by a number of initiatives designed to reduce costs
and optimise iron ore mining operations.
Coking coal production increased with our Yuzhkuzbassugol coal
mining subsidiary producing 8.5 million tonnes of raw coking coal
in 2012 compared with 6.3 million tonnes in 2011. This is the
result of continued management focus on operational improvements at
all of our coal mining operations.
Construction of the new Yerunakovskaya VIII coking coal mine,
which enjoys a nameplate capacity of 2.5 million tonnes of raw coal
per annum, was completed in 2012. We expect the mine, which was
commissioned in February 2013, to ramp up to full production in
2014.
We have also secured project financing for the development of
Phase I of the Mezhegey coal deposit which will serve to increase
EVRAZ's production of hard coking coal by a further 1.5 million
tonnes per annum. Mezhegey will produce superior quality hard
coking coal which is in short supply in the Kuzbass region of
Russia. In addition, Mezhegey benefits from a relatively low
methane content resulting in improved safety and cost
performance.
One of the major developments of 2012 was the agreement to
purchase a controlling interest in Raspadskaya, one of Russia's
largest independent coking coal companies, a transaction which
closed in January 2013. The consideration largely comprised EVRAZ
equity, a factor that served to lower cash outflow. I have every
confidence that the purchase of Raspadskaya will secure the
long-run low cost position of EVRAZ's coking coal business while,
at the same time, providing us with a strategic option to increase
volumes with relative ease. Consequent to the acquisition of
Raspadskya, EVRAZ's self-coverage in coking coal surpassed 100% and
our intention is to deliver excess coking coal production to the
market, while securing those grades of coal which are in deficit
for our operations.
Vanadium segment
In 2012 we continued to be the only major producer of vanadium
in Russia with an important share of the global market. Overall,
EVRAZ's vanadium business experienced a mixed year, with labour
issues in South Africa and shortages of third party feedstock in
the United States impacting negatively, while Russian operations
ran at full utilisation rates to meet demand.
Embedding a new culture throughout EVRAZ
We began the critical process of changing the Company's culture
through the introduction of the EVRAZ Business System ("EBS") in
2011. EBS represents a radical transformation of the way EVRAZ
conducts its business and I am delighted to report that we made
good progress in embedding this new methodology across our
operations in 2012.
By way of example, I would like to cite two pilot areas at EVRAZ
ZSMK which were chosen for the implementation of a new maintenance
system - a section in both the long product rolling mill and the
blooming mill - where more efficient organisation of work processes
resulted in enhanced productivity and savings on spare parts and
the optimisation of stocks which amounted, in total, to more than
RUB121 million (US$4 million).
Another successful example is EVRAZ KGOK, where the repair times
in certain shops were drastically reduced and productivity
improvement projects have led to savings of approximately RUB37
million (US$1.2 million).
Capital expenditure, debt position and liquidity
In 2012, capital expenditure totalled US$1.3 billion with
development capex mainly channelled to the development of the
Yerunakovskaya VIII mine (US$135 million), PCI projects at Russian
steelmaking facilities (US$109 million), the major rail mill
modernisation programme at EVRAZ ZSMK (US$143 million) and the
construction of mini-mills in the south of Russia and in Kazakhstan
(US$72 million).
As at the year end, our total debt amounted to US$8.2 billion
with cash of US$2.1 billion (including short-term deposits). This
allows us to comfortably fulfil scheduled redemptions of US$1.1
billion in 2013. The current liquidity position underpins the
manageable debt structure of the Company with the next major debt
maturities scheduled for Q4 2014.
Nevertheless, we continued to consider new funding options
during the year, including the US$195 million project finance loan
obtained for the development of the Mezhegey coal project Phase I.
The structure of this loan provides for proper risk mitigation in
respect of the enterprise, while enhancing the overall investment
profile of the Company.
During the year we also continued to streamline the structure of
our public debt covenants through the removal of a net leverage
ratio maintenance covenant under a Eurobond issue, which served to
align this issue with other Eurobond issues.
2013 Outlook
Despite a positive start to 2013 in certain international steel
markets we remain cautious with regard to the outlook for steel.
Notwithstanding some recent signs of stabilisation, global
prospects remain fragile, with strong downside risks and volatility
likely to persist throughout the year. As a result, both producers
and customers are waiting for clearer indications of sustainable
trends.
Due to our attractive position on the global cost curve, we
anticipate that our steelmaking facilities will continue to operate
at high utilisation rates and, as a result, we expect our steel
production volumes in 2013 to be broadly in line with the 2012
performance. Steel prices have been volatile since the beginning of
the year while iron ore price has grown moderately, coking coal
price stagnated. We are anticipating an uptick in the demand of
steel construction products in the Russian market as the new
construction season approaches.
Stock levels are well managed across our business. Export sales
volumes are currently booked for over one month's production and
inventories at traders and at our mills and ports remain low.
In 2013, we expect to reduce capex spending by ca. 10% vs. 2012,
as we approach the completion of key investment projects. The
Company maintains sufficient flexibility in its investment plans to
be able to respond adequately to a potential worsening of the macro
environment.
While we expect 2013 to continue to provide challenging
short-term risks, we are committed to investing in our future
growth by increasing mining volumes, improving our product mix and
reducing costs. Although the full benefit of these investments will
be realised in the medium to long-term, we anticipate some positive
impact in 2013.
EVRAZ's leaders were ambitious in their plans for the Company
when they founded the enterprise 20 years ago. Although the scale
of the Company's operations has grown considerably since then, we
retain the same ambitions to develop EVRAZ into one of the most
prominent steel producers in the world. EVRAZ enjoys a strong array
of inter-aligned assets which leaves us well positioned to achieve
our long-term objective of maximising shareholder value through a
balance of investment, financial stability and dividend
distributions. I would like to congratulate all our stakeholders on
this anniversary and thank each of you for your ongoing support for
the Company's management's efforts and development plans.
Alexander Frolov
Chief Executive Officer
EVRAZ plc
Financial Review
Giacomo Baizini, CFO commented: "The financial results for 2012
reflect the subdued steel pricing environment, however we have
managed to retain balance sheet flexibility and preserve our solid
liquidity position. While the business outlook for 2013 remains
challenging we continue to focus on efficiency improvements and the
optimisation of our asset portfolio."
Overview
As a result of a general weakness in the market for steel and
steelmaking raw materials, the Company recorded a net loss of
US$335 million for 2012, compared to a net profit of US$453 million
in 2011. Gross profit deteriorated as falling prices affected
revenue and we were also impacted by an impairment of US$413
million. Our EBITDA decreased 31% to US$2,012 million in 2012.
Cash flow generation was utilised in the continuing investment
to upgrade and maintain our operations, as well as to declare a
final dividend for 2011 and an interim dividend for the first half
of 2012. Free cash flow for the year was positive, and we increased
borrowings to prepare for the repayment of Rouble bonds and
Eurobonds due in 2013. As of 31 December 2012, the Company held
cash and short-term deposits for a total of US$2,064 million,
compared to short-term debt of US$1,862 million(2) .
((2) Hereinafter debt and cash balances include the amounts held
at operations that were classified as assets/liabilities held for
sale, which were separately presented in the statement of financial
position as of 31 December 2012, and include US$70 million of cash
and cash equivalents and US$79 million of debt.)
As part of a strategic alignment of our asset base at the end of
2012, the Group decided to dispose of EVRAZ Highveld Steel and
Vanadium and the EVRAZ Vitkovice Steel operations. Accordingly
these assets are accounted for as assets held for sale as at the
year-end. In March 2013 we announced the execution of a non-binding
term sheet on sale of EVRAZ Highveld.
In January 2013 we completed the acquisition of a controlling
interest in Raspadskaya coal company, which was mostly financed by
equity, and via a US$202 million cash component payable in equal
quarterly instalments ending on 15 January 2014.
In addition, in April 2013 we announced the acquisition of a 51%
stake in Timir, a joint-venture with Alrosa, created for the
development of large iron ore deposits in Yakutia, Russia for
RUB4,950 million (ca. US$160 million).
Revenues
(US$ million)
----------------------------------------------------------------------------
Segment Revenue 2012 Revenue 2011 Change Relative change
------------------ ------------- ------------- -------- ----------------
Steel 13,543 14,717 (1,174) (8.0)%
------------------ ------------- ------------- -------- ----------------
Mining 2,650 3,784 (1,134) (30.0)%
------------------ ------------- ------------- -------- ----------------
Vanadium 520 665 (145) (21.8)%
------------------ ------------- ------------- -------- ----------------
Other operations 1,046 966 80 8.3%
------------------ ------------- ------------- -------- ----------------
Eliminations (3,033) (3,732) 699 (18.7)%
------------------ ------------- ------------- -------- ----------------
Total 14,726 16,400 (1,674) (10.2)%
------------------ ------------- ------------- -------- ----------------
Group revenues for 2012 decreased by 10.2% to US$14,726 million
of which steel products' revenues (excluding intersegment sales)
amounted to US$12,137 million or 82%. Steel sales volumes decreased
only marginally from 15.5 million tonnes in 2011 to 15.3 million
tonnes. The reduction in revenues was due largely to a decrease in
sales prices, in line with the general trend in steel pricing.
EVRAZ was also impacted by a poorer product mix during the year
as steel from EVRAZ ZSMK was used for the production of lower
margin billets because the rail mill modernisation programme halted
rail production in April 2012. As the EVRAZ ZSMK rail mill has been
operational from 12 January 2013, and the ramp-up will be completed
in the fourth quarter of 2013, we expect an improved product mix
during 2013. In addition adverse market conditions impacted sales
volumes of the Group's flat-rolled products in Europe.
EBITDA
(US$ million)
--------------------------------------------------------------------------
Segment EBITDA 2012 EBITDA 2011 Change Relative change
------------------ ------------ ------------ -------- ----------------
Steel 1,326 1,262 64 5.1%
------------------ ------------ ------------ -------- ----------------
Mining 622 1,628 (1,006) (61.8)%
------------------ ------------ ------------ -------- ----------------
Vanadium (19) 22 (41) (186.4)%
------------------ ------------ ------------ -------- ----------------
Other operations 189 197 (8) (4.1)%
------------------ ------------ ------------ -------- ----------------
Unallocated (199) (243) 44 (18.1)%
------------------ ------------ ------------ -------- ----------------
Eliminations 93 32 61 190.6%
------------------ ------------ ------------ -------- ----------------
Total 2,012 2,898 (886) (30.6)%
------------------ ------------ ------------ -------- ----------------
EBITDA for 2012 was US$2,012 million, compared to US$2,898
million in 2011, largely reflecting the fall in revenues. The fall
in prices and volumes of iron ore and coking coal had an adverse
impact on EBITDA of the Mining segment.
Cost of revenues, expenses and results
(US$ million)
---------------------------------------------------------------------------------------
Item 2012 2011 Change Relative change
------------------------------------- --------- --------- -------- ----------------
Cost of revenue (11,797) (12,473) 676 (5.4)%
------------------------------------- --------- --------- -------- ----------------
Gross profit 2,929 3,927 (998) (25.4)%
------------------------------------- --------- --------- -------- ----------------
Selling and distribution costs (1,211) (1,154) (57) 4.9%
------------------------------------- --------- --------- -------- ----------------
General and administrative
expenses (860) (921) 61 (6.6)%
------------------------------------- --------- --------- -------- ----------------
Impairment of assets (413) (104) (309) 297.1%
------------------------------------- --------- --------- -------- ----------------
Foreign exchange gains/(losses),
net (41) 269 (310) (115.2)%
------------------------------------- --------- --------- -------- ----------------
Other operating income and
expenses (161) (157) (4) 2.5%
------------------------------------- --------- --------- -------- ----------------
Profit from operations 243 1,860 (1,617) (86.9)%
------------------------------------- --------- --------- -------- ----------------
Interest expense (645) (708) 63 (8.9)%
------------------------------------- --------- --------- -------- ----------------
Gain/(loss) on financial assets
and liabilities, net 164 (355) 519 146.2%
------------------------------------- --------- --------- -------- ----------------
Gain on disposal group classified
as held for sale, net 114 8 106 1,325.0%
------------------------------------- --------- --------- -------- ----------------
Other non-operating gains/(losses),
net 18 68 (50) (73.5)%
------------------------------------- --------- --------- -------- ----------------
Profit/(loss) before tax (106) 873 (979) (112.1)%
------------------------------------- --------- --------- -------- ----------------
Income tax benefit/(expense) (229) (420) 191 (45.5)%
------------------------------------- --------- --------- -------- ----------------
Net profit/(loss) (335) 453 (788) (174.0)%
------------------------------------- --------- --------- -------- ----------------
Cost of revenue decreased by 5.4% to US$ 11,797 million in 2012
compared to 2011 as a result of a number of factors. Raw material
costs decreased by 20% largely due to lower purchase prices for
iron ore, coking coal and scrap. The costs for semi-finished
products fell by 39%, as more slabs were procured internally, for
further re-rolling, as opposed to being purchased from third
parties. Expenditure on services decreased by US$9 million, as
inflationary pressure was balanced by a 5% devaluation of the
Rouble and through cost savings at many of our operations. Goods
for resale increased by 55% as EVRAZ Metal Inprom increased the
purchase of third party products to satisfy customer demand.
Transportation costs increased by 7% following an increase in
Russian railway tariffs and higher volumes of intragroup shipments
of semi-products. The 2012 labour cost increase is partially
attributed to carryover effects of 2011 salary increases that were
negotiated based on more favourable 2011 market conditions, however
these were somewhat offset, at least in Russia, by the Rouble
devaluation.
Total depreciation, depletion and amortisation amounted to
US$1,259 million for 2012, compared to US$1,153 million for 2011.
The increase is due mainly to a larger depletion expense at
Yuzhkuzbassugol following a revaluation of reserves in July 2011.
While higher reserves were recognised, the future development costs
per tonne of coal are higher than previously estimated. In 2012,
management revised its mining plans to exclude some reserves that
are not expected to be developed earlier than 2040-2070 and updated
the reserves valuation accordingly. This led to a minor reduction
of reserve base and a significant decline in estimated future
development costs used in the calculation of the depletion charge.
The amount of depreciation in cost of revenue was US$1,100 million
for 2012.
We achieved a reduction in electricity costs of US$49 million
through increased proprietary generation at EVRAZ ZSMK and lower
consumption at our European operations due to reduced activity.
Natural gas expenditure was also slightly reduced as increases in
prices were offset by devaluation of the local currencies, and
reduced consumption volume as a result of lower level activity in
Europe.
The large increase in other costs is mostly due to changes in
finished goods inventory and work in progress, which increased by
US$192 million in 2011, but decreased by US$53 million in 2012 due
to destocking at the end of the year.
A detailed breakdown of the cost of revenue can be seen in the
following table:
(US$ million)
-------------------------------------------------------------------------------
Item 2012 2011 Change Relative change
------------------------------ --------- --------- ------- ----------------
Cost of revenue (11,797) (12,473) 676 (5)%
------------------------------ --------- --------- ------- ----------------
Raw materials, incl. (4,091) (5,137) 1,046 (20)%
------------------------------ --------- --------- ------- ----------------
Iron ore (681) (873) 192 (22)%
------------------------------ --------- --------- ------- ----------------
Coking coal (1,050) (1,389) 339 (24)%
------------------------------ --------- --------- ------- ----------------
Scrap (1,570) (1,943) 373 (19)%
------------------------------ --------- --------- ------- ----------------
Other raw materials (790) (932) 142 (15)%
------------------------------ --------- --------- ------- ----------------
Semi-finished products (483) (788) 305 (39)%
------------------------------ --------- --------- ------- ----------------
Auxiliary materials (1,006) (947) (59) 6%
------------------------------ --------- --------- ------- ----------------
Services (665) (674) 9 (1)%
------------------------------ --------- --------- ------- ----------------
Goods for resale (632) (407) (225) 55%
------------------------------ --------- --------- ------- ----------------
Transportation (740) (694) (46) 7%
------------------------------ --------- --------- ------- ----------------
Staff costs (1,765) (1,628) (137) 8%
------------------------------ --------- --------- ------- ----------------
Depreciation (1,100) (1,015) (85) 8%
------------------------------ --------- --------- ------- ----------------
Electricity (551) (600) 49 (8)%
------------------------------ --------- --------- ------- ----------------
Natural gas (416) (427) 11 (3)%
------------------------------ --------- --------- ------- ----------------
Other costs (348) (156) (192) 123%
------------------------------ --------- --------- ------- ----------------
Selling and distribution expenses were 4.9% higher than in 2011
mainly due to the carryover effect of a change to CPT sales terms
in Russia, which was introduced in the first half of 2011, and a
minor increase in volumes shipped. This was slightly offset by a
reduction in bad debt expense due to better cash collection from
municipalities that are using heat and electricity produced by the
Group's subsidiaries at respective locations.
General and administrative expenses declined in 2012 by 6.6%
mainly due to a lower staff bonuses accrual, the one off effect of
expenses related to the premium listing that were incurred in 2011
and significant cost saving initiatives implemented at EVRAZ
Highveld Steel and Vanadium during the year.
In 2012, we had a significantly higher impairment charge of
US$413 million than in the previous year. US$356 million of this is
attributed to the non-current assets of Evrazruda. For more details
please refer to Note 6 of the Financial Statements.
Foreign exchange gains/(losses) moved from a US$269 million gain
in 2011 to a US$41 million loss in 2012. This is in large part due
to currency fluctuations on intragroup debt where the entities
involved have different functional currencies. IFRS does not have a
notion of a Group's functional currency, therefore gains/(losses)
of one subsidiary do not have corresponding counterparts in another
subsidiary and thus cannot be eliminated on consolidation. For
example this is the case between Russian subsidiaries with rouble
functional currency and our non-Russian entities with other
respective functional currencies.
Interest expense incurred by the Group has fallen steadily over
the last two years as we have refinanced debt at lower interest
rates. Interest expense was US$645 million for 2012, compared to
US$708 million for 2011.
Gains on financial assets and liabilities for 2012 were US$164
million, and dominated by a gain of US$177 million on the change in
fair value of derivatives - currency and interest rate swaps for
rouble bonds. This is a significant reversal of the position in
2011 where a loss of US$110 million was incurred on the swaps alone
In 2011 the loss on financial assets and liabilities also included
the effect of a loss on early settlement of debt (US$71 million)
and incentivised conversion of convertible bonds (US$161 million),
as described in more details in Notes 7 and 21 of the financial
statements.
The Group recognised a US$83 million loss on reclassification of
EVRAZ Highveld Steel and Vanadium and EVRAZ Vitkovice Steel to
assets held for sale. This was more than offset by a gain realised
by the sale of EvrazTrans, and together with the effect of other
minor disposals, led to a US$114 million gain on assets classified
as held for sale.
In 2012, the Company accrued an income tax expense of US$229
million, notwithstanding a loss before tax of US$106 million. This
was mostly due to losses at certain subsidiaries that could not be
offset against profits of other subsidiaries, as well as the fact
that some expenses are not deductible for tax purposes.
In 2012, the Company reported a US$335 million net loss,
compared to a net profit of US$453 million in 2011.
Cash Flow
(US$ million)
-----------------------------------------------------------------------------------
Item 2012 2011 Change Relative change
------------------------------------ -------- -------- ------- ----------------
Cash flows from operating
activities before change in
working capital 1,733 2,528 (795) (31.4)%
------------------------------------ -------- -------- ------- ----------------
Changes in working capital 410 119 291 244.5%
------------------------------------ -------- -------- ------- ----------------
Net cash flows from operating
activities 2,143 2,647 (504) (19.0)%
------------------------------------ -------- -------- ------- ----------------
Short-term deposits at banks,
including interest (656) 5 (661) (13,220.0)%
------------------------------------ -------- -------- ------- ----------------
Purchases of property, plant
and equipment and intangible
assets (1,261) (1,281) 20 (1.6)%
------------------------------------ -------- -------- ------- ----------------
Proceeds from sale of disposal
groups 311 5 306 6,120%
------------------------------------ -------- -------- ------- ----------------
Dividends received and return
of capital by joint venture 126 54 72 133.3%
------------------------------------ -------- -------- ------- ----------------
Other investing activities (64) 29 (93) (320.7)%
------------------------------------ -------- -------- ------- ----------------
Net cash flows used in investing
activities (1,544) (1,188) (356) (30.0)%
------------------------------------ -------- -------- ------- ----------------
Dividends paid by the parent
entity to its shareholders (375) (491) 116 (23.6)%
------------------------------------ -------- -------- ------- ----------------
Net proceeds from/(repayment
of) bank loans and notes,
overdrafts and credit lines,
including interest 282 (591) 873 (147.7)%
------------------------------------ -------- -------- ------- ----------------
Gain on derivatives not designated
as hedging instruments 81 66 15 22.7%
------------------------------------ -------- -------- ------- ----------------
Other financing activities (30) (266) 236 (88.7)
------------------------------------ -------- -------- ------- ----------------
Net cash flows used in financing
activities (42) (1,282) 1,240 (96.7)%
------------------------------------ -------- -------- ------- ----------------
Effect of foreign exchange
rate changes on cash and cash
equivalents 32 (59) 91 (154.2)%
------------------------------------ -------- -------- ------- ----------------
Net increase in cash and cash
equivalents 589 118 471 399.2%
------------------------------------ -------- -------- ------- ----------------
Cash flows from operating activities before changes in working
capital fell by 31% in 2012 to US$1,733 million reflecting the
lower prices for our products in 2012 compared to 2011.
In 2012, US$410 million of working capital was released as a
result of lower average prices, but also as part of the continued
focus on managing the Group's working capital. In order to
pre-finance the 2013 maturities of the put options on our 2013
rouble bonds, and of other bonds and notes, we deposited US$674
million at large Russian banks.
Capital expenditure was sustained at virtually the same level as
in the previous year (US$1,261 million in 2012 compared to US$1,281
million in 2011). In 2012 made significant progress on many of the
priority projects that we launched in 2010/2011, including the
modernisation of the two rail mills in Russia, construction of
Yerunakovskaya VIII coking coal mine, PCI for our Russian blast
furnaces and construction of rolling mills at the south of Russia
and in Kazakhstan. Whilst many projects neared completion during
the year investment started on new projects such as Mezhegey Phase
I.
A summary of our capital expenditure for 2012 in millions of USD
is as follows:
EVRAZ ZSMK rail mill modernisation 143 Launched after modernisation
programme in January 2013,
ramp-up to be completed by
Q1 2014
------------------------------------ ------ ----------------------------------
Construction of Yerunakovskaya 135 Production of 2.5 million
VIII mine tonnes of raw coking coal
per annum. Ramp-up to be
completed by Q1 2014
------------------------------------ ------ ----------------------------------
PCI at EVRAZ NTMK 58 Reduction of coke and natural
gas consumption in blast
furnaces. Construction completed
in 2012, launched in Q1 2013
------------------------------------ ------ ----------------------------------
PCI at EVRAZ ZSMK 51 Reduction of coke and natural
gas consumption in blast
furnaces. To be launched
in Q1 2014
------------------------------------ ------ ----------------------------------
Vostochniy mill (Kazakhstan) 41 Long products' capacity addition.
Hot tests to start in Q3
2013.
------------------------------------ ------ ----------------------------------
Yuzhniy mill (Southern Russia) 31 Long products' capacity addition.
Hot tests to start in H2
2014.
------------------------------------ ------ ----------------------------------
Mezhegey (Phase I) 15 Additional 1.5 million, ramp-up
to be completed in H2 2014
------------------------------------ ------ ----------------------------------
Other investment projects 130
------------------------------------ ------ ----------------------------------
Maintenance 657
------------------------------------ ------ ----------------------------------
Total 1,261
------------------------------------ ------ ----------------------------------
In December 2012 we completed the sale of EvrazTrans for a
consideration of US$306 million. This, in addition to smaller
disposals, resulted in a net positive contribution to our cash flow
of US$311 million.
During the course of 2012 we also received US$88 million of
dividends and US$38 million of capital returned by Corber, the
Group's joint venture, and in turn paid US$375 million to our
shareholders in dividends.
We also continued to benefit from realised gains on the swaps
for the rouble bonds that generated another US$81 million of cash.
We do not have any other significant hedging instruments.
The free cash flow for the Group was US$780 million in 2012.
Financing and liquidity
We started 2012 with a total debt of US$7,245 million. Due to
the favourable situation in capital markets in the first half of
2012, we decided to pre-finance our large bond maturities coming
due in March and April 2013, in order to pro-actively manage the
liquidity risk. To this end, in April 2012 we issued US$600 million
of 5-year Eurobonds, and in December 2012 we issued US$250 million
of ECP. As a result of these actions, our total debt increased to
US$8,248 million as at 31 December 2012, while net debt decreased
by US$258 million from US$6,442 million at 31 December 2011 to
US$6,184 million at 31 December 2012. Interest expense accrued in
respect of loans, bonds and notes was US$588 million for 2012,
compared to US$649 million for 2011.
Given the uncertainty in our key ratios in the near term, we
decided to approach our bank lenders to adjust some of our
covenants. In June 2012 we agreed with the lenders to amend the
levels on the two key maintenance covenants in most of our bank
debt, namely the covenants to maintain (i) maximum net leverage
ratio (ratio of net debt to 12-month consolidated EBITDA) and (ii)
minimum EBITDA interest cover ratio (ratio of 12-month consolidated
EBITDA to 12-month consolidated interest expense). Both ratios are
based on Evraz Group S. A.'s, and not the whole Group's,
consolidated financial statements. The new levels were set at 3.5x
and 3.0x respectively, at the same time the definition of interest
expense was adjusted to take account of cash gains on hedging
arrangements related to rouble bond issues. On 31 December 2012,
the net leverage ratio was 3.1x, and the EBITDA interest cover
ratio was 4.0x. In December 2012, we also successfully obtained the
consent of the holders of our 2015 Eurobonds to remove the
maintenance covenant from these bonds. As a result, we do not have
any maintenance test on any of our public debt, giving us added
flexibility in case of market downturns negatively affecting our
leverage.
Our Eurobond covenants currently limit our ability to incur new
debt at Evraz Group S.A. and its subsidiaries, but do not limit our
ability to refinance the debt of Evraz Group S.A. or to raise new
debt at EVRAZ plc. In order to increase our financial flexibility,
we have set up project financing in relation to the Mezhegey
project Phase I. The project entity is a subsidiary of EVRAZ plc,
but not a subsidiary of Evraz Group S.A., so any utilisation of
this financing is not subject to the restriction of the incurrence
covenants of the Evraz Group S.A. Eurobonds. As of 31 December
2012, we had US$5 million drawn under this facility.
Part of our bank loans continue to include covenants to maintain
certain financial metrics related to profitability and leverage. As
of 31 December 2012 the outstanding amount of such loans was
US$1,424 million. Given the high volatility in the global
steelmaking industry, we continue to closely monitor and
proactively address any potential issues of future compliance with
covenants associated with Company's financial indebtedness.
Our cash and deposits on 31 December 2012 of US$2,064 million
compared to a short-term debt of US$1,862 million gives us
confidence in our financial position.
Dividends
Based on the results of the first half of 2012, we declared an
interim dividend of 11 cents per share. Due to the deterioration in
the market environment, and consequently our performance, in the
second half of 2012, the directors have recommended to pay no final
dividend for 2012.
Giacomo Baizini
Chief Financial Officer
EVRAZ plc
Review of operATIONS by SEGMENT
REVENUES
Steel Segment Revenues
Year ended 31 December
-------------------------------
2012 2011 Change
--------------------- --------- --------- ---------
To third parties 13,333 14,524 (8.2)%
--------------------- --------- --------- ---------
To mining segment 129 164 (21.3)%
--------------------- --------- --------- ---------
To vanadium segment 2 2 0%
--------------------- --------- --------- ---------
To other operations 79 27 192.6%
--------------------- --------- --------- ---------
Total Steel segment 13,543 14,717 (8.0)%
--------------------- --------- --------- ---------
Steel Segment Revenues by Products
Year ended 31 December
------------------------------------------------------------------------------------------
2012 2011 2012 v 2011
------------------------------------- ------------------------------------- ------------
US$ % of total segment US$ % of total segment
million revenue million revenue % change
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Steel products, external
sales 12,136 89.6% 13,257 90.0% (8.5)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Semi-finished
products(1) 2,066 15.3% 2,235 15.2% (7.6)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Construction products(2) 4,321 31.9% 4,423 30.0% (2.3)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Railway products(3) 1,737 12.8% 1,964 13.3% (11.6)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Flat-rolled products(4) 2,265 16.7% 2,760 18.7% (17.9)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Tubular products(5) 1,288 9.5% 1,321 9.0% (2.5)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Other steel products(6) 459 3.4% 554 3.8% (17.1)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Steel products,
intersegment sales 51 0.4% 54 0.4% (5.6)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Other revenues(7) 1,356 10.0% 1,406 9.6% (3.6)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
Total 13,543 100.0% 14,717 100.0% (8.0)%
-------------------------- --------- -------------------------- --------- -------------------------- ------------
(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 rail, wheels, tyres and other railway products
(4) Includes commodity plate, specialty plate and other
flat-rolled products
(5) Includes large diameter line pipes, ERW pipes and casing,
seamless pipes, casing and tubing, other tubular products
(6) Includes rounds, grinding balls, mine uprights and
strips
(7) Includes coke and coking products, refractory products,
ferroalloys, scrap, energy, services, iron ore fines produced at
EVRAZ Highveld's Mapochs mine
Sales Volumes of Steel Segment
('000 tonnes)
-------------------------------- ------- ------- --------
Full year to 31 December 2012 2011 Change
-------------------------------- ------- ------- --------
Steel products, external
sales 15,292 15,492 (1.3)%
-------------------------------- ------- ------- --------
Semi-finished products 3,636 3,479 4.5%
-------------------------------- ------- ------- --------
Construction products 5,658 5,505 2.8%
-------------------------------- ------- ------- --------
Railway products 1,843 2,093 (11.9)%
-------------------------------- ------- ------- --------
Flat-rolled products 2,725 2,868 (5.0)%
-------------------------------- ------- ------- --------
Tubular products 879 912 (3.6)%
-------------------------------- ------- ------- --------
Other steel products 552 636 (13.2)%
-------------------------------- ------- ------- --------
Intersegment sales 115 58 98.3%
-------------------------------- ------- ------- --------
Total 15,407 15,550 (0.9)%
-------------------------------- ------- ------- --------
Geographic Breakdown of External Steel Products' Sales
US$ million 000 t
-------------------------- --------------------------
2012 2011 Change, 2012 2011 Change,
% %
-------------- ------- ------- -------- ------- ------- --------
Russia 5,126 5,443 (5.8)% 6,570 6,722 (2.3)%
-------------- ------- ------- -------- ------- ------- --------
Americas 3,093 3,276 (5.6)% 2,746 2,766 (0.7)%
-------------- ------- ------- -------- ------- ------- --------
Asia 1,909 1,988 (4.0)% 3,249 3,020 (7.6)%
-------------- ------- ------- -------- ------- ------- --------
Europe 1,006 1,348 (25.4)% 1,450 1,562 (7.2)%
-------------- ------- ------- -------- ------- ------- --------
CIS 645 716 (9.9)% 802 849 (5.5)%
-------------- ------- ------- -------- ------- ------- --------
Africa & RoW 357 486 (26.5)% 475 573 (17.1)%
-------------- ------- ------- -------- ------- ------- --------
Total 12,136 13,257 (8.5)% 15,292 15,492 (1.3)%
-------------- ------- ------- -------- ------- ------- --------
Steel segment revenues decreased by 8.0% to US$13,543 million in
2012 compared with US$14,717 million in 2011 mostly as a result of
lower prices for steel products during the Period.
In 2012 and 2011, steel segment sales to the mining segment
totalled US$129 million and US$164 million respectively. The
decrease was mostly attributable to decline in sales prices.
Revenues attributable to sales of semi-finished products
decreased by 7.6% primarily due to a decline in export sales prices
of Russian semi-finished products despite a 4.5% increase in sales
volumes.
Sales volumes of construction products increased due to
improving construction market in Russia despite revenues still
being down as a result of lower prices.
Revenues from the sales of railway products fell by 12% due to
lower volumes of sales as a result of suspension of the EVRAZ
ZSMK's rail mill for a major modernisation project, while prices
for railway products remained resilient in 2012.
Revenue from sales of flat-rolled products (primarily plates)
decreased due to a significant decline in prices, in particular in
Europe.
Growth of prices of tubular products partially offset lower
volumes with tubular product sales slightly decreasing in 2012.
Revenues from steel product sales in Russia amounted to 44% of
steel segment revenues in 2012, compared with approximately 42% in
2011. The higher share of revenues from sales in Russia was
attributable to the relatively stable sales volumes on the Russian
market (in particular for construction products) and more resilient
prices in this core market compared to other markets.
Mining Segment Revenues
Year ended 31 December
---------------------------
2012 2011 Change
---------------------- ------- ------- ---------
To third parties 635 1,037 (38.8)%
---------------------- ------- ------- ---------
To steel segment 1,973 2,706 (27.1)%
---------------------- ------- ------- ---------
To other operations 42 41 2.4%
---------------------- ------- ------- ---------
Total Mining segment 2,650 3,784 (30.0)%
---------------------- ------- ------- ---------
Mining Segment Revenues by Products
Year ended 31 December
-----------------------------------------------------------------------------------
2012 2011 2012 v 2011
--------------------------------- ---------------------------------- ------------
% of total segment % of total segment
US$ million revenue US$ million revenue % change
--------------------- ------------ ------------------- ------------ -------------------- ------------
External sales
--------------------- ------------ ------------------- ------------ -------------------- ------------
Iron ore products* 347 13.1% 586 15.5% (40.8)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Iron ore
concentrate 2 0.0% 128 3.4% (98.4)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Sinter 13 0.5% 21 0.5% (38.1)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Pellets 137 5.2% 154 4.1% (11.0)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Other** 195 7.4% 283 7.5% (31.1)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Coal products 211 8.0% 392 10.4% (46.2)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Raw coking coal 8 0.3% 2 0.1% 300.0%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Coking coal
concentrate 96 3.6% 226 6.0% (57.5)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Raw steam coal 36 1.4% 9 0.2% 300.0%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Steam coal
concentrate 71 2.7% 155 4.1% (54.2)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Intersegment sales
--------------------- ------------ ------------------- ------------ -------------------- ------------
Iron ore products 1,377 52.0% 1,852 48.9% (25.6)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Iron ore
concentrate 492 18.6% 595 15.7% (17.3)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Sinter 392 14.8% 554 14.6% (29.2)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Pellets 492 18.6% 700 18.5% (29.7)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Other** 1 0.0% 3 0.1% (66.7)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Coal products 580 21.8% 855 22.6% (32.2)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Raw coking coal 102 3.8% 155 4.1% (34.2)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Coking coal
concentrate 457 17.2% 636 16.8% (28.1)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Raw steam coal 21 0.8% 43 1.1% 51.2%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Steam coal
concentrate 0 0% 21 0.6% n/a
--------------------- ------------ ------------------- ------------ -------------------- ------------
Other revenues*** 135 5.1% 99 2.6% 36.4%
--------------------- ------------ ------------------- ------------ -------------------- ------------
Total 2,650 100.0% 3,784 100.0% (30.0)%
--------------------- ------------ ------------------- ------------ -------------------- ------------
*External sales of iron ore produced at the Mapochs mine, part
of EVRAZ Highveld, are accounted for in the Steel segment
** Includes primarily Sukha Balka's sintering ore
*** Includes crushed stone
Sales Volumes of Mining
Segment
('000 tonnes)
--------------------------- ------- ------- --------
Full year to 31 December 2012 2011 Change
--------------------------- ------- ------- --------
External sales
--------------------------- ------- ------- --------
Iron ore products 3,900 5,259 (25.8)%
--------------------------- ------- ------- --------
Iron ore concentrate 22 1,072 (97.9)%
--------------------------- ------- ------- --------
Sinter 111 134 (17.2)%
--------------------------- ------- ------- --------
Pellets 1,201 1,060 (13.3)%
--------------------------- ------- ------- --------
Other 2,565 2,993 (14.3)%
--------------------------- ------- ------- --------
Coal products 2,189 2,454 (10.8)%
--------------------------- ------- ------- --------
Raw coking coal 162 36 350.0%
--------------------------- ------- ------- --------
Coking coal concentrate 702 987 (28.9)%
--------------------------- ------- ------- --------
Raw steam coal 729 222 228.4%
--------------------------- ------- ------- --------
Steam coal concentrate 597 1,209 (50.6)%
--------------------------- ------- ------- --------
Intersegment sales
--------------------------- ------- ------- --------
Iron ore products* 14,737 14,692 0.3%
--------------------------- ------- ------- --------
Iron ore concentrate 5,566 5,361 3.8%
--------------------------- ------- ------- --------
Sinter 4,295 4,289 0.1%
--------------------------- ------- ------- --------
Pellets 4,872 5,004 (2.6)%
--------------------------- ------- ------- --------
Other 5 37 (86.5)%
--------------------------- ------- ------- --------
Coal products 5,376 6,141 (12.5)%
--------------------------- ------- ------- --------
Raw coking coal 1,439 1,560 (7.8)%
--------------------------- ------- ------- --------
Coking coal concentrate 3,285 3,163 3.9%
--------------------------- ------- ------- --------
Raw steam coal 652 1,215 (46.3)%
--------------------------- ------- ------- --------
Steam coal concentrate 0 203 n/a
--------------------------- ------- ------- --------
Total, iron ore products* 18,637 19,951 (6.6)%
--------------------------- ------- ------- --------
Total, coal products 7,565 8,595 (12.0)%
--------------------------- ------- ------- --------
Overall mining segment revenues decreased by 30.0% to US$2,650
million in 2012 compared to US$3,784 million in 2011, reflecting
decreased iron ore and coking coal prices, as well as lower sales
volumes of steam coal concentrate and iron ore concentrate.
External sales volumes of iron ore products decreased by 25.8%
in 2012 compared to 2011, in particular due to termination of
supplies of iron ore concentrate to Mechel, which accounted for 1
million tonnes in 2011, while intersegment sales remained largely
flat.
External sales volumes of coal products decreased by 10.8%
driven by lower sales volumes of coking coal concentrate and steam
coal concentrate which were partially compensated by higher sales
of raw coking and steam coal. Overall sales volumes of coking coal
and coking coal concentrate remained largely flat. Overall sales
volumes of steam coal and steam coal concentrate decreased by 30.6%
due to lower volumes of raw steam coal mined in 2012 as a result of
a longwall repositioning and a mine shutdown due to an accident in
Q4 2012.
In 2012 mining segment sales to the steel segment amounted to
US$1,973 million, or 74.5% of mining segment sales, compared with
US$2,706 million, or 72.0% of mining segment sales, in 2011.
In 2012, approximately 74% of EVRAZ's iron ore requirements were
met by the Group's own operations compared with 78% in 2011. The
consumption of Group's own coking coal was 56% in 2012 of all
Group's needs compared with 52% in 2011.
Approximately 32% and 44% of third party sales by the mining
segment were to customers in Russia in 2012 and 2011 respectively.
The increase in the percentage of third party sales outside Russia
is primarily attributable to a significant reduction of iron ore
and steam coal sales volumes to third parties in Russia.
Vanadium Segment Revenues
Year ended 31 December
-------------------------------
2012 2011 Change
------------------------ -------- ------- ------------
To third parties 505 640 (21.1)%
------------------------ -------- ------- ------------
To steel segment 15 25 (40.0)%
------------------------ -------- ------- ------------
Total Vanadium segment 520 665 (21.8)%
------------------------ -------- ------- ------------
Vanadium Segment Revenues by Products
Year ended 31 December
------------------------------------------------------------------------------------------
2012 2011 2012 v 2011
------------------------------------- ------------------------------------- ------------
% of total segment % of total segment
US$ million revenue US$ million revenue % change
------------------------ ------------ ----------------------- ------------ ----------------------- ------------
External sales
------------------------ ------------ ----------------------- ------------ ----------------------- ------------
Vanadium products 496 95.4% 633 95.2% (21.6)%
------------------------ ------------ ----------------------- ------------ ----------------------- ------------
Vanadium in slag 31 6.0% 76 11.4% (59.2)%
------------------------ ------------ ----------------------- ------------ ----------------------- ------------
Vanadium in alloys and
chemicals 465 89.2% 557 83.8% (16.7)%
------------------------ ------------ ----------------------- ------------ ----------------------- ------------
Intersegment sales 15 2.9% 25 3.8% (40.0)%
------------------------ ------------ ----------------------- ------------ ----------------------- ------------
Other revenues 9 1.7% 7 1.0% (28.6)%
------------------------ ------------ ----------------------- ------------ ----------------------- ------------
Total 520 100.0% 665 100.0% (21.8)%
------------------------ ------------ ----------------------- ------------ ----------------------- ------------
Sales volumes of vanadium segment
(tonnes of pure Vanadium)
--------------------------- ------- ------- --------
Full year to 31 December 2012 2011 Change
--------------------------- ------- ------- --------
External sales
--------------------------- ------- ------- --------
Vanadium products 21,100 26,632 (20.8)%
--------------------------- ------- ------- --------
Vanadium in slag 3,253 6,723 (51.6)%
--------------------------- ------- ------- --------
Vanadium in alloys and
chemicals 17,847 19,909 (10.4)%
--------------------------- ------- ------- --------
Intersegment sales 438 762 (42.5)%
--------------------------- ------- ------- --------
Total 21,538 27,394 (21.4)%
--------------------------- ------- ------- --------
Vanadium segment revenues decreased by 21.8% to US$520 million
in 2012, compared with US$665 million in 2011, reflecting decreased
sales volumes of vanadium products. Sales volumes of the vanadium
segment decreased from 27.4 thousand tonnes of pure vanadium in
2011 to 21.5 thousand tonnes of pure vanadium in 2012 as the
production was adversely affected by an industrial action at EVRAZ
Highveld Steel and Vanadium and problems with the primary feedstock
availability in the United States.
Other operations segment revenues
EVRAZ's other operations include logistics, port services, power
and heat generation and supporting activities.
Year ended 31 December
-------------------------------
2012 2011 Change
------------------------ ---------- ------- ----------
To third parties 253 199 27.1%
To steel segment 568 554 2.5%
To mining segment 225 213 5.6%
Total Other operations
segment 1,046 966 8.3%
------------------------ ---------- ------- ----------
EVRAZ's revenue in respect of its other operations segment
increased by 8.3% to US$1,046 million in 2012 as compared to US$966
million in 2011. This growth was driven by increases in energy
operations, Evraztrans Ukraine and Nakhodka Trade Sea Port
activities. Revenue in respect of EVRAZ's other operations segment
was largely derived from the following operations (sales figures
shown below include sales within the same segment):
-- Evraztrans (until its disposal by EVRAZ on 12 December 2012)
acted as a railway transport provider for EVRAZ's steel segment.
Sales at EvrazTrans (including Russian and Ukrainian operations)
amounted to US$202 million in 2012 as compared to US$189 million in
2011. EvrazTrans derived the majority of its revenue from
inter--segment sales, which accounted for 74% of revenue in 2012
and 2011. EVRAZ retained a smaller part of the business related to
transportation of pellets from EVRAZ KGOK to EVRAZ NTMK.
-- Sales at EVRAZ Nakhodka Trade Sea Port, which provides
various sea port services to the Company, totaled US$92 million in
2012 as compared to US$79 million in 2011. Intersegment sales
accounted for 34% and 52% of the revenue in 2012 and 2011
respectively.
-- Metallenergofinance ("MEF") supplies electricity to EVRAZ's
steel and mining segments and to third parties. MEF's sales
amounted to US$381 million in 2012 as compared to US$444 million in
2011. Intersegment sales accounted for 87% and 84% of MEF's revenue
in 2012 and 2011 respectively.
-- Sinano Ship Management ("Sinano") provides sea freight
services to EVRAZ's steel segment. Sinano's sales totaled US$120
million in 2012 and US$106 million in 2011, with intersegment sales
accounting for almost 100% of its revenue.
-- ZapSib Power Plant is an energy-generating branch of EVRAZ
ZSMK which supplies electricity and heat to EVRAZ ZSMK and external
customers. Its revenue amounted to US$187 million in 2012 compared
with US$122 million in 2011. Intragroup sales account for 76-77% of
the power plant's revenue.
COST OF REVENUE AND GROSS PROFIT
Cost of Revenue and Gross Profit by Segments
Year ended 31 December
----------------------------------------------------------------------------------------
2012 2011 2012 v 2011
------------------------------------ ------------------------------------ ------------
US$ million % of segment revenues US$ million % of segment revenues % change
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Steel segment
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenue (11,154) 82.4% (12,375) 84.1% (9.9)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Gross profit 2,389 17.6% 2,342 15.9% 2.0%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Mining segment
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenue (2,306) 87.0% (2,363) 62.4% (2.4)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Gross profit 344 13.0% 1,421 37.6% (75.8)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Vanadium segment
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenue (494) 95.0% (610) 91.7% (19.0)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Gross profit 26 5.0% 55 8.3% (52.7)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Other operations segment
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenue (779) 74.5% (716) 74.1% 8.8%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Gross profit 267 25.5% 250 25.9% 6.8%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Unallocated
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Cost of revenue (10) 5 (300.0)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Gross profit (10) 5 (300.0)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Eliminations - cost of
revenue 2,946 3,586 (17.8)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Eliminations - gross
profit (87) (146) (40.4)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Consolidated cost of
revenue (11,797) 80.1% (12,473) 76.1% (5.4)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
Consolidated gross profit 2,929 19.9% 3,927 23.9% (25.4)%
-------------------------- ------------ ---------------------- ------------ ---------------------- ------------
EVRAZ's consolidated cost of revenue amounted to US$11,797
million, representing 80.1% of the Company's consolidated revenue,
in 2012 compared to US$12,473 million, or 76.1% of consolidated
revenue in 2011. The decrease in the gross profit margin in 2012
compared to 2011 was primarily due to a decrease in volumes and
prices of mining products, while a decrease in steel prices was
offset by a similar decrease in prices of raw materials.
Steel Segment Cost of Revenue
Year ended 31 December
------------------------------------------------------------------
2012 2011 2012 v 2011
------------------------- ------------------------- ------------
US$ million % of total US$ million % of total % change
-------------------------- ------------ ----------- ------------ ----------- ------------
Cost of revenue 11,154 12,375 (9.9)%
-------------------------- ------------ ----------- ------------ ----------- ------------
Raw materials 5,804 52.0% 7,355 59.4% (21.1)%
-------------------------- ------------ ----------- ------------ ----------- ------------
Iron ore 1,992 17.9% 2,568 20.8% (22.4)%
-------------------------- ------------ ----------- ------------ ----------- ------------
Coking coal 1,539 13.8% 1,985 16.0% (22.5)%
-------------------------- ------------ ----------- ------------ ----------- ------------
Scrap 1,569 14.1% 1,942 15.7% (19.2)%
-------------------------- ------------ ----------- ------------ ----------- ------------
Other raw materials 704 6.2% 860 6.9% (18.1)%
-------------------------- ------------ ----------- ------------ ----------- ------------
Semi-finished products 476 4.3% 781 6.3% (39.1)%
-------------------------- ------------ ----------- ------------ ----------- ------------
Transportation 541 4.9% 499 4.0% 8.4%
-------------------------- ------------ ----------- ------------ ----------- ------------
Staff costs 1,068 9.6% 981 7.9% 8.9%
-------------------------- ------------ ----------- ------------ ----------- ------------
Depreciation 451 4.0% 436 3.5% 3.4%
-------------------------- ------------ ----------- ------------ ----------- ------------
Energy 954 8.6% 985 8.0% (3.1)%
-------------------------- ------------ ----------- ------------ ----------- ------------
Other* 1,860 16.7% 1,338 10.8% 39.0%
-------------------------- ------------ ----------- ------------ ----------- ------------
* Includes purchase of goods from market for subsequent resale
by EVRAZ Metall Inprom and destocking of goods in ports
EVRAZ's steel segment cost of revenue decreased to 82.4% of
steel segment revenue, or US$11,154 million in 2012 from 84.1% of
steel segment revenue, or US$12,375 million in 2011.
The principal factors affecting the change in the steel segment
cost of revenue in absolute terms in 2012 compared to 2011 were as
follows:
-- Raw material costs decreased by 21.1%, primarily due to a
significant decline in prices for all main raw materials (in
particular prices for coking coal and iron ore) accompanied by a
decrease in production volumes of steel products (net of re-rolled
volumes within the Group).
-- Costs of semi-finished products decreased by 39.1% due to a
lower share of external purchases of semi-finished products by
EVRAZ's North American and European operations, as well as lower
market prices for those semi-finished products.
-- Transportation costs increased by 8.4%. Railway charges in
relation to the transportation of EVRAZ's steel products to the
relevant ports, which represent a major component of these costs,
increased as a result of higher railway tariffs. Increased share of
internal supplies of semi-finished products from Russian operations
to North American operations resulted in a higher ocean freight in
the cost of revenues. When semi-finished products are sold to
external customers, ocean freight is allocated to selling
costs.
-- Staff costs increased by 8.9% in accordance with the trade union agreements.
-- Depreciation and depletion costs increased by 3.4% due to
capitalisation of expenses after completion of major investment
projects at EVRAZ NTMK and EVRAZ ZSMK during 2011 and 2012.
-- Energy costs decreased by 3.1% due to depreciation of local currencies against the US dollar.
-- Other costs increased by 39.0% due to significant increase in
purchase of goods from market for subsequent resale by EVRAZ Metall
Inprom and destocking of goods in ports.
Steel segment gross profit increased to US$2,389 million in 2012
from US$2,342 million in 2011. Gross profit margin amounted to
17.6% of steel segment revenue in 2012 compared with 15.9% in 2011,
reflecting the lower cost of raw materials.
Mining Segment Cost of Revenue and Gross Profit
Year ended 31 December
------------------------------------------------------------------
2012 2011 2012 v 2011
------------------------- ------------------------- ------------
US$ million % of total US$ million % of total % change
----------------- ------------ ----------- ------------ ----------- ------------
Cost of revenue 2,306 2,363 (2.4)%
----------------- ------------ ----------- ------------ ----------- ------------
Raw materials 137 5.9% 277 11.7% (50.5)%
----------------- ------------ ----------- ------------ ----------- ------------
Transportation 267 11.6% 275 11.6% (2.9)%
----------------- ------------ ----------- ------------ ----------- ------------
Staff costs 556 24.1% 523 22.1% 6.3%
----------------- ------------ ----------- ------------ ----------- ------------
Depreciation 593 25.7% 516 21.8% 14.9%
----------------- ------------ ----------- ------------ ----------- ------------
Energy 260 11.3% 266 11.3% (2.3)%
----------------- ------------ ----------- ------------ ----------- ------------
Other* 493 21.4% 506 21.5% (2.6)%
----------------- ------------ ----------- ------------ ----------- ------------
* In 2012, consisted primarily of contractor services and
materials for maintenance and repairs and certain taxes
The mining segment cost of revenue increased to 87.0% of mining
segment revenue, or US$2,306 million, in 2012 compared with 62.4%
of mining segment revenue, or US$2,363 million, in 2011.
The principal factors affecting the change in mining segment
cost of revenue in absolute terms in 2012 compared to 2011
were:
-- Raw material costs decreased by 50.5% as a result of lower
purchased volumes of external ore for processing and depreciation
of the average rate of the Russian rouble against the US
dollar.
-- Staff costs increased by 6.3%. The increase was largely
attributable to the increase in wages and salaries in accordance
with trade union agreements at Russian and Ukrainian mills.
-- Depreciation of the average rate of the Russian rouble
against the US dollar resulted in lower transportation, energy and
other costs in 2012 vs. 2011. Other costs consisted primarily of
contractor services and materials for maintenance and repairs and
certain taxes.
Mining segment gross profit decreased from US$1,421 million in
2011 to US$344 million in 2012. The decrease in the gross profit
margin in 2012 compared to 2011 was primarily attributable to a
higher depletion base and lower prices for mining products.
Vanadium Segment Cost of Revenue and Gross Profit
Year ended 31 December
------------------------------------------------------------------
2012 2011 2012 v 2011
------------------------- ------------------------- ------------
US$ million % of total US$ million % of total % change
----------------- ------------ ----------- ------------ ----------- ------------
Cost of revenue 494 610 (19.0)%
----------------- ------------ ----------- ------------ ----------- ------------
Raw materials 198 40.1% 317 52.0% (37.5)%
----------------- ------------ ----------- ------------ ----------- ------------
Transportation 1 0.2% 2 0.3% (50.0)%
----------------- ------------ ----------- ------------ ----------- ------------
Staff costs 65 13.2% 71 11.6% (8.5)%
----------------- ------------ ----------- ------------ ----------- ------------
Depreciation 23 4.7% 28 4.6% (17.9)%
----------------- ------------ ----------- ------------ ----------- ------------
Energy 68 13.8% 71 11.6% (4.2)%
----------------- ------------ ----------- ------------ ----------- ------------
Other 139 28.0% 121 19.9% 14.9%
----------------- ------------ ----------- ------------ ----------- ------------
The vanadium segment cost of revenue decreased by 19.0% to
US$494 million, or 95.0% of vanadium segment revenue, in 2012 from
US$610 million, or 91.7% of vanadium segment revenue, in 2011. The
decrease in EVRAZ's vanadium segment's cost of revenue in 2012 as
compared to 2011, in absolute terms, was attributable to a decrease
in sales volumes and the depreciation of local currencies against
the US dollar.
Gross profit of EVRAZ's vanadium segment decreased to US$26
million in 2012 from US$55 million in 2011.
Other operations segment cost of revenue and gross profit
The other operations segment's cost of revenue increased to
74.5% of other operations revenue, or US$779 million, in 2012
compared to 74.1%, or US$716 million, in 2011.
The major components of cost of revenue at EVRAZ Nakhodka Trade
Sea Port are staff and inventory costs. The major component of
EvrazTrans' cost of revenue were rental and maintenance of railway
cars. The major component of MEF's cost of revenue is the purchase
of electricity from power generating companies. The major
components of ZapSib Power Plant's cost of revenue are steam coal
for power generation, depreciation and staff costs; while the major
component of Sinano's cost of revenue is ship hire fees.
PRINCIPAL RISKS AND UNCERTAINTIES
1. Impact of Global Macroeconomics and Industry Cyclicality
Risk
EVRAZ's sales, profits, balance sheet and potentially the
economic viability of projects and investments could be adversely
impacted by macroeconomic factors such as:
-- The cyclical nature of the steel, mining and vanadium
industries with prices strongly influenced by economic
conditions;
-- Potential disparities between global steel and raw material
production capacity which could influence pricing; and
-- Adverse fluctuations in RUB/USD exchange rates and other foreign currencies.
Mitigation
EVRAZ's operations are diversified across a number of geographic
markets thereby providing some protection from adverse economic
conditions. Production is focused primarily on the infrastructure
segment of the steel markets where the Company commands leading
market shares and benefits from high barriers to entry.
EVRAZ's vertically integrated business model serves to protect
the Company from higher raw material input prices and various
pricing formulas are utilised in respect of contracts. In addition,
products are sold under a range of contracts, some of which are
linked to raw material prices. A proportion of products are
supplied on long-term contracts.
EVRAZ's operations are generally low cost in comparison with
much of the Company's peer group, a factor which provides some
mitigation against economic fluctuations.
EVRAZ's main foreign exchange risk is the potential impact on
the asset value of the Group's Russian operations; this risk is
mitigated in that all products are priced in US dollars or on a USD
related price.
2. Safety
Risk
Safety risks are inherent to the Company's principal business
activities of steelmaking and mining.
EVRAZ employees face a range of risks including the potential
dangers of fire, explosions and electrocution. Additional risks,
specific to individual mines, include methane levels, rock falls
caused by geological conditions, and accidents involving equipment
and/or vehicles. EVRAZ faces risks including regulatory fines,
penalties and adverse impacts on reputation and, in the extreme,
the withdrawal of mining or plant environmental licences thereby
curtailing operations for an indefinite period.
Mitigation
EVRAZ has instigated a programme to improve the management of
safety risks across all business units and embed a new culture at
all levels within the Company, supported by operational manuals and
detailed procedures. This system is subject to oversight at Group
and site level in order to ensure all HSE systems are aligned and
that response to safety risks is co-ordinated, consistent and
complete.
EVRAZ has reviewed the Group's training activities in order to
ensure that all employees can provide strong and professional
leadership with regard to safety issues.
EVRAZ reviews the performance of all contractors against Group
policies and contractual safety requirements. In the event of
non-compliance by contractors the Group takes appropriate action,
including contract termination.
An operational safety assessment represents a primary aspect of
all new projects, particularly new mines where measures to contain
methane levels are a priority.
3. Capital Projects and Expenditures
Risk
The advancement of EVRAZ's strategic objectives is, in large
part, dependent upon the completion of a number of important
projects designed to enhance the Company's key product delivery,
reduce production costs and increase the vertical production of our
raw material inputs.
The economic viability of capital projects could be impacted by
increases in capital costs due to delays and other factors,
unforeseen changes to future metal and metallic coal prices and the
acquisition and retention of relevant operating licences. In
addition, the profitability of new projects could be impacted by
higher than expected operating and Life of Mine (LOM) costs due to
variables such as lower than expected coal and iron ore quality,
coal seam economics and technical processing and engineering
factors.
In addition, the cost to EVRAZ of maintaining current mines is
subject to various factors which are outside the Company's control,
including the price of consumables.
Mitigation
EVRAZ reviews all proposed capital projects on a risk return
basis. The Group sets expected internal rates of return (IRR) for
each project as thresholds for approving the allocation of capital
based on the net present value (NPV) of expected cash flows from
invested capital. The IRR and NPV are also reviewed based on
sensitised cash flows using variables for commodity prices, inputs
and sales, and volumes (mines).
Before undertaking the development of a mine, EVRAZ takes into
account a range of considerations and utilises independent experts
to review various factors such as: resource estimates; studies of
ore quality in relation to market demand and value; mine
development costs; mining techniques (open pit or underground) and
associated investments; logistic options, including transport and
power; environmental impacts; and labour availability. Cash costs
and full sustainable cash costs over LOM are also reviewed compared
to local and open market metrics.
Each project is presented for approval against the Group's risk
matrix to assess the downside in respect of each project and any
potential mitigating actions.
Project delivery is closely monitored against project plans to
ensure that investments are on time and on budget and to assess any
changes in project and capital expenditure against the approved
NPV.
4. Environmental Incidents
Risk
Mining and steel production carry an inherent risk of
environmental impacts and incidents, relating to issues as diverse
as water usage and quality of water discharged, air emissions,
metallurgical waste recycling, tailings management and community
discontent. Consequentially, EVRAZ faces risks including regulatory
fines, penalties and adverse impacts on reputation and, in the
extreme, the withdrawal of mining or plant environmental licences
thereby curtailing operations for an indefinite period.
Mitigation
EVRAZ has put strong environmental systems, procedures and
controls into place. Environmental risks are the responsibility of
the regional business units with oversight from the Group's HSE
team, HSE Committee and, ultimately, the EVRAZ's Board.
The majority of EVRAZ's operations are certified under ISO 14001
and the Company continues to work towards bringing the remaining
plants to certification. EVRAZ is currently compliant with REACH
requirements.
5. Human Resources
Risk
EVRAZ's employees represent a key resource and are critical to
the delivery of the Company's objectives.
Principal risks involve the selection, recruitment, training and
retention of employees, together with securing appropriately
qualified executives with regard to current and new operations.
Succession planning in respect of EVRAZ's senior management is
under constant review although this does not preclude issues in
relation to key roles.
Whereas the aforementioned issues are applicable throughout the
Group's global operations, the on-going expansion of mining
operations in Russia has led to a particular shortage of
experienced and skilled mining professionals. This risk is
exacerbated by the climatic conditions and/or remote locations
pertaining to certain of the Company's current and potential mines.
Certain regulatory and cultural factors can also prove
disincentives in terms of recruitment from outside Russia.
There is a risk of employee union action, as witnessed at the
Group's South African operations during 2012, although such action
is not indicative of the overall state of labour relations at EVRAZ
which are largely favourable. However, this cannot preclude the
risk of future industrial disputes.
Mitigation
EVRAZ continually assesses its human resources requirements and
seeks to meet its leadership and skills needs through the retention
of employees and internal promotion. EVRAZ maintains structured and
professional internal mentoring and external development programmes
including
EVRAZ's New Leaders programme, focused on high potential
employees, and Talent management supervision conducted by the
Company's Talent Committee.
The Company has instigated clearly assigned responsibilities and
programmes designed to maintain close relationships with employee
unions throughout its operations. EVRAZ seeks to be proactive and
timely in response to the needs and concerns of trade unions
6. Business Interruption
Risk
Steel making and mining operations are subject to a number of
operational risks which have the potential to cause prolonged
production delays or shut-downs.
These include equipment failure, regulatory requirements in
respect of safety concerns, geological and technical challenges,
climatic conditions, interruptions to power supplies and
disruptions to transportation services.
Additionally, long-term business interruption may result in loss
of customers and damage to the Company's reputation.
Mitigation
EVRAZ has established protocols and procedures across all of its
activities to mitigate the effects of business interruption. The
Company has initiated planned maintenance programmes at the
majority of its plants and records of minor interruptions are
reviewed for the purpose of identifying prospective problems of
greater magnitude. KPIs are utilised at each of the Group's plants,
units and mines, encompassing all significant interruptions.
All of the Company's operations possess disaster recovery plans
which are reviewed regularly by Internal Audit. The Group also
carries business interruption insurance, excluding mining
operations.
7. Potential Actions by Governments
Risk
EVRAZ operates in a number of countries and there is a risk that
governments or government agencies could adopt new laws,
regulations or other requirements which could have an adverse
impact on the Group's operations and business. Such developments
could also have the effect of limiting the Group's ability to
obtain financing in international markets.
Mitigation
EVRAZ and its executive teams are members of various national
industry bodies and, as a result, contribute to the thinking of
such bodies and, when appropriate, participate in relevant
discussions with political and regulatory authorities.
EVRAZ also has programmes in place across the Group's operations
to support the Company's "good corporate citizen" credentials.
8. Treasury Risk
Risk
As with many other large multinational companies, EVRAZ faces
various treasury risks including liquidity, credit, and interest
rate risks.
Adverse events in global financial markets could affect the
Group's ability to raise new debt, refinance existing debt and/or
lead to higher debt service costs.
The Group's current debt facilities include certain covenants in
relation to equity, net debt and interest expense. A breach of
these covenants could result in certain of the Group's borrowing
facilities becoming repayable immediately.
EVRAZ is subject to significant counter-party risk via
receivables from commercial and financial institutions.
Mitigation
EVRAZ manages liquidity risk by maintaining adequate cash and
borrowing facilities, as well as through cash management procedures
that continually monitor forecast and actual cash flows and by
matching funding with the Group's cash needs and re-financing
obligations.
Covenant compliance is managed by close monitoring of the
overall Group's business performance and, again, with the continual
review of forecast and actual cash flow. Free cash flow, net of
capital expenditure, total funding, maturity profile and covenants
are considered at each EVRAZ Board meeting.
With regard to risk management of funding cost, the majority of
the Company's funding has been secured on a fixed interest
basis.
The Group manages counter-party risk with commercial customers
through a combination of letters of credit and, where
creditworthiness is uncertain, by pre-payments. In the event that
credit terms are longer than the Group's standard payment terms,
collateral is sought. There is no significant concentration of
credit risk within EVRAZ's customer base.
The credit worthiness of all financial institutions with which
EVRAZ has cash balances or places deposits is kept under regular
review.
The majority of the Group's funding is denominated in US
dollars. Major funding in other currencies, primarily the Russian
rouble, is substantially dollar hedged with financial
institutions.
9. Cost Competiveness
Risk
Most product groups in the steel industry are highly cost
competitive and this is particularly relevant to the Groups' key
markets in Russia and North America. Although EVRAZ is active in
the manufacture and sale of niche products, the Group is able to
focus on specific geographic regions and enjoys certain cost
advantages linked to customer proximity, volume and quality, the
majority of the Group's steel production remains cost and price
sensitive.
Steel making is a high capital cost industry and the impact of
lower plant utilisation increases the underlying cost per tonne of
crude and rolled steel, reducing any profit margin.
At the Group's Russian plants, employees tend to represent the
majority of the local community's active workforce. Changing
production requirements can, therefore, lead to local political and
social challenges.
Mitigation
The majority of the Group's recent investments have been
designed to significantly reduce costs, as illustrated by the
Company's utilisation of PCI technology within its steelmaking
operations in order to reduce energy costs and enable the use of
cheaper, lower quality carbon (coal/coke) inputs; the focus on the
development of the Group's key cost competitive rail and beam
production for both domestic and export markets; investment in the
production of high quality slab which can be further processed by
the Group's international plants, particularly for the North
American market; and the expansion and control of the Company's
Russian domestic steel distribution network.
The Group continues to develop a number of new greenfield and
brownfield mining operations which will produce higher quality coal
and iron ore at a lower cash cost, thereby benefiting the Company's
overall steel making cost per tonne.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Each of the directors listed on pages 70 to 71 of the Annual
report confirm that to the best of their knowledge:
-- the consolidated financial statements of EVRAZ plc, prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as
a whole (the 'Group');
-- the Directors' Report and the Financial Review on pages 92 to
95 and 62 to 67 of the Annual Report include a fair review of the
development and performance of the business and the position of the
Company and the Group, together with a description of the principal
risks and uncertainties that they face.
By order of the Board
Alexander Frolov
Chief Executive Officer
EVRAZ plc
Appendix 1
EBITDA
EBITDA represents profit from operations plus depreciation,
depletion and amortisation, impairment of assets, loss (gain) on
disposal of property, plant and equipment, and foreign exchange
loss (gain). EVRAZ presents an EBITDA because it considers EBITDA
to be an important supplemental measure of its operating
performance and believes that EBITDA is frequently used by
securities analysts, investors and other interested parties in the
evaluation of companies in the same industry. EBITDA is not a
measure of financial performance under IFRS and it should not be
considered as an alternative to net profit as a measure of
operating performance or to cash flows from operating activities as
a measure of liquidity. EVRAZ's calculation of EBITDA may be
different from the calculation used by other companies and
therefore comparability may be limited. EBITDA has limitations as
an analytical tool and potential investors should not consider it
in isolation, or as a substitute for an analysis of our operating
results as reported under IFRS. Some of these limitations
include:
-- EBITDA does not reflect the impact of financing or financing
costs on EVRAZ's operating performance, which can be significant
and could further increase if EVRAZ were to incur more debt.
-- EBITDA does not reflect the impact of income taxes on EVRAZ's operating performance.
-- EBITDA does not reflect the impact of depreciation and
amortisation on EVRAZ's operating performance. The assets of
EVRAZ's businesses which are being depreciated and/or amortised
will have to be replaced in the future and such depreciation and
amortisation expense may approximate the cost of replacement of
these assets in the future. EBITDA, due to the exclusion of these
costs, does not reflect EVRAZ's future cash requirements for these
replacements. EBITDA also does not reflect the impact of a loss on
disposal of property, plant and equipment.
Reconciliation of profit (loss) from operations to EBITDA is as
follows:
Year ended 31 December
-------------------------
2012 2011
------------ -----------
(US$ million)
------------------------------------------ -------------------------
Consolidated EBITDA reconciliation
------------------------------------------ -------------------------
Profit from operations 243 1,860
------------------------------------------ ------------ -----------
Add:
------------------------------------------ ------------ -----------
Depreciation, depletion and amortisation 1,259 1,153
------------------------------------------ ------------ -----------
Impairment of assets 413 104
------------------------------------------ ------------ -----------
Loss on disposal of property, plant &
equipment 56 50
------------------------------------------ ------------ -----------
Foreign exchange loss/(gain) 41 (269)
------------------------------------------ ------------ -----------
Consolidated EBITDA 2,012 2,898
------------------------------------------ ============ ===========
Steel segment EBITDA reconciliation
------------------------------------------ ------------ -----------
Profit from operations 845 580
------------------------------------------ ------------ -----------
Add:
------------------------------------------ ------------ -----------
Depreciation and amortisation 556 546
------------------------------------------ ------------ -----------
Impairment of assets 58 78
------------------------------------------ ------------ -----------
Loss on disposal of property, plant &
equipment 38 29
------------------------------------------ ------------ -----------
Foreign exchange loss/(gain) (171) 29
------------------------------------------ ------------ -----------
Steel segment EBITDA 1,326 1,262
------------------------------------------ ============ ===========
Mining segment EBITDA reconciliation
------------------------------------------ ------------ -----------
(Loss)/profit from operations (455) 1,150
------------------------------------------ ------------ -----------
Add:
------------------------------------------ ------------ -----------
Depreciation, depletion and amortisation 611 530
------------------------------------------ ------------ -----------
Impairment of assets 354 31
------------------------------------------ ------------ -----------
Loss on disposal of property, plant &
equipment 17 20
------------------------------------------ ------------ -----------
Foreign exchange loss/(gain) 95 (103)
------------------------------------------ ------------ -----------
Mining segment EBITDA 622 1,628
------------------------------------------ ============ ===========
Vanadium segment EBITDA reconciliation
------------------------------------------ ------------ -----------
Loss from operations (67) (13)
------------------------------------------ ------------ -----------
Add:
------------------------------------------ ------------ -----------
Depreciation and amortisation 47 34
------------------------------------------ ------------ -----------
Impairment of assets 0 0
------------------------------------------ ------------ -----------
Loss on disposal of property, plant &
equipment 1 0
------------------------------------------ ------------ -----------
Foreign exchange loss 0 1
------------------------------------------ ------------ -----------
Vanadium segment EBITDA (19) 22
------------------------------------------ ============ ===========
Other operations EBITDA reconciliation
------------------------------------------ ------------ -----------
Profit from operations 150 162
------------------------------------------ ------------ -----------
Add:
------------------------------------------ ------------ -----------
Depreciation and amortisation 38 40
------------------------------------------ ------------ -----------
Impairment of assets 1 (5)
------------------------------------------ ------------ -----------
Loss on disposal of property, plant &
equipment 0 1
------------------------------------------ ------------ -----------
Foreign exchange gain 0 (1)
------------------------------------------ ------------ -----------
Other operations EBITDA 189 197
------------------------------------------ ============ ===========
Unallocated EBITDA reconciliation
------------------------------------------ ------------ -----------
Loss from operations (323) (51)
------------------------------------------ ------------ -----------
Add:
------------------------------------------ ------------ -----------
Depreciation and amortisation 7 3
------------------------------------------ ------------ -----------
Foreign exchange (gain)/loss 117 (195)
------------------------------------------ ------------ -----------
Unallocated EBITDA (199) (243)
------------------------------------------ ============ ===========
Intersegment eliminations
------------------------------------------ ------------ -----------
Profit from operations 93 32
------------------------------------------ ------------ -----------
Eliminations EBITDA 93 32
------------------------------------------ ============ ===========
Appendix 2
Liquidity
Liquidity is not a measure under IFRS and it should not be
considered as an alternative to other measures of financial
position. EVRAZ's calculation of Liquidity may be different from
the calculation used by other companies and therefore comparability
may be limited.
31 December 31 December
2012 2011
------------ ---------------
(US$ million)
------------------------------------------- -----------------------------
Liquidity Calculation
------------------------------------------- -----------------------------
Cash and cash equivalents 1,320 801
------------------------------------------- ---------------- -----------
Amounts available under credit facilities 1,146 1,322
------------------------------------------- ---------------- -----------
Short-term bank deposits 674 2
------------------------------------------- ---------------- -----------
Total estimated liquidity 3,140 2,125
------------------------------------------- ================ ===========
Appendix 3
Net Debt
Net Debt represents long-term loans, net of current portion,
plus short-term loans and current portion of long--term loans, plus
finance lease liabilities, including current portion of finance
lease liabilities, less cash and cash equivalents (excluding
restricted deposits). Net Debt is not a measure under IFRS and it
should not be considered as an alternative to other measures of
financial position. EVRAZ's calculation of Net Debt may be
different from the calculation used by other companies and
therefore comparability may be limited.
Net Debt has been calculated as follows:
31 December 31 December
2012 2011
------------ ------------
(US$ million)
----------------------------------------- --------------------------
Net Debt Calculation
----------------------------------------- --------------------------
Add:
----------------------------------------- ------------ ------------
Long-term loans, net of current portion 6,373 6,593
----------------------------------------- ------------ ------------
Short-term loans and current portion
of long-term loans 1,783 613
----------------------------------------- ------------ ------------
Finance lease liabilities, including
current portion 13 39
----------------------------------------- ------------ ------------
Loans of disposal groups classified
as held for sale 79 -
----------------------------------------- ------------ ------------
Less:
----------------------------------------- ------------ ------------
Short-term bank deposits (674) (2)
----------------------------------------- ------------ ------------
Cash and cash equivalents (1,320) (801)
----------------------------------------- ------------ ------------
Cash of disposal groups classified
as held for sale (70) -
----------------------------------------- ------------ ------------
Net Debt 6,184 6,442
----------------------------------------- ============ ============
###
The 2012 Annual Report will shortly be available to view or
download in a pdf format from the Company's website at
www.evraz.com. A copy of the 2012 Annual Report will be submitted
to the National Storage Mechanism and will shortly be available for
inspection at http://www.morningstar.co.uk/uk/NSM.
For further information:
Media Relations:
Oleg Kuzmin
VP, Corporate Communications
London: +44 207 832 8998 Moscow: +7 495 937 6871
media@evraz.com
Investor Relations:
Sergey Belyakov
Director, Investor Relations
London: +44 207 832 8990 Moscow: +7 495 232 1370
ir@evraz.com
The financial statements of EVRAZ plc (registered number
7784342) on pages 100-165 of the Annual report were approved by the
Board of Directors on 10 April 2013 and signed on its behalf by
Alexander Frolov, Chief Executive Officer.
EVRAZ plc
Consolidated Statement of Operations
(in millions of US dollars, except for per share information)
------------------------------------------------------------------------------------
Year ended 31 December
-------------------------------
Notes 2012 2011 2010
------------------------------------------- ------ --------- --------- ---------
Revenue
------------------------------------------- ------ --------- --------- ---------
Sale of goods 3 $ 14,367 $ 16,077 $ 13,144
------------------------------------------- ------ --------- --------- ---------
Rendering of services 3 359 323 250
------------------------------------------- ------ --------- --------- ---------
14,726 16,400 13,394
------------------------------------------- ------ --------- --------- ---------
Cost of revenue 7 (11,797) (12,473) (10,319)
------------------------------------------- ------ --------- --------- ---------
Gross profit 2,929 3,927 3,075
------------------------------------------- ------ --------- --------- ---------
Selling and distribution costs 7 (1,211) (1,154) (807)
------------------------------------------- ------ --------- --------- ---------
General and administrative expenses 7 (860) (921) (732)
------------------------------------------- ------ --------- --------- ---------
Social and social infrastructure
maintenance expenses (51) (61) (64)
------------------------------------------- ------ --------- --------- ---------
Loss on disposal of property, plant
and equipment (56) (50) (52)
------------------------------------------- ------ --------- --------- ---------
Impairment of assets 6 (413) (104) (147)
------------------------------------------- ------ --------- --------- ---------
Foreign exchange gains/(losses),
net (41) 269 104
------------------------------------------- ------ --------- --------- ---------
Other operating income 75 50 63
------------------------------------------- ------ --------- --------- ---------
Other operating expenses 7 (129) (96) (110)
------------------------------------------- ------ --------- --------- ---------
Profit from operations 243 1,860 1,330
------------------------------------------- ------ --------- --------- ---------
Interest income 7 23 17 13
------------------------------------------- ------ --------- --------- ---------
Interest expense 7 (645) (708) (728)
------------------------------------------- ------ --------- --------- ---------
Share of profits/(losses) of joint
ventures and associates 11 1 55 21
------------------------------------------- ------ --------- --------- ---------
Gain/(loss) on financial assets
and liabilities, net 7 164 (355) 8
------------------------------------------- ------ --------- --------- ---------
Gain/(loss) on disposal groups
classified as held for sale, net 12 114 8 (14)
------------------------------------------- ------ --------- --------- ---------
Gain on bargain purchases 4 - - 4
------------------------------------------- ------ --------- --------- ---------
Other non-operating gains/(losses),
net (6) (4) (1)
------------------------------------------- ------ --------- --------- ---------
Profit/(loss) before tax (106) 873 633
------------------------------------------- ------ --------- --------- ---------
Income tax benefit/(expense) 8 (229) (420) (163)
------------------------------------------- ------ --------- --------- ---------
Net profit/(loss) $ (335) $ 453 $ 470
------------------------------------------- ------ --------- --------- ---------
Attributable to:
------------------------------------------- ------ --------- --------- ---------
Equity holders of the parent entity $ (308) $ 461 $ 486
------------------------------------------- ------ --------- --------- ---------
Non-controlling interests (27) (8) (16)
------------------------------------------- ------ --------- --------- ---------
$ (335) $ 453 $ 470
------------------------------------------- ------ --------- --------- ---------
Earnings/(losses) per share:
------------------------------------------- ------ --------- --------- ---------
basic, for profit/(loss) attributable
to equity holders of the parent
entity, US dollars 20 $ (0.23) $ 0.36 $ 0.39
------------------------------------------- ------ --------- --------- ---------
diluted, for profit/(loss) attributable
to equity holders of the parent
entity, US dollars 20 $ (0.23) $ 0.36 $ 0.39
------------------------------------------- ------ --------- --------- ---------
The accompanying notes form an integral part of these
consolidated financial statements.
EVRAZ plc
Consolidated Statement of Comprehensive Income
(in millions of US dollars)
-----------------------------------------------------------------------------------------
Year ended 31 December
-----------------------------------
Notes 2012 2011 2010
-------------------------------------------- ------ -------- -------- ---------------
Net profit/(loss) $ (335) $ 453 $ 470
-------------------------------------------- ------ -------- -------- ---------------
Other comprehensive income/(loss)
-------------------------------------------- ------ -------- -------- ---------------
Effect of translation to presentation
currency 286 (620) 64
-------------------------------------------- ------ -------- -------- ---------------
Net gains/(losses) on available-for-sale
financial assets 13 4 (20) (8)
-------------------------------------------- ------ -------- -------- ---------------
Net (gains)/losses on available-for-sale
financial assets reclassified
to profit or loss 13 - 20 4
-------------------------------------------- ------ -------- -------- ---------------
Income tax effect - - -
-------------------------------------------- ------ -------- -------- ---------------
4 - (4)
-------------------------------------------- ------ -------- -------- ---------------
Decrease in revaluation surplus
in connection with the impairment
of property, plant and equipment 9 - (1) (7)
-------------------------------------------- ------ -------- -------- ---------------
Income tax effect 8 - - 1
-------------------------------------------- ------ -------- -------- ---------------
- (1) (6)
-------------------------------------------- ------ -------- -------- ---------------
Net gains/(losses) on available-for-sale
financial assets of the Group's
joint ventures and associates 11 1 - -
-------------------------------------------- ------ -------- -------- ---------------
Effect of translation to presentation
currency of the Group's joint
ventures and associates 11 44 (35) (9)
-------------------------------------------- ------ -------- -------- ---------------
Share of other comprehensive
income/(loss) of joint ventures
and associates accounted for
using the equity method 45 (35) (9)
-------------------------------------------- ------ -------- -------- ---------------
Total other comprehensive
income/(loss) 335 (656) 45
-------------------------------------------- ------ -------- -------- ---------------
Total comprehensive income/(loss),
net of tax $ - $ (203) $ 515
-------------------------------------------- ------ -------- -------- ---------------
Attributable to:
-------------------------------------------- ------ -------- -------- ---------------
Equity holders of the parent
entity $ 28 $ (177) $ 522
-------------------------------------------- ------ -------- -------- ---------------
Non-controlling interests (28) (26) (7)
-------------------------------------------- ------ -------- -------- ---------------
$ - $ (203) $ 515
-------------------------------------------- ------ -------- -------- ---------------
The accompanying notes form an integral part of these
consolidated financial statements.
EVRAZ plc
Consolidated Statement of Financial Position
(in millions of US dollars)
-------------------------------------------------------------------------------------------
31 December
-------------------------------------------
Notes 2012 2011 2010
-------------------------------------- ------ ------------- ------------- -------------
Assets
-------------------------------------- ------ ------------- ------------- -------------
Non-current assets
-------------------------------------- ------ ------------- ------------- -------------
Property, plant and equipment 9 $ 7,792 $ 8,306 $ 8,607
-------------------------------------- ------ ------------- ------------- -------------
Intangible assets other than
goodwill 10 586 838 1,004
-------------------------------------- ------ ------------- ------------- -------------
Goodwill 5 2,180 2,180 2,219
-------------------------------------- ------ ------------- ------------- -------------
Investments in joint ventures
and associates 11 561 663 688
-------------------------------------- ------ ------------- ------------- -------------
Deferred income tax assets 8 66 79 100
-------------------------------------- ------ ------------- ------------- -------------
Other non-current financial
assets 13 92 53 118
-------------------------------------- ------ ------------- ------------- -------------
Other non-current assets 13 103 107 103
-------------------------------------- ------ ------------- ------------- -------------
11,380 12,226 12,839
-------------------------------------- ------ ------------- ------------- -------------
Current assets
-------------------------------------- ------ ------------- ------------- -------------
Inventories 14 1,978 2,188 2,070
-------------------------------------- ------ ------------- ------------- -------------
Trade and other receivables 15 895 971 1,213
-------------------------------------- ------ ------------- ------------- -------------
Prepayments 143 176 192
-------------------------------------- ------ ------------- ------------- -------------
Loans receivable 19 44 1
-------------------------------------- ------ ------------- ------------- -------------
Receivables from related parties 16 12 8 80
-------------------------------------- ------ ------------- ------------- -------------
Income tax receivable 59 83 54
-------------------------------------- ------ ------------- ------------- -------------
Other taxes recoverable 17 329 412 353
-------------------------------------- ------ ------------- ------------- -------------
Other current financial assets 18 712 57 52
-------------------------------------- ------ ------------- ------------- -------------
Cash and cash equivalents 19 1,320 801 683
-------------------------------------- ------ ------------- ------------- -------------
5,467 4,740 4,698
-------------------------------------- ------ ------------- ------------- -------------
Assets of disposal groups classified
as held for sale 12 930 9 2
-------------------------------------- ------ ------------- ------------- -------------
6,397 4,749 4,700
-------------------------------------- ------ ------------- ------------- -------------
Total assets $ 17,777 $ 16,975 $ 17,539
-------------------------------------- ------ ------------- ------------- -------------
Equity and liabilities
-------------------------------------- ------ ------------- ------------- -------------
Equity
-------------------------------------- ------ ------------- ------------- -------------
Equity attributable to equity
holders of the parent entity
-------------------------------------- ------ ------------- ------------- -------------
Issued capital 20 $ 1,340 $ 1,338 $ 375
-------------------------------------- ------ ------------- ------------- -------------
Treasury shares 20 (1) (8) -
-------------------------------------- ------ ------------- ------------- -------------
Additional paid-in capital 20 1,820 2,289 1,742
-------------------------------------- ------ ------------- ------------- -------------
Revaluation surplus 173 171 180
-------------------------------------- ------ ------------- ------------- -------------
Legal reserve 20 - - 36
-------------------------------------- ------ ------------- ------------- -------------
Unrealised gains and losses 11,13 5 - -
-------------------------------------- ------ ------------- ------------- -------------
Accumulated profits 3,356 3,606 4,570
-------------------------------------- ------ ------------- ------------- -------------
Translation difference (1,520) (1,851) (1,214)
-------------------------------------- ------ ------------- ------------- -------------
5,173 5,545 5,689
-------------------------------------- ------ ------------- ------------- -------------
Non-controlling interests 200 236 247
-------------------------------------- ------ ------------- ------------- -------------
5,373 5,781 5,936
-------------------------------------- ------ ------------- ------------- -------------
Non-current liabilities
-------------------------------------- ------ ------------- ------------- -------------
Long-term loans 21 6,373 6,593 7,097
-------------------------------------- ------ ------------- ------------- -------------
Deferred income tax liabilities 8 927 1,020 1,072
-------------------------------------- ------ ------------- ------------- -------------
Finance lease liabilities 22 11 26 38
-------------------------------------- ------ ------------- ------------- -------------
Employee benefits 23 294 296 315
-------------------------------------- ------ ------------- ------------- -------------
Provisions 25 257 285 279
-------------------------------------- ------ ------------- ------------- -------------
Other long-term liabilities 26 170 285 143
-------------------------------------- ------ ------------- ------------- -------------
8,032 8,505 8,944
-------------------------------------- ------ ------------- ------------- -------------
Current liabilities
-------------------------------------- ------ ------------- ------------- -------------
Trade and other payables 27 1,412 1,460 1,173
-------------------------------------- ------ ------------- ------------- -------------
Advances from customers 157 154 205
-------------------------------------- ------ ------------- ------------- -------------
Short-term loans and current
portion of long-term loans 21 1,783 613 714
-------------------------------------- ------ ------------- ------------- -------------
Payables to related parties 16 257 98 217
-------------------------------------- ------ ------------- ------------- -------------
Income tax payable 48 92 78
-------------------------------------- ------ ------------- ------------- -------------
Other taxes payable 28 195 188 180
-------------------------------------- ------ ------------- ------------- -------------
Current portion of finance lease
liabilities 22 2 13 19
-------------------------------------- ------ ------------- ------------- -------------
Provisions 25 32 53 54
-------------------------------------- ------ ------------- ------------- -------------
Amounts payable under put options
for shares of subsidiaries - 9 6
-------------------------------------- ------ ------------- ------------- -------------
Dividends payable by the Group's
subsidiaries to non-controlling
shareholders 8 9 13
-------------------------------------- ------ ------------- ------------- -------------
3,894 2,689 2,659
-------------------------------------- ------ ------------- ------------- -------------
Liabilities directly associated
with disposal groups classified
as held for sale 12 478 - -
-------------------------------------- ------ ------------- ------------- -------------
4,372 2,689 2,659
-------------------------------------- ------ ------------- ------------- -------------
Total equity and liabilities $ 17,777 $ 16,975 $ 17,539
-------------------------------------- ------ ------------- ------------- -------------
The accompanying notes form an integral part of these
consolidated financial statements.
EVRAZ plc
Consolidated Statement of Cash Flows
(in millions of US dollars)
--------------------------------------------------------------------------------
Year ended 31 December
----------------------------
2012 2011 2010
-------------------------------------------------- --------- ------- --------
Cash flows from operating activities
-------------------------------------------------- --------- ------- --------
Net profit/(loss) $ (335) $ 453 $ 470
-------------------------------------------------- --------- ------- --------
Adjustments to reconcile net profit/(loss)
to net cash flows from operating activities:
-------------------------------------------------- --------- ------- --------
Deferred income tax (benefit)/expense
(Note 8) (38) 12 (186)
-------------------------------------------------- --------- ------- --------
Depreciation, depletion and amortisation
(Note 7) 1,259 1,153 925
-------------------------------------------------- --------- ------- --------
Loss on disposal of property, plant
and equipment 56 50 52
-------------------------------------------------- --------- ------- --------
Impairment of assets 413 104 147
-------------------------------------------------- --------- ------- --------
Foreign exchange (gains)/losses, net 41 (269) (104)
-------------------------------------------------- --------- ------- --------
Interest income (23) (17) (13)
-------------------------------------------------- --------- ------- --------
Interest expense 645 708 728
-------------------------------------------------- --------- ------- --------
Share of (profits)/losses of associates
and joint ventures (1) (55) (21)
-------------------------------------------------- --------- ------- --------
(Gain)/loss on financial assets and
liabilities, net (164) 355 (8)
-------------------------------------------------- --------- ------- --------
(Gain)/loss on disposal groups classified
as held for sale, net (114) (8) 14
-------------------------------------------------- --------- ------- --------
Gain on bargain purchases - - (4)
-------------------------------------------------- --------- ------- --------
Other non-operating (gains)/losses,
net 6 4 1
-------------------------------------------------- --------- ------- --------
Bad debt expense 12 49 48
-------------------------------------------------- --------- ------- --------
Changes in provisions, employee benefits
and other long-term assets and liabilities (40) (29) (15)
-------------------------------------------------- --------- ------- --------
Expense arising from equity-settled
awards (Note 24) 22 23 2
-------------------------------------------------- --------- ------- --------
Share-based payments under cash-settled
awards (Note 24) - (1) (3)
-------------------------------------------------- --------- ------- --------
Other (6) (4) (3)
-------------------------------------------------- --------- ------- --------
1,733 2,528 2,030
-------------------------------------------------- --------- ------- --------
Changes in working capital:
-------------------------------------------------- --------- ------- --------
Inventories 121 (204) (191)
-------------------------------------------------- --------- ------- --------
Trade and other receivables (78) 167 (239)
-------------------------------------------------- --------- ------- --------
Prepayments 37 (2) (44)
-------------------------------------------------- --------- ------- --------
Receivables from/payables to related
parties 141 (61) (34)
-------------------------------------------------- --------- ------- --------
Taxes recoverable 120 (123) (91)
-------------------------------------------------- --------- ------- --------
Other assets 18 (3) 38
-------------------------------------------------- --------- ------- --------
Trade and other payables 96 367 107
-------------------------------------------------- --------- ------- --------
Advances from customers (1) (44) 80
-------------------------------------------------- --------- ------- --------
Taxes payable (43) 44 5
-------------------------------------------------- --------- ------- --------
Other liabilities (1) (22) 1
-------------------------------------------------- --------- ------- --------
Net cash flows from operating activities 2,143 2,647 1,662
-------------------------------------------------- --------- ------- --------
Cash flows from investing activities
--------------------------------------------- ------- ------- -----
Issuance of loans receivable to related
parties (5) (3) (46)
--------------------------------------------- ------- ------- -----
Proceeds from repayment of loans issued
to related parties, including interest 1 46 5
--------------------------------------------- ------- ------- -----
Issuance of loans receivable - (4) (1)
--------------------------------------------- ------- ------- -----
Proceeds from repayment of loans receivable,
including interest 4 4 2
--------------------------------------------- ------- ------- -----
Return of capital by a joint venture
(Note 11) 38 - -
--------------------------------------------- ------- ------- -----
Purchases of subsidiaries, net of cash
acquired (Note 4) (12) (36) (27)
--------------------------------------------- ------- ------- -----
Purchases of interest in associates/joint
ventures - - (9)
--------------------------------------------- ------- ------- -----
Restricted deposits at banks in respect
of investing activities - (1) 17
--------------------------------------------- ------- ------- -----
Short-term deposits at banks, including
interest (656) 5 29
--------------------------------------------- ------- ------- -----
Purchases of property, plant and equipment
and intangible assets (1,261) (1,281) (832)
--------------------------------------------- ------- ------- -----
Proceeds from disposal of property,
plant and equipment 9 23 21
--------------------------------------------- ------- ------- -----
Proceeds from sale of disposal groups
classified as held for sale, net of
transaction costs (Note 12) 311 5 42
--------------------------------------------- ------- ------- -----
Dividends received 88 54 1
--------------------------------------------- ------- ------- -----
Other investing activities, net (61) - 54
--------------------------------------------- ------- ------- -----
Net cash flows used in investing activities (1,544) (1,188) (744)
--------------------------------------------- ------- ------- -----
Cash flows from financing activities
---------------------------------------------- ------- ------- -------
Purchase of treasury shares in the course
of the Group's reorganisation (Note 20) $ (4) $ - $ -
---------------------------------------------- ------- ------- -------
Purchase of treasury shares (Note 20) - (22) -
---------------------------------------------- ------- ------- -------
Sale of treasury shares (Note 20) - 3 -
---------------------------------------------- ------- ------- -------
Payments relating to conversion of bonds
into shares (Note 21) - (161) -
---------------------------------------------- ------- ------- -------
Proceeds from issue of shares by a subsidiary
to non-controlling shareholders - 1 -
---------------------------------------------- ------- ------- -------
Purchases of non-controlling interests
(Note 4) (1) (51) (13)
---------------------------------------------- ------- ------- -------
Dividends paid by the parent entity to
its shareholders (Note 20) (375) (491) -
---------------------------------------------- ------- ------- -------
Dividends paid by the Group's subsidiaries
to non-controlling shareholders (1) (1) (1)
---------------------------------------------- ------- ------- -------
Proceeds from bank loans and notes 2,706 3,507 3,172
---------------------------------------------- ------- ------- -------
Repayment of bank loans and notes, including
interest (2,716) (3,815) (4,142)
---------------------------------------------- ------- ------- -------
Net proceeds from/(repayment of) bank
overdrafts and credit lines, including
interest 292 (283) 106
---------------------------------------------- ------- ------- -------
Payments under covenants reset (Note
21) (7) - (29)
---------------------------------------------- ------- ------- -------
Gain on derivatives not designated as
hedging instruments (Note 26) 81 66 31
---------------------------------------------- ------- ------- -------
Collateral under swap contracts (Note
18) 10 (10) -
---------------------------------------------- ------- ------- -------
Restricted deposits at banks in respect
of financing activities 2 (1) -
---------------------------------------------- ------- ------- -------
Payments under finance leases, including
interest (29) (24) (23)
---------------------------------------------- ------- ------- -------
Net cash flows used in financing activities (42) (1,282) (899)
---------------------------------------------- ------- ------- -------
Effect of foreign exchange rate changes
on cash and cash equivalents 32 (59) (7)
---------------------------------------------- ------- ------- -------
Net increase in cash and cash equivalents 589 118 12
---------------------------------------------- ------- ------- -------
Cash and cash equivalents at the beginning
of the year 801 683 671
---------------------------------------------- ------- ------- -------
Cash of disposal groups classified as
assets held for sale (Note 12) (70) - -
---------------------------------------------- ------- ------- -------
Cash and cash equivalents at the end
of the year $ 1,320 $ 801 $ 683
---------------------------------------------- ------- ------- -------
Supplementary cash flow information:
---------------------------------------------- ------- ------- -------
Cash flows during the year:
---------------------------------------------- ------- ------- -------
Interest paid $ (559) $ (586) $ (594)
---------------------------------------------- ------- ------- -------
Interest received 7 8 11
---------------------------------------------- ------- ------- -------
Income taxes paid by the Group (298) (443) (341)
---------------------------------------------- ------- ------- -------
The accompanying notes form an integral part of these
consolidated financial statements
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR GGUAPCUPWUAG
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