News Column

Evraz Swings To Pretax Profit As Lower Steel Prices Hit Revenue

August 27, 2014

Alice Attwood

LONDON (Alliance News) - Evraz PLC said Wednesday that it swung to a pretax profit in its first-half and remains confident in its business model as revenue fell on reduced selling prices and overcapacity across the global steel industry.

The integrated steel making and mining company said pretax profit for the six months to June 30, 2014 came in at USD85 million, up from a USD139 million loss last year.

Revenue, however, fell 7% to USD6.81 billion from USD7.32 billion in the first-half of 2013, a decrease which primarily reflects lower selling prices as a result of overcapacity in the global steel industry, said the company.

Evraz said its operating profit more than doubled during the first-half, up to USD297 million from USD145 million last year.

On a divisional basis, Evraz said the steel segment - which amounts to 87% of group revenue - recorded revenue of USD5.90 billion, down 8% on USD6.40 billion last year with crude steel production of 7.8 million tonnes, down 4% from 7.8 million in 2013 and total external sales of steel products marginally down at 7.7 million tonnes.

In the coal segment revenue came in at USD665 million, down 8% on the comparative USD722 million, as raw coking coal production increased 7% to 9.8 million tonnes, including 4.4 million tonnes from the Raspadskaya mining complex, said Evraz.

Iron ore revenue dropped 27% to USD659 million from USD900 million and production of iron ore products was 4% lower at 11.3 million tonnes on the back of lower output by the Russian operations largely driven by the disposal of high cost operation EVRAZ VGOK and three mines of the Evrazruda enterprises.

The global steel industry has continued to struggle in the face of excess capacity in the first-half, said Evraz, "Lower raw material prices have helped although some of the benefit has been eroded as a result of lower selling prices. Put briefly, the situation in the steel sector remains challenging, with margins under pressure. We are adopting a cautious outlook towards raw material prices: negative on iron ore and neutral to positive in respect of coking coal."

The company said the sale prices of steel products decreased by 4.6% in the first-half of 2014, which hit revenue in tandem with a decrease in sales of non-core products by the subsidiaries of the Steel segment, including coke, chemicals and scrap.

As at June 20, 2014 the company said net debt dropped to USD6.10 billion from USD6.53 billion last year as its total assets fell 8% to USD16.33 billion from USD17.69 billion on the comparative period 2013.

The FTSE 250-listed company swung to a net profit of USD1 million for the first-half of 2014, compared to a net loss of USD146 million in 2013. "This is mainly the result of an improvement in business performance: the contribution of asset optimisation and cost efficiency actions can be estimated at USD193 million in the first half of this year, excluding the effect of fluctuations of foreign exchange, said CFO Giacomo Baizini.

Evraz said foreign exchange fluctuations hit, as both the Russian rouble and the Ukrainian hryvnia devalued against the US dollar, 12.8% and 28.6%, respectively in the first-half, compared to the average rate in comparable period. "This had an additional positive effect on costs in Russia and Ukraine, but was counterbalanced by a delay in the readjustment of the local currency prices of domestic steel sales," added Baizini.

The company said that it continues to focus on cost efficiencies, amid an operating strategy that builds on its 'core value drivers' which includes economically efficient low cost production of steel making raw materials (iron ore and coking coal), high quality steel assets in attractive markets, and a competitive product portfolio encompassing an increasing range of higher value products.

Evraz has set itself four strategic pillars to achieve this; cost cutting initiatives, selective investments in low-risk, high return projects, customer focus to leverage our leading market positions, and deleveraging.

"We remain confident in the strong long-term fundamentals of our business model and are undertaking all appropriate measures to ensure sustainable profitability in the current market environment," said CEO Alexander Frolov.

"While we cannot control many of the challenges that the global economy and steel sector present, we believe that the benefits derived from asset portfolio optimisation, our efficiency improvement and cost reduction programme, lower capital expenditure and progressive product mix development will put us in a strong position to enhance shareholder value," he added.

Shares in the FTSE 250-listed company were Wednesday trading 3.38% lower at 110.05 pence per share, the second biggest faller on the index.

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Source: Alliance News

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