EVRAZ PLC Unaudited Interim Financial Results For H1 2022

EVRAZ plc (“EVRAZ” or “the Group” or “the Company”; LSE: EVR) today announces its unaudited interim financial results for the six months ended 30 June 2022 (“the Period”).

H1 2022 HIGHLIGHTS

Consolidated EBITDA1 totalled US$2,486 million, up 19.4% YoY from US$2,082 million in H1 2021. The EBITDA margin1 declined to 30.7% from 33.7% in H1 2021. The increase in EBITDA was primarily attributable to higher coal product sales prices as well as better performance of North American assets.

Cost-cutting and customer focus initiatives generated an effect of US$237 million in EBITDA.

Total debt1 dropped by US$136 million to US$3,958 million, while net debt1 amounted to US$3,165 million.

Net profit totalled US$6 million, compared with US$1,212 million in H1 2021.

The cash cost of steel and raw materials in Russia was the following:

The cash cost of slabs1 increased to US$358/t from US$283/t in H1 2021

The cash cost of washed coking coal1 increased to US$62/t from US$36/t in H1 2021

The cash cost of iron ore products1 increased to US$56/t from US$40/t in H1 2021

The Group reported negative free cash flow1 of US$59 million, compared with positive US$836 million in H1 2021 following a surge in working capital due to an increase in inventory and receivables amid hindered exports.

Financial Highlights

(US$ million)	H1 2022	H1 2021	Change, %
Consolidated revenues	8,097	6,178	31
Profit from operations	383	1,749	-78.1
Consolidated EBITDA1	2,486	2,082	19.4
Net profit	6	1,212	-99.5
Net cash flows from operating activities	632	1,410	-55.1
Free cash flow1	-59	836	n/a
CAPEX1	513	430	19.3
	30 June 2022	31 December 2021	Change, %
Net debt1	3,165	2,667	18.7
Total assets	13,370	9,854	35.6

Commenting on the results, EVRAZ’s Chief Executive Officer, Aleksey Ivanov, said:

“Recent geopolitical tensions have given rise to significant corporate governance and operating challenges for EVRAZ. On top of that, strong rouble, declining demand for our products, and increased competition on EVRAZ’s traditional markets present additional headwinds.

In H1 2022, steel demand went down amid growing worries over the health of the global economy and persistent supply chain challenges. There was bearish sentiment in China due to extended COVID-19 lockdowns, low margins and rising steel inventory. This led to a pullback in steel prices from recent highs across all key markets and especially in China, Europe and India.

Despite the above, EVRAZ posted strong EBITDA of US$2.5 billion, up 19.4% year-on-year. This was achieved thanks to higher coal sales prices and better performance of our North American operations, as well as our cost-cutting and productivity improvement initiatives and customer focus efforts, which generated a total effect of US$237 million in EBITDA.

Given the current macroeconomic backdrop and hindered access to foreign equipment, the schedules of investment projects that are related to the development of EVRAZ and are not currently in the active phase had to be adjusted. Overall CAPEX stood at US$513 million, including US$253 million for development projects.

In addition, we slightly improved our debt position, reducing total debt by US$136 million to US$3,958 million while net debt amounted to US$3,165 million. The ratio of net debt to last twelve months (LTM) EBITDA amounted to 0.6x in the reporting period.

Notwithstanding the current hardships, we remain committed to the sustainable development of our business. We value and protect the health and safety of our personnel. Unfortunately, in H1 2022, we lost four employees, and there were four fatalities among our contractors. Fatal incidents are unacceptable, and EVRAZ is going to do its utmost to prevent them from happening again. We have thoroughly investigated the underlying causes of these tragedies and introduced measures to mitigate causes and minimise risks.

In H1 2022, we also maintained close communication with our employees, communities where we operate, and other relevant stakeholders. In its ESG efforts, EVRAZ is consistently transparent, providing regular and comprehensive non-financial disclosures in line with GRI, SASB and TCFD standards.

Geopolitical tensions, mounting economic pressure and sanctions are continuing to shape EVRAZ’s operating environment in H2 2022, but we are adapting our business to the new reality and working to deliver on our commitments to customers, suppliers and employees.”

In H1 2022, the MB FeV benchmark averaged US$45.0/kgV, an increase of 35% YoY. Demand in the key markets, specifically in Europe and North America, started to decline in Q2 2022 mainly due to the crisis in the automotive industry and overall economy slowdown in those regions. In China, vanadium demand stays 15% below the 2021 levels despite recovery from lockdowns in April–May, as construction steel output continues its downtrend. As a result, during the reporting period price in Europe and China decreased from US$43–44/kgV (April) to circa US$37–38/kgV (May–June). The US market maintains a premium relative to the European market, mainly due to the mid-term market imbalance caused by lower local supply, logistics constraints and changes in the import structure, while real demand from the steel industry is rather declining.

In the vanadium business, EVRAZ maintained all of its supply and conversion chains, as well as its leading position at most of consuming markets globally. However, demand from the steel industry in Europe and North America started to decline in Q2 2022 due to overall economy slowdown and a crisis in the automotive industry, which led to a certain shift in the geography of sales towards Asian markets. The Group has increased share of vanadium products sold under the long-term contracts to 60–65% in H1 2022, focusing primarily on the strategic partnership with customers, including technical support and joint R&D activities aiming to promote and increase high performance vanadium-alloyed steel usage in various applications.