ru 
ru 
Menu

Preliminary results for year ended December 31, 2006

Back to the news list

Preliminary results for year ended December 31, 2006

April 26, 2007Evraz Group S.A. (LSE: EVR) today announces its preliminary audited results for the year ended 31 December 2006 with a strong year-on-year growth in sales volumes and revenues.

2006 Highlights:

Financials:

· Revenues growth of 27.4% to US$8,292 million from US$6,508 million in 2005

· Consolidated adjusted EBITDA up 42.7% to US$2,652 million from US$1,859 in 2005

· Net profit growth of 50.9% to US$1,385 million from US$918 million in 2005

· Strong cash flow generation from operating activities up by 39.8% to US$2,092 million due to increased profit margins and efficient working capital management

· Earnings per GDR increase by 45.4% from US$2.71 to US$3.94

Steel:

· Crude steel production grew by 16% to 16.1 million tonnes

· Total steel sales volumes climbed by 24.5% to 16.0 million tonnes driven by organic growth, acquisitions in Europe and inventory reductions

· Strong leadership growing Russian long products market with favourable pricing environment through 2006

· Successfully implemented capital investments programme of US$660 million

Mining:

· Robust level of self-coverage: 80% in iron ore and 84% in coking coal

· Commencement of iron ore production at Izykhgol and Burluk mines in Siberia

· Acquisitions of new iron ore development licence with 3.3 bln tonnes of resources in the Urals

· Successful IPO of OAO Raspadskaya in November

· Disposal of Neryungri coal mine project results in an impairment loss of US$66 million

Acquisitions:

· Acquisition of 24.9% in Highveld Steel and Vanadium Corporation for US$207 million in July

· Acquisition of 72.84% in Strategic Minerals Corporation (Stratcor) for US$125 million in August

· Successful tender offer for 100% of Oregon Steel Mills (USA) for US$2.3 billion closed in January 2007

Full year to December 31

(US$ million unless stated)

2006

2005

Change

Revenue

8,292

6,508

27.4%

Adjusted EBITDA 1

2,652

1,859

42.7%

Profit from operations

2,298

1,582

45.3%

Net profit 2

1,385

918

50.9%

Earnings per GDR 3, US$

3.94

2.71

45.4%

1 Refer to Attachment 1 for reconciliation to profit from operations

2 Net profit attributable to equity holders of the parent entity

3 1 share is represented by 3 GDRs

Alexander Frolov, Evraz Group’s Chairman and CEO, commented:

“Fiscal 2006 was the best year in the history of the Evraz Group. It was one of rapid growth with continuing success and we are delighted with this achievement. I am glad to present all-time record highs demonstrated by strong results in almost all spheres of our business. This achievement is completely in line with our long-term strategy and allowed us to deliver superior returns for our stockholders.

Steel sales volumes have climbed significantly on the back of an upward price trend in the world steel market that started in the second quarter of 2006, and were supported by growing steel consumption worldwide. Revenues grew compared to 2005 as the Company rationalised production across all its steel plants. In particular, we realised synergies from the successful integration of our European rolling mill facilities, Palini e Bertoli and Vitkovice Steel, which produce higher value-added products.

Through the year we stayed focused on our primary strategy to retain the Company’s position as one of the most cost-effective integrated steel producing and mining groups in the world. We believe that the ability to produce low-cost semi-finished and higher added-value steel products is essential to ensure long-term market competitiveness and value creation.

In 2006, we continued to expand our global presence with an agreed acquisition of the North American steel maker, Oregon Steel Mills. Closing on this transaction was made in mid-January, 2007. We also purchased Stratcor (USA and South Africa) and a share in Highveld Steel and Vanadium Corporation (South Africa).

In March 2007, we reported the tragic event with a significant loss of life at the Ulyanovskaya mine, operated by our affiliate, Yuzhkuzbassugol. The Company continues to monitor Yuzhkuzbassugol’s management actions, the social assistance to the dependents of the victims as well as the government authorities investigations as to the cause of this tragedy and the lessons to be learnt.

On behalf of Evraz’s board of directors and management I wish to thank all stockholders for continuing support and trust in our capabilities in managing the challenges we face on the road to success.

I would also like to thank our employees and partners for their enormous contribution to the year’s outstanding overall results.”

Commenting on the outlook for 2007 and beyond Alexander Frolov said:

“In 2007 we expect to produce 15.5-16.0 million tonnes of crude steel and 14.2-14.8 million tonnes of rolled products including 1.6-1.7 million tonnes in the US.

Evraz's investment plans of approximately $575 million will mainly target on-going projects to increase operational efficiency. Included in these projects is the reline of the Zapsib blast furnace. This investment will decrease crude steel output for 2007 by approximately 1 million tonnes. Additionally there will be a shutdown of all open hearth furnaces located in the very centre of Novokuznetsk, a city with population of over 550,000 people. Such action will further improve the local environmental conditions and increase operational efficiency of our Siberian plants.

Russian construction expansion will further stimulate domestic long products demand, which continues to outperform GDP growth. Favourable pricing environment in 1Q07 and expected strong pricing through 2Q07, together with solid growth in sales volumes are expected to combine to increase Evraz consolidated revenues for the first six months of 2007 by 45-55% and the 1H2007 EBITDA by 50-60%.”


Summary Results:

Evraz’s consolidated revenues in 2006 amounted to US$8,292 million, a 27.4% increase compared to revenues of US$6,508 million in 2005. The steel segment sales accounted for the majority of this increase in revenues following on the growth in sales volumes combined with the upward price trends in world markets. Total volumes of steel products sold in 2006 were 16.0 million tonnes, up 24.5% from 12.9 million tonnes in 2005.

In 2006, consolidated cost of revenues amounted to US$5,159 million compared with US$4,172 million in 2005. Cost of revenues as a share of consolidated revenues improved in percentage terms from 64.1% reported in 2005 to 62.2% in 2006. This improvement was primarily attributable to the growth in steel volumes and average prices in 2006 compared to 2005, while Evraz’s own iron ore at an effective underlying primary cost of production helped shield Evraz’s consolidated gross profits from the impact of increased prices of iron ore. Gross profit was up 34.1% to US$3,133 million from US$2,336 million.

In 2006, revenues from non-Russian sales increased to US$4,075 million, or 49.1% of total sales compared with US$2,603 million, 40.0% of total sales in 2005. The increased share of non-Russian revenues was attributable to the growth in export sales volumes following the acquisitions of Palini e Bertoli and Vitkovice Steel. Notwithstanding the significant increase in non-Russian sales, revenues from sales in Russia improved by 8% from US$3,905 million to US$4,217 million due to higher steel volumes and higher average steel prices, however decreased as a percentage of total revenues.

Profit from operations grew by 45.3% to US$2,298 million for the year ended 31 December 2006, amounting to 27.7% of consolidated revenues, compared to US$1,582 million in 2005, or 24.3% of consolidated revenues.

Evraz share in income of joint ventures and associates decreased by 21% to US$45 million due to Yuzhkuzbassugol losses.

In 2006, the Company reports consolidated net profit attributable to equity holders of Evraz Group of US$1,385 million vs. US$918 million in 2005. Income tax expense increased by 34.3% to US$638 million in 2006 from US$475 million in 2005. Evraz’s effective consolidated tax rate, defined as income tax expense as a percentage of profit before tax, slightly decreased from 31.1% in 2005 to 30.4% in 2006.

Consolidated adjusted EBITDA increased by 42.7% to US$2,652 million in 2006 compared with US$1,859 million in 2005. The adjusted EBITDA margin advanced to 32% in 2006 from 28.6% in 2005.


Review of Operations

Steel Segment Results

Full year to December 31

(US$ million unless stated)

2006

2005

Change

Revenues

8,161

6,221

31.2%

Profit from operations

1,966

1,308

50.3%

Adjusted EBITDA

2,232

1,509

47.9%

Adjusted EBITDA margin

27.3%

24.3%



Steel Segment Sales1

Full year to December 31

('000 tonnes)

2006

2005

Change

Semi-finished products

7,682

5,951

29.1%

Construction sector

4,222

3,973

6.3%

Railway sector

1,568

1,646

(4.7)%

Mining sector

285

270

5.6%

Plates

1,612

686

135.0%

Other finished products

645

334

93.1%

Total

16,014

12,860

24.5%

Year ended 31 December

2006

2005

2006 v 2005

US$ million

% of total

US$ million

% of total

% change

Construction products

2,126

26.1%

1,755

28.2%

21.1%

of which Vitkovice Steel

84

1.0%

10

0.2%

n/m

Railway products

966

11.8%

884

14.2%

9.3%

Plates

1,069

13.1%

365

5.9%

n/m

of which Palini

292

3.6%

105

1.7%

n/m

of which Vitkovice Steel

546

6.7%

67

1.1%

n/m

Mining products

143

1.8%

121

2.0%

18.2%

Semi-finished products

2,860

35.0%

2,203

35.4%

29.8%

Other steel products

325

4.0%

163

2.6%

99.4%

of which Vitkovice Steel

38

0.5%

3

0.0%

n/m

Vanadium products

224

2.7%

243

3.9%

(7.8)%

of which Stratcor

66

0.8%

n/a

n/a

n/m

Other products

448

5.5%

487

7.8%

(8.0)%

1 Third party sales

Steel segment revenues for 2006 were US$8,161 million, an increase of 31.2% from US$6,221 million in 2005, as a result of stronger average steel product pricing and the significant increased sales volumes of semi-finished steel products provided by the Russian plants, especially in a significant increase of slab production by Zapsib, following the commissioning of this site’s new continuous casting facility as at the end of 2005 and from the sales contribution of the two European plate mills, Palini e Bertoli and Vitkovice Steel. These acquisitions materially changed Evraz’s product mix and thus proportion of revenues from other product groups as they both produce mainly high value added flat products.

Despite healthy growth in monetary terms, revenues from sales of construction and railway products and from other sales declined as a proportion of steel segment sales, while revenues from sales of other steel products (predominantly plates) increased as a proportion of steel segment sales in 2006 compared to 2005.

Having shown growth in the amount of 29.8% year-on-year, the share of semis sales slightly fell from 35.4% of total steel revenues in 2005 to 35.0% in 2006.

The proportion of revenues attributable to sales of railway products declined due to a lower sales volume (wheels, in particular) in 2006 compared to 2005.

In 2006, the steel segment profitfrom operations increased by 50.3% to US$1,966 million in 2006 from US$1,308 million in 2005. Profit from operations as a percentage of steel segment revenues amounted to 24.1% and 21.0% in 2006 and 2005, respectively.

In 2006 adjusted EBITDA in the steel segment totalled US$2,232 million or 27.3% of steel segment revenues, compared with $1,509 million, 24.3% of 2005 steel revenues.


Mining Segment Results

Full year to December 31

(US$ million unless stated)

2006

2005

Change

Revenues

1,147

989

16.0%

Profit from operations

351

259

35.5%

Adjusted EBITDA

415

313

32.6%

EBITDA margin

36.2%

31.6%


Mining Segment Production

Full year to December 31

(million tonnes)

2006

2005

Change

Iron ore

Concentrate (saleable products)

2.5

2.7

(7.4)%

Sinter

8.5

8.8

(3.4)%

Pellets

5.9

5.2

13.5%

Coal (mined)1

Coking coal

0.7

0.5

40.0%

Steam coal

0.1

0.05

100.0%

Reference2

Coking coal (Raspadskaya)

9.2

6.4

43.8%

Coal (Yuzhkuzbassugol)

16.1

n/a

n/a

1 Mine 12 operational results are consolidated into the Group since April 2005.

2 As at 31 December 2006 Evraz Group held 39.9% effective interest in Raspadskaya Mine and 50% interest in Yuzhkuzbassugol

Mining segment revenues climbed by 16.0% to US$1,147 million in 2006, compared with US$989 million in 2005. The increase largely reflected the growth in the average prices of iron ore in 2006. Sales volumes of iron ore increased by 1.2% in 2006 compared to 2005.

Almost all of Evraz mining segment sales consist of iron ore. Approximately 72% of Evraz’s iron ore requirements were met by the mining segment in 2006, compared to 76% in 2005, though in absolute terms supplies of iron ore from the mining segment to the steel segment slightly increased. The decrease in the proportion of iron ore sourced internally largely resulted from the substantial increase in the production of hot iron and steel products by the Russian steel mills in order to capitalise on the favourable market conditions in 2006.

Theminingsegmentprofitfromoperations increased by 35.5% to US$351 million in 2006, or 30.6% of mining segment revenues. This compares with US$259 million, or 26.2% of mining segment revenues in 2005. The increase resulted from higher iron ore prices on the markets in 2006 compared to 2005.

Adjusted EBITDA in the mining segment went up by 32.6% to US$415 million, or 36.2% of mining segment revenues in 2006 from US$313 million, or 31.6% in 2005.

Consolidated Group Financial Position

Cash flow

Cash flow from operating activities increased by 39.8% year-on-year to US$2,092 million from US$1,496 million. The increase in net cash provided by operating activities in 2006 was due to the increased profit margins and a decrease in cash used in working capital.

Cash used in investing activities totalled US$1,577 million in 2006 vs. US$1,753 million in 2005. Substantially all the cash used in investing activities related to purchases of property, plant and equipment, shares in subsidiaries and an interest in a joint venture.

In 2006, Evraz made capital expenditures of US$660 million, including US$533 million in respect of its steel segment and US$98 million in respect of its mining segment.


Balance sheet

Estimated Liquidity

(US$ million)

As of

31 December
2006

As of 31 December 2005

Cash and cash equivalents

842

641

Amount available under credit facilities

388

675

Short-term bank deposits

24

16

Total estimated liquidity

1,254

1,332

Net debt as of 31 December 2006 increased when compared with 31 December 2005 by US$45 million to US$ 1,754 million. Cash reserves increased to US$842 million as of 31 December 2006 from US$641 million as of 31 December 2005.

Evraz has sufficient liquidity to support its current operations and meet its current debt obligations. Evraz had estimated liquidity (defined as cash and cash equivalents, amounts available under unrestricted credit facilities and short-term bank deposits with original maturity of more than three months) of approximately US$1,254 million as of 31 December 2006 compared with US$1,332 million as of 31 December 2005. The cash balance, including US$24 million in short-term deposits, grew by 31.8% to US$866 million.

As of 31 December 2006, total assets amounted to US$8,522 million, an increase of 26.2% from US$6,754 million as of 31 December 2005.

Parent shareholders’ equity, including reserves and accumulated profits as at 31 December 2006, increased 50.4% to US$4,074 million from US$2,708 million as at 31 December 2005.

# # #

Note:

Percentage changes may not be exact due to rounding.


Attachment 1

Adjusted EBITDA

Adjusted EBITDA represents profit from operations plus depreciation and amortisation, impairment of assets and loss (gain) on disposals of property plant and equipment. Adjusted 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 Adjusted EBITDA may be different from the calculation used by other companies and therefore comparability may be limited.

Reconciliation of Adjusted EBITDA to profit from operations is as follows:

(Year ended 31 December)

2006

2005

(in millions of US dollars)

Consolidated Adjusted EBITDA reconciliation

Profit from operations

2,298

1,582

Add:

Depreciation

304

245

Impairment of assets

29

8

Loss (gain) on disposal of property, plant & equipment

21

24

Consolidated Adjusted EBITDA

2,652

1,859

Steel segment Adjusted EBITDA reconciliation

Profit from operations

1,966

1,308

Add:

Depreciation

228

183

Impairment of assets

22

-

Loss (gain) on disposal of property, plant & equipment

15

18

Steel segment Adjusted EBITDA

2,232

1,509

Mining segment Adjusted EBITDA reconciliation

Profit from operations

351

259

Add:

Depreciation

59

50

Impairment of assets

1

-

Loss (gain)on disposal of property, plant & equipment

4

4

Mining segment Adjusted EBITDA

415

313

Other operations Adjusted EBITDA reconciliation

Profit from operations

26

34

Add:

Depreciation

17

12

Impairment of assets

5

-

Loss (gain) on disposal of property, plant & equipment

2

2

Other operations Adjusted EBITDA

50

48


Attachment 2

Net Debt

Net Debt represents long-term loans, net of current portion, plus short-term loans and current portion of long‑term loans less cash and cash equivalents (excluding restricted deposits). Net Debt is not a balance sheet 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:

(Year ended 31 December)

2006

2005

(in millions of US dollars)

Net Debt Calculation

Add:

Long-term loans, net of current portion

1,855

1,515

Short-term loans and current portion of long-term loans

741

835

Less:

Cash and cash equivalents

(842)

(641)

Net Debt

1,754

1,709


Evraz Group S.A.

Consolidated Income Statement

(In millions of US dollars, except for per share information)

Year ended 31 December

2006

2005

Revenue

Sale of goods

$ 8,166

$ 6,387

Rendering of services

126

121

8,292

6,508

Cost of revenue

(5,159)

(4,172)

Gross profit

3,133

2,336

Selling and distribution costs

(243)

(181)

General and administrative expenses

(489)

(467)

Social and social infrastructure maintenance expenses

(86)

(76)

Loss on disposal of property, plant and equipment

(21)

(24)

Impairment of assets

(29)

(8)

Foreign exchange gains/(losses), net

48

(5)

Other operating income/(expenses), net

(15)

7

Profit from operations

2,298

1,582

Interest income

27

15

Interest expense

(228)

(142)

Share of profits/(losses) of joint ventures and associates

45

57

Gain/(loss) on extinguishment of debts, net

13

8

Gain/(loss) on financial assets and liabilities, net

13

-

Loss on assets held for sale

(72)

-

Excess of interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition

1

15

Other non-operating gains/(losses), net

-

(7)

Profit before tax

2,097

1,528

Income tax expense

(638)

(475)

Net profit

$ 1,459

$ 1,053

Attributable to:

Equity holders of the parent entity

$ 1,385

$ 918

Minority interests

74

135

$ 1,459

$ 1,053

Earnings per share:

basic, for profit attributable to equity holders of the parent entity, US dollars

$ 11.83

$ 8.14

diluted, for profit attributable to equity holders of the parent entity, US dollars

8. $ 11.74

$ 8.13


Evraz Group S.A.

Consolidated Balance Sheet

(In millions of US dollars)

December 31, 2006

December 31,

2005

Assets

Non-current assets

Property, plant and equipment

$ 3,712

$ 3,071

Goodwill

104

67

Investments in joint ventures and associates

1,499

906

Restricted deposits at banks

12

8

Other non-current assets

273

58

5,600

4,110

Current assets

Inventories

855

964

Trade and other receivables

637

429

Loans receivable

19

-

Receivables from related parties

54

90

Income tax receivable

51

16

Other taxes recoverable

334

461

Short-term investments and notes receivable

25

19

Restricted deposits at banks

-

24

Cash and cash equivalents

842

641

2,817

2,644

Assets classified as held for sale

105

-

2,922

2,644

Total assets

$ 8,522

$ 6,754

Equity and liabilities

Equity

Parent shareholders’ equity

Issued capital

$ 318

$ 316

Additional paid-in capital

531

547

Legal reserve

28

22

Accumulated profits

2,758

1,751

Translation difference

439

72

4,074

2,708

Minority interests

176

179

4,250

2,887

Non-current liabilities

Long-term loans

1,855

1,515

Deferred income tax liabilities

295

265

Finance lease liabilities

42

30

Post-employment benefits

111

79

Provisions

38

14

Amounts payable under put options for shares of subsidiaries

-

67

Other long-term liabilities

45

2

2,386

1,972

Current liabilities

Trade and other payables

528

447

Short-term loans and current portion of long-term loans

741

835

Payables to related parties

176

315

Income tax payable

66

70

Other taxes payable

96

189

Current portion of finance lease liabilities

11

7

Provisions

8

15

Amounts payable under put options for shares of subsidiaries

175

-

Dividends payable by the parent entity to its shareholders

38

3

Dividends payable by the Group’s subsidiaries to minority shareholders

24

14

1,863

1,895

Liabilities directly associated with assets classified as held for sale

23

-

1,886

1,895

Total equity and liabilities

$ 8,522

$ 6,754


Evraz Group S.A.

Consolidated Cash Flow Statement

(In millions of US dollars)

Year ended 31 December

2006

2005

Cash flows from operating activities

Net profit

$ 1,459

$ 1,053

Adjustments to reconcile net profit to net cash flow from operating activities:

Depreciation, depletion and amortisation

304

245

Deferred income tax (benefit)/expense

(25)

2

Loss on disposal of property, plant and equipment

21

24

Impairment of assets

29

8

(Gain)/loss on extinguishment of debts

(13)

(8)

Foreign exchange (gains)/losses, net

(48)

5

Share of (profits)/losses from associates and joint ventures

(45)

(57)

Excess of interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition

(1)

(15)

(Gain)/loss on financial assets and liabilities, net

(13)

-

Loss on assets held for sale

72

-

Other non-operating (gains)/losses

-

6

Interest income

(27)

(15)

Interest expense

228

142

Bad debt expense

4

8

Share-based payments

17

8

1,962

1,406

Changes in working capital:

Inventories

208

(14)

Trade and other receivables

(156)

54

Receivables from / payables to related parties

(17)

13

Taxes recoverable

109

(101)

Other assets

(1)

(3)

Trade and other payables

108

70

Taxes payable

(127)

55

Other liabilities

6

16

Net cash flows from operating activities

2,092

1,496

Cash flows from investing activities

Issuance of loans receivable to related parties

-

(202)

Proceeds from repayment of loans issued to related parties, including interest

6

206

Issuance of loans receivable

(20)

(38)

Proceeds from repayment of loans receivable, including interest

3

45

Purchases of subsidiaries, net of cash acquired

(113)

(312)

Purchases of minority interests

(96)

(415)

Purchase of interest in associates/joint venture

(736)

(400)

Restricted deposits at banks in respect of investing activity

(207)

-

Short-term deposits at banks

18

16

Purchases of property, plant and equipment

(660)

(695)

Proceeds from disposal of property, plant and equipment

10

8

Dividends and advances in respect of future dividends received

212

30

Other investing activities, net

6

4

Net cash flows used in investing activities

(1,577)

(1,753)

Cash flows from financing activities

Proceeds from issuance of share capital, net of transaction costs

$ -

$ 399

Proceeds from exercise of share options

26

-

Contributions from Crosland Limited

-

131

Payments to entities under common control for the transfer of ownership interest in subsidiaries

-

(33)

Proceeds from loans provided by related parties

8

9

Repayment of loans provided by related parties, including interest

-

(62)

Net (repayment)/proceeds from bank overdraft credit lines, including interest

(1)

(136)

Proceeds from loans and promissory notes

708

1,305

Repayment of loans and promissory notes, including interest

(684)

(418)

Restricted deposits at banks in respect of financing activities

23

(11)

Dividends paid by the parent entity to its shareholders

(352)

(524)

Dividends paid by the Group’s subsidiaries to minority shareholders

(40)

(11)

Payments under finance leases, including interest

(19)

(12)

Payments under Settlement Agreements, including interest, and purchases of debts in subsidiaries

(2)

(8)

Payments of restructured taxes, including interest

(8)

(22)

Net cash flows from/(used in) financing activities

(341)

607

Effect of foreign exchange rate changes on cash and cash equivalents

27

(2)

Net increase/(decrease) in cash and cash equivalents

201

348

Cash and cash equivalents at beginning of period

641

293

Cash and cash equivalents at end of period

$ 842

$ 641

Supplementary cash flow information:

Cash flows during the period:

Interest paid

$ 211

$ 122

Income taxes paid

656

477



Please refer to Attachment 2 for calculation of net debt