Statement of operations

In its full-year financial results for 2017, EVRAZ reported an increase of 40.4% year-on-year in consolidated revenues, which were US$10,827 million compared with US$7,713 million in 2016. This performance was driven partially by higher volumes but mostly by an upswing in prices for steel and coal products amid more favourable market trends.

Nikolay Ivanov

In 2017 EBITDA increased significantly mainly driven by improved market conditions in steel and coal markets as well as efficiency initiatives. In 2017 EBITDA reached US$2,624 million, up 70.2% from US$1,542 million in 2016, boosting the EBITDA margin from 20.0% to 24.2% and increasing free cash flow to US$1,322 million.

The Steel segment’s revenues (including inter-segment) increased by 40.9% year-on-year to US$7,743 million, or 63.0% of the Group’s total before elimination. The growth was mainly attributable to higher revenues from sales of steel products, which rose by 39.8% year-on-year, largely due to an upturn in average sales prices of 38.6% that was underpinned by favourable market conditions. Steel product sales volumes remained strong in 2017 (+1.2% y-o-y).

The Steel, North America segment’s revenues grew by 27.3% year-on-year. Prices rose by 18.7% and volumes climbed by 12.7%, boosting the segment’s revenues from sales of steel products by 31.4%. The key drivers of this growth were an improved demand for oil country tubular goods (OCTG) following a recovery in oil prices and a stronger demand for railway products.

The Coal segment’s revenues surged by 67.5% year-on-year, supported largely by higher sales prices, which grew by 62.9% amid an upward trend in global benchmarks. Volumes rose by 4.6% due to the stable demand and the improved productivity at mines.

Revenues, US$ million
Segment 2017 2016 Change Change, %
Steel 7,743 5,497 2,246 40.9
Steel, North America 1,864 1,464 400 27.3
Coal 2,214 1,322 892 67.5
Other operations 462 363 99 27.3
Eliminations (1,456) (933) (523) 56.0
Total 10,827 7,713 3,114 40.4
Revenues by region, US$ million
Segment 2017 2016 Change Change, %
Russia 4,255 3,080 1,175 38.1
Americas 2,201 1,722 479 27.8
Asia 2,162 1,372 790 57.6
CIS (excl. Russia) 812 630 182 28.9
Europe 1,128 640 488 76.3
Africa and rest of the world 269 269
Total 10,827 7,713 3,114 40.4

The Steel segment’s EBITDA improved, reflecting higher steel and vanadium prices and the effects of cost-cutting initiatives implemented in 2017. This was partially offset by an increase in expenses in US dollar terms as a result of the the rouble’s strengthening impact on costs, as well as by rising prices for raw materials such as coal, iron ore and scrap.

The Steel, North America segment’s EBITDA increased year-on-year, supported by greater revenues from sales of tubular, railway and flat-rolled products as well as higher expenses in prior year connected with suspension of production. This was partly offset by higher prices for scrap and purchased semi-finished products.

The Coal segment’s EBITDA increased year-on-year largely driven by higher sales prices in line with global benchmarks.

Eliminations mostly reflect unrealised profits or losses that relate to the inventories produced by the Steel segment on the Steel, North America segment’s balance sheet, and coal inventories produced by the Coal segment on the Steel segment’s balance sheet.

EBITDA, US$ million
Segment 2017 2016 Change Change, %
Steel 1,483 1,004 479 47.7
Steel, North America 58 28 30 107.1
Coal 1,226 644 582 90.4
Other operations 21 17 4 23.5
Unallocated (131) (109) (22) 20.2
Eliminations (33) (42) 9 (21.4)
Total 2,624 1,542 1,082 70.2

For more information on the definition of EBITDA, please see page Definitions of selected alternative performance measures.


The following table details the effect of the Group’s cost-cutting initiatives.

Effect of Group’s cost-cutting initiatives in 2017, US$ million
Improving yields and raw material costs, including 104
Improving yields and raw material costs of Urals and Siberia divisions 61
Various improvements at coal beneficiating plants and mines 30
Improving yields and raw material costs of North American assets and vanadium operations 13
Increasing productivity and cost effectiveness 37
Others, including 22
Reduction of general and administrative (G&A) costs and non-G&A headcount 16
Optimisation of asset portfolio 6
Total 163
Revenues, cost of revenue and gross profit by segments, US$ million
2017 2016 Change, %
Steel segment
Revenues 7,743 5,497 40.9
Cost of revenue (5,795) (4,068) 42.5
Gross profit 1,948 1,429 36.3
Steel, North America segment
Revenues 1,864 1,464 27.3
Cost of revenue (1,656) (1,243) 33.2
Gross profit 208 221 (5.9)
Coal segment
Revenues 2,214 1,322 67.5
Cost of revenue (973) (701) 38.8
Gross profit 1,241 621 99.8
Other operations – gross profit 104 85 22.4
Unallocated – gross profit (8) (7) 14.3
Eliminations – gross profit (151) (157) (3.8)
Total 3,342 2,192 52.5

In 2017, selling and distribution expenses increased by 15.1%, mostly due to the stronger rouble and higher sales volumes. General and administrative expenses rose by 15.1%, primarily because of the effect that the rouble appreciation had on costs.

Foreign exchange losses amounting to US$54 million mainly related to intra-group loans denominated in roubles payable by Evraz Group S.A. to the Russian subsidiaries. The appreciation of the Russian rouble against the US dollar in 2017 led to exchange losses recognised in income statement of non-Russian subsidiaries, which are not offset with the exchange gains recognised in equity of the Russian subsidiaries.

Interest expenses incurred by the Group decreased, mainly due to the reduction in total debt and the efforts undertaken to refinance existing facilities during the reporting period. The interest expense for bank loans, bonds and notes dropped to US$394 million in 2017, compared with US$439 million a year earlier.

Losses on financial assets and liabilities amounted to US$57 million and were mostly related to premiums on early repurchases of bonds denominated in US dollars.

The net loss of US$360 million on disposal groups classified as held for sale was caused mostly by a reclassification to the statement of operations of accumulated losses on translation of the net assets of the sold subsidiaries into presentation currency (US dollars) in the amount of US$741 million. Subsidiaries with net assets of US$134 million were sold for consideration of US$515 million net of transaction costs.

For the reporting period, the Group had an income tax expense of US$396 million, compared with US$96 million a year earlier. The change reflects the Group’s better operating results and income tax on the sale transaction of Evraz Nakhodka Trade Sea Port in the amount of US$60 million.

Gross profit, expenses and results, US$ million
Item 2017 2016 Change Change, %
Gross profit 3,342 2,192 1,150 52.5
Selling and distribution costs (717) (623) (94) 15.1
General and administrative expenses (540) (469) (71) 15.1
Impairment of assets 12 (465) 477 n/a
Foreign exchange gains/(losses), net (54) (48) (6) 12.5
Other operating income and expenses, net (57) (124) 67 (54.0)
Profit from operations 1,986 463 1,523 n/a
Interest expense, net (423) (471) 48 (10.2)
Share of profits/(losses) of joint ventures and associates 11 (23) 34 n/a
Loss on financial assets and liabilities, net (57) (9) (48) n/a
Loss on disposal groups classified as held for sale, net (360) (360) n/a
Other non-operating losses, net (2) (52) 50 (96.2)
Profit/(loss) before tax 1,155 (92) 1,247 n/a
Income tax benefit/(expense) (396) (96) (300) n/a
Net profit/(loss) 759 (188) 947 n/a

In 2017, net cash flows from operating activities increased by 30.2% year-on-year. Free cash flow for the period was US$1,322 million.

Cash flow, US$ million
Item 2017 2016 Change Change, %
Cash flows from operating activities before changes in working capital 2,111 1,343 768 57.2
Changes in working capital (154) 160 (314) n/a
Net cash flows from operating activities 1,957 1,503 454 30.2
Short-term deposits at banks, including interest 7 4 3 75.0
Purchases of property, plant and equipment and intangible assets (595) (382) (213) 55.8
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs 412 27 385 n/a
Other investing activities 9 11 (2) (18.2)
Net cash flows used in investing activities (167) (340) 173 (50.9)
Net cash flows used in financing activities (1,479) (1,369) (110) (8.0)
Effect of foreign exchange rate changes on cash and cash equivalents (2) (10) 8 (80.0)
Net increase/(decrease) in cash and cash equivalents 309 (216) 525 n/a
Calculation of free cash flow, US$ million
Item 2017 2016 Change Change, %
EBITDA 2,624 1,542 1,082 70.2
EBITDA excluding non-cash items 2,627 1,549 1,078 69.6
Changes in working capital (154) 160 (314) n/a
Income tax accrued (485) (183) (302) n/a
Social and social infrastructure maintenance expenses (31) (23) (8) 34.8
Net cash flows from operating activities 1,957 1,503 454 30.2
Interest and similar payments (453) (454) 1 (0.2)
Capital expenditures, including recorded in financing activities and non-cash transactions (603) (428) (175) 40.9
Proceeds from sale of disposal groups classified as held for sale, net of transaction costs 412 27 385 n/a
Other cash flows from investing activities 9 11 (2) (18.2)
Free cash flow 1,322 659 663 100.6

For more information on the definition of free cash flow, please see page Definitions of selected alternative performance measures.