Evraz tightens belt as crisis knocks 2008 profits

RUSSIAN steelmaker and diversified miner Evraz Group ramped up its thermal coal production by 255.1% to 4.13 million tonnes last year, but experienced an 11.2% fall in net profit from 2007 as the global financial crisis triggered substantial write-downs.
Evraz tightens belt as crisis knocks 2008 profits Evraz tightens belt as crisis knocks 2008 profits Evraz tightens belt as crisis knocks 2008 profits Evraz tightens belt as crisis knocks 2008 profits Evraz tightens belt as crisis knocks 2008 profits


Blair Price

Coking coal production for 2008 fell 13.2% to 3.12Mt, while coal concentrate production soared 162% to 4.46Mt.

Overall, Evraz’s mining segment revenues jumped 91% to $US3.63 billion, largely on the back of higher coal and iron ore prices during 2008.

Despite the strong commodity prices for most of last year, total net profit for the company fell 11.2% from 2007 as write-downs and other one-off charges reached $1.87 billion.

Signalling the impact of the economic downturn, which kicked in during the December quarter last year, foreign exchange losses weighed in at a heavy $471 million due to the depreciation against the US dollar experienced by Evraz operations in Russia, Europe, Canada and South Africa.

The company said impairment losses on assets totalled $880 million for the year, with $466 million impairment of goodwill on the company’s Ukrainian assets, $187 million on Claymont Steel alone and $103 million from Evraz North America.

Another $314 million was taken out of operating profit from a revaluation of inventories to what Evraz called “net realisable values”.

In responding to the tougher market conditions, the group started cost cutting this year, with net debt reduced by $1 billion to $8 billion as of the end of March, and it has hoarded more than $800 million in cash and kept $1.8 billion of undrawn credit facilities.

Evraz chief executive officer Alexander Frolov credited successful relationships with its banks, which allowed Evraz to convert $650 million of short-term debt to long-term debt in the last six months.

In keeping to a strategy of cost reductions and deleveraging, Frolov said the company was planning to reduce working capital by $700 million this year.

“The industry and the wider global economy now face serious challenges and considerable uncertainty,” Frolov said in his outlook.

“Against this background and given the low visibility of our future revenues due to unprecedented shrinkage of demand, it would be irresponsible for me to give any firm guidance in respect of our prospective financial and operating results.”

The world’s largest steelmaker, ArcelorMittal, also has a gloomy outlook as it prepares for economic turmoil to continue through 2010 and 2011.

“The systemic failure in the banking system has caused deep and severe repercussions worldwide and across industries, the extent of which are still being worked out and which will probably continue through 2010-11,” Arcelor chairman and chief executive officer Lakshmi Mittal said at the start of April.

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