Evraz Regulatory News (EVR)

EVRAZ ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR H1 2014

27 August 2014 - EVRAZ plc ("EVRAZ" or "the Company") (LSE: EVR) today announces its unaudited interim results for the six months ended 30 June 2014 ("the Period").

H1 2014 HIGHLIGHTS

Commenting on the financial results in respect of H1 2014, Alexander Frolov, Chief Executive of EVRAZ, stated:

"EBITDA totalled US$1,080 million in H1 2014 compared to US$925 million for the corresponding period of 2013. This 17% increase largely reflects actions taken by the Company in terms of asset optimisation and the implementation of cost efficiencies. A strong free cash flow performance of US$444 million for the first half of the year allowed us to decrease net debt to US$6,095 million as at 30 June 2014. Our net leverage consequently declined from 3.6x at the year end to 3.1x, thereby strengthening the Company's financial position."

1 Figures for H1 2013 were restated due to reclassification of subsidiary that ceased to be held for sale and the completion of initial accounting for Raspadskaya acquisition

2 Please refer to Appendix 1 for reconciliation of profit/(loss) from operations to EBITDA

3 Including payments on deferred terms recognised in financing activities

4 Hereinafter debt and cash balances include the amounts held at operations that were classified as assets/liabilities held for sale, which were separately presented in the statement of financial position as of 31 December 2013 (cash - US$7 million; net debt - US$69 million). Please refer to Appendices 4 and 5

Steel:

· Steel segment revenue of US$5,898 million (-8% vs. H1 2013)

· Crude steel production of 7.8 million tonnes (-4%)

· Total external sales of steel products of 7.7 million tonnes (-1%)

Coal:

· Coal segment revenue of US$665 million (-7% vs. H1 2013)

· Raw coking coal production of 9.8 million tonnes (+7%) including 4.4 million tonnes from Raspadskaya

· Sergey Stepanov was appointed General Director of Raspadskaya Coal Company with effect from 1 July 2014.

Iron ore:

· Iron ore segment revenue of US$659 million (-27% vs. H1 2013)

· Production of iron ore products was 11.3 million tonnes (-4%) 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 Evrazruda

Vanadium:

· Vanadium segment revenue of US$255 million (-5% vs. H1 2013)

· The vanadium division produced 10,404 tonnes (-4%) of vanadium slag and sold 9,393 tonnes (+5%) of final vanadium products

Investments:

· Capital expenditure of US$365 million (vs. US$492 million in H1 2013) following completion of some major projects and the thorough revision of investment plans

· PCI project at EVRAZ ZSMK continued in H1 2014 and hot tests started in July

· Yerunakovskaya VIII coking coal mine launched in February 2013 and fully ramped up by February 2014

· Development of Mezhegey coking coal deposit continued

· EVRAZ Caspian Steel rolling mill in Kazakhstan commenced production

M&A developments:

· Disposal of EVRAZ Vitkovice Steel based on the enterprise value of US$287 million completed in April 2014

· Sale of 34% of issued share capital of EVRAZ Highveld Steel and Vanadium for approximately US$27 million in August 2014

Debt and liquidity:

· Net debt of US$6,095 million vs. US$6,534 million as at 31 December 2013

· Net leverage at 3.1 times last twelve months EBITDA compared to 3.6 times as at 31 December 2013

· US$425 million 5-year pre-export finance facility signed in August 2014

Dividends:

· The US$90.4 million dividend (6 cents per share) pay out in July 2014 represented the approximate cash portion of the proceeds from the sale of EVRAZ Vitkovice Steel, leaving US$196.6 million for the reduction of debt

Chief Executive Officer's ReporT

EBITDA totalled US$1,080 million in H1 2014 compared to US$925 million for the corresponding period of 2013. This 17% increase largely reflects actions taken by the Company in terms of asset optimisation and the implementation of cost efficiencies. A strong free cash flow performance of US$444 million for the first half of the year allowed us to decrease net debt to US$6,095 million as at 30 June 2014. Our net leverage consequently declined from 3.6x at the year end to 3.1x, thereby strengthening the Company's financial position.

The volume of steel sales for H1 2014 amounted to 7.7 million tonnes (finished and semi-finished). Revenue experienced a 7% decline to US$6,805 million compared with H1 2013, a decrease which primarily reflects lower selling prices as a result of overcapacity in the global steel industry.

In response to a challenging environment, EVRAZ's Board and management have adjusted certain corporate priorities and, in line with the Company's long‑term strategy, implemented changes designed to maintain competitiveness. We believe that we are beginning to see clear and positive results from our efforts. During the reporting period we delivered successfully against the targets, operational plans and cost reduction programmes, which we announced at the time of the 2013 results. We reported progress in this regard at our Investor Day held in London on 11 June 2014 (the presentation can be seen on http://www.evraz.com/investors/presentations/).

Overview of Health, Safety and Environmental performance

When we described the Company's strategy two years ago, we stated that the most important objective was to enhance health and safety conditions. This continues to be the case. Constant endeavour is required in this vital area involving the determination of rigorous safety standards, the training of employees and persistent diligence in order to ensure that our policies and procedures are properly followed. It is with deep regret that I have to report that seven employees and six contractors lost their lives in work-related incidents during the first six months of 2014. Any fatality is unacceptable to myself, my co-Directors and all of the management team and every effort is made to investigate the causes of such accidents and ensure that corrective measures are taken. Unsafe behaviour on the part of employees and contractors accounts for approximately 90% of accidents. Our priority is to change attitudes and behaviour, particularly within our CIS facilities.

H1 2014 market environment

The global steel industry has continued to struggle in the face of excess capacity. 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.

We have immense faith in our core steel markets, Russia and North America. In Russia, construction and infrastructure are critical to economic growth and are supported by the government. Steel consumption enjoys the potential to be boosted by, for example, regional development projects and the 2018 FIFA World Cup. EVRAZ currently posesses an excellent portfolio of construction and infrastructure products for the Russian market. In the US, corporate earnings, employment growth and credit availability are improving, thereby positively affecting steel demand. EVRAZ also commands a strong exposure to the oil and gas sector in North America. In addition, we are the global leader in rails with a strong presence in both the Russian and North American markets, and the largest producer of coking coal in Russia.

Strategic priorities

Our operating strategy is aimed at building on our core value drivers: 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. We have set the following four strategic priorities in line with our strategy:

- Cost cutting initiatives;

- Selective investments in low-risk, high return projects;

- Customer focus to leverage our leading market positions;

- Deleveraging.

Cost efficiency remains a primary focus. In 2014, we targeted US$400 million of cost savings. Some of the savings are derived from actions taken in 2013, such as the suspension, shutdown or disposal of inefficient iron ore and coal mines in Russia together with underutilised steel facilities in Russia, the US and Italy. Other cost optimisation initiatives have been implemented during the first half of this year, in particular the sale of our plant in the Czech Republic and headcount reductions. The full effect of these actions has yet to be realised. However, we have noted the positive effect on our cash costs; for example, the blended cash cost of iron ore concentrate decreased from US$66/t in H1 2013 to US$52/t in H1 2014, of which US$6.7/t is due to the rouble devaluation, with the remainder being the result of management actions.

With a number of major capital intensive projects now successfully completed, we will focus on low capex and fast payback efficiency projects, which have a projected internal rate of return of at least 40%. We have already announced projected capex spending of a maximum of US$900 million for each of the years 2014 and 2015. In H1 2014, capex amounted to US$365 million, which is in line with plan.

During difficult market conditions good customer relations are particularly important. Customer focus underlines all our activities, be it working with existing partners, e.g. Russian Railways, or new partners. We have placed considerable emphasis on meeting customer product requirements, examples of which include the development of new types of rails, including head-hardened rails for high-speed tracks, and new types of construction rebars.

Our financial strategy is currently focused on deleveraging. We have demonstrated a consistent record of debt reduction throughout the last four years and we are on course to achieve our target of a net debt to EBITDA (for the last 12 months) ratio of less than 3 times by the end of 2016.

Geopolitical situation

With key assets located in Russia and the Ukraine, EVRAZ is not immune to geopolitical risks. To date, neither our operations nor our assets in the Ukraine have been affected by the unrest in the country. In addition, EVRAZ has not been subject to sanctions introduced by a number of countries. We are watching the developments in the region closely and are consulting legal and other advisers, nationally and internationally, in order to analyse the risks and prepare, to the extent feasible, contingency plans.

Outlook 

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. 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.

Alexander Frolov

Chief Executive Officer

EVRAZ plc

Financial Review

Giacomo Baizini, Chief Financial Officer, commented:

"The Company showed a net profit of US$1 million for the first half of 2014, compared to a net loss of US$146 million in the first half of 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 US$193 million in the first half of this year, excluding the effect of fluctuations of foreign exchange."

"Both the Russian rouble and the Ukrainian hryvnia devalued against the US dollar, 12.8% and 28.6% respectively in H1 2014 compared to the average rate in H1 2013. 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."

"Free cash flow for the period was positive at US$444 million, due to improved business performance but also as a result of the disposal of EVRAZ Vitkovice Steel. US$90.4 million of the disposal proceeds were paid out in dividends in July, but the rest has been retained to reduce debt. From the end of last year to 30 June 2014 net debt decreased by 7.2% to US$6,095 million, meaning that net leverage decreased from 3.6x to 3.1x. This put the company in an increasingly secure financial position, further consolidated by the signing of a US$425 million 5-year pre-export finance facility in August. This now largely resolves the liquidity and refinancing needs of the company until Q4 2015."

Statement of operations

Group revenues for H1 2014 decreased by 7.0% to US$6,805 million, with revenues from the Group's steel segment amounting to US$5,898 million or 87% of total Group's revenue.

Steel sales volumes (including intersegment) slightly decreased to 7.7 million tonnes compared to 7.8 million tonnes in H1 2013. The decline in revenues was largely due to a decrease in prices, in line with the general negative trend in steel pricing, as well as the lag of domestic steel prices in Russia and Ukraine in adjusting to the depreciation of the local currencies versus the US dollar that occurred in H1 2014. The sale prices of steel products decreased by 4.6% in H1 2014 compared to H1 2013. This was accompanied by a decrease in sales of non-core products by the subsidiaries of the Steel segment, including coke, chemicals and scrap.

Steel revenues were also impacted by changes in the Group's product mix during 2013-2014 due to the suspension of operations of EVRAZ Claymont Steel and EVRAZ Palini e Bertoli, the EVRAZ Vitkovice Steel disposal and the closure of EVRAZ ZSMK plate rolling mill. While sales volumes of flat-rolled steel products declined, a part of semi-finished production was switched from internal consumption to external sales. Lower sales volumes of flat-rolled steel products were partially offset by higher sales of railway and tubular products. Changes in sales mix contributed to a 1.0% decrease in revenues.

Iron ore revenues decreased by 26.8% to US$659 million in the period, compared to US$900 million in H1 2013. The decrease in revenues was primarily due to disposal of a number Evrazruda's iron ore mining and processing facilities in December 2013 (Abakan iron ore mine, Teya iron ore mine, Mundybash beneficiation plant), closure of the Irba mine at Evrazruda from April 2013 and the EVRAZ VGOK disposal in September 2013. The decline in iron ore product prices by 9.7% in H1 2014 compared to H1 2013 also contributed to lower iron ore revenues.

Steel segment EBITDA in H1 2014 is higher than in H1 2013 as a result of asset optimisation and cost reduction activities, as well as the decrease in expenses in US dollar terms at Russian and Ukrainian subsidiaries due to the local currencies depreciation in H1 2014. Lower prices on coking coal and iron ore also impacted positively the segment results. The economy on the cost side was partially offset by decline in steel products sales prices due to both global weak market environment and lag in price adjustment in Russia and Ukraine after currency depreciation. In addition, the Steel segment EBITDA was influenced by the better performance of EVRAZ's North American assets.

Iron ore segment EBITDA was negatively impacted by falling prices for iron ore products which were partially compensated by decrease in costs.

Increased year on year Coal segment EBITDA was related to a decrease in costs associated with Russian rouble weakening, portfolio optimisation at Yuzhkuzbassugol (including the shutdown of Abashevskaya and Kusheyakovskaya mines as well as the sales of loss-making Tagaryshskaya, Gramoteinskaya and Yubileynaya mines) and operational improvements at operating mines. Another contributing factor with regard to improved EBITDA was the increase in sales volumes of coking and steam coal.

The decrease in Vanadium segment EBITDA largely reflected the fall in prices of vanadium in alloys and chemicals.

The decrease in the Other operations segment EBITDA is mainly attributable to weak results of Zabsib Heat and Power Plant.

Eliminations mostly reflect the unrealised profits or losses of the Iron ore and Coal segments in transactions with the subsidiaries relating to the Steel segment.

The Group's cost of revenue decreased by 11.8% to US$5,192 million in H1 2014 compared with US$5,886 million in H1 2013. This was mostly due to a fall in staff costs, auxiliary materials, semi-finished products, depreciation charges, transportation and raw materials costs.

A detailed breakdown of the cost of revenue is as follows:

The cost of raw materials, the largest single cost item, decreased by US$88 million in H1 2014 driven mostly by lower coking coal and scrap costs which fell by US$96 million and US$74 millionrespectively.This decline was related to lower coal and scrap prices as well as the shutdown of EVRAZ Claymont which consumed purchased scrap for steelmaking in H1 2013. This decrease was partially offset by an increase in iron ore costs of US$61 million mainly due to lower intragroup sales resulting from the EVRAZ VGOK disposal in September 2013, closure of the Irba mine at Evrazruda and the disposal of Evrazruda's assets in Khakassia. EVRAZ has also implemented operational improvement plans that resulted in optimisation of yields at the Russian steel mills.

The costs for semi-finished products fell by 56% primarily due to lower consumption of slab purchased from third parties by EVRAZ North America's assets which were substituted by shipments from EVRAZ NTMK, as well as lack of pig iron consumption by EVRAZ Vitkovice Steel which was also substituted by EVRAZ NTMK and purchased slabs.

Auxiliary material costs decreased by 24%, or US$123 million, which includes material decrease due to Russian rouble and Ukrainian hryvnia weakening, disposal and suspension of subsidiaries and cost optimisation programmes, primarily in the Coal segment.

The transportation services decrease of 22% related to the Russian rouble weakening and a slight decrease of production volumes, on one hand, and tariffs increase, on the other hand.

Staff costs decreased by 14%, or US$137 million, which reflects the impact on costs in Russia and Ukraine of local currency weakening, the disposal and optimisations of assets, and personnel optimisation programmes.

Total depreciation, depletion and amortisation in cost of goods sold amounted to US$379 million in H1 2014 compared to US$487 million in H1 2013. The depletion charge was significantly reduced in the Coal segment driven by a lower depreciation and depletion expense at Yuzhkuzbassugol due to the revision and detailing of future mining plans and lower mineral deposits depletion. In addition, remaining useful lives of plant and equipment were reassessed and extended at EVRAZ NTMK, EVRAZ ZSMK and EVRAZ DMZ. This was also accompanied by a decrease of the US dollar amount of depreciation at our Russian and Ukrainian sites due to local currencies weakening.

Electricity costs decreased by 8%, or US$20 million. The decrease was related to lower consumption volumes, predominantly because of assets optimisation and disposals (notably, EVRAZ Claymont operations in North America, Yuzhkuzbassugol mines, part of Evrazruda assets and VGOK), and was also positively impacted by operational improvements. Natural gas expenditure also decreased by 22%, or US$50 million, due to a number of factors including the disposal of Central Heat and Power Plant in H2 2013 which consumed significant volumes of natural gas, operational improvements at EVRAZ DMZ, the disposal of EVRAZ Vitkovice Steel and the suspension of operations at Palini e Bertoli. Electricity and natural gas prices were generally stable in US dollar terms, while in Russia increased rouble prices were offset by Russian rouble weakening.

Other costs include taxes, change in WIP and finished goods, and certain energy costs. The increase in other costs in H1 2014 by 22% is mostly driven by a decrease in stock of WIP and finished goods.

Selling and distribution expenses decreased by 10.7% to US$543 million in H1 2014 from US$608 million in H1 2013. The key drivers were lower sales volumes to third parties and the Russian rouble weakening. This was accompanied by the impact of the EVRAZ Vitkovice Steel disposal and the suspension of operations at EVRAZ Claymont and EVRAZ Palini e Bertoli.

General and administrative expenses declined by 11.0% to US$390 million in H1 2014 versus US$438 million in H1 2013. This decrease was caused by the rouble and hryvnia weakening and the asset portfolio optimisation efforts. In H1 2014, EVRAZ also began a G&A expenses reduction programme the main results of which are expected within the following 12 months.

Impairment losses during the reporting period include US$(77) million relating to several of the Yuzhkuzbassugol mines, which were idled (Kusheyakovskaya and Abashevskaya) and a US$(55) million impairment for EVRAZ Highveld Steel and Vanadium resulting from a decrease in prices for steel and changes in forecast production volumes.

Foreign exchange losses arose, in particular, due to US dollar-denominated amounts payable by subsidiaries in Ukraine, where the national currency depreciated by 48%. In addition, there are some intra-group debts between subsidiaries with different functional currencies and, consequently, gains/(losses) of one subsidiary recognised in the Statement of Operations are not offset with the exchange differences of another subsidiary with a different functional currency.

Interest expenses incurred by the Group have fallen steadily over recent years as a result of the refinancing of debt at lower interest rates. Also the Company's debt has decreased during 2013 and in the first half of 2014. The interest expense for bank loans, bonds and notes amounted to US$296 million in the first half of 2014 and US$373 million in the comparative period of 2013. It was also impacted by a decrease in the interest expense of Russian rouble bonds due to the rouble weakening.

Losses on financial assets and liabilities amounted to US$(43) million and included, inter alia, $25 million realised gains and US$(76) million unrealised losses on the change in the fair value of derivatives - currency and interest rate swaps for the rouble-denominated bonds.

In the reporting period the Group had an income tax expense of US$(84) million in comparison with a US$(7) million expense in the first half of 2013. The change reflects better operating results of the Group as well as a change in the recognition of deferred income tax assets due to the revision of profit forecasts for certain subsidiaries.

Cash flow

Cash flows from operating activities before changes in working capital increased by 30.6% in H1 2014 to US$970 million reflecting better operational results compared to H1 2013.

In H1 2014, the US$126 million outlfow in working capital was mainly related to the repayment of a US$312 million payable to Yuzhny GOK, a supplier of sinter to EVRAZ DMZ in Ukraine.

Free cash flow for the period was a positive US$444 million.

* Please refer to Appendix 3 for the definition of free cash flow

Capex and key projects

In the first half of 2014, we reduced our total capital expenditure (including payments on deferred terms recognised in financing activities) to US$365 million compared to US$492 million in the first half of 2013 as a result of a comprehensive review of the Company's investment programme. In the first half 2014, the Yerunakovskaya VIII mine reached planned mining volumes, we continued with the certification process of the EVRAZ ZSMK rail mill products and in May we sold the first shipment of 100 metre rails. Also EVRAZ Caspian Steel (former the Vostochny rolling mill) has started commercial operations and we made good progress with the Mezhegey and the EVRAZ ZSMK PCI projects.

A summary of our capital expenditure for 6 months ended 30 June 2014in millions of USD is as follows:

Financing and liquidity

We started 2014 with total debt of US$8,166 million.

During H1 2014 we repaid short-term lines totalling US$1,060 million, part of which were subsequently redrawn. In January 2014, we borrowed US$70 million under a US Ex-Im guaranteed facility to refinance part of the EVRAZ ZSMK rail mill capex. All the above, together with a number of minor scheduled repayments, resulted in a total debt of US$7,479 million and net debt of US$6,095 million as at 30 June 2014.

On 12 August 2014, we signed a US$425 million 5-year syndicated pre-export financing facility, which covers most refinancing needs until Q4 2015.

Dividends

On 7 July 2014, EVRAZ paid out dividends in the amount of US$90.4 million which represented the approximate cash portion of the proceeds from the sale of EVRAZ Vitkovice Steel.

The dividend policy has been revised to support the financial strategy of deleveraging and envisages that regular dividends will be paid only when the net leverage (net debt/EBITDA) target of below 3.0x is achieved.

Giacomo Baizini

Chief Financial Officer

EVRAZ plc

Review of operATIONS by SEGMENT

STEEL

Market environment

While there are signs that the outlook for demand is slowly improving, excess steelmaking capacity remains the biggest concern for the sector. The majority of steelmakers in Europe and the US are experiencing low capacity utilisation rates, which, coupled with a high fixed cost base has a negative impact on profitability margins.

According to Worldsteel, global crude steel production grew 2.6% during the first half of this year compared to H1 2013 with China's 2.8% growth in output being the major driving force.

After a period of contraction in 2013, steel market conditions started to show signs of gradual improvement in major regions. Global crude steel production is expected to increase by 0.9% in H2 2014, according to CRU, and expected to be 4.6% higher than in H2 2013.

Russia's crude steel output increased by 0.4% in H1 2014 compared to H1 2013. Nevertheless, overall consumption of crude steel equivalent slipped by 2.5%. This was mainly caused by the reduced demand in flat products and rail. Long steel products witnessed a growth of just 0.9% y-o-y. The demand for rebar increased by 7% in H1 2014 when compared to H1 2013, and was mainly driven by residential construction as a result of capital investments in this segment. However, demand for sections and beams dropped by 8% as compared to H1 2013. A rebound in infrastructure development is forecasted to compensate for this decline in H2 2014. Long-term consumption growth in Russia and CIS is expected to be driven by substantial investments in infrastructure modernisation and the upcoming 2018 FIFA World Cup preparation.

Prices in the local Russian market saw an upwards trend when analysed in Russian roubles, but due to the national currency depreciation, US dollar-denominated prices decreased by 8-10% y-o-y, depending on the product segment. Billet prices decreased by 1.4%.

US crude steel production increased by 1.1% in H1 2014 compared to H1 2013, with apparent consumption of finished steel products1 increasing by 5.5%. The pricing environment continues to improve with rebar prices rising by 3.5% and hot rolled coil prices remaining stable with a slight 0.3% increase year-to-date.

European crude steel production increased by 4.2% in H1 2014 compared to H1 2013, with apparent consumption of finished steel products1 increasing by 4.0%. Overcapacity continues to exist in Europe but has stabilised at 85-90 mtpa level, according to CRU. "Metal margins" in the EU have stabilised and are recovering from trough levels.

South African crude steel production increased by 2.1% in the first half of 2014 compared to the first half of 2013 with apparent consumption of finished steel products declining by 10.6%. Various macro-economic issues, including extended labour disruptions and a slow pace of infrastructure spending within the economy, have led to stagnant demand. As a result, economic growth forecasts have been lowered to below 2% for 2014. Despite this outlook, pricing improved by 7% over the period as a result of the weak Rand placing pressure on imports.

__________________________________

1 Including hot-rolled long and flat steel products only

Sales review

1 Includes billets, slabs, pig iron, pipe blanks and other semi-finished products

2 Includes rebars, wire rods, wire, beams, channels and angles

3 Includes rail, wheels, tyres and other railway products

4 Includes commodity plate, specialty plate and other flat-rolled products

5 Includes large diameter line pipes, ERW pipes and casing, seamless pipes, casing and tubing, other tubular products

6 Includes rounds, grinding balls, mine uprights and strips

7 Includes coke and coking products, refractory products, ferroalloys, scrap, energy, services and Mapochs mine's iron ore fines

The Steel segment's revenues decreased by 7.7% to US$5,898 million in H1 2014 compared to US$6,393 million in H1 2013, which was largely a result of lower steel product prices during the period. 

Revenues from external sales of semi-finished products increased by 16.2% due to higher sales volumes, which reflected the changes in Group product mix. Sales of slabs to third parties in H1 2014 grew from H1 2013 increased as a result of suspension of operation at EVRAZ Palini e Bertoli and the EVRAZ Vitkovice Steel disposal.

Railway products' external revenues grew due to higher sales volumes after the modernisation of EVRAZ ZSMK's rail mill despite sales prices for railway products being lower in H1 2014 when compared to H1 2013. This is predominantly due to the fact that sales prices in US dollar terms in Russia have not been fully adjusted after the material Russian rouble devaluation.

Revenues from tubular product sales to third parties increased in H1 2014 primarily due to higher sales volumes, particularly of ERW pipe & casing and casing & tubing products as result of a strong order book.

Revenues from construction products to third parties sales decreased by 12.0% primarily as a result of reduced prices accompanied by lower sales volumes in H1 2014. The revenue was affected by a decline in prices of construction products in Russia, caused by lag in a local price adjustment after the Russian rouble depreciation, and in Asia.

Flat rolled product external revenues in H1 2014 were significantly lower than in H1 2013 due to lower sales volumes. The main causes of this fall in revenues was the EVRAZ Vitkovice Steel disposal, the suspension of operations of EVRAZ Claymont Steel and EVRAZ Palini e Bertoli, and the shutdown of the EVRAZ ZSMK plate rolling mill.

Revenues from other steel products decreased by 27.6% in H1 2014 compared to H1 2013 as a result of significantly lower prices combined with a fall in sales volumes.

Lower revenues from sales in Russia, which accounted for 40% of external steel sales, were mainly attributable to lower prices, whereas sales volumes remained stable when compared to the previous year.

Steel segment cost of revenue

* Includes repairs and maintenance, industrial services, auxiliary materials, goods for resale, taxes in cost of revenue, and effect of changes in work-in-progress and finished goods inventories.

EVRAZ's steel segment cost of revenue decreased to US$4,649 million in H1 2014, compared to US$5,260 million in H1 2013.

The principal factors affecting the change in the steel segment cost of revenue, in absolute terms, in H1 2014 compared to H1 2013 were:

• The cost of raw materials decreased by 13.8% due to a decline in prices for all main raw materials (particularly iron ore, coking coal, scrap) accompanied by a decrease in production volumes of crude steel by 4%. Meanwhile the decline in coke produced for sale at EVRAZ ZSMK (due to coke plant shutdown) and at EVRAZ's Ukrainian assets, the fall in scrap consumption due to EVRAZ Claymont's closure, the reduction of coke costs due to better coal mix at EVRAZ NTMK, and the improving coke yields at EVRAZ ZSMK all contributed to decreased production volumes.

· The costs of semi-finished products decreased by 57%, primarily due to lower consumption of slab purchased from third parties at Evraz North America assets which were substituted by shipments from EVRAZ NTMK, as well as lack of pig iron consumption by EVRAZ Vitkovice Steel, which was also substituted by EVRAZ NTMK and purchased slabs.

· Transportation costs decreased by 15.1%, for which the primary causes were the weakening of the Russian rouble, and the reduced exports from Russian mills.

· Staff costs decreased by 8.9%, which was mainly caused by the Russian rouble weakening. Additionally, the reduction in staff costs caused by the suspension of EVRAZ Claymont (-US$14 million) and EVRAZ Palini e Bertoli (-US$3 million) was offset by wage inflation at EVRAZ NTMK and EVRAZ ZSMK, and other changes.

· Depreciation and depletion costs were mostly reduced by the Russian rouble weakening, together with the reassessment of remaining useful lives of plant and equipment at EVRAZ NTMK, EVRAZ ZSMK and EVRAZ DMZ (-US$26 million in total), and suspension of EVRAZ Claymont (-US$9 million).

· Lower energy costs were driven by the Russian rouble weakening, the reduced consumption of natural gas by EVRAZ DMZ due to technology optimisation (-US$9 million), the EVRAZ Palini e Bertoli suspension (-US$7 million) and reduced production at EVRAZ Vitkovice Steel (-US$2 million).

· Other costs increased primarily due to changes in work in progress and finished goods and auxiliary materials usage.

Steel segment gross profit

Steel segment gross profit increased by 10% to US$1,249 million in the six months ended 30 June 2014 from US$1,133 million in the six months ended 30 June 2013, as a result of lower costs that were partially offset by lower revenue.

Operational update - Steel segment

Steel products: Russia

In June 2014, the PCI unit was commissioned at EVRAZ ZSMK and is expected to reach its full capacity in November 2014. Pulverised coal injection will save costs on natural gas consumed for hot iron production, and reduce coke consumption by 15-20%. At the same time blast furnace productivity is expected to improve by approximately 5%.

In June 2014, following the scheduled launch of PCI at EVRAZ ZSMK and the resulting decline in internal coke consumption, accompanied by the weak demand for coke in the domestic and export markets, the EVRAZ ZSMK steel plant shut down its coke chemical plant EKS-2. The shutdown will reduce the plant's fixed costs.

In June 2014, the EVRAZ Caspian Steel rolling mill (former Vostochny rolling mill) in Kostanay, Kazakhstan started commercial production. The first lot of rebars has been delivered to customers, with sales in 2014 expected to amount to 150,000 tonnes. The main markets for the mill's products will be those of Kazakhstan and the Central Asia.

Activities related to enhance customer focus remained among the key priorities for EVRAZ in H1 2014. This can be seen through deliveries via a logistics hub in Siberia increasing by more than double compared to the same period of 2013. Furthermore, in order for clients to effectively carry out a number of tasks, including placing and tracking online orders, checking online payment statuses and file claims, EVRAZ launched a CRM system in June 2014. The new system has proven to be beneficial by additionally optimising the claim processing procedure.

EVRAZ Russia continued to develop new products to better meet customers' needs. These are niche steel products produced with new proprietary technologies. Production of rebar Aт1000 was launched by EVRAZ ZSMK, the only steel plant in Russia which can produce this type of rebars from steel grade 28C, the use of which reduces the rebar cash cost. EVRAZ ZSMK is now mastering rebar A600C, a premium niche product which is resistant to temperature changes and corrosion. Mass production of rebar A600C will begin in September 2014. Mastering of rebars under Hongkong's standard CS:2012 and US standard ASTM A615 is underway.

Railway products: Russia

A total of 529,000 tonnes of rails were sold to EVRAZ's customers in Russia and the CIS. More than half of this volume has been produced at EVRAZ ZSMK's modernised rail mill.

More than 120,000 tonnes of 25-metre head hardened rails, an innovative product aimed to substitute imported rails, was produced in H1 2014, and in May 2014, the first lot of 100-metre head-hardened rails was shipped to Russian Railways. Head-hardened DT350 rails for use in high-speed mixed-traffic railway operations and head-hardened DT370 rails, which have higher wear resistance and contact fatigue life were certified in August.

In H1 2014, despite a continued weakness in the Russian railcar industry, EVRAZ's wheel making demonstrated strong results. The continued sales under a long-term agreement with Russia's largest railcar producer, together with the strengthening of relationships with other clients in both Russia and CIS allowed the EVRAZ NTMK wheel mill to operate at near full capacity.

EVRAZ intends to grow its railway business by entering new markets and product segments. This process has already begun, with 60E1/E2 rail profiles for export markets having been developed at EVRAZ ZSMK rail mill and with EVRAZ having started the process of qualification with Deutsche Bahn that will allow EVRAZ to participate in the latter's tenders in 2015. Furthermore, the process to achieve certification under the European Raiway Agency's Technical Specification for Interoperability (TSI), in order to be able to supply rails to Europe and some other regions, has been initiated. In addition, in June 2014, the TSI certificate was issued by Výzkumný Ústav Železniční (VUZ), the Czech Republic, to the next type of wheel for European market produced at EVRAZ NTMK. The first lot of wheels for the European market was produced and shipped in June 2014.

EVRAZ continues to strengthen its presence in the North American and European railway wheel markets, in line with targets set out for the year. This is demonstrated by EVRAZ: having confirmed the Association of American Railroads (AAR) certificate; proceeding with wheel sales to the USA and European railway wheel markets.

Efforts to further develop the rail and wheel product portfolio will continue through 2014.

Steel: North America

In H1 2014 crude steel output at the North American operations declined by 13.8% compared to H1 2013 primarily due to the suspension of the EVRAZ Claymont facility. Excluding the impact of Claymont, crude steel output increased by 0.3%. Meanwhile, the output of finished steel products decreased by 9.8% in H1 2014, driven by discontinued operations at the Claymont facility. Excluding Claymont, finished production increased by 3.9% due to growth in ERW pipe, casing & tubing and rail production.

EVRAZ North America's Flat products group has focused on the following key objectives:

• Price maximisation as the Company saw an upside in the plate market due to opportunities created by supply/demand imbalances in the first half of 2014;

• Improvement of productivity rates at the EVRAZ Portland Mill - tonnes per operating hour increased year over year, from 113 to 121 tonnes, resulting in additional production of 28,000 t ,

• Identification and qualifying of alternative slab sources in the USA to increase our "Buy America" opportunity with respect to bridge grades on the West Coast in line with the target set out for the year, and

• Supplement of the EVRAZ Regina melt shop volumes with slabs from Russia's EVRAZ NTMK to maximise rolling utilisation.

In Tubular products, the EVRAZ Pueblo seamless mill improved yields and conversion costs. Additionally, operating improvements at EVRAZ Calgary have been made through higher controls being set on steel input quality, the development of longer runs, process standardisation and increased employee training. New hydrotesting capabilities and other yield improvement projects are planned for H2 2014. The EVRAZ Calgary heat treat investment project has been initiated aiming to expand capacity by 59,000 tonnes per year by mid-2015. Our second premium threading line at EVRAZ Red Deer which has a 25,000 tonne capacity and was commissioned in 2013, is now fully operational.

As a result of successful completion of the rail mill modernisation and steel making upgrade projects at EVRAZ Pueblo, the EVRAZ Pueblo rail mill improved product quality and increased production capacity to 526,000 tonnes per year. This ensured that in H1 2014, projected production and yield rates were achieved. In addition, automated nondestructive test equipment will be installed later this year to ensure weld life and quality of the rails.

Steel: Ukraine

In H1 2014 crude steel output at EVRAZ DMZ Petrovskogo amounted to 0.5 million tonnes and was broadly unchanged compared to H1 2013. Sales of steel products increased by 1.4%, with domestic sales decreasing by 17%, to Russia and other CIS countries by 30%, while sales to far export destination rose by 23%.

The project for the modernisation of mill 800 at EVRAZ DMZ Petrovskogo, as set out in the targets for 2014, has made significant progress. Following the approval of the plans, and the completion of the design estimates, the necessary equipment has been ordered.

Installation of a pilot automated system for environmental monitoring at EVRAZ Bagliykoks is under way. The governmental approval has been received, and the provider of the equipment has been confirmed. Additionally, the modernised heat station demineraliser plant to reduce water discharges at EVRAZ Bagliykoks is expected to be commissioned in September 2014. Both of these developments suggest that the targets set out for this year will be achieved.

New product development included the launch of channel U220 and U260 production according to eurostandards DIN 1026-1, the production of two parts of KamAZ 533-310 wheel rim and relaunch of production of KamAZ 7,0-20 and GAZ-53 wheel rims, and the production of railcar uprights. Additionally, four types of angles (sizes 75, 80, 90 and 100) have been certified in accordance with eurostandard DIN. Subsequently the shipment of these products to the EU market has begun.

Steel: South Africa

In H1 2014, EVRAZ Highveld Steel and Vanadium increased production of saleable steel products by 10% compared to H1 2013. This was achieved through sustained availability at the two rolling mills and successful reduction of semi-finished product stocks, providing increased feedstock to the mills.

COAL

Market environment

Seaborne spot coking coal prices continued their gradual decline during Q1 2014, in the face of both cyclical and structural headwinds, with Australian Queensland FOB HCC spot price reaching US$112/t by the end of March (-18%YTD). Following this, the price had stabilised at around US$115/t level for the most of Q2 2014, partially supported by a supply side contraction and a number of mine closures announced in Australia and US. Queensland FOB HCC spot price stood at US$114/t at the end of June.

In May 2014, Queensland Resources Council noted that approximately 25% of all coal operations in Queensland, Australia, are loss-making. Further, market analysts estimate that around 40% of global seaborne supply is uneconomic on a cash cost basis at current commodity prices, while about 75-80% of US export supply is loss-making. Supply-side pressure in the sector is expected to persist, potentially resulting in a number of additional closure announcements in the coming months, thereby gradually narrowing the seaborne supply/demand imbalance and providing some support for prices in the medium term.

Coking coal prices in the Russian market were more stable due to the fact that most coal producers are near or even below breakeven point and were not prepared for substantial discounts on their products. However, there has been a decline in demand for Russian coal concentrate in the Asian markets, due to the abundance of good quality brands supply from Australian producers which has led to a significant decrease in Russian export prices.

Sales review

Total coal segment revenues decreased by 7.9% to US$665 million in H1 2014 compared to US$722 million in H1 2013, primarily due to lower sales prices as well as the higher share of export sales, which offset the increase in coking coal and steam coal volumes.

External sales volumes of coal products increased in H1 2014 by 40.6% mainly due to higher sales of raw coking coal and coking concentrate as a result of the production ramp-up at the Yerunakovskaya VIII and the Raspadskaya mines as well as the increase of raw steam coal sales mainly due to the full operation of Yuzhkuzbassugol's Kusheyakovskaya mine until May 2014, while in Q1 2013 it was closed for longwall repositioning.

In H1 2014, Coal segment sales to the Steel segment amounted to US$266 million and 40.0% of sales, compared to US$339 million and 47.0% of sales in H1 2013.

During the period, approximately 73% of EVRAZ's steel-making coking coal consumption was satisfied by the Group's own operations, compared with 72% inH1 2013.

Coal segment cost of revenue

* Includes primarily contractor services and materials for maintenance and repairs and certain taxes

The coal segment cost of revenue decreased to US$557 million or 83.8% of coal segment revenue in the six months ended 30 June 2014 compared with US$640 million or 88.6% of coal segment revenue in the six months ended 30 June 2013.

The principal factors affecting the change in coal segment cost of revenue in the six months ended 30 June 2014 compared to the six months ended 30 June 2013 were:

· Transportation costs decreased by 1.2% due to Russian rouble weakening (-US$11 million). This effect was offset by higher sales at Raspadskaya and Yuzhkuzbassugol, changes in sales destinations (higher exports) and an increase in Russian railway tariffs (+US$10 million).

· Staff costs went down by 11.9%. The decrease was attributable to headcount optimisation, shutting down of the Yuzhkuzbassugol mines (Abashevskaya, Kusheyakovskaya) and Gramoteinskaya sale (-US$23 million) as well as the impact of the Russian rouble weakening on Yuzhkuzbassugol and Raspadskaya (-US$21 million). Lower level of unproductive time, on one hand, increased staff costs, but, on the other hand, decreased other operating expenses(+US$22 million).

· Depreciation and depletion costs decreased by 22.5% mainly due to a lower depreciation and depletion expense at Yuzhkuzbassugol caused by the revision and detailing of future mining plans and lower mineral deposits depletion (-US$34 million). This was also accompanied by a decrease in the US dollar amount of depreciation due to the rouble weakening (-US$17 million). The decrease was partially offset by an increase in depreciation due to the revision and elaboration of mining future plans by IMC at Raspadskaya (+US$13 million).

· Energy costs were down by 13.3% due to mine shutdown at Yuzhkuzbassugol (-US$5 million) as well as Russian rouble weakening (-US$3 million) that was slightly offset by higher electricity costs related to higher production volumes at Raspadskaya (+US$3 million).

· Other costs decreased by 10.2% primarily due to a reduction in auxiliary material costs at Yuzhkuzbassugol supported by cost cutting initiatives (-US$6 million), revising mineral extraction tax payments for the previous year at Raspadskaya (-US$9 million) and the influence of Russian rouble weakening (-US$19 million). This was partly offset by increased environmental protection services expenses (sample control and prevention drilling, +US$8 million) and changes in stock of WIP and finished goods (+US$4 million).

Coal segment gross profit

The coal segment's gross profit increased to US$108 million in the six months ended 30 June 2014 from US$82 million in the six months ended 30 June 2013.

Operational update - Coal segment

In H1 2014, EVRAZ's raw coking coal output totalled 9.8 million tonnes, representing an increase of 0.7 million tonnes compared to H1 2013. The primary growth driver was the launch of longwalls at the Raspadskaya mine.

Yuzhkuzbassugol

In H1 2014, Yuzhkuzbassugol mined 5.3 million tonnes of raw coking coal, a 4% increase compared to 5.1 million tonnes in H1 2013, following the ramp-up of the Yerunakovskaya-VIII mineand a better performance from both the Alardinskaya and Uskovskaya mines. The Alardinskaya mine has operated at increased capacity since the beginning of the year and the Uskovskaya mine had demonstrated solid performance before it closed for longwall repositioning at the end of H1 2014. The growth of output in H1 2014 fully offset the loss of production from shutdown of the Abashevskaya mine in January 2014.

The Company remains on track to reduce operating costs, including capital expenditures. Executing the cost reduction programme at Yuzhkuzbassugol, including headcount optimisation, resulted in cost savings of over US$11 million in H1 2014, with further benefits expected in the second half.

Ensuring safe working conditions for all of the company's facilities continues to be a management priority. In accordance with key initiatives for 2014, energy isolation programme LOTO (Lock out, Try out) has been successfully introduced at the Alardinskaya and Yerunakovskaya-VIII mines. During the period, further progress has continued with the programme to prevent spontaneous combustion.

Raspadskaya

In H1 2014, raw coking coal output from Raspadskaya amounted to 4.4 million tonnes, or 12% higher than in H1 2013, including 1.7 million tonnes of raw coal mined at the Raspadskaya mine. However, the increase was below the volumes expected due to delay in launch of longwall at the MUK-96 underground mine as a result of geological conditions, which offset the positive effects of the longwall launch. Raspadskaya is currently operating on three longwalls with a fourth expected to begin operations in September this year.

Project documentation relating to the 3rd stage of recovery at Raspadskaya has now been approved enabling production to expand by up to 6 million tonnes of raw coal per year. Development of a deposit of about 500,000 tonnes of "K" grade coking coal at the Raspadskaya-Koksovaya mine commenced in June. In addition, project documentation was approved to start mining in the Raspadsky IX-XI sections which will enable the extension of works at the Raspadsky open pit from 2.5 to 4.5 km and increase annual production from 4 to 6 million tonnes.

In line with its plan to develop new premium markets, EVRAZ signed a contract to supply material volumes of semi-hard (GZh) concentrate to POSCO (South Korea). Trial shipments of semi-soft coal (GZhO) monoconcentrate were made to Japanese steel and coke producers. Trial lots of semi-hard (KO) concentrate were shipped to a number of Russian customers.

Mezhegeyugol

Significant progress at Mezhegeyugol during the period included the completion of three development units. In addition, three inclines were developed, noteably at the same time: a transportation main, a conveyor main and a ventilation main.

Management changes

Sergey Stepanov was appointed General Director of Raspadskaya Coal Company with effect from 1 July 2014.

IRON ORE

Market environment

After almost six months of relative stability in H2 2013, with China CFR (62% Fe) prices trading in a narrow range of US$130-140/t for most of the period, the seaborne iron ore market started 2014 on a downward trend. A general slowdown in Chinese demand growth in Q1 2014 along with the destocking by major steel mills and the surge in Australian shipments of iron ore collectively resulted in an approximate 22% year-to-date price drop by mid-March (down to US$105/t). After a short rebound to US$119/t levels in April on the back of brief iron ore inventory restocking and the Chinese authorities' announcement of efforts to stabilise the economy, the China CFR price continued its downward trend, reaching US$89/t by mid-June (the lowest level since September 2012). At the end of June, the China CFR price stood at US$94/t, representing an approximate.30% decline year-to-date.

This low price environment has displaced a fraction of Chinese domestic output in recent months, falling from an adjusted annualised rate of 339 mtpa in January to 315 mtpa in May 20141. Most of the volume displacement comes from the marginal Chinese iron ore mines higher up the global cost curve who find production uneconomical at current prices, although the impact on seaborne trade and market conditions remains to be seen, with China likely compensating the marginal volume loss by increasing imports.

____________________________________________

1 According to National Bureau of Statistics of China

Sales review

* External sales of iron ore produced at the Mapochs mine, part of EVRAZ Highveld, are accounted for in the Steel segment

** Includes crushed stone

* External sales of iron ore produced at the Mapochs mine, part of EVRAZ Highveld, are accounted for in the Steel segment

Total Iron ore segment revenues decreased by 26.8% to US$659 million in H1 2014 compared to US$900 million in H1 2013, primarily due to lower sales volumes for internal consumption as a result of the optimisation of Evrazruda's assets (disposal of Abakan iron ore mine, Teya iron ore mine, Mundybash beneficiation plant in December 2013), closure of the Irba mine at Evrazruda in the April 2013 and EVRAZ VGOK disposal in September 2013. The decrease in sales volumes were accompanied bу lower iron ore prices.

External sales volumes of iron ore products decreased by 3.2% in H1 2014 compared to H1 2013, driven by lower sales volumes primarily as a result of disposal of EVRAZ VGOK in October 2013. Intersegment sales volumes decreased by 18.9% as a result of the optimisation of Evrazruda's assets in December 2013 and the disposal of EVRAZ VGOKin September 2013. The closure of the Irba mine at Evrazruda also contributed to lower iron ore volumes being supplied to the Steel segment.

In H1 2014, Iron ore segment sales to the Steel segment amounted to US$473 million and 71.8% of sales, compared to US$665 million and 73.9% of sales in H1 2013.

During the period, approximately 77% of EVRAZ's iron ore consumption were satisfied by the Group's own operations compared with 95% in H1 2013, predominantly due to the disposal of assets in the Iron ore segment.

Iron ore segment cost of revenue

* Includes primarily contractor services and materials for maintenance and repairs and certain taxes

The iron ore segment cost of revenue decreased to US$441 million or 66.9% of iron ore segment revenue, in the six months ended 30 June 2014 compared with US$669 million, or 74.3% of iron ore segment revenue, in the six months ended 30 June 2013.

The principal factors affecting the change in iron ore segment cost of revenue in the six months ended 30 June 2014 compared to the six months ended 30 June 2013 were:

· Raw material costs increased by 32.0%, primarily due to iron ore purchases from sold Tey and Abakan subsidiaries, which were in the Group before (+US$30 million). The effect was partially offset by VGOK disposal (-US$3 million) and KGOK lower coal input prices and sinter production (-US$8 million).

· Transportation costs decreased by 60.6% mostly due to Evrazruda subsidiaries disposals with large rail and car logistics (-US$24 million), VGOK disposal (-US$16 million) and the effect of the weakening of Russian rouble and Ukrainian hryvnia.

· Staff costs decreased by 33.0% driven by Evrazruda subsidiaries (-US$23 million) and VGOK disposal (-US$32 million), but were also influenced by an increase in wage inflation (+US$6 million). The rouble and hryvnia weakening also contributed to costs decline.

· Depreciation and depletion costs decreased by 22.2% due to VGOK disposal, and were accompanied by a decreased depreciation in US dollar terms at Russian and Ukrainian sites due to local currencies weakening.

· Energy costs decreased by 27.8% primarily due to lower production volumes with Evrazruda subsidiaries (-US$12 million) and VGOK disposal (-US$15 million), and the weakening of the Russian rouble and Ukrainian hryvnia.

· Other costs decreased by 48.3% due to a reduction in auxiliary materials, taxes and services due to Evrazruda subsidiaries (-US$31 million) and VGOK disposal (-US$19 million), the KGOK cost optimisation programme which reduced diesel and lube consumption(-US$9 million), as well as influence of the Russian rouble and Ukrainian hryvnia weakening.

Iron ore segment gross profit 

The iron ore segment's gross profit decreased to US$218 million in the six months ended 30 June 2014 from US$231 million in the six months ended 30 June 2013. The disposal of Evrazruda subsidiaries and VGOK dropped the production volumes of iron ore segment and iron ore prices were lower in the six month ended 30 June 2014 than in the six month ended 30 June 2013.

Operational update - Iron ore segment

Iron ore - Russia

In the iron ore segment we continued to focus on operational improvement programmes and cost reductions during the period.

The restructuringof Evrazruda'soperations is underway. The project to reconstruct the Sheregesh iron ore mine and expand its production has continued as planned. In H1 2014 a key stage of the project was completed with the commissioning of a new mine shaft and an underground crushing complex at the -115 metre level. The development programme for the Abagursky processing plant is being finalised.

In H1 2014, in line with its asset portfolio and cost optimisation programme, EVRAZ sold the non-core power generating company Sheregesh Energo and the Irba iron ore mine was shutdown as economically unprofitable in June 2013.

Operations at our core iron ore business, EVRAZ KGOK, were stable: in H1 2014 it mined 28.7 million tonnes of iron ore (+0.5 million tonnes compared to H1 2013) and produced 4.9 million tonnes (+218,000) of saleable iron ore products, including 1.8 million tonnes of sinter and 3.1 million tonnes of pellets.

EVRAZ KGOK continued to realise the project to adopt new, more environmentally friendly technologies for industrial waste storage and to build a new tailings dump. The survey results for the technical project have undergone a state expert review with the result expected in Q3 2014. However, after a thorough review of the project, EVRAZ has decided to put off the construction by two years, to 2017 at least, and carry out a new prefeasibility study to explore the possibility of prolonging waste storage by the current technology by 3 years and to decrease project CAPEX.

With regard to the project to develop of the Sobstvenno-Kachkanarskoye deposit, the necessary technical and ecological approvals have now been received. The next stage is approval by the state expert committee, expected in Q3 2014.

At the Timiriron ore project, a tender to design the first stage of the iron ore mine has been held. As EVRAZ confirmed at its Investor Day in June 2014, execution of the project is subject to securing project finance and negotiations are continuing with potential lenders.

Iron ore - Ukraine

In H1 2014, EVRAZ Sukha Balka produced 1,450 thousand tonnes of lump ore compared to 1,461 thousand tonnes in H1 2013.

A new horizon of -1,340 metres was commissioned at the Yubileynaya mine. Mining will begin once iron ore at the existing horizon has been depleted, expected by Q3 2015. The new horizon will be developed for a minimum of five years, and the Company expects to be able to mine approximately 10.8 million tonnes of raw ore and produce 8 million tonnes of saleable iron ore with Fe content of 60%.

In line with its targets for 2014, the Company has been implementing the electrical safety programme aimed at removing 50% of electrical networks below the surface by year end. The first stage has been completed with 40% of electrical networks dismantled.

VANADIUM

Market environment

Vanadium is a key element in the steel making process, with the majority of globally produced vanadium used as an alloying agent to increase steel strength. As a result, demand for vanadium is closely linked to steel production levels, in particular high strength steels with application in the pipe industry, rebars, tool steel, automotive. Vanadium used in this process is ferrovanadium while vanadium pentoxide is used as a catalyst for the production of sulphuric acid.

Ferrovanadium (FeV) demand was robust in H1 2014, fuelled by pipeline projects in CIS, Europe, and healthy steel demand in North America. Prices increased steadily from the low levels of Q4 2013 approaching ca US$27.3/kg in May, only to decrease to US$25.5/kg in June 2014 due to stronger FeV exports from China. The FeV spot price stood at US$25/kg at the end of June.

FeV prices are expected to further decline during Q3 to US$24/kg to US$25/kg as Chinese rebar producers are significantly decreasing their Vanadium consumption in response to poor domestic demand.

Sales review

Vanadium segment revenues decreased by 4.9% to US$255 million in H1 2014 compared to US$268 million in H1 2013 reflecting a decrease in sales prices of vanadium products partially compensated by higher sales volumes.

Vanadium segment cost of revenue

The vanadium segment cost of revenue increased by 2.4% to US$215 million, or 84.3% of vanadium segment revenue in H1 2014 from US$210 million, or 78.4% of vanadium segment revenue in H1 2013. The decrease in EVRAZ's vanadium segment's cost of revenue in H1 2014 as compared to H1 2013, in absolute terms, was attributable to increase of production and sales volumes of vanadium products in alloys and chemicals.

Vanadium segment gross profit

In H1 2014, gross profit of EVRAZ's vanadium segment decreased to US$40 million compared with US$58 million in H1 2013, primarily due to lower prices for final vanadium products.

Operationalupdate - Vanadium segment

The project to expand throughput of vanadium pentoxide at EVRAZ Vanady Tula is underway with engineering and technical solutions to implement the project being developed. Evaluation of the technical solutions and implementation alternatives is expected to be completed by the end of the year.

The equipment for the pulp filtration project at EVRAZ Vanady Tula was installed in March 2014 and pilot production commenced. The optimal operations mode is being assessed.

EVRAZ Stratcor completed the OVP (oxide vanadium products) project aimed at reaching 100% capacity utilisation and eliminating more expensive third-party feedstock. Now EVRAZ Stratcor is converting oxide vanadium products produced by EVRAZ Vanady Tula. As a result, output of specialty high value added vanadium chemicals has increased by ~5% compared to H1 2013 and the plant is close to operating at full capacity.

OTHER BUSINESSES

EVRAZ's other operations include trading, logistics, port services, electricity and heat generation and other auxiliary activities.

Sales review

Revenues from other operations decreased by 6.7% to US$434 million in H1 2014 as compared to US$465 million in H1 2013, principally due to the disposal of Central Heat and Power Plant and decrease in revenues of Zabsib Heat and Power Plant. Revenue of other operations segment includes the following (sales figures shown below include sales within the same segment):

· Nakhodka Trade Sea Port provides various sea port services to EVRAZ. The company's revenue totaled US$57 million in H1 2014 and US$45 million in H1 2013.

· Metallenergofinance ("MEF") supplies electricity to EVRAZ's steel, iron ore and coal segments as well as third parties. MEF's sales amounted to US$228 million in H1 2014 compared to US$219 million in H1 2013. Intersegment sales accounted for 69% and 76% of MEF's revenue in H1 2014 and H1 2013 respectively.

· Zapsib Heat and Power Plant generates electricity and heating. Most sales are classified as intersegment as they relate to the supply of internal energy to EVRAZ ZSMK. Sales were US$57 million in H1 2014, compared to US$65 million in H1 2013. The decrease of revenue is primarily attributable to the accident at Zabsib Heat and Power Plant in March 2014.

· Sinano Ship Management and East Metals Shipping provide sea freight services to EVRAZ's steel segment. These companies' sales totaled US$58 million in H1 2014 and US$61 million in H1 2013, with intersegment sales accounting for almost 98% in H1 2014 and 94% in H1 2013 of its revenue. Lower revenues in H1 2014 compared to H1 2013 were attributable to the sale of ships and as a result of a decline in sea freight services to third parties.

Other operations segment cost of revenue and gross profit

The other operations segment's cost of revenue in H1 2014 amounted to 78.8% of other operations revenue, or US$342 million compared to 81.7%, or US$380 million in H1 2013.

The major components of cost of revenue at EVRAZ Nakhodka Trade Sea Port are staff and inventory costs. The major component of MEF's cost of revenue is the purchase of electricity from power generating companies. The major components of the Zapsib Heat and Power Plant's cost of revenue are steam coal for power generation, depreciation and staff costs, while the major component of Sinano's cost of revenue is ship hire fees.

In H1 2014, gross profit of EVRAZ's other operation segment increased to US$92 million compared with US$85 million in H1 2013.

Operational update - Other businesses

In H1 2014 EVRAZ Metall Inprom (EMI)'s market share remained stable at 11%. During the period EMI sold over 950,000 tonnes of steel products, 2% less than in H1 2013, while the trading margin per tonne increased from 4.6% to 5.8%.

EMI is implementing measures to increase its portfolio in the segment of tubular products and expand sales of flat products in line with its Customer focus strategy. Company standards of customer service have been defined. Tools to increase sales efficiency are being implemented and include system surcharges for services and industry pricing differentiated by each sector.

In order to reduce costs and improve business efficiency, in line with its 2014 targets, EMI has focused on the shutdown of low-margin units, storage areas and branches, and on increasing staff productivity.

Cargo turnover at the EVRAZ Nakhodka Trade Sea Port (EVRAZ NMTP) increased by 24% in H1 2014 compared to H1 2013. EVRAZ Nakhodka Trade Sea Port continues to pursue the realisation of two projects, which will enable an increase in the volume of cargo turnover of coal to 7.3 million tonnes by 2016.

Sales of EVRAZ Nakhodka Trade Sea Port increased by 27%. On 20 January 2014, EVRAZ NTMP concluded an agreement with East Metals AG for the handling of ferrous metals and coal, whereas in H1 2013 all port services related to handling of EVRAZ's export products were rendered under a contract with Russian Railways.

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties affecting EVRAZ were set out in detail under the heading Principal Risks and Uncertainties on pages 24 to 27 of the Annual Report 2013 http://www.evraz.com/investors/annual_reports/ . We provide below an update on those risks which impacted the Company during the Period and which we expect to be the most significant for the rest of the year: The remaining principal risks identified in the Annual Report are unchanged.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that to the best of our knowledge this consolidated interim financial information has been prepared in accordance with lAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

An indication of important events that have occurred during the first six months and their impact on the consolidated interim financial information, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and material related party transactions in the first six months and any material changes in the related-party transactions described in the last Annual Report.

By order of the Board

Alexander Frolov

Chief Executive Officer

26 August 2014

Giacomo Baizini

Chief Financial Officer

26 August 2014

Appendix 1

EBITDA

EBITDA represents profit from operations plus depreciation, depletion and amortisation, impairment of assets, loss (gain) on disposal of property, plant and equipment, and foreign exchange loss (gain). EVRAZ presents an EBITDA because it considers EBITDA to be an important supplemental measure of its operating performance and believes that EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the same industry. 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 EBITDA may be different from the calculation used by other companies and therefore comparability may be limited. EBITDA has limitations as an analytical tool and potential investors should not consider it in isolation, or as a substitute for an analysis of our operating results as reported under IFRS. Some of these limitations include:

· EBITDA does not reflect the impact of financing or financing costs on EVRAZ's operating performance, which can be significant and could further increase if EVRAZ were to incur more debt.

· EBITDA does not reflect the impact of income taxes on EVRAZ's operating performance.

· EBITDA does not reflect the impact of depreciation and amortisation on EVRAZ's operating performance. The assets of EVRAZ's businesses which are being depreciated and/or amortised will have to be replaced in the future and such depreciation and amortisation expense may approximate the cost of replacement of these assets in the future. EBITDA, due to the exclusion of these costs, does not reflect EVRAZ's future cash requirements for these replacements. EBITDA also does not reflect the impact of a loss on disposal of property, plant and equipment.

Reconciliation of profit (loss) from operations to EBITDA is as follows:

Appendix 2

Cash and short-term bank deposits

Cash and short-term bank deposits is not a measure under IFRS and it should not be considered as an alternative to other measures of financial position. EVRAZ's calculation of cash and short-term bank deposits may be different from the calculation used by other companies and therefore comparability may be limited.

Appendix 3

Definition of Free Cash Flow

Free Cash Flow represents EBITDA, net of non-cash items, less changes in working capital, income tax paid, interest paid and covenant reset charges, conversion premiums, premiums on early repurchase of bonds and realised gain on swaps, interest income and debt issue costs, less capital expenditure, including recorded in financing activities, purchases of subsidiaries, net of cash acquired, proceeds from sale of disposal groups classified as held for sale, net of transaction costs, less purchases of treasury shares for participants of the incentive plans, plus other cash flows from investing activities. Free Cash Flow is not a measure under IFRS and it should not be considered as an alternative to other measures of financial position. EVRAZ's calculation of Free Cash Flow may be different from the calculation used by other companies and therefore comparability may be limited.

Appendix 4

Total debt

Total debt represents the nominal value of loans and borrowings plus unpaid interest, finance lease liabilities, loans of assets classified as held for sale, the nominal effect of cross-currency swaps on principal of rouble-denominated notes. Total debt is not a measure under IFRS and it should not be considered as an alternative to other measures of financial position. EVRAZ's calculation of total debt may be different from the calculation used by other companies and therefore comparability may be limited. The current calculation shall not be considered for covenant compliance reasons.

Total debt has been calculated as follows:

Appendix 5

Net debt

Net debt represents total debt less cash and liquid short-term financial assets, including those related to disposal groups classified as held for sale. Net debt is not a 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. The current calculation shall not be considered for covenant compliance reasons.

Net debt has been calculated as follows:

For further information:

Media Relations:

Vsevolod Sementsov

VP, Corporate Communications

London: +44 207 832 8998 Moscow: +7 495 937 6871

media@evraz.com

Investor Relations:

London: +44 207 832 8990 Moscow: +7 495 232 1370

EVRAZ plc

Unaudited Interim Condensed Consolidated Financial Statements

Six-month period ended 30 June 2014

Contents

Report on Review of Interim Condensed Consolidated Financial Statements

Unaudited Interim Condensed Consolidated Financial Statements

Unaudited Interim Condensed Consolidated Statement of Operations

Unaudited Interim Condensed Consolidated Statement of Comprehensive Income

Unaudited Interim Condensed Consolidated Statement of Financial Position

Unaudited Interim Condensed Consolidated Statement of Cash Flows

Unaudited Interim Condensed Consolidated Statement of Changes in Equity

Selected Notes to the Unaudited Interim Condensed Consolidated Financial Statements

Independent Review Report to EVRAZ plc

Introduction

We have been engaged by EVRAZ plc (the Company) to review the condensed set of financial statements in the interim report for the six months ended 30 June 2014 which comprises the Interim Condensed Consolidated Statement of Operations, Interim Condensed Consolidated Statement of Comprehensive Income, Interim Condensed Consolidated Statement of Financial Position, Interim Condensed Consolidated Statement of Cash Flows, Interim Condensed Consolidated Statement of Changes in Equity and related notes 1 to 15. We have read the other information contained in the Interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority. As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410 (UK and Ireland), 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

26 August 2014

Unaudited Interim Condensed Consolidated Statement of Operations

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