Evraz Regulatory News (EVR)

EVRAZ ANNOUNCES UNAUDITED INTERIM FINANCIAL RESULTS FOR H1 2013

29 August 2013 - EVRAZ plc ("EVRAZ" or "the Company") (LSE: EVR) today announces its unaudited interim results for the six months ended 30 June 2013 ("the Period").

H1 2013 HIGHLIGHTS

Commenting on the interim results in respect of 2013, Alexander Frolov, Chief Executive of EVRAZ, stated:

"While our sales volumes were broadly flat at 7.8 million tonnes in H1 2013, the financial results inevitably reflect the weaker steel price environment, with revenues decreasing 3% vs. H1 2012 to US$7,362 million and EBITDA declining to US$939 million.

During the reporting period we successfully delivered on three key investment projects: the commissioning of the new coking coal mine Yerunakovskaya VIII, the launch of the modernised rail mill at EVRAZ ZSMK and the introduction of PCI technology at EVRAZ NTMK. Each of these undertakings represents an important milestone in our strategy to develop our raw material base, enhance our product portfolio and preserve our low cost position in the global steelmaking industry. At the same time, in the face of challenging conditions for the global steel sector, we have revised and further adjusted our expansion plans in order to significantly increase the flexibility of future capital expenditure".

Steel:

· Steel segment revenue of US$6,416 million (-9% vs. H1 2012)

· Crude steel production of 8.1 million tonnes (-3%)

· Full capacity utilisation in Russia for construction long products due to healthy domestic demand

· Total external sales of steel products of 7.8 million tonnes (+1%)

· Temporary growth in sales of semi-finished products to reverse once the production ramp up at EVRAZ ZSMK's rail mill is complete by Q2 2014

Mining:

· Mining segment revenue of US$1,622 million (vs. US$1,383 million in H1 2012) including US$228 million effect from the consolidation of Raspadskaya

· Raw coking coal production of 9.1 million tonnes (vs. 4.0 million tonnes in H1 2012) including 4.0 million tonnes from Raspadskaya

· Production of saleable iron ore products stable at 10.5 million tonnes

Vanadium:

· Vanadium segment revenue of US$268 million (+2% vs. H1 2012)

· Primary vanadium production (vanadium in slag) of 10,836 tonnes (-5%)

· External vanadium product sales volumes of 8,612 tonnes (-11%) reflected the timing of receipt of the Russian export license

Investments:

· Capital expenditure of US$492 million (vs. US$565 million in H1 2012) following delivery of several major investment projects in the period (rail mill modernisation, PCI project and commissioning of Yerunakovskaya VIII mine) and as a result of the capex optimisation programme

· Capital expenditure for 2013 revised down to US$0.9-1.0 billion compared with initial budget of US$1.3 billion

· Rail mill modernisation at EVRAZ ZSMK completed in January 2013 and currently being ramped-up

· PCI project at EVRAZ NTMK fully reached design parameters in May 2013, while construction work on PCI at EVRAZ ZSMK continued

· Yerunakovskaya VIII coking coal mine launched in February 2013, while development of Mezhegey coking coal deposit continued

· Approaching the commissioning of Vostochny rolling mill in Kazakhstan

M&A developments:

· Acquisition of a controlling interest in Raspadskaya coal mining company in January 2013 for US$964 million, satisfied through the issue of equity, warrants and staged cash payments, bringing effective interest to 82%

· Acquired 51% stake in joint venture - Timir iron ore project from Alrosa in April 2013 in staged cash consideration of ca. US$160 million

Debt and liquidity:

· Net debt of US$7,043 million vs. US$6,376 million as at 31 December 2012 including additional US$453 million of net debt contributed in H1 2013 due to the consolidation of Raspadskaya

· Cash and short-term deposits of US$1,537 million

· Placed US$1,000 million Eurobonds due in 2020 with the lowest ever coupon rate achieved by EVRAZ of 6.50% p.a.

· Prepaid US$950 million structured credit facility due 2015 with certain covenants on net leverage

· In July 2013 Fitch affirmed long-term issuer default ratings of Evraz Group S.A. and EVRAZ plc at BB- with stable outlook

Dividends:

· The Board has not recommended the payment of an interim dividend in respect of H1 2013.

Chief Executive Officer's Report

While our sales volumes were broadly flat at 7.8 million tonnes in H1 2013, the financial results inevitably reflect the weaker steel price environment, with revenues decreasing 3% vs. H1 2012 to US$7,362 million and EBITDA declining to US$939 million.

During the reporting period we successfully delivered on three key investment projects: the commissioning of the new coking coal mine Yerunakovskaya VIII, the launch of the modernised rail mill at EVRAZ ZSMK and the introduction of PCI technology at EVRAZ NTMK. Each of these undertakings represents an important milestone in our strategy to develop our raw material base, enhance our product portfolio and preserve our low cost position in the global steelmaking industry. At the same time, in the face of challenging conditions for the global steel sector, we have revised and further adjusted our expansion plans in order to significantly increase the flexibility of future capital expenditure.

Overview of Health, Safety and Environmental performance

The safety of our employees is of paramount importance. It is with the deepest regret that I have to report that, despite the consistent efforts being undertaken throughout the Company, 10 employees lost their lives as a result of work related accidents at EVRAZ's operations in H1 2013. All of these accidents have been thoroughly investigated and analysed in order to avoid reoccurrence and identify other workplace accident risks.

Some of the principal causes of injuries at our sites relate to slips, trips and falls on flat surfaces and, to combat this, we have developed a new safety standard for walkways that will be comprehensively implemented at the Company's production sites this year. Workplace lighting is also being upgraded.

H1 2013 market environment

H1 2013 was challenging for the steel industry. After modest signs of recovery at the start of the year steel prices continued on a downward path, ultimately decreasing to levels substantially below the 2012 average by the end of the period. Global iron ore and coking coal prices also declined during H1 2013, influenced by steel prices and concerns regarding the prospect of new supplies coming on stream at the end of 2013 and in 2014. Expectations of lower growth in Chinese steel production and consumption also adversely affected sentiment.

Russian steel demand expanded over the period and approached record levels during the summer months, with demand 4.3% higher compared to the first half of 2012. However, disappointing Russian macroeconomic lead indicators heightened concerns of deterioration in economic growth, while mounting imports of construction steel products from Ukraine and Belarus capped the positive domestic price trends and effectively prevented Russian steel mills from taking full advantage of a favourable domestic market.

North American steel market conditions remained difficult given a lack of consistent pricing power for key industry players, a softening of the outlook for demand growth and the consequent under-utilisation of capacity. While aggregate US industrial production remained strong in H1 2013, steel consumption was muted with a number of major steel consumers continuing to work down excess inventories.

European demand for flat products continued to deteriorate, putting the already thin spread between slab and plate prices under considerable pressure.

Steel segment

We benefit from an attractive product mix which is being further enhanced and developed in areas such as rails and construction long products in Russia, and tubular, long and rail products in North America. These businesses are well positioned to take advantage of ambitious infrastructure projects and the development of railways in Russia, as well as the domestic shale gas and oil activity in the USA.

One of the milestones of H1 2013 was the successful launch of the rail mill at EVRAZ ZSMK following a major modernisation programme. The EVRAZ ZSMK rail mill is capable of producing head hardened rails, including 100 metre rails suitable for high speed railways. Ramp-up to the full annualised capacity of 950,000 tonnes is expected by Q2 2014.

In order to strengthen our global leadership in rail production, we are also progressing with a rail mill project in EVRAZ North America which will allow us to improve rail quality, increase the mill's capacity and expand technical customer support and product development. The modernisation programme is proceeding as planned with project completion expected in mid-2014.

Another highlight of the reporting period is the introduction of pulverised coal injection (PCI) at EVRAZ NTMK that will mitigate the risks of rising energy and of raw material costs in order to preserve our low cost position in steelmaking. The positive impact of this project on our cost base is applicable to the majority of market scenarios due to the delivery of a sustained reduction in the consumption of natural gas and coking coal. As initially planned, in the first half of 2013 the PCI equipment reached the designed parameters reducing consumption of natural gas and coke by 42% and 22% respectively, while increasing pig iron production capacity by 100,000 tonnes per annum. The cost saving effect is approximately US$10 per tonne of crude steel. We have also made further progress with the introduction of PCI at EVRAZ ZSMK.

As part of the actions taken to streamline our business model, we decided to temporarily idle our Italian plate rolling mill EVRAZ Palini e Bertoli, which has been suffering from the overall weakness of the Eurozone economy. This releases valuable working capital.

In addition, we are progressing well with plans to sell our Czech subsidiary EVRAZ Vitkovice Steel and expect to update the market by the end of Q3 2013 on that process. We also continue to work with the potential buyer of EVRAZ Highveld Steel and Vanadium and the due diligence process is currently in progress. An update on the sale of EVRAZ Highveld Steel and Vanadium is expected in Q4 2013.

Mining segment

In coking coal mining, where the Company enjoys the long-term competitive advantage of being a large scale, low cost producer, we continued the integration of Raspadskaya and delivered on previously announced organic growth options. For example, the development of the Yerunakovskaya-VIII mine was launched in February ahead of schedule and below budget. This coking coal mine has a nameplate capacity of 2.5 million tonnes per annum with an estimated cash cost of raw coal production of US$40 per tonne, one of the lowest among CIS coal mines.

In addition, we continued work on the Mezhegey Phase I coking coal project which will ensure long-term access to hard coking coal reserves.

In the iron ore mining division we continued to focus on cost savings and operational improvement programmes during the period. At our key iron ore mining asset, EVRAZ KGOK, we succeeded in maintaining cash costs of iron ore products at US$53 per tonne (before by-products), firmly securing the position of the asset as a low cost operation. Asset restructuring, primarily of underground iron ore mines, is also underway at Evrazruda following the closure of the Irba mine and further actions with regard to certain other Evrazruda mines are under review.

Looking longer term, EVRAZ has entered the Timir iron ore partnership to develop iron ore deposits in Southern Yakutia. Timir's large iron ore resources and proximity to existing infrastructure provide for the efficient development of the project as a low cost operation. The realisation of the Timir project is fully in line with the Company's strategy of securing attractively priced supplies of raw materials and is expected to replace the gradually depleting reserves of Evrazruda over the next 5-10 years.

Furthermore, we continue to explore options with regard to our non-core assets in both coal and iron ore with the objective of disposal or of minimizing their impact of on overall company performance.

Vanadium segment

The Vanadium segment managed to demonstrate positive performance due to strong global prices for ferrovanadium despite a decrease in sales volumes as a result of delays in obtaining the necessary export approvals.

Capital expenditure

We have managed to substantially increase the flexibility of our capital expenditure as a result of the completion of a series of important projects in our investment pipeline, such as the new coking coal mine Yerunakovskaya VIII, the launch of the modernised rail mill at EVRAZ ZSMK and the introduction of PCI technology at EVRAZ NTMK. In addition, in the face of challenging times for the global steelmaking industry, management has revised and adjusted further expansion plans.

Our capital expenditure for 2013 is reduced from the budgeted US$1.3 billion down to US$0.9-1.0 billion (including Raspadskaya). We have temporarily lowered our spending on non-essential maintenance, and as a result, maintenance capex is currently estimated at US$460-470 million for 2013 compared with initial estimates of US$600-650 million.

Outlook 

We remain confident in the strong long-term fundamentals of our business model. While fully recognising the scale of challenges currently being faced by the global steelmaking industry we believe that the actions being implemented across all of our operations and which are focused on cost reduction, efficiency improvements, the lowering of capital expenditure and the streamlining of our business model will provide a safe passage through the current period of turbulence and economic uncertainty.

Alexander Frolov

Chief Executive Officer

EVRAZ plc

Financial Review

Giacomo Baizini, Chief Financial Officer, commented: "Whilst recognising that leverage is growing mainly due to falling EBITDA; as a result of prudent refinancing, proactive management of covenant compliance, operational improvements and the expected proceeds from disposals; we believe the company has sufficient liquidity to weather the current period of reduced profitability with confidence."

Overview

As a result of the challenging conditions in the market for steel and steelmaking raw materials, the Company recorded a net loss of US$122 million for H1 2013, compared to a net loss of US$46 million in H1 2012. Falling prices in H1 2013 caused revenue to decline by 3.4% to US$7,362 million; consequently gross profit fell by 7.1% to US$1,485 million and EBITDA decreased by 21% to US$939 million.

Free cash flow for the period was negative at US$(87) million. As a result of this and the effect of the consolidation of Raspadskaya's debt, net debt increased to $7,043 million. As of today we have no debt with maintenance covenants that require testing before H2 2014.

As of 30 June 2013, the Company's cash and short-term deposits amounted toUS$1,537 million, compared to short-term debt of US$1,574 million.

Corporate developments

As part of a strategic realignment of our asset base, the Group decided to dispose of EVRAZ Highveld Steel and Vanadium and the EVRAZ Vitkovice Steel operations. Accordingly these assets are accounted for as assets held for sale as at the end of the period.

In January 2013, we completed the acquisition of a controlling interest in the Raspadskaya coal company for US$964 million, a transaction which was primarily financed by equity accompanied bya US$202 million cash component payable in equal quarterly instalments ending on 15 January 2014.

In addition, in April 2013 we acquired a 51% stake in Timir, a joint-venture with Alrosa (shareholder agreement gives joint control), created for the development of major iron ore deposits in Yakutia, Russia, for RUB4,950 million (ca. US$160 million) payable in quarterly instalments until 15 July 2014.

Statement of Operations

Group revenues for H1 2013 decreased by 3.4% to US$7,362 million, with revenues from the Group's steel segment (excluding intersegment sales) amounting to US$5,732 million or 78% of total Group's revenue.

Steel sales volumes remained largely unchanged at 7.8 million tonnes compared to 7.7 million tonnes in H1 2012. The decline in revenues was largely due to a decrease in prices, in line with the general negative trend in steel pricing. Average Steel segment revenue per tonne decreased by 10% in H1 2013 compared to H1 2012 reflecting concerns regarding China's growth prospects and ongoing economic problems in the Eurozone. Prices of flat rolled products were hit particularly hard by the stagnation in the Eurozone and shrinking spreads between semi-finished and final products in the USA.

Steel revenues were also impacted by a temporary change in the Group's product mix during H1 2013 due to the ramp up of the new rail mill at EVRAZ ZSMK which resulted in an increase in the sales of lower margin semi-finished products. This trend is expected to reverse once the rail mill reaches full output by Q2 2014.

Mining revenues rose 17.3% to US$1,622 million in the period, compared to US$1,383 million in the first half of 2012. This growth in revenues was primarily the result of the consolidation of Raspadskaya.

As a result of declining steel prices, particularly for flat rolled products in Europe and the USA, and the temporary change to the company's product mix, EBITDA for H1 2013 was US$939 million compared to US$1,184 million in H1 2012. The negative impact of the decline in revenues in the Steel segment was partially offset by lower raw material costs.  

Mining EBITDA was negatively impacted by falling prices and slightly lower volumes of iron ore sales (while production was stable) and, in particular, coking coal.

The increase in Vanadium EBITDA from US$4 million in H1 2012 to US$34 million in H1 2013 largely reflected the recovery in prices of vanadium products.

The decrease in the other operations segment is attributable to the disposal of our transport subsidiary EvrazTrans at the end of 2012.

The Group's cost of revenue decreased by 2.4% to US$5,877 million in H1 2013 compared withUS$6,020 million in H1 2012. This was mostly due to a 20% fall in raw material costs and a 19% reduction in depreciation charges which, in turn, were partially offset by higher staff, transportation and other miscellaneous costs.

A detailed breakdown of the cost of revenue can be seen in the following table:

In the reporting period, the foreign exchange effect did not have any material impact on costs compared to H1 2012.

The cost of raw materials, the largest single cost item, decreased by US$444 million in H1 2013 driven mostly by lower coking coal and scrap costs which fell by US$258 million and US$215 million respectively. The reduction in coking coal costs in H1 2013 was attributable to lower volumes of coking coal purchased from the market following the disposal of the Ukrainian coking plant DKHZ in 2012 (US$72 million), the consolidation of Raspadskaya (US$42 million), higher intragroup supplies of coal by Yuzhkuzbassugol (US$24 million) and a more than 20% reduction in the price of purchased coking coal (approximately US$120 million). A decrease in scrap costs in the period was primarily due to lower volumes of purchases from third parties, resulting in a saving of US$150 million in Russia and North America, in addition to lower prices which accounted for a further US$65 million reduction. 

The costs for semi-finished products fell by 4% primarily due to lower prices, which were partially compensated by higher volumes purchased from third parties.

However, auxiliary material costs increased by 13%, or US$58 million, due to the consolidation of Raspadskaya, which accounted for US$53 million of additional costs.

Expenditure on services increased by 21%, or US$69 million, primarily as a result of higher volumes of coal processed at third party coal washing facilities which increased costs by US$24 million, the consolidation of Raspadskaya which added US$13 million, as well as repairs and maintenance costs and industrial services at North American, Russian and vanadium operations.

The costof goods for resale increased by 16%, or by US$42 million, to US$301 million in H1 2013. The increase of US$28 million is due to the purchase by EVRAZ Metal Inprom, the Company's retail trading arm, of more third party products to meet customer demand, while a further US$14 million was the result of a power supply company, MetalEnergo Finance, increasing the volumes of heat resold. 

Transportation costs increased by 20%, or by US$75 million, due to the consolidation of Raspadskaya which added US$39 million in costs and a US$21 million charge due to a change in the delivery basis for the supply of iron ore between the Group's Russian operations from FCA ("free carrier") to CPT ("customer paid to"). In addition, transportation costs were further impacted by the disposal of the Group's rail transportation subsidiary EvrazTrans in December 2012, which accounted for US$28 million of costs in H1 2012.

Staff costs increased by 16%, or by US$138 million, due to the consolidation of Raspadskaya, which was responsible for 7% or US$61 million of the rise, and higher wages at the Group's other operations, which rose in accordance with collective bargaining agreements and accounted for 9% or US$77 million of the increase.

Total depreciation, depletion and amortisation in cost of goods sold amounted to US$486 million in H1

2013 compared to US$602 million in H1 2012. The decrease is mainly due to a lower depletion expense at Yuzhkuzbassugol driven by a revision of the accounting basis for mineral reserves in June 2012 and January 2013. Management excluded from the calculation of the depletion charge the future estimated development costs of deposits not expected to be developed earlier than 2040-2070. This is more in line with industry practice, and better reflects the costs to develop the deposits currently being exploited.

Electricity costs increased by 6%, or by US$17 million, primarily due to higher electricity prices across all regions with the exception of North America. Natural gas expenditure also increased by 4% due to higher average prices (+9%) which were partially offset by the reduced consumption of gas at EVRAZ NTMK following the implementation of the PCI technology.

An increase in other costs by 8% is mostly driven by the consolidation of Raspadskaya.

Selling and distribution expenses were 0.5% lower than in H1 2012, despite the consolidation of Raspadskaya, largely due to reduced long distance sales, the suspension of amortisation of intangibles for assets classified as held for sale, and a lower bad debt expense due to improved cash collection from those municipalities which use heat and electricity produced by the Group's subsidiaries.

General and administrative expenses increased by 4.7% in H1 2013 primarily reflecting the consolidation of Raspadskaya, which was partially offset by a decline in bonus accrual together with a reduction in expenses at Evrazruda and EVRAZ Highveld Steel and Vanadium as a result of significant cost saving initiatives.

Foreign exchange gains/(losses) moved from a US$28 million gain in H1 2012 to a US$(177) million loss in H1 2013. This, in large part, is due to currency fluctuations in respect of intra group debt where the entities involved have different functional currencies. There is no IFRS concept of a Group's functional currency, therefore the gains/(losses) of one subsidiary do not have offsetting entries in the Statement of Operations of another subsidiary with a different functional currency and thus cannot be eliminated on consolidation. This, for example, is the case between Russian subsidiaries which have the Rouble as the functional currency and our non-Russian entities with other respective functional currencies.

Interest expenses incurred by the Group have fallen steadily over the last two years as a result of the refinancing of debt at lower interest rates on a comparative basis. The increase in interest expenses from US$322 million in H1 2012 to US$377 million in H1 2013, as reported in the financial statements, is mostly caused by the consolidation of Raspadskaya (US$21 million) and the cost of the early repayment of a pre-export facility (US$18 million).

In accordance with IFRS 3 "Business Combinations" with regard to a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss in the income statement. In H1 2013 the Group recorded a US$94 million gain on derecognition of the equity interest in Raspadskya held before the business combination.

Losses on financial assets and liabilities for H1 2013 amounted to US$(71) million and were dominated by a loss of US$(88) million on the change in fair value of derivatives - currency and interest rate swaps for Rouble bonds.

In H1 2013, the Company accrued an income tax expense of US$16 million, notwithstanding a loss before tax of US$(106) million. This was mostly due to losses at certain subsidiaries that could not be offset against profits of other subsidiaries, as well as the fact that some expenses are not deductible for tax purposes.

In H1 2013, the Company reported a US$(122) million net loss, compared to a net loss of US$(46) million in H1 2012.

Cash flow

Cash flows from operating activities before changes in working capital fell by 21.5% in H1 2013 to US$757 million reflecting lower product prices in H1 2013 compared to H1 2012.

In H1 2013 US$129 million was tied up in working capital, reflecting the seasonality of our business while in H1 2012 US$125 million was released primarily due to inflow from taxes recoverable of US$186 million.

Free cash flow for the period was a negative US$(87) million as cash generated from operations was channelled into continuing investment to upgrade and maintain our asset base.

Capex and key projects

In H1 2013 we reduced our total capital expenditure to US$492 million compared to US$565 million in H1 2012 in order to preserve cash. In H1 2013 we finalised the modernisation of the rail mill at EVRAZ ZSMK, commissioned the Yerunakovskaya VIII coking coal mine and saw our PCI project at EVRAZ NTMK become fully operational. We also made good progress with the Mezhegey Phase I and the Vostochny rolling millprojects, while the Yuzhniy rolling mill project was put on hold in light of the current market environment.

A summary of our capital expenditure for H1 2013 in millions of USD is as follows:

Financing and liquidity

As at 30 June 2013, EVRAZ's total debt amounted to US$8,606 million compared with US$8,440 million as at 31 December 2012. The Company's net debt increased to US$7,043 million from US$6,376 million at the start of the year, largely due to the consolidation of Raspadskaya which added US$453 million to net debt.

In March 2013, we offered holders of 9.25% Rouble-denominated notes with put in 2013 the option to either put the notes back to the Company at a nominal value or accept a new coupon of 8.75% per annum until 20 March 2015. As a result of the offer, we placed RUB2,735 million (US$89 million) worth of bonds bearing the new coupon and put option date, and repurchased RUB12,265 million (US$399 million) of the notes, using cash accumulated for this purpose on bank deposits. In April-May 2013, we additionally placed RUB1,150 million of repurchased notesback in the market.

In April 2013, we issued US$1,000 million of 7-year Eurobonds due 2020 bearing an interest rate of 6.50% per annum, the lowest coupon EVRAZ has ever achieved. The issue proceeds were used to refinance US$534 million of the 2013 Eurobonds and to prepay the remaining US$759 million of the US$950 million structured credit facility due 2015. The prepayment of the facility allowed us to both extend the consolidated debt maturities profile and reduce the liquidity risk arising out of potential non-compliance with the maintenance covenants. We have also signed amendments to the remaining bilateral bank facilities totalling approximatelyUS$260 million that contained a number of financial covenants. The adjustment to the financial covenants removed some of the covenants and suspended testing of the remaining financial covenants until the end of H1 2014.

The interest expense accrued in respect of loans, bonds and notes was US$377 million for H1 2013, compared to US$322 million for H1 2012.

Our cash and short-term deposits as at 30 June 2013 of US$1,537 million and expected cash flow from potential disposals compared with a short-term debt of US$1,574 million gives us confidence in our financial position.

In July 2013 Fitch affirmed long-term issuer default ratings of EVRAZ plc and Evraz Group S.A. at BB- with stable outlook.

Restatement of 2012 Financial Statements

During the preparation of the H1 2013 results we identified a classification error in the 2012 annual financial statements which related to foreign exchange movements attributable to certain subsidiaries disposed of in 2012. These foreign exchange losses had not been recycled from the equity reserve back through the statement of operations, as required by the relevant accounting standard. The error represents a one-off non-cash item, does not affect 2012 EBITDA, CAPEX, free cash flow, or net assets of the Company, and does not have an impact on the measurement of any of the group's covenants. For more details, please refer to Note 2 of the Financial statements.

IAS 19 "Employee Benefits", which was revised in 2011 and became effective for annual periods beginning on or after 1 January 2013, introduced full recognition of defined benefit obligations in the statement of financial position whereas under the previous standard we accounted for a part of the obligation relating to unrealized actuarial gains/losses under the corridor approach. The revised standard also changed the accounting for certain components of defined benefit obligations. The comparatives for the half-year results have been restated to reflect this revision to the standard and for further details see Note 2 of the interim condensed consolidated financial statements.

Dividends

The Board has not recommended the payment of a dividend in respect of H1 2013.

Giacomo Baizini

Chief Financial Officer

EVRAZ plc

Review of operATIONS by SEGMENT

STEEL

Markets performance in H1 2013

Global crude steel production grew 2.7% during H1 2013 compared to H1 2012, led by an 8.5% increase in Chinese output. However, steel prices remained weak due to excessive capacity in both the Eurozone and China, the perception of softening economic growth in China and a longer term shift to a less resource intensive growth model as well as due to sluggish demand in the Eurozone.

The global steel market is expected to remain challenging during the second half of the year as structural problems continue to dominate the industry, with estimated global capacity utilisation to remain at 75%.

In H1 2013, crude steel output in Russia decreased by 2.9% compared to H1 2012, whereas apparent consumption of finished steel products grew by 4.3%. The construction industry remains the key driver of demand for steel products, demonstrating healthy growth of 13.1%. Long-term growth of steel product consumption in Russia and CIS is expected to be driven by substantial investments in infrastructure and railway modernisation. However, steel prices in Russia were not immune to the general weakness in global markets and followed the decreasing trend in H1 2013.

US crude steel production in the first half of the year decreased by 6.3% compared to H1 2012, with apparent consumption of finished steel products declining by 2.9%. Additionally, the pricing environment remained challenging with hot rolled coil prices falling by 7.3%, in spite of an increasingly positive US economic outlook, although rebar prices were relatively stable with only a 0.2% decrease over the period.

European crude steel production declined by 5.2% in H1 2013 compared to H1 2012 with apparent consumption of finished steel products declining by 4.4%. On-going macro-economic uncertainty resulted in average rebar and hot rolled coil price decreases of 9.7% and 6.6% respectively. Furthermore, capacity utilisation rates remained below 70%. In spite of this, there are early signs of an improving outlook for H2 2013 on the back of expected increases in public sector spending and the announcement of several significant new construction projects.

South Africa's apparent steel consumption in the first half of 2013 was in line with the corresponding period of 2012. Pricing in USD remained relatively flat when compared to Q4 2012, but that was mainly a reflection of the Rand weakening by over 9% in Q2 2013 compared to Q4 2012, rather than of underlying demand.

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 8.6% to US$6,416 million in H1 2013 compared to US$7,019 million in H1 2012, which was largely a result of lower steel product prices during the period. 

Revenues attributable to sales of semi-finished products decreased due to a decline in export sale prices, despite an increase in sales volumes of Russian semi-finished products following EVRAZ ZSMK's rail mill modernisation and ramp up.

Railway products revenues also fell as a result of lower sales volumes during the ramp up of the modernised EVRAZ ZSMK's rail mill. In spite of lower sales volumes, prices for railway products remained resilient in H1 2013 compared to H1 2012.

Revenue from tubular product sales slightly decreased in H1 2013 as higher volumes, particularly of large diameter line pipes, were unable to offset the fall in prices of tubular products.

Lower prices for construction products, flat-rolled products and other steel products led to a fall in sales revenues, in spite of relatively stable production volumes. Prices of flat rolled products were particularly impacted by continuing economic stagnation in the Eurozone and shrinking spreads in the USA.

Russian sales accounted for 42% of external steel product sales revenues in H1 2013, compared with approximately 41% in H1 2012. The slightly higher share of revenues from steel sales in Russia was attributable to the relatively stable sales volumes to the construction industry and more resilient domestic prices.

Operational update - Steel segment

Steel products: Russia

H1 2013 crude steel output in Russia was broadly flat, compared to H1 2012, at almost 6 million tonnes. However, results varied greatly across different product groups. Production of finished steel products decreased by 8%, although this was fully offset by the 14% output growth of semi-finished products. These changes to production levels were caused by the large scale modernisation of the rail mill at EVRAZ ZSMK in 2012, which led to a temporary decrease in production of railway products, and the shutdown of the plate rolling mill at EVRAZ ZSMK in H1 2013.

In general, our Russian steelmaking facilities continued to operate at utilisation rates which were close to full capacity during H1 2013.

The PCI project at EVRAZ NTMK reached full capacity in May 2013 and its implementation allows for coke and natural gas consumption rates per tonne of pig iron to be reduced from 405 kg to 315 kg and from 130 m3/t to 75 m3/t, or by 22% and 42%, respectively, based on the use of 133 kg PCI coal per tonne of pig iron. The savings effect is ca. US$10 per tonne of crude steel.

During H1 2013, the company also performed a week-long maintenance programme at one of EVRAZ NTMK's blast furnaces to configure it for a PCI technology upgrade in due course and boost the overall pig iron capacity from 5.1 up to 5.2 million tonnes per annum. During this time, EVRAZ NTMK additionally undertook a series of measures to enhance flexibility and improve productivity at a casting machine.

Works on the PCI project at EVRAZ ZSMK continued in H1 2013, however the project's development schedule was extended in order to decrease the capital expenditure requirements in the current year.

Additionally during the period, the Company decided to shut down the plate rolling mill at EVRAZ ZSMK, due to the marginal nature of its products in the current market environment.

Railway products: Russia

The key highlight of H1 2013 at EVRAZ's railway business was the re-commencement of the rail mill at EVRAZ ZSMK in January 2013, following completion of its large scale modernisation programme. Since January the rail mill has been ramping up steadily and is expected to reach its annualised full capacity of 950,000 tonnes by Q2 2014. Following successful lab tests, head hardened rails from the new rail mill were delivered to the Russian Railways for certification. The process of certification is expected to be completed by the end of 2013 and will pave the way for commercial sales of head hardened rails.

The rail mill at EVRAZ NTMK also operated at a high run rate during H1 2013, increasing its deliveries of rails to Russia and CIS region by 4% compared to H1 2012.

Russian Railways continues to be a major customer of rails produced by EVRAZ accounting for 80% of shipments from both rail mills.

In H1 2013, EVRAZ enjoyed solid results at our wheel making business, despite a certain weakness in the railcar industry, due to our long-term contract with Uralvagonzavod, the largest producer of railcars in Russia.

Additionally in March 2013, EVRAZ successfully completed the preliminary qualifications required to become a supplier of railway wheels to Deutsche Bahn. Although a schedule for final testing and approval of the wheels has yet to be determined, this represents an important step towards achieving a strategic goal of entering the European railway market. To this end, EVRAZ and GHH-Valdunes signed an agency agreement in June 2013 relating to the sale and marketing of EVRAZ's railway freight wheels in Europe through GHH-Valdunes.

Steel: North America

In H1 2013 crude steel output at the North American operations declined by 9.2% compared to H1 2012 due to maintenance works at EVRAZ Pueblo in Q2 2013, inventory optimisation and several unplanned production outages in Q1 2013. Meanwhile, output of finished steel products increased by 3.6% in H1 2013, driven by growth in flat-rolled and construction products.

The key focus of the flat product group, in the period, was enhancing capacity utilisation. To this end, EVRAZ North America is currently finalising works to increase the rolling speed at EVRAZ Claymont which should improve productivity and provide capacity for higher output levels when the order book is strong. In addition, the Company has been carrying out the scoping works on debottlenecking and capacity expansion projects at the Portland and Regina facilities; however, no final decision on the implementation of these projects has been made.

In tubular products, the company concentrated on productivity rates of the seamless mill at Pueblo, with the first pass yield currently running sustainably at improved levels and reducing conversion costs. The heat treating investment project at the Calgary mill of EVRAZ North America progressed well through H1 2013 and the company placed orders for several key pieces of equipment. The premium threading investment is on track to begin delivering additional volumes, at lower costs, during H2 2013.

The key investment project of the long product group in H1 2013 was the modernisation of the rail mill at Pueblo to improve product quality and increase production capacity to 526,000 tonnes per annum. The capacity of the rolling facility was increased by 10% as a result of the rolling automation and enhancements to the reheat furnace. In addition, the Company commenced installation works for new automated nondestructive test equipment, which are expected to be completed by mid-2014.

Steel: Ukraine

In H1 2013 crude steel output of EVRAZ DMZ Petrovskogo increased by 15% compared to H1 2012.

During the period, EVRAZ DMZ Petrovskogo increased its consumption of proprietary coal in its coke production from 49% to 66%, whilst also improving the quality of coke and increasing productivity of its blast furnaces. Additionally, several new product lines (profiles) were designed and produced to meet the requirements of European customers.

Following an optimisation programme and heightened focus on increasing in-house consumption of steelmaking materials, EVRAZ Bagliykoks reached its highest loading of coke oven batteries in the last 5 years, at 97%.

Steel: Europe

Crude steel output at EVRAZ Vitkovice Steel was affected by the planned on-and-off method of production at the facility and resulted in 35.7% decrease compared to H1 2012. The facility's rolling mill remained operational throughout the period. In July 2013 EVRAZ Vitkovice's steelmaking shop was idled for annual maintenance and the summer break.

EVRAZ Palini e Bertoli was operating as normal during H1 2013, but had to adjust its output level to reflect subdued market demand, with 192,000 tonnes of plates produced. In July 2013, the Company announced that operations of EVRAZ Palini e Bertoli would be temporarily suspended, until further notice, due to the weak European plate market.

Steel: South Africa

In H1 2013, EVRAZ Highveld Steel and Vanadium was still overcoming the effects of 2012's industrial action and transportation strike. Additionally, operating results were impacted by management of energy usage in response to growing electricity unit rates applicable during winter peak demand hours.

MINING

Markets performance in H1 2013

Iron ore

The Seaborne iron ore market began 2013 positively, with prices reaching ca.US$160/t China CFR (62% Fe) in late February, driven by short term inventory movements and Chinese steel mills restocking in Q4 2012 and Q1 2013. However, the positive price trend moderated from March 2013 onwards with spot prices falling to a US$130-140/t and continuing to gradually decline into the summer months. China CFR price stood at US$117/t at the end of June 2013, representing a 20% decline year-to-date, although with inventories again running low there is potential for restocking over the coming months.

Over the medium term the key catalysts for iron ore prices will be China's ability to sustain industrial commodity demand and the rate of capacity increases from major Australian and Brazilian iron ore producers.

Coking coal

Seaborne spot coking coal prices steadily declined during H1 2013, in the face of both cyclical and structural headwinds. Australia Queensland FOB HCC spot price reached US$138/t at the end of June, representing a year to date decline of 15%.

Coking coal price in the Russian domestic market remained flat in H1 2013, despite downward pressure from global steel markets. However, due to the continuing weak steel industry fundamentals domestic coal prices had declined 12% by the end of July 2013.

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 mining segment revenues increased by 17.3% to US$1,622 million in H1 2013 compared to US$1,383 million in H1 2012, primarily as a result of additional volumes from the consolidation of Raspadskaya in January 2013, which offset the decrease in iron ore and coking coal prices.

External sales volumes of iron ore products increased by 6.5% in H1 2013 compared to H1 2012 driven by higher volumes from EVRAZ Sukha Balka, while intersegment sales volumes decreased by 6.0% primarily as a result of changes to intersegment product handling and processing procedures. The preparations for closure of the Irba mine at Evrazruda also contributed to lower iron ore volumes being supplied to the Steel segment.

External sales volumes of coal products increased in H1 2013 by 350% due to an additional 2 million tonnes of coking coal concentrate from Raspadskaya and higher sales of steam coal products following the repositioning of longwalls at Kusheyakovskaya and Gramoteinskaya steam coal mines in H1 2012.

In H1 2013, Mining segment sales to the Steel segment amounted to US$1,005 million and 62.0% of sales, compared to US$1,027 million and 74.3% of sales, in H1 2012. The lower share of sales to the Steel segment reflects the additional coal volumes sold to market from Raspadskaya.

During the period, approximately 69% and 68% of EVRAZ's respective iron ore and coking consumption was satisfied by the Group's own operations compared with 71% and 48% (including coal from Raspadskaya) in H1 2012.

Third party sales by the Mining segment to customers in Russia in H1 2013 increased to approximately 40% compared to 38% in the corresponding period last year. The increase is primarily attributable to the consolidation of Raspadskaya in H1 2013. Approximately 60% of sales of Raspadskaya in H1 2013 were to customers in Russia.

Operational update - Mining segment

Mining: Iron Ore

In H1 2013, the output of iron ore products totalled 10.5 million tonnes with the 2.5% decline in Russian output being more than offset by the 10% increase in production at Ukrainian and South African assets.

Cost savings and operational improvement programmes remained the focus of the iron ore division. These included actions aimed at the optimisation of land tax payments and the enhancement of railway transportation terms, which along with other measures contributed US$23 million of savings in the reporting period.

In February 2013, the Company finalised the project documentation and received the relevant state approvals for the development of the Sobstvenno-Kachkanarskoye deposit. Following a thorough review of the options for the deposit, management redesigned the development plans in order to mitigate short term pressures while preserving its long term investment case. As a result, the project's development timeline has been extended, with commencement of production postponed from 2015 to 2017 and the estimated total investment budget to bring the mine to production reduced from US$240 million to US$150 million.

On 1 July 2013 the Company permanently shut down the high cost Irba mine at Evrazruda. This initiative is part of a wider strategic plan targeting the closure and/or disposal of less efficient operations while focussing on the development of more efficient mines at Evrazruda to improve productivity and sustainably achieve economies of scale at a reasonably low cost. EVRAZ expects that the loss of production from closed mines will be largely offset by additional volumes from modernised operations such as the Sheregesh mine, where output is expected to increase by 2.5 times by 2018 to 4.8 million tonnes per annum. These measures should result in lowering the Company's cash cost position and support long run economically efficient vertical integration.

In April 2013, EVRAZ acquired a 51% stake in the joint venture, Timir, which holds licences to four iron ore deposits in Southern Yakutia with total reserves under the Russian geological categories of A+B+C1 of 3.5 billion tonnes of iron ore. Among these deposits, the Tayozhnoye deposit is considered to be the most attractive with 341 million tonnes of fully explored reserves for open pit mining, ore grades of 38-40% Fe and close proximity to existing rail and power infrastructure. In H1 2013, the scoping study for the project was finalised, with current estimates indicating a mining capacity at the Tayozhnoye open pit of 15 million tonnes of iron ore per annum. The Company expects that active construction works at the deposit will not commence until, at the earliest, 2015.

Mining: Coal

In H1 2013, EVRAZ's raw coking coal output totalled 9.1 million tonnes which was 5.1 million tonnes higher than in H1 2012. The primary non-organic driver of the growth of raw coking coal output was the consolidation of Raspadskaya coal mining company in January 2013.

Yuzhkuzbassugol mined 5.1 million tonnes of coking coal in H1 2013, a 28% increase compared to 4.0 million tonnes in H1 2012, following the launch and ramp-up of the Yerunakovskaya VIII mine, which was commissioned ahead of schedule and below budget. Additionally, the Alardinskaya mine has operated at an increased capacity since the beginning of the year and the Uskovskaya mine demonstrated solid performance while it was closed for longwall repositioning during part of H1 2012. The growth of output in H1 2013 fully offset the loss of production from the Ossinikovskaya mine where a flood in March 2013 tragically killed 4 people and led to a month long suspension. The Alardinsklaya mine also briefly halted production for a period in March and April as a result of a fire.

The Company remains on track to meet its target of mining 1 million tonnes of raw coal at the Yerunakovkaya VIII mine in 2013 and fully ramping-up the mine by the beginning of 2014. In H1 2013, Yuzhkuzbassugol received a new set of longwall equipment and its installation is scheduled to be completed in Q4 2013.

In July 2013 a trial of a SAP ERP management system started at Yuzhkuzbassugol. The system allows for the automation of most of the basic functions of the mine relating to finance and accounting, logistics, supply and material requirements planning and the cost of repairs. The project is planned to be completed in Q4 2013 and if successful, may allow a single SAP template be applied to all EVRAZ mining operations, providing the Company with more accurate information and enhancing existing systems.

In H1 2013, raw coking coal output from Raspadskaya amounted to 4 million tonnes, 15% higher than in H1 2012, including 1.1 million tonnes of raw coal mined at the Raspadskaya mine. However, these increases were below targets, due to weak seaborne market demand and the suspension of operations at the Raspadskaya underground mine in May-June 2013 due to excessive carbon monoxide levels in certain areas of the mine. Having completed the necessary actions to rectify the situation, Raspadskaya resumed the mining operations at the underground mine on 5 July 2013.

In the reporting period EVRAZ continued to focus on efficiency improvement programmes at all of its mines. These include a shortened longwall repositioning schedule at the Uskovskaya mine, more efficient gas draining drilling and cutting down operating and capital expenses at Yuzhkuzbassugol.

EVRAZ continued the development of the Mezhegey Phase I project during the period. In H1 2013, the Company finalised design and engineering project plans, which have been submitted for approval to the relevant state agencies. The construction works of key industrial facilities and power infrastructure, which started in 2012, are scheduled to be completed by the end of Q3 2013. First coal is expected to be mined in October 2013. The bulk of production from the mine will be consumed by EVRAZ ZSMK.

The Company reiterates its forecast over 10 million tonnes of raw coking coal production at the Yuzhkuzbassugol mines, while reducing guidance for Raspadskaya to 8 million tonnes of raw coal from 9.3 million tonnes.

In H1 2013, production from our steam coal mines were heavily affected by the suspension of the Gramoteinskaya mine in Q4 2012 and longwall repositioning at the Kusheyakovskaya mine in Q1 2013.

VANADIUM

Markets performance in H1 2013

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.

Ferrovanadium (FeV) prices demonstrated a strong performance in Q1 2013, fuelled in part by a rally in China, and approached ca. US$33/kg, only to decrease to US$27/kg in May 2013 and then stabilise at this level leading into the summer months. FeV spot price stood at US$27.2/t at the end of June, representing a 3% decline year to date.

FeV prices are expected to show moderate growth in H2 2013 as producers' inventories are reduced and traders lack the required quantities of material.

Sales review

Vanadium segment revenues increased by 1.9% to US$268 million in H1 2013 compared to US$263 million in H1 2012 reflecting increase in sales prices of vanadium products, which more than offset the decrease in sales volumes. Sales volumes of the Vanadium segment decreased by 10% as a result of lower sales of vanadium slag by EVRAZ NTMK to China, while waiting for an export license, and proportionally lower purchases of vanadium pentoxide for further processing into FeV at third party facilities in China and the USA.

Operational update - Vanadium segment

In H1 2013, the vanadium facilities of the Company demonstrated strong operational results, producing 10,836 tonnes of vanadium in slag and 8,730 tonnes of final vanadium products.

The key highlights of the reporting period include the implementation of the project at EVRAZ Vanady Tula's pulp filtration plant to improve working conditions, increase mechanisation, cut operational losses and increase pentoxide production volumes, which nears completion.

The project to enable the processing of vanadium slag supplied from EVRAZ NTMK at EVRAZ Stratcor, to alleviate feed shortages, is progressing on schedule with construction works expected to be completed by the end of 2013.

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 14.0% to US$465 million in H1 2013 as compared to US$541 million in H1 2012, principally driven by the disposal of the Evraztrans business in 2012. Revenue of other operations segment includes the following (sales figures shown below include sales within the same segment):

· Evraztrans (until its disposal by EVRAZ on 12 December 2012) acted as a railway transport provider for EVRAZ's Steel segment. Sales of EvrazTrans (including Russian and Ukrainian operations) amounted to US$85 million in H1 2012. EvrazTrans derived the majority of its revenue from inter‑segment sales, which accounted for 88% of its revenue in H1 2012. Following the sale, EVRAZ retained a smaller part of the business related to the transportation of pellets from EVRAZ KGOK to EVRAZ NTMK. In H1 2013 EVRAZ mostly used third party providers for transportation of its goods.

· Sales of EVRAZ Nakhodka Trade Sea Port, which provides various sea port services to the Company, totaled US$45 million both in H1 2013 and in H1 2012. Intersegment sales accounted for 44% of the revenue in H1 2012, while in H1 2013 all port services related to handling of EVRAZ's export products were rendered under the contract with the Russian Railways, which resulted in the higher third party sales of other operations in H1 2013.

· Metallenergofinance ("MEF") supplies electricity to EVRAZ's steel and mining segments as well as third parties. MEF's sales amounted to US$219 million in H1 2013 compared to US$204 million in H1 2012. Intersegment sales accounted for 78% and 79% of MEF's revenue in H1 2013 and H1 2012 respectively.

· Sinano Ship Management ("Sinano") provides sea freight services to EVRAZ's steel segment. Sinano's sales totaled US$61 million in H1 2013 and US$64 million in H1 2012, with intersegment sales accounting for almost 93% in H1 2013 and 98% in H1 2012 of its revenue.

· ZapSib Power Plant (including Central Power Plant) is an energy-generating branch of EVRAZ ZSMK which supplies electricity and heat to EVRAZ ZSMK and third party customers. Its revenue amounted to US$96 million in H1 2013 compared with US$94 million in H1 2012. Intersegment sales accounted for 84% and 76% of ZapSib Power Plant revenue in H1 2013 and H1 2012 respectively.

Operational update - Other businesses

In H1 2013, EVRAZ Metall Inprom, a retail trading arm of EVRAZ, retained one of the leading positions in the warehousing and distribution of ferrous metals in Russia with a share of 11.5%. The company sold about ca. 970,000 tonnes of rolled products in the reporting period, which is by 6.2% higher compared to the same period of the last year.

In the reporting period, EVRAZ continued to expand the number of rolled steel product deliveries which used trucks, helping our clients to save on transportation costs, shortening delivery times and increasing flexibility in terms of volumes ordered. The customer focused strategy of the company led to growth of the total number of active clients by 3% in H1 2013 compared to H1 2012.

In H1 2013 EVRAZ continued with operational improvements at key power generating facilities. The ZapSib Power Plant, at EVRAZ ZSMK, upgrade is on track to be completed by 2016 and will increase power generation by 48% to 3.6 billion kw/h per annum from the current capacity of 2.4 billion kw/h. The 2013 design for power generation amounts to 3.2 billion kw/h.

Cargo turnover at the EVRAZ Nakhodka Trade Sea Port (NMTP) increased by 85,000 tonnes (+2%) in H1 2013 The Group remains on track to increase the annual coal loading capacity of the port to 5 million tonnes by 2015.

COST OF REVENUE AND GROSS PROFIT

EVRAZ's consolidated cost of revenue amounted to US$5,877 million, representing 79.8% of the Company's consolidated revenues, in the first six months of 2013 compared to US$6,020 million, or 79.0% of consolidated revenues, in the first six months of 2012. The decrease in the gross profit margin in the six months ended 30 June 2013 compared to the six months ended 30 June 2013 was primarily due to lower average prices of steel products.

*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$5,245 million or 81.7% of steel segment revenue in the first six months of 2013, compared to US$5,742 million or 81.8% of steel segment revenue in the first six months of 2012.

The principal factors affecting the change in the steel segment cost of revenue, in absolute terms, in the six months ended 30 June 2013 compared to the six months ended 30 June 2012 were as follows:

• Raw material costs decreased by 15.2% due to a decline in prices for all main raw materials (particularly iron ore, coking coal, scrap) accompanied by decrease in production volumes of crude steel by 3%. Other factors influencing this decrease included a higher proportion of own coking coal consumption, as a result of higher production volumes at YuKU, and additional volumes from the consolidation of Raspadskaya and disposal of DKHZ (consumption of coal in H1 2012 of US$72 million).

• Costs of semi-finished products decreased by 3.6% due to lower average prices, which was partially compensated for by higher volumes purchased from third parties.

• Transportation costs decreased by 4.1% due to a change in contract terms between TC Evrazholding and the Russian Railways resulting in all transportation costs relating to sales of rails reported as selling expenses in H1 2013, while in H1 2012 some costs related to rent of third party wagons were reported in cost of revenues (US$7 million). This decrease was accompanied by lower intercompany sales and related transportation costs between Russian steel operations (US$4 million).

• Staff costs increased by 6.4% largely due to higher wages and salaries of production staff which rose, in accordance with the trade union agreements.

• Depreciation and depletion costs increased by 1.8% primarily due to capitalisation of expenses following the completion of major investment projects at EVRAZ ZSMK and EVRAZ NTMK.

• Energy costs decreased by 4.3%, which was primarily attributable to reduced consumption volume of natural gas at ZSMK (-US$23 million) due to classification of the results of Central Heat and Power Plant in Other operations segment in H1 2013 and NTMK (-US$11 million) as a result of PCI implementation. This decrease was partially offset by higher electricity and natural gas prices.

• Other costs decreased by 1.2% due to an increase in stock of goods in ports in H1 2013, while there was a destocking in H1 2012.

Steel segment gross profit decreased by 8.3% to US$1,171 million in the first six months of 2013 from US$1,277 million in the first six months of 2012. Gross profit margin amounted to 18.3% of steel segment revenue in the six months ended 30 June 2013 compared with 18.2% in the corresponding period last year, reflecting the decline in steel segment revenues by 8.6%, while cost of revenues decrease by 8.7%.

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

The mining segment cost of revenue increased to US$1,321 million or 81.4% of mining segment revenue in the six months ended 30 June 2013 compared with US$1,175 million or 85.0% of mining segment revenue in the six months ended 30 June 2012.

The principal factors affecting the change in mining segment cost of revenue, in absolute terms, in the six months ended 30 June 2013 compared to the six months ended 30 June 2012 were:

· Raw material costs decreased by 46.0% primarily due to switch to a tolling scheme of sinter production by EVRAZ VGOK instead of purchasing the raw material from EVRAZ NTMK (-US$24 million), and decrease of third party coal purchases for production of concentrate by Yuzhkuzbassugol (-US$9 million).

· Transportation costs increased by 73.5% due to the consolidation of Raspadskaya (+US$39 million), increased export sales of iron ore and coal (+US$17 million), change in contract terms from FCA to CPT for supply of iron ore between EVRAZ ZSMK and Evrazruda (+US$11 million) and EVRAZ VGOK (+US$10 million) and an increase in Russian railway tariffs.

· Staff costs increased by 37.1%. The increase was largely attributable to consolidation of Raspadskaya (US$61 million) and the increase in wages and salaries in accordance with trade union agreements.

· Depreciation and depletion costs decreased by 31.7% mainly due to a lower depreciation and depletion expense at Yuzhkuzbassugol caused by a revaluation of reserves in June 2012 and January 2013 (net effect of US$154 million) and a significant reduction in depreciaton at Evrazruda due to impairment of assets (net effect of US$23 million) This decrease was partially offset by an increase of depreciation due to consolidation of Raspadskaya (US$66 million).

· Energy costs increased by 20% primarily due to higher electricity and natural gas prices, the consolidation of Raspadskaya (+US$7 million) and higher production volumes at Yuzhkuzbassugol and EVRAZ KGOK.

· Other costs increased by 40.4%, primarily due to the consolidation of Raspadskaya (+US$79 million) and higher processed volumes of concentrate at third party facilities by Yuzhkuzbassugol (+US$24 million).

The Mining segment's gross profit increased to US$301 million in the six months ended 30 June 2013 from US$208 million in the six months ended 30 June 2012. The increase in the gross profit margin in the first six months of 2013compared to the first six months of 2012 was primarily attributable to lower depreciation and depletion at Yuzhkuzbassugol and additional profit from consolidation of Raspadskaya (US$24 million).

The vanadium segment cost of revenue decreased by 15.3% to US$205 million, or 76.5% of vanadium segment revenue, in the six months ended 30 June 2013 from US$242 million, or 92.0% of vanadium segment revenue, in the six months ended 30 June 2012. The decrease in EVRAZ's vanadium segment's cost of revenue in the first six months of 2013 as compared to the first six months of 2012, in absolute terms, was attributable to a decrease in sales volumes as discussed in the Vanadium segment revenues above.

In H1 2013, gross profit of EVRAZ's vanadium segment increased to US$63 million compared with US$21 million in H1 2012 primarily due to higher prices for vanadium products.

Other operations segment cost of revenue and gross profit

The other operations segment's cost of revenue amounted to 81.7% of other operations revenue, or US$380 million, in the first six months of 2013 compared to 74.1%, or US$401 million, in the first six months of 2012.

The major components of cost of revenue at EVRAZ Nakhodka Trade Sea Port are staff and inventory costs. The major components of EvrazTrans' cost of revenue in H1 2012 were rental and maintenance of railway cars. The major component of MEF's cost of revenue is the purchase of electricity from power generating companies. The major components of ZapSib 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.

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 28 to 31 of the Annual Report 2012. The majority of principal risks of the Company are unchanged from those identified in the Annual Report but we provide the following update on those risks which impacted the Company during the Period and which we expect to be most significant for the rest of the year:

· Global economic factors, industry conditions and cost effectiveness

EVRAZ Steel, Mining and Vanadium operations are highly dependent and sensitive to the global macroeconomic environment, with economic conditions in China and Europe being of particular importance. The risk to EVRAZ's operations can be different dependent on the regions of activity and on EVRAZ's products; finished, semi-finished or commodities. The global supply and demand balance for steel and particularly for iron ore and metallurgical coal has the potential to significantly affect both product prices and volumes across all markets. Fluctuations in RUR/USD exchange rates and other foreign currencies can negatively impact performance and liquidity. As EVRAZ's operations have a high level of fixed costs, global economic and industry conditions have significant impact on the Company's operational performance and liquidity. EVRAZ has a focused investment policy aimed at

reducing and managing fixed costs and reducing direct costs by expanding the Company's self-coverage of key raw material inputs with the objective of being among the sector's lowest cost producers.

· Health, safety and environmental (HSE) issues

Safety risks are inherent to the Company's principal business activities of steelmaking and mining. Further, EVRAZ operations are subject to a wide range of HSE laws, regulations and standards, the breach of any of which may result in fines, penalties or other sanctions. Such actions could have a material adverse effect on the Company's business, financial condition and business prospects. HSE is a functional area where new laws, regulations and sanctions are continuously introduced. Regulatory activity could result in elements of EVRAZ's operations becoming uneconomic. Given that HSE risks can be critical, HSE issues have direct oversight at Board level and HSE procedures and material issues are given top priority at all internal management level meetings. EVRAZ has instigated a programme to improve the management of safety risks across all business units with the objective of embedding a new safety, harm-free culture at all management and operational levels. Management KPIs include a material factor for safety performance. Safety training has been reviewed with the aim of providing strong and professional safety leadership. For all new projects an operational safety assessment is undertaken as a first step to the engineering design and project approval.

· Dependency on certain key markets

EVRAZ revenues are substantially derived from customers in Russia, around 43% and North America, around 22%, and as a result, EVRAZ commercial success is closely aligned to the operating and economic environment in these two regions. The strategic risks and opportunities within these regions are regularly reviewed. The review includes consideration of the quality and nature of the Company's product portfolio, relative cost effectiveness and the sustainability of industry sector market positioning together with effective in-house (EVRAZ Metal Inprom) and external distribution networks.

· Capital projects and expenditure

Steel production and mining are both capital intensive operational activities requiring both continuing maintenance and development capital expenditure, in addition to capital expenditure focused on improving the Company's cost effectiveness and increasing self-coverage of the Company's primary raw material inputs. These intended and planned investments are aligned to the Company's and external market expectations for each particular project and to maximise levels of investment returns. The risks that events or economic issues outside those factored into the Company's forward business plans, may negatively impact the Company's anticipated Free Cash Flow could cause certain elements of the planned capital expenditure to be re-phased, deferred or abandoned with consequential impact on the Company's planned future performance. The Company has developed various stressed business scenarios to assess the Company's ability to meet or flex capital expenditure requirements both for maintaining current operations as well as for commissioning key projects. Project delivery is closely monitored against project plans resulting in high level action to manage project investment both for timely delivery and for planned project expenditure.

· Human Resources

EVRAZ management and employees represent a key resource and are critical to the delivery of the Company's objectives. The principal related risk is the quality and availability of critical operational and business skills. Associated risks involve selection, recruitment, training and retention of employees and qualified executives. Succession planning is a key feature of EVRAZ's human resources management. However, in certain regions and for particular business units where there is a general skill scarcity, succession planning cannot anticipate all management risks. The scarcity of experienced and skilled mining professionals is a particular risk. The Russian exposure is especially accentuated in the remoteness and in the harsh seasonal climatic conditions of certain of the Company's mining operations.

Generally, union relations are largely stable; a costly stoppage that EVRAZ experienced in South Africa in 2012 related rather to local conditions than to EVRAZ's industrial relations activity. EVRAZ seeks to meet its leadership and skill needs through retention of its employees, internal promotion, structured professional internal mentoring and external development programmes.

· Potential Actions by Governments

EVRAZ operates in a number of countries and there is a risk that governments or government agencies could adopt new laws, regulations or other requirements which could have an adverse impact on the Company's operations and business. Such developments could have the effect of limiting the Company's ability to obtain financing in international markets.

EVRAZ and its executive teams are members of various national industry bodies and, as a result, contribute to the thinking of such bodies and, when appropriate, participate in relevant discussions with political and regulatory authorities.

· Business interruption

EVRAZ's mining, smelting, and refining operations are subject to a number of operational risks which could cause prolonged shut-downs or production delays. Any such event could have a material adverse effect on the Company's operating performance, production, financial condition and future prospects. In addition, long term business interruption may result in loss of customers, competitive advantage being compromised and damage to the Company's reputation. To mitigate such risks the Company has defined and established business continuity plans, procedures and protocols. The Company carries certain business interruption insurance, except for particular mining events. These plans, procedures and protocols are subject to regular review and audit of their appropriateness and effectiveness.

· Treasury and Taxation

EVRAZ, as with many other large and multi-national corporates, faces various treasury and taxation risks including liquidity, credit access, currency fluctuations, and interest rate and tax compliance risks. EVRAZ employs skilled specialists, both internal and external, to manage and mitigate such risks and the management of such risks is embedded in the established management internal controls. Oversight of the key risks is reported within the monthly Board reports and by the review of compliance with such internal controls by an independent internal audit function, which reports to the Audit Committee as a whole and individually to Audit Committee members and senior executive management by way of monthly internal audit reports.

EVRAZ's ability to incur debt is limited mainly to refinancing due to its existing Eurobond covenants. While EVRAZ has a total funding cap, the flexibility built into the Company's capital and maintenance expenditure permits EVRAZ to maintain its liquidity availability at a low level of cash generation. EVRAZ's corporate finance team and the directors regularly and pro-actively review all funding requirements and exposures.

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 Giacomo Baizini

Chief Executive Officer Chief Financial Officer

28 August 2013

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

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, short-term deposits of acquiree (at the date of business combination), purchases of subsidiaries, net of cash acquired, proceeds from sale of disposal groups classified as held for sale, net of transaction costs, 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.

Free Cash Flow has been calculated as follows:

Appendix 4

Total Debt

Total Debt represents 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:

EVRAZ plc

Unaudited Interim Condensed Consolidated Financial Statements

Six-month period ended 30 June 2013

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 2013 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 2013 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

28 August 2013 

The maintenance and integrity of the EVRAZ plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial information since it was initially presented on the web site.Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Unaudited Interim Condensed Consolidated Statement of Operations

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