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Evraz steels itself against price falls

Evraz has been slimming down in response to weak global steel prices
August 28, 2015

Evraz (EVR) turned in gross profit of $1.32bn (£858m) for the first six months of the year. This result was 18 per cent adrift of the comparable figure in 2014, but the contraction was modest by comparison to the fall-away in revenue, suggesting the Russian steelmaker's extensive cost-cutting programme is having the desired effect.

IC TIP: Hold at 74.7p

Management has taken the axe to its cost base as it struggles to combat weak steel and other raw material markets. Revenue fell across nearly all the group's end markets, including Russia, Asia and North America, although Europe - perhaps surprisingly - bucked the trend by registering a 2 per cent increase.

Evraz, which operates a vertically integrated production model, has been shutting down unprofitable mines and driving operational efficiencies. The group also cut its capital expenditure commitments by 31 per cent to $251m as expansion plans give way to balance sheet discipline.

The poor state of the Russian economy, partly as a result of ever-tighter western sanctions, provide a gloomy backdrop to trading, but there has been at least one benefit. Last year the group was hit by heavy foreign-exchange losses as the devaluation of the rouble effectively inflated US-denominated amounts owed by Evraz subsidiaries, but the currency's slide has also substantially reduced domestic production costs.

EVRAZ (EVR)
ORD PRICE:74.7pMARKET VALUE:£1.05bn
TOUCH:74.4-74.9p12-MONTH HIGH:210pLOW: 73p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:115¢*NET DEBT:309%

Half-year to 30 JunTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
20146.8199.03.0nil
20154.891201.0nil
% change-28+21-67-

£1=$1.55 *Includes intangible assets of $1.87bn, or 133¢ a share.