Same old debt and dividend story at Evraz

Evraz upped its borrowing to cope with lower revenue and dropped the payout announced at the mid-year from the 35¢ in 2019, to 20¢. Last year, the company was more restrained than previously on dividends, moving from four payouts in 2018 to two. 

Evraz is reliant on Russian, European and North American steel demand, all of which were weaker this year according to sales figures. China recovered quickly from the Covid-19 shutdown and was back on track in the June quarter (reflected in the high iron ore price). This helped Evraz’s coal and vanadium sales, but its steel products are largely sold elsewhere. 

Russian steel demand was down 11 per cent in the first half, and two key coal grades saw prices fall 38 per cent and 29 per cent respectively year-on-year. Evraz also mines its own vanadium, which was trading at less than half the price it did in the first half of 2019, with further discounts in Europe and North America to Chinese pricing. 

Costs were mostly flat in the period, but lower sales saw the cash profit margin fall 2.5 percentage points to 21.6 per cent. Meanwhile, higher capital spending and lower cash profits saw free cash flow drop by 55 per cent. 

Consensus estimates compiled FactSet forecast a 31 per cent year-on-year drop in cash profits for the full year, to $1.8bn.