APRIL 01, 2015 RUSSIA > EQUITY RESEARCH > METALS & MINING FLASH NOTE: 2014 RESULTS REVIEW Evraz Natalia Sheveleva [email protected] RUS Konstantin Asaturov [email protected] SIA EBITDA met expectations; $375 mln tender offer proposed with 10% premium > EQ MET ALS & MIN ING UIT Evraz today released strong 2014 IFRS results, including a 15.3% HoH increase in EBITDA in 2H14, in line with our and consensus expectations. Net debt/EBITDA and FCF improved significantly in 2H14. Separately, an unexpected share tender offer for $375 mln was proposed for 8% of equity capital with a 10% premium to the market. Overall, we consider the publication as moderately positive. Y RES TICKER EVR LN Closing price, $ 2.8 EAR Target price, $ 1.8 CH Upside -36% Recommendation NEUTRAL Revenues to fall 6.7% HoH in 2H14 on weak prices Source: Bloomberg, Gazprombank estimates Despite a moderate increase in steel sales volumes, revenues decreased 8.1% HoH to $6,256 mln in 2H14 amid a weak price environment and product mix deterioration. Revenues differed only marginally from our and Interfax consensus estimates. SELECTED STOCK DATA EBITDA up 15.3% HoH, 2% more than we expected Cash opex was aided by weaker currencies (ruble -17% HoH, hryvnia -23% HoH) and decreased 12.5% HoH. EBITDA rose 15.3% HoH to $1,245 mln, or 2.0% more than we forecast and 1.6% below the Interfax consensus. The EBITDA margin improved by 4 pps in 2H14 compared with 1H14. Net income was affected by non-cash items. MCap, $ mln 4,108 Net debt, $ mln 5,814 EV, $ mln 10,354 52-week high, $ 2.9 52-week low, $ 1.1 Source: Bloomberg Evraz share price performance vs. MICEX Index EVRAZ GROUP MAR 15 JAN 15 FEB 15 DEC 14 NOV 14 SEP 14 OCT 14 JUL 14 AUG 14 JUN 14 MAR 14 Net debt totaled $5,814 mln, with the net debt/EBITDA ratio improving from 3.1x as of 1H14 to 2.5x as of end 2014, marking good progress. However, the ratio is the highest among Russian steel majors, while the macro environment is rather challenging. We note that Evraz agreed to refinance $500 mln of its debt due in 2016. Evraz was scheduled (as of end 2014) to pay $1,369 mln in 2016. FCF improved to $0.6 bln in 2H14 compared with $0.2 bln in 1H14 thanks to better performance on the operating level, working capital inflow and decreased capex. We note that the cash position stood at $1,086 mln as of end 2014, while debt repayments in 2015 total $982 mln. MAY 14 Net debt/EBITDA and FCF generation improved significantly APR 14 260% 240% 220% 200% 180% 160% 140% 120% 100% 80% MICEX Source: Bloomberg $375 mln tender offer proposed at a 10% premium to market Evraz unexpectedly announced a tender offer worth up to $375 mln, equivalent to 8% of the company’s equity capital ($3.1 per share) and marking a 10% premium to yesterday’s market price. The tender offer closes on April 17, with proceeds expected to be received by April 23. Evraz 2014 IFRS results, $ mln 2H14 1H14 HOH 2014 2013 YOY 2H14E A/E Revenues 6,256 6,805 -8.1% 13,061 14,411 -9.4% 6,349 -1.5% EBITDA 1,245 1,080 15.3% 2,325 1,821 27.7% 1,221 2.0% Net income -1213 38 – -1175 -522 125.1% 356 – EBITDA margin 19.9% 15.9% 4.0 pps 17.8% 12.6% 5.2 pps 19.2% 0.7 pps Source: Company, Gazprombank estimates Research Department 1 Copyright © 2003-2015. Gazprombank (Joint Stock Company) APRIL 01, 2015 Conference call details Evraz will hold a webcast/conference call with the management to discuss the results today at 5:00 pm Moscow time (3:00 pm London, 10:00 am New York). Dial-in numbers: 0 800 694 0257 (UK toll-free); 8 10 800 2097 2044 or 8 800 775 6818 (Russia toll-free); 1 866 966 9439 (US toll-free); +44 (0) 1452 555 566 (international). Conference ID: 93291084. 2 RUSSIA > EQUITY RESEARCH > METALS & MINING HQ: 16/1 Nametkina St., Moscow 117420, Russia. Office: 7 Koroviy val St. Research Department +7 (495) 983 18 00 EQUITY SALES FIXED INCOME SALES +7 (495) 988 23 75 +7 (495) 983 18 80 EQUITY TRADING FIXED INCOME TRADING +7 (495) 988 24 10 +7 (499) 271 91 04 Copyright © 2003-2015. Gazprombank (Joint Stock Company). 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