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. Last Updated: 07/27/2016

Evraz 9M Core Earnings Fall Sharply

MOSCOW — Steel maker Evraz Group on Monday posted a sharply lower nine-month core profit because of weak prices for its railway, construction and other products.

Evraz, part-owned by billionaire Roman Abramovich, said earnings before interest, taxation, depreciation and amortization (EBITDA) were down 85 percent at $874 million from $5.95 billion last year.

Steel makers in Russia, the world's fourth-largest producer, have suffered from a decline in orders from builders and carmakers as the global economic slowdown cuts demand.

Evraz gave no outlook for the fourth quarter, nor a net profit figure for the first nine months.

Analysts said demand and prices had improved in recent months though they said this had yet to filter through to Evraz's results as it sold part of its third-quarter production at lower Q2 prices.

"We saw a significant increase in production volumes for Q3, but the increase in prices was not so significant," Renaissance Capital analyst Boris Krasnojenov said.

He estimated that Evraz achieved average slab and billet prices of about $370 to $380 FOB per metric ton in the third quarter, compared with the average market billet price of $420 per metric ton.

Evraz said nine-month revenues were $7.1 billion, down from $17.1 billion last year. The company sold 10.7 million metric tons of steel products in January to September 2009, compared with 13.7 million in the year-earlier period.

Analysts estimated that Evraz's third-quarter net result was close to breakeven compared with a $999 million first-half loss.

"They were probably close," ING Bank analyst Maxim Matveyev said. He said third-quarter EBITDA of $406 million was slightly below his estimate of $410 million.

On Monday morning Evraz GDRs were up 4.1 percent at $26.65, outperforming other London-listed Russian steel companies as bullish investors bought shares in the highly leveraged company.

"All Russian steel producers are up about 2 to 4 percent and Evraz is the most leveraged, so it is outperforming, as you would expect from a high beta stock," a Moscow-based analyst said.

Evraz is one of several Russian steel companies that borrowed heavily to fund expansion prior to the crisis, leading to more than $30 billion in collective debt.

As liquidity dried up, these companies were forced to enter into talks with creditors in order to convert short-term debt into long-term debt and change certain loan conditions.

Evraz said its total debt was about $8.4 billion at the end of the third quarter. It reduced the amount of debt maturing by the end of September 2010 to $1.1 billion from $3.4 billion.

Fitch Ratings in September cut Evraz's senior unsecured rating to B+ from BB-.

The agency expects Evraz to breach some debt covenants in the first quarter of 2010.

Renaissance Capital's Krasnojenov said borrowing costs were rising for the steel maker as it renegotiates its debt but it easily had enough liquidity to make interest payments.

Evraz in July raised $965 million via a convertible bond and share issue to refinance debt and fund general corporate activities.

Since then, it has repaid a 10 billion-ruble ($346.9 million) loan from state-controlled Russian bank VTB and also received a one-year extension to a $1.8 billion credit facility from another state bank, VEB.