Financial performance

Sales review

The segment’s overall revenues increased amid growth of sales prices due to the recovery of global demand. Additional support came from a temporary domestic supply deficit following the accident at Vorkutaugol’s Severnaya mine. Sales volumes rose due to higher annual output at the Erunakovskaya-8 mine in 2016, following longwall moves and unfavourable geological conditions in 2015. In addition, productivity at the Uskovskaya and Osinnikovskaya mines improved, and annual output at Mezhegeyugol rose following the launch of room-and-pillar mining operations in 2016.

Revenues from internal sales of coal products increased due to higher prices (up 15.9%), partially offset by lower sales volumes (down 0.6%). Revenues from external sales of coal products also rose due to higher prices (up 21.7%) and sales volumes (up 4.1%).

In 2016, the Coal segment’s sales to the Steel segment amounted to US$483 million (36.5% of sales), compared with US$419 million (39.2%) in 2015.

During the reporting period, roughly 48% of EVRAZ’ coking coal consumption in steelmaking came from the Group’s own operations, compared with 51% in 2015.

Coal segment revenues by product
2016 2015 Change, %
US$ million % of total segment revenues US$ million % of total segment revenues
External sales
Coal products 756 57.2 601 56.2 25.8
Coking coal 66 5.0 58 5.4 13.8
Coal concentrate 690 52.2 543 50.8 27.1
Inter-segment sales
Coal products 451 34.1 391 36.6 15.3
Coking coal 42 3.2 47 4.4 (10.6)
Coal concentrate 409 30.9 344 32.2 18.9
Other revenues 115 8.7 76 7.2 51.3
Total 1,322 100.0 1,068 100.0 23.8

Coal segment cost of revenues

The main factors behind the decrease in the segment’s cost of revenues compared with 2015 were:

  • The cost of auxiliary materials decreased in 2016, primarily due to rouble weakening, as well as to the effect of cost-cutting initiatives.
  • The increase in services costs was due to higher production volumes, though this was partially offset by rouble depreciation.
  • Transportation costs declined as a result of the rouble weakening, which was partially offset by an increase in costs due to higher sales volumes in 2016.
  • Staff costs were down due to rouble weakening and asset optimisation initiatives.
  • Depreciation and depletion costs fell mostly due to rouble weakening and asset optimisation initiatives, including the suspension of operations at Raspadskaya’s MUK-96 mine and the closure of a mine field 1 at Raspadskaya Koksovaya.
  • Energy costs fell due the effect of currency movements, albeit partly offset by higher electricity prices in local currencies.
  • Other costs increased, primarily due to changes in goods for resale and raw material costs, partially offset by the effect of the rouble weakening.

Coal segment cost of revenues
2016 2015 Change, %
US$ million % of total segment revenues US$ million % of total segment revenues
Cost of revenues 701 53.0 758 71.0 (7.5)
Auxiliary materials 113 8.5 106 9.9 (6.6)
Services 85 6.4 74 6.9 14.9
Transportation 126 9.5 146 13.7 (13.7)
Staff costs 163 12.3 194 18.2 (16.0)
Depreciation/Depletion 135 10.2 156 14.6 (13.5)
Energy 37 2.8 38 3.6 (2.6)
Other Includes primarily goods for resale and certain taxes, allowance for inventory, raw materials and inter-segment unrealised profit. 42 3.3 44 4.1 (4.5)

Coal segment gross profit

The Coal segment’s gross profit amounted to US$621 million in 2016, up from US$310 million in 2015. The gross profit margin rose, primarily due to the increase in sales prices and volumes, cost-cutting initiatives and rouble depreciation’s influence on costs.