Severstal reports Q3 and 9M 2017 financial results

Severstal reports Q3 & 9M 2017 financial results


- Delivering sustainable returns-


Moscow, Russia - 18 October 2017 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, today announces its Q3 & 9M 2017 financial results for the period ended 30 September 2017.



$ million, unless otherwise stated

Q3 2017

Q2 2017

Change, %

9M 2017

9M 2016

Change, %















EBITDA margin, %



(1.4 ppts)



(0.2 ppts)

Profit from operations







Operating margin, %



(1.8 ppts)



1.2 ppts

Free cash flow







Net  profit2







Basic EPS3, $










1)     EBITDA represents profit from operations plus depreciation and amortisation of productive assets (including the Group's share in depreciation and amortisation of associates and joint ventures) adjusted for gain/(loss) on disposals of PPE and intangible assets and its share in associates' and joint ventures' non-operating income/(expenses).


2)     Net profit after FX fluctuations.


3)     Basic EPS is calculated on the following basis: net profit divided by the weighted average number of shares outstanding during the period: 810.6 million shares for Q2 2017, 9M 2016; 811.4 million shares for Q3 2017; 810.9 million shares for 9M 2017.


Q3 2017 vs. Q2 2017 ANALYSIS:


§ Group revenue marginally increased 2.1% q/q to $1,972 million (Q2 2017: $1,931 million) as growth in sales volumes was mitigated by a decline in steel and raw material average selling prices in Q3 2017.


§ Group EBITDA declined 2.1% q/q to $616 million (Q2 2017: $629 million) as top line growth was offset by growth in input costs due to increased raw materials, repair and work-in-progress expenses. Group EBITDA margin remained strong at 31.2% (Q2 2017: 32.6%). Severstal's EBITDA margin continues to be one of the highest in the global industry despite commodity and steel market headwinds.


§ Net profit of $297 million (Q2 2017: $136 million) includes a FX loss of $23 million. Adjusting for this non-cash item, Severstal would have posted an underlying net profit of $320 million (Q2 2017: net profit of $448 million).


§ Free cash flow surged to $507 million (Q2 2017: $382 million) as a result of a decline in net working capital. Free cash flow generation remains one of the Company's key strategic financial priorities.


§ Cash CAPEX of $144 million increased 3.6% q/q (Q2 2017: $139 million).


§ Net debt decreased 15.0% to $703 million by the end of Q3 2017 (Q2 2017: $827 million) reflecting increased cash balances and a decline in gross debt.


§ Recommended dividend payment of 35.61 RUB per share for the three months ended 30 September 2017.



9M 2017 vs. 9M 2016 ANALYSIS:


§ Group revenue was up 32.9% y/y at $5,670 million (9M 2016: $4,265 million). During the first nine months of 2017 the Company benefited from a favourable steel and commodities pricing environment, which enabled Severstal to achieve significant revenue growth y/y.


§ Group EBITDA grew 31.8% y/y to $1,823 million (9M 2016: $1,383 million) as a result of increased Group revenue.


§ The Company generated $959 million of free cash flow which was an increase on the previous year (9M 2016: $633 million) primarily reflecting stronger pricing y/y.


§ The Group maintained its prudent approach to CAPEX with investment of $421 million, 17.6% higher y/y (9M 2016: $358 million) which is mainly a reflection of RUB appreciation y/y.





§ At the end of Q3 2017, cash and cash equivalents totalled $1,990 million (Q2 2017: $1,895 million) reflecting the net effect of free cash flow generation offset by the dividend payout.


§  Gross debt remained relatively unchanged marginally declining 1.1% to $2,693 million (Q2 2017: $2,722 million).


§ Net debt declined 15.0% to $703 million by the end of Q3 2017 (Q2 2017: $827 million) reflecting the abovementioned cash balance growth and debt decrease. The Net Debt/EBITDA ratio marginally declined to 0.3x at the end of Q3 2017 (Q2 2017: 0.4x). Severstal's Net Debt/EBITDA remains one of the lowest amongst steel companies globally and enables Severstal to maintain a low level of debt whilst returning value to its shareholders.


§ The liquidity position remains strong, with $1,990 million in cash and cash equivalents and unused committed credit lines of $725 million, more than covering the short-term principal debt of $1,152 million.


Alexander Shevelev, CEO of Severstal Management, commented:


"Export prices and domestic prices remained strong in Q3 2017, supported by Chinese demand, and this enabled Severstal to generate sustainable earnings across its assets and maintain one of the highest EBITDA margins in the industry. This was supported by the strength of our operations and vertically integrated business model.


The Company is focused on being a world-class producer, committed to enhancing operational efficiency through innovation and minimising our environmental impact. Our goal remains to be a leader in value creation for all of our stakeholders. Safety and customer care remain our key priorities.


Industry experts continue to forecast global economic growth. In 2017 we anticipate growth in global steel demand, supported by China's commitment to close inefficient steel and mining facilities, which will support economic growth and reduce environmental impact. In Russia, domestic steel consumption is expected to rise by approximately 5% in 2017 supported by GDP growth and gradual economic recovery.


Having flexibility in distribution of shipments quickly between domestic and export markets, Severstal is well positioned to benefit from the local steel demand recovery".





In Q3 the Company maintained a steady performance despite the downward trend within the global steel and commodities markets. This reflected the strength of our operations and the management's ongoing focus on enhancing efficiency. The share of HVA in the product sales mix surged to a record 49%, and the Company sold-off stocks of HVA products accumulated in previous quarters. With the ongoing construction season, domestic demand improved, triggering an increase in domestic shipments share to 65%. Severstal's proximity to both its main export and domestic consumers allows it to shift flexibly between export and domestic sales depending on the market environment.


An increase in sales volumes resulted in stronger Group revenue, which was matched by an increase in input costs. EBITDA in Q3 2017 declined by a marginal 2.1% q/q. In Q3 2017, Severstal's free cash flow of $507 million benefitted from a working capital decrease resulting from changes in inventory and current liabilities. The Company's high quality assets and efficient business model enabled Severstal to maintain one of the highest EBITDA margins of 31.2% and deliver solid cash generation to maximise shareholder returns.


Severstal is committed to returning value to its shareholders whilst managing and maintaining a low debt level. Severstal's financial position remains strong with its Net debt/EBITDA ratio at 0.3x as at the end of Q3 2017. As a result, the Board of Directors is recommending a dividend of 35.61 roubles per share for Q3 2017.





$ million, unless otherwise stated

Q3 2017

Q2 2017

Change, %

9M 2017

9M 2016

Change, %















EBITDA margin, %



3.2 ppts



(5.5 ppts)


RSD steel product sales improved 4% to 2.87 mln tonnes compared with the previous quarter (Q2 2017: 2.76 mln tonnes). During Q3, the Company sold off stocks of HVA products accumulated in previous periods to respond to increased demand and the ongoing construction season in Russia. Semi-finished product sales were impacted by stock normalisation following maintenance works at converter #1 in Q2.


The Company increased domestic sales volumes to 65% (Q2 2017: 60%) to respond to improved domestic demand in Q3.


Following the refurbishment of the four-stand cold rolling mill at CherMK and the increase in production volumes, cold-rolled coil sales volumes in 9M 2017 were up 49% in comparison with 9M 2016. In addition, the sale of previously accumulated seasonal cold-rolled coil (CRC) stock drove a 2% sales increase q/q.


The share of high value-added (HVA) products within the sales portfolio was a record 49% (Q2 2017: 44%) driven by increased cold-rolled, galvanised, colour-coated and LDP sales.


Large diameter pipe (LDP) sales volumes surged 111% q/q following a destocking of finished goods produced in H1 2017 at Izhora Pipe Mill. Meanwhile, Izhora Pipe Mill remains at full capacity utilisation and continues to supply LDPs to Gazprom, Rosneft and other customers.


Average selling prices for the majority of steel products followed global trends in Q3 - while, since July, in export markets the Company realised a recovery in prices. Domestic prices were catching up with global price trends but with a time lag, and this contributed to a decline in average selling prices. Sales volumes growth led to revenue increase of 5.2% q/q to $1,847 million (Q2 2017: $1,756 million). EBITDA improved 21.4% q/q to $449 million (Q2 2017: $370 million). The EBITDA margin increased 3.2 ppts to 24.3% (Q2 2017: 21.1%).


The total non-integrated cash cost of slab production at the Cherepovets Steel Mill in Q3 2017 declined $32/t q/q to $302/t (Q2 2017: $334/t) as a result of a decline in raw material prices and increased repair costs. The integrated cash cost of slab in Q3 2017 was up $4/t to $241/t (Q2 2017: $237/t) as a result of lower Resources division EBITDA.




$ million, unless otherwise stated

Q3 2017

Q2 2017

Change, %

9M 2017

9M 2016

Change, %















EBITDA margin, %



(7.2 ppts)



17.3 ppts


Coking coal concentrate sales volumes from Vorkutaugol increased 11% driven by growth in production volumes following the planned long-wall repositioning at the Vorkutinskaya and Komsomolskaya mines in H1 2017.


Iron ore pellet sales decreased 17% and totalled 2.38 mln tonnes (Q2 2017: 2.88 mln tonnes) despite the increase in production volumes q/q. This was due to a higher share of finished goods in transit and the accumulation of stocks at the end of Q3, following Q2 sell-off. The Company expects an uptick in pellet sales volumes in subsequent periods.


Iron ore concentrate sales decreased 13% q/q to 1.08 mln tonnes (Q2 2017: 1.24 mln tonnes). Iron ore concentrate sales improvement in Q2 reflected seasonal dynamics and planned production increase at Olcon.


Reflecting the abovementioned q/q decline in volumes, revenue of the Resources division saw a decline of 24.0% q/q, to $358million (Q2 2017: $471 million) and EBITDA declined 34.9% to $155 million (Q2 2017: $238 million). In subsequent periods Severstal expects topline improvement at its Resources division.


Given the fixed cost nature of the mining business, higher processing volumes at Vorkutaugol, after the long-wall repositioning in H1 2017, reduced Q3 total cash costs (TCC) to 71$/t (Q2 2017: $78/t). At the same time, TCC at Karelsky Okatysh remained flat at $26/t (Q2 2017: $26/t) as a decline in sales volumes was mitigated by RUB devaluation q/q. TCC at Olcon were down $1/t at $27/t (Q2 2017: $28/t).




The Board is recommending a dividend payment of 35.61 roubles per share for the three months ended 30 September 2017.


Approval of the dividend is expected at the Company's EGM which will take place on 24 November 2017. The record date for participation in the EGM is 30 October 2017.


The recommended record date for the dividend payment is 5 December 2017. The approval of the record date for the dividend payment is also expected at the Company's EGM which will take place on 24 November 2017.




Global steel production grew by 6.3% y-o-y in August driven by increased Chinese production. Capacity cuts in China drove up capacity utilisation to 85%, which led to steelmaking margin expansion. In Russia steel consumption continues to exceed expectations growing by 8% in the first eight months driven by increased construction activity and investment in infrastructure. Broadly stable macro conditions are contributing to increasing economic confidence. As a result, we are expecting Q4 to be the strongest quarter of the year despite seasonal weakening.


On 6 October, 2017 the EU Commission imposed definitive anti-dumping duties. The Company received the lowest duty rate of EUR 17 per tonne amongst all exporting companies under investigation. This ruling allows us to continue serving our European customers.


Having a solid high-value added products portfolio, being low cost and close to export routes, Severstal remains well positioned to quickly adapt to changing market conditions and capture attractive pricing both domestically and globally. In this environment the Board is confident that Severstal continues to be well placed relative to both local and global peers.





1.     Full financial statements are available at





For further information, please contact:


Severstal Investor Relations


Evgeny Belov

T: +7 (495) 926-77-66


Vladimir Zaluzhsky

T: +7 (495) 926-77-66



Severstal Public Relations

Anastasia Mishanina

T: +7 (495) 926-77-66 


Vladimir Zaluzhsky

T: +7 (495) 926-77-66



Severstal's financial communications agent - Hudson Sandler

Andrew Hayes / Emily Dillon / Alex Brennan / Fern Duncan

T: +44 (0) 20 7796 4133




A conference call on Q3 & 9M 2017 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on 18 October 2017 at 14.00 (London)/ 16.00 (Moscow). 


Conference ID: 3399272
International Dial:

+44 (0) 330 336 9105

Russian Dial: 
+7 495 213 1767 (Local access) 
8 800 500 9283 (Toll free)


The call will be recorded and there will be a replay facility available for 7 days as follows:


Replay Passcode: 3399272

 International Dial:

+44 (0) 207 660 0134 (Local access) 
Russian Dial:
810 800 2702 1012 (Toll free)











PАО Severstal is one of the world's leading vertically-integrated steel and steel related mining companies, with assets in Russia, Ukraine, Latvia and Poland. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $5,916 million and EBITDA of $1,911 million in 2016. Severstal's crude steel production in 2016 reached 11.6 million tonnes.