February 2, 2017

Severstal reports Q4 and FY 2016 financial results

- Resilient performance in challenging conditions -

 

Moscow, Russia – 2 February 2017PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world’s leading steel and steel-related mining companies, today announces its Q4 and FY 2016 financial results for the period ended 31 December 2016.

 

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 31 DECEMBER 2016

$ million, unless otherwise stated

Q4 2016

Q3 2016

Change, %

2016

2015

Change, %

Revenue

1,651

1,588

4.0%

5,916

6,396

(7.5%)

EBITDA1

528

584

(9.6%)

1,911

2,096

(8.8%)

EBITDA margin, %

32.0%

36.8%

(4.8 ppts)

32.3%

32.8%

(0.5 ppts)

Profit from operations

435

458

(5.0%)

1,517

1,703

(10.9%)

Operating margin, %

26.3%

28.8%

(2.5 ppts)

25.6%

26.6%

(1.0 ppts)

Free cash flow2

388

323

20.1%

1,021

1,552

(34.2%)

Net  profit3

313

429

(27.0%)

1,620

562

188.3%

Basic EPS4, $

0.39

0.53

(26.4%)

2.00

0.70

185.7%

 

Notes:

 

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)       Free cash flow excludes discontinued operation.

3)       Net profit from continuing operations after FX fluctuations.

4)       Basic EPS from continuing operations is calculated on the following basis: net profit from continuing operations divided by the weighted average number of shares outstanding during the period: 810.6 million shares for Q4 2016, Q3 2016, 2016 and 2015.

 

Q4 2016 vs. Q3 2016 ANALYSIS:

  • Group revenue increased 4.0% q/q to $1,651 million (Q3 2016: $1,588 million) driven by higher steel product sales volumes on the back of strengthening domestic demand as well as diversification of sales to export markets to take advantage of higher average selling prices at both the Russian Steel and Resources divisions. Our key Russian steel producing assets ran close to 100% utilisation rate in Q4 2016;
  • Group EBITDA was $528 million, a decline of 9.6% q/q (Q3 2016: $584 million), due to higher operating costs which were partly offset by revenue growth. Group EBITDA margin decreased 4.8 ppts q/q to 32.0% (Q3 2016: 36.8%) mainly impacted by rouble appreciation which reduced profitability at Russian Steel as well as seasonally reduced share of high value added (“HVA”) products in the sales mix and higher operating costs in Q4. Despite this, Severstal’s EBITDA margin continues to be one of the highest in the global industry;
  • Net profit of $313 million (Q3 2016: $429 million) includes a FX gain of $96 million, non-current assets impairment of $115 million, a loss on disposal of property, plant and equipment of $8 million and a gain of $47 million relative to FX translation reserves of disposed foreign subsidiaries. Adjusting for these non-cash items, Severstal would have posted an underlying net profit of $293 million (Q3 2016: net profit of $449 million);
  • Free cash flow surged 20.1% q/q to $388 million (Q3 2016: $323 million) resulting from significant release of net working capital which was partly offset by a CAPEX increase and the abovementioned weaker operating performance. Free cash flow generation remains one of the Company’s key strategic financial priorities;
  • Cash CAPEX of $167 million was up 36.9% q/q (Q3 2016: $122 million) reflecting seasonal expenses allocation;
  • Recommended dividend payment of 27.73 RUB per share for the three months ended 31 December 2016.

FY 2016 vs. FY 2015 ANALYSIS:

  • Group revenue decreased 7.5% y/y to $5,916 million (FY 2015: $6,396 million) primarily reflecting a substantial decline in average steel selling prices at the beginning of 2016, as a result of the net decline in global benchmarks and a marginal decline in sales volumes;
  • Group EBITDA decreased 8.8% y/y to $1,911 million (FY 2015: $2,096 million) as a result of lower sales volumes and a decline in prices, which was partially offset by lower input operating costs;
  • The Company generated $1,021 million of free cash flow which is 34,2% y/y lower than in the previous year (FY 2015: $1,552 million) partially impacted by the weaker Q1 2016 operating performance which resulted in negative free cash flow generation.
  • The Group’s prudent approach to CAPEX was maintained with investment of $525 million, 19.3% higher y/y (FY 2015: $440 million).

FINANCIAL POSITION HIGHLIGHTS:

  • At the end of Q4 2016, cash and cash equivalents were $1,154 million (Q3 2016: $1,141 million) which reflects the interim dividend payment for Q3 2016 in December 2016, scheduled loan repayments during Q4 and CAPEX growth q/q which were offset by free cash flow generation during the quarter.
  • Gross debt in USD-terms remained almost flat, decreasing marginally 3.4% as at the end of Q4 2016 to $2,013 million (Q3 2016: $2,084 million).
  • Net debt declined 8.9% to $859 million by the end of Q4 2016 (Q3 2016: $943 million) reflecting gross debt reduction alongside growth in cash balances. The Net Debt/EBITDA ratio decreased to 0.4x at the end of Q4 2016 (Q3 2016: 0.5x) which was the result of a reduction in Net Debt and operating earnings growth y/y. Severstal’s Net Debt/EBITDA indicator remains one of the lowest ratios amongst steel companies globally;
  • Liquidity position remains strong, with $1,154 million in cash and cash equivalents and unused committed credit lines of $675 million, more than covering short-term principal debt of $649 million.

Alexandr Shevelev, CEO of Severstal Management, commented:

“In 2016, Severstal delivered a robust financial and operational performance, in spite of global industry headwinds. This outcome reflects the strengths of our vertically integrated business model as well as the benefits of our strategy focused on driving efficiency, ever improving customer care and enhancing product quality.

I would like to take this opportunity to reflect on the tragic event at the Severnaya mine in February, and remember our colleagues and rescue workers who tragically died. One of the Company’s key objectives is to eliminate all fatalities across the business, and health and safety remains a key priority and focus of investment as we strive to ensure tragedies such as this are not repeated. The Company has completed compensation payments to all those affected and the mine remains sealed off to avoid the risk of further underground fire and explosions.

As we review the fourth quarter, the rally in coking coal and iron ore benchmarks which fueled growth in global steel prices continued in Q4. This alongside an increase in sales volumes, allowed the Company to mitigate any negative impact from input costs rise. We maintained a sustainable level of operational earnings and significantly improved free cash flow generation as a result of continuous operational enhancements and efficiency improvements across our operations.

We expect further fundamental stabilisation of the global steel and steel-related commodity markets to continue in 2017. Global steel demand continues to improve supported by ongoing capacity cuts, consolidation plans and continued investment in infrastructure in China. Against this backdrop, we continue to believe strong, efficient and vertically integrated steel producers such as Severstal to continue to deliver long-term shareholder value”.

 

REVIEW OF THE FOURTH QUARTER ENDED 31 DECEMBER 2016

In Q4 Severstal maintained a steady performance reflecting the strength of our operations and management’s ongoing focus on enhancing efficiency. The sharp spike in global raw materials benchmarks supported steel prices which enabled steel producers to maintain high domestic rouble-denominated steel prices in order to catch up with export prices. The Company successfully increased sales volumes in Q4 due to domestic demand growth and the diversification of sales to export markets. Despite a decrease in the share of HVA in the product mix, the Company successfully responded to improved demand for its products in export and domestic markets. Severstal’s proximity to both main export and domestic consumers allows it to shift flexibly between export and domestic deliveries depending on the market environment.

The abovementioned factors allowed Severstal to increase sales volumes and average selling prices 1-11% q/q (depending on the product) following an upward adjustment in global steel prices, supported by growth in coking coal and iron ore benchmarks. Russian currency appreciation and input costs growth negatively impacted EBITDA in Q4 which decreased 9.6% q/q. Nevertheless, Severstal’s EBITDA margin remained one of the highest amongst global steel producers at 32.0% (down 4.8 ppts q/q).

The Company increased free cash flow during the quarter reflecting a substantial release of net working capital and despite the decline in earnings.

Severstal’s gross debt reduction remains largely maturity-driven, with almost all of the Company’s gross debt being public at the end of Q4.

Whilst maintaining a low debt level, Severstal is committed to returning value to its shareholders. Severstal’s financial position remains solid with its Net debt/EBITDA ratio at 0.4x as at the end of Q4 2016. As a result the Board of Directors is recommending a dividend of 27.73 roubles per share for Q4 2016.

 

Please see full text of press-release.

Full financial statements are available at http://www.severstal.com/eng/ir/results_and_reports/financial_reports/index.phtml

The Annual Report 2016, incorporating the financial statements for the year ended 31 December 2016, on which the auditors will give an unqualified report will be made available to shareholders in March 2017.

 

A conference call on Q4 2016 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on 2 February 2017 at 12.00 (London)/ 15.00 (Moscow). 

 

Conference ID: 991 297 8


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: 9912978

International Dial:
+44 (0) 207 660 0134 (Local access) 

Russian Dial:
8 800 2702 1012 (Toll free)