October 18, 2017

Severstal reports Q3 & 9M 2017 financial results

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.

 

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 30 SEPTEMBER 2017

$ million, unless otherwise stated

Q3 2017

Q2 2017

Change, %

9M 2017

9M 2016

Change, %

Revenue

1,972

1,931

2.1%

5,670

4,265

32.9%

EBITDA1

616

629

(2.1%)

1,823

1,383

31.8%

EBITDA margin, %

31.2%

32.6%

(1.4 ppts)

32.2%

32.4%

(0.2 ppts)

Profit from operations

502

528

(4.9%)

1,506

1,082

39.2%

Operating margin, %

25.5%

27.3%

(1.8 ppts)

26.6%

25.4%

1.2 ppts

Free cash flow

507

382

32.7%

959

633

51.5%

Net  profit2

297

136

118.4%

792

1,307

(39.4%)

Basic EPS3, $

0.37

0.17

117.6%

0.98

1.61

(39.1%)

 

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)     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.

 

FINANCIAL POSITION HIGHLIGHTS:

 

  • 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”.

 

 

REVIEW OF THE THIRD QUARTER ENDED 30 SEPTEMBER 2017

 

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.

 

DIVIDEND

 

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.

 

OUTLOOK

 

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.

 

See full version of press-release.

 

For further information, please contact:

 

Severstal Investor Relations

 

Evgeny Belov

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

evgenii.belov@severstal.com

 

Vladimir Zaluzhsky

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

vladimir.zaluzhsky@severstal.com

 

 

Severstal Public Relations

Anastasia Mishanina

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

anastasia.mishanina@severstal.com

 

Vladimir Zaluzhsky

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

vladimir.zaluzhsky@severstal.com

 

 

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)