November 7, 2018

Severstal to announce strategy update at its 2018 Capital Markets Day

PAO Severstal, one of the world's leading vertically-integrated steel and mining companies, is hosting its annual Capital Markets Day in London today. The Company's top-management will announce an update to Severstal's strategy, aimed at further strengthening its financial performance, maximising value creation and enhancing shareholder returns.

Ahead of the event, PAO Severstal provides the following update to the market:

  • Severstal remains a global leader in efficiency, with the highest EBITDA margin in the steel industry globally, positive free cash flow generation throughout the cycle and a track record of achieving its targets.
  • To deliver additional growth, the Company has updated its already proven strategy - retaining its fundamental advantages but adding new elements. Severstal's new vision is to be a leader of the steel industry of the future and the first choice for its customers, employees and partners.
  • To achieve this, the Company is setting out new strategic priorities to distance itself further from its competitors. These are: superior client experience, cost leadership and embracing new opportunities. All three will be supported by Severstal's advanced corporate culture.

Superior client experience - Severstal aims to offer our customers unique selling propositions on each target market.

Cost leadership - Severstal's goal is to achieve a significant cost advantage in basic steel products. Part of the Company's smart-capex programme will focus on achieving this, including investments to increase mining volumes and pig iron and steel volumes and to further reduce costs in both the Company's steel and resources businesses.

New opportunities - Severstal's objective is to access and consequently benefit from the use of global cutting-edge technology and new business-models.

  • Implementing this set of objectives will support the Company in reaching its financial target of increasing EBITDA by 10-15% annually for the next 5 years. (This excludes pricing/macro factors.)
  • Severstal's previously announced capital allocation framework will remain intact:
  1. In 2012-2018 the Company's investment program amounted to c. $800m per year, on average. As previously announced, Severstal is launching a hot-end modernisation programme which will require a certain increase in investments. In 2019 Severstal's capex will stand at around $1.4bn, with a high proportion (c.75%) of this committed to development projects. Planned maintenance capex will stand at c.$358 million for 2019. The Company's capex will normalise after 2022 when the key projects are completed and will decline in 2023 to approximately $750m. Several will maintain its "smart capex" approach which requires a minimum of 20% IRR for every investment project. Key project investments, EBITDA impact and IRRs will be presented by Severstal's Chief Financial Officer during the Capital Markets Day presentation.
  2. The Company remains committed to its dividend policy. However, in order to maximise value for its investors, during the intensive stage of the investment programme, Severstal will be using "Adjusted FCF" for the dividend calculation. Any capex which exceeds the base-line level of $800m will not be taken into consideration when determining the level of dividend payout.
  3. The Company will aim to maintain a comfortable level of debt, not exceeding its previous Net debt/EBITDA ratio target level of 1.5 times.

Alexander Shevelev, CEO of Severstal, commented:

"As a global efficiency leader with a strong track record for progress, today we are striving for further growth, and see growth opportunities. We have shaped a growth story with very clear drivers and commit to adding 10-15% average EBITDA growth per year. At the same time, we will seek to maintain our strict approach to capital allocation. We expect that our temporary CAPEX increase will not affect our dividend story which, in combination with our development projects, will allow us to deliver value growth for our shareholders."

Severstal's top management team will provide more detail and comment on the above statements during the Capital Markets Day presentation, which will be webcast live from 12:00pm GMT and will be accessible via the Company's website at: http://www.severstal.com/eng/ir/cmd/

Forward-looking statements

This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements reflect the Company's current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Group's business, results of operations, financial position, liquidity, prospects, growth or strategies. Forward-looking statements speak only as of the date they are made.