October 18, 2019

Severstal reports Q3 & 9M 2019 financial results

- Exceptional margins supported by vertical integration-

PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world’s leading steel and steel-related mining companies, today announces its Q3 & 9M 2019 financial results for the period ended 30 September 2019.

CONSOLIDATED FINANCIAL RESULTS FOR THE THIRD QUARTER ENDED 30 SEPTEMBER 2019

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). A reconciliation of EBITDA to profit from operations is presented in Severstal’s quarterly financial statements.
  2. Free Cash Flow (“FCF”) is determined as the aggregate amount of the following items: Net cash from operating activities, CAPEX, proceeds from disposal of PPE, interest received and dividends received. A reconciliation of free cash flow to net cash from operating activities is presented in Severstal’s quarterly financial statements.
  3. Basic EPS is calculated as profit for the period divided by the weighted average number of shares outstanding during the period: 825.4 million shares for Q3 2019, 825.0 million shares for Q2 2019, 824.3 million shares for 9M 2019, 815.7 million shares for 9M 2018.

Q3 2019 vs. Q2 2019 ANALYSIS:

  • Group revenue declined 3.0% q/q to $2,111 million (Q2 2019: $2,177 million) due to adverse price dynamics for steel and raw materials.
  • Group EBITDA increased 4.5% q/q to $787 million (Q2 2019: $753 million), reflecting lower cost of sales. The Group’s vertically integrated business model delivered an EBITDA margin of 37.3%, maintaining its position as one of the highest in the industry globally.
  • Free cash flow totalled $346 million (Q2 2019: $263 million), primarily reflecting positive changes in net working capital q/q.
  • Profit for the period totalled $490 million (Q2 2019: $475 million) and includes a FX loss of $50 million.
  • Cash CAPEX amounted to $311 million (Q2 2019: $267 million).
  • Net debt decreased to $1,300 million at the end of Q3 2019 (Q2 2019: $1,469 million), primarily reflecting cash balances growth as a result of FCF generation for the period, with the proceeds from the Balakovo mini-mill sale offset by the dividend payout.
  • Severstal is committed to returning value to its shareholders whilst managing and maintaining a comfortable level of debt. Severstal’s financial position remains strong with a Net debt/EBITDA ratio of 0.4 as at the end of Q3 2019. The Board of Directors has therefore recommended a dividend of 27.47 roubles per share for Q3 2019.

9M 2019 vs. 9M 2018 ANALYSIS:

  • Group revenue declined 2.7% y/y to $6,319 million (9M 2018: $6,495 million). This drop in revenue y/y was a result of weaker pricing for steel products, which was offset by an overall growth in sales volumes y/y.
  • Group EBITDA was 6.2% lower y/y, at $2,203 million (9M 2018: $2,348 million), primarily reflecting lower revenues. The Group’s EBITDA margin remained at high levels of 34.9% (9M 2018: 36.2%).
  • The Company generated $998 million of free cash flow, which represents a decline of 27.0% y/y (9M 2018: $1,368 million) mainly reflecting a decline in EBITDA and CAPEX growth y/y.

FINANCIAL POSITION HIGHLIGHTS:

  • At the end of Q3 2019, cash and cash equivalents stood at $1,317 million (Q2 2019: $345 million), reflecting cash received following the placement of the Eurobond, FCF generation and the proceeds from the sale of Balakovo mini-mill, which was partly offset by the dividend payout.
  • Gross debt increased to $2,617 million (Q2 2019: $1,814 million). In September 2019, Severstal completed the placement of loan participation notes due in 2024 of $800 million at 3.15%.
  • Net debt decreased to $1,300 million by the end of Q3 2019 (Q2 2019: $1,469 million), primarily reflecting growth in cash balances. The Net debt/EBITDA ratio totalled 0.4 at the end of Q3 2019 (Q2 2019: 0.5). Severstal’s Net debt/EBITDA remains one of the lowest amongst steel companies globally and enables Severstal to maintain a comfortable level of debt whilst returning value to its shareholders.
  • The Group’s liquidity position remains strong, with $1,317 million in cash and cash equivalents and unused committed credit lines and overdraft facilities of $1,249 million, more than covering the short-term principal debt of $259 million.

Alexander Shevelev, CEO of Severstal Management, commented:

“We delivered a strong performance in the third quarter of 2019 overall in spite of volatility in the global steel and raw material markets. An anticipated deceleration in global steel demand led to falling steel prices, which contributed to negative iron ore and coking coal dynamics of in Q3 2019. In this environment, Severstal’s vertically integrated business model and the flexibility of our multiple distribution channels supported our EBITDA, which increased by 4.5% to $787 mln, and our EBITDA margin, which was 37.3% in Q3 2019. This is one of the highest quarterly margins we have achieved for several years.

In Q3 2019, we completed the sale of Balakovo mini-mill for $215 million and will now focus on the HVA products within our portfolio.

In September, we announced the placement of an $800 mln Eurobond due in 2024 at 3.15%, which is one of the lowest coupon rates amongst Russian companies and steel companies globally.

Our ESG performance is a key focus. Severstal is one of the very first companies to pilot the World Steel Association’s (WSA) Step Up methodology for reducing greenhouse gas emissions from steel production. At Severstal we have agreed on a methodology for estimating our СО2 impact and are now developing a programme of initiatives to support a reduction of emissions.

The Board remains confident in the outlook and is recommending a dividend of 27.47 roubles per share for Q3 2019.”

DIVIDEND

The Board of Directors has therefore recommended a dividend of 27.47 roubles per share for Q3 2019. Approval of the dividend is expected to take place at the Company’s EGM on 22 November 2019. The record date for participation in the EGM is 28 October 2019. The recommended record date for the dividend payment is 3 December 2019. The approval of the record date for the dividend payment is also expected to take place at the Company’s EGM on 22 November 2019.

OUTLOOK

Growth in global steel demand in 2019 is supported by China, while outside China steel demand was weak, particularly in Europe and in the MENA region. The deficit in the iron ore market is gradually disappearing. The coking coal market is well-supplied, with weak demand having resulted in coal producers margins decline. Global export steel prices are under the pressure of weak economic sentiment and declining raw material prices.

Despite a number of potential headwinds on both the export and domestic markets, our low cost position allows us to stay competitive on the market. The Board remains confident in the resilience of Severstal’s business model relative to its local and global peers.

NOTES

  1. Full financial statements are available at http://www.severstal.com/eng/ir/results_and_reports/financial_results/index.phtml 
  2. The Annual Report 2018 is available at http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.phtml