February 4, 2021

Severstal reports Q4 & FY2020 financial results

PAO Severstal (MOEX: CHMF; LSE: SVST), one of the world’s leading steel and steel-related mining companies, today announces its Q4 & FY2020 financial results for the period ended 31 December 2020.

CONSOLIDATED FINANCIAL RESULTS FOR Q4 AND FY2020

$ million, unless otherwise stated

Q4 2020

Q3 2020

Change, %

FY 2020

FY 2019

Change, %

Revenue

1,723

1,852

(7.0%)

6,870

8,157

(15.8%)

EBITDA1

710

656

8.2%

2,422

2,805

(13.7%)

EBITDA margin, %

41.2%

35.4%

5.8 ppts

35.3%

34.4%

0.9 ppts

Profit from operations

585

538

8.7%

1,930

2,327

(17.1%)

Operating margin, %

34.0%

29.0%

5.0 ppts

28.1%

28.5%

(0.4 ppts)

Free cash flow2

212

382

(44.5%)

838

1,099

(23.7%)

Net  profit

386

167

131.1%

1,016

1,767

(42.5%)

Basic EPS3, $

0.47

0.20

135.0%

1.23

2.14

(42.5%)

Net Debt/EBITDA4, $

0.84

0.77

0.84

0.56

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 annual audited 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 and intangible assets, interest received and dividends received. A reconciliation of FCF to net cash from operating activities is presented in Severstal’s annual audited financial statements.
  3. Basic EPS is calculated as profit for the period divided by the weighted average number of shares outstanding during the period: 826 million shares for Q4 2020, 825 million shares for Q3 2020, FY2020 and FY2019.
  4. Net Debt/EBITDA ratio is calculated as net debt divided by EBITDA for the last 12 months and is included in Severstal’s annual audited financial statements. Net debt equals the total debt less cash and cash equivalents at the end of the reporting period.

Q4 2020 vs. Q3 2020 ANALYSIS:

  • Group revenue declined by 7.0% q/q to $1,723 million (Q3 2020: $1,852 million), reflecting lower steel sales volumes compared with a high base in Q3 2020, although this was partly offset by q/q growth in steel and iron ore prices.
  • Group EBITDA increased by 8.2% q/q to $710 million (Q3 2020: $656 million), driven by cost reductions. Severstal’s vertically integrated business model delivered an EBITDA margin of 41.2%, maintaining the Group’s position of having one of the highest EBITDA margins in the steel industry globally.
  • Free Cash Flow was $212 million (Q3 2020: $382 million), primarily reflecting earnings growth offset by changes in net working capital q/q.  Net profit was $386 million (Q3 2020: $167 million), including an FX gain of $111 million.
  • Cash CAPEX amounted to $311 million (Q3 2020: $341 million).
  • Net debt increased to $2,029 million at the end of Q4 2020 (Q3 2020: $1,782 million).
  • Severstal is committed to returning maximum 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 0.84 as at the end of Q4 2020. The Board of Directors has therefore recommended a dividend of 36.27 roubles per share for Q4 2020.

FY2020 vs. FY2019 ANALYSIS:

  • Group revenue declined by 15.8 % y/y to $6,870 million in FY2020 (FY2019: $8,157 million). This drop in revenue y/y was due to weaker pricing dynamics for steel products and lower sales volumes in the period. 
  • Group EBITDA declined by 13.7% y/y to $2,422 million in FY2020 (FY2019: $2,805 million), primarily reflecting lower revenues, which were partially offset by a reduction in the cost of sales. The Group’s EBITDA margin increased y/y to 35.3% (FY2019: 34.4%).
  • The Company generated $838 million of FCF in FY2020 (FY2019: $1,099 million), mainly reflecting both a decline in EBITDA and CAPEX growth y/y.

FINANCIAL POSITION HIGHLIGHTS:

  • At the end of Q4 2020, cash and cash equivalents declined to $583 million (Q3 2020: $781 million).
  • Gross debt remained almost unchanged at $2,612 million (Q3 2020: $2,563 million).
  • Net debt increased to $2,029 million at the end of Q4 2020 (Q3 2020: $1,782 million). The Net debt/EBITDA ratio was 0.84 at the end of Q4 2020 (Q3 2020: 0.77). Severstal’s Net debt/EBITDA ratio remains one of the lowest among steel companies globally and allows the Company to maintain a comfortable level of debt, whilst continuing to return value to its shareholders.
  • The Group’s liquidity position remained strong in Q4 2020, with $583 million in cash and cash equivalents in addition to unused committed credit lines and overdraft facilities of $1,096 million, more than covering the Company’s short-term principal debt of $582 million.

Alexander Shevelev, CEO of Severstal, commented:

“In the unprecedented pandemic year our strategic priorities and transformational goals have proved to be even more relevant and timely than before - relentless focus on costs, commitment to serve our clients, and pursuit of new business opportunities - have allowed us to preserve full capacity throughout the period, provide job security and continue with our long-term development plans.

Though we have avoided large-scale outbreaks of COVID-19 at our operations, regrettably we recorded a 3% growth in the Company’s LTIFR in 2020 and there were four fatalities of our staff. In order to achieve our goal of zero fatalities, we have made significant changes in our safety department, including personnel changes, certifying our key assets under ISO 45001 regulations and we also launched our ‘Lethal Risk Management’ project. In 2021 we will continue to introduce a number of new initiatives to tackle current safety issues.

In Q4 2020, steel and raw material prices reached multi-year highs. Currently, the market environment is especially advantageous to steelmakers who have vertically integrated business models with their own supply of raw materials. Despite declines in revenues due to negative macro factors during the first half of the year, we have retained our profitability levels at 35.3% for the year. In the fourth quarter we achieved a record high EBITDA margin of 41.2%.

Additionally, I am pleased to say that in Q4 2020 we successfully launched our key investment projects: BF#3 and the first unit of coking battery #11. These two projects are expected to result in several million dollars of efficiency gains starting in the current calendar year.

Severstal’s financial position remains strong, with a Net Debt/EBITDA ratio of 0.84 times at the end of Q4 2020, and the Board remains confident in its outlook and is recommending a dividend of 36.27 roubles per share for Q4 2020”.

DIVIDEND

The Board of Directors is recommending a dividend of 36.27 roubles per share for Q4 2020. Approval of the dividend is expected to take place at the Company’s AGM on 21 May 2021. The record date for participation in the AGM is 26 April 2021. The recommended record date for the dividend payment is 1 June 2021. The approval of the record date for the dividend payment is also expected to take place at the Company’s AGM on 21 May 2021.

OUTLOOK

In Q4 2020, a surge in steel prices was driven by a supply deficit in the global steel market with revived demand in ex-China. Raw material prices have been increasing, supported by an expansion of steelmakers’ margins and production increase q/q. It is unclear how long the high prices for steel and raw materials globally will continue, but Severstal anticipates that the positive momentum in steel and raw material prices observed in November and December 2020 will positively impact Q1 2021 results.

Russian domestic steel demand in 2020 fell only by 3% y/y, and demand within Severstal's product range dropped by 2%. Construction sector demonstrated 1.5% growth. In 2021 Russian steel demand is expected to recover by 3-4% y/y, driven by an improved construction activity and oil & gas sector recovery.

Despite the number of potential headwinds on both export and domestic markets, including possible further waves of outbreaks of COVID-19, Severstal’s low cost position allows us to be competitive and the Board remains confident in the resilience of the Company’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 2020 is available at http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.phtml
  3. Starting in Q1 2021 Severstal’s quarterly financial results will be published a week earlier than in previous years, accordingly the operational and financial results will be released at the same time in one document.