14 Nov 2013 07:13
Severstal reports Q3 & 9M 2013 financial results
- Strong cost control and efficiency enhancements drive financial results -
Moscow, Russia - November 14, 2013 - OAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading vertically integrated steel and steel-related mining companies, today announces its Q3 and 9M 2013 financial results.
CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 30 SEPTEMBER 2013
$ million, unless otherwise stated | Q3 2013 | Q2 2013 | Change, % | 9M 2013 | 9M 20122 | Change, % |
Revenue | 3,192 | 3,414 | (6.5%) | 9,928 | 10,988 | (9.6%) |
EBITDA1 | 543 | 479 | 13.4% | 1,452 | 1,789 | (18.8%) |
EBITDA margin, % | 17.0% | 14.0% | 3.0 ppts | 14.6% | 16.3% | (1.7 ppts) |
Profit from operations | 347 | 278 | 24.8% | 847 | 1,243 | (31.9%) |
Operating margin, % | 10.9% | 8.1% | 2.8 ppts | 8.5% | 11.3% | (2.8 ppts) |
Net profit/ (loss)3 | 157 | (44) | N.A. | 157 | 912 | (82.8%) |
Basic EPS4, $ | 0.19 | (0.06) | N.A. | 0.19 | 1.07 | (82.2%) |
Notes:
1) EBITDA represents profit/(loss) from operations plus depreciation and amortization of productive assets (including the Group's share in depreciation and amortization of associates and joint ventures) adjusted for gain/(loss) on disposals of PPE and intangible assets and for share in associates' and joint ventures' non-operating income/(expenses).
2) 9M 2012 amounts reflect adjustments made in connection with the change in classification of income and expenses related to finance operations between general and administrative expenses, gain/(loss) on remeasurement and disposal of financial investments and finance costs to more appropriately reflect their nature.
3) Net profit/ (loss) attributable to shareholders of OAO Severstal.
4) Basic EPS is calculated based on the following basic weighted average number of shares outstanding during the period: 849.7 million shares for 9M 2012, 810.6 million shares for 9M 2013, Q3 2013 and Q2 2013.
Q3 2013 vs. Q2 2013 ANALYSIS:
§ Vigorous focus on cost control and efficiency enhancements drove continued earnings improvements in Q3. Cost control highlights include:
§ 13.3 % q/q decrease in cost of sales at Severstal Russian Steel;
§ 23.7% decrease in consolidated G&A expenses;
§ Vorkuta coking coal unit costs 19.8% lower at $81/t;
§ Revenue decreased 6.5% q/q to $3,192 million (Q2 2013: $3,414 million) due to softer prices and sales volumes at Severstal Russian Steel and at Severstal Resources' iron ore units;
§ EBITDA up by 13.4% q/q to $543 million (Q2 2013: $479 million) driven by cost control and efficiency improvements at Severstal Russian Steel and Severstal Resources. EBITDA margin increased 3.0 ppts to 17.0% (Q2 2013: 14.0%), the highest since Q2 2012;
§ Net profit of $157 million (Q2 2013: net loss of $44 million, driven by FX losses of $226 million);
§ Capex of $282 million broadly in line q/q (Q2 2013: $253 million);
§ Recommended dividend payment of 2.01 roubles per share (approximately $0.06) for the 9 months ended 30 September 2013.
9M 2013 vs. 9M 2012 ANALYSIS:
§ Revenue down 9.6% y/y to $9,928 million (9M 2012: $10,988 million) primarily due to a weaker pricing environment;
§ EBITDA decreased 18.8% y/y to $1,452 million (9M 2012: $1,789 million) as a result of a weaker steel and bulks pricing environment;
§ Net profit contracted 82.8% to $157 million (9M 2012: $912 million), due to lower earnings and a sizeable FX loss of $267 million in 9M 2013 compared to the FX gain of $131 million in 9M 2012.
FINANCIAL POSITION HIGHLIGHTS:
§ Further decrease in gross debt to $4,977 million (8.7% down q/q) following the repayment of $544 million Eurobonds in July 2013. Net debt remains stable q/q at $3,963 million and net debt/EBITDA stabilized at 2.2x;
§ Solid liquidity position with $1,014 million in cash and cash equivalents more than covering short-term debt of $624 million, with committed unused credit lines of $1,692 million. We intend to maintain cash on the balance sheet at approximately $1 billion going forward.
Alexey Mordashov, CEO of Severstal, commented:
"Despite the challenging trading environment, Severstal delivered its third consecutive quarter of earnings improvement in Q3, with EBITDA up 13.4% against the previous quarter, driven by management's vigorous focus on cost control and delivering efficiency enhancements across the business. Severstal Russian Steel was the main driver behind the stronger performance in the quarter with a 31.9% increase in EBITDA and an impressive EBITDA margin of 15.7%. Severstal International also posted another quarter of earnings improvements as result of improved demand and a better pricing environment in the USA.
Whilst the outlook for the global market remains uncertain, we are confident that our vigorous focus on efficiency and controlling costs, coupled with the strength of our vertically integrated business model and prudent and flexible approach to capital expenditure, ensure that we are well positioned to deliver good sustainable financial performance in difficult market conditions."
CHIEF EXECUTIVE'S REVIEW OF THE THREE MONTHS ENDED 30 SEPTEMBER 2013
In Q3 we continued to maintain a vigorous focus on cost management and internal efficiency improvements across our business. The effectiveness of the measures we have taken was the key driver behind EBITDA strengthening for a third consecutive quarter, despite a continued challenging pricing environment. I am very pleased that our initiative to reduce G&A expenses by 20% below the 2012 level is running ahead of schedule with G&A expenses for the quarter reducing by 23.7% q/q.
At the divisional level, EBITDA surged at Severstal Russian Steel due to lower raw materials costs and the effectiveness of our efficiency and cost control focus. Severstal International also improved its earnings, driven by higher sales volumes and realized prices. At Severstal Resources, a focus on decreasing production costs across our mining units was not enough to offset the negative impact from a softer pricing environment which drove a decrease in earnings q/q.
Capital expenditure in the quarter was $282 million, broadly in line with the previous quarter. Several large projects, such as the completion of the Balakovo mini-mill, the construction of a specialized service center in Vsevolozhsk near Saint Petersburg and the first stage expansion of the main preparation plant at Vorkutaugol, are nearing completion. In 2014 we will continue to prudently invest in our operations with a number of important projects being commissioned, however we remain flexible and prudent in our approach and the overall level of capital expenditure in 2014 is expected to be lower year on year.
SEVERSTAL RUSSIAN STEEL
Steel sales volumes at Severstal Russian Steel decreased by 6.1% q/q to 2.6 mt partly due to lower export demand. Together with lower realized prices, this led to a 9.0% decrease in the division's revenue to $1,904 million (Q2 2013: $2,093 million).
$ million, unless otherwise stated | Q3 2013 | Q2 2013 | Change, % | 9M 2013 | 9M 2012 | Change, % |
Revenue | 1,904 | 2,093 | (9.0%) | 6,027 | 6,688 | (9.9%) |
EBITDA | 298 | 226 | 31.9% | 719 | 751 | (4.3%) |
EBITDA margin, % | 15.7% | 10.8% | 4.9 ppts | 11.9% | 11.2% | 0.7 ppts |
Profit from operations | 211 | 133 | 58.6% | 443 | 500 | (11.4%) |
Management's focus on cost control combined with lower raw materials prices resulted in COGS 13.3% lower q/q, while SGA expenses were 15.6% lower q/q. This successful cost management boosted divisional EBITDA by 31.9% q/q to $298 million (Q2 2013: $226 million). Consequently, the division's EBITDA margin improved to an impressive 15.7% (Q2 2013: 10.8%).
The share of HVA products in the division's sales portfolio improved slightly in Q3 to 46% (Q2 2013: 45%) as a result of lower sales of semi-finished products. The proportion of domestic sales in the portfolio increased to 69% (Q2 2013: 65%) primarily due to seasonal factors but also reflecting the division's strategic focus to increase the share of domestic sales.
SEVERSTAL RESOURCES
Severstal Resources' revenue decreased 14.3% q/q to $605 million (Q2 2013: $706 million). This was a function of lower prices both for iron ore and coking coal products as well as lower q/q sales volumes of iron ore, as Q2 was supported by sales of inventories.
Despite lower cash costs achieved across the division, this did not wholly offset the impact of lower revenue which resulted in EBITDA 12.3% lower at $185 million (Q2 2013: $211 million). Improvements made on costs enabled the division to deliver a 30.6% EBITDA margin (Q2 2013: 29.9%).
$ million, unless otherwise stated | Q3 2013 | Q2 2013 | Change, % | 9M 2013 | 9M 2012 | Change, % |
Revenue | 605 | 706 | (14.3%) | 1,995 | 2,332 | (14.5%) |
EBITDA | 185 | 211 | (12.3%) | 587 | 853 | (31.2%) |
EBITDA margin, % | 30.6% | 29.9% | 0.7 ppts | 29.4% | 36.6% | (7.2 ppts) |
Profit from operations | 124 | 150 | (17.3%) | 399 | 687 | (41.9%) |
During the quarter the division decreased its total cash costs (TCC) across all of its units. The greatest cost decrease was delivered at Vorkuta, with unit cash costs for coking coal concentrate falling $20/t to $81/t (Q2 2013: $101/t), and we see potential further room for cost decreases. TCC at Karelskiy Okatysh were reduced to $49/t (Q2 2013: $56/t) and Olkon to $40/t (Q2 2013: $43/t). PBS TCC decreased $10/t q/q to $104/t (Q2 2013: $114/t).
SEVERSTAL INTERNATIONAL
In Q3 2013, Severstal International delivered another improved performance q/q driven by higher realized prices and better sales volumes. The pricing environment in the US was strong in Q3, although prices for downstream products, as usually, reacted with a lag, so average Q3 price for CRC and galvanized steel was down q/q. That said, we expect prices for these products to improve in Q4 reflecting a recovery in the domestic market. The division's utilization rate remains close to 100%, compared to an average 78% for the US steel industry. Higher volumes and prices drove a 4.2% increase in revenue to $993 million (Q2 2013: $953 million).
As a result of higher revenue, EBITDA for the division grew by 31.8% q/q to $58 million (Q2 2013: $44 million) and operating profit was $10 million, compared to a loss of $4 million in Q2. Consequently EBITDA margin improved by 1.2 ppts to 5.8% and EBITDA per tonne increased by 26.3% to $48.
$ million, unless otherwise stated | Q3 2013 | Q2 2013 | Change, % | 9M 2013 | 9M 2012 | Change, % |
Revenue | 993 | 953 | 4.2% | 2,876 | 3,068 | (6.3%) |
EBITDA | 58 | 44 | 31.8% | 152 | 164 | (7.3%) |
EBITDA margin, % | 5.8% | 4.6% | 1.2 ppts | 5.3% | 5.3% | - |
Profit/ (loss) from operations | 10 | (4) | N.A. | 9 | 33 | (72.7%) |
Growth in US residential construction has slowed due to higher mortgage and home prices, however non-residential construction levels, although still 70% of the pre-financial crisis spending, are demonstrating signs of recovery. US auto sales in Q3 remained strong, bolstered by increased sales of premium manufacturers and Ford Motor.
DIVIDEND
The Board is recommending a dividend payment of 2.01 roubles per share (approximately $0.06) for the 9 months ended 30 September 2013.
Approval of the dividend is expected at the Company's EGM which will take place on 17 December 2013. The record date is 31 October 2013.
OUTLOOK
Management will continue its strong focus on costs and efficiency to continue to enhance the Group's competiveness and deliver sustainable strong performance in all market conditions.
In Q4 we expect slightly weaker q/q demand for steel in Russia and the US driven by seasonal factors. However average steel prices will strengthen supported by a bottoming out of European demand. Chinese steel output continues to inch up which will result in oversupply and put downward pressure on prices.
We anticipate slight weakening in iron ore prices in Q4. However coking coal prices will remain relatively stable with some risk to the upside by the end of the year.
Overall, we are confident that our vertically integrated business model, proven strategy, effective cost control and production efficiency initiatives well position Severstal to deliver future development. We expect the final quarter of the year to be broadly similar to Q3 2013.
http://www.rns-pdf.londonstockexchange.com/rns/9799S_-2013-11-13.pdf
http://www.rns-pdf.londonstockexchange.com/rns/9799S_1-2013-11-13.pdf
For further information, please contact:
Severstal Investor Relations
Vladimir Zaluzhsky
T: +7 (495) 926-77-66
vladimir.zaluzhsky@severstal.com
Severstal Public Relations
Elena Kovaleva
T: +7 (495) 926-77-66
elena.kovaleva@severstal.com
Severstal's financial communications agent - Hudson Sandler
Andrew Hayes / Maria Ignatova / Alex Brennan
T: +44 (0) 20 7796 4133
A conference call on Q3 2013 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on November 14, 2013 at 15.45 (GMT London)/ 19.45 (Moscow).
Participant dial in: +44 (0) 203 139 4830 (International)
Participant dial in: 810 800 2136 5011 (Russian Toll Free Dial-In)
Participant dial in: +44 (0) 080 8237 0030 (UK Toll Free Dial-In)
Participant dial in: +1 866 928 7517 (US Toll Free Dial-In)
Pin Code: 96476423#
The call will be recorded and there will be a replay facility available for 30 days as follows:
International Dial in: +44 (0) 020 3426 2807
Russian Toll-Free Dial in: +7 495 660 4512
UK Toll-Free Dial in: +44 (0) 080 8237 0026
Pin Code: 643675#
Full financial statements are available at http://www.severstal.com/eng/ir/results_reports/financial_reports/
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ОАО Severstal is one of the world's leading vertically integrated steel and steel related mining companies, with assets in Russia, the USA, Ukraine, Latvia, Poland, Italy, Liberia and Brazil. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $14,104 million and EBITDA of $2,158 million in 2012. Severstal's crude steel production in 2012 reached 15.1 million tonnes. www.severstal.com