SVST.L Regulatory News (SVST)

Severstal reports Q1 2013 financial results

Moscow, Russia - May 20, 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 Q1 2013 financial results.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 31 MARCH 2013

Notes:

1) EBITDA represents profit/(loss) from operations plus depreciation and amortization of productive assets adjusted for gain / (loss) on disposals of property, plant and equipment and intangible assets.

2) These 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) 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: 926.5 million shares for Q1 2012, 810.6 million shares for Q4 2012 and Q1 2013.

Q1 2013 vs. Q4 2012 ANALYSIS:

§ Management action on cost reduction initiatives and benefits of vertically integrated model resulted in improved financial performance in a challenging trading environment;

§ Revenue up by 6.6% q/q to $3,322 million (Q4 2012: $3,116 million) on stronger iron ore prices at Severstal Resources and higher selling volumes at Severstal International and Severstal Russian Steel;

§ EBITDA increased by 21.1% to $425 million (Q4 2012: $351 million), driven by Severstal International and Severstal Resources; EBITDA margin up to 12.8% (Q4 2012: 11.3%);

§ Net profit returned to positive territory at $44 million after posting a net loss in Q4 2012 of $150 million (which was negatively impacted by $150 million non-cash one-off losses);

§ Q1 2013 capex restrained to $309 million5, 34.1% lower than in the previous quarter;

§ Recommended dividend payment of 0.43 roubles per share (approximately $0.01) for the 3 months ended 31 March 2013.

5 Represents cash outflow on capex in the period.

Q1 2013 vs. Q1 2012 ANALYSIS:

§ Revenue down 9.7% y/y to $3,322 million (Q1 2012: $3,679 million) due to weaker markets and lower realized prices;

§ Decrease in EBITDA by 24.8% y/y to $425 million (Q1 2012: $565 million) primarily reflecting lower prices across the divisions, resulting in a 2.6 ppts decrease in EBITDA margin y/y to 12.8%.

FINANCIAL POSITION HIGHLIGHTS:

§ Gross debt relatively flat at $5,738 million. Compared to the end of FY 2012, net debt increased by 5.1% to $4,186 million with net debt/EBITDA ratio slightly up to 2.1x;

§ Liquidity remains solid: $1,552 million in cash and cash equivalents, exceeding short-term debt of $840 million6 with committed unused credit lines of $1,112 million;

§ In March 2013, Severstal successfully placed $600 million 5-year Eurobonds with an interest rate of 4.45%, the lowest in the Company's history.

Alexey Mordashov, CEO of Severstal, commented:

"In a continued challenging period for the steel and steel-related mining industries Severstal has delivered an improved performance in Q1 2013 against the previous quarter. This relatively resilient performance reflects the fundamental strengths of our business model and advantages of vertical integration. In particular, our Severstal Resources and Severstal International divisions demonstrated notably improved results quarter on quarter. During the period, we successfully placed $600 million of 5-year Eurobonds with a record low interest rate of 4.45%. We note, however, that the global economic environment remains uncertain and this impacts our markets. Overall we expect our Q2 2013 results to be broadly similar to our Q1 2013 numbers."

CHIEF EXECUTIVE'S REVIEW OF THE THREE MONTHS ENDED 31 MARCH 2013

Severstal Resources and Severstal International demonstrated strong improvement q/q as a result of lower iron ore cash costs and higher iron ore prices at the Severstal Resources division and sales volumes at Severstal International. Severstal Russian Steel's EBITDA was negatively affected by lower realized prices, seasonal slowdown in the domestic market and higher iron ore input costs.

Our capital expenditure in Q1 2013 was $309 million7, 34.1% lower than in the previous quarter. Our key investment projects for FY 2013 are at Severstal Russian Steel and Severstal Resources divisions, which include completion of the Balakovo mini-mill, development of the specialized service centers and the modernization of Izhora pipe plant, as well as construction of two incline shafts and first stage of the preparation plant capacity expansion project at Vorkutaugol and construction of a steeply inclined conveyor at Olkon.

SEVERSTAL RUSSIAN STEEL

Severstal Russian Steel increased its steel products sales in Q1 2013 by 12.3% q/q to 2.6 mt, mainly due to the positive dynamics of hot-rolled, cold-rolled, color coated and semi-finished products. However, with the exception of semi-finished products, the division's realized prices declined due to the effect of the strong prices in October 2012. These factors contributed to Q1 revenue growth of 5.2% q/q to $2,030 million (Q4 2012: $1,929 million).6 Represents principal amount of debt

7 Represents cash outflow on capex in the period.

Despite volume growth, which increased revenue, price impact negatively affected profitability with EBITDA down 5.4% q/q to $193 million (Q4 2012: $204 million) and EBITDA margin lower at 9.5% (Q4 2012: 10.6%).

The share of HVA products in the sales portfolio remained the highest amongst our peers in Q1 at 43%. Although the share of HVA was lower than in Q4 2012, it increased on a y/y basis (Q1 2012: 40%). The proportion of domestic sales volumes fell to 56% from 65% in Q4 2012 due to seasonal factors, although remained higher on a y/y basis (Q1 2012: 53%).

SEVERSTAL RESOURCES

Severstal Resources saw lower production in Q1 2013 with overall coal sales down 7.9% q/q and iron ore volumes down 6.7% q/q, which was mainly a function of stoppages at the Vorkuta coal operations as well as port issues that impacted iron ore exports. However the pricing environment started to improve with iron ore prices increasing by 22-27% depending on the product. This offset the impact of lower volumes and helped increase revenue by 1.6% q/q to $684 million (Q4 2012: $673 million).

Despite marginal revenue growth, Severstal Resources boosted its EBITDA by 44.7% q/q to $191 million (Q4 2012: $132 million) helped by higher realized iron ore prices and lower iron ore cash costs. EBITDA margin improved from 19.6% in Q4 2012 to 27.9% in Q1 2013.

Cash costs at the iron ore operations normalized in Q1 2013 compared to Q4 2012 with total cash costs down to $62/t (Q4 2012: $64/t) at Karelskiy Okatysh and to $53/t (Q4 2012: $60/t) at Olkon. Coal units cash costs at PBS remained stable at $107/t (Q4 2012: $107/t), while Vorkuta experienced a spike in unit costs to $110/t (Q4 2012: $85/t) due to lower raw coal production. We anticipate coking coal production at Vorkuta to increase in Q2 which will translate to lower unit cash costs.

SEVERSTAL INTERNATIONAL

In Q1 2013 Severstal International significantly improved its q/q performance, boosting sales volumes in Q1 by 15.1% to 1.1 mt. The division's utilization rate was above 90% in Q1, higher than the US industry average of 78%. However, the pricing situation remained subdued with average selling prices falling by 0.6% q/q to $808/t. Volume growth led to 14.8% increase in revenue q/q to $930 million (Q4 2012: $810 million).

Higher revenue coupled with slightly lower production unit costs resulted in EBITDA of $47 million, which was significantly higher q/q (Q4 2012: $6 million). This drove EBITDA margin up from 0.7% in Q4 2012 to 5.1% in Q1 2013. EBITDA per tonne was also up from $6 in Q4 2012 to $42 in Q1 2013. We also note that in Q1 Severstal International registered a positive one-off item of $12 million, which was the result of the settlement with a coking coal supplier.

As for the end user markets US light vehicle sales in Q1 2013 remained high at around 15 million on seasonally adjusted annual basis, a 7% improvement y/y. Construction spending increased in Q1 4.7% y/y. The US Rig count was down 10.2% y/y in Q1, however the demand from energy sector remains robust with expectations of further improvement driven by shale oil and gas drilling activities.

DIVIDEND

The Board is recommending a dividend of 0.43 roubles per share (approximately $0.01) for the three months ended 31 March 2013.

Approval of the dividend is expected at the Company's Annual General Meeting which will take place on 13 June 2013. The record date is 26 April 2013.

OUTLOOK

The global economy continues to experience headwinds putting pressure and increasing volatility on the steel and bulks markets. Although our business model makes us resilient even in the challenging times, we remain cautious about the immediate outlook for the industry which will continue to impact performance as previously anticipated. Against this background management continues to focus on cost management and efficiency initiatives together with prudent capital investment programs as we continue to develop the business.

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 Q1 2013 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on May 20, 2013 at 12.00 (GMT London)/ 15.00 (Moscow).

Participant dial in: +44 (0) 203 139 4830 (International)

Participant dial in: 810 800 213 650 11 (Russian Free Call)

Participant dial in: +1 866 928 4517 (US FreeCall Dial-In)

Pin Code: 17578693#

The call will be recorded and there will be a replay facility available for 7 days as follows:

International Dial in: +44 (0) 020 3426 2807

Pin Code: 639090#

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 $2,131 million in 2012. Severstal's crude steel production in 2012 reached 15.1 million tonnes. www.severstal.com

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