30 Apr 2014 07:00
Severstal reports Q1 2014 financial results
- Continued resilient performance in a challenging quarter driven by further efficiency improvements -
Moscow, Russia - April 30, 2014 - 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 2014 financial results.
CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 31 MARCH 2014
$ million, unless otherwise stated | Q1 2014 | Q4 2013 | Change, % | Q1 2014 | Q1 2013 | Change, % |
Revenue | 3,007 | 3,384 | (11.1%) | 3,007 | 3,322 | (9.5%) |
EBITDA1 | 534 | 611 | (12.6%) | 534 | 430 | 24.2% |
EBITDA margin, % | 17.8% | 18.1% | (0.3 ppts) | 17.8% | 12.9% | 4.9 ppts |
Profit from operations | 336 | 411 | (18.2%) | 336 | 222 | 51.4% |
Operating margin, % | 11.2% | 12.1% | (0.9 ppts) | 11.2% | 6.7% | 4.5 ppts |
Free cash flow | 236 | 347 | (32.0%) | 236 | (186) | N.A. |
Net (loss)/ profit 2 | (100) | (74) | 35.1% | (100) | 44 | N.A. |
Basic EPS3, $ | (0.12) | (0.09) | 33.3% | (0.12) | 0.05 | N.A. |
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) Net (loss)/ profit attributable to shareholders of OAO Severstal.
3) Basic EPS is calculated based on the following basic weighted average number of shares outstanding during the period: 810.6 million shares for Q1 2014, Q4 2013 and Q1 2013.
Q1 2014 vs. Q1 2013 ANALYSIS:
§ Group revenue decreased 9.5% y/y to $3,007 million (Q1 2013: $3,322 million) primarily impacted by lower realized prices and sales volumes at the Russian Steel and Resources divisions;
§ Group EBITDA increased 24.2% y/y to $534 million (Q1 2013: $430 million) driven by continued operational improvements, reductions in G&A expenses, further progress in improving sales mix and a continued focus on customer care;
§ Strong free cash flow at $236 million (Q1 2013: negative of $186 million);
§ Capex of $264 million1, 14.6% lower y/y (Q1 2013: $309 million).
Q1 2014 vs. Q4 2013 ANALYSIS:
§ Efficiency initiatives continuing to drive cost improvements:
§ 15.0% q/q decrease in cost of sales at Severstal Russian Steel
§ 5.3% decrease in Group G&A expenses to $142 million (Q4 2013: $150 million);
§ 23.5% decrease in Group distribution costs to $176 million (Q4 2013: $230 million);
§ Production cash-cost of slab at the Cherepovets Steel Mill on a non-integrated basis declined further by $51/t to $326/t (Q4 2013: $377/t); on an integrated basis it declined by $32/t to $247/t (Q4 2013: $279/t).
§ Columbus posted record EBITDA/t in Q1 2014 of $113/t.
§ Group revenue declined 11.1% q/q to $3,007 million (Q4 2013: $3,384 million), primarily due to weaker average pricing, seasonally softer demand and temporary production interruptions at Severstal Russian Steel and Severstal Resources. Severstal International performed well despite abnormally severe winter weather;
§ Group EBITDA decreased 12.6% q/q to $534 million (Q4 2013: $611 million) driven by seasonal factors;
§ Group EBITDA margin was broadly flat q/q at 17.8% (Q4 2013: 18.1%) supported by ongoing and relentless focus on operational enhancements as well as a weaker rouble. Both Russian Steel and Resources improved their EBITDA margin q/q, to 15.2% and 34.7% respectively;
§ Free cash flow remained strong at $236 million (Q4 2013: $347 million);
§ Loss2 for the quarter of $100 million (Q4 2013 loss of $74 million), negatively impacted by FX non-cash item of $321 million. Excluding that non-cash item, Severstal would have posted a net profit of $221 million in Q1 2014;
§ Capex of $264 million3, 21% lower q/q (Q4 2013: $334 million). FY2014 target CAPEX of $976 million might be finally lower due to weaker rouble;
§ Recommended dividend payment of 2.43 roubles per share (approximately $0.07) for the 3 months ended 31 March 2014.
FINANCIAL POSITION HIGHLIGHTS:
§ Deleveraging remains on track with gross debt reduced by 6.5% from the end of Q4 2013 to $4,444 million. This included a $525 million exercise of the call option on the 10.25% Severstal Columbus high-yield bond;
§ Q1 2014 saw important progress in the deleveraging of Severstal North America with the exercise of the call option to buy out the 10.25% Severstal Columbus high-yield bond in March 2014 for a total amount of $525 million.;
§ Net debt at the quarter end of $3,552 million was 4.5% lower compared to the end of Q4 2013 and was 15.1% lower compared to the end of Q1 2013;
§ Our Net Debt/EBITDA ratio fell q/q to 1.6x bringing Severstal very close to its stated target of 1.5x;
§ Solid liquidity position with $892 million in cash and cash equivalents, and committed unused credit lines of $1,336 million more than covering the short-term debt of $709 million4.
Alexey Mordashov, CEO of Severstal, commented:
"I am pleased to report that Severstal has delivered another resilient set of results in what was a challenging quarter. We have continued to build on the strong progress made in 2013 to reduce costs and enhance efficiency which has enabled the Group to broadly maintain EBITDA margin against the previous quarter.
Though we are pleased with the operational enhancements we have made to date, there remains potential for further improvement. Areas of specific focus in 2014 include further enhancing customer care and product quality alongside our ongoing focus on improvements to health and safety.
Whilst market conditions in Q2 will remain challenging, we anticipate higher steel prices across our key markets. The second quarter will also see the completion of our Balakovo long products mini-mill, which has been an important investment project for Severstal. This will better position Severstal to deliver on opportunities afforded by real estate and infrastructure growth in southern Russia.
Overall, we will remain focused on driving our financial performance through the continued delivery of our stated strategy focused on cost control, efficiency and customer care, all underpinned by highly efficient assets and the strengths of our vertical integration."
CHIEF EXECUTIVE'S REVIEW OF THE FIRST QUARTER ENDED 31 MARCH 2014
Severstal delivered another resilient financial performance in a quarter that was characterized by a challenging pricing environment. Prices for coking coal concentrate at Vorkutaugol and high value-added ("HVA") products at the Russian Steel division were impacted the most. Severstal International saw a 1% q/q increase in prices for rolled products.
Sales volumes were seasonally softer q/q across most of the Group's business segments, with coking coal under the most pressure due to the planned repositioning of longwalls at Vorkutaugol. Severstal International was able to increased its sales by 1% q/q despite an abnormally severe winter which impacted the market as a whole.
The Group's total crude steel output increased 4% q/q, driven by production growth in Russia. Sales of steel products in Russia contracted 8% q/q as the Russian Steel Division restored stock to more normal levels following the divestment of inventories during Q4 2013 and also having deferred some sales in anticipation of higher steel prices in Q2 2014.
The steel sales mix seasonally changed q/q with sales of semi-finished growing by 35% to meet strong export demand. However, the share of HVA products in the Severstal Russian Steel sales portfolio remained broadly flat at 47% (Q4 2013: 48%). The combination of continued cost savings and a focus on sales enabled the Division to deliver an improved EBITDA margin in Q1 2014 of 15.2% (Q4 2013: 14.4%).
Karelsky Okatysh in the Resources Division delivered an impressive 22.2% reduction in total cash costs to $42/t (Q4 2013: $54/t).
Capex in Q1 was in line with our plans at $264 million, 21% lower than the previous quarter (Q4 2013: $334 million). The focus in Q2 will be on completion of the Balakovo long products mini-mill in southern Russia (which will have a nominal capacity of 1 million tonnes per annum); the completion of the repositioning of longwalls at Vorkutaugol; the construction of an inclined shaft at the Vorgashorskaya mine, also at Vorkutaugol, and; further development of our iron ore processing technology at Karelsky Okatysh.
We maintain a prudent and flexible approach to investments and our FY2014 capex (in USD), which may be lower than our previously stated target of $976 million due to the weakening rouble.
SEVERSTAL RUSSIAN STEEL
$ million, unless otherwise stated | Q1 2014 | Q4 2013 | Change, % | Q1 2014 | Q1 2013 | Change, % |
Revenue | 1,714 | 2,006 | (14.6%) | 1,714 | 2,030 | (15.6%) |
EBITDA | 260 | 289 | (10.0%) | 260 | 195 | 33.3% |
EBITDA margin, % | 15.2% | 14.4% | 0.8 ppts | 15.2% | 9.6% | 5.6 ppts |
Severstal Russian Steel increased its steel output in Q1 by 8% to 2.7 mt ahead of the construction season in Russia and to restore stock to more normal levels following the divestment of inventory to service customers during the temporary and planned idling of the #2 converter at Cherepovets in Q4 2013.
While total steel shipments reduced 8% q/q in Q1 as a result of a weaker rouble the division benefited from its proximity to ports and increased export sales against Q4 2013. As a result, the share of sales to the domestic market in Q1 reduced to 60% (Q4 2013: 62%).
Average prices for the division's steel products decreased q/q with the most significant decline for color-coated products (11%), long products (12%) and large diameter pipes (11%). Nevertheless, prices for March and April deliveries were higher than in January and February. Cherepovets Steel Mill announced several rouble price increases for domestic customers, which will partly be reflected in average prices in Q2.
The division's revenue decreased 14.6% q/q to $1,714 million (Q4 2013: $2,006 million). EBITDA of $260 million was 10.0% weaker q/q (Q4 2013: $289 million), while EBITDA/t was broadly flat q/q at $106/t (Q4 2013: $108/t). The division's EBITDA margin, however, advanced 0.8 ppts to 15.2% driven by management's continued focus on cost reductions and driving sales. EBITDA for the quarter was 33.3% higher y/y with EBITDA margin improving 5.6 ppts against Q1 2013.
In Q1 2014 Cherepovets Steel Mill achieved significant savings at its blast furnaces due to optimization of the coke mix and use of new higher-grade pellets from Karelsky Okatysh. As a result Q1 2014 integrated cash cost of slab went down q/q by $32/t to $247/t (Q4 2013: $279/t), while the total non-integrated cash cost of slab declined by $51/t to $326/t (Q4 2013: $377/t).
SEVERSTAL RESOURCES
$ million, unless otherwise stated | Q1 2014 | Q4 2013 | Change, % | Q1 2014 | Q1 2013 | Change, % |
Revenue | 567 | 670 | (15.4%) | 567 | 684 | (17.1%) |
EBITDA | 197 | 226 | (12.8%) | 197 | 191 | 3.1% |
EBITDA margin, % | 34.7% | 33.7% | 1.0 ppts | 34.7% | 27.9% | 6.8 ppts |
The pricing environment in Q1 remained challenging for steel-related raw materials, especially coking coal. The division's total coking coal concentrate sales decreased 19% q/q as a result of the planned repositioning of longwalls at Vorkutaugol as well as a decline in production at PBS Coals. Coking coal prices in Russia in USD contracted by 6% q/q.
Iron ore pellet sales volumes also decreased (by 8% q/q) against strong comparatives in Q4 2013 with pellet prices largely flat q/q.
As a result of these factors, Severstal Resources' revenue decreased 15.4% q/q to $567 million (Q4 13: $670 million). Revenue was reduced 17.1% y/y due to lower sales volumes and softer pricing than in Q1 2013.
EBITDA of $197 million was 12.8% lower q/q (Q4 2013: $226 million) while the division's EBITDA margin was 1.0 ppts stronger q/q at 34.7% on the back of a continued focus on reducing costs. EBITDA was 3.1% higher y/y with EBITDA margin improving 6.8 ppts against Q1 2013.
Q1 saw a strong improvement in total cash costs ("TCC") at Karelsky Okatysh which were reduced by 22.2% to $42/t (Q4 2013: $54/t). TCC at our other units were up q/q on seasonal factors. TCC for Vorkuta temporarily increased to $93/t (Q4 2013: $79/t) on decreased production due to challenging geology and planned mine maintenance work. At PBS cash costs decreased to $109/t (Q4 2013: $124/t) due management's focus on cost reduction.
In February 2014, the division launched separate iron ore processing at Karelsky Okatysh. The project should increase the Fe content in part of our fluxed pellets from the current level of 64.3% to approximately 66%. The first volumes of higher-grade pellets are being delivered to Cherepovets Steel Mill, thus increasing profitability of the Mill's blast furnaces and decreasing raw materials consumption. In the future we also plan to sell surplus amounts of these pellets to third parties domestically and on export which will bring further upside.
SEVERSTAL INTERNATIONAL
$ million, unless otherwise stated | Q1 2014 | Q4 2013 | Change, % | Q1 2014 | Q1 2013 | Change, % |
Revenue | 1,016 | 1,002 | 1.4% | 1,016 | 930 | 9.2% |
EBITDA | 75 | 92 | (18.5%) | 75 | 50 | 50.0% |
EBITDA margin, % | 7.4% | 9.2% | (1.8 ppts) | 7.4% | 5.4% | 2.0 ppts |
Severstal International delivered another strong performance in Q1 and its utilization rate remained above the US market average, which was impacted by severe weather conditions. Total steel sales volumes were up q/q by 1% to 1.2 mt. despite somewhat lower production at Dearborn which was driven by spikes in natural gas prices.
Revenue of $1,016 million (Q4 2013: $1,002 million) was up 1.4% q/q driven by stronger selling prices. Revenue on a year on year basis also increased by 9.2% on the back of improvements to pricing, product mix and higher utilization rates.
EBITDA was 18.5% lower q/q at $75 million (Q4 2013: $92 million) due to lower production at Dearborn and higher costs related to sharp increase in natural gas prices in the USA due to the severe winter; and increased prices on scrap and utilities for Columbus. Despite that Columbus posted record EBITDA/t in Q1 2014 of $113/t. On a year on year comparison, EBITDA of the whole division in Q1 2014 was 50.0% higher than in 2013 with EBITDA margin growing 2.0 ppts to 7.4% and EBITDA/t also increasing by 40.0% to $63/t (Q1 2013: $45/t).
DIVIDEND
The Board is recommending a dividend payment of 2.43 roubles per share (approximately $0.07) for the 3 months ended 31 March 2014.
Approval of the dividend is expected at the Company's AGM which will take place on 11 June 2014. The record date for participation in the AGM is 24 April 2014.
The recommended record date for the dividend payment is 23 June 2014. The approval of the record date for the dividend payment is expected at the Company's AGM which will take place on 11 June 2014.
OUTLOOK
Global steel demand and output has grown by 2% in the year to date against the prior year, primarily driven by Europe, Japan and China.
In Russia, we expect steel consumption to increase in Q2 on the back of a seasonal recovery in construction. Domestic rouble steel prices are going up to catch up with export parity. Russian steel and mining exporters should be able to continue to benefit from a weaker rouble.
In China, local steel demand is growing ahead of the construction season, which is boosting raw materials prices and volumes. In the US, steel producers' lead times are extending as a result of supply disruptions owing to the severe weather, which creates a positive momentum for steel prices.
Management's efforts will continue to focus on driving further improvements in efficiency and costs while enhancing our customer service and product mix. Through the continued execution of our stated strategy, underpinned by our high quality assets and vertically integrated model, we continue to look forward with confidence.
NOTES
1) Represents cash outflow on capex in the period.
2) Net profit/ (loss) attributable to shareholders of OAO Severstal.
3) Represents cash outflow on capex in the period.
4) Represents principal amount of debt.
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 2014 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on April 30, 2014 at 14.00 (GMT London)/ 17.00 (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)
Pin Code: 28634309#
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: 647437#
Full financial statements are available at http://www.severstal.com/eng/ir/results_reports/financial_reports/
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 and Liberia. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $13,312 million and EBITDA of $2,063 million in 2013. Severstal's crude steel production in 2013 reached 15.7 million tonnes. www.severstal.com
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