SVST.L Regulatory News (SVST)

Severstal reports Q3 & 9M 2015 financial results

- Consistent execution of stated strategy -

Moscow, Russia - October 22, 2015 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, today announces its Q3 and 9M 2015 financial results for the period ended 30 September 2015.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 30 SEPTEMBER 2015

Notes:

1) The amounts for 9M 2014 reflect adjustments made in connection with the change in the methodology for calculating the unrealised gain in inventory, increasing EBITDA by $9 million.

2) EBITDA represents profit 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).

3) Free cash flow excludes discontinued operation.

4) Net (loss)/profit from continuing operations after FX fluctuations.

5) Basic EPS from continuing operations is calculated on the following basis: net profit from continuing operations divided by the weighted average number of shares outstanding during the period: 810.6 million shares for Q3 2015, Q2 2015, 9M 2015 and 9M 2014.

Q3 2015 vs. Q2 2015 ANALYSIS:

§ Group EBITDA margin remains amongst the highest in the industry at 31.5% in Q3 2015 (Q2 2015: 32.6%). Group EBITDA decreased 10.9% q/q to $524 million (Q2 2015: $588 million);

§ In spite of further RUB devaluation driving down USD-denominated average selling prices for both steel and steel-related raw materials, q/q Group revenue decreased only 7.9% q/q to $1,663 million (Q2 2015: $1,806 million) strongly supported by a seasonal rebound in sales volumes in domestic markets in both the steel and mining divisions;

§ The net loss of $130 million (Q2 2015: net profit of $469 million) reflects a FX loss of $515 million. Adjusting for this non-cash item, Severstal would have posted an underlying net profit of $385 million (Q2 2015: $339 million excluding FX profit);

§ Free cash flow for Q3 2015 increased 42.0% q/q to $609 million (Q2 2015: $429 million) reflecting further progress against the strategic objective and was mainly a function of a seasonal uptick in demand in the local market, although not as pronounced as previous years, and a higher share of domestic sales. These led to a substantial working capital release compared with the previous quarter;

§ Cash outflow on capex of $103 million, 7.2% lower q/q (Q2 2015: $111 million), reflecting our prudent approach to investments;

§ Recommended dividend payment of 13.17 RUB per share for the three months ended 30 September 2015.

9M 2015 vs. 9M 2014 ANALYSIS:

§ Group EBITDA increased 5.3% y/y to $1,695 million (9M 2014: $1,610 million), driven by Russian Steel's operational enhancements, lower input costs and RUB devaluation together more than offsetting lower deliveries at Resources;

§ Group revenue decreased 22.1% y/y to $5,000 million (9M 2014: $6,418 million) as the impact of lower realized prices. This was only partially mitigated by moderate increases in sales volumes at Russian Steel and Resources;

§ Strong improvement in free cash flow to $1,247 million (9M 2014: $807 million), in line with strategic focus;

§ Cash outflow on capex of $317 million, 49.0% lower y/y (9M 2014: $622 million).

FINANCIAL POSITION HIGHLIGHTS:

§ Even though accelerating gross debt reduction remains complicated with the vast share of Severstal's gross debt being public, the Company exercised a put option on Convertible Bonds in September 2015. $390 million of outstanding bonds were submitted by bondholders. The outstanding principle now is $61.8 million;

§ Severstal's gross debt decreased 13.9% since the end of Q2 2015 to $2,504 million (Q2 2015: $2,907 million);

§ As at the end of Q3 2015, cash and cash equivalents were at $1,675 million (Q2 2015: $1,552 million) as strong free cash flow generation more than offset cash outflows on gross debt reduction and the quarterly dividend payment;

§ Net debt declined a significant 38.8% to just $829 million as at the end of Q3 2015 (Q2 2015: $1,355 million). The Net Debt/EBITDA ratio also reduced sharply q/q to 0.4x at the end of Q3 2015 (Q2 2015: 0.6x), remaining one of the lowest amongst steel companies globally;

§ Strong liquidity, with $1,675 million in cash and cash equivalents and unused committed credit lines of $683 million, more than covers short-term debt principal requirements of $491 million.

Vadim Larin, CEO of JSC Severstal Management, commented:

"I am pleased to report that Severstal has delivered another resilient set of financial results. This reflects our combination of assets which gives us the flexibility to choose between geographical shipment alternatives and enables us to run at industry leading margins and to continue generating considerable free cash flow.

Despite limited visibility in both domestic and export markets, the company remains well-positioned to deliver long-term shareholder value by consistent execution of our stated strategy focuses on efficiency, low-cost production and investment optimisation. We remain resolutely focused on further improving customer care and product quality and therefore strengthening our position as the supplier of choice."

REVIEW OF THE THIRD QUARTER ENDED 30 SEPTEMBER 2015

Severstal delivered another quarter of resilient performance, again underpinned by management's ongoing and relentless focus on enhancing efficiency as well as the quality of our operations. A seasonal rebound in domestic demand and the strategic location of key producing assets enabled Severstal to partially mitigate the impact of the decline in average selling prices in USD terms. Group revenue reduced only 7.9% q/q to $1,663 million (Q2 2015: $1,806 million).

As a substantial share of Severstal's production and G&A costs are RUB-denominated, the currency devaluation partially offset negative price movements on EBITDA. Severstal's EBITDA decreased 10.9% q/q to $524 million (Q2 2015: $588 million), while the EBITDA margin compressed only marginally to 31.5% and remains one of the strongest in the industry.

In Q3 domestic steel consumption in Russia was stronger q/q. Severstal's consolidated sales of steel products increased 13% q/q with the proximity to the border of key producing assets allowing the Company to efficiently reallocate sales volumes from the export market. The share of domestic deliveries within the sales mix increased to 67%. These factors led to both an inventory reduction and improved receivables recovery, which substantially enhanced free cash flow generation by the company, to $609 million during the respective quarter.

SEVERSTAL RUSSIAN STEEL (RSD)

Steel product sales increased 13% q/q to 3.01 mln tonnes driven by improved domestic steel consumption and despite less pronounced seasonality in 2015 than in previous years. Meanwhile, rolling facilities at the Cherepovets Steel Mill ran at almost full capacity in Q3 2015.

The share of domestic sales within the sales mix increased to 67% (Q2 2015: 59%) reflecting Severstal's ability to efficiently reallocate sales volumes between the export and domestic markets and capture improved consumption trends in the domestic market.

Improved domestic flat steel consumption led to notable increases in high-value added (HVA) sales volumes. This enabled RSD to maintain the share of HVA products within sales mix at 47% despite an increase in semi-finished products and hot-rolled coil sales.

Despite the continuing downward trend in global steel prices, a seasonal uptick in domestic demand enabled RSD to proceed with RUB-denominated price increases across almost all types of steel products. This helped to partially mitigate the RUB devaluation impact in Q3 2015.

Reflecting all the abovementioned factors, revenue decreased 7.8% q/q to $1,527 million (Q2 2015: $1,657 million). EBITDA margin compressed only 0.3 ppts to 27.9% (Q2 2015: 28.2%) as the negative impact of lower selling prices was partially mitigated by lower raw material input prices and lower production costs on the back of RUB devaluation. As a result, EBITDA decreased 9.0% q/q to $426 million (Q2 2015: $468 million).

The total non-integrated cash cost of slab production at the Cherepovets Steel Mill in Q3 decreased $53/t q/q to $206/t (Q2 2015: $259/t) due to lower raw materials prices and rolling costs as a result of the RUB depreciation as well as higher crude steel production and ongoing efficiency improvements. The integrated cash cost of slab in Q3 decreased $36/t q/q to $176/t.

SEVERSTAL RESOURCES

The pricing environment in Q3 2015 remained challenging for both iron ore and coking coal. Average coking coal concentrate selling prices decreased 30% q/q, which was a function of the weaker RUB q/q as well as a downwards revision of coking coal contract prices starting from July 2015.

As for the iron ore products, average selling prices of iron ore pellets at Karelsky Okatysh and iron ore concentrate at Olkon decreased by 13% and 14% respectively. This was largely driven by a ca. 20% q/q RUB devaluation against the USD during the period, which was partially offset by RUB-denominated price increases.

Coking coal concentrate sales volumes remained largely flat q/q despite a declined ROM-coal output q/q. Both iron ore concentrate and iron ore pellets sales volumes increased 5% q/q mainly driven by seasonally higher external sales on the domestic market.

The sharp decline in prices was only partially offset by sales volumes growth, Severstal Resources' revenue decreased 16.9% q/q to $296 million (Q2 2015: $356 million). The decrease in average selling prices was only partially offset by efficiency improvement initiatives and reduced production costs on the back of the RUB-devaluation with EBITDA margin reducing 7.7 ppts to 26.0% (Q2 2015: 33.7%). EBITDA decreased 35.8% to $77 million (Q2 2015: $120 million).

Total cash costs (TCC) at Karelsky Okatysh decreased to $24/t (Q2 2015: $29/t), while TCC at Olkon reduced to $21/t (Q2 2015: $28/t). This was primarily a function of the RUB devaluation, as the majority of costs at Severstal Resources are RUB-denominated, while continuing efficiency improvement initiatives provided additional support. At the same time, given the fixed-cost nature of the mining business and reflecting the decline of ROM-coal production at Vorkutaugol on the back of the scheduled long-wall repositioning activity, TCC at Vorkutaugol increased to $59/t (Q2 2015: $52/t).

DIVIDEND

The Board is recommending a dividend payment of 13.17 roubles per share for the three months ended30 September 2015.

Approval of the dividend is expected at the Company's EGM which will take place on 10 December 2015. The record date for participation in the EGM is 2 November 2015.

The recommended record date for the dividend payment is 21 December 2015. The approval of the record date for the dividend payment is expected at the Company's EGM which will take place on 10 December 2015.

OUTLOOK

Global steel markets remain under pressure, despite decreasing global steel production and subdued capacity utilisation levels (68% compared with 78% a year ago). Exports from China increased 27% YTD as a result of domestic Chinese steel demand weakening by 5.5% YTD combined with the decision by the People's Bank of China to devalue the RMB in August 2015, which added further pressure on steel and steel-related commodity prices.

Though the fourth quarter seems to be more challenging, the Board remains confident that, underpinned by the Company's vertically integrated business model, high quality operations, and a sizable share of high-valued added products in the portfolio, Severstal remains well positioned. Severstal is one of the lowest costs steel producers globally and this - combined with further production efficiency initiatives at all business units and low levels of debt - will enable the company to remain resilient through this turbulent period.

NOTES

1. In January, 2015 some of the Group's entities were transferred from the Severstal Resources segment to the Severstal Russian Steel segment following a change in the Group's management structure. The comparative information had been presented as if the transfer occurred at the beginning of the earliest comparative period presented.http://www.rns-pdf.londonstockexchange.com/rns/0664D_-2015-10-22.pdfhttp://www.rns-pdf.londonstockexchange.com/rns/0664D_1-2015-10-22.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 & 9M 2015 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on October 22, 2015 at 13.00 (BST London)/ 15.00 (Moscow).

International Dial in: +44 (0) 203 1394 830

Russian Toll-Free Dial in: 810 800 2136 5011

UK Toll-Free Dial in: +44 (0) 808 2370 030

Pin code: 48814013#

The call will be recorded and there will be a replay facility available for 30 days as follows:

International: +44 (0) 203 426 2807UK Toll Free: +44 (0) 808 237 0026

Reference: 662756#

Full financial statements are available at http://www.severstal.com/eng/ir/results_and_reports/financial_results/index.phtml

***

PАО Severstal is one of the world's leading vertically integrated steel and steel related mining companies, with assets in Russia, 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 $8,296 million and EBITDA* of $2,211 million in 2014. Severstal's crude steel production in 2014 reached 11.3 million tonnes. www.severstal.com

* The amounts for 2014 reflect adjustments made in connection with the change in the methodology for calculating the unrealised gain in inventory, increasing EBITDA by $8 million.