SVST.L Regulatory News (SVST)

 

Severstal reports Q4 & FY2019 financial results

- Demonstrating strong profitability in challenging macro conditions-

 

Moscow, Russia - 31 January 2020 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, today announces its Q4 & FY2019 financial results for the period ended 31 December 2019.

 

CONSOLIDATED FINANCIAL RESULTS FOR THE FOURTH QUARTER ENDED 31 DECEMBER 2019

 

$ million, unless otherwise stated	Q4 2019	Q3 2019	Change, %	FY 2019	FY 2018	Change, %
Revenue	1,838	2,111	(12.9%)	8,157	8,580	(4.9%)
EBITDA1	602	787	(23.5%)	2,805	3,142	(10.7%)
EBITDA margin, %	32.8%	37.3%	(4.5 ppts)	34.4%	36.6%	(2.2 ppts)
Profit from operations	477	670	(28.8%)	2,327	2,707	(14.0%)
Operating margin, %	26.0%	31.7%	(5.7 ppts)	28.5%	31.6%	(3.1 ppts)
Free cash flow2	101	346	(70.8%)	1,099	1,601	(31.4%)
Net profit	374	490	(23.7%)	1,767	2,051	(13.8%)
Basic EPS3, $	0.45	0.59	(23.7%)	2.14	2.51	(14.7%)

 

 

Notes:

 

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 financial statements.

 

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, interest received and dividends received. A reconciliation of FCF to net cash from operating activities is presented in Severstal's annual financial statements.

 

Basic EPS is calculated as profit for the period divided by the weighted average number of shares outstanding during the period: 825.4 million shares for Q4 2019, 825.4 million shares for Q3 2019, 824.6 million shares for 2019, 817.1 million shares for 2018.

 

Q4 2019 vs. Q3 2019 ANALYSIS:

 

Group revenue declined by 12.9% q/q to $1,838 million (Q3 2019: $2,111 million) due to lower steel sales volumes and adverse pricing dynamics for steel and raw materials.

 

Group EBITDA declined by 23.5% q/q to $602 million (Q3 2019: $787 million), reflecting topline decline partially offset by a reduction in cost of sales. The Group's vertically integrated business model delivered an EBITDA margin of 32.8%, maintaining its position as one of the highest in the industry globally.

 

FCF totalled $101 million (Q3 2019: $346 million), primarily reflecting lower earnings and higher CAPEX, offset by positive changes in net working capital q/q.

 

Profit for the period totalled $374 million (Q3 2019: $490 million) and includes a FX gain of $74 million.

 

Cash CAPEX amounted to $431 million (Q3 2019: $311 million).

 

Net debt increased to $1,570 million at the end of Q4 2019 (Q3 2019: $1,300 million), primarily reflecting a reduction in cash balances as a result of the dividend payment.

 

Severstal is committed to returning 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 0.6 as at the end of Q4 2019. The Board of Directors has therefore recommended a dividend of 26.26 roubles per share for Q4 2019.

 

FY2019 vs. FY2018 ANALYSIS:

 

Group revenue declined by 4.9% y/y to $8,157 million (FY2018: $8,580 million). This drop in revenue y/y was a result of weaker pricing for steel products.

 

Group EBITDA was 10.7% lower y/y at $2,805 million (FY2018: $3,142 million), primarily reflecting lower revenues offset by a reduction in cost of sales. The Group's EBITDA margin remained high at 34.4% (FY2018: 36.6%).

 

The Company generated $1,099 million of FCF, which represents a decline of 31.4% y/y (FY2018: $1,601 million), mainly reflecting a decline in EBITDA and CAPEX growth y/y.

 

FINANCIAL POSITION HIGHLIGHTS:

 

At the end of Q4 2019, cash and cash equivalents stood at $1,081 million (Q3 2019: $1,317 million), reflecting dividend payout partially offset by FCF generation.

 

Gross debt remained almost flat at $2,651 million (Q3 2019: $2,617 million).

 

Net debt increased to $1,570 million by the end of Q4 2019 (Q3 2019: $1,300 million), primarily reflecting a reduction in cash balances. The Net debt/EBITDA ratio amounted to 0.6 at the end of Q4 2019 (Q3 2019: 0.4). Severstal's Net debt/EBITDA remains one of the lowest amongst steel companies globally and enables  the Company to maintain a comfortable level of debt, whilst continuing to return value to its shareholders.

 

The Group's liquidity position remains strong, with $1,081 million in cash and cash equivalents in addition to unused committed credit lines and overdraft facilities of $1,250 million, more than covering the short-term principal debt of $282 million.

 

Alexander Shevelev, CEO of Severstal Management, commented:

 

"The fourth quarter of 2019 was challenging for steel producers globally, with both steel demand and prices in decelerating and recovery only starting in December 2019. In this environment, Severstal's vertically integrated business model, combined with the flexibility of our multiple distribution channels, successfully supported our EBITDA margin, which was 33% in Q4 2019. We are proud of our operational results for 2019 with 38% growth in coking coal and 14% growth in iron ore concentrate sales volumes.

 

Our overall safety performance improved in 2019 and our LTIFR decreased by 36% to 0.61 (2018: 0.95), which is 27% below our goal for the year of 0.84. However, we deeply regret that during the year there were two fatalities among our staff and three among our contractors.

 

On the environmental side the amount of atmospheric emission of pollutants per tonne of steel products fell by 7% in the year. In Q4 2019, we set ourselves a target to increase the share of own energy generation using secondary sources to 95% by 2025, which is an example of minimising both costs and our environmental impact.

 

I am pleased that our efforts to transform the company which we started in 2018 in line with our 5-year strategy continue brining fruits. In 2019, we earned additionally $224 million at the EBITDA level and are remaining one of the lowest costs steelmakers globally.

 

Positive momentum continues with our investments in new technologies. Our division Severstal Ventures made three new investments recently which should enable us to offer our customers new materials with unique properties in the future.

 

The Board remains confident in its outlook and is recommending a dividend of 26.26 roubles per share for Q4 2019."

 

 

SEVERSTAL RUSSIAN STEEL (RSD)

 

$ million, unless otherwise stated	Q4 2019	Q3 2019	Change, %	FY 2019	FY 2018	Change, %
Revenue	1,806	2,102	(14.1%)	8,025	7,803	2.8%
EBITDA	303	433	(30.0%)	1,528	2,167	(29.5%)
EBITDA margin, %	16.8%	20.6%	(3.8 ppts)	19.0%	27.8%	(8.8 ppts)

 

 

RSD steel product sales declined by 6% q/q to 2.66 mln tonnes in Q4 2019 (Q3 2019: 2.85 mln tonnes).

 

The Company increased its share of steel export shipments to 41% (Q3 2019: 33%) as a result of seasonal slowdown in domestic demand.

 

The share of high value-added (HVA) products within the sales portfolio remained flat at 45% (Q3 2019: 45%).

 

LDP sales volumes declined by 20% q/q, reflecting changes in the product mix, while at the same time sales volumes of thick plate increased 4% q/q. The Izhora Pipe Mill maintained its 100% utilisation rate in Q4 2019.

 

The weighted average selling price for the whole range of rolled steel products declined in Q4 2019 in line with global benchmarks and due to seasonal slowdown in local demand. RSD topline declined by 14.1% q/q to $1,806 million (Q3 2019: $2,102 million). EBITDA declined by 30% q/q to $303 million (Q3 2019: $433 million). The EBITDA margin was 16.8% (Q3 2019: 20.6%).

 

The total non-integrated cash cost of slab production per ton at the Cherepovets Steel Mill in Q4 2019 declined by $40/t q/q to  $306/t (Q3 2019: $346/t) as a result of lower raw material expenses q/q. The integrated cash cost of slab in Q4 2019 totalled $227/t due to lower profitability of the Resources division.

 

SEVERSTAL RESOURCES

 

$ million, unless otherwise stated	Q4 2019	Q3 2019	Change, %	FY 2019		FY 2018		Change, %
Revenue	402	609	(34.0%)		2,169		1,908		13.7%
EBITDA	155	382	(59.4%)		1,248		1,016		22.8%
EBITDA margin, %	38.6%	62.7%	(24.1 ppts)		57.5%		53.2%		4.3 ppts

 

 

Coking coal concentrate sales volumes from Vorkutaugol declined by 1% q/q reflecting a decrease in run-of-mine production q/q.

 

Iron ore pellet sales grew by 14% to 2.81 mln tonnes (Q3 2019: 2.46 mln tonnes) reflecting higher production of pellets at Karelsky Okatysh.

 

Iron ore concentrate sales volumes declined by 17% to 1.60 mln tonnes (Q3 2019: 1.93 mln tonnes) driven by a decline in iron ore concentrate volumes at Karelsky Okatysh.

 

Revenue at the Resources Division decreased by 34.0% q/q to $402 million (Q3 2019: $609 million), mainly affected by weaker pricing dynamics for iron ore and coal products. EBITDA fell by 59.4% q/q to $155 million (Q3 2019: $382 million) due to the revenue decline q/q. The EBITDA margin amounted to 38.6%.

 

At Vorkutaugol, cash costs of coal concentrate per ton fell to 60$/t (Q3 2019: $66/t) reflecting positive changes in finished good and work-in-progress cost structure. Сash costs of iron ore pellets per tonne at Karelsky Okatysh increased to $27/t (Q3 2019: $24/t) as a result of higher repair expenses. At Olcon, cash costs of iron ore concentrate per tonne at Olcon increased to $29/t (Q3 2019: $26/t) due to seasonal factors.

 

DIVIDEND

 

The Board of Directors has recommended a dividend of 26.26 roubles per share for Q4 2019. Approval of the dividend is expected to take place at the Company's AGM on 5 June 2020. The record date for participation in the AGM is 11 May 2020. The recommended record date for the dividend payment is 16 June 2020. Approval of the record date for the dividend payment is also expected to take place at the Company's AGM on 5 June 2020.

 

OUTLOOK

 

The Phase 1 agreement between China and the USA and progress with the Brexit deal in Europe have reduced global economy risks and boosted market optimism which should support steel demand in the long term. After the sharp drop in Q4 2019 global steel prices seem to be turning the corner in Q1 2020 thanks to restocking and production cuts.

 

In Russia, the construction sector will again remain a key steel demand driver in 2020, supported by the expected implementation of the National projects. Good pricing in the Russian market is attributable to the appreciation of the rouble and limited steel supply due to current reconstruction works at some mills.

 

Despite a number of potential headwinds on both the export and domestic markets, Severstal's low cost position allows us to remain competitive in the market. The Board remains confident in the resilience of the Company's business model relative to its local and global peers.

NOTES

 

Full financial statements are available at http://www.severstal.com/eng/ir/results_and_reports/financial_results/index.phtml The Annual Report 2019 will be available at http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.phtml

 

 

For further information, please contact:

 

Severstal Investor Relations

Evgeny Belov

T: +7 (495) 926-77-66

evgenii.belov@severstal.com

 

Vladimir Zaluzhsky

T: +7 (495) 926-77-66

vladimir.zaluzhsky@severstal.com

 

 

Severstal Public Relations

Anastasia Mishanina

T: +7 (495) 926-77-66

anastasia.mishanina@severstal.com

 

Vladimir Zaluzhsky

T: +7 (495) 926-77-66

vladimir.zaluzhsky@severstal.com

 

 

Severstal's financial communications agent - Hudson Sandler

Andrew Leach / Emily Dillon

T: +44 (0) 20 7796 4133

 

 

 

A conference call on Q4 2019 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on 31 January 2020 at 09.30 (London)/ 12.30 (Moscow). 

 

Conference ID: 2857830International Dial:

+44 (0) 330 336 9411

Russian Dial: +7 495 646 9190 (Local access) 8 10 8002 8675011 (Toll free)

 

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

 

Replay Passcode: 2857830 

International Dial:

+44 (0) 207 660 0134 (Local access) 

Russian Dial:810 800 2702 1012 (Toll free)

 

 

 

 

 

 

 

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PАО Severstal is one of the world's leading vertically integrated steel and steel related mining companies, with assets in Russia, Latvia and Poland. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $8,157 million and EBITDA of $2,805 million in 2019. Severstal's crude steel production in 2019 reached 11.8 million tonnes. www.severstal.com