Severstal reports Q3 & 9M 2018 financial results (735377)

Dow Jones received a payment from EQS/DGAP to publish this press release.

 
 
 PAO Severstal (SVST) 
Severstal reports Q3 & 9M 2018 financial results 
 
19-Oct-2018 / 09:00 MSK 
Dissemination of a Regulatory Announcement that contains inside information 
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. 
The issuer is solely responsible for the content of this announcement. 
 
      Severstal reports Q3 & 9M 2018 financial results 
 
     Moscow, Russia - 19 October 2018 - PAO Severstal (MICEX-RTS: CHMF; LSE: 
 SVST), one of the world's leading steel and steel-related mining companies, 
  today announces its Q3 & 9M 2018 financial results for the period ended 30 
            September 2018. 
 
CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTERED 30 SEPTEMBER 2018 
 
$ million,  Q3 2018 Q2 2018 Change, %  9M 2018 9M 2017 Change, % 
unless 
otherwise 
stated 
Revenue      2,063   2,259    (8.7%)    6,495   5,670    14.6% 
EBITDA1       768     874    (12.1%)    2,348   1,823    28.8% 
EBITDA       37.2%   38.7%  (1.5 ppts)  36.2%   32.2%  4.0 ppts 
margin, % 
Profit from   671     766    (12.4%)    2,022   1,506    34.3% 
operations 
Operating    32.5%   33.9%  (1.4 ppts)  31.1%   26.6%  4.5 ppts 
margin, % 
Free cash     481     598    (19.6%)    1,368    959     42.6% 
flow2 
Net profit3   455     557    (18.3%)    1,473    792     86.0% 
Basic EPS4,  0.56    0.68    (17.6%)    1.81    0.98     84.7% 
$ 
 
Notes: 
 
1) 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). 
 
2) Free Cash Flow 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. 
 
3) Net profit after FX fluctuations and other non-cash items. 
 
4) Basic EPS is calculated on the following basis: net profit divided by the 
      weighted average number of shares outstanding during the period: 818.6 
 million shares for Q3 2018, 814.4 million shares for Q2 2018, 815.7 million 
            shares for 9M 2018 and 810.9 million shares for 9M 2017. 
 
Q3 2018 vs. Q2 2018 ANALYSIS: 
 
? Group revenue declined 8.7% q/q to $2,063 million (Q2 2018: $2,259 
million) due to reduced sales volumes of steel products and iron ore 
pellets, which reflects the high-base effect of Q2, as well as declining 
steel prices q/q. 
 
? Group EBITDA declined 12.1% q/q, to $768 million (Q2 2018: $874 million) 
reflecting topline decline which was partially offset by lower cost of 
sales. Group EBITDA margin remained strong at 37.2%, and close to the 
record level set in the previous quarter (Q2 2018: 38.7%). Severstal's 
EBITDA margin remains one of the highest in the industry globally. 
 
? Free cash flow totalled $481 million (Q2 2018: $598 million), which 
reflects earnings decline compensated by a release of net working capital 
due to input VAT and a decline in accounts receivable. The effective 
conversion of EBITDA to free cash flow remains one of the Company's key 
strategic financial priorities. 
 
? Net profit of $455 million (Q2 2018: $557 million) includes a FX loss of 
$41 million. Adjusting for this non-cash item, Severstal would have posted 
an underlying net profit of $496 million (Q2 2018: net profit of $613 
million). 
 
? Cash CAPEX remained almost flat q/q at $168 million (Q2 2018: $160 
million). The Group's capital expenditure programme for 2018 is expected 
to be 49.5 billion RUB and will focus on upstream investments. 
 
? Net debt grew to $438 million by the end of Q3 2018 (Q2 2018: $153 
million), primarily reflecting lower cash balances after the dividend 
payout in Q3. The Company's public debt includes outstanding loan 
participation notes due in 2021 and 2022, and convertible bonds due in 
2021 and 2022. 
 
? Severstal is committed to returning value to its shareholders whilst 
managing and maintaining a low level of debt. Severstal's financial 
position remains strong with its Net debt/EBITDA ratio at 0.1x as at the 
end of Q3 2018. As a result, the Board of Directors is recommending a 
dividend of 44.39 roubles per share for Q3 2018. 
 
9M 2018 vs. 9M 2017 ANALYSIS: 
 
? Group revenue increased 14.6% y/y to $6,495 million (9M 2017: $5,670 
million). The significant growth in revenue y/y was supported by a 
favourable steel and commodities pricing environment in 2018 and 4% growth 
in steel sales volumes y/y. 
 
? Group EBITDA grew 28.8% y/y to $2,348 million (9M 2017: $1,823 million) 
driven by topline growth, which was partly offset by an increase in the 
cost of goods sold. 
 
? The Company generated $1,368 million of free cash flow, which represents 
a significant increase of 42.6% y/y (9M 2017: $959 million) as a result of 
earnings growth y/y. 
 
? The Group maintained its prudent approach to CAPEX with investments 
equal to $464 million in 9M 2018, an increase of 10.2% y/y (9M 2017: $421 
million). 
 
FINANCIAL POSITION HIGHLIGHTS: 
 
? At the end of Q3 2018, cash and cash equivalents stood at $1,054 million 
(Q2 2018: $1,376 million), reflecting the dividend payment in Q3 offset by 
FCF generation for the period. 
 
? Gross debt remained broadly unchanged at $1,492 million (Q2 2018: $1,529 
million). 
 
? Net debt grew to $438 million by the end of Q3 2018 (Q2 2018: $153 
million), primarily reflecting a fall in cash balances following the 
dividend payout in Q3. The Net Debt/EBITDA ratio remained flat at 0.1x at 
the end of Q3 2018 (Q2 2018: 0.1x). Severstal's Net Debt/EBITDA remains 
one of the lowest amongst steel companies globally and enables Severstal 
to maintain a low level of debt whilst returning value to its 
shareholders. 
 
? The liquidity position remains strong, with $1,054 million in cash and 
cash equivalents and unused committed credit lines of $1,030 million, more 
than covering the short-term principal debt of $143 million. 
 
Alexander Shevelev, CEO of Severstal Management, commented: 
 
     "Severstal has delivered another solid performance in the third quarter 
including an almost 30% increase in EBITDA year on year. Despite the decline 
in our steel sales in Q3 2018, due to the planned rolling mills maintenance, 
   FCF generation remained strong with a sizeable release of working capital 
            and output progress of our coking coal business. 
 
Though domestic steel demand is moderating, looking into Q4 2018 we are 
expecting global steel demand to remain at good levels on the back of 
strength of the world's economy and continued capacity cuts in China. Hence 
we are anticipating a solid Q4 2018. This gives confidence to the Board of 
Directors to recommend a dividend of 44.39 roubles per share for Q3 2018 
bringing the dividend payout to more than 100% of the quarterly FCF. 
 
Further development of our ESG system remains a priority for us. I am happy 
to say that since the start of the year we have disclosed our long-term 
goals in safety and environmental impact, CO2 emissions, as well as started 
disclosing key data on our HSE performance as part of our operational 
reporting on a half-yearly basis. We intend to raise our ESG transparency 
levels further". 
 
            SEVERSTAL RUSSIAN STEEL (RSD) 
 
$ million,  Q3 2018 Q2 2018 Change, %  9M 2018 9M 2017 Change, % 
unless 
otherwise 
stated 
Revenue      1,897   2,036    (6.8%)    5,958   5,226    14.0% 
EBITDA        553     630    (12.2%)    1,718   1,228    39.9% 
EBITDA       29.2%   30.9%  (1.7 ppts)  28.8%   23.5%  5.3 ppts 
margin, % 
 
       RSD steel product sales declined to 2.72 mln tonnes compared with the 
   previous quarter (Q2 2018: 2.86 mln tonnes) due to short-term maintenance 
            works at rolling-mill facilities. 
 
        Domestic sales remained high at 65% (Q2 2018: 64%).The share of high 
 value-added (HVA) products within the sales portfolio increased two ppts to 
48% (Q2 2018: 46%) as the Company increased colour-coated and large diameter 
            pipe product sales. At the same time Severstal reduced sales of 
            semi-finished and hot-rolled coil (HRC). 
 
    Average selling prices for the majority of steel products declined in Q3 
     2018 in line with global benchmarks. The decline in LDP average selling 
         price in 9M 2018 was offset by higher sales volumes of thick plate. 
 
     Declining sales volumes and steel prices resulted in a 6.8% decrease in 
    revenue q/q to $1,897 million (Q2 2018: $2,036 million). EBITDA declined 
 12.2% q/q to $553 million (Q2 2018: $630 million) due to a drop in revenue, 
        which was partially offset by lower cost of sales. The EBITDA margin 
            remained almost unchanged at 29.2% (Q2 2018: 30.9%). 
 
    The total non-integrated cash cost of slab production at the Cherepovets 
 Steel Mill in Q3 2018 remained almost unchanged at $325/t (Q2 2018: $322/t) 
    as a result of higher raw material and repair expenses offset by Russian 
      currency depreciation q/q. The integrated cash cost of slab in Q3 2018 
decreased $3/t to $230/t (Q2 2018: $233/t) as a result of Resources division 
            EBITDA growth. 
 
SEVERSTAL RESOURCES 
 
$ million,   Q3 2018 Q2 2018 Change, % 9M 2018 9M 2017 Change, % 
unless 
otherwise 
stated 
Revenue        468     475    (1.5%)    1,345   1,253    7.3% 
EBITDA         253     232     9.1%      673     607     10.9% 
EBITDA        54.1%   48.8%  5.3 ppts   50.0%   48.4%  1.6 ppts 
margin, % 
 
    Coking coal concentrate sales volumes from Vorkutaugol grew 27%, largely 
    driven by higher production volumes of "2ZH", "GZHO" and "Concentrate K" 
          following the repositioning of long-walls at the Komsomolskaya and 
            Vorkutinskaya mines in Q2. 
 
Iron ore pellet sales declined by 18% and totalled 2.55 mln tonnes (Q2 2018: 
      3.12 mln tonnes) after the realisation of a share of finished goods in 

            transit in Q2, carried over from the previous quarter. 
 
  Iron ore concentrate sales increased to 1.42 mln tonnes (Q2 2018: 1.36 mln 
    tonnes) driven by production growth at the Olcon and Yakovlevskiy mines. 
 
 Whilst revenue of the Resources division declined 1.5% q/q, to $468 million 
 (Q2 2018: $475 million) reflecting the q/q high base effect in pellet sales 
 volumes partially offset by higher selling prices, EBITDA increased 9.1% to 
    $253 million (Q2 2018: $232 million) due to a decrease in cost of sales. 
            EBITDA margin reached a record level of 54.1%. 
 
       Given the fixed cost nature of the mining business, higher processing 
    volumes and Russian currency depreciation at Vorkutaugol brought Q3 2018 
  cash costs down to 64$/t (Q2 2018: $85/t). ?ash cost per tonne at Karelsky 
 Okatysh increased to $26/t (Q2 2018: $23/t) driven by sales volumes decline 
    partially offset by weaker RUB. Cash cost per tonne at Olcon was flat at 
            $28/t (Q2 2018: $28/t). 
 
            DIVIDEND 
 
 The Board is recommending a dividend payment of 44.39 roubles per share for 
            the three months ended 30 September 2018. 
 
   Approval of the dividend is expected at the Company's EGM which will take 
  place on 23 November 2018. The record date for participation in the EGM is 
            29 October 2018. 
 
The recommended record date for the dividend payment is 4 December 2018. The 
approval of the record date for the dividend payment is also expected at the 
            Company's EGM which will take place on 23 November 2018. 
 
Efficient conversion of high EBITDA margins into free cash flow supports our 
     commitment to be a quarterly dividend payer with up to 100% FCF payout, 
            provided that Net Debt/EBITDA level is below 1.0x. 
 
            OUTLOOK 
 
     In Q3 global steel prices were supported by a strong Chinese market and 
     global GDP growth. China's active environmental policy has had a strong 
      effect, with the introduction of selective production restrictions and 
     certain Chinese steel producers relocating capacity ahead of the winter 
    heating season. Global demand for steel and raw materials is expected to 
            remain at good levels. 
 
     Despite some signs of demand softening on the local demand, Severstal's 
proximity to export routes continues to be our serious competitive advantage 
      allowing to redistribute shipments quickly between domestic and export 
            markets for best price options. 
 
NOTES 
 
1. Full financial statements are available at 
http://www.severstal.com/eng/ir/results_and_reports/financial_results/index. 
phtml [1] 
 
2. The Annual Report 2017 is available at 
http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.pht 
ml [2] 
 
            For further information, please contact: 
 
            Severstal Investor Relations 
 
Evgeny Belov 
 
T: [phone] 
 
[e-mail] 
 
Vladimir Zaluzhsky 
 
T: [phone] 
 
            [e-mail] 
 
            Severstal Public Relations 
 
Anastasia Mishanina 
 
T: [phone] 
 
            [e-mail] 
 
Vladimir Zaluzhsky 
 
T: [phone] 
 
            [e-mail] 
 
            Severstal's financial communications agent - Hudson Sandler 
 
Andrew Hayes / Emily Dillon / Alex Brennan / Dan de Belder 
 
            T: [phone] 
 
A conference call on Q3 2018 results for investors and analysts hosted by 
Alexey Kulichenko, Chief Financial Officer, will be held on 19 October 2018 
at 13.00 (London)/ 15.00 (Moscow). 
 
Conference ID: 7885363 
International Dial: 
 
[phone] 
 
Russian Dial: 
[phone] (Local access) 
810 8002 8675011 (Toll free) 
 
The call will be recorded and there will be a replay facility available for 
7 days as follows: 
 
Replay Passcode: 7885363 
 
International Dial: 
 
[phone] (Local access) 
 
Russian Dial: 
8 10 800 2702 1012 (Toll free) 
 
      *** 
 
 P?? 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 $7,848 million and EBITDA of $2,577 
    million in 2017. Severstal's crude steel production in 2017 reached 11.7 
            million tonnes. www.severstal.com [3] 
 
ISIN:          US8181503025 
Category Code: QRT 
TIDM:          SVST 
LEI Code:      213800OKDPTV6K4ONO53 
Sequence No.:  6259 
EQS News ID:   735377 
 
End of Announcement EQS News Service 
 
 
1: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=07e25fbed2b0d978826737053383c403&application_id=735377&site_id=vwd&application_name=news 
2: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=cc9e6e458392b444513ed83935a36ddf&application_id=735377&site_id=vwd&application_name=news 
3: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=5885d49ed5e8dc686b77ca6aa78e352b&application_id=735377&site_id=vwd&application_name=news 
 

(END) Dow Jones Newswires

October 19, 2018 02:01 ET (06:01 GMT)