Severstal reports Q2 & H1 2019 financial results (843763)

 
 PAO Severstal (SVST) 
Severstal reports Q2 & H1 2019 financial results 
 
19-Jul-2019 / 09:01 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 Q2 & H1 2019 financial results 
 
      - Maintaining high profitability - 
 
 Moscow, Russia - 19 July 2019 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), 
  one of the world's leading steel and steel-related mining companies, today 
   announces its Q2 & H1 2019 financial results for the period ended 30 June 
            2019. 
 
CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTERED 30 JUNE 2019 
 
$ million,  Q2 2019 Q1 2019 Change, % H1 2019 H1 2018 Change, % 
unless 
otherwise 
stated 
Revenue      2,177   2,031    7.2%     4,208   4,432    (5.1%) 
EBITDA1       753     663     13.6%    1,416   1,580   (10.4%) 
EBITDA       34.6%   32.6%  2.0 ppts   33.7%   35.6%  (1.9 ppts) 
margin, % 
Profit from   625     555     12.6%    1,180   1,351   (12.7%) 
operations 
Operating    28.7%   27.3%  1.4 ppts   28.0%   30.5%  (2.5 ppts) 
margin, % 
Free cash     263     389    (32.4%)    652     887    (26.5%) 
flow2 
Net profit3   475     428     11.0%     903    1,018   (11.3%) 
Basic EPS4,  0.58    0.52     11.5%    1.10    1.25    (12.0%) 
$ 
 
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). A 
reconciliation of EBITDA to profit from operations is presented in 
Severstal's quarterly financial statements. 
 
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. A reconciliation of free 
cash flow to net cash from operating activities is presented in 
Severstal's quarterly financial statements. 
 
3) Net profit after FX fluctuations and other non-cash items. 
 
4) Basic EPS is calculated as net profit divided by the weighted average 
number of shares outstanding during the period: 825.0 million shares for 
Q2 2019, 822.5 million shares for Q1 2019, 823.7 million shares for H1 
2019, 814.3 million shares for H1 2018. 
 
Q2 2019 vs. Q1 2019 ANALYSIS: 
 
? Group revenue increased 7.2% q/q to $2,177 million (Q1 2019: $2,031 
million), mainly driven by the favourable pricing environment for steel 
and raw materials. 
 
? Group EBITDA increased 13.6% to $753 million (Q1 2019: $663 million), 
reflecting topline growth. The Group's vertically integrated business 
model delivered an EBITDA margin of 34.6%, remaining one of the highest in 
the industry globally. 
 
? Free cash flow totalled $263 million (Q1 2019: $389 million), which 
primarily reflects CAPEX growth and changes in net working capital q/q 
despite earnings growth. 
 
? Net profit totalled $475 million (Q1 2019: $428 million) and includes a 
FX gain of $30 million. 
 
? Cash CAPEX was $267 million (Q1 2019: $209 million). 
 
? Net debt increased to $1,469 million at the end of Q2 2019 (Q1 2019: 
$863 million), primarily reflecting growth in total debt and lower cash 
balances. 
 
? 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 0.5 as 
at the end of Q2 2019. The Board of Directors has therefore recommended a 
dividend of 26.72 roubles per share for Q2 2019. 
 
H1 2019 vs. H1 2018 ANALYSIS: 
 
? Group revenue declined 5.1% y/y to $4,208 million (H1 2018: $4,432 
million). This drop in revenue y/y was a result of weaker pricing for 
steel products and lower sales volumes y/y. 
 
? Group EBITDA was 10.4% lower y/y, at $1,416 million (H1 2018: $1,580 
million), primarily reflecting the lower revenues. The Group's EBITDA 
margin therefore remained at high levels of 33.7% (H1 2018: 35.6%). 
 
? The Company generated $652 million of free cash flow, which represents a 
decline of 26.5% y/y (H1 2018: $887 million) mainly reflecting EBITDA 
decline and CAPEX growth y/y. 
 
FINANCIAL POSITION HIGHLIGHTS: 
 
? At the end of Q2 2019, cash and cash equivalents stood at $345 million 
(Q1 2019: $583 million), reflecting dividend payout for the period offset 
by placement of two rouble-denominated bonds and FCF generation for the 
period. 
 
? Gross debt increased to $1,814 million (Q1 2019: $1,446 million). In 
April 2019, Severstal completed the placement of two exchange traded 
rouble-denominated bonds due in 2029, with put options in 2024 and 2026. 
 
? Net debt increased to $1,469 million by the end of Q2 2019 (Q1 2019: 
$863 million), primarily reflecting growth of total debt and decreased 
cash balances. The Net debt/EBITDA ratio reached 0.5 at the end of Q2 2019 
(Q1 2019: 0.3). Severstal's Net debt/EBITDA remains one of the lowest 
amongst steel companies globally and enables Severstal to maintain a 
comfortable level of debt whilst returning value to its shareholders. 
 
? The Group's liquidity position remains strong, with $345 million in cash 
and cash equivalents and unused committed credit lines and overdraft 
facilities of $1,201 million, more than covering the short-term principal 
debt of $259 million. 
 
            Alexander Shevelev, CEO of Severstal Management, commented: 
 
 I am pleased to highlight that in Q2 2019 Severstal delivered a sustainable 
       financial performance reflecting strong raw material and steel market 
            conditions and the effect of our ongoing efficiency programmes. 
 
   Amid rising iron ore prices and hence declining margins of not-integrated 
           steelmakers across the globe, we have once again demonstrated the 
 competitive advantages of our business model with captive raw materials. In 
    Q2 2019, we increased Group EBITDA by almost 14% to $753 million and our 
    EBITDA margin rose to 34.6%, which is one of the highest in the industry 
            globally. 
 
     At our Capital Markets Day in November 2018 we committed to growing our 
        EBITDA by 10-15% annually after taking account of macro factors, and 
    presented our planned investment projects for the coming five years that 
   should support this growth. In H1 2019, our sales & marketing initiatives 
            enabled us to deliver an additional $85 mln of EBITDA. 
 
I would like to draw your attention to some of our strategic and operational 
            highlights for Q2 2019: 
 
? We signed a definitive agreement for the sale of the Steel Mini-Mill in 
Balakovo. The consideration for this transaction will amount to $215 
million. Following the sale of Mini-Mill Balakovo, we plan to focus on 
developing steel production at our main asset, the Cherepovets Steel Mill. 
We are confident that this will enable us to streamline our internal 
processes to successfully execute our updated strategic priorities. 
 
? In 2019, we plan to continue improving our ESG disclosure as well as to 
continue with projects to make our operations more environmentally 
friendly. In Q2 2019, we published an ESG investor presentation, and also 
disclosed information on our tailings management and the risk management 
system of our iron ore segment. 
 
The Board remains confident in the outlook and is recommending a dividend of 
   26.72 roubles per share for Q2 2019, bringing the dividend payout to more 
            than 100% of quarterly free cash flow. 
 
            SEVERSTAL RUSSIAN STEEL (RSD) 
 
$ million, Q2 2019 Q1 2019 Change, %  H1 2019 H1 2018 Change, % 
unless 
otherwise 
stated 
Revenue     2,151   1,966     9.4%     4,117   4,061     1.4% 
EBITDA       397     395      0.5%      792    1,165   (32.0%) 
EBITDA      18.5%   20.1%  (1.6 ppts)  19.2%   28.7%  (9.5 ppts) 
margin, % 
 
  Russian Steel Division (RSD) steel product sales remained almost unchanged 
    from the previous quarter at 2.8 mln tonnes in Q2 2019 compared with the 
            previous quarter (Q1 2019: 2.84 mln tonnes). 
 
 The share of domestic sales rose to 70% due to the increased attractiveness 
            of domestic sales (Q1 2019: 65%). 
 
     The share of high value-added (HVA) products within the sales portfolio 
   increased two ppts to 46% (Q1 2019: 44%), driven by a decline in sales of 
     semi-finished, hot rolled coil products and higher sales of galvanised, 
            colour-coated and LDPs. 
 
LDP sales volumes grew 9% q/q, which reflects the realisation of accumulated 
   stock of large diameter pipes for the Poland-Slovakia Gas Interconnection 
 project (Eustream), which were produced in 2018 and shipped in the previous 
            quarter. 
 
   Average selling prices for the majority of steel products increased in Q2 
2019 in line with benchmarks. Higher price dynamics led to topline growth of 
   9.4% q/q for RSD, at $2,151 million (Q1 2019: $1,966 million). Higher raw 
material costs resulted in almost unchanged EBITDA of $397 million (Q1 2019: 
        $395 million). The EBITDA margin squeezed to 18.5% (Q1 2019: 20.1%). 
 
    The total non-integrated cash cost of slab production at the Cherepovets 
 Steel Mill in Q2 2019 increased $24/t and totalled $355/t (Q1 2019: $331/t) 
as a result of higher raw material expenses and stronger RUB. The integrated 
cash cost of slabs in Q2 2019 declined $23/t to $197/t (Q1 2019 $220/t) as a 
            result of increased profitability at the Resources Division. 
 
SEVERSTAL RESOURCES 
 
$ million,   Q2 2019 Q1 2019 Change, % H1 2019 H1 2018 Change, % 
unless 
otherwise 
stated 
Revenue        647     511     26.6%    1,158    877     32.0% 
EBITDA         416     295     41.0%     711     420     69.3% 
EBITDA        64.3%   57.7%  6.6 ppts   61.4%   47.9%  13.5 ppts 
margin, % 
 
   Coking coal concentrate sales volumes from Vorkutaugol declined 7% due to 

 planned short-term modernisation works at the coal beneficiation facilities 
in Q2 2019. Meanwhile run-of-mine (ROM) coal production at Vorkutaugol in Q2 
            2019 increased 13% q/q. 
 
    Iron ore pellet sales increased 2% to 2.90 mln tonnes (Q1 2019: 2.83 mln 
        tonnes) due to seasonal factors despite a q/q decline in production. 
 
     Iron ore concentrate sales volumes increased 10% to 1.43 mln tonnes (Q1 
            2019: 1.30 mln tonnes) following seasonal output growth. 
 
Revenue at the Resources Division surged 26.6% q/q to $647 million (Q1 2019: 
   $511 million) mainly driven by better prices and sales volume dynamics at 
  the division's iron ore segment (Karelsky Okatysh, Olcon, the Yakovlevskiy 
  mine). EBITDA was up 41.0% q/q to $416 million (Q1 2019: $295 million) due 
to the revenue growth q/q. The EBITDA margin rose to 64.3%, supported by the 
 favourable pricing environment for raw materials and efficiency initiatives 
            undertaken at the Resources Division. 
 
   Lower sales volumes, higher salary and repair expenses q/q at Vorkutaugol 
     brought Q2 2019 cash costs up to 87$/t (Q1 2019: $70/t). ?ash costs per 
  tonne at Karelsky Okatysh declined to $23/t (Q1 2019: $26/t) following q/q 
   sales volumes growth q/q. Cash costs per tonne at Olcon declined to $28/t 
            (Q1 2019: $30/t) reflecting higher sales volumes q/q. 
 
            DIVIDEND 
 
The Board of Directors has therefore recommended a dividend of 26.72 roubles 
per share for Q2 2019. Approval of the dividend is expected to take place at 
    the Company's EGM, which will take place on 6 September 2019. The record 
 date for participation in the EGM is 12 August 2019. The recommended record 
     date for the dividend payment is 17 September 2019. The approval of the 
  record date for the dividend payment is also expected at the Company's EGM 
            which will take place on 6 September 2019. 
 
            OUTLOOK 
 
  Following supply disruptions in Brazil and Australia in H1 2019 and due to 
   growing steel output in China, iron ore prices continue to stay at record 
   levels with various scenarios of their further direction. Though ex-China 
steel demand is stagnating due to weakness of the auto and machinery sectors 
      in Europe and economic slowdown in Turkey, the current cost of the raw 
 materials basket is giving a certain level support to steel prices limiting 
  their downside potential. In Russia, steel demand showed an impressive 10% 
            y/y growth in H1 2019 driven by restocking activity in the local 
 construction sector. Hence, we can expect some deceleration of steel demand 
    in the second half of the year. However, Severstal's proximity to export 
          routes continues to be a major competitive advantage giving us the 
       flexibility to quickly redistribute shipments between best performing 
            markets. 
 
 Despite a number of potential headwinds on both export and domestic markets 
            the Board remains confident in the resilience of Severstal's 
   vertically-integrated business model relative its local and global peers. 
 
NOTES 
 
1) Full financial statements are available at 
http://www.severstal.com/eng/ir/results_and_reports/financial_results/inde 
x.phtml [1] 
 
2) The Annual Report 2018 is available at 
http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.p 
html [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 Leach / Emily Dillon 
 
            T: [phone] 
 
A conference call on Q2 2019 results for investors and analysts hosted by 
Alexey Kulichenko, Chief Financial Officer, will be held on 19 July 2019 at 
10.30 (London)/ 12.30 (Moscow). 
 
Conference ID: 7829368 
International Dial: 
 
[phone] 
 
Russian Dial: 
[phone] (Local access) 
8 800 500 9283 (Toll free) 
 
The call will be recorded and there will be a replay facility available for 
7 days as follows: 
 
Replay Passcode: 7829368 
 
International Dial: 
 
[phone] (Local access) 
 
Russian Dial: 
810 800 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 $8,580 million and EBITDA of $3,142 
    million in 2018. Severstal's crude steel production in 2018 reached 12.0 
            million tonnes. www.severstal.com [3] 
 
ISIN:          US8181503025 
Category Code: IR 
TIDM:          SVST 
LEI Code:      213800OKDPTV6K4ONO53 
Sequence No.:  13997 
EQS News ID:   843763 
 
End of Announcement EQS News Service 
 
 
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3: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=5885d49ed5e8dc686b77ca6aa78e352b&application_id=843763&site_id=vwd&application_name=news 
 

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July 19, 2019 02:01 ET (06:01 GMT)