Severstal reports Q4 & FY2019 financial results (965061)

 
 PAO Severstal (SVST) 
Severstal reports Q4 & FY2019 financial results 
 
31-Jan-2020 / 10:01 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 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 QUARTERED 31 DECEMBER 2019 
 
$ million, Q4 2019 Q3 2019 Change, %  FY 2019 FY 2018 Change, % 
  unless 
otherwise 
  stated 
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      32.8%   37.3%  (4.5 ppts)  34.4%   36.6%  (2.2 ppts) 
margin, % 
Profit       477     670    (28.8%)    2,327   2,707   (14.0%) 
from 
operations 
Operating   26.0%   31.7%  (5.7 ppts)  28.5%   31.6%  (3.1 ppts) 
margin, % 
Free cash    101     346    (70.8%)    1,099   1,601   (31.4%) 
flow2 
Net profit   374     490    (23.7%)    1,767   2,051   (13.8%) 
Basic       0.45    0.59    (23.7%)    2.14    2.51    (14.7%) 
EPS3, $ 
 
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 annual financial statements. 
 
2) 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. 
 
3) 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, Q4 2019 Q3 2019 Change, %  FY 2019 FY 2018 Change, % 
unless 
otherwise 
stated 
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      16.8%   20.6%  (3.8 ppts)  19.0%   27.8%  (8.8 ppts) 
margin, % 
 
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 
 
$        Q4    Q3   Change FY 2019   FY 2018    Change, % 
million 2019  2019   , % 
, 
unless 
otherwi 
se 
stated 
Revenue  402   609    (34.0%)    2,169      1,908      13.7% 
EBITDA   155   382    (59.4%)    1,248      1,016      22.8% 
EBITDA  38.6% 62.7%    (24.1     57.5%      53.2%     4.3 ppts 
margin,                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. ?ash 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 
 
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 2019 will be 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 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: 2857830 
International Dial: 
 
[phone] 
 
Russian Dial: 
[phone] (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: 
 
[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 $8,157 million and EBITDA of $2,805 
    million in 2019. Severstal's crude steel production in 2019 reached 11.8 
            million tonnes. www.severstal.com [3] 
 
ISIN:          US8181503025 
Category Code: FR 
TIDM:          SVST 
LEI Code:      213800OKDPTV6K4ONO53 
Sequence No.:  43854 
EQS News ID:   965061 
 
End of Announcement EQS News Service 
 
 
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January 31, 2020 02:01 ET (07:01 GMT)