Severstal reports Q3 & 9M 2018 financial results

MINEX Forum | October 19, 2018 | Views: 89 | Source: Severstal

Moscow, Russia – 19 October 2018PAO 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 QUARTER ENDED 30 SEPTEMBER 2018

$ million, unless otherwise statedQ3 2018Q2 2018Change, %9M 20189M  2017Change, %
Revenue2,0632,259(8.7%)6,4955,67014.6%
EBITDA1768874(12.1%)2,3481,82328.8%
EBITDA margin, %37.2%38.7%(1.5 ppts)36.2%32.2%4.0 ppts
Profit from operations671766(12.4%)2,0221,50634.3%
Operating margin, %32.5%33.9%(1.4 ppts)31.1%26.6%4.5 ppts
Free cash flow2481598(19.6%)1,36895942.6%
Net  profit3455557(18.3%)1,47379286.0%
Basic EPS4, $0.560.68(17.6%)1.810.9884.7%

 

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).
  • 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.
  • Net profit after FX fluctuations and other non-cash items.
  • 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, unless otherwise statedQ3 2018Q2 2018Change, %9M 20189M 2017Change, %
Revenue1,8972,036(6.8%)5,9585,22614.0%
EBITDA553630(12.2%)1,7181,22839.9%
EBITDA margin, %29.2%30.9%(1.7 ppts)28.8%23.5%5.3 ppts

 

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, unless otherwise statedQ3 2018Q2 2018Change, %9M 20189M 2017Change, %
Revenue468475(1.5%)1,3451,2537.3%
EBITDA2532329.1%67360710.9%
EBITDA margin, %54.1%48.8%5.3 ppts50.0%48.4%1.6 ppts

 

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). Сash 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
  2. The Annual Report 2017 is 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 Hayes / Emily Dillon / Alex Brennan / Dan de Belder

T: +44 (0) 20 7796 4133

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:

+44 (0)330 336 9411

Russian Dial:
+7 495 646 9190 (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:

+44 (0) 207 660 0134 (Local access)

Russian Dial:
8 10 800 2702 1012 (Toll free)

***

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 $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

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