Severstal reports Q1 2020 financial results

 

Severstal reports Q1 2020 financial results

- Navigating through a challenging environment -

 

Moscow, Russia - 24 April 2020 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, today announces its Q1 2020 financial results for the period ended 31 March 2020.

 

CONSOLIDATED FINANCIAL RESULTS FOR THE FIRST QUARTER ENDED 31 MARCH 2020

 

$ million, unless otherwise stated	Q1 2020	Q4 2019	Change, %	Q1 2020	Q1 2019	Change, %
Revenue	1,777	1,838	(3.3%)	1,777	2,031	(12.5%)
EBITDA1	555	602	(7.8%)	555	663	(16.3%)
EBITDA margin, %	31.2%	32.8%	(1.6 ppts)	31.2%	32.6%	(1.4 ppts)
Profit from operations	425	477	(10.9%)	425	555	(23.4%)
Operating margin, %	23.9%	26.0%	(2.1 ppts)	23.9%	27.3%	(3.4 ppts)
Free cash flow2	54	101	(46.5%)	54	389	(86.1%)
Net  profit	72	374	(80.7%)	72	428	(83.2%)
Basic EPS3, $	0.09	0.45	(80.0%)	0.09	0.52	(82.7%)

 

 

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). A reconciliation of EBITDA to profit from operations is presented in Severstal's quarterly 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 and intangible assets, interest received and dividends received. A reconciliation of FCF to net cash from operating activities is presented in Severstal's quarterly 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 million shares for Q1 2020 and Q4 2019, and  823 million shares for Q1 2019.

 

Q1 2020 vs. Q4 2019 ANALYSIS:

 

• Group revenue fell slightly by 3.3% q/q to $1,777 million (Q4 2019: $1,838 million) due to lower average sales prices for steel products which was partially offset by increased sales volumes.

 

• Group EBITDA declined by 7.8% q/q to $555 million (Q4 2019: $602 million), reflecting lower revenues, but partially mitigated by a reduction in cost of sales. The Group's vertically integrated business model delivered an EBITDA margin of 31.2%, maintaining its position as one of the highest in the industry globally.

 

• Free Cash Flow was $54 million (Q4 2019: $101 million), primarily reflecting lower earnings and an increased net working capital requirement, which was partly offset by lower CAPEX q/q.

 

• Net profit totalled $72 million (Q4 2019: $374 million) and includes a FX loss of $378 million, which mainly reflects an accounting  loss on the  translation of USD debt balances as a result of the rouble's devaluation.

 

• Cash CAPEX amounted to $344 million (Q4 2019: $431 million).

 

• Net debt declined to $1,528 million at the end of Q1 2020 (Q4 2019: $1,570 million).

 

• 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 Q1 2020. The Board of Directors has therefore recommended a dividend of 27.35 roubles per share for Q1 2020.

 

Q1 2020 vs. Q1 2019 ANALYSIS:

 

• Group revenue declined by 12.5% y/y to $1,777 million (Q1 2019: $2,031 million). This drop in revenue y/y due to weaker pricing for steel products and lower volumes.

 

• Group EBITDA was 16.3% lower y/y at $555 million (Q1 2019: $663 million), primarily reflecting lower revenues partially offset by a reduction in cost of sales. The Group's EBITDA margin remained high at 31.2% (Q1 2019: 32.6%).

 

• The Company generated $54 million of FCF (Q1 2019: $389  million), mainly reflecting a decline in EBITDA, CAPEX growth and an increased net working capital requirement y/y.

 

FINANCIAL POSITION HIGHLIGHTS:

 

• At the end of Q1 2020, cash and cash equivalents were broadly unchanged at $1,042 million (Q4 2019: $1,081 million).

 

• Gross debt declined to $2,570 million (Q4 2019: $2,651 million) which mainly reflected the FX effect of RUB-nominated debt.

 

• Net debt remained almost unchanged at $1,528 million at the end of Q1 2020 (Q4 2019: $1,570 million). The Net debt/EBITDA ratio was steady at 0.6 at the end of Q1 2020 (Q4 2019: 0.6). Severstal's Net debt/EBITDA remains one of the lowest amongst steel companies globally and allows 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 $1,042 million in cash and cash equivalents in addition to unused committed credit lines and overdraft facilities of $1,007 million, more than covering the short-term principal debt of $23 million.

 

Alexander Shevelev, CEO of Severstal Management, commented:

 

Before commenting on Q1 2020 financial results I want to emphasise that the health and safety of our employees is always our first thought and never more so than at this challenging time in the face of the global coronavirus crisis.  Maintaining the business and providing humanitarian assistance to our employees and across our regions of presence are our key priorities today. At the same time, we continue our many business transformation initiatives in order to ensure we achieve our long-term goals.

 

To minimise operational risks for Severstal's business in the face of the coronavirus pandemic, and closely following the recommendations of public authorities, since March 2020 we have introduced:

• Mandatory sanitation and disinfection at all premises;
• Employee temperature checking on arrival at work;
• Cancelled business travel abroad;
• Discontinuation of mandatory entrance breathalyser checks;
• Remote working, where possible;
• Established a hotline and a special committee.

 

In terms of social security, in April 2020, all Severstal employees will receive an annual salary increase of  3% - in line with the official level of inflation. In addition, 50,000 of Severstal's employees, excluding the top-100 managers, have received a one-time payment of RUB 10,000 in April 2020, to help with additional costs while self-isolating.

 

Moving to the financial results for Q1 2020, the first three months were extremely challenging for all the world's steelmakers. In February, China, the world's largest steel market, faced an outbreak of COVID-19. Stringent quarantine measures led to automotive plants and construction projects shutting down, resulting in lower demand for steel products. After that initial outbreak of coronavirus, restrictions came into force in Europe and Russia.

 

The anticipation of an economic slowdown and weaker steel demand led to negative steel price dynamics starting from March 2020, although that price level is still significantly higher than our costs.  In Russia the national currency devaluation and seasonal slowdown in demand led to the redirection of part of our sales to the export market. Using the flexibility of our distribution channels we increased the share of steel export shipments to 45% in Q1 2020.

 

While we face many challenges, Severstal is experienced in dealing with volatile market environments and has navigated through a number of downturns. We have a proven strong track record of successfully executing our strategic priorities, cost control and operational optimisation. This, in combination with the flexibility of our distribution channels, wide product range and strong financial position enables us to move with certainty through this difficult time and continue to implement our strategic plans. 

 

The Board remains confident in its outlook and is recommending a dividend of 27.35 roubles per share for Q1 2020."

 

SEVERSTAL RUSSIAN STEEL (RSD)

 

$ million, unless otherwise stated	Q1 2020	Q4 2019	Change, %	Q1 2020	Q1 2019	Change, %
Revenue	1,770	1,806	(2.0%)	1,770	1,966	(10.0%)
EBITDA	370	303	22.1%	370	395	(6.3%)
EBITDA margin, %	20.9%	16.8%	4.1 ppts	20.9%	20.1%	0.8 ppts

 

 

RSD steel product sales increased 4% q/q to 2.76 mln tonnes in Q1 2020 (Q4 2019: 2.66 mln tonnes).

 

RSD increased its share of steel export shipments to 45% (Q4 2019: 41%) responding to a seasonal slowdown in domestic demand.

 

The share of high value-added (HVA) products within the sales portfolio amounted to 42% (Q4 2019: 45%), due to increased shipments of hot rolled coil and long steel product and decreased sales of LDPs.

 

Cold rolled coil sales volumes declined 10% q/q due to short-term scheduled maintenance works at the four-stand cold rolling mill in Q1 2020. Meanwhile, RSD increased sales of hot rolled coil by 12% q/q.

 

LDP sales volumes declined to 19,000 tonnes for Q1 2020, primarily reflecting changes in the product mix and the accumulation of stock levels at the Izhora Pipe Mill (ITZ).

 

The weighted average selling price for the whole range of steel products in Q1 2020 declined by 6% q/q as a result of various factors affecting global markets, including steel pricing volatility in both export and domestic markets, as well as the Russian currency devaluation. RSD topline declined by 2.0% q/q to $1,770 million (Q4 2019: $1,806 million). EBITDA increased by 22% q/q to $370 million (Q4 2019: $303 million). The EBITDA margin increased to 20.9% (Q4 2019: 16.8%).

 

The total non-integrated cash cost of slab production per tonne at the Cherepovets Steel Mill in Q1 2020 declined by $35/t q/q to $271/t (Q4 2019: $306/t) as a result of lower raw material input costs and devaluation of the rouble. The integrated cash cost of slab in Q1 2020 totalled $209/t declining by $18/t q/q (Q4 2019: $227/t).

 

SEVERSTAL RESOURCES

 

$ million, unless otherwise stated	Q1 2020	Q4 2019	Change, %	Q1 2020	Q1 2019	Change, %
Revenue	400	402	(0.5%)	400	511	(21.7%)
EBITDA	171	155	10.3%	171	295	(42.0%)
EBITDA margin, %	42.8%	38.6%	4.2 ppts	42.8%	57.7%	(14.9 ppts)

 

 

Coking coal concentrate sales volumes from Vorkutaugol declined 29% q/q to 0.95 mln tonnes as a result of a decrease in run-of-mine production due to the scheduled long-wall repositioning at the Komsomolskaya mine in Q1 2020.

 

Iron ore pellet sales grew 6% to 2.97 mln tonnes (Q4 2019: 2.81 mln tonnes) reflecting demand recovery in Q1 2020.

 

Iron ore concentrate sales volumes declined 8% to 1.47 mln tonnes (Q4 2019: 1.60 mln tonnes) impacted by a planned decline in production at Olcon.

 

Revenue at the Resources Division remained almost flat q/q at $400 million (Q4 2019: $402 million), mainly affected by improved sales volumes and pellet prices at Karelsky Okatysh q/q offset by lower iron ore and coking coal sales volumes. EBITDA increased by 10.3% q/q to $171 million (Q4 2019: $155 million) due to lower cost of sales q/q. The EBITDA margin amounted to 42.8%.

 

At Vorkutaugol, cash cost of coal concentrate per tonne increased to $78/t (Q4 2019: $60/t) reflecting 29% sales volumes decline q/q. The cash cost of iron ore pellets per tonne at Karelsky Okatysh remained flat at $27/t (Q4 2019: $27/t). At Olcon, cash cost per tonne of iron ore concentrate was almost unchanged q/q at $30/t (Q4 2019: $29/t) despite sales volumes reduction q/q.

 

DIVIDEND

 

The Board of Directors has recommended a dividend of 27.35 roubles per share for Q1 2020. 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

 

In Q1 2020 global steel demand was affected by the spread of COVID-19. China faced strong restrictions on economic activity in February leading to a sizable accumulation of steel inventories, but a gradual restart of activities in March supported steel market sentiment.

 

Whereas raw material prices were supported by high production levels, steel prices for export destinations were sensitive to the drop in demand and further restrictions, especially across ex-China regions.

 

At the start of 2020, Russian domestic steel demand was growing y/y, however it is likely to deteriorate due to Russian GDP contraction and the introduction of stricter measures to combat COVID-19.

 

However, despite a number of potential headwinds on both export and domestic markets, Severstal's low cost position allows us to remain competitive in the market and 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/index.phtml
2. The Annual Report 2019 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 Leach / Emily Dillon

T: +44 (0) 20 7796 4133

 

 

 

A conference call on Q1 2020 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on 24 April 2020 at 08.30 (London)/ 10.30 (Moscow). 

 

Conference ID: 572901 International Dial:

+44 (0)330 336 9401

Russian Dial:  +7 495 705 9270 (Local access)  8 10 800 2796 5011 (Toll free)

 

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

 

Replay Passcode: 6443866

 

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