Severstal reports Q3 & 9M 2020 financial results

 

- Delivering 31% EBITDA and 101% FCF growth q/q; EBITDA margin reaches 35.0% -

 

Moscow, Russia - 22 October 2020 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, today announces its Q3 & 9M 2020 financial results for the period ended 30 September 2020.

 

CONSOLIDATED FINANCIAL RESULTS FOR Q3 AND 9M 2020

 

$ million, unless otherwise stated	Q3 2020	Q2 2020	Change, %	9M 2020	9M 2019	Change, %
Revenue	1,875	1,590	17.9%	5,242	6,319	(17.0%)
EBITDA1	656	501	30.9%	1,712	2,203	(22.3%)
EBITDA margin, %	35.0%	31.5%	3.5 ppts	32.7%	34.9%	(2.2 ppts)
Profit from operations	538	382	40.8%	1,345	1,850	(27.3%)
Operating margin, %	28.7%	24.0%	4.7 ppts	25.7%	29.3%	(3.6 ppts)
Free cash flow2	382	190	101.1%	626	998	(37.3%)
Net  profit	167	391	(57.3%)	630	1,393	(54.8%)
Basic EPS3, $	0.20	0.47	(57.4%)	0.76	1.69	(55.0%)
Net Debt/EBITDA4	0.77	0.82		0.77	0.43

 

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 Q3 2020 and Q2 2020, 9M 2020 and 824 million shares for 9M 2019.

 

4. Net Debt/EBITDA ratio is calculated as net debt divided by EBITDA for the last 12 months and is included in Severstal's quarterly financial statements. Net debt equals the total debt less cash and cash equivalents at the end of the reporting period.

 

Q3 2020 vs. Q2 2020 ANALYSIS:

 

• Group revenue increased by 17.9% q/q to $1,875 million (Q2 2020: $1,590 million) driven by steel prices recovery q/q and steel sales volumes growth.

 

• Group EBITDA increased by 30.9% q/q to $656 million (Q2 2020: $501 million), reflecting topline growth. Severstal's vertically integrated business model delivered an EBITDA margin of 35.0%, maintaining the Group's position of having one of the highest EBITDA margins in the steel industry globally.

 

• Free Cash Flow surged by 101.1% q/q to $382 million in Q3 2020 (Q2 2020: $190 million), primarily reflecting earnings growth and positive changes in net working capital q/q.

 

• Net profit was $167 million (Q2 2020: $391 million), including a FX loss of $262 million, which mainly reflects an accounting loss on the translation of USD debt balances due to the devaluation of the rouble in the third quarter.

 

• Cash CAPEX amounted to $341 million (Q2 2020: $331 million).

 

• Net debt declined to $1,782 million at the end of Q3 2020 (Q2 2020: $2,006 million).

 

• Severstal is committed to returning maximum 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 0.77 as at the end of Q3 2020. The Board of Directors has therefore recommended a dividend of 37.34 roubles per share for Q3 2020.

 

 

 

9M 2020 vs. 9M 2019 ANALYSIS:

 

• Group revenue declined by 17.0% y/y to $5,242 million in 9M 2020 (9M 2019: $6,319 million). This drop in revenue y/y was due to weaker pricing dynamics for steel products and lower sales volumes in the period.

 

• Group EBITDA declined 22.3% y/y at $1,712 million in 9M 2020 (9M 2019: $2,203 million), primarily reflecting lower revenues, which were partially offset by a reduction in the cost of sales. The Group's EBITDA margin remained high at 32.7% (9M 2019: 34.9%).

 

• The Company generated $626 million of FCF in 9M 2020 (9M 2019: $998 million), mainly reflecting a decline in EBITDA and CAPEX growth y/y.

 

FINANCIAL POSITION HIGHLIGHTS:

 

• At the end of Q3 2020, cash and cash equivalents increased to $781 million (Q2 2020: $584 million).

 

• Gross debt remained almost unchanged at $2,563 million (Q2 2020: $2,590 million).

 

• Net debt declined to $1,782 million at the end of Q3 2020 (Q2 2020: $2,006 million). The Net debt/EBITDA ratio was 0.77 at the end of Q3 2020 (Q2 2020: 0.82). Severstal's Net debt/EBITDA ratio remains one of the lowest among 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 $781 million in cash and cash equivalents in addition to unused committed credit lines and overdraft facilities of $1,009 million, more than covering the Company's short-term principal debt of $556 million.

 

Alexander Shevelev, CEO of Severstal Management, commented:

 

"The health and safety of all Severstal employees remains our first priority. Our response to COVID-19 pandemic has proved effective so far, and we have avoided any large-scale outbreak of COVID-19 and our operations have continued without interruption. Considering the autumn increase in incidence, we have again decided to send our office personnel to remote working, cancelled all business trips; all staff continue to work adhering to our strict sanitary policies.

 

To our great regret, in Q3 2020 we have recorded one fatality of our employee. We remain committed to reach our 2025 safety goals, which are to eliminate fatalities and reduce LTIFR by 50% to 0.5. As of the end of 9 months of 2020 it stood at 0.68. In October 2020, we announced the appointment of a new Director for Health, Safety and Environment. We hope that his significant experience, expertise and leadership will help us make a significant step change in our improvement in the area of workplace safety.

 

Recovery in global markets impacted positively on steel price dynamics. Increase in revenues in Q3 enabled us to deliver EBITDA of $656 million and to increase EBITDA margin from 31.5% to 35.0%, which is the highest in the global steel industry.

 

Market-wise, favourable domestic price dynamics allowed us to reallocate a portion of our sales volumes to Russia in Q3 2020. The weighted average steel selling prices increased by 2% due to sales of HVA finished goods which reduced our stock levels. HVA share amounted to 49% in Q3.

 

We increased sales of steel products by 18% q/q, sales volumes of iron ore pellets and of iron ore concentrate increased by 3%. As a result, total revenue grew by 18% q/q.

 

Despite the COVID-19 pandemic our transformation programme continues and remains a very high priority for us.

 

Severstal's financial position remains strong with Net Debt/EBITDA ratio of 0.77 times at the end of Q3 2020, the Board remains confident in its outlook and is recommending a dividend of 37.34 roubles per share for Q3 2020".

 

 

SEVERSTAL RUSSIAN STEEL (RSD)

 

$ million, unless otherwise stated	Q3 2020	Q2 2020	Change, %	9M 2020	9M 2019	Change, %
Revenue	1,874	1,588	18.0%	5,232	6,219	(15.9%)
EBITDA	412	351	17.4%	1,133	1,225	(7.5%)
EBITDA margin, %	22.0%	22.1%	(0.1 ppts)	21.7%	19.7%	2.0 ppts

RSD steel product sales increased by 18% q/q to 3.02 mln tonnes in Q3 2020 (Q2 2020: 2.56 mln tonnes) reflecting production growth, a lower share of export shipments with a longer realisation period vs the previous quarter and finished goods stock reduction.

The Company increased its share of domestic steel shipments to 63% (Q2 2020: 56%) in response to demand recovery in Russia in Q3 2020.

The share of high value-added (HVA) products within the sales portfolio amounted to 49% (Q2 2020: 43%) as a result of delayed demand for HVA products. The Company reduced HVA finished goods stock levels q/q.

The weighted average selling price for the whole range of steel products in Q3 2020 increased by 2%, due to positive steel pricing dynamics and a higher share of HVA products in the sales mix q/q. RSD topline increased by 18.0% q/q to $1,874 million (Q2 2020: $1,588 million). EBITDA increased by 17.4% q/q to $412 million (Q2 2020: $351 million). The EBITDA margin remained almost flat at 22.0% (Q2 2020: 22.1%).

The total non-integrated cash cost of slab production per tonne at the Cherepovets Steel Mill in Q3 2020 increased by $18/t q/q to $270/t (Q2 2020: $252/t) affected by higher input cost and devaluation of the rouble. The integrated cash cost of slab in Q3 2020 declined by $11/t q/q to $173/t (Q2 2020: $184/t).

SEVERSTAL RESOURCES

$ million, unless otherwise stated	Q3 2020	Q2 2020	Change, %	9M 2020	9M 2019	Change, %
Revenue	473	402	17.7%	1,275	1,767	(27.8%)
EBITDA	261	182	43.4%	614	1,093	(43.8%)
EBITDA margin, %	55.2%	45.3%	9.9 ppts	48.2%	61.9%	(13.7 ppts)

 

Sales volumes of coking coal concentrate from Vorkutaugol declined 5% q/q to 1.22 mln tonnes as a result of lower concentrate output and a lower run-of-mine (ROM-rate) at the Zapolyarnaya mine.

 

Iron ore pellet sales increased by 3% to 2.61 mln tonnes (Q2 2020: 2.53 mln tonnes) as a result of higher production levels of iron ore pellets and inventory sell-off q/q.

 

Iron ore concentrate sales volumes grew by 3% to 1.96 mln tonnes (Q2 2020: 1.90 mln tonnes) mainly driven by higher output at Karelsky Okatysh and Olcon.

 

Revenue from the Resources Division increased to $473 million in Q3 2020 (Q2 2020: $402 million), mainly as a result of improved iron ore segment performance. EBITDA increased by 43.4% q/q to $261 million (Q2 2020: $182 million) due to increased topline q/q. The EBITDA margin increased to 55.2%.

 

At Vorkutaugol, the cash cost of coal concentrate per tonne increased to $72/t (Q2 2020: $66/t) reflecting temporary reduction in sales volumes q/q. The cash cost of iron ore pellets per tonne at Karelsky Okatysh declined to $22/t (Q2 2020: $23/t). At Olcon, the cash cost per tonne of iron ore concentrate declined to $22/t (Q2 2020: $24/t) reflecting growth in sales volumes q/q.

 

DIVIDEND

 

The Board of Directors is recommending a dividend of 37.34 roubles per share for Q3 2020. Approval of the dividend is expected to take place at the Company's EGM on 27 November 2020. The record date for participation in the EGM is 2 November 2020. The recommended record date for the dividend payment is 8 December 2020. The approval of the record date for the dividend payment is also expected to take place at the Company's EGM on 27 November 2020.

 

OUTLOOK

 

In Q3 2020 global steel demand recovered gradually in line with the lifting of lockdowns. Chinese steel demand increased by 6% in the year to date, while ex-China demand decreased by 14%. Global steel production bottomed in April 2020 with a year on year reduction of 13% and then started to catch up reaching 1% y/y in August. Iron ore prices remained elevated in Q3 due to high Chinese demand and limited supply. Restarts of ex-China BF capacities also pushed up coking coal prices.

 

Russian domestic steel demand moderately recovered in Q3 2020. Thus we are upgrading our outlook for the whole 2020. Though it would still be a decrease of steel consumption in Russia this year, it's likely to be in the range of 6% in 2020 versus the previous year. In addition, we are expecting global steel benchmark prices to remain solid in Q4 2020.

 

Despite the number of potential headwinds on both export and domestic markets, including a second wave of outbreaks of  COVID-19, Severstal's low cost position allows us to be competitive 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

 

 

Severstal Public Relations

Anastasia Mishanina

T: +7 (495) 926-77-66

anastasia.mishanina@severstal.com

 

 

Severstal's financial communications agent - Hudson Sandler

Andrew Leach / Emily Dillon

T: +44 (0) 20 7796 4133

 

 

 

A conference call on Q3 & 9M 2020 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on 22 October 2020 at 11.00 (London)/ 13.00 (Moscow). 

 

Conference ID: 7569179
International Dial:

+44 (0)330 336 9128

Russian Dial: 
+7 495 213 1767 (Local access) 
8 800 500 9283 (Toll free)

 

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

 

Replay Passcode: 7569179

 

International Dial:

+44 (0) 207 660 0134 (Local access) 

Russian Dial:
810 800 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 $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