Source - RNS
RNS Number : 1060L
Public Joint Stock Co. Severstal
17 April 2018
 

 

 

 

Severstal reports Q1 2018 financial results

 

- Maintaining high profitability -

 

Moscow, Russia - 17 April 2018 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, today announces its Q1 2018 financial results for the period ended 31 March 2018.

 

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 31 MARCH 2018

$ million, unless otherwise stated

Q1 2018

Q4 2017

Change, %

Q1 2018

Q1 2017

Change, %

Revenue

2,173

2,178

(0.2%)

2,173

1,767

23.0%

EBITDA1

706

754

(6.4%)

706

578

22.1%

EBITDA margin, %

32.5%

34.6%

(2.1 ppts)

32.5%

32.7%

(0.2 ppts)

Profit from operations

585

656

(10.8%)

585

476

22.9%

Operating margin, %

26.9%

30.1%

(3.2 ppts)

26.9%

26.9%

-

Free cash flow2

289

434

(33.4%)

289

70

312.9%

Net  profit3

461

563

(18.1%)

461

359

28.4%

Basic EPS4, $

0.57

0.69

(17.4)%

0.57

0.44

29.5%

 

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).

 

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.

 

3)     Net profit after FX fluctuations and other non-cash items.

 

4)     Basic EPS is calculated on the following basis: net profit divided by the weighted average number of shares outstanding during the period: 814.1 million shares for Q1 2018, 814.0 million shares for Q4 2017 and 810.6 million shares for Q1 2017.

 

Q1 2018 vs. Q4 2017 ANALYSIS:

 

§ Group revenue remained almost flat q/q at $2,173 million (Q4 2017: $2,178 million) as a softening of sales volumes at the Resources division was offset by an increase in average selling prices for raw materials and steel sales volumes growth Q1 2018.

 

§ Group EBITDA declined 6.4% q/q, to $706 million (Q4 2017: $754 million), due to increased raw materials expenses driven by higher prices and increased distribution expenses as the Company increased its share of export sales in Q1 2018. Group EBITDA margin declined by 2.1 ppts to 32.5% (Q4 2017: 34.6%). Despite this, Severstal's EBITDA margin remains one of the highest in the global industry.

 

§ Free cash flow was $289 million (Q4 2017: $434 million) which reflects a seasonal increase in net working capital due to growth in receivables. Free cash flow generation remains one of the Company's key strategic financial priorities.

 

§ Net profit of $461 million (Q4 2017: $563 million) includes a FX gain of $12 million. Adjusting for this non-cash item, Severstal would have posted an underlying net profit of $449 million (Q4 2017: net profit of $439 million).

 

§ Cash CAPEX of $136 million declined 20.0% q/q (Q4 2017: $170 million) due to seasonal factors. In December 2017, Severstal launched a production line for polymer coated rolled steel products at Cherepovets Steel Mill Metal Coating Workshop number 3 ("MCW#3"). Investment in MCW#3 amounted to approximately 8 billion roubles. The new workshop is installed with equipment for a polymer coating line and hot dip galvanizing unit. This equipment is expected to produce 200,000 tonnes of polymer coated steel per year and 400,000 tonnes of galvanized steel per year.

 

§ Net debt declined 26.1% to $785 million by the end of Q1 2018 (Q4 2017: $1,062 million) reflecting free cash flow generation for Q1 2018. In Q1 2018 Severstal paid off Eurobonds of $549 million. The Company's public debt includes outstanding loan participation notes due in 2021 and 2022, and convertible bonds due in 2021 and 2022.

 

§ Recommended dividend payment of 38.32 RUB per share for the three months ended 31 March 2018.

 

Q1 2018 vs. Q1 2017 ANALYSIS:

 

§ Group revenue increased 23.0% y/y, to $2,173 million (Q1 2017: $1,767 million). Severstal's significant revenue growth y/y was supported by a favourable steel and commodities pricing environment in 2018 and steel sales volumes growth.

 

§ Group EBITDA grew 22.1% y/y to $706 million (Q1 2017: $578 million) driven by topline growth.

 

§ The Company generated $289 million of free cash flow which was an increase on the previous year (Q1 2017: $70 million) primarily reflecting earnings growth y/y.

 

§ The Group maintained its prudent approach to CAPEX with investment of $136 million, 1.4% lower y/y (Q1 2017: $138 million).

 

FINANCIAL POSITION HIGHLIGHTS:

 

§ At the end of Q1 2018, cash and cash equivalents totalled $757 million (Q4 2017: $1,031 million) reflecting the net effect of free cash flow generation and Eurobond payout.

 

§ Gross debt declined 26.3% to $1,542 million (Q4 2017: $2,093 million) reflecting the $549 mln Eurobond 2018 payment.

 

§ Net debt decline of 26.1%, to $785 million, at the end of Q1 2018 (Q4 2017: $1,062 million) reflected the free cash flow generation for the quarter. The Net Debt/EBITDA ratio marginally declined to 0.3x at the end of Q1 2018 (Q4 2017: 0.4x). 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 $757 million in cash and cash equivalents and unused committed credit lines of $1,074 million, more than covering the short-term principal debt of $10 million.

 

Alexander Shevelev, CEO of Severstal Management, commented:

 

"Severstal is constantly focused on maximising value for its shareholders. I am pleased to report that we have also revised our dividend policy in the interest of our shareholders, with a formal commitment to paying 100% of free cash flow in the form of dividends.

 

With an ever increasing focus on our ESG performance, our ESG commitment is fully aligned with the Group's strategic objective to be a leader in value creation for all of our stakeholders.

 

We believe that by consistently driving innovation across all of our assets we can take Severstal to the next level. Our product, process and business model innovations are already delivering clear performance improvements and our company-wide digitalisation programme will enable us to enhance our operational efficiency even further.

 

Our financial performance in Q1 2018 was supported by a strong export pricing environment and Severstal's flexible distribution channels, which enabled us to redirect higher volumes to export markets. Reflecting our goal of becoming a leader by Total Shareholder Return, the Board of Directors is recommending a dividend of 38.32 RUB for Q1 2018.

 

In 2018 we continue to forecast global steel growth. Russian steel demand increased 5% in 2017 and is expected to be a further 2.6% higher in 2018, supported by GDP growth and gradual economic recovery. Russia remains Severstal's core market, and with the flexibility to redistribute shipments quickly between domestic and export markets, we are confident that Severstal will benefit from the recovery in local demand".

 

REVIEW OF THE FIRST QUARTER ENDED 31 MARCH 2018

 

In Q1 2018 the Company maintained a steady performance supported by positive trends within the global steel and commodities markets during the period. This reflected the strength of our operations and the management's ongoing focus on enhancing efficiency. The share of HVA in the product sales mix remained at a high level of 45%, and the Company sold-off stocks at its export destinations in Q1 2018. To benefit from the improved profitability of export deliveries, the Company increased its share of export shipments to 48%. Severstal's proximity to both its main export and domestic consumers allows it to shift flexibly between export and domestic sales depending on the market environment.

 

Group revenue remained almost flat q/q in Q1 2018, as steel products sales volumes growth, strong prices for steel and raw materials were offset by a decline in sales volumes at Resources. In Q1 2018 Severstal's EBITDA weakened 6.4% q/q to $706 million due to higher raw materials prices and increased distribution expenses to support the higher share of export sales. Free cash flow of $289 million was lower in Q1 2018 due to seasonal uptick in net working capital, which reflected a temporary growth in receivables. The Company's high quality assets and efficient business model enabled Severstal to maintain one of the highest EBITDA margins of 32.5% and deliver solid cash generation to maximise shareholder returns.

 

Severstal is committed to returning value to its shareholders whilst managing and maintaining a low debt level. Severstal's financial position remains strong with its Net debt/EBITDA ratio at 0.3x as at the end of Q1 2018. As a result, the Board of Directors is recommending a dividend of 38.32 roubles per share for Q1 2018.

 

SEVERSTAL RUSSIAN STEEL (RSD)

 

$ million, unless otherwise stated

Q1 2018

Q4 2017

Change, %

Q1 2018

Q1 2017

Change, %

Revenue

2,025

1,956

3.5%

2,025

1,623

24.8%

EBITDA

535

533

0.4%

535

409

30.8%

EBITDA margin, %

26.4%

27.2%

(0.8 ppts)

26.4%

25.2%

1.2 ppts

 

RSD steel product sales increased 3% q/q to 2.87 mln tonnes compared with the previous quarter (Q4 2017: 2.79 mln tonnes). Meanwhile, the Company reduced steel product stock levels at its export subsidiaries in Q1 2018. Semi-finished product sales volumes growth was driven by the change in structure of product mix and increased demand for billets.

 

The Company increased export sales volumes to 48% (Q4 2017: 42%) to benefit from more profitable export deliveries at the beginning of the year. The share of high value-added (HVA) products within the sales portfolio remained high at 45% (Q4 2017: 47%) declining only 2 ppts due to a seasonal change in product mix.

 

Severstal increased its sales of the HDG and cold-rolled coil products to the U.S. market and hot-rolled coil to European destinations due to the attractive pricing environment.

 

Large diameter pipe sales volumes declined 28% q/q, following the H2 2017 destocking of finished goods produced in the beginning of 2017 at Izhora Pipe Mill. In March 2018, Izhora Pipe Mill won a tender to supply around 165kt of LDPs for Gazprom projects during 2018-2019.

 

Steel and raw materials prices remained high in Q1 2018. The Company increased the export share of its steel sales in Q1 2018 which resulted in flat average selling prices across the product mix and increased distribution expenses. Domestic prices were catching up with global price trends but with a time lag. Growing sales volumes drove a revenue increase of 3.5% q/q to $2,025 million (Q4 2017: $1,956 million). EBITDA improved 0.4% q/q to $535 million (Q4 2017: $533 million). The EBITDA margin declined marginally by 0.8 ppts to 26.4% (Q4 2017: 27.2%).

 

The total non-integrated cash cost of slab production at the Cherepovets Steel Mill in Q1 2018 increased $14/t q/q to $335/t (Q4 2017: $321/t) as a result of raw material prices growth. The integrated cash cost of slab in Q1 2018 was up at $264/t (Q4 2017: $243/t) as a result of lower EBITDA at the Resources division.

 

SEVERSTAL RESOURCES

 

$ million, unless otherwise stated

Q1 2018

Q4 2017

Change, %

Q1 2018

Q1 2017

Change, %

Revenue

402

474

(15.2%)

402

424

(5.2%)

EBITDA

188

205

(8.3%)

188

214

(12.1%)

EBITDA margin, %

46.8%

43.2%

3.6 ppts

46.8%

50.5%

(3.7 ppts)

 

Coking coal concentrate sales volumes from Vorkutaugol declined 25% q/q, as the long-wall repositioning at the Vorgashorskaya mine impacted production of "GZHO" grade concentrate. Meanwhile, the Company managed to achieve stable production of "2ZH" grade coal, fully meeting the production needs of CherMK.

 

Iron ore pellet sales decreased 28% and totalled 2.38 mln tonnes (Q4 2017: 3.30 mln tonnes) after the realisation of a significant share of finished goods in transit in Q4 2017, shifted from the previous quarter, and an increased share of goods in transit in Q1 2018, which will be realised in subsequent periods.

 

Iron ore concentrate sales increased 14% q/q to 1.29 mln tonnes (Q4 2017: 1.14 mln tonnes) despite the seasonal slowdown in production at Olcon. The improvement of iron ore concentrate sales in Q1 2018 reflects the consolidation of the Yakovlevskiy mine and stock sell-off at Olcon.

Reflecting the q/q decrease in sales volumes, revenue of the Resources division declined 15.2% q/q, to $402 million (Q4 2017: $474 million) due to volumes decrease and EBITDA declined 8.3% to $188 million (Q4 2017: $205 million).

 

Given the fixed cost nature of the mining business, lower processing volumes at Vorkutaugol due to the long-wall repositioning at Vorgashorskaya mine, brought Q1 2018 total cash costs (TCC) up to 96$/t (Q4 2017: $92/t). At the same time, TCC at Karelsky Okatysh remained almost flat at $29/t (Q4 2017: $27/t). TCC at Olcon were up $3/t at $37/t (Q4 2017: $34/t) affected by Russian currency appreciation q/q.

 

DIVIDEND

 

The Board is recommending a dividend payment of 38.32 roubles per share for the three months ended 31 March 2018.

 

Approval of the dividend is expected at the Company's AGM which will take place on 8 June 2018. The record date for participation in the AGM is 14 May 2018.

 

The recommended record date for the dividend payment is 19 June 2018. The approval of the record date for the dividend payment is also expected at the Company's AGM which will take place on 8 June 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 Q1 2018 steel and raw material demand remained high. Global steel prices were supported by winter restrictions in China and a seasonal increase in Chinese demand in March, which contributed to higher prices of raw materials.

 

Russian export prices are expected to follow global trends in Q2 2018. We anticipate Russian steel demand to grow further, by 2.6% in 2018.

 

With a solid portfolio of high-value added products, being low cost and close to export routes, Severstal remains well positioned to adapt quickly to changing conditions and capture attractive pricing both domestically and globally. In this environment the Board is confident that Severstal will continue to be well-placed relative to both 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 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

[email protected]

 

Vladimir Zaluzhsky

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

[email protected]

 

 

Severstal Public Relations

Anastasia Mishanina

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

[email protected] 

 

Vladimir Zaluzhsky

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

[email protected]

 

 

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 Q1 2018 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on 17 April 2018 at 13.00 (London)/ 15.00 (Moscow). 

 

Conference ID: 3952288
International Dial:

+44 (0) 330 336 9105

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 7 days as follows:

 

Replay Passcode: 3952288

 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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