January 31, 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 QUARTER ENDED 31
DECEMBER 2019

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.”

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/index.phtml
  2. The Annual Report 2019 will be available at

    http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.phtml