April 24, 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
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). A reconciliation of EBITDA to profit
from operations is presented in Severstal’s quarterly financial
statements. - 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. - 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.”
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
- Full financial statements are available at
//www.severstal.com/eng/ir/results_and_reports/financial_results/index.phtml - The Annual Report 2019 is available at
//www.severstal.com/eng/ir/results_and_reports/annual_reports/index.phtml
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