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Severstal reports Q1 2020 financial results

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PAO Severstal (SVST)
Severstal reports Q1 2020 financial results

24-Apr-2020 / 09:01 MSK
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.

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.


$ million, 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 31.2% 32.8% (1.6 ppts) 31.2% 32.6% (1.4 ppts)
margin, %
Profit 425 477 (10.9%) 425 555 (23.4%)
Operating 23.9% 26.0% (2.1 ppts) 23.9% 27.3% (3.4 ppts)
margin, %
Free cash 54 101 (46.5%) 54 389 (86.1%)
Net profit 72 374 (80.7%) 72 428 (83.2%)
Basic 0.09 0.45 (80.0%) 0.09 0.52 (82.7%)
EPS3, $


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

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.


? 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

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."


$ million, 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 20.9% 16.8% 4.1 ppts 20.9% 20.1% 0.8 ppts
margin, %

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

(MORE TO FOLLOW) Dow Jones Newswires

April 24, 2020 02:01 ET ( 06:01 GMT)

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