OREANDA-NEWS. PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world’s leading steel and steel-related mining companies, today announces its Q3 and 9M 2015 financial results for the period ended 30 September 2015.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 30 SEPTEMBER 2015

$ million, unless otherwise stated

Q3 2015

Q2 2015

Change, %

9M 2015

9M 20141

Change, %

Revenue

1,663

1,806

(7.9%)

5,000

6,418

(22.1%)

EBITDA2

524

588

(10.9%)

1,695

1,610

5.3%

EBITDA margin, %

31.5%

32.6%

(1.1 ppts)

33.9%

25.1%

8.8 ppts

Profit from operations

422

483

(12.6%)

1,400

1,150

21.7%

Operating margin, %

25.4%

26.7%

(1.3 ppts)

28.0%

17.9%

10.1 ppts

Free cash flow3

609

429

42.0%

1,247

807

54.5%

Net (loss)/profit4

(130)

469

n.a.

676

16

n.a.

Basic EPS5, $

 (0.16)

0.58

n.a.

0.83

0.02

n.a.

Notes:

1)     The amounts for 9M 2014 reflect adjustments made in connection with the change in the methodology for calculating the unrealised gain in inventory, increasing EBITDA by $9 million.

2)     EBITDA represents profit from operations plus depreciation and amortization of productive assets (including the Group’s share in depreciation and amortization of associates and joint ventures) adjusted for gain/(loss) on disposals of PPE and intangible assets and for share in associates’ and joint ventures’ non-operating income/(expenses).

3)     Free cash flow excludes discontinued operation.

4)     Net (loss)/profit from continuing operations after FX fluctuations.

5)     Basic EPS from continuing operations is calculated on the following basis: net profit from continuing operations divided by the weighted average number of shares outstanding during the period: 810.6 million shares for Q3 2015, Q2 2015, 9M 2015 and 9M 2014.

Q3 2015 vs. Q2 2015 ANALYSIS:

Group EBITDA margin remains amongst the highest in the industry at 31.5% in Q3 2015 (Q2 2015: 32.6%). Group EBITDA decreased 10.9% q/q to $524 million (Q2 2015: $588 million);

  • In spite of further RUB devaluation driving down USD-denominated average selling prices for both steel and steel-related raw materials, q/q Group revenue decreased only 7.9% q/q to $1,663 million (Q2 2015: $1,806 million) strongly supported by a seasonal rebound in sales volumes in domestic markets in both the steel and mining divisions;
  • The net loss of $130 million (Q2 2015: net profit of $469 million) reflects a FX loss of $515 million. Adjusting for this non-cash item, Severstal would have posted an underlying net profit of $385 million (Q2 2015: $339 million excluding FX profit);
  • Free cash flow for Q3 2015 increased 42.0% q/q to $609 million (Q2 2015: $429 million) reflecting further progress against the strategic objective and was mainly a function of a seasonal uptick in demand in the local market, although not as pronounced as previous years, and a higher share of domestic sales. These led to a substantial working capital release compared with the previous quarter;
  • Cash outflow on capex of $103 million, 7.2% lower q/q (Q2 2015: $111 million), reflecting our prudent approach to investments;
  • Recommended dividend payment of 13.17 RUB per share for the three months ended 30 September 2015.

9M 2015 vs. 9M 2014 ANALYSIS:

  • Group EBITDA increased 5.3% y/y to $1,695 million (9M 2014: $1,610 million), driven by Russian Steel’s operational enhancements, lower input costs and RUB devaluation together more than offsetting lower deliveries at Resources;
  • Group revenue decreased 22.1% y/y to $5,000 million (9M 2014: $6,418 million) as the impact of lower realized prices. This was only partially mitigated by moderate increases in sales volumes at Russian Steel and Resources;
  • Strong improvement in free cash flow to $1,247 million (9M 2014: $807 million), in line with strategic focus;
  • Cash outflow on capex of $317 million, 49.0% lower y/y (9M 2014: $622 million).

FINANCIAL POSITION HIGHLIGHTS:

  • Even though accelerating gross debt reduction remains complicated with the vast share of Severstal’s gross debt being public, the Company exercised a put option on Convertible Bonds in September 2015. $390 million of outstanding bonds were submitted by bondholders. The outstanding principle now is $61.8 million;
  • Severstal’s gross debt decreased 13.9% since the end of Q2 2015 to $2,504 million (Q2 2015: $2,907 million);
  • As at the end of Q3 2015, cash and cash equivalents were at $1,675 million (Q2 2015: $1,552 million) as strong free cash flow generation more than offset cash outflows on gross debt reduction and the quarterly dividend payment;
  • Net debt declined a significant 38.8% to just $829 million as at the end of Q3 2015 (Q2 2015: $1,355 million). The Net Debt/EBITDA ratio also reduced sharply q/q to 0.4x at the end of Q3 2015 (Q2 2015: 0.6x), remaining one of the lowest amongst steel companies globally;
  • Strong liquidity, with $1,675 million in cash and cash equivalents and unused committed credit lines of $683 million, more than covers short-term debt principal requirements of $491 million.

Vadim Larin, CEO of JSC Severstal Management, commented:

“I am pleased to report that Severstal has delivered another resilient set of financial results. This reflects our combination of assets which gives us the flexibility to choose between geographical shipment alternatives and enables us to run at industry leading margins and to continue generating considerable free cash flow.

Despite limited visibility in both domestic and export markets, the company remains well-positioned to deliver long-term shareholder value by consistent execution of our stated strategy focuses on efficiency, low-cost production and investment optimisation. We remain resolutely focused on further improving customer care and product quality and therefore strengthening our position as the supplier of choice.”

REVIEW OF THE THIRD QUARTER ENDED 30 SEPTEMBER 2015

Severstal delivered another quarter of resilient performance, again underpinned by management’s ongoing and relentless focus on enhancing efficiency as well as the quality of our operations. A seasonal rebound in domestic demand and the strategic location of key producing assets enabled Severstal to partially mitigate the impact of the decline in average selling prices in USD terms. Group revenue reduced only 7.9% q/q to $1,663 million (Q2 2015: $1,806 million).

As a substantial share of Severstal’s production and G&A costs are RUB-denominated, the currency devaluation partially offset negative price movements on EBITDA. Severstal’s EBITDA decreased 10.9% q/q to $524 million (Q2 2015: $588 million), while the EBITDA margin compressed only marginally to 31.5% and remains one of the strongest in the industry.

In Q3 domestic steel consumption in Russia was stronger q/q. Severstal’s consolidated sales of steel products increased 13% q/q with the proximity to the border of key producing assets allowing the Company to efficiently reallocate sales volumes from the export market. The share of domestic deliveries within the sales mix increased to 67%. These factors led to both an inventory reduction and improved receivables recovery, which substantially enhanced free cash flow generation by the company, to $609 million during the respective quarter.

Full vertion of the press release