Severstal | 19 October 2018 г. | 14:41

Severstal reports Q3 & 9M 2018 financial results

Severstal reports Q3 & 9M 2018 financial results

PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world’s leading steel and steel-related mining companies, today announces its Q3 & 9M 2018 financial results for the period ended 30 September 2018.

Q3 2018 vs. Q2 2018 ANALYSIS:

Group revenue declined 8.7% q/q to $2,063 million (Q2 2018: $2,259 million) due to reduced sales volumes of steel products and iron ore pellets, which reflects the high-base effect of Q2, as well as declining steel prices q/q.

Group EBITDA declined 12.1% q/q, to $768 million (Q2 2018: $874 million) reflecting topline decline which was partially offset by lower cost of sales. Group EBITDA margin remained strong at 37.2%, and close to the record level set in the previous quarter (Q2 2018: 38.7%). Severstal’s EBITDA margin remains one of the highest in the industry globally.

Free cash flow totalled $481 million (Q2 2018: $598 million), which reflects earnings decline compensated by a release of net working capital due to input VAT and a decline in accounts receivable. The effective conversion of EBITDA to free cash flow remains one of the Company’s key strategic financial priorities.

Net profit of $455 million (Q2 2018: $557 million) includes a FX loss of $41 million. Adjusting for this non-cash item, Severstal would have posted an underlying net profit of $496 million (Q2 2018: net profit of $613 million).

Cash CAPEX remained almost flat q/q at $168 million (Q2 2018: $160 million). The Group’s capital expenditure programme for 2018 is expected to be 49.5 billion RUB and will focus on upstream investments.

Net debt grew to $438 million by the end of Q3 2018 (Q2 2018: $153 million), primarily reflecting lower cash balances after the dividend payout in Q3. The Company’s public debt includes outstanding loan participation notes due in 2021 and 2022, and convertible bonds due in 2021 and 2022.

Severstal is committed to returning value to its shareholders whilst managing and maintaining a low level of debt. Severstal’s financial position remains strong with its Net debt/EBITDA ratio at 0.1x as at the end of Q3 2018. As a result, the Board of Directors is recommending a dividend of 44.39 roubles per share for Q3 2018.

9M 2018 vs. 9M 2017 ANALYSIS:

Group revenue increased 14.6% y/y to $6,495 million (9M 2017: $5,670 million). The significant growth in revenue y/y was supported by a favourable steel and commodities pricing environment in 2018 and 4% growth in steel sales volumes y/y.

Group EBITDA grew 28.8% y/y to $2,348 million (9M 2017: $1,823 million) driven by topline growth, which was partly offset by an increase in the cost of goods sold.

The Company generated $1,368 million of free cash flow, which represents a significant increase of 42.6% y/y (9M 2017: $959 million) as a result of earnings growth y/y.

The Group maintained its prudent approach to CAPEX with investments equal to $464 million in 9M 2018, an increase of 10.2% y/y (9M 2017: $421 million).


At the end of Q3 2018, cash and cash equivalents stood at $1,054 million (Q2 2018: $1,376 million), reflecting the dividend payment in Q3 offset by FCF generation for the period.

Gross debt remained broadly unchanged at $1,492 million (Q2 2018: $1,529 million).

Net debt grew to $438 million by the end of Q3 2018 (Q2 2018: $153 million), primarily reflecting a fall in cash balances following the dividend payout in Q3. The Net Debt/EBITDA ratio remained flat at 0.1x at the end of Q3 2018 (Q2 2018: 0.1x). 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 $1,054 million in cash and cash equivalents and unused committed credit lines of $1,030 million, more than covering the short-term principal debt of $143 million.

Alexander Shevelev, CEO of Severstal Management, commented:

“Severstal has delivered another solid performance in the third quarter including an almost 30% increase in EBITDA year on year. Despite the decline in our steel sales in Q3 2018, due to the planned rolling mills maintenance, FCF generation remained strong with a sizeable release of working capital and output progress of our coking coal business.

Though domestic steel demand is moderating, looking into Q4 2018 we are expecting global steel demand to remain at good levels on the back of strength of the world’s economy and continued capacity cuts in China. Hence we are anticipating a solid Q4 2018. This gives confidence to the Board of Directors to recommend a dividend of 44.39 roubles per share for Q3 2018 bringing the dividend payout to more than 100% of the quarterly FCF.

Further development of our ESG system remains a priority for us. I am happy to say that since the start of the year we have disclosed our long-term goals in safety and environmental impact, CO2 emissions, as well as started disclosing key data on our HSE performance as part of our operational reporting on a half-yearly basis. We intend to raise our ESG transparency levels further”.

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