Severstal : reports Q2 & H1 2020 financial results

PAO Severstal (SVST) Severstal reports Q2 & H1 2020 financial results 23-Jul-2020 / 09:04 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 Q2 & H1 2020 financial results   - Leading 32% EBITDA margin maintained; strong free cash flow growth delivered q/q; dividend recommended -   Moscow, Russia - 23 July 2020- PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, today announces its Q2 & H1 2020 financial results for the period ended 30 June 2020.   CONSOLIDATED FINANCIAL RESULTS FOR Q2 AND H1 2020   $ million, unless otherwise stated Q2 2020 Q1 2020 Change, % H1 2020 H1 2019 Change, % Revenue 1,590 1,777 (10.5%) 3,367 4,208 (20.0%) EBITDA1 501 555 (9.7%) 1,056 1,416 (25.4%) EBITDA margin, % 31.5% 31.2% 0.3 ppts 31.4% 33.7% (2.3 ppts) Profit from operations 382 425 (10.1%) 807 1,180 (31.6%) Operating margin, % 24.0% 23.9% 0.1 ppts 24.0% 28.0% (4.0 ppts) Free cash flow2 190 54 251.9% 244 652 (62.6%) Net  profit 391 72 443.1% 463 903 (48.7%) Basic EPS3, $ 0.47 0.09 422.2% 0.56 1.10 (49.1%)     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 Q2 2020 and Q1 2020, H1 2020 and 824 million shares for H1 2019.   Q2 2020 vs. Q1 2020 ANALYSIS:   Group revenue declined by 10.5% q/q to $1,590 million (Q1 2020: $1,777 million) as a result of lower average sales prices for steel products and a decline in sales volumes.   Group EBITDA declined by 9.7% q/q to $501 million (Q1 2020: $555 million), reflecting lower revenues during the period, which was partially mitigated by lower sales costs. Severstal's vertically integrated business model delivered an EBITDA margin of 31.5%, maintaining the Group's position of having one of the highest EBITDA margins in the steel industry globally.   Free Cash Flow increased to $190 million in Q2 2020 (Q1 2020: $54 million), primarily reflecting positive changes in net working capital.   Net profit totalled $391 million (Q1 2020: $72 million), including a FX gain of $168 million, which mainly reflects an accounting gain on the translation of USD debt balances due to the appreciation of the rouble in the quarter.   Cash CAPEX amounted to $331 million (Q1 2020: $344 million).   Net debt increased to $2,006 million at the end of Q2 2020 (Q1 2020: $1,528 million).   Severstal is committed to returning maximum 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 0.8 as at the end of Q2 2020. The Board of Directors has therefore recommended a dividend of 15.44 roubles per share for Q2 2020.   H1 2020 vs. H1 2019 ANALYSIS:   Group revenue declined by 20.0% y/y to $3,367 million in H1 2020 (H1 2019: $4,208 million). This drop in revenue y/y was due to weaker pricing dynamics for steel products and lower sales volumes in the period.   Group EBITDA was 25.4% lower y/y at $1,056 million (H1 2019: $1,416 million), primarily reflecting lower revenues, which were partially offset by a reduction in the cost of sales. The Group's EBITDA margin remained high at 31.4% (H1 2019: 33.7%). The Company generated $244 million of FCF (H1 2019: $652 million), mainly reflecting a decline in EBITDA and CAPEX growth y/y.   FINANCIAL POSITION HIGHLIGHTS:   At the end of Q2 2020, cash and cash equivalents declined to $584 million (Q1 2020: $1,042 million).   Gross debt remained almost unchanged at $2,590 million (Q1 2020: $2,570 million).   Net debt increased to $2,006 million at the end of Q2 2020 (Q1 2020: $1,528 million). The Net debt/EBITDA ratio was 0.8 at the end of Q2 2020 (Q1 2020: 0.6). Severstal's Net debt/EBITDA ratio remains one of the lowest among 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 $584 million in cash and cash equivalents in addition to unused committed credit lines and overdraft facilities of $1,059 million, more than covering the Company's short-term principal debt of $47 million.   Alexander Shevelev, CEO of Severstal Management, commented:   "The health and safety of all Severstal employees remains our first priority. For this reason, in response to the COVID-19 pandemic we have implemented strict protective measures across all our sites and organised remote working for our office staff since the middle of March. Fortunately, in almost all of the regions where we operate, we have avoided any large-scale outbreak of COVID-19 and our operations have continued without interruption. As long as necessary, Severstal will continue to maintain strict sanitary requirements and to closely monitor adherence in this area.   Moving on to our financial results for Q2 2020, I am pleased to note that all our businesses demonstrated a strong performance despite the market disruptions made by the COVID-19 outbreak. We have maintained almost 100% utilisation rate at our steelmaking facilities. At our mining operations we have increased sales volumes of coking coal by 34% q/q, maintained strong sales volumes of iron ore products and achieved significant end-to-end optimisation effects. The flexibility of our distribution network allowed us to maintain a high share of exports, keeping sales volumes relatively steady during the period. The weighted average selling prices declined only by 4% q/q as we continue developing our downstream operations. Despite the 11% decline in revenues in Q2 2020, our high levels of operational efficiency enabled us to maintain an EBITDA margin of 31.5%, which is the highest in the global steel industry globally. Free Cash Flow also increased from $54 million to $190 million q/q, even though our capital investment level remained high.   Despite the COVID-19 pandemic our transformation programme continues and remains a very high priority for us.   Severstal's financial position remains strong with Net Debt/EBITDA ratio of 0.8 times, the Board remains confident in its outlook and is recommending a dividend of 15.44 roubles per share for Q2 2020."   SEVERSTAL RUSSIAN STEEL (RSD)   $ million, unless otherwise stated Q2 2020 Q1 2020 Change, % H1 2020 H1 2019 Change, % Revenue 1,588 1,770 (10.3%) 3,358 4,117 (18.4%) EBITDA 351 370 (5.1%) 721 792 (9.0%) EBITDA margin, % 22.1% 20.9% 1.2 ppts 21.5% 19.2% 2.3 ppts   RSD steel product sales decreased 7% q/q to 2.56 mln tonnes in Q2 2020 (Q1 2020: 2.76 mln tonnes), reflecting lower production levels of crude steel and a higher portion of export sales, which have a longer realisation period. In addition, the Company increased its stock of finished goods at the end of the quarter. The share of steel export shipments remained high at 44% (Q1 2020: 45%) in response to a slowdown in domestic demand caused by lockdown measures implemented in Russia. The share of high value-added (HVA) products within the sales portfolio amounted to 43% (Q1 2020: 42%), reflecting an increase in shipments of colour-coated products and lower sales volumes of semi-finished and hot rolled coil. The weighted average selling price for the whole range of steel products in Q2 2020 declined by just 4%, despite weaker price dynamics of global benchmarks. RSD topline declined by 10.3% q/q to $1,558 million (Q1 2020: $1,770 million). EBITDA declined by 5.1% q/q to $351 million (Q1 2020: $370 million). The EBITDA margin increased to 22.1% (Q1 2020: 20.9%). The total non-integrated cash cost of slab production per tonne at the Cherepovets Steel Mill in Q2 2020 declined by $19/t q/q to $252/t (Q1 2020: $271/t) affected by devaluation of the rouble. The integrated cash cost of slab in Q2 2020 totalled $184/t declining by $25/t q/q (Q1 2020: $209/t). SEVERSTAL RESOURCES $ million, unless otherwise stated Q2 2020 Q1 2020 Change, % H1 2020 H1 2019 Change, % Revenue 402 400 0.5% 802 1,158 (30.7%) EBITDA 182 171 6.4% 353 711 (50.4%) EBITDA margin, % 45.3% 42.8% 2.5 ppts 44.0% 61.4% (17.4 ppts)     Sales volumes of coking coal concentrate from Vorkutaugol increased 34% q/q to 1.28 mln tonnes in Q2 2020, as a result of planned production growth.   Iron ore pellet sales decreased 15% to 2.53 mln tonnes (Q1 2020: 2.97 mln tonnes). In response to weaker pricing dynamics for pellets in Q2 2020, Karelsky Okatysh reallocated a portion of its volumes into iron ore concentrate, achieving a higher rate of end-to-end efficiency of internal consumption at CherMK.   Iron ore concentrate sales volumes increased 30% q/q to 1.90 mln tonnes (Q1 2020: 1.47 mln tonnes) driven by production growth at Karelsky Okatysh, and a recovery in production levels following a planned decline in Q1 at Olcon.   Revenue from the Resources Division increased to $402 million in Q2 2020 (Q1 2020: $400 million), mainly as a result of improved sales volumes at Vorkutaugol. EBITDA increased by 6.4% q/q to $182 million (Q1 2020: $171 million) due to increased topline and lower cost of sales q/q. The EBITDA margin increased to 45.3%.   At Vorkutaugol, the cash cost of coal concentrate per tonne declined to $66/t (Q1 2020: $78/t) reflecting a 34% increase in sales volumes q/q. The cash cost of iron ore pellets per tonne at Karelsky Okatysh declined to $23/t (Q1 2020: $27/t). At Olcon, the cash cost per tonne of iron ore concentrate declined to $24/t (Q1 2020: $30/t) reflecting growth in sales volumes q/q.   DIVIDEND   The Board of Directors is recommending a dividend of 15.44 roubles per share for Q2 2020. Approval of the dividend is expected to take place at the Company's EGM on 28 August 2020. The record date for participation in the EGM is 3 August 2020. The recommended record date for the dividend payment is 8 September 2020. The approval of the record date for the dividend payment is also expected to take place at the Company's EGM on 28 August 2020.   OUTLOOK   In Q2 2020 global steel demand was impacted by the spread of COVID-19 as a result of lockdown restrictions throughout the EU and Russia. According to industry experts, global steel demand is expected to decline by 6% y/y in 2020. Iron ore prices demonstrated strong upward dynamics due to high production rates in China, whereas production contraction elsewhere resulted in lower demand for coking coal.   Russian domestic steel demand reduced significantly in Q2 2020; however, this is expected to partially recover in H2 2020.   Despite a number of potential headwinds on both export and domestic markets, Severstal's low cost position allows us to remain competitive 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 http://www.severstal.com/eng/ir/results_and_reports/financial_results/index.phtml The Annual Report 2019 is available at http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.phtml     For further information, please contact:   Severstal Investor Relations Evgeny Belov T: [phone] [e-mail]     Severstal Public Relations Anastasia Mishanina T: [phone] [e-mail]     Severstal's financial communications agent - Hudson Sandler Andrew Leach / Emily Dillon T: [phone]       A conference call on Q2 & H1 2020 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on 23 July 2020 at 14.30 (London)/ 16.30 (Moscow).    Conference ID: 3060369 International Dial: [phone] Russian Dial:  [phone] (Local access)  8 10 800 2867 5011 (Toll free)   The call will be recorded and there will be a replay facility available for seven days as follows:   Replay Passcode: 3060369   International Dial: [phone] (Local access)  Russian Dial: 810 800 2702 1012 (Toll free)       *** P?? Severstal is one of the world's leading verticallyintegrated steel and steel related mining companies, with assets in Russia, Latvia and Poland. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $8,157 million and EBITDA of $2,805 million in 2019. Severstal's crude steel production in 2019 reached 11.8 million tonnes. www.severstal.com

ISIN:	US8181503025
Category Code:	IR
TIDM:	SVST
LEI Code:	213800OKDPTV6K4ONO53
Sequence No.:	77428
EQS News ID:	1099927

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