Q2 & H1 2013 financial results

Severstal reports Q2 & H1 2013 financial results

Moscow, Russia - August 29, 2013 - OAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading vertically integrated steel and steel-related mining companies, today announces its Q2 and H1 2013 financial results.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 30 JUNE 2013

Notes:

1) EBITDA represents profit/(loss) 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).

2) H1 2012 amounts reflect adjustments made in connection with the change in classification of income and expenses related to finance operations between general and administrative expenses, gain/(loss) on remeasurement and disposal of financial investments and finance costs to more appropriately reflect their nature.

3) Net (loss)/profit attributable to shareholders of OAO Severstal. Net (loss)/profit is after FX translation losses.

4) Basic EPS is calculated based on the following basic weighted average number of shares outstanding during the period: 812.3 million shares for Q2 2012, 869.4 million shares for H1 2012, 810.6 million shares for Q1 2013 and Q2 2013.

Q2 2013 vs. Q1 2013 ANALYSIS:

§ Continued focus on cost control together with higher sales volumes resulted in a second consecutive quarter of EBITDA growth;

§ Revenue increased by 2.8% q/q to $3,414 million (Q1 2013: $3,322 million), driven primarily by higher sales volumes across all divisions;

§ EBITDA up by 11.4% q/q to $479 million (Q1 2013: $430 million), as a result of improved performances at Severstal Russian Steel and Severstal Resources; EBITDA margin 1.1 ppts up to 14.0% (Q1 2013: 12.9%);

§ Net loss of $44 million, as compared to net profit of $44 million in Q1 2013 mainly due to $226 million FX losses in Q2. Excluding the FX losses due to weaker rouble the company's profit for the period would be $182 million;

§ Q2 2013 capex of $253 million[5], 18.1% lower than in Q1 2013;

§ Recommended dividend payment of 2.03 roubles per share (approximately $0.06) for the 6 months ended 30 June 2013.

H1 2013 vs. H1 2012 ANALYSIS:

§ Revenue down 8.9% y/y to $6,736 million (H1 2012: $7,397 million) as a result of lower prices;

§ EBITDA reduced by 27.2% y/y to $909 million (H1 2012: $1,249 million) reflecting lower steel, iron ore and coking coal prices;

§ Breakeven, as compared to net profit of $582 million in H1 2012 mainly due to $241 million FX losses in H1 2013. Excluding the FX losses due to weaker rouble the company's profit for the period would be $246 million.

FINANCIAL POSITION HIGHLIGHTS:

§ Prudent debt management led to gross debt 4.9% lower q/q to $5,454 million and net debt down 5.4% to $3,960 million. Net debt/EBITDA ratio broadly stable at 2.2x;

§ Solid liquidity: $1,494 million in cash and cash equivalents, exceeding short-term debt of $1,107 million[6] with committed unused credit lines of $1,264 million.

Alexey Mordashov, CEO of Severstal, commented:

"Despite headwinds in the global steel and mining industries, Severstal has managed to deliver a second consecutive quarterly earnings improvement. All divisions contributed to this improvement: Severstal Russian Steel and Severstal Resources were both able to increase sales volumes and reduce unit costs, more than offsetting the effect of lower prices and increasing Q2 EBITDA. EBITDA in Q2 at Severstal International also saw positive growth on an adjusted basis after excluding a one-off item recorded in Q1. In this challenging environment we are continuing our cost efficiency measures at our production sites, closely monitoring G&A expenses and becoming more prudent towards our capital expenditure commitments. These measures are designed to maintain our competitive advantages and our leading positions in the industry."

CHIEF EXECUTIVE'S REVIEW OF THE THREE MONTHS ENDED 30 JUNE 2013

Severstal's focus on further strengthening competitiveness through improving efficiency and reducing costs has continued and, along with increasing sales volumes, this has helped drive a second consecutive quarter of earnings growth in what remains a challenging market. In line with this focus, in July we announced changes to our organizational structure to simplify management structure and to further reduce costs.

Severstal Russian Steel and Severstal Resources delivered increased EBITDA as a result of higher sales volumes, improved product mixes and lower production costs. EBITDA at Severstal International was lower q/q as a result of a $12m positive non-cash one-off item in Q1 2013. However, adjusting for that one-off item the division's EBITDA also increased q/q.

Capital expenditure in Q2 2013 was $253 million, 18.1% lower than in Q1 2013, reflecting our flexible and prudent approach to capex. Russia is the main focus of our investments in FY 2013 with key projects at Severstal Russian Steel including the Balakovo mini-mill, development of specialized service centers and the modernization of the Izhora pipe plant. At Severstal Resources major projects of this year include the construction of two incline shafts and the first stage of the preparation plant capacity expansion project at Vorkutaugol and the construction of a steeply inclined conveyor at Olkon.

SEVERSTAL RUSSIAN STEEL

Steel sales volumes at Severstal Russian Steel increased by 4.2% in Q2 2013 q/q to 2.7 mt as a result of higher realized volumes of high value-added (HVA) and long products. This helped offset a continuing downward pricing trend across the products, except for CRC, color-coated and semi-finished products and delivered a 3.1% increase in the division's revenue to $2,093 million (Q1 2013: $2,030 million).

Cost of sales increased in Q2 in line with revenue growth, however SGA costs were down 3.9% q/q. This positively affected divisional EBITDA, which progressed by 15.9% q/q to $226 million (Q1 2013: $195 million). EBITDA margin improved to 10.8% (Q1 2013: 9.6%).

The share of HVA products in the division's sales portfolio improved in Q2 to 45% against 43% in Q1, resulting from seasonally higher sales of value-added products. The share of domestic sales in the division's portfolio increased to 65% from 56%, which was also attributable to seasonality.

SEVERSTAL RESOURCES

Severstal Resources posted a 3.2% increase in revenue q/q to $706 million (Q1 2013: $684 million). This was primarily driven by a 10.9% rebound in iron ore sales volumes, while coking coal sales volumes remained broadly flat q/q.

Positive q/q revenue dynamics coupled with overall flat costs lead to the EBITDA improvement of 10.5% to $211 million (Q1 2013: $191 million). Q2 EBITDA margin increased by 2.0 ppts q/q to 29.9% (Q1 2013: 27.9%).

Cash costs at the division's iron ore operations continued to decrease in Q2 with total cash costs (TCC) at Karelskiy Okatysh down to $56/t (Q1 2013: $62/t) and to $43/t (Q1 2013: $53/t) at Olkon. TCC for the Vorkuta coking coal concentrate were also down q/q to $103/t (Q1 2013: $110/t), while at PBS they increased to $114/t (Q1 2013: $107/t) on lower sales volumes as a result of weaker demand.

SEVERSTAL INTERNATIONAL

In Q2 2013, Severstal International delivered another solid performance, further increasing sales volumes by 5.2% to 1.2 mt as a result of strong US demand and customer base expansion by introduction of new products. The division's utilization rate was almost 100%, compared to an average 78% for the US steel industry. However the impact of this was partly offset by some price correction, with prices down 2.6% q/q for the division's steel products. The overall result was a 2.5% q/q increase in revenue to $953 million (Q1 2013: $930 million).

Increased revenue together with lower production unit costs and SGA expenses resulted in EBITDA of $44 million (Q1 2013: $50 million). This q/q decrease in EBITDA was mainly attributable to a $12 million positive one-off non-cash item recorded at Severstal International in Q1 2013. Adjusting for this item, which was the result of the settlement with a coking coal supplier, EBITDA has improved q/q. EBITDA margin remained relatively stable at 4.6% (Q1 2013: 5.4%).

With the US economy continuing to grow at a slow but steady pace in Q2, domestic steel demand remained strong, driven by the auto, construction and pipe and tube industries. June automotive sales reached the record high in recent years at 16 million units (on an annualized basis) and total construction spending in 1H 2013 was up 5% y/y, driven by a 20% increase in residential spending.

DIVIDEND

The Board is recommending a dividend payment of 2.03 roubles per share (approximately $0.06) for the 6 months ended 30 June 2013.

Approval of the dividend is expected at the Company's EGM which will take place on 30 September 2013. The record date is 12 August 2013.

OUTLOOK

Management's continued focus on further enhancing our competitiveness through vigorous cost control and production efficiency initiatives coupled with a flexible and prudent approach to capex is delivering positive results.

Looking at Q3 2013, steel demand in Russia and the USA is expected to remain strong with moderate upward pricing movements. However, European demand remains weak, and China will continue to face the problem of oversupply.

Whilst the short term outlook for the steel industry is showing signs of improvement, over the medium to long-term we expect the market will remain challenging.

http://www.rns-pdf.londonstockexchange.com/rns/6778M_-2013-8-28.pdf 

http://www.rns-pdf.londonstockexchange.com/rns/6778M_1-2013-8-28.pdf 

For further information, please contact:

Severstal Investor Relations

Vladimir Zaluzhsky

T: +7 (495) 926-77-66

[email protected]

Severstal Public Relations

Elena Kovaleva

T: +7 (495) 926-77-66

[email protected] 

Severstal's financial communications agent - Hudson Sandler

Andrew Hayes / Maria Ignatova / Alex Brennan

T: +44 (0) 20 7796 4133

A conference call on Q2 2013 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on August 29, 2013 at 14.00 (GMT London)/ 17.00 (Moscow).

Participant dial in: +44 (0) 203 139 4830 (International)

Participant dial in: 810 800 2136 5011 (Russian Free Call)

Participant dial in: +1 866 928 7517 (US FreeCall Dial-In)

Pin Code: 88519752#

The call will be recorded and there will be a replay facility available for 7 days as follows:

International Dial in: +44 (0) 020 3426 2807

Russian Dial in: +7 495 660 4512

Pin Code: 641566#

Full financial statements are available at http://www.severstal.com/eng/ir/results_reports/financial_reports/ 

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ОАО Severstal is one of the world's leading vertically integrated steel and steel related mining companies, with assets in Russia, the USA, Ukraine, Latvia, Poland, Italy, Liberia and Brazil. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $14,104 million and EBITDA of $2,158 million in 2012. Severstal's crude steel production in 2012 reached 15.1 million tonnes. www.severstal.com