Severstal reports Q4 & FY 2015 financial results

OREANDA-NEWS. PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world’s leading steel and steel-related mining companies, today announces its Q4 and FY 2015 financial results for the period ended 31 December 2015.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 31 DECEMBER 2015

Notes:

1)     The amounts for FY 2014 reflect adjustments made in connection with the change in the methodology for calculating the unrealised gain in inventory, increasing EBITDA by $8 million.

2)     EBITDA represents profit from operations plus depreciation and amortisation 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 Q4 2015, Q3 2015, FY 2015 and FY 2014.

Q4 2015 vs. Q3 2015 ANALYSIS:

• Group revenue decreased 16.1% q/q to $1,396 million (Q3 2015: $1,663 million). This primarily reflects a further decline in average selling prices and seasonally weaker sales volumes at Russian Steel. The decline was partially offset by an improved performance within the Resources division.
• Despite the group EBITDA margin compressing 2.8 ppts q/q to 28.7% (Q3 2015: 31.5%), it remained one of the highest in the industry. Group EBITDA decreased 23.5% q/q to $401 million (Q3 2015: $524 million);
• The net loss of $114 million (Q3 2015: $130 million) reflects a FX loss of $208 million and non-current assets impairment of $173 million. Adjusting for these non-cash items, Severstal would have posted an underlying net profit of $267 million (Q3 2015: $394 million excluding FX losses and non-current assets impairment);
• Free cash flow decreased 49.9% q/q to $305 million (Q3 2015: $609 million), while strong free cash flow remained a strategic focus;
• Cash outflow on capex of $122 million, 18.4% higher q/q (Q3 2015: $103 million);
• Recommended dividend payment of 20.27 RUB per share for the three months ended 31 December 2015.

FY 2015 vs. FY 2014 ANALYSIS:

• FY 2015 revenue decreased 22.9% y/y to $6,396 million (FY 2014: $8,296 million) as a result of lower realised prices y/y at Russian Steel and Resources, which was only partially mitigated by an increase in sales volumes y/y;
• EBITDA decreased 5.2% y/y to $2,096 million (FY 2014: $2,211 million). The impact of lower deliveries from Resources was partially offset by a further improved performance at Russian Steel driven by operational enhancements, lower input costs and RUB devaluation;
• The abovementioned operational improvements drove 6.1 ppts y/y EBITDA margin increase to 32.8% (FY 2014: 26.7%);
• FY 2015 net profit of $562 million (FY 2014: net loss of $795 million) was impacted by FX losses on continuing operations of $624 million and non-current assets impairment of $183 million. Excluding these non-cash items, Severstal would have posted a net profit of $1,369 million (FY 2014: net profit of $1,304 million excluding FX losses and non-current assets impairment);
• Continued strong improvement in free cash flow at $1,552 million for the FY 2015 (FY 2014: $1,232 million), is in line with the Company’s strategic focus;
• Сapex of $440 million for the FY 2015 was 43.5% lower y/y (FY 2014: $779 million), reflecting our prudent approach to investments. Severstal’s FY 2016 capex target is RUB 43 billion, subject to FX fluctuations.

FINANCIAL POSITION HIGHLIGHTS:

• As at the end of Q4 2015, cash and cash equivalents were at $1,647 million (Q3 2015: $1,675 million) as strong free cash flow generation more than offset cash outflows on the quarterly dividend payment;
• Severstal’s gross debt decreased a marginal 2.1% at the end of Q4 2015 to $2,452 million (Q3 2015: $2,504 million) largely reflecting FX fluctuations;
• Net debt continued to reduce to $805 million as at the end of Q4 2015 (Q3 2015: $829 million). The Net Debt/EBITDA ratio remained largely unchanged at 0.4x at the end of Q4 2015 (Q3 2015: 0.4x), which is one of the lowest amongst steel companies globally. During FY 2015 the net debt/EBITDA ratio reduced to 0.4x (YE 2014: 0.7x) driven primarily by the substantial reduction in net debt;
• Strong liquidity, with $1,647 million in cash and cash equivalents and unused committed credit lines of $683 million, more than covers short-term debt principal requirements of $476 million.

Vadim Larin, CEO of JSC Severstal Management, commented:

“This year we have made further progress in our strategy to be one of the most efficient steelmakers globally, and in an uncertain climate have delivered another set of strong financial results. We have maintained our relentless focus on improving production efficiency at all our business units and have continued to benefit from our asset structure which has underpinned our flexibility and resilience.

Despite limited visibility in both domestic and export markets, the company is consistent in the execution of its stated strategy focusing on customer care and product quality improvement, cost efficiency, and investment optimisation. This combined with a strong financial position enables the company to constantly deliver long-term shareholder value”.