Severstal' : Severstal reports Q4 & FY2018 operatioal results

January 18, 2019

Q4 2018 GROUP HIGHLIGHTS

• Hot metal output decreased 3% q/q in Q4 2018 to 2.23 mln tonnes (Q3 2018: 2.31 mln tonnes), due to BF#2 short-term maintenance works. Crude steel production declined by 4% to 2.94 mln tonnes (Q3 2018: 3.06 mln tonnes) reflecting a decrease in pig iron production and seasonal slowdown of production at Balakovo mini-mill.
• Consolidated steel product sales increased 2% q/q to 2.76 mln tonnes in Q4 2018 (Q3 2018: 2.71 mln tonnes), following short-term maintenance works at rolling-mill facilities in the previous quarter. The share of domestic sales declined to 62% as a result of seasonal slowdown in domestic consumption (Q3 2018: 65%).
• The share of high value-added (HVA) products within the sales portfolio decreased four ppts to 44% (Q3 2018: 48%), driven by an increase in semi-finished and hot rolled coil sales and declining sales volumes of large diameter pipes, colour coated and hot rolled thick plate.
• Coking coal concentrate sales volumes from Vorkutaugol continued to grow, increasing 9% q/q following 27% increase in Q3. This was largely driven by higher production volumes at the Zapolyarnaya and Komsomolskaya mines.
• Iron ore pellet sales increased 15% to 2.94 mln tonnes (Q3 2018: 2.55 mln tonnes) as a result of higher production volumes and stock sell-off in Q4.

FY2018 GROUP HIGHLIGHTS

• Hot metal output remained almost unchanged in 2018 at 9.15 mln tonnes, however crude steel production increased 3% to 12.04 mln tonnes (FY2017: 11.65 mln tonnes). This was driven by an improvement in steel production efficiency following the launch of ladle furnace #2 and higher production volumes from Balakovo mini-mill. Meanwhile, the Company is continuing its efficiency programmes aimed at decreasing raw material consumption ratios in the steel production process.
• Consolidated steel product sales increased 2% y/y to 11.18 mln tonnes in FY2018 (FY2017: 10.92 mln tonnes), reflecting crude steel production growth. The high share of HVA products remained high at 46% in FY2018 (FY2017: 46%).
• Average selling prices for the majority of steel products grew substantially, by 5%-12% in FY2018, reflecting global trends as well as Severstal's sales and marketing initiatives.
• The higher iron ore concentrate sales y-o-y for FY2018 partially reflects the consolidation of the Yakovlevskiy mine and an uptick in production volumes at Olcon.
• Coking coal concentrate sales volumes at Vorkutaugol increased by 2% to 3.37 mln tonnes in 2018.
• As announced at Severstal's Capital Markets Day in November 2018, the Company plans to achieve coking coal concentrate production volumes growth of up to approximately 5.6mt per annum at the Vorkutaugol mines and plans to ramp-up Yakovlevskiy mine to approximately 5mt per annum in 2023, which will result in a higher level of vertical integration.

SUMMARY OF KEY PRODUCTION, SALES VOLUMES

Production, thousands of tonnes	Q4 2018	Q3 2018	Change, %	2018	2017	Change, %
Crude Steel (Russian Steel)	2,941	3,064	(4%)	12,039	11,651	3%
Hot metal (Russian Steel)	2,233	2,307	(3%)	9,146	9,158	(0%)
Sales volumes, thousands of tonnes	Q4 2018	Q3 2018	Change, %	2018	2017	Change, %
Coking coal concentrate	1,043	953	9%	3,374	3,294	2%
Iron ore pellets	2,943	2,554	15%	10,997	11,133	(1%)
Iron ore concentrate	1,430	1,424	0%	5,510	4,251	30%
Total steel products (Consolidated)	2,756	2,712	2%	11,176	10,919	2%
Total steel products (Russian Steel)	2,767	2,722	2%	11,220	10,959	2%

High value added steel products, %	Q4 2018	Q3 2018	Change, %	2018	2017	Change, %
Severstal (Consolidated)	44%	48%	(4 ppts)	46%	46%	0 ppts
Severstal Russian Steel	44%	48%	(4 ppts)	46%	46%	0 ppts

SEVERSTAL'S CONSOLIDATED SALES (NET OF INTERCOMPANYSALES)

Sales volumes, thousands of tonnes		Q4 2018	Q3 2018	Change, %	2018	2017	Change, %
Coal:	544		381	43%	1,671	1,700	(2%)
Coking coal concentrate	169		109	55%	359	127	183%
Steam coal	375		272	38%	1,312	1,573	(17%)
Iron ore:	2,128		1,671	27%	7,405	6,645	11%
Iron ore pellets	1,871		1,465	28%	6,578	6,514	1%
Iron ore concentrate	257		206	25%	827	131	531%
Semi-finished products	157		97	62%	695	519	34%
Rolled products:	2,186		2,148	2%	8,719	8,540	2%
Hot-rolled coil	1,017		946	8%	3,895	3,949	(1%)
Hot-rolled plate	210		218	(4%)	852	804	6%
Cold-rolled coil	296		280	6%	1,286	1,324	(3%)
Galvanised and metallic coated coil	208		211	(1%)	835	654	28%
Colour coated coil	97		122	(20%)	391	403	(3%)
Long products	358		371	(4%)	1,460	1,406	4%
Downstream products:	413		467	(12%)	1,762	1,861	(5%)
Metalware products	136		150	(9%)	560	615	(9%)
Large diameter pipes	107		128	(16%)	440	416	6%
Other tubes, pipes, formed shapes	170		189	(10%)	762	830	(8%)

Q4, H2 & FY 2018 ESG (ENVIRONMENTAL, SOCIAL, GOVERNANCE) HIGHLIGHTS

• Health and safety of our employees and contractors is crucial for all our operations. Severstal targets zero fatalities in its operations.
• In Q4 2018, LTIFR* decreased 5% q/q to 0.78 (Q3 2018: 0.82).
• In FY 2018 LTIFR was 0.95, decreasing 1% y/y (FY 2017: 0.96). In H2 2018, there were no fatalities of Severstal staff or its contractors.
• Personnel involvement in safety issues has increased in 2018 and was confirmed by the results of the Accident Prevention System audits. On a five-point scale Severstal Russian Steel outperformed the target, achieving 3.3 points, Vorkutaugol reached the base target of 2.6 points.

Health and Safety	Q4 2018	Q3 2018	Change, %	2018	2017	Change, %
LTIFR*	0.78	0.82	(5%)	0.95	0.96	(1%)

• At Severstal Russian Steel atmospheric emissions of pollutants decreased in 2018 by 3% to 301,710 tonnes (2017: 312,039 tonnes). Atmospheric emission of pollutants per tonne of steel products went down by 6% to 25.1 kg per tonne of steel in 2018 (2017: 26.8 kg per tonne) due to the reconstruction of coke battery #4 starting Q2 2017 and decommissioning of the gas filtering systems in complex steel processing facilities №№ 1-3.
• At Severstal Resources atmospheric emissions of pollutants increased in 2018 by 7% y/y and totaled 218,694 tonnes (2017: 204,986 tonnes). The growth mostly reflects increased iron ore pellets production and increased emissions of ventilation and drained methane at Vorkutaugol, explained by decommissioning from the drainage system of previously worked out coalfields, and the increased coal production volumes.

Environment**	Q4 2018	Q3 2018	Change, %	2018	2017	Change, %
Atmospheric emission of pollutants, thousand tonnes (Russian Steel)	74.2	75.6	(2%)	301.7	312.0	(3%)
Atmospheric emission of pollutants, thousand tonnes (Severstal Resources)	54.0	57.0	(5%)	218.7	205.0	7%
Specific atmospheric emission of pollutants, kg per tonne of steel***	25.2	24.7	2%	25.1	26.8	(6%)

Notes to this section:

* LTIFR refers to Lost Time Injury Frequency Rate of Severstal staff, the number of lost time injuries occurring in a workplace per 1 million hours worked.

** Emissions data is calculated in accordance with Russian regulation and is reported to the relevant Russian authorities on an annual basis and reviewed by them.

*** Steel production at Cherepovets Steel Mill and Severstal Long Product Mill Balakovo.

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