Severstal' : Severstal reports Q2 & H1 2019 financial results

PAO Severstal (SVST) Severstal reports Q2 & H1 2019 financial results 19-Jul-2019 / 09:01 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& H12019 financial results   - Maintaining high profitability -   Moscow, Russia - 19July2019- PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, today announces its Q2& H1 2019financial results for the period ended 30June2019.   CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 30JUNE2019 $ million, unless otherwise stated Q2 2019 Q1 2019 Change, % H1 2019 H1 2018 Change, % Revenue 2,177 2,031 7.2% 4,208 4,432 (5.1%) EBITDA1 753 663 13.6% 1,416 1,580 (10.4%) EBITDA margin, % 34.6% 32.6% 2.0 ppts 33.7% 35.6% (1.9 ppts) Profit from operations 625 555 12.6% 1,180 1,351 (12.7%) Operating margin, % 28.7% 27.3% 1.4 ppts 28.0% 30.5% (2.5 ppts) Free cash flow2 263 389 (32.4%) 652 887 (26.5%) Net  profit3 475 428 11.0% 903 1,018 (11.3%) Basic EPS4, $ 0.58 0.52 11.5% 1.10 1.25 (12.0%)   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 is determined as the aggregate amount of the following items: Net cash from operating activities, CAPEX, proceeds from disposal of PPE, interest received and dividends received. A reconciliation of free cash flow to net cash from operating activities is presented in Severstal's quarterly financial statements.   Net profit after FX fluctuations and other non-cash items.   Basic EPS is calculated as net profit divided by the weighted average number of shares outstanding during the period: 825.0 million shares for Q2 2019, 822.5 million shares for Q1 2019, 823.7 million shares for H1 2019, 814.3 million shares for H1 2018.   Q2 2019 vs. Q1 2019 ANALYSIS:   Group revenue increased7.2% q/qto $2,177million (Q1 2019: $2,031 million), mainly driven by the favourable pricing environment for steel and raw materials.   Group EBITDA increased 13.6% to $753 million (Q1 2019: $663 million), reflecting topline growth. The Group's vertically integrated business model delivered an EBITDA margin of 34.6%, remaining one of the highest in the industry globally.   Free cash flow totalled $263million (Q1 2019: $389 million), which primarily reflects CAPEX growth and changes in net working capital q/q despite earnings growth.   Net profit totalled $475million (Q12019: $428 million) and includes a FX gain of $30 million.   Cash CAPEX was $267 million (Q1 2019: $209 million).   Net debt increased to $1,469 million at the end of Q2 2019 (Q1 2019: $863 million), primarily reflecting growth intotal debt and lower cash balances.   Severstal is committed to returning 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 0.5 as at the end of Q2 2019. The Board of Directors has therefore recommended a dividend of 26.72 roubles per share for Q2 2019.   H1 2019 vs. H1 2018 ANALYSIS:   Group revenue declined5.1% y/y to $4,208 million (H1 2018: $4,432million). Thisdrop in revenue y/y was a result of weaker pricing for steel products and lower sales volumes y/y.   Group EBITDA was 10.4% lower y/y, at $1,416 million (H1 2018: $1,580 million), primarily reflecting the lower revenues. The Group's EBITDA margin therefore remained at high levels of 33.7% (H1 2018: 35.6%).   The Company generated $652 million of free cash flow, which represents a decline of 26.5% y/y (H1 2018: $887 million) mainly reflectingEBITDA decline and CAPEX growth y/y.   FINANCIAL POSITION HIGHLIGHTS:   At the end of Q2 2019, cash and cash equivalents stood at $345million (Q1 2019: $583 million), reflecting dividend payout for the period offset by placement of two rouble-denominated bonds and FCF generation for the period.   Gross debt increased to $1,814 million (Q1 2019: $1,446million). In April 2019, Severstal completed the placement of two exchange traded rouble-denominated bonds due in 2029, with put options in 2024 and 2026.   Net debt increased to $1,469 million by the end of Q2 2019 (Q1 2019: $863 million), primarily reflecting growth of total debt and decreased cash balances. The Net debt/EBITDA ratio reached 0.5 at the end of Q2 2019 (Q1 2019: 0.3). Severstal's Net debt/EBITDA remains one of the lowest amongst steel companies globally and enables Severstal to maintain a comfortable level of debt whilst returning value to its shareholders.   The Group's liquidity position remains strong, with $345million in cash and cash equivalents and unused committed credit lines and overdraft facilities of $1,201 million, more than covering the short-term principal debt of $259million.   Alexander Shevelev, CEO of Severstal Management, commented:   I am pleased to highlight that in Q2 2019 Severstal delivered a sustainable financial performance reflecting strong raw material and steel market conditions and the effect of our ongoing efficiency programmes. Amid rising iron ore prices and hence declining margins of not-integrated steelmakersacross the globe, we have once again demonstrated the competitive advantages of our business model with captive raw materials. In Q2 2019, we increased Group EBITDA by almost 14% to $753 million and our EBITDA margin rose to 34.6%, which is one of the highest in the industry globally. At our Capital Markets Day in November 2018 we committed to growing our EBITDA by 10-15% annually after taking account of macro factors, and presented our planned investment projects for the coming five years that should support this growth.In H1 2019, our sales & marketing initiativesenabled us to deliver an additional $85 mlnof EBITDA. I would like to draw your attention to some of our strategic and operational highlights for Q2 2019: We signed a definitive agreement for the sale of the Steel Mini-Mill in Balakovo. The consideration for this transaction will amount to $215 million. Following the sale of Mini-Mill Balakovo, we plan to focus on developing steel production at our main asset, the Cherepovets Steel Mill. We are confident that this will enable us to streamline our internal processes to successfully execute our updated strategic priorities. In 2019, we plan to continue improving our ESG disclosure as well as to continue with projects to make our operations more environmentally friendly. In Q2 2019, we published an ESG investor presentation, and also disclosed information on our tailings management and the risk management system of our iron ore segment. The Board remains confident in the outlookand is recommending a dividend of 26.72 roubles per share for Q2 2019, bringing the dividend payout to more than 100% of quarterly free cash flow.   SEVERSTAL RUSSIAN STEEL (RSD)   $ million, unless otherwise stated Q2 2019 Q1 2019 Change, % H1 2019 H1 2018 Change, % Revenue 2,151 1,966 9.4% 4,117 4,061 1.4% EBITDA 397 395 0.5% 792 1,165 (32.0%) EBITDA margin, % 18.5% 20.1% (1.6 ppts) 19.2% 28.7% (9.5 ppts)   Russian Steel Division (RSD) steel product sales remained almost unchanged from the previous quarter at 2.8 mln tonnes in Q2 2019 compared with the previous quarter (Q1 2019: 2.84 mln tonnes).   The share of domestic sales rose to 70% due to the increased attractiveness of domestic sales (Q1 2019: 65%).   The share of high value-added (HVA) products within the sales portfolio increased two ppts to 46% (Q1 2019: 44%), driven by a decline in sales of semi-finished, hot rolled coil products and higher sales of galvanised, colour-coated and LDPs.   LDP sales volumes grew 9% q/q, which reflects the realisation of accumulated stock of large diameter pipes for the Poland-Slovakia Gas Interconnection project (Eustream), which were produced in 2018 and shipped in the previous quarter.   Average selling prices for the majority of steel products increased in Q2 2019 in line with benchmarks.Higher price dynamics led to topline growth of 9.4% q/q for RSD, at $2,151 million (Q1 2019: $1,966 million). Higher raw material costs resulted in almost unchanged EBITDA of $397 million (Q1 2019: $395 million). The EBITDA margin squeezed to18.5% (Q1 2019: 20.1%).     The total non-integrated cash cost of slab production at the Cherepovets Steel Mill in Q22019increased $24/t and totalled $355/t (Q12019: $331/t) as a result of higherraw materialexpenses and stronger RUB. The integrated cash cost of slabs in Q2 2019declined $23/tto $197/t (Q1 2019 $220/t)as a result ofincreased profitability at the Resources Division.   SEVERSTAL RESOURCES $ million, unless otherwise stated Q2 2019 Q1 2019 Change, % H1 2019 H1 2018 Change, % Revenue 647 511 26.6% 1,158 877 32.0% EBITDA 416 295 41.0% 711 420 69.3% EBITDA margin, % 64.3% 57.7% 6.6 ppts 61.4% 47.9% 13.5 ppts   Coking coal concentrate sales volumes from Vorkutaugol declined 7% due to planned short-term modernisation works atthe coal beneficiation facilities in Q2 2019. Meanwhile run-of-mine (ROM) coal production at Vorkutaugol in Q2 2019 increased 13% q/q.   Iron ore pellet sales increased 2% to 2.90 mln tonnes (Q1 2019: 2.83 mln tonnes) due to seasonal factors despite a q/q decline in production.   Iron ore concentrate sales volumes increased 10% to 1.43 mln tonnes (Q1 2019: 1.30 mln tonnes) following seasonal output growth.   Revenue at the Resources Division surged26.6% q/q to $647million (Q1 2019: $511 million) mainly driven by better prices and sales volume dynamics at the division's iron ore segment (Karelsky Okatysh, Olcon, the Yakovlevskiy mine). EBITDA was up41.0% q/q to $416 million (Q1 2019: $295 million) due to the revenue growth q/q. The EBITDA margin rose to64.3%, supported by the favourable pricing environment for raw materials and efficiency initiatives undertaken at the Resources Division.   Lower sales volumes, higher salary and repair expenses q/q at Vorkutaugol brought Q2 2019 cash costs up to 87$/t (Q1 2019: $70/t). ?ash costs per tonne at Karelsky Okatysh declined to $23/t (Q1 2019: $26/t) following q/q sales volumes growth q/q. Cash costs per tonne at Olcon declined to $28/t (Q1 2019: $30/t) reflecting higher sales volumes q/q.   DIVIDEND   The Board of Directors has therefore recommended a dividend of 26.72 roubles per share for Q2 2019.Approval of the dividend is expected to take place at the Company's EGM, which will take place on 6 September 2019. The record date for participation in the EGM is 12 August 2019. The recommended record date for the dividend payment is 17 September 2019. The approval of the record date for the dividend payment is also expected at the Company's EGM which will take place on 6 September 2019.   OUTLOOK   Following supply disruptions in Brazil and Australia in H1 2019 and due to growing steel output in China, iron ore prices continue to stay at record levels with various scenarios of their further direction. Though ex-China steel demand is stagnating due to weakness of theauto and machinery sectors in Europe and economic slowdown in Turkey, the current cost of the raw materials basket is giving a certain level support to steel prices limiting their downside potential. In Russia, steel demand showed an impressive 10% y/y growth in H12019 driven by restocking activity in thelocal construction sector. Hence, we can expect some deceleration of steel demand in the second half of the year. However, Severstal's proximity to export routes continues to be a major competitive advantage giving us the flexibility to quickly redistribute shipments between best performing markets.   Despite a number of potential headwinds on both export and domestic markets the Board remains confident in the resilience of Severstal's vertically-integrated business model relative its local and global peers. NOTES   Full financial statements are available athttp://www.severstal.com/eng/ir/results_and_reports/financial_results/index.phtml The Annual Report 2018is 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]   Vladimir Zaluzhsky T: [phone] [e-mail]     Severstal Public Relations Anastasia Mishanina T: [phone] [e-mail]   Vladimir Zaluzhsky T: [phone] [e-mail]     Severstal's financial communications agent - Hudson Sandler Andrew Leach / Emily Dillon T: [phone]       A conference call on Q2 2019 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on 19July 2019 at 10.30 (London)/ 12.30 (Moscow).    Conference ID: 7829368 International Dial: [phone] Russian Dial:  [phone] (Local access)  8 800 500 9283 (Toll free)   The call will be recorded and there will be a replay facility available for 7 days as follows:   Replay Passcode: 7829368  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. Severstalis listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $8,580 million and EBITDA of $3,142million in 2018. Severstal's crude steel production in 2018 reached 12.0 million tonnes. www.severstal.com

ISIN:	US8181503025
Category Code:	IR
TIDM:	SVST
LEI Code:	213800OKDPTV6K4ONO53
Sequence No.:	13997
EQS News ID:	843763

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