Public Joint Stock Severstal : Severstal reports Q1 2021 financial and operational results

April 16, 2021 Severstal reports Q1 2021 financial and operational results

PAO Severstal (MOEX: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, today announces its Q1 2021 operational and financial results for the period ended 31 March 2021.

CONSOLIDATED OPERATIONAL AND FINANCIAL RESULTS FOR THE FIRST QUARTER ENDED 31 MARCH 2021

$ million, unless otherwise stated	Q1 2021	Q4 2020	Change, %	Q1 2021	Q1 20201	Change, %
Revenue	2,219	1,723	28.8%	2,219	1,740	27.5%
EBITDA2	1,162	710	63.7%	1,162	555	109.4%
EBITDA margin, %	52.4%	41.2%	11.2 ppts	52.4%	31.9%	20.5 ppts
Profit from operations	1,021	585	74.5%	1,021	425	140.2%
Operating margin, %	46.0%	34.0%	12.0 ppts	46.0%	24.4%	21.6 ppts
Free cash flow3	497	212	134.4%	497	54	820.4%
Net profit	721	386	86.8%	721	72	901.4%
Basic EPS4, $	0.87	0.47	85.1%	0.87	0.09	866.7%
Net Debt/EBITDA5, x	0.52	0.84	(38.1%)	0.52	0.57	(8.8%)
LTIFR (staff)/LTIFR (staff+contractors)6	0.50/0.69	0.55	(9%)/n/a	0.50/0.69	0.81	(38%)/n/a
Crude steel production, kt	2,961	2,767	7%	2,961	2,850	4%
Hot metal production, kt	2,674	2,398	12%	2,674	2,410	11%
Total steel products sales, kt	2,630	2,441	8%	2,630	2,660	(1%)
Share of high value added steel products, %	46%	53%	(7 ppts)	46%	42%	4 ppts

Notes:

1. These data include adjustments made in connection with the change in presentation described in Severstal's quarterly financial statements.
2. 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.
3. 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.
4. Basic EPS is calculated as profit for the period divided by the weighted average number of shares outstanding during the period: 826 million shares for Q1 2021 and Q4 2020, and 825 million shares for Q1 2020.
5. Net Debt/EBITDA ratio is calculated as net debt divided by EBITDA for the last 12 months and is included in Severstal's quarterly financial statements. Net debt equals the total debt less cash and cash equivalents at the end of the reporting period.
6. LTIFR refers to Lost Time Injury Frequency Rate, the number of lost time injuries occurring in a workplace per 1 million hours worked. The scope covers injuries and hours worked for staff and contractors, using the cumulative data from the beginning of the calendar year.

Q1 2021 vs. Q4 2020 ANALYSIS:

• Crude steel production increased 7% q/q to 2.96 million tonnes (Q4 2020: 2.77 million tonnes), driven by a higher number of castings in Q1 2021 and an increase in the weight of each casting.
• Hot metal output increased 12% q/q in Q1 2021 to 2.67 million tonnes (Q4 2020: 2.40 million tonnes) following the launch of BF#3.
• Steel product sales increased 8% q/q to 2.63 million tonnes in Q1 2021 (Q4 2020: 2.44 million tonnes) following higher output volumes and the completion of short-term maintenance works in the previous quarter.
• The Company increased its share of steel export shipments to 52% (Q4 2020: 35%) due to the more favourable export price dynamics and higher demand.
• The share of high value-added (HVA) products within the sales portfolio amounted to 46% (Q4 2020: 53%) mainly reflecting increased volumes of hot-rolled coil, long products and semi-finished products.
• Group revenue increased by 28.8% q/q to $2,219 million (Q4 2020: $1,723 million) reflecting higher steel sales volumes and favourable price dynamics.
• Group EBITDA increased by 63.7% q/q to $1,162 million (Q4 2020: $710 million), driven by higher revenues. Severstal's vertically integrated business model delivered an EBITDA margin of 52.4%, maintaining the Group's position as the global leader by EBITDA margin in the steel industry.
• Free Cash Flow increased by 134.4% q/q to $497 million in Q1 2021 (Q4 2020: $212 million), which primarily reflects positive changes in net working capital q/q and higher earnings.
• Net profit totaled $721 million (Q4 2020: $386 million), including a FX loss of $47 million.
• Cash CAPEX amounted to $278 million (Q4 2020: $311 million).
• Net debt declined to $1,589 million at the end of Q1 2021 (Q4 2020: $2,029 million).
• Severstal is committed to returning value to its shareholders whilst maintaining a comfortable level of debt. Severstal's financial position remains strong with a Net debt/EBITDA ratio of 0.52 as at the end of Q1 2021. The Board of Directors has therefore recommended a dividend of 46.77 roubles per share for Q1 2021.

Q1 2021 vs. Q1 2020 ANALYSIS:

• Hot metal output increased 11% y/y in Q1 2021 to 2.67 million tonnes (Q1 2020: 2.41 million tonnes) following the launch of BF#3.
• Crude steel production increased 4% y/y to 2.96 million tonnes (Q1 2020: 2.85 million tonnes), driven by a higher number of castings in Q1 2021 and an increase in the weight of each casting.
• Steel product sales decreased 1% y/y to 2.63 million tonnes in Q1 2021 (Q1 2020: 2.66 million tonnes).
• The Company increased its share of steel export shipments to 52% (Q1 2020: 43%) due to the more favourable export price dynamics and higher demand.
• The share of high value-added (HVA) products within the sales portfolio increased to 46% y/y (Q1 2020: 42%).
• Group revenue increased by 27.5% y/y to $2,219 million in Q1 2021 (Q1 2020: $1,740 million) due to stronger pricing dynamics.
• Group EBITDA was 109.4% higher y/y at $1,162 million (Q1 2020: $555 million), reflecting increased revenues. The Group's EBITDA margin reached record high 52.4% (Q1 2020: 31.9%).
• The Company generated $497 million of Free Cash Flow (Q1 2020: $54 million), mainly reflecting positive changes in net working capital y/y and higher earnings.

FINANCIAL POSITION HIGHLIGHTS:

1. At the end of Q1 2021, cash and cash equivalents increased to $921 million (Q4 2020: $583 million).
2. Gross debt slightly declined to $2,510 million (Q4 2020: $2,612 million).
3. Net debt declined to $1,589 million at the end of Q1 2021 (Q4 2020: $2,029 million). The Net debt/EBITDA ratio was 0.52 at the end of Q1 2021 (Q4 2020: 0.84). 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.
4. The Group's liquidity position remains strong, with $921 million in cash and cash equivalents in addition to unused committed credit lines and overdraft facilities of $1,139 million, more than covering the Company's short-term principal debt of $718 million.

Alexander Shevelev, CEO of Severstal, commented:

'From Q1 2021, Severstal will begin reporting its quarterly financial results a week earlier than previously, shortening the gap between the end of a reporting period and the publication of our financial results. Accordingly, in future, also with effect from Q1, Severstal's quarterly operational and financial performance will be issued as a single document. Severstal was one of the first issuers in the Russian market to publish its Annual Report at the same time as its full-year financial results. Similarly, we are adopting global best practice of publishing unified operational and financial results for investors' convenience.

We will continue to report our safety performance quarterly. We are pleased to report no fatalities with our staff in this period. Starting Q1 2021, we will report quarterly data on the LTIFR for our staff and contractors, and we included contractors in the scope of previously announced safety goals, thus making them more ambitious. I am especially proud to say that LTIFR for our staff declined in Q1 2021 to 0.50.

Severstal's strong performance in Q1 2021 has once again demonstrated the strength of our business model as well as the rewards of our ongoing transformation programme. In Q1 we achieved a record high EBITDA margin of 52.4%.

Our crude steel output and steel product sales volumes went up 7%and 8% respectively in Q1 q/q after the launch of the new blast furnace #3 in Q4 2020 and continued internal improvements at our existing casting machines. Increased steel products sales were partly diverted to export markets where prices were more attractive. We anticipate our domestic steel sales to increase in Q2 with the start of the construction season in Russia.

The share of HVA products in our product portfolio decreased in Q1 to a more normalised level of 46% from the one-off 53% in Q4 2020. Our long-term goal for the level of HVA in our product sales mix remains 53%, and projects such as the Continuous pickling unit #4 launched in Q1 2021 will support this. Our sales practices will continue to develop, focusing on increasing shipments to Russia's major infrastructure and industrial projects, tolling schemes, and growing the number of small and mid-sized clients in the portfolio'.

DIVIDEND

The Board of Directors is recommending a dividend of 46.77 roubles per share for Q1 2021. Approval of the dividend is expected to take place at the Company's AGM on 21 May 2021. The record date for participation in the AGM is 26 April 2021. The recommended record date for the dividend payment is 1 June 2021. The approval of the record date for the dividend payment is also expected to take place at the Company's AGM on 21 May 2021.

OUTLOOK

The negative effect of the pandemic on the steel industry did not last as long as expected. China, the world's biggest steel market, grew by 10% in 2020 after the country established control over the virus and launched stimulus measures, pushing steel-related commodity prices upwards. The idling of some steel capacity, low product inventory levels and supply disruptions in other markets contributed to a significant price rally and created a steel product deficit as a result of quickly recovering demand.

The global iron ore market was also in deficit in Q1 2021. The 26% q/q increase in the price of 62% iron ore fines was fuelled by strong steel production in China and seasonally lower exports from Australia and Brazil. The coking coal benchmark price also rose by 18% in Q1 2021 due to restocking in Asia.

Despite increased volatility on international steel and mining markets, Severstal's financial position remains strong and the Board is confident in the company's outlook and is recommending a dividend of 46.77 roubles per share for Q1 2021.

NOTES

1. Full financial statements are available at http://www.severstal.com/eng/ir/results_and_reports/financial_results/index.phtml
2. The Annual Report 2020 is available at http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.phtml
3. Starting from Q1 2021 Severstal's quarterly financial results will be published a week earlier than in previous years, accordingly the operational and financial results will be released at the same time in one document.