Severstal reports Q3 2021 financial and operational results

 

- EBITDA margin was 54%; EBITDA grew 5% and FCF grew 6% qoq -

 

Moscow, Russia -  18 October 2021 - PAO Severstal (MOEX: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, increased its revenue by 9% qoq to $3,206 mln, EBITDA reached $1,723 mln (+5% qoq), EBITDA margin amounted to 54% (-2 ppts qoq).

 

KEY CONSOLIDATED OPERATIONAL AND FINANCIAL RESULTS

 

	Q3 2021	Q2 2021	qoq	9m 2021	9m 20206	yoy
Financials, $ million
Revenue	3,206	2,946	9%	8,371	5,147	63%
EBITDA1	1,723	1,647	5%	4,532	1,712	165%
EBITDA margin, %	54	56	(2ppts)	54	33	21ppts
Free cash flow2	992	936	6%	2,425	626	287%
Net profit	1,237	1,139	9%	3,097	630	392%
Net debt/EBITDA3	0.29	0.37	(22%)	0.29	0.77	(62%)
Basic EPS4, $	1.48	1.36	9%	3.72	0.76	389%
Production, kt
Hot metal	2,728	2,627	4%	8,029	7,143	12%
Crude steel	2,878	2,776	4%	8,615	8,547	1%
Sales, kt
Steel products, incl:	2,694	2,678	1%	8,002	8,059	(1%)
HVA	1,146	1,308	(12%)	3,676	3,535	4%
Iron ore products	1,092	1,310	(17%)	3,426	4,530	(24%)
Coal	127	282	(55%)	754	1,101	(32%)
Health and safety
LTIFR (staff) 5	0.93	0.57	63%	0.68	0.71	(4%)
LTIFR (staff + contractors)	0.88	0.63	40%	0.73	-	-

 

Notes:

1. EBITDA represents profit from operations plus depreciation and amortisation of productive assets (including the Group's share of depreciation and amortisation of associates and joint ventures) adjusted for the 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.

 

2. 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.

 

3. 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.

 

4. Basic EPS is calculated as profit for the period divided by the weighted average number of shares outstanding during the period: 838 million shares for Q3 2021 and 834 million shares for Q2 2021; 833 mln shares for 9m 2021 and 825 million shares for 9m 2020.

 

5. LTIFR refers to Lost Time Injury Frequency Rate, the number of lost time injuries occurring in a workplace per one 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.

 

6. These data include adjustments made in connection with the change in presentation described in Severstal's quarterly financial statements.

 

 

Q3 2021 vs. Q2 2021 ANALYSIS:

 

Consolidated operational results

 

• Production: Hot metal output grew by 4% qoq to 2.73 mln tonnes due to end of scheduled BF repairs. Crude steel production raised to 2.88 mln tonnes (+4% qoq), as a result of completed BOF shop and casting machines upgrade. The upgrade will allow us to increase crude BOF steel output by 0.5 mln tonnes per annum.

• Steel sales were up by 1% qoq to 2.69 mln tonnes, due to strong sales of pig iron and slabs. Sales of HVA decreased by 12% qoq to 1.15 mln tonnes on the back of customer's expectations of further price decline. Sales of hot-rolled steel and plate increased by 1% qoq to 1.12 mln tonnes. The total share of export sales volume, including sales of pig iron increased by 6 ppts qoq to 51% due to a softening of the demand in Russia.
• Total share of high value-added (HVA) products amounted to 43% (-6 ppts qoq) due to softening demand and increase of pig iron sales. If we don't take into account the increase in pig iron shipments, the HVA share in the product portfolio has not changed almost qoq.
• Raw materials sales: Sales of coal decreased by 55% qoq to 0.13 mln tonnes, driven mainly by a decline in steam coal sales due lower output qoq because of long wall repositioning. Iron ore sales were down by 17% qoq to 1.09 mln tonnes, driven by a redistribution of sales to Cherepovets steel mill, coupled with lower pellet production on the back of repairs.

Consolidated financial results

 

• Revenue increased by 9% qoq to $3,206 mln due to higher sales volumes and increase in weighted average steel prices. Sales growth was primarily driven by export markets with an increase of revenue from the North America region (4x growth qoq) as well as from the Middle East region (2x growth qoq).
• EBITDA increased to $1,723 mln (+5% qoq), higher revenue was partially impacted by the additional export duties imposed by the Russian government. EBITDA margin was 54% (-2 ppts qoq).
• Free Cash Flow increased to $992 mln (+6% qoq), driven by higher EBITDA and lower build-up of working capital
  (-$58 mln). The build-up of inventories associated with the growth of export sales share was partially compensated by an increase of accounts payable and advances received. CAPEX amounted to $284 mln (+4% qoq).

 

9M 2021 vs. 9M 2020 ANALYSIS:

 

Consolidated operational results­­­

 

• Production: Hot metal production increased by 12% yoy to 8 mln tonnes, due to BF-3 commissioning in December 2020. Steel output grew to 8.62 mln tonnes (+1% yoy), driven by the EAF-1 start up in April 2021 and completion of BOF shop and casting machines upgrades.
• Steel sales were marginally lower at 8 mln tonnes (-1% yoy). Sales of semi-finished products grew by four times yoy to 1.07 mln tonnes following higher output of pig iron and crude steel, coupled with repairs in the hot-rolled shop. Sales of hot-rolled steel (incl. plates) decreased by 20% yoy mainly due to a large-scale upgrade of one of the continuous slab heating furnaces.
• High value-added (HVA) sales increased by 4% yoy on stronger sales of high value added hot-rolled steel, cold-rolled steel (+19% yoy to 0.79 mln tonnes) and LDP (+74% to 0.23 mln tonnes). The HVA share in total sales amounted to 46% (+2 ppts yoy).
• Raw materials sales: Sales of coal decreased by 32% yoy to 0.75 mln tonnes driven mainly by a decline in coal concentrate sales on the back of lower output impacted by the long wall repositioning. Sales of iron ore products decreased by 24% to 3.4 mln tonnes, driven by the redirection of iron ore flow to own assets following the start-up of BF-3 in the end of 2020. Sales of iron ore pellets to third parties reduced by 23% yoy to 3.3 mln tonnes. Iron ore concentrate sales to third parties decrease substantially in Q3 2021, amounting to just 78 kt in 9m 2021 (-58% yoy).

 

 

 

 

Consolidated financial results

 

• Revenue increased to $8,371 mln (+63% yoy) due to higher steel prices and improved product mix.
• EBITDA grew to $4,532 mln (2.6x yoy) due to higher steel prices in the first 9m of 2021. EBITDA margin reached a record high of 54%.
• Net profit totaled $3,097 mln (increase of 5x yoy), including FX losses of $45 mln (vs FX losses of $472 in 9m 2020).
• Free Cash Flow increased by 4x yoy to $2,425 mln, driven by higher earnings.
• CAPEX amounted to $835 mln.

Financial position

 

• Cash and cash equivalents decreased to $281 mln (-64% qoq) on the back of Q2 2021 dividend payments and the repayment of $500 mln of eurobonds.
• Total debt declined to $1,815 mln (-22% qoq) due to the redemption of eurobonds with a 3.85% coupon in August 2021.
• Net debt stood at $1,534 mln (flat qoq). The Net debt/EBITDA ratio improved to 0.29 (vs 0.37 as at 30 June 2021).
• A strong liquidity position, with $281 mln in cash and cash equivalents, in addition to unused committed credit lines and overdraft facilities of $1,158 mln, more than covers the Company's short-term debt of $45 mln.

Health and safety performance

 

• LTIFR among employees increased to 0.93 (+63% qoq) in Q3 2021. The overall LTIFR for employees and contractors reached 0.88 (+40% qoq) in the reporting period.
• In 9m 2021 LTIFR among employees improved to 0.68 (-4% yoy). The overall LTIFR for employees and contractors was 0.73. The improvement is attributed to the deployment of the Contractor Safety Management and Fatal Injury Avoidance projects in all business units of the company, but regrettably we had five fatalities in 9m 2021. Each of these cases was investigated with a change in some internal processes to prevent similar incidents in the future.

DIVIDEND

 

• The Board of Directors is recommending a dividend of 85.93 roubles per share for Q3 2021. Approval of the dividend is expected to take place at the Company's EGM on 3 December 2021.The recommended record date for the dividend payment is 14 December 2021. The approval of the record date for the dividend payment is also expected to take place at the Company's EGM on 3 December 2021.

 

MARKET UPDATE AND OUTLOOK

 

• Iron ore prices fell by almost $100/t CFR China from all-time maximums due to a softening of Chinese demand as China limits steel output. This led also to a decline in steel prices from the record level reached in Q2. The Chinese steel market is affected by steel production restrictions which is positive to price sentiment, however Chinese property market cooling creates the risk of a weakening of steel demand. At the same time the coking coal market entered severe deficit in China and as a result domestic Chinese coal prices skyrocketed, which also pushed prices in the global market higher. Australian high-grade coking coal export prices have exceeded $400/t FOB.
•  In Russia a temporary 15% export duty has caused domestic HRC price fall below export parity net of duty.
• The Russian authorities have confirmed a new tax mechanism which will replace export duty (a complex set of measures including introducing a new excise tax and changing the MET calculation methodology). These changes will adversely affect Severstal's financial performance in 2022.

Alexander Shevelev, CEO of Severstal Management, commented:

 

"We continue to develop our response to the continuing issues with the COVID-19 pandemic. In our aim to ensure a safe environment in the workplace for our employees and contractors we continue to encourage our staff to get vaccinated. Today more than 65% of them have already been vaccinated. Also we have successfully achieved our internal target of having employees with immunity through vaccination or antibodies of more than 80% by the end of the summer thus creating a safer environment for everyone.

We also continue to focus on injury prevention. LTIFR for our staff declined in 9m 2021 by 4% to 0.68. However, the combined LTIFR for both our staff and contractors grew in Q3 2021 to 0.88 and regrettably we had two fatalities in the reporting quarter in Vorkutaugol. We conducted an investigation of each of these cases, and took actions to prevent similar incidents in the future. In particular, we strengthened control over compliance with the requirements of mine passports, as well as an intensified focus on the process of assessing and training of our operations managers in health and safety.

In Q3 2021, we saw first signs of a normalisation in the steel market. Iron ore prices fell by almost $100/t from all-time maximums due to a decrease in the Chinese demand, as China limits steel output. In line with our expectations, spot steel prices also declined from the record level of Q2. The semi-conductor shortage pushed automotive output down in Europe which led to lower steel demand and declining lead times from steel mills, resulting in supply and demand being in balance. The introduction of export duties in Russia caused domestic HRC price to fall to a level below export parity, net of duty.

However, the growth in sales coupled with higher average selling prices (due to the lag between spot prices and actual prices) pushed the Company's financial results to new records. Revenue grew by 9% qoq to $3.2bn and EBITDA rose by 5% to $1.7bn. Continuous focus on effective management of working capital enabled us to reach a record FCF of almost $1bn (+6% qoq). Net debt/EBITDA ratio declined to 0.29.

Severstal's strong performance in Q3 2021 and financial strength of the company help the Board to recommend a dividend of 85.93 roubles per share for Q3 2021."

 

SEGMENTS PERFORMANCE

 

Severstal Russian Steel (RSD)

 

$ million, unless otherwise stated	Q3 2021	Q2 2021	qoq	9m 2021	9m 20201	yoy
Steel sales, kt	2,704	2,691	0%	8,037	8,093	(1%)
Semis	489	317	54%	1,065	261	308%
Commercial	1,067	1,066	0%	3,294	4,294	(23%)
HVA	1,148	1,308	(12%)	3,678	3,538	4%
Revenue	3,098	2,759	12%	8,011	5,137	56%
EBITDA	1,069	1,021	5%	2,779	1,133	145%
EBITDA margin, %	35	37	(2 ppts)	35	22	13 ppts

 

 

Notes:

 

1. These data include adjustments made in connection with the change in presentation described in Severstal's quarterly financial statements.

 

• Steel sales are almost flat. The Company increased its export sales share to 51% (+6 ppts qoq) owing to the decline in steel demand in Russia.
• Total share of high value-added (HVA) products amounted to 42%.
• Revenue increased by 12% qoq to $3,098 mln.
• EBITDA grew by 5% qoq to $1,069 mln. EBITDA margin declined to 35% (-2 ppts qoq) on narrowing price spreads between slabs and raw material basket.
• The total non-integrated cash cost of slab per tonne at the Cherepovets Steel Mill increased to $505/t (+11% qoq) affected mainly by higher coal costs. The integrated cash cost of slab amounted to $225/t (+29% qoq).

Severstal Resources

 

$ million, unless otherwise stated	Q3 2021	Q2 2021	qoq	9m 2021	9m 2020	yoy
Сoal sales, kt	810	1,149	(30%)	3,257	4,331	(25%)
Iron ore sales, kt	4,560	4,659	(2%)	13,361	13,445	(1%)
Revenue	1,016	999	2%	2,762	1,275	117%
EBITDA	761	733	4%	2,019	614	229%
EBITDA margin, %	75	73	2 ppts	73	48	25 ppts

 

• Coal sales decreased by 30% qoq to 0.8 mln tonnes mainly as a result of steam coal sales reduction.
• Sales of iron ore were down by 2% qoq to 4.6 mln tonnes due to the acceleration of pellet sales to third parties and concentrate within Severstal.
• Revenue from the Resources Division reached $1,016 mln (+2% qoq). EBITDA increased by 4% qoq to $761 mln. EBITDA margin increased to 75%.
• At Vorkutaugol, the cash cost of coal concentrate per tonne amounted to $102/t (+13% qoq). The cash cost of iron ore pellets per tonne at Karelsky Okatysh increased to $34/t (+3% qoq). At Olcon, the cash cost per tonne of iron ore concentrate grew to $28/t (+4% qoq).

NOTES

 

1. Full consolidated interim condensed financial statements are available at http://www.severstal.com/eng/ir/results_and_reports/financial_results/index.phtml. This includes the review report from KPMG, Severstal's external auditor, carried out in accordance with International Standard on Review Engagements 2410.
2. Severstal's Annual Report 2020 is available at http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.phtml
3. Each of the directors who is a director at the date of the approval of this document confirms that to the best of their knowledge: that the consolidated interim condensed financial statements has been prepared in accordance with IAS34; that the consolidated interim condensed financial statements give a true and fair view of Severstal's assets, liabilities, financial position and profit or loss; and that this document contains a fair review of important events that have occurred during the first nine months of the year and their impact on the consolidated interim condensed financial statements; and of the principal risks and uncertainties for the remaining three months of the year; and that the report contains a fair review of related party transactions.

 

 

 

A conference call on Q3 2021 and 9m 2021 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on 18 October 2021 at 12.00 (London)/ 14.00 (Moscow). 

 

 

To join the webcast (with registration form) please follow the link:

https://mm.closir.com/slides?id=314887

*We recommend that participants start dialling in 10 minutes prior to ensure a timely start of the conference call.

To join the conference call, please dial:

United Kingdom Number:
+44 203 984 9844 (local access)
+44 800 011 9129 (toll free)

US Number:
+1 718 866 4614 (local access)
+1 888 686 3653 (toll free)

Russian Dial:
+7 495 283 98 58 (local access)

Participant code: 314887

 

ANNEX

 

 

1. Consolidates sales by product

 

Sales volumes Kt	Q3 2021	Q2 2021	qoq	9m 2021	9m 20201	yoy
Coal:	127	282	(55%)	754	1,101	(32%)
Coking coal concentrate	39	38	3%	112	215	(48%)
Steam coal	88	244	(64%)	642	886	(28%)
Iron ore:	1,092	1,310	(17%)	3,426	4,530	(24%)
Iron ore pellets	1,061	1,309	(19%)	3,348	4,343	(23%)
Iron ore concentrate	31	1	n/a	78	187	(58%)
Steel:	2,694	2,678	1%	8,002	8,059	(1%)
Semi-finished products	489	317	54%	1,065	260	310%
Hot-rolled steel:	1,115	1,102	1%	3,408	4,251	(20%)
incl. Hot-rolled high value added	227	211	8%	638	531	20%
Cold-rolled steel	248	280	(11%)	785	661	19%
Galvanized steel	216	255	(15%)	746	690	8%
Colour coated coil	86	119	(28%)	288	373	(23%)
Long steel	171	162	6%	491	544	(10%)
Metalware	139	175	(21%)	456	426	7%
Large diameter pipes	90	75	20%	225	129	74%
Other tubes, pipes, formed shapes	135	193	(30%)	533	725	(26%)
Steel solutions	5	-	n/a	5	-	n/a

 

 

2. Russian Steel Division sales by product 

 

Sales volumes Kt	Q3 2021	Q2 2021	qoq	9m 2021	9m 20201	Yoy
Total steel products	2,704	2,691	0%	8,037	8,093	(1%)
Semi-finished products	489	317	54%	1,065	261	308%
Hot-rolled steel:	1,115	1,101	1%	3,408	4,252	(20%)
incl. Hot-rolled high value added	229	209	10%	638	531	20%
Cold-rolled coil	248	280	(11%)	785	661	19%
Galvanized and metallic coated coil	216	255	(15%)	746	690	8%
Colour coated coil	86	119	(28%)	288	373	(23%)
Long products	181	174	4%	524	573	(9%)
Metalware products	139	176	(21%)	458	429	7%
Large diameter pipes	90	75	20%	225	129	74%
Other tubes, pipes, formed shapes	135	194	(30%)	533	725	(26%)
Steel solutions	5	-	n/a	5	-	n/a

 

 

 

3. Russian Steel Division sales by destination 

 

Sales volumes Kt	Q3 2021	Q2 2021	qoq	9m 2021	9m 20201	Yoy
Total steel products	2,704	2,691	0%	8,037	8,093	(1%)
Russia	1,313	1,482	(11%)	4,051	4,837	(16%)
Export	1,391	1,209	15%	3,986	3,256	22%

 

 

 

1. These data include adjustments made in connection with the change in presentation described in Severstal's quarterly financial statements

 

 

4. Russian Steel Division average prices 

 

Sales price, $/tonne	Q3 2021	Q2 2021	qoq	9m 2021	9m 20201	Yoy
Semi-finished products	646	624	4%	611	373	64%
Hot-rolled steel	1,009	846	19%	823	446	85%
incl. Hot-rolled high value added	1,035	789	31%	828	574	44%
Cold-rolled coil	1,155	1,001	15%	968	536	81%
Galvanized and metallic coated coil	1,449	1,213	19%	1,148	639	80%
Colour coated coil	1,599	1,427	12%	1,389	789	76%
Long products	754	673	12%	664	419	58%
Metalware products	1,491	1,097	36%	1,205	852	41%
Large diameter pipes	822	752	9%	770	811	(5%)
Other tubes, pipes, formed shapes	986	941	5%	867	492	76%
Steel solutions	1,517	n/a	n/a	1,517	n/a	n/a
Weighted average selling price	1,012	906	12%	873	513	70%

 

1. These data include adjustments made in connection with the change in presentation described in Severstal's quarterly financial statements

 

 

5. Resource Division sales

Kt	Q3 2021	Q2 2021	qoq	9m 2021	9m 2020	yoy
Coal	810	1,149	(30%)	3,257	4,331	(25%)
Coking coal concentrate	722	905	(20%)	2,615	3,445	(24%)
Steam coal	88	244	(64%)	642	886	(28%)
Iron ore	4,560	4,659	(2%)	13,361	13,445	(1%)
Iron ore pellets	2,847	3,001	(5%)	8,493	8,112	5%
Iron ore concentrate	1,713	1,658	3%	4,868	5,333	(9%)

 

 

6. Vorkutaugol operating highlights

Kt	Q3 2021	Q2 2021	qoq	9m 2021	9m 2020	yoy
Run of mine: coal production,	1,696	2,047	(17%)	6,037	7,806	(23%)
Coking coal concentrate sales	722	905	(20%)	2,615	3,445	(24%)
Internal consumption	683	867	(21%)	2,503	3,229	(22%)
Third party	39	38	3%	112	216	(48%)

 

 

7. Karelsky Okatysh iron ore pellets production and sales volumes

Kt	Q3 2021	Q2 2021	qoq	9m 2021	9m 2020	yoy
Production	2,849	2,916	(2%)	8,616	8,022	7%
Pellets sales	2,847	3,001	(5%)	8,493	8,112	5%
Internal consumption	2,328	2,238	4%	6,859	8,078	(15%)
Third party	519	763	(32%)	1,634	34	n/a

 

 

8. Iron ore concentrate sales volumes

Kt	Q3 2021	Q2 2021	qoq	9m 2021	9m 2020	yoy
Olcon	1,073	1,088	(1%)	3,157	3,287	(4%)
Yakovlevskiy	627	570	10%	1,698	1,315	29%
Karelsky Okatysh	13	0	n/a	13	731	(98%)
Total	1,713	1,658	3%	4,868	5,333	(9%)

 

 

For further information, please contact:

 

Severstal Investor Relations

Vladimir Zaluzhsky, Nikita Klimantov

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

vladimir.zaluzhsky@severstal.com

na.klimantov@severstal.com

 

 

Severstal Public Relations

Anastasia Mishanina

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

anastasia.mishanina@severstal.com

 

 

Severstal's financial communications agent - Hudson Sandler

Andrew Leach / Emily Dillon

T: +44 (0) 20 7796 4133

 

 

 

 

 

***

PАО Severstal is one of the world's leading vertically integrated steel and steel related mining companies, with assets in Russia, Latvia and Poland. Severstal is listed on MOEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $6,870 mln and EBITDA of $2,422 mln in 2020. Severstal's crude steel production in 2020 reached 11.3 mln tonnes. www.severstal.com