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PAO Severstal: Severstal reports Q4 & FY2018 financial results

Dow Jones received a payment from EQS/DGAP to publish this press release.

PAO Severstal (SVST) 
Severstal reports Q4 & FY2018 financial results 
 
05-Feb-2019 / 10:01 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 Q4 & FY2018 financial results 
 
      - Robust growth and record margins maintained - 
 
     Moscow, Russia - 5 February 2019 - PAO Severstal (MICEX-RTS: CHMF; LSE: 
 SVST), one of the world's leading steel and steel-related mining companies, 
   today announces its Q4 & FY2018 financial results for the period ended 31 
            December 2018. 
 
CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 31 DECEMBER 2018 
 
$ million,     Q4 2018 Q3 2018 Change, % FY2018 FY2017 Change, % 
unless 
otherwise 
stated 
Revenue         2,085   2,063    1.1%    8,580  7,848    9.3% 
EBITDA1          794     768     3.4%    3,142  2,577    21.9% 
EBITDA margin,  38.1%   37.2%  0.9 ppts  36.6%  32.8%  3.8 ppts 
% 
Profit from      685     671     2.1%    2,707  2,162    25.2% 
operations 
Operating       32.9%   32.5%  0.4 ppts  31.6%  27.5%  4.1 ppts 
margin, % 
Free cash        233     481    (51.6%)  1,601  1,393    14.9% 
flow2 
Net profit3      578     455     27.0%   2,051  1,355    51.4% 
Basic EPS4, $   0.70    0.56     25.0%    2.51   1.67    50.3% 
 
Notes: 
 
1) 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). 
 
2) 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. 
 
3) Net profit after FX fluctuations and other non-cash items. 
 
    4) Basic EPS is calculated as net profit divided by the weighted average 
 number of shares outstanding during the period: 821.2 million shares for Q4 
    2018, 818.6 million shares for Q3 2018, 817.1 million shares for FY2018, 
            811.7 million shares for FY2017. 
 
Q4 2018 vs. Q3 2018 ANALYSIS: 
 
? Group revenue remained almost flat, increasing by 1.1% q/q to $2,085 
million (Q3 2018: $2,063 million), as growth in sales volumes (steel 
products and iron ore pellets) was offset by a decline in steel prices 
q/q. 
 
? Group EBITDA increased by 3.4% q/q to $794 million (Q3 2018: $768 
million), reflecting increased profitability of the Resources division. 
The Group's vertically integrated business model delivered an EBITDA 
margin of 38.1%, remaining one of the highest in the industry globally. 
 
? Free cash flow totalled $233 million (Q3 2018: $481 million), which 
reflects a q/q increase in CAPEX and net working capital accumulation at 
the end of Q4 2018. 
 
? Net profit rose 27.0% q/q to $578 million (Q3 2018: $455 million) and 
includes a FX loss of $80 million and a $68 million reversal of the 
impairment provision including $51 million relating to Olcon. 
 
? Cash CAPEX increased by 33.3% q/q to $224 million (Q3 2018: $168 
million). 
 
? Net debt grew to $1,227 million by the end of Q4 2018 (Q3 2018: $438 
million), primarily reflecting lower cash balances after the dividend 
payout in Q4 2018. The Company's public debt includes outstanding loan 
participation notes and convertible bonds due in 2021 and 2022. 
 
? Severstal is committed to returning value to its shareholders whilst 
managing and maintaining a low level of debt. Severstal's financial 
position remains strong with a Net debt/EBITDA ratio at 0.4 as at the end 
of Q4 2018. The Board of Directors has therefore recommended a dividend of 
32.08 roubles per share for Q4 2018. 
 
FY2018 vs. FY2017 ANALYSIS: 
 
? Group revenue increased 9.3% y/y to $8,580 million (FY2017: $7,848 
million). The significant growth in revenue y/y was supported by a 
favourable pricing environment for steel and commodities in 2018 and a 2% 
growth in steel sales volumes y/y. 
 
? Group EBITDA surged 21.9% y/y to $3,142 million (FY2017: $2,577 million) 
driven by topline growth, which was partly offset by an increase in the 
cost of goods sold. 
 
? The Company generated $1,601 million of free cash flow, which represents 
an increase of 14.9% y/y (FY2017: $1,393 million) as a result of earnings 
growth y/y. 
 
? The Group maintained its prudent approach to CAPEX in 2018, with 
investments equal to $688 million in 2018, an increase of 16.4% y/y 
(FY2017: $591 million). 
 
FINANCIAL POSITION HIGHLIGHTS: 
 
? At the end of Q4 2018, cash and cash equivalents stood at $228 million 
(Q3 2018: $1,054 million), reflecting dividend payment made in Q4 partly 
offset by FCF generation for the period. 
 
? Gross debt remained broadly unchanged during the period at $1,455 
million (Q3 2018: $1,492 million). 
 
? Net debt grew to $1,227 million by the end of Q4 2018 (Q3 2018: $438 
million), primarily reflecting a fall in cash balances. The Net 
Debt/EBITDA ratio rose to 0.4 at the end of Q4 2018 (Q3 2018: 0.1). 
Severstal's Net Debt/EBITDA remains one of the lowest amongst steel 
companies globally and enables Severstal to maintain a low level of debt 
whilst returning value to its shareholders. 
 
? The Group's liquidity position remains strong, with $228 million in cash 
and cash equivalents and unused committed credit lines and overdraft 
facilities of $1,157 million, more than covering the short-term principal 
debt of $105 million. 
 
            Alexander Shevelev, CEO of Severstal Management, commented: 
 
 "The year of 2018 was a year of important changes to the Severstal business 
   model. Pioneering with a complex programme of operational enhancements in 
2010 in the Russian steel market we have been able to achieve and retain the 
      highest EBITDA margin in the world among steel companies. Time to move 
 forward. On top of our continued focus on costs we have identified two more 
           development areas - superior customer experience and new business 
  initiatives. All three pillars should help us to grow our EBITDA at a high 
       pace in the coming years with the first effects already seen in 2018. 
 
 I am happy to say that in 2018 Severstal delivered a solid performance as a 
     combination of strong market conditions and the effect of our strategic 
 programmes. The latter contributed some $426 million to EBITDA and exceeded 
   the initial target of $350 million. Looking forward into 2019 we have set 
       the same ambitious target of $350 million of additional EBITDA, which 
     demonstrates our continued commitment to deliver 10-15% annual earnings 
            growth. 
 
  The fourth quarter of 2018 was in line with our expectations. Supported by 
 our sales and marketing initiatives, our average selling prices declined at 
       a lower rate than the decrease in global steel prices in Q4, and this 
      contributed to the continued strong profitability of the Russian Steel 
   division. Our vertically integrated business model enabled us to keep our 
EBITDA margins at the record level of 38% in an environment of rising prices 
            for iron ore and coal. 
 
   As announced at our Capital Markets Day in November 2018, our 2019 target 
   investment programme will amount to about $1.45 billion and will focus on 
downstream upgrades and upstream expansion. Despite increased CAPEX, we plan 
     to maintain a high dividend flow by utilising our strong balance sheet. 
 
  Although domestic steel demand is moderating, we expect world steel demand 
      to remain at good levels in 2019, based on a strong global economy and 
 continued limits on steel production and economic incentives in China. This 
    gives the Board of Directors confidence to recommend a dividend of 32.08 
    roubles per share for Q4 2018, bringing the dividend payout to more than 
            100% of the quarterly FCF." 
 
            SEVERSTAL RUSSIAN STEEL (RSD) 
 
$ million,    Q4 2018 Q3 2018 Change, %  FY2018 FY2017 Change, % 
unless 
otherwise 
stated 
Revenue        1,845   1,897    (2.7%)   7,803  7,182    8.6% 
EBITDA          449     553    (18.8%)   2,167  1,761    23.1% 
EBITDA         24.3%   29.2%  (4.9 ppts) 27.8%  24.5%  3.3 ppts 
margin, % 
 
      RSD steel product sales increased by 2% to 2.77 mln tonnes in Q4 2018, 
    compared with the previous quarter (Q3 2018: 2.72 mln tonnes), following 
     short-term maintenance works at rolling-mill facilities in the previous 
            quarter. 
 
 The share of domestic sales declined to 62% due to the seasonal slowdown in 
    domestic consumption (Q3 2018: 65%). The share of high value-added (HVA) 
 products within the sales portfolio decreased by four ppts to 44% (Q3 2018: 
     48%), driven by an increase in semi-finished (slab) and hot rolled coil 
  sales and declining volumes of large diameter pipes, colour coated and hot 
            rolled thick plate. 
 
    Average selling prices for the majority of steel products declined in Q4 
2018 in line with global benchmarks, however selling prices for HVA products 
were less affected by this downward trend due to the nature of the contracts 
            and Severstal's sales and marketing initiatives. 
 
 Declining steel prices resulted in the RSD division's topline decreasing by 
    2.7% q/q at $1,845 million (Q3 2018: $1,897 million) which was partially 
   offset by higher sales volumes. EBITDA declined 18.8% q/q to $449 million 
   (Q3 2018: $553 million) as a result of declining revenue and rising input 
            costs. The EBITDA margin declined to 24.3% (Q3 2018: 29.2%). 
 
    The total non-integrated cash cost of slab production at the Cherepovets 
  Steel Mill in Q4 2018 increased $17/t and totaled $342/t (Q3 2018: $325/t) 
 as a result of higher raw material and repair expenses. The integrated cash 
    cost of slab in Q4 2018 decreased $22/t to $208/t (Q3 2018: $230/t) as a 
            result of Resources Division profitability growth. 
 
SEVERSTAL RESOURCES 
 
$ million,     Q4 2018 Q3 2018 Change, % FY2018 FY2017 Change, % 
unless 
otherwise 
stated 
Revenue          563     468     20.3%   1,908  1,727    10.5% 
EBITDA           343     253     35.6%   1,016   812     25.1% 
EBITDA margin,  60.9%   54.1%  6.8 ppts  53.2%  47.0%  6.2 ppts 
% 
 
 Coking coal concentrate sales volumes from Vorkutaugol continued to grow by 
    9% q/q following a 27% increase in Q4. This was largely driven by higher 
            production volumes at the Zapolyarnaya and Komsomolskaya mines. 
 
Iron ore pellet sales increased by 15% q/q to 2.94 mln tonnes (Q3 2018: 2.55 
   mln tonnes) driven by higher production volumes and stock sell-off in Q4. 
 
Iron ore concentrate sales remained almost flat in Q4 at 1.43 mln tonnes (Q3 
2018: 1.42 mln tonnes). The higher iron ore concentrate sales y/y for FY2018 
 partially reflects the consolidation of the Yakovlevskiy mine and growth in 
            production volumes at Olcon. 
 
Revenue at the Resources Division increased by 20.3% q/q to $563 million (Q3 
 2018: $468 million), reflecting pellet and coal volumes growth supported by 
  higher iron ore segment prices. EBITDA increased 35.6% q/q to $343 million 
     (Q3 2018: $253 million). EBITDA margin reached a record level of 60.9%, 
          supported by the favourable pricing environment for raw materials. 
 
       Given the fixed cost nature of the mining business, higher processing 
    volumes and Russian currency depreciation at Vorkutaugol brought Q4 2018 
  cash costs down to 56$/t (Q3 2018: $64/t). ?ash cost per tonne at Karelsky 
 Okatysh remained almost flat at $25/t (Q3 2018: $26/t). Cash cost per tonne 
   at Olcon decreased $4/t to $24/t (Q3 2018: $28/t) reflecting q/q increase 
            volumes. 
 
            DIVIDEND 
 
 The Board is recommending a dividend payment of 32.08 roubles per share for 
            the three months ended 31 December 2018. 
 
    The dividend is expected to be approved at the Company's AGM, which will 
  take place on 7 June 2019. The record date for participation in the AGM is 
            13 May 2019. 
 
   The recommended record date for the dividend payment is 18 June 2019. The 
approval of the record date for the dividend payment is also expected at the 
            Company's AGM, which will take place on 7 June 2019. 
 
Efficient conversion of high EBITDA margins into free cash flow supports our 
     commitment to be a quarterly dividend payer with up to 100% FCF payout, 
            provided that Net Debt/EBITDA level is below 1.0. 
 
            OUTLOOK 
 
In Q4 2018, global steel prices declined in both export and domestic markets 
due to lower than expected construction activity, the risk of trade wars and 
   the slowdown of the Turkish economy. China's active environmental policy, 
   and its introduction of selective production restrictions, should support 
 steel prices in 2019. Global demand for steel and raw materials is expected 
            to remain at good levels. 
 
      Despite some signs of local demand softening, Severstal's proximity to 
         export routes continues to be a major competitive advantage, giving 
Severstal the flexibility to quickly redistribute shipments between domestic 
            and export markets to take advantage of higher prices. 
 
       The Board is confident that Severstal will continue to be well-placed 
            relative to both local and global peers. 
 
NOTES 
 
1. Full financial statements are available at 
http://www.severstal.com/eng/ir/results_and_reports/financial_results/index. 
phtml [1] 
 
2. The Annual Report 2018 is available at 
http://www.severstal.com/eng/ir/results_and_reports/annual_reports/index.pht 
ml [2] 
 
            For further information, please contact: 
 
            Severstal Investor Relations 
 
Evgeny Belov 
 
T: +7 (495) 926-77-66 
 
evgenii.belov@severstal.com 
 
Vladimir Zaluzhsky 
 
T: +7 (495) 926-77-66 
 
            vladimir.zaluzhsky@severstal.com 
 
            Severstal Public Relations 
 
Anastasia Mishanina 
 
T: +7 (495) 926-77-66 
 
            anastasia.mishanina@severstal.com 
 
Vladimir Zaluzhsky 
 
T: +7 (495) 926-77-66 
 
            vladimir.zaluzhsky@severstal.com 
 
            Severstal's financial communications agent - Hudson Sandler 
 
Andrew Leach / Emily Dillon 
 
            T: +44 (0) 20 7796 4133 
 
A conference call on Q4 2018 results for investors and analysts hosted by 
Alexey Kulichenko, Chief Financial Officer, will be held on 5 February 2019 
at 13.00 (London)/ 16.00 (Moscow). 
 
Conference ID: 7503142 
International Dial: 
 
+44 (0) 330 336 9411 
 
Russian Dial: 
+7 495 646 9190 (Local access) 
8 10 8002 8675011 (Toll free) 
 
The call will be recorded and there will be a replay facility available for 
7 days as follows: 
 
Replay Passcode: 7503142 
 
International Dial: 
 
+44 (0) 207 660 0134 (Local access) 
 
Russian Dial: 
810 800 2702 1012 (Toll free) 
 
      *** 
 
 P?? 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 RTS and MICEX and the company's GDRs are traded on 
  the LSE. Severstal reported revenue of $8,580 million and EBITDA of $3,142 
    million in 2018. Severstal's crude steel production in 2018 reached 12.0 
            million tonnes. www.severstal.com [3] 
 
ISIN:          US8181503025 
Category Code: FR 
TIDM:          SVST 
LEI Code:      213800OKDPTV6K4ONO53 
Sequence No.:  7365 
EQS News ID:   772483 
 
End of Announcement EQS News Service 
 
 
1: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=07e25fbed2b0d978826737053383c403&application_id=772483&site_id=vwd&application_name=news 
2: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=cc9e6e458392b444513ed83935a36ddf&application_id=772483&site_id=vwd&application_name=news 
3: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=5885d49ed5e8dc686b77ca6aa78e352b&application_id=772483&site_id=vwd&application_name=news 
 

(END) Dow Jones Newswires

February 05, 2019 02:01 ET (07:01 GMT)

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