OAO Severstal SVST Q3 & 9M 2012 Financial Results

  OAO Severstal (SVST) - Q3 & 9M 2012 Financial Results

RNS Number : 1904R
OAO Severstal
15 November 2012




                                      

               Severstal reports Q3 & 9M 2012 financial results

                                      



Moscow, Russia  - November  15, 2012-  OAO Severstal  (MICEX-RTS: CHMF;  LSE: 
SVST),  one  of   the  world's   leading  vertically   integrated  steel   and 
steel-related mining companies,  today announces  its Q3 &  9M 2012  financial 
results.





CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 30 September 2012

$ million, unless      Q3 2012 Q2 2012 Change, %  9M 2012 9M 2011^1 Change, %
otherwise stated
Revenue                 3,591   3,718    (3.4%)   10,988   12,085     (9.1%)
EBITDA^2                 546     664    (17.8%)    1,772    2,817    (37.1%)
EBITDA margin, %        15.2%   17.9%  (2.7 ppts)  16.1%    23.3%   (7.2 ppts)
Profit from operations   369     481    (23.3%)    1,235    2,319    (46.7%)
Operating margin, %     10.3%   12.9%  (2.6 ppts)  11.2%    19.2%   (8.0 ppts)
Net profit^3             329     155     112.3%     912     1,572    (42.0%)
EPS^4, $                0.41    0.19     115.8%    1.07     1.56     (31.4%)



Notes:



1)  These  amounts  reflect  adjustments  made  in  connection  with   the 
presentation of discontinued operations and the early adoption of the  revised 
IAS 19 "Employee benefits".



2) EBITDA represents profit/(loss)  from operations plus depreciation  and 
amortization of productive assets adjusted for  gain / (loss) on disposals  of 
property, plant and equipment and intangible assets.



3) Attributable to shareholders of OAO Severstal.



4) EPS is  calculated based on  the following weighted  average number  of 
shares outstanding during the period: 849.7 million shares for 9M 2012,  810.6 
million shares for Q3 2012, 812.3 million  shares for Q2 2012 and for  1,005.2 
million shares for 9M 2011.



Q3 2012 vs. Q2 2012 ANALYSIS:



§ Higher  sales volumes  at Severstal  Resources and  Severstal Russian  Steel 
divisions, but lower realized prices across divisions impact Group revenue and
EBITDA lines;



§ Severstal  Russian Steel  division delivered  increased revenue,  but  Group 
revenue decreased 3.4%  to $3,591  million (Q2  2012: $3,718  million) due  to 
softer sales at Severstal Resources and Severstal International;



§ EBITDA declined by 17.8% to $546 million (Q2 2012: $664 million) and  EBITDA 
margin decreased to 15.2% (Q2 2012:  17.9%), primarily due to lower EBITDA  at 
Severstal Resources and Severstal International;



§ Q3 net profit broadly doubled q/q  to $329 million (Q2 2012: $155  million). 
The company  registered FX  gains of  $152million in  Q3, as  compared to  FX 
losses of $143 million in Q2;



§ Recommended dividend payment of 3.18 roubles per share (approximately $0.10)
for the 9 months ended 30 September 2012.



9M 2012 vs. 9M 2011 ANALYSIS:



§ Revenue down by 9.1%  to $10,988 million (9M  2011: $12,085 million) due  to 
lower steel and bulks prices;



§ EBITDA down  37.1% to $1,772  million (9M 2011:  $2,817 million) and  EBITDA 
margin down to  16.1% (9M  2011: 23.3%), due  to lower  earnings at  Severstal 
Russian Steel and Severstal Resources divisions.



FINANCIAL POSITION HIGHLIGHTS:



§ Liquidity position  strengthened further:  $2,121 million in  cash and  cash 
equivalents, comfortably covering short-term debt of $1,877 million;



§ Net Debt/EBITDA increased slightly to 1.4x at end of Q3 2012 due to drop  in 
EBITDA for the last twelve months, but remains below target level of 1.5x;



§ In September, Severstal successfully placed $475 million of Senior Unsecured
Convertible Bonds due 2017;



§ In October, Severstal successfully placed $750 million of 10-year  Eurobonds 
with a coupon rate of 5.9%.





Alexey Mordashov, CEO of Severstal, commented:



"Severstal delivered a solid financial and operational performance in Q3 2012;
a quarter  that,  across  the  steel and  steel-related  mining  markets,  was 
characterized by contracting prices. Until  the year end we anticipate  coking 
coal and  iron ore  prices to  remain  stable, while  steel prices  have  some 
downside risk, therefore we expect Q4 2012  to be more challenging for us,  as 
compared to  Q3  2012.  Nevertheless,  Severstal remains  one  of  the  global 
industry leaders by profitability and  we remain confident that the  strengths 
of our  business model,  high-quality  asset portfolio  and product  mix  will 
enable us to continue to hold this position."



CHIEF EXECUTIVE'S REVIEW OF THE THREE MONTHS ENDED 30 SEPTEMBER 2012



Severstal Russian Steel delivered the strongest q/q EBITDA performance for the
Group as a result of strong sales  to the domestic market, an increased  share 
of high-value-added products in the sales portfolio and higher sales  volumes. 
The q/q EBITDA decline at the Severstal Resources and Severstal  International 
divisions was largely due to lower realized prices, coupled with weaker  sales 
volumes at Severstal North America.



Our cash  capital  expenditure in  Q3  was $330  million,  down 11%  from  the 
previous quarter. We continue to focus our capex on steel and mining assets in
Russia.  Our  major  2012  projects   include  the  Balakovo  Mini-mill,   the 
reconstruction of Coke Battery #7 at Cherepovets and a coalmine methane  power 
station at Vorkuta.



SEVERSTAL RUSSIAN STEEL



Severstal Russian Steel's revenue in Q3  increased 2.0% q/q to $2,254  million 
(Q2 2012: $2,209 million), with 6%  higher q/q sales volumes offsetting  lower 
realized selling prices.  EBITDA increased  by 5.6%  q/q to  $284 million  (Q2 
2012: $269 million) with EBITDA margin up to 12.6% (Q2 2012: 12.2%).



Benefiting from favorable  end demand factors,  the share of  high-value-added 
products in  the  sales  portfolio  rose  to 46%  on  stronger  sales  of  all 
value-added products except for  large-diameter pipes and intentionally  lower 
volumes of  slab sales.  The share  of sales  to the  domestic market  further 
increased to 61%, representing the highest level in the latest quarters.



In September the  new Coke Battery  #7 was  fired up at  Cherepovets. The  new 
unit, with  installed  capacity  of  700  ktpa,  is  expected  to  start  coke 
production in Q1 2013.



SEVERSTAL RESOURCES



Severstal Resources' revenue decreased by 6.5% in Q3 to $735 million (Q2 2012:
$786 million), owing to  lower realized coking coal  and iron ore prices.  The 
lower prices were partly offset by higher sales volumes at all business  units 
except for PBS where  we temporarily idled  5 of our 12  mines in July.  Lower 
revenue and flat costs lead to lower q/q EBITDA of $244 million (Q2 2012: $293
million).



In Q3 we completed the pre-feasibility study for our Putu iron ore project  in 
Liberia, which confirmed extensive resources of approximately 4.4bn tonnes  of 
iron ore at the deposit.



Cost dynamics  at Severstal  Resources  units was  mixed  in Q3.  Coking  coal 
concentrate costs at Vorkuta decreased by 17% q/q to $87/t due to a production
ramp-up in  Q3 following  a dip  in production  in Q2  and the  completion  of 
planned maintenance.  Production  costs  at  PBS were  up  to  $113/t  due  to 
impairment of part of coal inventories, but we expect cost decreases at PBS in
Q4. Iron ore production costs remained largely flat q/q at $57/t at  Karelskiy 
Okatysh and $45/t at Olkon.



SEVERSTAL INTERNATIONAL



Severstal International  posted  revenue  of $910  million  (Q2  2012:  $1,063 
million). The  drop was  due  to lower  realized  prices coupled  with  weaker 
selling volumes.  Division's EBITDA  declined  to $17  million (Q2  2012:  $77 
million). EBITDA margin reduced 5.3 ppts  q/q to 1.9%, while EBITDA per  tonne 
decreased q/q to $16 from $64 in Q2. Value-added products (cold rolled  carbon 
and galvanized steel) remained  more resilient to the  downturn in demand  and 
their share in the product mix increased slightly from 42% in Q2 to 43% in Q3.
In the first 9 months of 2012 shipments rose 26% over the same period of  2011 
and revenue increased 21%. In the first 9 months of 2012 Division's EBITDA was
$160 million or $46 per tonne (9M 2011: $163 million or $58 per tonne).



Weekly steel production in the US in Q3 continued to fall y/y while imports of
finished steel products to  the US increased  on average 18%  y/y and in  some 
product categories by 40%.  The industry's capacity  utilization is now  below 
70%. However,  most market  segments remain  healthy led  by demand  from  the 
automotive, pipe and tube  industry. There are some  signs of recovery in  the 
residential and non-residential construction segments.



DIVIDEND



The Board is recommending a dividend of 3.18 roubles per share  (approximately 
$0.10) for the nine months ended 30 September 2012.



Approval of the dividend  is expected at  the Company's Extraordinary  General 
Meeting which  will take  place on  20 December  2012. The  record date  is  9 
November 2012.



OUTLOOK



In Russia, we expect Q4 to be weaker than Q3 due to traditionally lower levels
of construction activity. Further decreases  in export prices are unlikely  as 
they have reached the level of production costs of marginal producers.



Global steelmaking utilization  reached 78%  in September and  is expected  to 
remain broadly flat  in Q4.  The Chinese economy  shows signs  of recovery  in 
investments and construction  sectors on  the back of  government measures  to 
ramp up spending. Nevertheless, we anticipate coking coal and iron ore  prices 
to remain stable  until the year  end, while steel  prices have some  downside 
risk, therefore we expect Q4 2012 to  be more challenging for us, as  compared 
to Q3 2012.





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For further information, please contact:



Severstal Investor Relations

Vladimir Zaluzhsky

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

vladimir.zaluzhsky@severstal.com



Severstal Public Relations

Elena Kovaleva

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

elena.kovaleva@severstal.com



Severstal's financial communications agent - Hudson Sandler

Andrew Hayes / Andrew Leach / Maria Ignatova / Alex Brennan

T: +44 (0) 20 7796 4133



A conference call  on Q3  2012 results for  investors and  analysts hosted  by 
Alexey Kulichenko, Chief Financial Officer, will be held on November 15,  2012 
at 09.30am (GMT London) 13.30 (Moscow).



Participant dial in: +44 (0) 1452 555 566 (International)

Participant dial in: +08 00 6940 257 (UK FreeCall Dial-In)

Participant dial in: +08 44 493 3800 (UK LocalCall Dial-In)

Participant dial in: 8108 002 097 2044 (Russian Free Call)

Conference ID: 59178650



The call will be recorded and there will be a replay facility available for 7
days as follows:

International Dial in: +44 (0) 1452 55 00 00

UK Free Call Dial In: 0871 700 0145

UK Local Dial In: 0845 245 5205

Encore replay access number: 9256860

Full financial statements are available at
http://www.severstal.com/eng/ir/results_reports/financial_reports/

                                     ***



ОАО Severstal is one  of the world's leading  vertically integrated steel  and 
steel related  mining companies,  with  assets in  Russia, the  USA,  Ukraine, 
Latvia, Poland, Italy,  Liberia and  Brazil. Severstal  is listed  on RTS  and 
MICEX and the company's GDRs are traded on the LSE.Severstal reported revenue
of $15,812 million  and EBITDA of  $3,584 million in  2011. Severstal's  crude 
steel production in 2011 reached 15.3 million tonnes. www.severstal.com

                     This information is provided by RNS
           The company news service from the London Stock Exchange

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QRTFFLSMIFESELF -0- Nov/15/2012 07:01 GMT