Severstal reports Q1 2020 financial results

Q1 2020 vs. Q1 2019 ANALYSIS:

Group revenue declined by 12.5% y/y to $1,777 million (Q1 2019: $2,031 million). This drop in revenue y/y due to weaker pricing for steel products and lower volumes.
Group EBITDA was 16.3% lower y/y at $555 million (Q1 2019: $663 million), primarily reflecting lower revenues partially offset by a reduction in cost of sales. The Group’s EBITDA margin remained high at 31.2% (Q1 2019: 32.6%).
The Company generated $54 million of FCF (Q1 2019: $389 million), mainly reflecting a decline in EBITDA, CAPEX growth and an increased net working capital requirement y/y.
FINANCIAL POSITION HIGHLIGHTS:

At the end of Q1 2020, cash and cash equivalents were broadly unchanged at $1,042 million (Q4 2019: $1,081 million).
Gross debt declined to $2,570 million (Q4 2019: $2,651 million) which mainly reflected the FX effect of RUB-nominated debt.
Net debt remained almost unchanged at $1,528 million at the end of Q1 2020 (Q4 2019: $1,570 million). The Net debt/EBITDA ratio was steady at 0.6 at the end of Q1 2020 (Q4 2019: 0.6). Severstal’s Net debt/EBITDA remains one of the lowest amongst steel companies globally and allows the Company to maintain a comfortable level of debt, whilst continuing to return value to its shareholders.
The Group’s liquidity position remains strong, with $1,042 million in cash and cash equivalents in addition to unused committed credit lines and overdraft facilities of $1,007 million, more than covering the short-term principal debt of $23 million.
Alexander Shevelev, CEO of Severstal Management, commented:

"Before commenting on Q1 2020 financial results I want to emphasise that the health and safety of our employees is always our first thought and never more so than at this challenging time in the face of the global coronavirus crisis. Maintaining the business and providing humanitarian assistance to our employees and across our regions of presence are our key priorities today. At the same time, we continue our many business transformation initiatives in order to ensure we achieve our long-term goals.

To minimise operational risks for Severstal’s business in the face of the coronavirus pandemic, and closely following the recommendations of public authorities, since March 2020 we have introduced:

Mandatory sanitation and disinfection at all premises;
Employee temperature checking on arrival at work;
Cancelled business travel abroad;
Discontinuation of mandatory entrance breathalyser checks;
Remote working, where possible;
Established a hotline and a special committee.
In terms of social security, in April 2020, all Severstal employees will receive an annual salary increase of 3% - in line with the official level of inflation. In addition, 50,000 of Severstal’s employees, excluding the top-100 managers, have received a one-time payment of RUB 10,000 in April 2020, to help with additional costs while self-isolating.

Moving to the financial results for Q1 2020, the first three months were extremely challenging for all the world’s steelmakers. In February, China, the world’s largest steel market, faced an outbreak of COVID-19. Stringent quarantine measures led to automotive plants and construction projects shutting down, resulting in lower demand for steel products. After that initial outbreak of coronavirus, restrictions came into force in Europe and Russia.

The anticipation of an economic slowdown and weaker steel demand led to negative steel price dynamics starting from March 2020, although that price level is still significantly higher than our costs. In Russia the national currency devaluation and seasonal slowdown in demand led to the redirection of part of our sales to the export market. Using the flexibility of our distribution channels we increased the share of steel export shipments to 45% in Q1 2020.

While we face many challenges, Severstal is experienced in dealing with volatile market environments and has navigated through a number of downturns. We have a proven strong track record of successfully executing our strategic priorities, cost control and operational optimisation. This, in combination with the flexibility of our distribution channels, wide product range and strong financial position enables us to move with certainty through this difficult time and continue to implement our strategic plans.

The Board remains confident in its outlook and is recommending a dividend of 27.35 roubles per share for Q1 2020.”