Severstal - ao — Earnings Release 2014

Jan 26, 2015

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RNS Number : 0904D

Public Joint Stock Co. Severstal

26 January 2015

Severstal reports Q4 2014 and FY 2014 operational results

Moscow, Russia - January 26, 2015 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading vertically integrated steel and steel-related mining companies, today announces its operational results for Q4 2014 and FY 2014.

Q4 2014 GROUP HIGHLIGHTS 

·      In terms of steel production volumes, Q4 2014 was broadly in line with Q3 2014 despite seasonality: crude steel production increased 1% q/q to 2.89 mln tonnes, while hot metal production was up 2% q/q to 2.32 mln tonnes. That said, growing efficiency of our converters comes from a wider use of higher Fe content pellets, which allows us to partially replace expensive scrap.

·      Consolidated sales of steel products slightly decreased 1% q/q due to marginal change to the product mix and short-term maintenance at one of the rolling mills.

·      Share of high value-added products in the sales portfolio remained around historical record levels of 52% (Q3 14: 53%) reflecting our strategic focus on downstream development and despite the increase in the output of semi-finished products post the completion of repairs at one of the converters at the end of Q3 2014.

·      Steel assets continued to run at near to full capacity in Q4, with the Balakovo mini-mill ramping-up further.

·      Coking coal concentrate sales volumes at Vorkutaugol increased 25% q/q to almost 1.47 mln tonnes.

·      Iron ore pellets sales remained broadly flat q/q at 2.75 mln tonnes (Q3 2014: 2.74 mln tonnes).

·      Whilst average selling prices for all products declined in USD terms, they are up q/q in RUB. Moreover, despite seasonally low market, domestic RUB-nominated prices continue to catch up with the export USD-nominated parity since the beginning of 2015 as well.

SUMMARY OF KEY PRODUCTION, SALES VOLUMES AND SELLING PRICES DATA

Production, tonnes	Q4 2014	Q3 2014	Change, %	2014	2013	Change, %
Crude steel (Russian Steel)	2 891 739	2 862 204	1%	11 301 979	10 711 945	6%
Hot metal (Russian Steel)	2 320 277	2 282 592	2%	9 075 597	8 759 404	4%
Sales volumes, tonnes	Q4 2014	Q3 2014	Change, %	2014	2013	Change, %
Coking coal concentrate	1 470 621	1 288 727	14%	5 371 269	7 160 947	(25%)
Iron ore pellets	2 754 450	2 741 006	0%	10 617 584	10 455 510	2%
Iron ore concentrate	980 782	1 138 772	(14%)	4 429 995	4 617 835	(4%)
Total steel products (Consolidated)	2 643 552	2 662 173	(1%)	10 409 608	10 486 406	(1%)
Total steel products (Russian Steel)	2 654 466	2 745 261	(3%)	10 592 758	10 642 399	(0%)
Average price, $/tonne	Q4 2014	Q3 2014	Change, %	2014	2013	Change, %
Coking coal concentrate, Vorkutaugol	76	94	(19%)	89	108	(18%)
Iron ore pellets, Karelsky Okatysh	55	73	(25%)	80	106	(25%)
Iron ore concentrate, Olkon	36	49	(27%)	55	74	(26%)
Hot-rolled coil (RSD)	450	517	(13%)	486	518	(6) %

High value added steel products, %	Q4 2014	Q3 2014	Change, %	2014	2013	Change, %
Severstal (Consolidated)	52%	53%	(1  ppts)	50%	47%	3 ppts
Severstal Russian Steel	52%	52%	(0  ppts)	49%	47%	2 ppts

SEVERSTAL RESOURCES

●Iron ore pellets sales remained broadly flat q/q at 2.75 mln tonnes (Q3 2014: 2.74 mln tonnes) despite seasonally softer demand in Q4 with maintenance works generally under way at steel works across Russia. Specifically, Severstal has marginally increased internal pellets consumption q/q, further reducing CherMK's need in scrap for the steelmaking process. Moreover, Severstal saw strong demand on export markets in Q4 2014.

● As previously announced, Severstal idled one of the open pits at Olkon focusing on the least costly deposits and preserving desirable captive iron ore concentrate production mixed with purchases from external suppliers. As a result, iron ore concentrate sales volumes in Q4 decreased 14% q/q.

● Coking coal concentrate sales volumes increased 14% q/q. Consolidated figures were impacted by PBS Coals sales volumes still reflected in the Q3 results. Nevertheless, coking coal concentrate sales volumes at Vorkutaugol increased 25% q/q. This marks a successful turnaround achieved at the Vorkutaugol with 11 new coalfaces being commissioned across all the five mines in 2014 and run-of-mine coal (ROM coal) volumes surpassing average 2013 levels.

● Following the capacities increase at Pechorskaya beneficiation plant, Severstal continued to process all the amounts of raw coking coal for the second consecutive quarter.

● Steam coal sales at Vorkutaugol were up 34% q/q reflecting seasonally high domestic demand coupled with the low base effect of Q3 2014 due to engineering works constraints at several coal faces.

●Notwithstanding Severstal's successful efforts to increase RUB-nominated prices, in dollar terms and due to the global iron ore benchmark decline, the Company's average selling prices for both iron ore pellets and iron ore concentrate decrease 25% q/q and 27% q/q, respectively. Coking coal concentrate average selling price decline of 19% q/q is purely a function of RUB devaluation partially offset by RUB-nominated prices upgrades by the company.

Sales volumes, tonnes	Q4 2014		Q3 2014		Change, %		2014		2013		Change, %
Coal:		1 897 345		1 606 854		18%		7 086 161		10 079 291		(30%)
Coking coal concentrate, including:		1 470 621		1 288 727		14%		5 371 269		7 160 947		(25%)
Vorkutaugol		1 470 621		1 181 004		25%		4 846 981		5 610 362		(14%)
PBS Coals		-		107 723		n.a.		524 288		1 550 585		(66%)
Raw coking coal,  Vorkutaugol		-		-		n.a.		57 999		558 349		(90%)
Steam coal, including:		426 724		318 127		34%		1 656 893		2 359 994		(30%)
Vorkutaugol		426 724		318 127		34%		1 635 441		2 239 348		(27%)
PBS Coals		-		-		n.a.		21 452		120 646		(82%)
Iron ore:		3 735 232		3 879 778		(4%)		15 047 579		15 073 345		(0%)
Iron ore pellets		2 754 450		2 741 006		0%		10 617 584		10 455 510		2%
Iron ore concentrate		980 782		1 138 772		(14%)		4 429 995		4 617 835		(4%)

Sales price, $/tonne	Q4 2014	Q3 2014	Change, %	2014	2013	Change, %
Coking coal concentrate, Vorkutaugol	76	94	(19%)	89	108	(18%)
Coking coal concentrate, PBS Coals	n.a.	96	n.a.	105	112	(6%)
Raw coking coal,  Vorkutaugol	n.a.	n.a.	n.a.	58	53	9%
Steam coal, Vorkutaugol	28	35	(20%)	33	38	(13%)
Steam coal, PBS Coals	n.a.	n.a.	n.a.	68	52	31%
Iron ore pellets	55	73	(25%)	80	106	(25%)
Iron ore concentrate	36	49	(27%)	55	74	(26%)

SEVERSTAL RUSSIAN STEEL

● Severstal Russian Steel (RSD) steel products sales decreased 3% q/q to 2.65 mln tonnes due to seasonal factors as well as marginal change to the product mix coupled with short-term maintenance at one of the mills.

●Our Balakovo mini-mill continues its production ramp-up with total sales of long products increasing 17% q/q.

●On a separate note, RSD recorded 6% q/q increase in downstream products sales volumes. Sales of large diameter pipes (LDPs) increased 23% q/q (following significant 125% q/q increase in Q3) as Izhora Pipe Mill (part of Severstal Russian Steel) successfully proceeded with the South Stream first tender deliveries. Moreover, in Q4 Severstal continued supplying LDPs for the Power of Siberia and the Southern Corridor pipelines, which enabled the Izhora Pipe Mill to run at a high utilization rate.

● Q4 2014 steel products USD-nominated prices primarily reflected the sharp RUB devaluation during the respective quarter. Nevertheless, RSD was able to increase domestic RUB-nominated sales prices partially compensating for the RUB devaluation effect. Moreover, despite seasonally low market, domestic RUB-nominated prices continue to catch up with the export USD-nominated parity since the beginning of 2015.  

Sales volumes, tonnes	Q4 2014	Q3 2014	Change, %	2014	2013	Change, %
Total steel products	2 654 466	2 745 261	(3%)	10 592 758	10 642 399	0%
Semi-finished products	98 612	15 107	n.a.	403 462	533 030	(24%)
Rolled products:	2 010 001	2 214 512	(9%)	8 284 852	8 379 700	(1%)
Hot-rolled coil	824 608	1 003 188	(18%)	3 773 373	4 218 759	(11%)
Hot-rolled plate	196 903	219 902	(10%)	840 345	772 469	9%
Cold-rolled coil	350 456	377 033	(7%)	1 448 939	1 418 846	2%
Galvanised and metallic coated coil	162 614	170 665	(5%)	591 868	615 498	(4%)
Color coated coil	111 720	133 240	(16%)	433 797	450 038	(4%)
Long products	363 700	310 484	17%	1 196 530	904 090	32%
Downstream products:	545 853	515 642	6%	1 904 444	1 729 669	10%
Metalware products	152 274	163 954	(7%)	639 137	663 520	(4%)
Large diameter pipes	150 078	121 998	23%	402 112	324 868	24%
Other tubes, pipes, formed shapes	243 501	229 690	6%	863 195	741 281	16%

Sales price, $/tonne	Q4 2014	Q3 2014	Change, %	2014	2013	Change, %
Semi-finished products	454	491	(8%)	451	445	1%
Hot-rolled coil	450	517	(13%)	486	518	(6%)
Hot-rolled plate	560	726	(23%)	706	737	(4%)
Cold-rolled coil	492	576	(15%)	558	618	(10) %
Galvanised and metallic coated coil	610	803	(24%)	736	822	(10) %
Color coated coil	825	1 080	(24%)	982	1 060	(7) %
Long products	429	587	(27%)	515	589	(13) %
Metalware products	916	1 077	(15) %	1 042	1 164	(10) %
Large diameter pipes	1 295	1 453	(11%)	1 424	1 586	(10) %
Other tubes, pipes, formed shapes	642	647	(1%)	642	686	(6) %

SEVERSTAL'S CONSOLIDATED SALES (NET OF INTERCOMPANY SALES)

Sales volumes, tonnes		Q4 2014	Q3 2014	Change, %	2014	2013	Change, %
Coal:	860 712		682 500	26%	3 354 501	6 331 302	(47%)
Coking coal concentrate	433 988		364 373	19%	1 639 609	3 412 958	(52%)
Raw coking coal	-		-	n.a.	57 999	558 349	(90%)
Steam coal	426 724		318 127	34%	1 656 893	2 359 994	(30%)
Iron ore:	1 583 426		1 556 704	2%	6 041 521	6 251 935	(3%)
Iron ore pellets	1 559 121		1 556 704	0%	5 884 802	5 942 087	(1%)
Iron ore concentrate	24 305		-	n.a.	156 719	309 848	(49%)
Semi-finished products	98 612		15 107	n.a.	373 491	412 086	(9%)
Rolled products:	2 000 231		2 133 134	(6%)	8 137 441	8 351 088	(3%)
Hot-rolled coil	824 549		937 254	(12%)	3 661 481	4 206 104	(13%)
Hot-rolled plate	196 888		219 905	(10%)	840 116	772 022	9%
Cold-rolled coil	350 456		371 138	(6%)	1 442 704	1 418 836	2%
Galvanised and metallic coated coil	162 612		170 660	(5%)	591 856	615 496	(4%)
Color coated coil	111 720		133 240	(16%)	433 797	450 038	(4%)
Long products	354 006		300 937	18%	1 167 487	888 593	31%
Downstream products:	544 709		513 932	6%	1 898 676	1 723 231	10%
Metalware products	151 668		163 030	(7%)	636 332	661 922	(4%)
Large diameter pipes	149 694		121 451	23%	400 153	320 530	25%
Other tubes, pipes, formed shapes	243 347		229 451	6%	862 191	740 779	16%

Notes

1) All production data is reported in metric tonnes;

2) Sales prices are stated on EXW basis;

3)  Segmental data includes intercompany sales;

4) Semi-finished products include pig iron, slabs, billets, ingots, steel casting and forgings;

5) Metalware sales volumes and metalware average selling prices include Severstal Metiz, Cherepovets Steel Mill, Severstal Distribution and Severstal Invest data;

6) Large diameter pipes include all pipes with a diameter between 820 and 1420 mm;

7) Group and RSD volumes and average selling prices for 2013 were restated due to a change in recognized revenues, based on a re-classification of products.

8) Group volumes and average selling prices for 2013 reflect adjustments made in connection with the presentation of the discontinued operation.

9) On 19 August 2014, Severstal announced that it has completed the sale of PBS Coals Inc., a metallurgical coal producer located in Pennsylvania, USA, to Corsa Coal Corp., a Canadian public company. In regard to the sale and in full accordance with IFRS standards Severstal continues to report operational results of PBS Coals Inc. till 19 August 2014 - disposal date, which are included in the Group's Q3 2014 and 2014 consolidated operational results

Contacts

Investor Relations

Vladimir Zaluzhsky

T: +7 (495) 926-77-66 ext. 6375

vladimir.zaluzhsky@severstal.com

Public Relations

Elena Kovaleva

T: +7 (495) 926-77-66 ext. 6447

elena.kovaleva@severstal.com

Severstal's financial communications agent - Hudson Sandler

Andrew Hayes / Maria Ignatova / Alex Brennan

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, Ukraine, Latvia, Poland, Italy and Liberia. Severstal is listed on the Moscow Stock Exchange with GDRs being traded on the London Stock Exchange. Severstal reported revenue of $9,434 million* and EBITDA of $1, 818 million* in 2013. Severstal's crude steel production in 2014 reached 11.3 million tonnes. www.severstal.com

* These amounts reflect adjustments made in connection with the presentation of the discontinued operation.

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