Severstal - ao — Earnings Release 2015

Apr 14, 2015

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RNS Number : 1161K

Public Joint Stock Co. Severstal

14 April 2015

Severstal reports Q1 2015 operational results

Moscow, Russia - April 14, 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 Q1 2015.

Q1 2015 GROUP HIGHLIGHTS

● Crude steel production increased 2% q/q to 2.96 mln tonnes (Q4 2014: 2.89 mln tonnes) with the prior quarter impacted by scheduled maintenance at one of the BOFs. Lower hot metal production (down 1% q/q to 2.31 mln tonnes) reflects short-term maintenance at BF#5.

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

● Consolidated sales of steel products declined 4% q/q as the Company built its internal stock of high value-added (HVA) products to normal levels after divesting inventories against strong demand in Q4 2014.

● There has been an increase in profitability for hot-rolled coil (HRC) export deliveries almost throughout the entire quarter on the back of RUB devaluation, which resulted in higher HRC sales volumes.

● The abovementioned factors resulted in a 6 ppts decrease of the share of HVA products in the sales portfolio, to 46% (Q4 2014: 52%).

● Coking coal concentrate sales volumes at Vorkutaugol decreased 13% q/q to 1.27 mln tonnes (Q4 2014: 1.47 mln tonnes) due to seasonal severe weather conditions in the region.

● Whilst the pricing environment remains challenging, the sharp RUB devaluation triggered a round of RUB-nominated price increases in Q1 2015 in order to catch up with export USD-nominated parity. This has partially mitigated the impacts of both the RUB devaluation and the global steel prices decline.

SUMMARY OF KEY PRODUCTION, SALES VOLUMES AND SELLING PRICES DATA

Production, tonnes	Q1 2015	Q4 2014	Change, %	Q1 2015	Q1 2014	Change, %
Crude steel (Russian Steel)	2 959 389	2 891 739	2%	2 959 389	2 713 759	9%
Hot metal (Russian Steel)	2 305 312	2 320 277	(1%)	2 305 312	2 246 364	3%
Sales volumes, tonnes	Q1 2015	Q4 2014	Change, %	Q1 2015	Q1 2014	Change, %
Coking coal concentrate	1 272 642	1 470 621	(13%)	1 272 642	1 391 490	(9%)
Iron ore pellets	2 576 453	2 754 450	(6%)	2 576 453	2 582 560	(0%)
Iron ore concentrate	984 272	980 782	0%	984 272	1 099 297	(10%)
Total steel products (Consolidated)	2 544 868	2 643 552	(4%)	2 544 868	2 405 426	6%
Total steel products (Russian Steel)	2 558 524	2 654 466	(4%)	2 558 524	2 453 932	4%
Average price, $/tonne	Q1 2015	Q4 2014	Change, %	Q1 2015	Q1 2014	Change, %
Coking coal concentrate, Vorkutaugol	64	76	(16%)	64	96	(33%)
Iron ore pellets, Karelsky Okatysh	53	55	(4%)	53	107	(50%)
Iron ore concentrate, Olkon	32	36	(11%)	32	70	(54%)
Hot-rolled coil (RSD)	394	450	(12%)	394	469	(16%)

High value added steel products, %	Q1 2015	Q4 2014	Change, %	Q1 2015	Q1 2014	Change, %
Severstal (Consolidated)	46%	52%	(6  ppts)	46%	48%	(2 ppts)
Severstal Russian Steel	46%	52%	(6  ppts)	46%	47%	(1 ppts)

SEVERSTAL RESOURCES

● Iron ore pellets sales declined 6% q/q to 2.58 mln tonnes (Q4 2014: 2.75 mln tonnes). Sales volumes to external customers on the domestic market remained solid on restocking activity. Moreover, inventories of pellets at CherMk were returned to more normal levels on the back of increased internal procurement of pellets q/q.

● Iron ore concentrate sales volumes remained broadly flat q/q. At the same time, sharp RUB devaluation supported profitability at Olkon, resulting in higher q/q sales volumes to external customers.

● Coking coal concentrate sales volumes decreased 13% q/q to 1.27 mln tonnes (Q4 2014: 1.47 mln tonnes) primarily as a result of short-term production disruptions due to severe weather conditions during the period. The Company expect more typical production volumes in Q2 2015.

● Steam coal sales at Vorkutaugol increased 7% q/q reflecting seasonally strong domestic demand.

●As a result of Severstal's successful efforts to increase RUB-nominated prices since the beginning of the year, the Company has been able to partially mitigate the 15% q/q decline in the global iron ore benchmark as well as the negative impact of RUB devaluation. USD-nominated average selling prices for both iron ore pellets and iron ore concentrate decreased only 4% q/q and 11% q/q, respectively.

●The coking coal concentrate average selling price decline of 16% q/q is purely a function of the ca. 30% q/q RUB devaluation partially offset by another round of RUB-nominated price upgrades by the Company, which took place in the second half of Q1.

Sales volumes, tonnes	Q1 2015		Q4 2014		Change, %		Q1 2015		Q1 2014		Change, %
Coal:		1 728 145		1 897 345		(9%)		1 728 145		1 869 528		(8%)
Coking coal concentrate, including:		1 272 642		1 470 621		(13%)		1 272 642		1 391 490		(9%)
Vorkutaugol		1 272 642		1 470 621		(13%)		1 272 642		1 192 711		7%
PBS Coals		-		-		n.a.		-		198 779		n.a
Raw coking coal,  Vorkutaugol		561		-		n.a.		561		32 032		n.a.
Steam coal, including:		454 942		426 724		7%		454 942		446 006		2%
Vorkutaugol		454 942		426 724		7%		454 942		432 783		5%
PBS Coals		-		-		n.a.		-		13 223		n.a.
Iron ore:		3 560 725		3 735 232		(5%)		3 560 725		3 681 857		(3%)
Iron ore pellets		2 576 453		2 754 450		(6%)		2 576 453		2 582 560		(0%)
Iron ore concentrate		984 272		980 782		0%		984 272		1 099 297		(10%)

Sales price, $/tonne	Q1 2015	Q4 2014	Change, %	Q1 2015	Q1 2014	Change, %
Coking coal concentrate, Vorkutaugol	64	76	(16%)	64	96	(33%)
Coking coal concentrate, PBS Coals	n.a.	n.a.	n.a.	n.a.	111	n.a.
Raw coking coal,  Vorkutaugol	18	n.a.	n.a.	18	57	(68%)
Steam coal, Vorkutaugol	21	28	(25%)	21	36	(42%)
Steam coal, PBS Coals	n.a.	n.a.	n.a.	n.a.	78	n.a.
Iron ore pellets	53	55	(4%)	53	107	(50%)
Iron ore concentrate	32	36	(11%)	32	70	(54%)

SEVERSTAL RUSSIAN STEEL

● RSD steel products sales decreased 4% q/q to 2.56 mln tonnes.

● RSD recorded an 8% q/q increase in sales volumes of semi-finished products due to strong domestic demand. HRC sales volumes increased 13% q/q reflecting an uptick in profitability for HRC export deliveries as well as a low base effect as production in Q4 2014 was impacted by the upgrade of HR Mill-2000. Severstal's proximity to export markets provided flexibility to shift between domestic and export deliveries. RSD increased the share of export sales to 38% in Q1 2015 (Q4 2014: 29%).

● Notwithstanding a decrease in sales volumes of cold-rolled coils (down 13% q/q), galvanized and metallic coated coils (down 17% q/q) and color coated coils (down 24% q/q), all the rolling facilities at CherMK ran at almost full capacity in Q1 2015. The latter facilitated an increase in stock to a normalized level after divesting inventories during Q4 2014 against strong demand. A portion of export sales volumes shipped during the quarter will be reflected in the Q2 2015 results due to a delayed recognition of shipments.

● On a separate note, sales of large diameter pipes (LDPs) decreased 19% q/q as a result of short-term scheduled maintenance at the Izhora Pipe Mill. Nevertheless, Severstal continued supplying LDPs for the Southern Corridor and Bovanenkovo-Ukhta pipelines, which resulted in a high utilization rate at the Izhora Pipe Mill. Moreover, Severstal won a tender to supply ca. 160kt of LDPs for Gazprom's Power of Siberia project.

● In line with the downward trend in global steel prices, average steel prices for steel products at RSD decreased between 7-28% q/q dependent on the product. Nevertheless, despite a seasonally soft market, RSD was able to proactively increase domestic RUB-nominated sales prices compensating for the RUB devaluation effect and catching up with the USD-nominated parity.

Sales volumes, tonnes	Q1 2015	Q4 2014	Change, %	Q1 2015	Q1 2014	Change, %
Total steel products	2 558 524	2 654 466	(4%)	2 558 524	2 453 932	4%
Semi-finished products	106 891	98 612	8%	106 891	119 604	(11%)
Rolled products:	1 985 724	2 010 001	(1%)	1 985 724	1 937 075	3%
Hot-rolled coil	928 150	824 608	13%	928 150	944 129	(2%)
Hot-rolled plate	191 996	196 903	(2%)	191 996	230 355	(17%)
Cold-rolled coil	303 656	350 456	(13%)	303 656	335 082	(9%)
Galvanised and metallic coated coil	134 613	162 614	(17%)	134 613	119 716	12%
Color coated coil	84 459	111 720	(24%)	84 459	77 867	8%
Long products	342 850	363 700	(6%)	342 850	229 926	49%
Downstream products:	465 909	545 853	(15%)	465 909	397 253	17%
Metalware products	138 699	152 274	(9%)	138 699	145 813	(5%)
Large diameter pipes	121 512	150 078	(19%)	121 512	75 844	60%
Other tubes, pipes, formed shapes	205 698	243 501	(16%)	205 698	175 596	17%

Sales price, $/tonne	Q1 2015	Q4 2014	Change, %	Q1 2015	Q1 2014	Change, %
Semi-finished products	374	454	(18%)	374	423	(12%)
Hot-rolled coil	394	450	(12%)	394	469	(16%)
Hot-rolled plate	486	560	(13%)	486	741	(34%)
Cold-rolled coil	445	492	(10%)	445	579	(23%)
Galvanised and metallic coated coil	570	610	(7%)	570	741	(23%)
Color coated coil	736	825	(11%)	736	909	(19%)
Long products	374	429	(13%)	374	490	(24%)
Metalware products	823	916	(10%)	823	1 099	(25%)
Large diameter pipes	1 196	1 295	(8%)	1 196	1 564	(24%)
Other tubes, pipes, formed shapes	462	642	(28%)	462	626	(26%)

SEVERSTAL'S CONSOLIDATED SALES (NET OF INTERCOMPANY SALES)

Sales volumes, tonnes		Q1 2015	Q4 2014	Change, %	Q1 2015	Q1 2014	Change, %
Coal:	829 913		860 712	(4%)	829 913	949 485	(13%)
Coking coal concentrate	374 411		433 988	(14%)	374 411	471 448	(21%)
Raw coking coal	561		-	n.a.	561	32 032	n.a.
Steam coal	454 942		426 724	7%	454 942	446 006	2%
Iron ore:	1 478 702		1 583 426	(7%)	1 478 702	1 528 347	(3%)
Iron ore pellets	1 363 627		1 559 121	(13%)	1 363 627	1 483 140	(8%)
Iron ore concentrate	115 075		24 305	n.a.	115 075	45 207	n.a.
Semi-finished products	106 891		98 612	8%	106 891	89 633	19%
Rolled products:	1 973 655		2 000 231	(1%)	1 973 655	1 919 904	3%
Hot-rolled coil	927 379		824 549	12%	927 379	931 046	(0%)
Hot-rolled plate	191 965		196 888	(3%)	191 965	230 245	(17%)
Cold-rolled coil	303 655		350 456	(13%)	303 655	335 082	(9%)
Galvanised and metallic coated coil	134 604		162 612	(17%)	134 604	119 715	12%
Color coated coil	84 459		111 720	(24%)	84 459	77 867	8%
Long products	331 593		354 006	(6%)	331 593	225 949	47%
Downstream products:	464 322		544 709	(15%)	464 322	395 889	17%
Metalware products	137 627		151 668	(9%)	137 627	145 398	(5%)
Large diameter pipes	121 227		149 694	(19%)	121 227	75 213	61%
Other tubes, pipes, formed shapes	205 468		243 347	(16%)	205 468	175 277	17%

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 volumes and average selling prices for Q1 2014 reflect adjustments made in connection with the presentation of the discontinued operation.

8) 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 Q1 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 $8,296 million and EBITDA of $2,203 million in 2014. Severstal's crude steel production in 2014 reached 11.3 million tonnes. www.severstal.com

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