Severstal Reports Q3 2010, Nine-Month Results
11/17/2010 - OAO Severstal announced its financial results for the third quarter and nine months of 2010, including a Q3 net profit of $368 million and the restoration of a dividend payment.
OAO Severstal announced its financial results for the third quarter and nine months of 2010, including a Q3 net profit of $368 million and the restoration of a dividend payment.
Severstal Russian Steel – Despite seasonal decline, prices remained flat and slightly increased on some product categories, as compared to Q2 2010, while revenue went down 6.3% to $2,264 million (Q2 2010: $2,415 million). EBITDA reduced by 35.8% to $339 million (Q2 2010: $528 million) due to increased raw materials costs. EBITDA was also impacted by a $77 million one-off in Q3 2010.
Severstal Resources – Revenue went up 5.1% to $914 million (Q2 2010: $870 million), and EBITDA increased by 5.2% to $442 million (Q2 2010: $420 million). Q3 2010 EBITDA gained as well from one-off of $42 million. The division increased raw material production to meet growing steel demand and higher average selling prices.
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Severstal International – In Q3 2010, revenue of Severstal North America declined by 19.8% to $1,161 million (Q2 2010: $1,447 million) with a negative EBITDA of $59 million compared to Q2 2010 of $59 million, reflecting the challenging U.S. steel market environment and growing raw materials costs. The results were also impacted by the idling of the blast furnace at Sparrows Point in July. The Columbus, Dearborn, and Warren facilities operate at full capacity utilization.
In Europe, Severstal has a 49.2% stake in Lucchini. In 9M 2010, Lucchini posted revenue of $1,785 million (9M 2009: $1,224 million). EBITDA was $16 million (9M 2009: negative $212 million). In Q3 2010, Lucchini reported negative EBITDA of $36 million (Q2 2010: EBITDA of $53 million). Q3 2010 is only partially comparable to Q2 2010 due to seasonal decline (summer holidays, planned maintenance idling, including increasing maintenance costs).
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Executive comments – Steel and raw materials prices are expected to slightly weaken or remain stable for the balance of FY2010 and strengthen into 2011.
Alexey Mordashov, CEO of Severstal, said: “In line with our estimates indicated in the H1 and Q2 2010 reports, Q3 2010 turned out to be a period of seasonal steel demand softening against a rise in raw materials prices. In these conditions, Severstal benefited from its upstream integration in Russia and continued raw materials diversification. Our gold business contributed 11.4% of the total company EBITDA for the nine months of 2010.
“Our financials reflect a much improved steel and mining environment, compared to the same nine months in 2009. In 9M 2010, volumes and prices showed close to double-digit increases across all key product lines:
▪ Severstal Resources: coal sales increased by 36% year-on-year, iron ore pellets by 19%
▪ Russian Steel: rolled products sales increased by 17%, downstream by 16%
▪ Severstal International (North America): rolled products sales increased by 18%, downstream being an exception, declining by 20% reflecting a consumption change.
“Severstal has adapted to the changing environment by adjusting the geographic and product mix of its sales and this is also reflected in our 2010 capital expenditure program of $1.4 billion, which will aid further expansion into the high value-added automotive and construction segments, as well as mining operations. Severstal Resources had an excellent nine months with sales and financial performance improving each quarter,” Mordashov said.
Outlook – Severstal says that it is well placed to weather any weakening of steel prices in Q4 (due to seasonal decline in demand, lower contract raw materials, and spot scrap prices) and stands to benefit from an expected rebound in prices in Q1 2011. The apparent reduction in steel inventories should prevent any sharp declines in steel prices, the company claims, while a favorable outlook for gold will benefit Severstal’s gold business.
In Russia and CIS, steel use is estimated to increase by approximately 8% year-on-year in 2011, helped by potential government infrastructure spending. Severstal Russian Steel’s priority is to further expand the Continuous Improvement Program and intensify CRM (Customer Relationship Management) projects targeting local customers.
In the U.S., the company expects the pace of recovery to be gradual. Flat steel consumption is relatively robust compared to long steel producers, benefiting Severstal North America, which is a flat steel producer. Expectations for Q1 2011 prices recovery are backed by the low stock levels likely to work out by the end of the year and a rise in raw materials contract prices. In North America, the company expects to continue asset restructuring and optimization.
ОАО Severstal is one of the world’s leading integrated steel and mining companies. The company’s shares are traded on the Russian Trading System (CHMF), MICEX (CHMF, RTS), and LSE (SVST). With assets in Russia, Ukraine, Kazakhstan, Italy, France, the U.S., and Africa, Severstal reported revenue of over $13 billion and EBITDA of $844 million in 2009. The company produced 16.7 million tonnes of crude steel in 2009.
