Severstal (CHMF) Q3 2021 earnings summary

Executive summary

• Q3 2021 revenue rose 9% quarter-over-quarter to $3,206 million, with EBITDA up 5% to $1,723 million and net profit at $1,237 million, reflecting strong market conditions and operational performance; nine-month revenue was $8,371 million, up from $5,147 million year-over-year, with net profit at $3,097 million.

• EBITDA for the nine months was $4,532 million, with an EBITDA margin of 54.1%, and free cash flow totaled $2,425 million, up from $626 million year-over-year; Q3 free cash flow increased 6% quarter-over-quarter to $992 million.

• Crude steel output grew 4% quarter-over-quarter to 2.9 million tonnes in Q3, while steel sales increased 1% to 2.7 million tonnes; nine-month segment revenues showed substantial growth with Severstal Russian Steel at $8,011 million and Severstal Resources at $2,762 million.

• The interim financial statements received an unqualified review from KPMG; early settlement of $250 million convertible bonds and full repayment of $500 million Eurobonds were completed.

• Operating margin reached 49% in Q3, up from 26% in the nine-month period of 2020; net debt/EBITDA improved to 0.29 in Q3 and was 0.3 at the nine-month period end, indicating low leverage.

Financial highlights

• EBITDA margin was 54% in Q3 2021, down 2 percentage points quarter-over-quarter, but up from 33.3% year-over-year for the nine months; gross profit for the nine months was $4,949 million, compared to $2,097 million prior year.

• Net profit for Q3 was $1,237 million; basic and diluted EPS for the nine months was $3.72, up from $0.76 year-over-year.

• Cash and cash equivalents fell to $281 million due to dividend payments and bond repayments; net cash from operating activities was $3,250 million for the nine months.

• Dividends paid totaled $1,899 million during the nine months, with $22 million in share repurchases; cash CAPEX was $284 million in Q3 and $779 million for the nine months.

• Total debt declined 22% quarter-over-quarter to $1,815 million in Q3; liquidity remains robust with $0.3 billion in cash and $1.2 billion in unused credit lines.

Outlook and guidance

• Market prices for steel and iron ore declined as supply tightness eased, but further significant steel price corrections are unlikely; Russian government imposed a 15% export duty on steel products from August to December 2021, impacting cost structure.

• New Russian tax mechanisms replacing export duties are expected to impact financial performance in 2022.

• CAPEX guidance for 2021 confirmed at $1.35 billion; capital commitments as of 30 September 2021 were $389 million.