Russian headquartered Severstal reported net profit down 62.6% in FY 2012, at $762M (FY 2011 $2035M). Crude steel production was 15.Mt.
In its Russian operations, revenue decreased 18.3% to $8617M (FY11 $10547M) reflecting a weaker pricing environment and lower sales volumes, including a contraction in large-diameter pipe sales. The division’s EBITDA was $939M (FY11 $1784M), including an additional allowance in respect of inventories of $115M.
The share of high value-added products in the sales portfolio remained the highest among its Russian peers at 44%, while the proportion of domestic sales’ in the portfolio was 60%.
Severstal International which has operations in USA and Italy saw shipments increase by 17.3% to 4.5Mt and revenue rose by 13.3% y/y to $3878M (FY11 3.8Mt and $3422M respectively) due to newly commissioned facilities and higher capacity utilization at its two plants, the Columbus minimill and the Dearborn integrated mill. This helped offset lower steel prices in the US. This sustained the division’s profitability at a level similar to FY11 with EBITDA of $166M (FY11 $181M). The FY12 EBITDA margin was down at 4.3% (FY11 5.3%) due to lower selling prices, which also led to lower EBITDA per tonne of $37 ($48 in FY11).
Marketwise, construction spending in the USA in 2012 was 9% higher than 2011, with residential construction increasing 15% and non-residential increasing 6%. After a 17% growth in 2012, the automotive industry continues its upward trend with 2013 NAFTA auto production projected to increase 3% over 2012 to 15.9M units. US pipe and tube demand has moderated but there are signs of recovery in 2013 based on increasing drilling activity and new pipeline projects.
Severstal Resources, Severstal’s mining interests, saw revenue decreased by 19.0% y/y to $3005M (FY11 $3711M) as a result of lower coking coal and iron ore prices during the year, while overall realised volumes remained broadly flat. This negatively impacted EBITDA, which contracted 38.6% to $985M (FY11: $1604M).
19 coal miners were killed in an accident at the Vorkutinskaya coal mine on February 11th.
Though the fragile economic environment will keep pressure on steel prices throughout 2013, Severstal see slight signs of recovery. Its’ business model and focus on costs control encourage the Company to remain confident about the future resilience and development of Severstal.
Gross debt was reduced from $5976M to $5710M over the year. Net debt was reduced from $4112M to $3983M. The Net Debt/EBITDA ratio increased to 1.9x at the end of Q4 2012 due to the drop in EBITDA for the last twelve months. Severstal will closely monitor its’ debt level in 2013 to return it to the targeted net debt/EBITDA of 1.5x.
In October, Severstal successfully placed $750M of 10-year Eurobonds with a coupon rate of 5.9%.
The capital expenditure programme in FY 2013 will be $1.3bn including completion of the Balakovo minimill and its start-up in mid-2013. Other projects are the establishment of specialised steel service centres, and in its mining operations the construction of two inclined shafts and modernisation of a preparation plant at its coal mine, Vorkutaugol and, at Olkon, the construction of a steeply inclined conveyor as well as geological exploration.