Higher sales, prices push Severstal core earnings up 20 percent

21 July 2017

Severstal, one of Russia's largest steelmakers, said on Thursday its core earnings jumped 20 percent in the second quarter on higher sales and prices.

Earnings before interest, taxation, depreciation and amortization (EBITDA) totaled $629 million, the company said, compared with $526 million in the same period last year.

Russian steelmakers such as Severstal and market leader NLMK have struggled in the past two years as world steel prices plumbed 11-year lows and Russia's economic crisis sapped domestic demand.

But their prospects improved this year due to higher metals prices and a nascent recovery in the Russian economy. Severstal's core earnings more than doubled in the first quarter of this year.

"The biggest contributor (to increased earnings) is coming from the pricing, which is much more positive than it was a year ago," Chief Financial Officer Alexey Kulichenko told reporters.

"A year ago we were facing probably the worst market conditions, especially at the beginning of the year, and now of course we are in a different environment."

Net profit fell to $136 million from $608 million in the second quarter of 2016, but it included a forex gain of $31 million and a forex loss of $343 million following the company's sale of an Italian subsidiary in January.

"Adjusting for this non-cash item, Severstal would have posted an underlying net profit of $448 million," the firm said.

Revenue totaled $1.9 billion, up 22 percent year-on-year.

Controlled by billionaire Alexei Mordashov, Severstal has forecast a 1.5 percent to 2 percent growth in Russian steel demand this year.

"H1 2017 saw a solid recovery in the domestic steel demand on the back of overall Russia's GDP growth," it said in a statement. "This positive trend is likely to continue into the second half of 2017."

The company had said on Wednesday its board recommended a dividend payment of 22.28 roubles ($0.3775) per share for the second quarter.

Severstal's crude steel output fell 1.4 percent to 2.75 million tonnes in the second quarter as rains in central Russia delayed the start of the construction season, it said last week.