“Severstal” has shown record profitability during the crisis


Severstal traditionally the first of the Russian metallurgists unveiled financial results for the year 2015. Amid slowing global demand and falling steel prices the company’s consolidated revenues for the year declined by almost 30% to $6.4 billion, and EBITDA was only 5.2%, to $2.1 billion, according to the report in accordance with IFRS.

By the end of 2015 Severstal received $562 million in net profit against us $795 million net loss a year earlier. Excluding “paper” loss received from exchange rate differences and revaluation of assets, net income would have been $1.4 billion.

In 2015 world steel consumption, according to preliminary estimates, World Steel Association, fell by about 2%. At the same time China, which accounts for about half of world steel production (822,75 million of the 1.6 billion tons), continues to increase the export of metals by 20% last year, according to Severstal. As a result, world steel prices are falling. According to Bloomberg, in 2015, the cost per ton of hot-rolled steel, the main indicator of the sector decreased by 36% to $391 (from the beginning of 2014 — 66%). To make matters worse, the Russian market is mainly for Russian metallurgists. Here, the consumption of steel decreased by 17%, to approximately 38 million tonnes, according to the Association of steelmakers Russian steel.

“Severstal” last year helped a weak ruble. Foreign exchange earnings from export sales (about one-third of total revenues) has improved the efficiency of the company’s business. Cost of sales Severstal for the year 2015 was reduced by almost 30%, to $3.8 billion And the EBITDA margin increased from 26.7 to 32.8% — the highest margin in the history of the company reporting according to international standards since 2006.

The devaluation of the ruble in the past year have helped to increase the profitability and other steelmakers, said BCS analyst Oleg Petropavlovsky. But a weak ruble can only provide a short-term effect, warns the analyst. Already in the fourth quarter the EBITDA margin of Severstal declined by 2.8 percentage points, to 28.7%, compared with the previous quarter, he says.

In 2016 the world’s steel prices may continue to decline, says Paul. “Severstal” expects lower demand in the domestic market by 3-4%, said during the conference call, the Director of Finance and the economy of the company Alexey Kulichenko.