Annual Report & Accounts 2013
Severstal Annual Report 2013 Home > Performance > Business overview

Business overview

Revenue in 2013 (US$ million)

EBITDA in 2013 (US$ million)1

EBITDA margin in 2013 (ratio)

Severstal achieved a solid set of results in 2013, despite a challenging environment for the steel, iron ore and coking coal markets. The company increased its EBITDA margin to 15.5 per cent, reflecting the resilience of the business and the growing effect of operational enhancement projects launched since 2010.

We managed to maintain almost full utilisation of all our operations for another year. The operations of the Severstal Russian Steel business were marked by cost savings, the removal of bottle necks and the finalisation of our major steel investment project – the Balakovo Long Products Mini-Mill. The mill started trial operations in December 2013 and is scheduled for a normal launch in Q2 2014. Once fully utilised, it will produce one million tonnes of long products a year, increasing Severstal’s total output of that type of product to around 2.3 million tonnes a year.

In the US we successfully ramped-up our new High Value Added facilities which were launched in 2011-2012, reaching a historic high for our EBITDA margin of 9.2 per cent in Q4 2013.

Our mining business slightly decreased its sales volumes in 2013, compared to 2012, mostly due to the idling of capacities at our US coal business PBS as a result of record low prices. Our Russian iron ore and coal assets managed to keep their sales volume almost unchanged to 2012 reflecting the fundamental strength of those assets and the impressive effect of our cost improvement programmes.

Our Key Financial Policy KPIs:

  • 0.5–1.5 x Net Debt/EBITDA
  • Not less than US$1 bln liquidity expressed by cash on balance and available committed credit lines
  • Dividend policy at 25 per cent of net profit
  • ROCE of >20 per cent
  • NWC of c.18 per cent of revenues
  • Positive Free Cash Flow

Status as at the end of 2013:

  • Net Debt/EBITDA of 1.8 times
  • Solid liquidity position of US$ 1,036 m in cash and cash equivalents. Plus committed unused credit lines of US$ 1,518 m
  • Not less than 25 per cent of net profit
  • ROCE2 of 10.3 per cent
  • NWC of 14.4 per cent of revenues
  • Free cash flow for FY2013 of US$ 488 m


The global economic slowdown in 2012 led to a decrease in steel, iron ore and coking coal prices, affecting our results. Our full year revenue decreased by 5.6 per cent to US$ 13.3 billion, mostly due to slightly weaker sales volumes at Severstal Russian Steel and overall lower realised prices. Severstal International managed to keep its revenue unchanged on the back of improving US macroeconomics and strong steel prices.

Change in the Divisions’ revenue in FY2013 vs. FY2012 (US$ million)

Our Russian steel business – commercial and market highlights for 2013:

  • In 2013, Russian steel consumption grew by an estimated three per cent, according to industry experts, and a similar three per cent growth is forecast for 2014. Domestic steel production in Russia reached 69 million tonnes, 1.5 per cent lower than in 2012 and 5.5 per cent lower than the forecast. Average capacity utilisation was around 80 per cent, almost the 2012 level. The market suffered from overcapacity, so average steel prices and volumes declined during the year.
  • The division continues to regard Russia as its most important market. Its main domestic customers include pipe mills and construction companies, machinery and automotive clients. In 2013, Severstal Russian Steel sold 10.6 million tonnes of steel products (excluding scrap), including 6.7 million tonnes to the domestic market. The share of sales volume to the Russian market grew to 63 per cent in 2013 from 60 per cent in 2012. In 2014, Severstal Russian Steel aims to further increase its share of domestic sales, and we expect that future growth will be driven primarily by increased sales to the main domestic customers.
  • Against the decrease in volumes and prices due to the lower demand, Severstal Russian Steel managed to improve its sales portfolio by increasing the share of higher value added, more profitable products like colour-coated steel and structural pipes.
  • We also managed to keep our capacity utilisation rate at around 95 per cent, above the local industry average of 80 per cent.

Our mining business – commercial and market highlights for 2013:

  • In 2013, the Russian coking coal market mostly followed the global trend of weakening prices. According to market experts, domestic coking coal production output reached 53.2 million tonnes, 2.5 per cent higher than in 2012. Severstal’ s Vorkutaugol sold a total of 5.6 million tonnes of coking coal concentrate in 2013, that is 6.5 per cent above the level of 2012. This was due to the fact that Vorkutaugol almost exclusively supplies its high quality coking coal to Russia (the ‘Zh’ brand), and hence has stable demand. The geography of export sales expanded through Ukrainian and European contracts.
  • In the USA, the local coking coal market contracted in 2013 due to low export prices. To preserve earnings, PBS Coals company had to idle some of its mines producing coal for export spot supply. As a result, PBS Coals coking coal production was 1.6 million tonnes, 27 per cent below the 2012 level. Export sales expanded through European, Northern African and Asian contracts.
  • Prices for iron ore Russia moved largely in line with Chinese spot prices, with a time lag of a few months. Like coking coal, domestic iron ore prices demonstrate a certain degree of inertia compared with international benchmarks. In 2013, Russian iron ore production reached 96.7 million tonnes, 2.1 per cent below the 2012 level. Karelsky Okatysh and Olkon decreased their sales of iron ore products by 0.7 per cent to 15.1 million tonnes, to both domestic and international clients. Export sales expanded abroad through European and Asian contracts.

Our US business – commercial and market highlights for 2013:

  • In 2013, demand for light flat rolled steel was estimated at 66.6 million tonnes, a slight decline of 1.9 per cent from the 2012 demand of 67.9 million tonnes. Industry experts forecast that demand for light flat rolled products in NAFTA will grow by 4.8 per cent in 2014 driven by a rebound in consumption in the U.S., Canada, and Mexico.
  • U.S. capacity use was 76.7 per cent in 2013, slightly higher than the 75.7 per cent reported in 2012.
  • The market continued to suffer from overcapacity and imports, which had a negative impact on steel prices, and both volume and capacity utilisation declined throughout most of the year. Including preliminary census data, flat rolled imports finished the year 4.3 per cent higher than 2012.
  • Severstal shipped 4.7 million tonnes in 2013 for a market share of 7.1 per cent of NAFTA shipments. We increased annual shipments by four per cent compared to 2012. Severstal’s utilisation rate is approximately 83 per cent, above the industry’s 2013 average of 76.7 per cent.
  • Severstal’s key market sectors include automotive, energy (oil & gas) and service centres. Dearborn shipments are heavily focused on the automotive industry and total Severstal shipments to this segment reached 1.3 million tonnes in 2013.


On an annual basis, weaker global prices for steel and raw materials resulted in a slight decline at the EBITDA level with Severstal Russian Steel and Severstal International being the most resilient. Severstal Resources EBITDA decreased due to weaker pricing and volumes.

Change in the Divisions’ EBITDA in FY2013 vs. FY2012 (US$ million)

Cash Flow

Severstal has a strong cash position, with US$ 1,036 million in cash and cash equivalents. In addition to this we have committed unused credit lines of US$ 1,518 million. Operating cash flow of US$ 1,578 million more than covered the 2013 cash CAPEX of US$ 1,178 million.

Capital expenditures

Our 2013 cash CAPEX amounted to US$1,178 million. This was 12 per cent lower than initially planned. CAPEX was adjusted during the year in light of slowing market conditions.

During the company’s annual Capital Markets Day in November 2013, Severstal’s top management, led by the CEO Alexey Mordashov, updated investors and analysts on the company’s strategy and development plans. In particular, we said that we approach CAPEX from two sides: making our maintenance as efficient as possible; and limiting our development CAPEX to some US$400 million a year giving priority to highest return projects that help us to debottleneck and decrease costs. That approach brings us to a total annual cash CAPEX spending of US$1 billion in the medium term and we do not currently intend to exceed that amount. That would still allow Severstal to grow at a speed that is most reasonable in this challenging market environment. Our major steel and mining investment projects are nearing completion and consequently we do not need to cut or put on hold any key projects.

Plans for 2014

Our 2014 target cash CAPEX is around US$1 billion and it will be again fully financed through our operating cash flow.

2014 CAPEX highlights

Liquidity and debt position

Severstal adheres to a conservative approach to its debt portfolio management. Positive relationships with the banking community and proven access to domestic and international debt capital markets have enabled us to form a well-diversified financing structure that does not depend on a single market or source of financing.

Debt and leverage dynamics

Over FY2013 we kept on decreasing our gross debt finishing the year with US$4,754 million of gross debt, which 16.7% down as compared to EOY2012. In other words, we lowered our gross debt over the last year by almost US$1 billion.

The net debt dynamics followed the one of the gross debt: as of EOY2013 the net debt was US$3,718, which is 6.7% lower as compared to EOY2012. During FY2013 our net debt/EBITDA ratio went up to 2.2x from 1.8x as of EOY2012. However our operational improvements and cost cutting initiatives enabled us to return to 1.8x by EOY13 and we are now well on track to achieve our internal target of 1.5x.

In 2014 we intend to reduce our gross debt further by approximately another US$1 billion.

We still prefer public debt as a long-term source of capital on attractive terms. As of 31 December 2013, 89 per cent of our debt was represented by public debt.

Improvement of the debt maturity calendar and reduction in the cost of capital

Our strong credit metrics enabled us to improve our debt profile and refinance part of our public debt instruments with more favourable issuances in 2013. In March 2013, Severstal successfully issued US$600 million bonds denominated in US Dollars maturing in 2018 with the record low interest rate of 4.45 per cent per annum. Lower interest rates help us to reduce interest payments, adding to the company’s financial stability and keeping liquidity in the company. In October 2013, the credit facilities of Severstal Dearborn LLC and Severstal Columbus LLC were successfully refinanced – cost of debt was successfully decreased, financing conditions were significantly improved.

We have a well-managed debt maturity profile: the majority of our debt is long-term and we have no large payments to make until 2017.

This chart represents principal amount of debt

* Including exercise of call option on 10.25% Severstal Columbus HY Bond of $525m.

Credit ratings evolution in the recent three years

Despite the challenging year for the industry, Severstal managed to improve its credit rating profile. Moody’s changed its outlook for Severstal from “stable” to “positive” on 26 August 2013.

Rating appropriated by agency Moody’s

Rating appropriated by agency S&P

Rating appropriated by agency Fitch

1 Here and thereafter FY 2012 amounts reflect adjustments made in connection with the change in classification of income and expenses related to finance operations between general and administrative expenses, gain/(loss) on remeasurement and disposal of financial investments, net other operating income (expenses) and net finance costs to more appropriately reflect their nature.

2 ROCE is calculated by the following formula: profit from operations/(total assets minus current liabilities average for the period), as reported in 2013 FS.

CEO statement

Our strategic goal remains the same: we aim to be a leader in value creation. In the current volatile and challenging market environment, this means the ability to generate solid positive free cash flow throughout the market cycle.

Read More

Chairman statement

Since listing we have been committed to the highest standards of corporate Governance and aim for full compliance with the UK Corporate Governance Code.

Read More

Performance review 2012

Severstal achieved a solid set of results in 2012, despite worsening economic conditions, maintaining the Group’s EBITDA margin at 15.0%, reflecting the resilience of the business.

Read More
Share |
Select language: Русский