Annual Report & Accounts 2013
Severstal Annual Report 2013 Home > Performance > CFO statement
 

CFO statement

Reflecting the confidence in the outlook and the financial strength of the company, the Board of Directors has recommended a dividend payment of 3.83 roubles per share and per GDR (approximately US$0.11) for the 12 months ended 31 December 2013. The dividend is to be approved at the AGM on 11 June 2014. If approved, the dividend amount for all the quarters of 2013 will total 8.30 roubles.

Dear Shareholders,

2013 was an important year for Severstal, during which we continued to execute and develop our strategy for the long-term, sustainable development of our business. We made a number of structural and organizational changes to further reduce costs and enhance efficiency and we revised our strategic targets to increase our focus on free cash flow generation and deleveraging. These changes, in combination with the further roll out of our Business System projects which are now thoroughly embedded across the Group, enabled Severstal to consistently improve its earnings performance throughout the course of the year.

In 2013, our steel divisions – Severstal Russian Steel and Severstal International – delivered increased earnings and profitability despite weaker realized prices. In 2013, we continued to focus on lowering production costs at our mining operations and, encouragingly, our Russian coking coal operations at Vorkuta increased sales volumes despite a competitive and challenging market.

Q4 2013 was our strongest quarter in 2013 and represented the Group’s fourth consecutive quarter of earnings improvement with EBITDA of $611 million. Our EBITDA margin in Q4 2013 also increased, to 18.1 per cent, representing the highest level since Q4 2011.

The main drivers for our improving earnings performance in 2013 were our rigorous focus on cost optimization and the realization of our efficiency initiatives, which led to:

  • a 4.1 per cent decrease in Group cost of sales, achieved despite higher steel products sales volumes;
  • a 14.7 per cent decrease in Group G&A expenses to $639 million (FY12: $749 million);
  • a 10.3 per cent decrease in Group distribution costs, and;
  • a second consecutive year of unit cost reductions at our Russian mining operations.

We continued to improve our debt profile, lowering our debt the while improving our earnings. During the year we continued to decrease our gross debt, finishing the year with $4,754 million, which is 16.7 per cent down as compared to EOY2012. In other words, we lowered our gross debt over the last year by almost $1 billion. The net debt dynamics followed : as of EOY2013 the net debt was $3,718 million, which is 6.7 per cent lower as compared to EOY2012. During the course of the year our net debt/EBITDA ratio increased to 2.2 x from 1.8 x as of EOY12. However, our operational improvements and cost reduction initiatives enabled us to return to 1.8 x by end of the year and we are now well on track to achieve our internal target of 1.5 x.

We are comfortable with our strong liquidity position with $1,036 million in cash and cash equivalents and committed unused credit lines of $1,518 million, more than covering short-term debt of $1,085 million (including exercise of call option on 10.25% Severstal Columbus HY Bond of 525 million).

CAPEX in 2013 was $1,178 million, 18.6 per cent down year on year. We believe $1 billion is a sustainable level of annual CAPEX over the medium term and do not currently intend to exceed that amount.

Reflecting confidence in the outlook and the financial strength of the company, the Board of Directors has recommended a dividend payment of 3.83 roubles per share and per GDR (approximately US$0.11) for the 12 months ended 31 December 2013. The dividend is to be approved at the AGM on 11 June 2014. If approved, the dividend amount for all the quarters of 2013 will total 8.30 roubles.

Following our recent year's tradition, we held a Capital Markets Day on 14 th of November 2013 in London for the third consecutive year, continuing to deliver on our commitment to hold Capital Markets Day events on an annual basis. The members of Severstal’s senior management team updated investors and analysts on the company’s progress on the stated strategic objectives. During the event we demonstrated that Severstal’s focused strategy and vertically integrated business model positions the company to deliver continued outperformance throughout the industry cycle.
 
Despite another challenging year for the industry Severstal was able confirm its credit rating profile at BB+ by Standard & Poor’s and Ba1 by Moody’s.

Alexey Kulichenko
Chief Financial Officer

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