Severstal CEO Alexander Shevelev: We must be sure that cash flow could withstand all our projects and plans
Alexander Shevelev
Press-office
Severstal presented a new strategy for development until the end of 2028 in early June. Severstal CEO Alexander Shevelev told Interfax in an interview during the 2024 St. Petersburg International Economic Forum (SPIEF) about the way company's work will be structured under changes expected in the Tax Code and how these amendments will affect the company's strategy and dividend policy.
Q.: The most debated subject at this year's forum was tax changes. As we understand it, businesses support a higher corporate income tax on condition that turnover taxes are abolished. Can you tell us what proposals are being discussed with the government?
A.: From our point of view, the only correct option is to change the systemically important tax, namely, the corporate income tax. It is clear to businesses, which form a significant part of tax deductions for the government, and it is fair that the higher the profit the more we pay. We also support a higher personal income tax for wealthier persons, realizing that this will ensure a fairer distribution of the burden.
However, we do not support or understand various kinds of turnover taxes, temporary or one-off charges, which then remain for an indefinite period. Businesses plan for the long term. Severstal seriously invests in not only development and equipment, but also in the social area, in employees and the regions of presence, and we are consciously increasing the volume of investments, about which are spoken of so often. We must be sure that our cash flow, which we generate as a business, could withstand all current projects and plans that we set for ourselves.
This has been possible to date. However, we would prefer predictability, and our shareholders require long-term plans from us, and achievement of our strategy goals. We would not like to change something along the way and give up something important for the business.
Q.: But still, there are specific figures behind the rent fees, which the Finance Ministry expects to collect. How, in your opinion, is it possible to do this with turnover taxes waived? Can we say that businesses agree to a corporate income tax higher than 25% as voiced?
A.: It seems to me that at this stage 25% is a rather serious, but affordable rise for businesses. Herman Gref voiced a very correct idea at the Sberbank breakfast [during the SPIEF] that any tax increase results in a lower GDP. This means that the government gains less from higher taxes than businesses could have contributed to the growth of the economy without such an increase and through their own development. This is all obvious, but we may be trying to reinvent our own wheel.
Q.: Do you get the feeling that businesses could be heard and rent taxes could be scrapped?
A.: I am convinced that we can and should talk about it. The truth is born in discussion.
Q.: But you do not offer any alternatives to turnover taxes. If we fail to make up the shortfall through, say, mineral extraction tax (MET), what are other options?
A.: We cannot offer anything, because we are not involved in the discussion. We do not see any calculations and justifications of certain amounts that need to be collected. No one has discussed this with us. If we ensure full transparency of the discussion, create some kind of platform for analysis, involve businesses in the discussion, maybe other formats or proposals to fill the budget would appear.
Q.: Severstal has recently published a new development strategy until the end of 2028, and the amendments to the Tax Code were announced after its endorsement. Do you expect the strategy to be adjusted in terms of projects, or in terms of timeframe and size of investments?
A.: The strategy is designed to enhance the already fairly high financial stability of our company. We plan to invest in our own growth, boost EBITDA by 150 billion rubles over five years, and our task as management is primarily to ensure the necessary financial stability, particularly so that any planned or unplanned additional expenses could be leveled out for the company. We do not jeopardize the financial stability of our company, nor social projects for our employees, nor the interests of our investors.
Q.: Is it possible to revise the dividend policy due to the recent proposals for tax changes?
A.: We do not believe that this will somehow call our dividend policy into question. Our dividend policy is transparent, investors like it, and we have no plans to alter it in any way.
Q.: The company is implementing a project to build an iron-ore pellet plant in Cherepovets, and plans to expand the production of iron ore under the project. Could a higher MET make you revise your strategy in this regard and ramp up, for example, the purchase of ore from third-party producers?
A.: We enter the market from time to time, which is not because we do not have ore, but because we see the economic feasibility of buying iron ore concentrate from independent companies.
As for MET, we need to realize that all companies extracting ore will have to pay the tax, and they will try to transfer these costs to the price, that is, to the consumer. Therefore, we see no point in increasing purchases instead of our own production.
Q.: Last year, you paid 11 billion rubles of the excise tax on steel, what is the target for this year?
A.: It is between 13 billion and 15 billion rubles.
Q.: Metallurgists say that prices on the domestic market are not linked to global indicators. Is it correct to interpret this to mean that companies no longer look at what is happening outside the Russian market and do not focus, for example, on Chinese steel?
A.: De facto, prices on the domestic market are not linked to global prices. As for Severstal, we have almost no exports. All we export is to neighboring countries and a limited number of friendly countries. Therefore, in essence, there is no comparison with global prices.
At the same time, speaking about the very concept of "global prices", it is important to note that very often everyone interprets global prices as what is convenient for him.
We often hear that Chinese indicators are referred to as global prices, but this is not quite right, as China is a major exporter, but not the only one. I believe that we should also take into account the indicators of the European Union and America. Indeed, we cannot supply there, but if we compare global prices, we should not only refer to Chinese indicators, which are currently at a rather low level due to the demand in China. Besides, Chinese metallurgists are known to be actively supported by the government, while in Russia there is no such thing. Therefore, when we speak about global prices, we should take into consideration actual, real, and objective global prices.
Of course, there are indirect indicators, which we are guided by as a trend, but there is no rigid link.
Q.: But at the same time, the tax formulas or the excise duty on steel are usually oriented at export prices...
A.: In my opinion, the export indicators to which the levies are linked are a wrong thing. The excise duty on steel was an element of working with excess profits and was introduced when there were high export prices, high exports. Today, the situation has changed. We do not export, prices have long been at other levels, and the cost of production has increased significantly. However, the calculation formula has not changed.
Today, the excise tax is levied if the export price of slabs exceeds 30,000 rubles. Today, we cannot work with production costs below 30,000 rubles, which is a fact. Therefore, everything that we can produce is automatically subject to the excise tax. The conditions have changed, but this is not taken into account.