Severstal plans to maintain quarterly dividend payments
CHEREPOVETS. Nov 5 (Interfax) - Severstal plans to continue paying out quarterly dividends, CEO Alexander Shevelev told reporters.
"We believe that our dividend policy is rather effective and flexible, and allows us to resolve the goals of our investors to receive regular dividends. Given that the company is financially stable, we have no debt, and we plan to continue to maintain quarterly payments of our dividends," Shevelev said.
Severstal resumed paying out quarterly dividends in 2024 after a long break since Q3 2021. The company's dividend policy is tied to free cash flow. Severstal may distribute up to 100% of FCF as quarterly dividends at a net debt/EBITDA ratio below 0.5x. The company paid 191.5 rubles per share for 2023, 38.3 rubles per share in the first quarter of 2024 and 31.06 rubles per share in the second quarter, with 49.06 rubles per share recommended for the third quarter.
TIGHT DEMAND
Commenting on the situation regarding demand on the domestic market, Shevelev said, "The current year is ending with a rather tight situation."
The company expects that demand on the Russian market "will not be worse" next year compared to 2024, and that the decline in metal consumption will not continue. Severstal also plans to produce 11 million tonnes of metal in 2025 under this scenario, which "would be quite reasonable", Shevelev said.
Shevelev recalled that demand on the domestic market had fallen 9% by the end of the third quarter, and that a decline of 5% is expected by the end of the year.
"Meantime, it is clear that we produce products to meet demand. If demand declines, then we could adjust our production programs, because it is important for us to ensure sales in an economically substantiated way, and not to produce what the market does not demand," Shevelev added.
The pessimistic scenario envisages that consumption could decline another 1%-3% in 2025 accounting for "tight monetary policy, the availability of funds for partners, the company's clients and business overall," Shevelev said.
'FORCED' EXPORTS
Severstal plans to maintain the ratio of supplies to the domestic market and exports in 2025 at the 2024 level.
"We believe that it is substantiated to supply 80% of manufactured products to the domestic market, and it appears that we could be forced to export 20%," Shevelev said.
"Why do I say 'forced'? Because demand on the domestic market is weak. We are forced to enter other markets, [at a] lower margin and more complex, in order to maintain high production rates," he said.
Shevelev particularly named the countries of Asia and North Africa as being among the main export destinations.
TAXES BUT NO EXCESS PROFITS
The tax burden on metal companies will increased in 2025 amid cooling domestic demand, Shevelev said.
The increases in the mineral extraction tax (MET) for iron ore to 6.7% from January 1 will lead to a very significant rise in company costs.
"We have discussed various scenarios and possibilities [for lowering the tax burden] with state bodies, but no decisions have been made for now. The process is ongoing. We see on the one hand that the Industry and Trade Ministry is ready to discuss various options, but unfortunately the tax burden continues to increase at the same time," he said.
The company is in favor of cancelling the excise tax on steel or increasing the cut-off price to 60,000 rubles when calculating it with subsequent yearly indexation, he said.
"The excise tax was introduced as a temporary measure. Metal companies don't have that kind of excess profit now, so the cut-off price of 30,000 rubles seems very low," he said.
As reported, metal companies are asking for the price for slabs to be raised to 60,000 rubles, above which an excise tax on steel would be levied. The Industry and Trade Ministry has received the proposal and is currently working on it. The Finance Ministry has not yet received proposals.
According to the formula for calculating the excise tax for vertically integrated steel producers approved at the end of 2022, the excise tax is reduced to zero if the export price for slabs in a calendar month is lower than 30,000 rubles when multiplied by the monthly average ruble-dollar exchange rate value.
INVESTMENT PROJECTS
Despite the unexpected cooling demand on the Russian market, the company continues to implement its large-scale project for producing pellets in Cherepovets.
The company will complete the project in H2 2026, and is currently beginning to supply equipment to the work site, Shevelev said.
In October, the company announced that investment for the project would be raised by almost 20% from 97 billion rubles to 116 billion rubles. In June, Severstal concluded its special investment contract 2.0 for building a complex to produce iron ore pellets with a capacity of 10 million tonnes a year.
The company also confirmed plans to increase the capacities of the Yakovlevsky mine to 5 million tonnes.
"Regarding the mine's modernization, we are continuing our modernization program aimed at raising both productivity and safety, and which also aims to introduce various digital tools. The mine is working at full capacity; we will produce around 3.5 million tonnes of metal products by the end of the year. We will reach 5 million tonnes in 2026," he said.
Severstal plans to invest 6.6 billion rubles in the Yakovlevsky mine in 2024.
INVESTING IN THE ENVIRONMENT
The company is investing directly in environmental projects, Shevelev said. Its investments will increase 1.6-fold in 2024 compared to 2023, to 2.8 billion rubles. Severstal is planning around 60 environmental protection projects for 2025, which means investment in the environment will continue to grow the following year, he said.