9 Mar 2010 11:03

Severstal posts $162 mln Q4 net loss, not recommending dividends

MOSCOW. March 8 (Interfax) - Severstal said it would not be recommending dividends for the fourth quarter of 2009 and would be keeping the resumption of dividends under review after closing the period with net losses of $162 million compared with profit of $71 million in Q3 2009.

Net losses for FY 2009 were $1.037 billion, compared with net profit of $2.029 billion.

Analysts told Interfax in a consensus forecast they thought net losses would be $152 million in Q4 2009.

Severstal said in its earnings report that earnings before taxes, depreciation and amortization (EBITDA) increased by 68.9% to $630 million in Q4 from $373 million in Q3, driven primarily by strong performance at Severstal Russian Steel and Severstal Resources.

"Further price increases across all markets, improvements in demand for value-added products, and the benefits of restructuring and cost reduction initiatives resulted in improved EBITDA and strong cash flow," Severstal said.

Severstal had an improved EBITDA margin of 16.1% for Q4, compared with 10.7% in Q3, due to cost saving initiatives and higher utilization rates across the company.

Sales revenue was up 12.4% to $3.919 billion in Q4 from $3.487 billion in Q3.

Analysts said they thought Severstal would see $3.8 billion EBITDA and $570 million revenue in Q4 2009, so these results were better than forecast.

Severstal reported strong free cash flow of $519 million in Q4 2009 compared with $279 million in Q3 2009, which it said led to $449 million reduction in net debt to $4.278 billion as at December 31, 2009.

Severstal said sales revenue plummeted to $13.054 billion in FY 2009 from $22.393 billion in FY 2008 as a result of "very difficult market conditions," particularly in the first half of 2009, which led to lower sales volumes and average prices.

FY 2009 EBITDA shrank to $844 million, from $5.358 billion in FY 2008.

Severstal said it focused on cash and capital expenditure discipline, making $1 billion of investments in 2009, in line with full year guidance.

Last year was "a difficult year for the global steel industry but the decisive actions we took during the year leave the Company well positioned for 2010," said Alexey Mordashov, Severstal's CEO. "Solid economic growth in emerging markets and a gradual recovery of demand in mature markets have improved the outlook for 2010. Furthermore, growing demand from China for raw materials has already led to higher spot prices for iron ore and coking coal in 2010, a trend we believe will be sustained during the year," Mordashov said.

"In this trading environment, our flexible cost base, vertically integrated model and solid financial position provide us with additional competitive advantage to benefit from improving steel markets and invest in growth and an enhanced product mix. We look forward to 2010 with confidence," he said.

Severstal has assets in Russia, North America, Europe and Ukraine. Mordashov controls 82% of the shares and the free float is around 18%.

Severstal said its board was "not recommending payment of a dividend for Q4 2009" and would "keep the resumption of dividends under review."

Capital expenditure was $1 billion in 2009, in line with Severstal's target for the year. "In 2010, we will increase our capital expenditure program to $1.4 billion, reflecting our improved confidence in the market outlook. Approximately $685 million will be spent on key projects in the Russian Steel Division, $356 million in the Resources Division and $413 million in North America," the company said.

"These investments will support the company's organic growth and enhance our competitive position. They will be focused on enhancing our vertically integrated model and mini-mill capacity to target growth in the Russian infrastructure and construction markets and on improving our competitive position in higher value added markets in the United States," the company said.