Severstal and MMK publish financial statements for the first time since 2021

Severstal and MMK, which published financial statements for the first time since the end of 2021, reported a moderate decrease in revenue and EBITDA due to lower steel prices. However, profitability has only returned to pre-crisis times, and both companies emphasize the almost full capacity utilization and high demand for metal in the domestic market. Both companies have reduced their net debt to negative levels and accumulated money in their accounts, which creates opportunities for M&A. However, according to analysts, metallurgists will prefer to pay dividends rather than buy assets.

Oriented to the domestic market Severstal And MMK reported a decrease in revenue and EBITDA for the first half of the year. Financial figures are published for the first time since the end of 2021. The reason for the decline in financial performance is the decline in prices for metal products.

Severstal’s revenue decreased by 10% to 339.4 billion rubles. “The decrease in prices was partially offset by an increase in the share of finished goods in the sales portfolio and an increase in sales volume,” the company said in a report.

EBITDA decreased by 12% to RUB 118.4 billion. The EBITDA margin decreased by one percentage point to 35%.

Severstal and its owner Alexei Mordashov are under European and US sanctions. Until 2022, the European market was one of the key markets for Severstal. “At the moment, we can say that Severstal has, in many respects, successfully coped with these challenges. The current level of utilization of our capacities is stable, production utilization is close to full. We managed to reorient significant volumes from export destinations to the priority domestic market,” CEO Alexander Shevelev commented on the results.

MMK Viktor Rashnikov reduced revenue for the first half of the year by 12.5%, to 352.7 billion rubles. EBITDA decreased by 14.5% to RUB 88 billion. EBITDA margin declined slightly to 25%. Boris Krasnozhenov, head of analytical research at Alfa-Bank, notes that profitability has returned to levels that were average for the cycle until 2020.

MMK noted the maximum load of the units and expects that the favorable conjuncture of the Russian market will continue in the third quarter.

“Demand stabilization at a high level will be supported by seasonal construction activity and sustainable consumption in other industries,” the report says. Capital investments of MMK increased by 35.5% to 45 billion rubles.

So far, Vladimir Lisin has not submitted a report from NLMK. According to My Investments analysts, the company’s EBITDA will grow by only 10% to $1.3 bn due to the discount on export sales of the slab.

Severstal and MMK have negative net debt: minus 153.4 billion rubles. and minus 84.2 billion rubles. respectively. My Investments expects the same for NLMK – minus $0.2 billion. Cash and equivalents on Severstal accounts grew by 62%, to 300.7 billion rubles, and for MMK – by 83%, to 151 billion rub.

Taking into account the practice of withdrawing excess profits from metallurgists, negative net debt and accumulation of funds in accounts create prerequisites for the growth of capital investments, M&A or dividend payments. In addition, metallurgists are faced with the task of reducing production costs, while their profitability is still declining due to limited access to export markets. For example, MMK in July announced on the acquisition from IMH of the Tikhov mine in Kuzbass with a capacity of 1.5 million tons of 2Zh coal. The amount of the transaction was not named, but IMH disclosed that it expected to receive 22 billion rubles for the mine. to cover part of the debt. Dmitry Smolin, senior analyst at Sinara investment bank, however, believes that the presence of significant funds on the balance sheet is not a driver for M&A. “If there are attractive assets to buy, Russian metallurgists can easily attract bank financing for M&A. So, most likely, the money will be used to pay dividends,” he said.

According to Boris Krasnozhenov, Russian companies do not have many options for M&A in the domestic market. Companies can focus on developing vertical integration into commodity assets (iron ore and coking coal). Excess balance sheet cash can also be used for organic growth projects and downstream M&A. “In this case, we can talk about the production of special steel grades and various metal-intensive industries (energy equipment, production of automotive parts, etc.),” the analyst noted.

Evgeny Zainullin