The Russian steel producer Severstal has posted a $1.037 billion net loss in 2009 compared to a $2.03 billion net profit in 2008, with an unexpected $162 million net loss in Q4 2009 after a $71 million net profit in Q3.
Accordingly, as a result of very difficult market conditions, particularly in the first half of 2009, which led to lower sales volumes and lower average prices, Severstal's 2009 revenue went down to $13.054 billion compared to $22.393 billion in 2008, while its EBITDA amounted to $844 million compared to $5.358 billion in 2008.
"Solid economic growth in emerging markets and a gradual recovery of demand in mature markets have improved the outlook for 2010," Severstal CEO Alexey Mordashov said.
Severstal's performance improved in Q4 due to a more favorable trading environment and cost-cutting measures which had a positive impact on the operational performance of all divisions. A significant improvement in EBITDA to $630 million in Q4 from $373 million in Q3 was achieved due to the strong performance at Severstal Russian Steel and Severstal Resources. Severstal's domestic division continued to improve with Russian Steel capacity utilization being above 95 percent due to strong export demand and low production costs, and with Severstal Resources' production volume back to the pre-crisis level. In its international division, Severstal's North American operation improved its underlying performance and European operations were profitable at the EBITDA level.
In 2009, Severstal's capital expenditure was $1.0 billion, while in 2010 the company plans to increase its capital expenditure program to $1.4 billion, reflecting its 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 investments will be focused on enhancing Severstal's vertically integrated model and mini-mill capacity to target growth in the Russian infrastructure and construction markets and will be focused on improving its competitive position in higher value-added markets in the US.
In 2009, Severstal's strong free cash flow position enabled a reduction of $449 million in its net debt in Q4 to $4.278 billion as of December 31, 2009 compared to $4.727 billion as of September 30, 2009.
"Growing demand from China for coking coal and iron ore has already led to higher spot prices for these raw materials to date in 2010. We believe this trend will be sustained during the year, especially from Q2 onwards, giving Severstal a strong competitive cost advantage through our vertically integrated business model. Combined with the benefits of the cost management and debt reduction initiatives implemented during 2009, we believe we are well positioned to benefit from improving steel markets in 2010 and to invest in growth and an enhanced product mix," Mr. Mordashov stated.