Severstal' PAO : Severstal reports Q2 and H1 2015 financial results

23 July 2015

- Sustained performance in an uncertain environment -

Moscow, Russia - July 23, 2015 - PAO Severstal (MICEX-RTS: CHMF; LSE: SVST), one of the world's leading steel and steel-related mining companies, today announces its Q2 and H1 2015 financial results for the period ended 30 June 2015.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 30 JUNE 2015

Notes:

1) The amounts for Q1 2015 reflect adjustmentsarising from a change in the methodology for calculating the unrealised gain in inventory, reducing Q1 EBITDA by $7 million.The amountsforH1 2014 reflect adjustments made in connection with the presentation of the discontinued operation and the changein the methodology for calculating the unrealised gain in inventory, increasing EBITDA by $8 million.

2) EBITDA represents profit from operations plus depreciation and amortization of productive assets (including the Group's share in depreciation and amortization of associates and joint ventures) adjusted for gain/(loss) on disposals of PPE and intangible assets and for share in associates' and joint ventures' non-operating income/(expenses).

3) Free cash flow excludes discontinued operation.

4) Net profit from continuing operations after FX fluctuations.

5) Basic EPS from continuing operations is calculated on the following basis:net profit from continuing operations divided by theweighted average number of shares outstanding during the period: 810.6 million shares for Q2 2015, Q1 2015, H1 2015 and H1 2014.

Q2 2015 vs. Q1 2015 ANALYSIS:

§ Group revenue increased 18.0% q/q to $1,806 million (Q1 2015: $1,531 million) mostly due to RUB appreciation leading to higher average USD-denominated selling prices and a moderate seasonal rebound in sales volumes on domestic and export markets both in steel and mining divisions;

§ Group EBITDA increased 0.9% q/q to $588 million (Q1 2015: $583 million). The impact of RUB appreciation on the Company's cost base was fully mitigated by higher average USD-denominated selling prices and ongoing efficiency improvements. Group EBITDA margin was reduced to 32.6% in Q2 2015, but remains amongst the highest in the industry;

§ Net profit of $469 million (Q1 2015: $337 million) was positively impacted by a FX translation profit of continuing operations of $130 million. Adjusting for this non-cash item, Severstal would have posted an underlying net profit of $339 million (Q1 2015: $368 million excluding FX translation losses);

§ Excellent progress has been made in our strategic priority of enhancing free cash flow, which increased a substantial 105.3% q/q to $429 million (Q1 2015: $209 million). This improvement was partially driven by much better dynamics in working capital compared with Q1 2015 on the back of improved seasonal demand as well as the delayed receipt of cash from sales during the previous quarter;

§ Cash outflow on capex of $111 million, 7.8% higher q/q (Q1 2015: $103 million), reflecting our prudent approach to investments;

§ Recommended dividend payment of 12.63 RUB per share for the three months ended 30 June 2015.

H1 2015 vs. H1 2014 ANALYSIS:

§ Group revenue decreased 20.1% y/y to $3,337 million (H1 2014: $4,178 million) as the impact of lower realized prices was only partially mitigated by moderate increases in sales volumes at Russian Steel and Resources;

§ Group EBITDA increased 20.3% y/y to $1,171 million (H1 2014: $973 million), driven by Russian Steel's operational enhancements, lower input costs and RUB devaluation y/y, more than offsetting lower deliveries at Resources;

§ Continued strong free cash flow at $638 million (H1 2014: $589 million);

§ Cash outflow on capex of $214 million, 51.5% lower y/y (H1 2014: $441 million).

FINANCIAL POSITION HIGHLIGHTS:

§ Severstal gross debt increased 0.3% since the end of Q1 2015 to $2,907 million (Q1 2015: $2,899 million);

§ As at the end of Q2 2015, cash and cash equivalents were $1,552 million (Q1 2015: $1,522 million).

§ Net debt declined 1.5% to $1,355 million as at the end of Q2 2015 (Q1 2015: $1,376 million). Net Debt/EBITDA ratio remained largely flat q/q at 0.6x at the end of Q2 2015 (Q1 2015: 0.6x), remaining one of the lowest amongst steel companies globally;

§ Strong liquidity with $1,552 million in cash and cash equivalents and unused committed credit lines of $684 million, more than covers short-term debt principal requirements of $462 million;

§ Put option on Convertible Bonds can be realized in September 2015. Outstanding principal is $452 million.

Vadim Larin, CEO of JSC Severstal Management, commented:

"I am pleased to report that Severstal has delivered a sustained performance in an uncertain environment during the first half of 2015, despite more limited visibility in both domestic and export markets.

Despite substantial fluctuations in the FX market and a subdued global steel and steel-related raw materials pricing environment, the Group has demonstrated that it continues to deliver an industry leading performance. The flexibility of our operations is an important competitive advantage enabling us to increase our export sales volumes to target full utilization whilst maintaining our focus on internal efficiency and profitability.

We are confident that by the consistent execution of our stated strategy which focuses on efficiency, low-cost production, optimizing investment, and by prioritizing customer care and product quality, we remain positioned to deliver long term shareholder value and maximize shareholder returns."

REVIEW OF THE SECOND QUARTER ENDED 30 JUNE 2015

In Q2 Severstal delivered a sustained performance driven by the strength of our operations and management's ongoing and relentless focus on enhancing efficiency. Despite RUB appreciation driving growth in production and G&A costs, Severstal's EBITDA marginally increased q/q in Q2 2015, to $588 million (Q1 2015: $583 million). This has been supported by ongoing operational improvements and growth in USD-denominated average selling prices both at Russian Steel and Resources divisions, with an 18.0% q/q growth in revenue to $1,806 million (Q1 2015: $1,531 million). Even though the Group EBITDA margin reduced 5.5 ppts q/q to 32.6% (Q1 2015: 38.1%), it is still significantly ahead of the industry cycle-average EBITDA margin of approximately 20%.

A seasonal uptick in demand both domestically and in export markets led to a 4% q/q increase in consolidated steel product sales, to 2.66 mnt. The latter has been achieved despite less pronounced seasonality and existing issues with steel consumption in the domestic market this year. Severstal's proximity to export markets, however, allowed it the flexibility to shift between domestic and export deliveries.

Severstal's gross debt reduction is currently largely maturity-driven, with around 90% of the Company's gross debt being public. In September 2015 Severstal can repay up to $452 million of Convertible Bonds, assuming the Put Option is realized.

We maintain a prudent and flexible approach to capex which is focused on operational efficiency and further improvement of product mix and customer service. Our FY 2015 capex has been set at RUB 30 billion, the overwhelming majority of our capital expenditure being RUB-denominated. That said, capex in H1 was down 51.5% y/y at $214 million (H1 2014: $441 million).

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