Evraz refuses regular payments until 2017

Evraz will not pay regular dividends until it reduces its leverage to a net debt to EBITDA ratio of less than 3. The company is expected to achieve this by 2017 by cutting costs and reducing capex. Other metallurgists, with the exception of the unprofitable Mechel, do not yet plan to limit payments.

President of Evraz Group Alexander Frolov
Photo: Dmitry Lekai, Kommersant / buy photo

Evraz has revised its dividend policy. The company will refuse to pay regular dividends until it achieves a reduction in net debt/EBITDA below 3, which should happen by the end of 2016. At the end of 2013, Evraz's net debt increased by 2.5%, to $6.53 billion, mainly due to the consolidation of $558 million of Raspadskaya debt. Evraz's net debt/EBITDA ratio was 3.6.

President and co-owner of Evraz Alexander Frolov explained to Kommersant the temporary refusal of dividends by the lack of “flexibility” among large industry players to respond to new negative changes in market conditions. “We do not expect that there will be large-scale positive changes in the market within one to three years; we will use available funds to put the company’s affairs in order,” he added. Evraz CFO Giacomo Baizini clarified that by the end of 2016, the company's debt burden should decrease to the target level due to payments from free cash flow, which will increase due to cost reductions and limiting the level of capex. The company's presentation indicates that the effect of cost reduction should bring in $350-400 million annually, and CAPEX for 2014-2015 is planned at no more than $900 million per year (in 2011-2012 it exceeded $1.2 billion).

Evraz's previous dividend policy, approved in October 2011, provided for the payment of at least 25% of net profit on ordinary dividends and special dividends to “return excess capital to shareholders.” At the height of the crisis, the company paid out $200 million in shares for 2008 and then returned to dividends only in 2011. The last time Evraz paid dividends was in 2012 - for 2011 ($256 million) and the first half of 2012 ($147.4 million), but at the end of the year it showed a loss, and there were no special dividends from the sale of Evraztrans for $306 million in November.

Evraz will retain the practice of paying special dividends. The company's board of directors recommended paying it out this year in the amount of $90.4 million (6 cents per share), which corresponds to cash proceeds from the sale of Czech Vitkovice Steel announced on April 4 (another $196.6 million will be used to pay off debt). Senior Vice President for International Activities of Evraz Pavel Tatyanin clarified that, apart from 85% of the South African Evraz Highveld Steel & Vanadium (HSV) plant, the company currently has no other large assets for sale. The deal to sell HSV to local consortium Nemascor for $320 million was announced in March 2013, but has not yet been closed.

Investors took the refusal to regular dividends surprisingly optimistically: Evraz shares on the London Stock Exchange rose in price all day, by 19:30 Moscow time - by 4%. According to Oleg Petropavlovsky from BCS, the attitude of investors towards metallurgical securities has long been pessimistic, so the news about the revision of the dividend policy was outweighed by strong reporting and plans for special dividends. According to the analyst, of the Russian steel companies, Severstal is considered the most attractive on the market, which pays quarterly dividends (last year the company paid out about $200 million in total). At the end of 2013, the dividend yield of Severstal and Evraz will be 4%, while NLMK will have only 1% (dividends could amount to about $45 million), notes Mr. Petropavlovsky. MMK can also pay dividends, the company’s deputy general director for finance, Sergei Sulimov, said yesterday (the company did not pay them in 2012 due to losses). None of these companies currently have any plans to abandon sustainable dividend payments in the future. Only the unprofitable Mechel owned by Igor Zyuzin has not paid dividends on ordinary shares since 2011.

Anatoly Dzhumailo

Dividends have been waiting for three years