MMK.L Regulatory News (MMK)

20 Jun 2007 07:00

OJSC Magnitogorsk Iron &Steel Works20 June 2007 IAI Magnitogorsk Iron and Steel Works announces US GAAP financial results forthe 1st Quarter of 2007, reported in accordance with US GAAP IAI Magnitogorsk Iron and Steel Works, one of the leading integratedmetallurgical companies, announces consolidated financial statements for the1st Quarter of 2007, reported in accordance with generally accepted accountingprinciples in US ( US GAAP). 1. Financial Results • The OJSC MMK Group's gross revenue in the 1st Q of 2007 has grown 51.7% against the 1st Q 2006 figures totaling USD 1.845 billion. • The operating income has gone up to USD 449 million, a 53.8% growth on the 1st Q of 2006, accounting for 24.3% of the gross revenue. • OJSC MMK's 2007 Q1 net income has grown 41.1% on the 2006 Q1 amounting to USD 350 million, or USD 0.034 per share, with the net income accounting for 19.0% of the revenue. • The 2007 Q1 EBITDA has reached USD 507 million, or 27.5% of the revenue. This represents an increase of USD 171 million, or 50.9%, on the 2006 Q1. MMK Group's Income Statement (Table 1) Q1, USD million Change Y-O-Y 2007 2006 USD m %Gross revenue 1,845 1,216 629 51.7% Income from operating activities 449 292 157 53.8%% of revenue 24.3% 24.0% Income before tax and minority interest 471 341 130 38.1%% of revenue 25.5% 28.0% Net income 350 248 102 41.1%% of revenue 19.0% 20.4%Comprehensive income 406 248 158 63.7%% of revenue 22.0% 20.4%EBITDA* 507 336 171 50.9%% of revenue 27.5% 27.6% Basic and fully diluted earnings percommon share (USD) 0,034 0,024 0,01 41,7% * EBITDA (Earning Before Interests, Tax, Depreciation and Amortization) = Incomefrom operating activities + Depreciation and Amortization + Loss on disposal ofproperty, plant and equipment The core company of the MMK Group is the Magnitogorsk Iron and Steel Works OpenJoint Stock Company (OJSC MMK). The share of OJSC MMK's sales to third partiesin the Group's total revenue is 58.1%, and taking into account sales to the MMKGroup's subsidiary traders, 91.8% (see Table 2). The proportion of OJSC MMK'sassets in the total MMK Group's assets was 87.3% as at the end of Q1 2007. It isobvious that OJSC MMK's results have a decisive effect on the results of theGroup as a whole. MMK Group Sales to Third Parties (Table 2) Q1, USD m Change Y-O-Y 2007 2006 YSD m %Revenue of OJSC IIE 1,072 738 334 45.3%% of the Group's revenue 58.1% 60.7%Revenue of the MMK Group's traders 621 390 231 59.2%% of the Group's revenue 33.7% 32.1%Revenue of the Group's other companies 152 88 64 72.7%% of the Group's revenue 8.2% 7.2%Group's gross revenue 1,845 1,216 629 51.7% The income structure of the MMK Group, compared to the same period of last year,has changed as follows: 1) proceedings from sales through the Group's tradersincreased by 59.2%; 2) revenues of the MMK Group's subsidiaries grew by 72.7%.This was mainly due to the growth of sales by such companies as OJSC MMK-METIZ(an increase of USD 46.5 m, or 55%, to USD 103.2 m), ZAO Stroityelny Komplex (anincrease of USD 4.3 m, or 66.5%, to USD 10.7 m), and also to the inclusion inthe revenues of the MMK Group's other companies of revenues generated by OOOBakalskoye Rudoupravlenie (Bakal Mining Administration) (a growth of USD 6.4 m). In the 1st quarter of 2007 OJSC MMK produced 3,145,000 tonnes of crude steel andsold 2,930,000 tonnes of commercial products, a year-on-year increase of 8.9%and 11.7%, respectively. The growth of the production levels and sales has beenpossible thanks to the expansion of the Company's production capacities. The average price of 1 ton of steel products sold by OJSC MMK in Q1 2007 was USD536, that is, USD 106, or 24.7%, up on Q1 2006. MMK Group Sales By Product (Table 3) Q1, USD m Change Y-O-Y 2007 2006 USD m %Billets and Slabs 67 1 66 X67% of revenue 3.6% 0.1%Flat-rolled products 1,047 676 371 54.9%% of revenue 56.7% 55.6%Long products 191 110 81 73.6%% of revenue 10.4% 9.0%Downstream products 417 337 80 23.7%% of revenue 22.6% 27.7%Other products and services 123 92 31 33.7%% of revenue 6.7% 7.6%Total revenue 1,845 1,216 629 51.7% The growth of consolidated revenues compared to last year's results has beendriven by the growth of production levels and sales and changes in the salesstructure, such as: • increased sales of slabs and billets due to the expansion of MMK's steel smelting capacity which has grown faster than the downstream processing capacity; • increased sales of long products and their greater share in the total revenues; • increased revenues from sales of flat and downstream products; and • increased sales of other products and services by the Group's companies. MMK Group's Operating Expenses (Table 4) Q1, USD m Change Y-O-Y 2007 2006 USD m, %Cost of products sold (exclusive ofamortization 1,110 723 387 53.5%and depreciation)Amortization and depreciation 49 42 7 16.7%Selling and distribution expenses 131 81 50 61.7%Administrative expenses 64 59 5 8.5%Social costs 19 13 6 46.2%Taxes other than income taxes 19 8 11 137.5%Other operating losses and incomes * 4 (2) 2 * Other operating income and losses include Loss on disposal of property, plantand equipment + Other operating incomes and losses Changes in costs were mainly attributable to increased levels of production andgrowth of average purchasing prices for main raw materials. The Q1 2007 selling and distribution expenses have grown faster (by USD 50 m, or61.7%) that other items mainly because of the increased costs of transportinggreater quantities of products shipped to the MMK Group's captive traders (anincrease of USD 39.3 m, or 66.8%). Administrative expenses have grown within the inflation rate. Social costs have gone up because of increased welfare costs, plus costs of USD7 m allocated for the construction of the Metallurg Ice Arena. The Q1 2007 operating income has grown 53.8% year-on-year, with the operatingmargin standing at 24.3% (24.0% in Q1 2006). The Q1 2007 earnings before tax and minority interest and net income has grownfaster than the operating income because of reduced financial income. Theexchange gain has been recorded at USD 21 m against USD 47 m in Q1 2006. EBITDA has grown 50.9% to USD 507 m. The EBITDA /tonne of steel was USD 161,which is USD 45, or 38.8%, higher than the USD 116 level for Q1 2006. EBITDAmargin amounted to 27.5% remaining at a high level. MMK Group's Free Cash Flow (Table 5) --------------- ---------------- --------------- --------- Q1, USD m Change Y-O-Y USD m, --------------- ---------------- --------------- --------- % 2007 2006 --------- ---------Funds from operations * 422 303 119Change in working capital 14 -119 105Net cash provided by operating 436 184 252activitiesCAPEX -179 -152 -27Free cash flow 257 32 225----------------------------- --------- --------- --------- * Funds from operations = Cash provided by operating activities before Change inworking capital The operating cash flow generated by the Group (which in Q1 2007 amounted to USD436 m - see Table 5) is sufficient to ensure stable operations of all of theGroup's companies and implement a large-scale investment program. The cash flow from the change in working capital amounted USD 14 m. The Q1 2007 expenditure on fixed and intangible assets amounted USD 179 m. In Q1 2007 OJSC MMK paid dividends in the amount of USD 330 m ( exclusive ofdividends on treasury stock). 2. Financial Position MMK Group's Balance Sheet, USD m (Table 6) 31.03.2007 31.12.2006Total current assets, including 2,389 2,480Cash and cash equivalents 270 338Short-term bank deposits 192 228Short-term investments 315 325Trade accounts receivable 463 422Allowance for doubtful accounts receivable -11 -12Inventories 700 688Other receivables and current assets 460 491Non-current assets, including 3,415 3,209Property, plant and equipment 2,886 2,764Other non-current assets 529 445Total Assets 5,804 5,689Non-current liabilities, including 703 686Long Term Debt and capital lease obligations 590 606Other long-term liabilities 113 80Current liabilities, including 996 964Short Term Debt 393 400Trade accounts payable 187 225Other payables and current liabilities 416 339Minority Interests 20 12Equity 4,085 4,027Total liabilities and stockholders' equity 5,804 5,689 The MMK Group's financial position is characterized by the following: High liquidity level: The amount of current assets has decreased by 3.7% (mainlydue to lower cash and short-term deposits), while current liabilities have grownby 3.3% (due to increased other short-term debt). Current liquidity ratio haslowered from 2.6 as at the end of 2006 to 2.4 as at the end of Q1 2007. TheGroup's cash and cash equivalents as at the end of Q1 2007 was USD 270 m. MMK'sfree cash funds are invested in highly liquid financial instruments, such asbank deposits or securities for resale and receiving additional income. Low degree of dependence on external borrowing: Financial leverage calculated asthe ratio of total debt to equity was 0.42 as at the end of Q1 2007. The ratiosof debt under credits and loans to equity and to EBITDA for the entire year were0.24 and 0.48, respectively. The Group's net debt was USD 521 m. Analytic indicators (Table 7)Ratios Q1 2007EBITDA margin 27.5%Return of Equity (ROE) = Net Income / Total Equity (average for theperiod) 34.7%Net cash provided by operating activities / EBITDA 86.0%Current ratio = Current Assets / Current Liabilities X 2.40Leverage = Total Liabilities / Total Equity X 0.42Debt / Equity X 0.24Debt / EBITDA * X 0.48Interest EBITDA Coverage = EBITDA/ Interest Expense X 33.8Debt 983Net Debt = Debt - Cash and equivalents - Short-term deposits 521 * EBITDA was multiplied by 4 for conversion to the annual value. The results of consolidated financial report for Q1 2007 prepared according toUS GAAP can be found here: http://www.mmk.ru/eng/financial/2007/index.wbp________________________________________________________________________ Notes to editors: About MMK OJSC Magnitogorsk Iron & Steel Works ("MMK") ranks 20th among the world'slargest steel producers (Source: IISI) and is one of the largest steel producersin Russia (Source: Chermet). It accounts for 17% of total Russian output ofsteel products (Source: Chermet). MMK is a major steel mill with a fully integrated production cycle, from thepreparation of iron ore through to downstream processing of steel. MMK believesthat is produces the broadest range of steel products among Russian and CISsteel producers, and has a particular focus on high- value added steel products. In 2006, the Company produced 12.5 million metric tons of crude steel andshipped 11.3 million metric tons of commercial steel products. Revenue of OAOMMK and its consolidated subsidiaries in 2006 in accordance with US GAAP totaled6.4 billion USD and net income was 1.4 billion USD. Contact information: Press-secretary: Elena Azovtseva +7 3519 24 90 82 E-mail: azovtseva@mmk.ru Head of the IR Department: Evgeniy Kovtunov +7 3519 24 93 55 E-mail: kovtunov@mmk.ru This information is provided by RNS The company news service from the London Stock Exchange