MMK.L Regulatory News (MMK)

4 Dec 2007 07:51

OJSC Magnitogorsk Iron &Steel Works04 December 2007 Press Release December 4, 2007 Magnitogorsk Open Joint Stock Company Magnitogorsk Iron and Steel Works, one of the leadingRussian integrated steel making companies, announces the results of itsconsolidated financial statements for the nine months of 2007 according to USGAAP. 1. Financial results • The revenue of MMK Group in the nine months of 2007 increased by 32.31% compared to the nine months of 2006 and amounted to USD 6 150 million. • The operating income reached 1 626 million or 26.44% of the revenue. The growth compared to the nine months of 2006 amounted to 24.88%. • The 2007 9 months' consolidated net income of the Company increased by 30.31% against the same period of last year and amounted to USD 1 393 million, i.e. USD 0.13 per share. The net income accounted for 22.65 % of the revenue. • EBITDA for the nine months of 2007 reached USD 1 821 million or 29.61% of the revenue. Compared with the nine months of 2006 EBIDTA of the Company grew by USD 374 million or 25.85%. Income Statement of MMK Group (Table 1) ------------------ --------------- ------------------- 9 months of 2007 Year on year change USD million 2007 2006 USd million %Gross revenue 6,150 4,648 1,502 32.31%Income from operating activities 1,626 1,302 324 24.88%Margin on revenue 26.44% 28.01%Income before tax and minorityinterest 1,783 1,408 375 26.63%Margin on revenue 28,99% 30,29%Net income 1,393 1,069 324 30.31%Margin on revenue 22.65% 23.00%Comprehensive income 1,720 1,069 651 60.90%Margin on revenue 27.97% 23.00%EBITDA * 1,821 1,447 374 25.85%Margin on revenue 29.61% 31.13%Basic and fully diluted earnings percommon share (USD) 0.130 0.105 0.025 23.81% * Earnings Before Interests, Tax, Depreciation and Amortization = Income fromoperating activities + Depreciation and Amortization + Loss on disposal ofproperty, plant and equipment The main company of the Group is OJSC Magnitogorsk Iron and Steel Works. Theshare of OJSC MMK's sales to third parties accounts for 57.89% of the grossrevenue of the Group and together with the sales of MMK Group steel traders, for90.08% (see table 2). It is obvious that the operating results of OJSC MMK havea determining influence on the financial results of the Group. Sales of MMK Group to third parties (Table 2) ------------------ ---------------- ------------------ 9 months of 2007 Year on year change ------------------ USD million ------------------ ---------------- 2007 2006 USD million % -------- --------- ------------- ------ ------------------Revenue of OJSC IIE 3,560 2,669 891 33.38%% of Gross revenue 57.89% 57.42%Revenue of Group Metal-traders 1,980 1,617 363 22.45%% of Gross revenue 32.20% 34.79%Revenue of Others Group 610 362 248 68.51%Subsidiaries% of Gross revenue 9.92% 7.79%Gross revenue 6,150 4,648 1,502 32.31%------------------ -------- --------- --------- ----------- The following changes occurred in the revenue structure of MMK Group comparedwith the similar period of the last year: 1) the revenue of OJSC MMK, the parentcompany of the Group, in the consolidated sales increased by 33.4% due to thegrowth of steel prices and steel shipments to the domestic and CIS markets; 2)the growth of the revenue from the increased export sales of steel productsthrough the Group steel traders stood at 22.4%; 3) the revenue of MMK Groupsubsidiaries increased by 68.5%. In particular, the revenue of MMK-Metiz grew byUSD 157 million, the revenue of ZAO Stroitelny Complex, by USD 23 million, andthe revenue of MMK-Profil-Moscow, by USD 25 million. The revenue of BakalskoyeRudoupravlenie in the amount of USD 23 million is included in the Group revenue. In the nine months of 2007 OJSC Magnitogorsk Iron and Steel Works produced 9 934thousand tons and sold 9 071 thousand tons of commercial steel products, whichis respectively 8.1% and 8.6 % more than in the same period of 2006. Increase inproduction and sales volumes is accounted for by the expansion of the company'sproduction facilities. The average price of 1 ton of steel products sold by OJSC MMK during the ninemonths of 2007 amounted to USD 586, which is USD 101 or 20.7% higher than in thesame period of 2006. Breakdown of MMK Group sales by product types (Table 3) ------------------ ---------------- 9 months of 2007 Year on year change ------------------ USD million ------------------ ---------------- 2007 2006 USD million % -------- --------- --------- -----------------------------Billets and Slabs 290 33 257 x8.7% of Revenue 4.72% 0.72%Flat-rolled products 3 419 2 754 665 24.14%% of Revenue 55.60% 59.25%Long products 628 425 202 47.59%% of Revenue 10.21% 9.15%Downstream products 1 374 1 137 237 20.87%% of Revenue 22.34% 24.45%Other metal products 26 0 26 n.a.% of Revenue 0.42% 0.00%Other products and benefits 413 299 114 38.27%% of Revenue 6.72% 6.43%Gross revenue 6,150 4,648 1,502 32.31%------------------ -------- --------- --------- ----------- The growth of the consolidated revenue compared with last year was prompted byincreased production and sales of all types of steel products, in particular: • Increase in sales of slabs and billets. This increase was due to the expansion of the Company's steel making facilities and the resulting increased production of commercial slabs and billets. • Increase in sales of long products and their share in the total revenue thanks to the start-up of new state-of-the-art section mills. • Growth of the revenue from sales of flat and downstream products; • Increase in the sales of other products and services by the companies of the Group. Operating expenses of MMK Group (Table 4) ------------------ ---------------- 9 months Year on year change ------------------ USD million ------------------ ---------------- 2007 2006 USD million % -------- --------- ----------- ----- ------------------Cost of products sold (exclusiveamortization 3 644 2 624 1 020 38.87%and depreciation)Amortization and depreciation 152 132 20 15.15%Selling and distribution expenses 399 301 98 32.56%Administrative expenses 225 213 12 5.63%Social costs 56 48 8 16.67%Taxes other than income taxes 59 41 18 43.90%------------------ -------- --------- --------- ----------- Production costs were primarily influenced by the production increase and growthof average purchase prices for main raw materials and supplies. Selling and distribution expenses of the Group during the nine months of 2007grew by USD 98 million or 32.6%, mainly due to the expenses of transportation ofthe increased volumes of steel products through the Group metal traders. Administrative expenses increased by USD 12 million, or 5.6%, which is less thanthe growth of total costs, due to one-off irregular gains. Social expenses rose due to the increase of expenses for charity, including USD7 million spent for the construction of Ice-Hockey Metallurg Arena. The increase of other taxes by USD 18 million is related to the growth of theGroup's volume of operations. The most significant influence was due to theincrease by USD 13 million of the property tax since new fixed assets had beenput into operation. The operational income in the nine months of 2007 rose by 24.88% year-on-year.The operating margin stood at 26.44% (28.01% in the nine months of 2006). Thereduction of the margin is attributable to a faster growth of production costscompared to the revenue's growth in the III Q of 2007. The earnings before taxes and minority interests as well as the net profit forthe nine months of 2007 were increasing at a faster pace than the operationalincome due to the increase of financial and other income, including the growthof interest income by USD 40 million, or 80.00%, and due to positive foreignexchange gain of USD 24 million, or 22.4 %. EBITDA grew by 25.8% and amounted to USD 1,821 million. The Group EBITDA per tonof steel produced amounted to USD 186, USD 26 or 16.4% up on the previous year'sfigure. EBITDA margin reached 29.6%, which is higher than the industry'saverage. The free cash flow of the MMK Group (Table 5) ------------------------ ----------------- ------------- 9 months Year on year ------------------------ USD million change ----------------- ------------- 2007 2006 USD million --------- ---------- -------------------------------------Funds flow from operations * 1 562 1 228 334Change in working capital -325 -140 -185Net cash provided by operating 1 237 1 088 149activitiesCAPEX -775 -465 -310Free cash flow 462 623 -161------------------------ --------- ---------- ------------- * Funds flow from operations = The flow of funds from operational activitiesbefore the change in the working capital The flow of funds from operations in the nine months of 2007 stood at USD 1,562,which is higher than the previous year's level. The outflow of the working capital reached USD 325 million. The volume of the operations cash flow stood at USD 1,237 million. Cash expenses for investments in the fixed and intangible assets in the ninemonths of 2007 amounted to USD 775 million. The outflow of funds for payment of dividends under OJSC MMK's shares for thesame period amounted to USD 459 million (including dividends under treasuryshares). 2. Financial performance The MMK Group balance, USD million (Table 6) 30.09.2007 31.12.2006Total current assets, including 4 055 2 480Cash and cash equivalents 369 338Short-term bank deposits 1283 228Short-term investments 368 325Trade accounts receivable 658 422Allowance for doubtful accounts receivable -8 -12Inventories 830 688Other receivables and current assets 555 491Non-current assets, including 4 389 3 209Property, plant and equipment 3 416 2 764Other non-current assets 973 445Total Assets 8 444 5 689Non-current liabilities, including 774 686Long Term Debt and capital lease obligations 556 606Other long-term liabilities 218 80Current liabilities, including 1 417 964Short Term Debt 642 400Trade accounts payable 311 225Other payables and current liabilities 464 339Minority Interests 81 12Equity 6 172 4 027Total liabilities and stockholders' equity 8 444 5 689 The MMK Group financial performance is characterized by: High liquidity. The current assets increased by USD 1,575 million or by 64%(mainly due to the proceeds from the initial public offering), while the currentliabilities of the Company grew by USD 453 million or by 47% (due to the growthof loans and accounts payable). The current liquidity ratio grew from 2.57 as ofthe end of 2006 to 2.87 as of the end of the nine months of 2007. The cash fundson the Group's accounts as of 30.09.2007 amounted to USD 369 million. The MMKfree cash resources are placed in highly liquid financial instruments, such asbank deposits (USD 1,283 million) and trading securities (USD 368 million). Low dependency on external sources of financing. The financial leveragecalculated as the ratio of Total Liabilities to Total Equity as of the end ofthe nine months of 2007 stood at 0.35. The Debt/Equity and Debt/EBITDA ratiosduring the year stood at 0.19 and 0.49, respectively. The net cash position ofthe Group amounted to USD 454 million. Analytical Indicators (Table 7) Ratios 9 months 2007EBITDA margin 29.6%Return on Average Equity (ROAE) = Net Income / Total Equity * 36.4%Net cash provided by operating activities / EBITDA x 0.68Current ratio = Current Assets / Current Liabilities x 2.87Leverage = Total Liabilities / Total Equity x 0.35Debt / Equity x 0.19Debt / EBITDA * x 0.49Interest EBITDA Coverage = EBITDA/ Interest Expense x 28.5Debt 1,198Net Debt / (Net Cash Position) = Debt - Cash and equivalents -Short-term deposits (454) * Net income and EBITDA were calculated using ratio 2 in order to obtain theannual figure. The 2007 nine months' consolidated financial statements prepared according to USGAAP can be seen at: http://www.mmk.ru/rus/shareholders/b_reports/i_reports/index.wbp The presentation of the 2007 nine months' consolidated financial statementsprepared according to US GAAP can be seen at: http://www.mmk.ru/rus/shareholders/presentations/index.wbp The Magnitogorsk Iron & Steel Works OJSC (MMK) ranks 20th among the world'slargest steel producers (Source: IISI) and is one of the leaders of Russia'ssteel industry (Source: Chermet). The company is a large steel producing complexencompassing the entire production chain, from preparation of iron ore todownstream processing of rolled steel. MMK turns out a broad range of steelproducts with a predominant share of value added goods. In 2006 the Companyproduced 12.5 m tonnes of crude steel and 11.3 m tonnes of commercial products.In 2006 sales under US GAAP amounted to USD 6.4 bn, with net profit standing atUSD 1.4 bn. Contacts: Investor relations Evgeny Kovtunov Tel.: +7 3519 24 93 55 E-mail: kovtunov@mmk.ru Press service Elena Azovtseva Tel.: +7 3519 24 90 82 E-mail: azovtseva@mmk.ru This information is provided by RNS The company news service from the London Stock Exchange