MMK.L Regulatory News (MMK)

3 Sep 2007 09:53

OJSC Magnitogorsk Iron &Steel Works03 September 2007 Press Release September 3. 2007 Magnitogorsk Open Joint Stock Company Magnitogorsk Iron and Steel Works (LSE: MMK), one ofthe leading Russian integrated steel making companies, announces the results ofits consolidated financial statements for the first six months of 2007 accordingto US GAAP. 1. Financial results The revenue of MMK Group in the first half of 2007 increased by 43,88% comparedto the first six months of 2006 and amounted to USD 4 000 million. • The income from operating activities came to USD 1 077 million or 26,93% of the revenue. The growth compared to the first half of 2006 amounted to 56,09%. • The consolidated net income of the company for the first half of 2007 increased by 47,28% from the similar period of the last year and amounted to USD 866 million, i.e. USD 0,083 per share. The net income accounted for 21,65 % of the revenue. • EBITDA for the first six months of 2007 came to USD 1 205 million or 30,13% of the revenue. Compared with the first half of 2006 EBIDTA of the company grew by USD 420 million or 53,50%. Income statement of MMK Group (Table 1) ---------------- ----------------- -------------------- The first half of the year Year on year change Million USD 2007 2006 Million USD %Gross revenue 4 000 2 780 1 220 43,88%Income from operatingactivities 1 077 690 387 56,09%Margin on revenue 26,93% 24,82%Income before tax andminority interest 1 119 779 340 43,65%Margin on revenue 27,98% 28,02%Net income 866 588 278 47,28%Margin on revenue 21,65% 21,15%Comprehensive income 1 045 588 457 77,72%Margin on revenue 26,13% 21,15%EBITDA * 1 205 785 420 53,50%Margin on revenue 30,13% 28,24%Basic and fully dilutedearnings per common share(USD) 0,083 0,058 0,025 43,10% * 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 59,58% of the grossrevenue of the Group and together with the sales of MMK Group metal traders -for 90,88% (see table 2). Obviously the operating results of OJSC MMK have adetermining influence on the financial results of the Group. Sales of MMK Group to third parties (table 2) ---------------- The first half of the year Year on year change -------------------- Million USD ---------------- ---------------- 2007 2006 Million USD % --------- --------- --------- -----------------------------Revenue of OJSC MMK 2 383 1 618 765 47,28%Margin on Gross revenue 59,58% 58,20%Revenue of GroupMetal-traders 1 252 955 297 31,10%Margin on Gross revenue 31,30% 34,35%Revenue of other companiesof the Group 365 207 158 76,33%Margin on Gross revenue 9,13% 7,45%Gross revenue 4 000 2 780 1 220 43,88%-------------------- --------- --------- --------- --------- The following changes occurred in the revenue structure of MMK Group comparedwith the similar period of the last year: 1) the revenue and the share of OJSCMMK, the parent company of the Group, in the consolidated sales increased by47,3% due to the growth of steel prices and steel shipments to the domestic andCIS markets; 2) the growth of the revenue from the increased export sales ofsteel products through the Group metal traders amounted to 31,1%; 3) the revenueof MMK Group subsidiaries increased by 76,3%. In particular, the revenue ofMMK-Metiz grew by USD 119 million, the revenue of Stroitelny Complex grew by USD12 million, and the revenue of MMK-Profil-Moscow grew by USD 6 million. Therevenue of Bakalskoye Rudoupravlenie in the amount of USD 14 million isconsolidated into the Group revenue. In the first half of 2007 OJSC Magnitogorsk Iron and Steel Works produced6 476 thousand tons and sold 5 951 thousand tons of commercial steel products,which is respectively by 9,4% and 10,6 % more than in the first six months of2006. Increase in production and sales volumes is accounted for by the expansionof the company's production facilities. The average price of 1 ton of steel products sold by OJSC MMK during the firsthalf of 2007 amounted to USD 578, which is USD 122 or 26,8% higher than in thesimilar period of 2006. Breakdown of MMK Group sales by product types (table 3) ---------------- The first half of the year, Year on year change -------------------- Million USD ---------------- ---------------- 2007 2006 Million USD % --------- --------- --------- -----------------------------Billets and Slabs 131 1 130 x131Margin on revenue 3,28% 0,04%Flat-rolled products 2 293 1 547 746 48,22%Margin on revenue 57,33% 55,65%Long products 417 251 166 66,14%Margin on revenue 10,43% 9,03%Downstream products 905 793 112 14,12%Margin on revenue 22,63 28,53%Other products andbenefits 254 188 66 35,11%Margin on revenueGross revenue 4 000 2 780 1 220 43,88%-------------------- --------- --------- --------- --------- The growth of the consolidated revenue compared with the last year is ensured bythe increase in production volumes and sales of all types of steel products, andin particular: • Increase in the sales of slabs and billets. This increase is due to the expansion of steel making facilities and the resulting increased production of commercial slabs and billets. • Increase in the sales of long products and their margin on the revenue due to launching of new types of products at the 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) ---------------- The first half of the year, Year on year change -------------------- Million USD ----------------- ---------------- 2007 2006 Million USD % --------- --------- --------- ------------------------------Cost of products sold(exclusive amortizationand depreciation) 2 348 1 631 717 43,96%Amortization anddepreciation 99 89 10 11,24%Selling and distributionexpenses 256 191 65 34,03%Administrative expenses 121 134 -13 -9,70%Social costs 47 31 16 51,61%Taxes other than incometaxes 40 25 15 60,00%-------------------- --------- --------- --------- ---------- The production costs were primarily influenced by the production increase andgrowth of average purchase prices for main raw materials and supplies. Theselling and distribution expenses of the Group during the first six months of2007 grew by USD 65 million or 34%, mainly due to the expenses on transportationof the increased volumes of steel products through the Group metal traders. The administrative expenses were reduced by USD 13 million or 9,7%. Suchreduction resulted, among others, from the reimbursement by the Depositary Bankof the costs and expensed incurred by the Company in the course of initialpublic offering of GDRs of OJSC MMK at the London Stock Exchange in the amountof USD 9 million, from the received insurance indemnification with respect tothe accident at Rolling Shop No. 5 in the amount of USD 4 million and from therevaluation of the securities in the amount of USD 4 million. 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 15 million is related to the growth of theGroup's volume of operations. The most significant influence was exerted by theincrease of the property tax since new fixed assets had been put into operation. The operational income in the first half of 2007 rose year-on-year by 56,09%.The operating margin amounted to 26,93% (24,82% in the first half of 2006). The earnings before taxes and minority interests as well as the Net profit inthe first half of 2007 were increasing more slowly than the operational incomedue to the decrease of financial incomes as well as due to the decrease ofpositive foreign exchange difference by USD 58 million or 65,2%. EBITDA grew by 53,5% and amounted to USD 1205 million. The ratio EBITDA of theGroup / ton of steel amounted to USD 186, which is year-on-year higher by USD53,5 USD or by 40,4%. EBITDA margin came to 30,1%, which is higher than theaverage in the industry. The free cash flow of the MMK Group (Table 5) --------------------- First half of the year, Year-on-year change (compared ---------------------- to the similar period of the USD million previous year) --------------------- ----------- 2007 2006 USD million ----------- ----------- ---------------------------------Funds flowfromoperations * 999 684 315Change inworkingcapital -6 -24 18Net cashprovided byoperatingactivities 993 660 333CAPEX -364 -310 -54Free cash flow 629 350 279---------------------- ----------- ----------- ----------- * Funds flow from operations = The flow of funds from operational activitiesbefore the change in the working capital The operational cash flow generated by the Group (USD 993 million in the firsthalf of 2007 - Table 5), is sufficient to ensure stable operations of all theCompanies of the Group and to perform a large-scale investment program. The outflow of the working capital came to USD 6 million. The cash expenses in the first half of 2007 for the investments in the property,plant and equipment and intangible assets amounted to USD 364 million. In the first half of 2007 OAO MMK paid dividends in the amount of USD 357million (excluding the dividends on treasury shares). 2. Financial performance The MMK Group balance, USD million (Table 6) 30.06.2007 31.12.2006Total current assets, including 3 895 2 480Cash and cash equivalents 548 338Short-term bank deposits 1 278 228Short-term investments 306 325Trade accounts receivable 472 422Allowance for doubtful accounts receivable -11 -12Inventories 687 688Other receivables and current assets 615 491Non-current assets, including 3 683 3 209Property, plant and equipment 3 023 2 764Other non-current assets 659 445Total Assets 7 577 5 689Non-current liabilities, including 729 686Long Term Debt and capital lease obligations 578 606Other long-term liabilities 151 80Current liabilities, including 1 147 964Short Term Debt 498 400Trade accounts payable 290 225Other payables and current liabilities 359 339Minority Interests 23 12Equity 5 678 4 027Total liabilities and stockholders' equity 7 577 5 689 The MMK Group financial performance is characterized by: High liquidity. Current assets increased by USD 1415 million or by 57% (mainlydue to the proceeds from the initial public offering), the current liabilitiesof the Company grew by USD 183 million or by 19% (due to the growth of loans andbank loans and to the growth of accounts payable). The current liquidity ratiogrew from 3,02 as of the end of 2006 to 3,4 as of the end of the first half of2007. The cash on the Group's accounts as of the end of the first half of 2007amounted to USD 548 million. The MMK free cash resources are placed in highlyliquid financial instruments: bank deposits, trading papers. Low dependency on external sources of financing. The financial leveragecalculated as the ratio of Total liabilities to the Owners' equity as of the endof the first half of 2007 amounted to 0,33. The ratio of the liabilities forloans and bank loans to the Owners' equity and to EBITDA during the year came to0,19 and 0,45 respectively. The net cash position of the Group amounted to USD750 million. Analytical results (Table 7)Ratios 6m 2007EBITDA margin 30,1%Return on Average Equity (ROAE) = Net Income / Total Equity * 35,7%Net cash provided by operating activities / EBITDA 81,6%Current ratio = Current Assets / Current Liabilities x 3,40Leverage = Total Liabilities / Total Equity x 0,33Debt / Equity x 0,19Debt / EBITDA * x 0,45Interest EBITDA Coverage = EBITDA/ Interest Expense x 32,6Debt 1 076Net Debt / (Net Cash Position) = Debt - Cash and equivalents -Short-term deposits (750) •Net income and EBITDA are calculated using coefficient 2 in order to obtain the annual figure. The results of consolidated financial statements for the first half of 2007prepared according to US GAAP are given at: http://www.mmk.ru/eng/financial/2007/index.wbp The presentation of the results of consolidated financial statements for thefirst half of 2007 prepared according to US GAAP are given at: http://www.mmk.ru/eng/invrelations/presentations/index.wbp_________________________________________________________________________ Additional information on MMK: OAO Magnitogorsk Iron and Steel Works (MMK) is ranked the twentieth among thelargest world steel-making companies (Source: IISI) and takes leading positionsamong Russian iron and steel firms (Source: Chermet). The company is a largeiron and steel complex with fully integrated cycle beginning by preparation ofiron ore materials and ending by down-stream products. MMK produces a largenumber of steel-products of which the prevailing part falls to the share of thedownstream products with the highest added value. In 2006 the enterpriseproduced 12,5 million tons of steel and 11,3 million tons of commercialproducts. According to US GAAP the sales amounted to USD $ 6,4 billion whereasthe net income came to USD 1,4 billion. Contact persons for additional information: Press secretary: Elena Azovtseva Phone: +7 3519 24 90 82E-mail: azovtseva@mmk.ru Investor relations: Evgeny Kovtunov Phone: +7 3519 24 93 55E-mail: kovtunov@mmk.ru This information is provided by RNS The company news service from the London Stock Exchange