30 Apr 2009 08:13
April 30, 2009
The Magnitogorsk Iron and Steel Open Joint Stock Company (OJSC MMK)
announces its consolidated financial results according to IAS for FY2008 ending December 31, 2008.
Income statement Key Financial highlights (USD BILLION)
|
| 2008 | 2007 | +/- |
| Sales | 10.550 | 8.197 | 29% |
| EBITDA ** | 2.204 | 2.407 | -8% |
| EBITDA margin | 20.9% | 29.4% | - |
| Earnings for the period | 1.081 | 1.306 | -17% |
** EBITDA calculations: operating income + share in results of associates + depreciation - impairment of investments in associates + Loss on disposal of fixed assets
2008 revenue amounted to USD 10.550bn (up by 29% comparing to FY2007)
EBITDA for the period equaled to USD 2.204bn (down by 8% year-on-year)
EBITDA margin stood at 20.9%
Earnings for the period amounted to USD 1.081bn (down by 17% comparing to FY2007)
ONE-OFF OPERATIONS in the 4th quarter of 2008 which lowered the overall performance for 2008, will ultimately improve the 2009 financial results.
Full year 2008 figures were affected by Q4 2008 results and include a number of nonrecurring non-cash operations for a total amount of USD 617m:
COGS includes the effect from the discount of the inventory and finished goods to the net price of realization at a value of USD 336m. The revaluation allows to reflect company's operational activity in 2009 more fairly.
The item "Other operating income/expenses" includes the sum of the mark down of financial investments in Russian companies' securities for the amount of USD 225m as a result of negative trends on the global stock markets.
The item "Impairment of investment in associates" reflects depreciation of investments for an amount of USD 56m.
BALANCE SHEET key highlights
The change in the assets value in 2008 was due to strengthening of USD/RUR rate (for the purpose of IAS reporting transfer from the functional currency RUR is made into the reporting currency - USD).
The Company has the lowest debt among the largest Russian steel companies, with its total amount standing at USD 1.726bn.
Cash and cash equivalents total to USD 1.106bn (which is 4.3 times higher than at the end of 2007).
Cash & cash equivalents cover 85% of the Company's short-term debt.
Historically MMK's Debt/EBITDA ratio has always been less than x1. As of the end of the reporting period this ratio was 0.78.
KEY PRODUCTION highlights
Crude steel production totaled 11.957m tons (9,8% down on 2007)
Production of commercial products totaled 10.911m tons (10,6% down on 2007)
COMMENTS OF VICTOR RASHNIKOV, CHAIRMAN OF OJSC MMK'S BOARD OF DIRECTORS:
"We have a positive opinion of the overall 2008 results. Negative trends on the market during the 4th quarter of 2008 demonstrated that the financial policy and development strategy chosen by the company proved to be right.
Currently, the company is getting the support from its achievements in recent years, such as the modernized assets, diversified steel smelting technology, the broad range of quality products and the geography of sales. The implementation of the Plate Mill 5000 project in the present situation will be another important factor for strengthening MMK's market positions.
I would like to make a special note of the stable financial position of our Company. It is a priority for us when taking decisions. We continue the successful implementation of the crisis-management programme which allows us to increase the efficiency of our operations.
On the whole, our performance in the first months of the year gives us confidence that the company will operate in a stable way throughout 2009."
OVERVIEW OF THE 2008 OPERATING RESULTS: MANAGEMENT COMMENTS
Record-breaking revenue and cash flow
In 2008 MMK reached record results in terms of revenue which had grown 29% year-on-year, and in terms of operating income which totaled USD 2.778 bn. Funds from operations totally cover all the current liabilities of the Company.
The Company maintains its leadership in Russia
MMK has maintained its leading positions in Russia in terms of rolled steel production, accounting for 20% of the total domestic production.
The domestic market remains a priority for MMK. In its exports the Company focuses on meeting the demand of fast growing markets, primarily, the Middle East market.
In 2008 the volume of domestic sales amounted to 7.2m tons, or 66% of the total sales, which has been the maximum annual level so far. In the 3rd quarter of 2008 MMK made 74% of its total sales, an all time high, to Russia and the CIS countries.
Conservative financial policy is yielding good results
The Company's balance sheet is one of the strongest in the sector.
The total debt as of Dec.31, 2008, was USD 1.726bn, including the short-term debt and the current portion of the long-term debt in the amount of USD 1.295bn. About 30% of the short-term debt are revolving loan facilities of MMK Group affiliated traders for financing steel sales.
The amount of cash and cash equivalents (including short-term deposits) was USD 1.123bn, with net debt totaling USD 603m. The cash and cash equivalents almost totally cover the short-term debt.
The Company's Debt/Equity ratio as of Dec.31, 2008, was x0.18, and the Debt/EBITDA ratio was x0.78. 66% of cash & cash equivalents is denominated in foreign currency.
This comfortable debt level allows MMK to raise, if necessary, additional debt capital for implementing the Company's priority projects.
Dividend payments
MMK has fulfilled its obligations on dividends payout for the first six months of 2008 in the amount of RUR 0.382 per ordinary share. Major shareholders of MMK - Mintha Holding Limited and Fulnek Enterprises Limited, both beneficially owned by MMK Chairman of the Board of Directors Mr. Rashnikov, - proposed that the share of accumulated dividends which was to be paid to them during the period of worsening market conditions be put off. This amount will be paid to them once the financial and economical conditions of MMK improve. MMK obligations to pay dividends to the minor shareholders were fulfilled.
Due to the existing economic situation MMK Board of Directors recommended to the Annual Shareholders' Meeting to pay the FY2008 dividends in the amount of RUR 0.00 per ordinary share.
Efficient currency risks management
Foreign currency earnings of MMK are significantly above its foreign currency spending. That is why the Company has no exposure to ruble devaluation risk.
At the end of 2008 the management took the timely decision to convert the maximum possible amount of available cash to USD, which enabled MMK to make a gain from the strengthening USD position against RUB.
IMPLEMENTATION OF THE ORGANIC GROWTH STRATEGY
MMK continues with its organic growth strategy. Most of investments were aimed to reduce costs and diversify product mix. In 2008 the total CAPEX volume of the parent company was USD 1.595bn, which is 69% higher comparing to the level of 2007.
Key projects implemented in 2008
In 2008 the Company commissioned Reheating Furnace №4 in Rolling Shop №10, and Hot Dip Galvanizing Line №2. A bell-less charging device was installed on Blast Furnace №10, and the №3 BOF Converter was overhauled, with its shell replaced.
Projects to be implemented in 2009
The key investment projects to be implemented in 2009 are Plate Mill 5000, Colour Coating Line №2, and a production facility comprising a continuous slab caster and a secondary steel treatment unit.
The 2009 CAPEX is mainly intended for expanding the production of readily marketable
downstream products. The parent company's investments will be approx. USD 1.1bn. The most important project of the year is the Plate Mill 5000, which is a part of the Company's crisis-management program.
The Plate Mil 5000: This project is fully in line with MMK's strategy of building up the share of high value added products and increasing domestic sales. The construction of the Plate Mill 5000 is expected to be completed in the 3rd quarter of 2009. This mill will meet the requirement of Russian producers of large diameter pipes, replacing imports into Russia. The Mill 5000 will produce plate for usage in gas and oil sector as well as in the bridge, ship and boiler building industries and elsewhere.
Slab caster № 6 and secondary steel treatment unit: These projects are part of the Mill 5000 complex and are intended to provide input material for rolling plate with strength up to X120 to be used for large diameter pipes and exterior auto body parts.
Colour coating line: This project will increase output of colour coated strip at MMK by 200,000 tons per year. Its implementation is in line with the strategy of building up the share of value added products and increasing sales to the domestic market. The project is scheduled for completion in 2009. It will enable MMK to meet customers' orders for quality colour coated sheet to be used in the construction industry, white goods and furniture manufacturing and mechanical engineering.
The Plate Mill 2500 - The purpose of the project is to increase the production capacity of the mill to 5.0-5.5 mtpy of coils and sheets. It will also allow to expand the set of steel characteristics and grades and also to achieve high quality levels for further production of cold-rolled and coated steel products. The facility will also embrace a cutting unit in order to customize products for end-users. Implementation envisages 3 stages: commissioning of cutting unit №3, gradual commissioning of heating furnaces, replacement of technological equipment and final commissioning of the complex.
The Company continues to explore the possibility of implementing the project of the Cold Rolling Mill 2000 for the production of quality sheet for the automotive sector, with an annual capacity of 2 mtpy. This issue will be considered in detail following the completion of the 5,000 Mill project.
MMK CRISIS-management PROGRAMME IN 2008 AND EARLY 2009
In the 4th quarter of 2008 the Company took a number of urgent actions to respond to the market changes, reconsidering production levels to match the demand and price levels, discontinuing production of low value added products, and expanding the geography of export sales due to the rapidly shrinking solvency of domestic customers. Such actions were possible thanks to the diversified product mix and flexible selling policy.
MMK has adopted a crisis-management programme aimed at maintaining profitability, increasing liquidity, diversification into new lines of products, and expanding into new markets. The effect from the implementation of this plan in the 4th quarter of 2008 is estimated at USD 1.95bn.
Guidelines of the crisis-management plan:
Revision of CAPEX volumes: The company has revised the schedule of its modernization program.
Optimization of the credit portfolio - Centralized actions are being taken within the MMK Group to optimize the credit portfolio.
Use of available stocks: Following negotiations with the main suppliers of raw materials MMK reached an agreement on reducing the minimum supply volumes to avoid excessive stocking in warehouses and storage areas. The Company has achieved the lowest ever inventory turnover period of 38 days.
Reduction of prices for raw materials: MMK doesn't have vertical integration into raw materials which allows it to stay flexible in terms of buying prices. As a result of negotiations with suppliers the Company has been able to reach agreement on price markdowns for the key raw materials. Such markdowns in the 1st quarter of 2009 against the 3rd quarter of 2008 were 70% for coal, 47% for iron ore, and 80% for scrap. These are in line with price reductions for steel products, with the average 1Q 2009 price (USD 418) being 60% lower than the average price in the 3rd quarter of 2008.
Reduced consumption of main raw materials: - MMK is constantly working on upgrading its production processes and reducing consumption ratios. As a result of various projects aimed at cutting production costs (such as installation of bell-less charging devices, construction of a sinter stabilization unit and others) MMK has been able to lower the consumption ratios for the key raw materials.
The above-mentioned measures allowed to significantly decrease cash-cost of slab in the 1st quarter of 2009.
Repayment of accounts receivable: - Currently MMK together with its key customers is working on drafting individual payment schedules and supervising their implementation. MMK receivables turnover period equaled to 110 days as of 01.01.2009 and went down to 56 days as of 01.04.2009
Settlements with suppliers: MMK payables turnover period stood at 67 days as of 01.01.2009 and lowered to 23 days as of 01.04.2009.
Sales diversification: - MMK's flexible sales structure allows to respond quickly to international and domestic market fluctuations. The broad geography of export sales protects MMK from changes in specific markets. Thus, reduced shipments to the EU in the 4th quarter of 2008 were compensated by increased shipments to the Asian and Far East regions (including China).
Diversification into new products: - Completion and commissioning of the Plate Mill 5000 in the 3rd quarter of 2009 is to provide quality material for large diameter pipe makers, bridge, boiler and ship builders.
REVIEW OF THE 1ST QUARTER OF 2009
In the 1st quarter of 2009 MMK produced 2.1 m tons of crude steel and 1.9 m tons of commercial products, which is 25% more than in the 4th quarter of 2008.
Domestic sales grew by 46%, and export sales increased only by 4% compared to Q4 of 2008. The share of domestic sales increased to 58% of the total sales. The domestic market remains a priority for MMK.
With the current market trends persisting, MMK management will continue the implementation of the above mentioned crisis-management steps in 2009 in order to raise the Company's operational efficiency and to overcome negative environment.
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Financial statement for FY2008 results under IAS is to be found at: http://www.mmk.ru/eng/invrelations/b_reports/index.wbp
The presentation of theFY2008 results under IAS is to be found at: http://www.mmk.ru/eng/invrelations/presentations/index.wbp
Information on MMK:
The Magnitogorsk Iron and Steel Works OJSC (MMK) is among the world's largest steel producers and is one of the leaders of Russia's steel industry. The Company is a large steel producing complex encompassing the entire production chain, from preparation of iron ore to downstream processing of rolled steel. MMK turns out a broad range of steel products with a predominant share of value added goods. In 2008 the Company produced 12m tonnes of crude steel and 11m tonnes of commercial products.