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NLMK Q1 2009 US GAAP Results

2 Jun 2009 11:46

RNS Number : 1961T

OJSC Novolipetsk Steel

02 June 2009

2 June 2009

Novolipetsk Steel

NLMK Q1 2009 US GAAP Results

Novolipetsk Steel (LSE: NLMK), the LSE-listed leading Russian steel producer, today announces its consolidated US GAAP results for Q1 2009.

Key financials

USD million	Q1 2009	Q4 2008*	%	Q1 2009	Q1 2008	%
Sales revenue	1 293.3	2 058.8	-37%	1 293.3	2 353.3	-45%
Gross profit	322.3	638.5	-50%	322.3	1 039.0	-69%
Operating profit	99.1	280.9	-65%	99.1	776.4	-87%
EBITDA**	196.7	518.2	-62%	196.7	854.6	-77%
EBITDA margin (%)	15%	25%		15%	36%
Net (loss)/profit	(193.8)	(480.6)		(193.8)	617.7
Operating cash flow	382.2	892.7	-57%	382.2	250.1	53%
Net debt	915.1	841.5	9%	915.1	745.5	23%
Net debt/EBITDA***	0.24	0.19	27%	0.24	0.22	10%

* Q1 2009 and Q1 2008 are official reporting periods. Q4 2008 figures are derived by computational method. This assumption is related to calculation of segmental financial results.

** Расчет показателя EBITDA представлен в Приложении 1 на стр. 18.

*** Net debt/EBITDA ratio is calculated as Net debt as at the end of the reporting period divided by trailing 12 months EBITDA.

Operating highlights:

Steel production: 2.1 m tonnes (-26% y-o-y);

Steel sales: 2.3 m tonnes (-10% y-o-y).

Outlook

We do not expect any significant improvement in the overall steel market in Q2 2009. We believe that price stabilization and the revival of demand may start in H2 2009 when the efforts taken to support the financial sector and stimulate the world economy lead to an increase in fixed asset investment and production growth.

NLMK's steel production in Q2 2009 is expected to reach 2.7 m tonnes, an increase of 25% q-o-q. We do not foresee any significant price improvement during the quarter. Our EBITDA margin in Q2 2009 is expected to remain stable at the 20% level.

Disclaimer:

This announcement may contain a number of forward-looking statements relating to, among others, the financial condition and results of operations of the Company. Such forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by them and are based on assumptions regarding the Company's present and future business strategies and the environment in which the Company and its subsidiaries operate both now and in the future. Forward-looking statements speak only as at the date of this announcement and save as required by applicable legal and/or regulatory requirements the Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements.

Management comments

Our efforts to sustain profitability are based on three core drivers: lower production costs, active sales policy and production efficiency

In the first quarter of 2009 the key objectives for the management team were to increase sales volumes by pursuing an active sales policy of flexibly reacting to changes in demand in the company’s core markets and to decrease production costs through stringent cost management along the value chain.

Investments

NLMK previously decided to defer investments into a number of projects within its Technical Upgrade Program due to the sharp decline in sales revenue and profit caused by persistent weak environment in the steel sector in the short run. We decided to reduce our planned 2009 investment and maintenance capex to USD1 billion, a sequential decrease of 48%.

At the same time, a number of projects will be continued, including those aimed at improving product quality, raising production efficiency and increasing output of high value-added products.

In Q1 2009 total investments, including maintenance capex, reached USD203_million, down 43% y-o-y. The major part of investment capex was allocated to NLMK’s Lipetsk production site, where about USD200 million were spent for the construction of a new Blast furnace #7 and revamping converter #1.

Production increase

After a sharp decline in Q4 2008, steel demand showed tentative signs of improvement in February and March 2009. As a result, NLMK increased its export sales mainly to South-East Asia, including China, as well as sales to its domestic customers. We also substantially increased sales to EU countries, largely due to growing supplies of slabs to the Duferco JV rolling assets, representing over 50% of total slab sales. These factors contributed to the growth of crude steel production in Q1 2009.

In February, we restarted the previously idled blast furnaces #2 and #3, with an annual capacity of around 0.7 million tonnes and 1.3 million tonnes respectively. In May, after a major overhaul, we launched blast furnace #4, with a total capacity of 1.7 million tonnes per year. Currently our Lipetsk site is running at around 95% of its capacity. Dismantling obsolete facilities

In February 2009, NLMK decommissioned two coke batteries with a combined capacity of around 0.7 million tonnes per year at its main production site. This decision was driven by a decrease in coke consumption coupled with the high level of obsolescence of the batteries. The Company still remains 100% self-sufficient in coke with 7.3 million tonnes of coke production capacity. NLMK’s total coke requirements will be met by supplies from coke production facilities at the Lipetsk site and from its subsidiary Altai-koks, with an annual capacity of 2.7 million tonnes and 4.6 million tonnes of coke respectively.

Termination of the agreement for the acquisition of John Maneely Company

As previously announced, in March 2009, NLMK and DBO Holdings, Inc. signed a settlement agreement stipulating full mutual release and discharge of NLMK and DBO Holdings from their claims arising from the agreement to acquire John Maneely Company reached in August 2008. In accordance with the terms of the settlement agreement, NLMK paid DBO a settlement amount of USD234 million.

FX hedging policy

Since 2006 NLMK has been hedging its currency risks to reduce losses arising from appreciation of the ruble (RUR). As of the end of 2008, the Group had unrealized forward and option contracts for an aggregate notional amount of USD2,327.5 million, with a fair value of -USD495.5 million.

In Q1 2009, the loss from realized forward exchange and option contracts was USD150.8 million. As of the end of Q1 2009, the Company had unrealized forward and option contracts for an aggregate notional amount of USD1,957.1 million, with a net fair value of –USD445 million.

The financial result of the forward FX position in 2009 will depend on movements in the RUR/USD and RUR/EUR exchange rates.

Financial performance of Steel Invest and Finance S.A. (JV with Duferco Group)

In Q1 2009 NLMK recognized its share in losses received by Steel Invest and Finance S.A., amounting USD142.6 million, resulting from the weak market conditions and a one-off loss incurred in Q1 2009 related to inventory revaluations.

During the reporting period, NLMK granted a USD128.5 million loan to Steel Invest and Finance S.A. and its subsidiary to finance its current operations and increase working capital. Financial support in the same amount is also granted by the joint venture partner, Duferco Group.

Dividends

In April 2009, the Board of Directorsrecommended that the General Shareholders' Meeting approve a decision to declare dividends for 2008 of RUR2.0 in cash per ordinary share or around 20% of the net profit for the year. According to the provisions of the company’s dividend policy and given the current production and financial performance of the Company, the Board of Directors proposed that no dividend be paid for the second half of 2008.

CFO comments:

Ms Galina Aglyamova, Chief Financial Officer, said:

«In Q1 2009, market conditions in our core markets remained subdued, which, coupled with lower sales volumes, adversely impacted our financial results. However, these negative factors were partially offset by lower production costs driven by a decrease in raw materials prices, management efforts taken to reduce overall costs and to increase production efficiency.

In Q1 2009, sales revenue reached USD1.3 billion, down 45% y-o-y, and EBITDA amounted to USD0.2 billion, a 77% decrease y-o-y.

Despite weak market conditions, NLMK continues to generate healthy operating cash flow amounting USD382.2 million, an increase of 53% y-o-y. This growth in Q1 2009 results from more efficient working capital management.

Our Q1 2009 performance demonstrates the resilience of NLMK’s business model, which is aimed at high diversification of its sales markets, low cost vertical integration and diversification of production assets. As a result, the Company not only increased crude steel production, restarting previously idled production facilities, but also significantly decreased production costs, reducing its working capital by USD390.9 million and minimising accounts receivables overdue and substantially decreasing its inventories.

We also substantially reduced our 2009 investment program and this will provide additional support to our financial stability. NLMK will adhere to the financial policy that will help it to remain sustainable regardless global market instability.

Despite some tentative signs of stabilization in the global economy, we believe that the global steel market will remain under pressure due to low economic growth rates. We do not expect a drastic improvement in the overall market environment until capital investment and durable goods consumption revive, thus increasing steel consumption. That said, we believe that our financial results will, to a large extent, be defined by our capability to decrease costs and enter new sales markets. In 2009, we expect a significant year-on-year decrease in revenue largely due to price environment deterioration. We anticipate that 2009 production volumes will reach 10 million tonnes of steel, down only 5% y-o-y. At the same time, we expect that despite subdued conditions in the global steel market we will maintain high profitability supported by our key competitive advantages, ruble devaluation and driven by management improvement initiatives aimed at cost reduction.

Comments

A significant deterioration in the global economic environment started from the middle of 2008, which translated into a slump in demand for steel products and, as a consequence, a weakening of the pricing environment and falling sales volumes.

According to the World Steel Association report, in Q1 2009 world steel production continued to decline, contracting by 3% on a q-o-q basis and down 23% as compared to Q1 2008. Russian steel production recovered 11% q-o-q to 13 million tonnes, but was still 33% lower than in Q1 2009. During the first quarter of this year, the utilization rate of Russian steel companies increased on a q-o-q basis, reaching c.70%.

Management action plan

·; Active sales strategy and rebalanced sales product portfolio. Steel sales volumes reached 2.3 million tonnes, an increase of 24% q-o-q. In Q1 2009 NLMK increased its export sales, which accounted for 69% of total sales revenue as compared to 58% in Q1 2008. Slabs sales decreased to 645,000 tonnes, down 3% as compared to the previous quarter due to higher sales of flat products. This number includes 285,000 tonnes of sales to Duferco JV companies (Steel Invest and Finance S. A.) sequentially increasing by 50%. NLMK plans to supply over 1 million tonnes of slabs to Duferco JV facilities.

Growth was mainly seen in sales of hot-rolled and cold-rolled steel. This was driven by a slight recovery in demand which began in mid-February and continued into March, occurring primarily in South-East Asia, including China thus driving our exports to this region to 493.4 million tonnes.

Domestic sales increased by the end of Q1 2009 largely due to restocking at trading and manufacturing companies. Our Q1 2009 domestic sales stood at 570.4 million tonnes.

Q1 2009 transformer steel sales fell dramatically due to lower demand and significant stockpiles accumulated in previous periods by end-customers coinciding with the long-term contracts (annual and semi-annual) renegotiation. At the same time, unlike other steel products, transformer steel prices in Q1 2009 demonstrated a moderate decline.

·; Working capital management. In Q1 2009 our balanced approach to working capital management allowed us to release an additional USD390.9 million largely due to a significant decrease in accounts receivable and a lower level of inventories.

·; Repairs and decommissioning of obsolete equipment. In view of the declining demand for a key product of the Company – transformer steel – the management took the decision to idle the Lipetsk transformer steel production facility for repairs and upgrade aimed at boosting product quality and cutting costs. Currently, transformer steel is produced at VIZ-Stal, which enables an increase in utilization and reduced costs.

Due to a sharp drop in coke consumption and to avoid additional costs, two obsolete coke batteries, with a total capacity of about 0.7 million tones, were decommissioned (this was previously planned for 2011). This allowed an enhanced utilization rate at the more efficient coke-producing capacities in Altai-Koks.

·; Production costs cuts. To keep the company stable during the downturn in demand, NLMK has optimized headcount, with measures including early retirement and a temporary freeze on new recruitment. Also, to this end, the Group has divested some of its units. The headcount at the main production site in Lipetsk was decreased by 2,000 people y-o-y totaling 32,600 people in Q1 2009.

Consolidated financial results

Revenue

The Group’s Q1 2009 revenue reached USD1,293.3 million (-45% y-o-y). Thekeydriversbehindtheweakerfinancialperformancewere:

·; Deteriorated pricing environment. Average sales prices of steel products fell from USD950 in Q4 2008 to USD509 in Q1 2009 (by 46% q-o-q).

·; 10% sales cut (q-o-q). Sales volumes were cut primarily in HVA products segment. Sales of transformer steel fell by 56%, galvanized steel by 40% and pre-painted steel by 27% y-o-y.

·; Changes in regional sales structure. Sales in the domestic market in physical terms fell to 24% (about 570,000 tonnes), caused by weakened demand in the domestic market. Sales to South-East Asia and the EU jumped from 5% and 18% in Q1 2008 to 21% and 25% respectively, with sales to the USA falling to 4% (11% in Q1 2008).

On a quarterly basis sales revenue fell by USD765.4 million (-37% q-o-q and -45% y-o-y).

Production costs

Q1 2009 production costs amounted to USD874.4 million (-27% y-o-y). The rate of cutting costs exceeded the rate of revenue decrease due to using work-in-progress, raw materials and stocks in Q1 2009 that were formed in late 2008 and accounted at high prices.

Production costs dropped by USD426.6 million (-33% q-o-q). Given this, the Q1 2009 average costs per tonne of slabs amounted to USD243, a decline of 33% q-o-q.

SG&A

Q1 2009 SG&A dropped to USD223.2 million, down 15% y-o-y. This decrease was mainly driven by lower volumes of export sales of the Coke-chemical segment as well as other management initiatives directed to reduce overall administrative and general expenses. The quarter-on-quarter decline was 38%, which is due to goodwill impairment losses of USD128.4 million the company incurred in Q4 2009.

Operating profit

Operating profit for the quarter was USD99.1 million, down 87% y-o-y. Operating profit margin declined to 8%, a 25 p.p. decrease y-o-y.

Net FX gain/loss

In Q1 2009, the net FX loss amounted to USD113.0 million due to the execution of FX hedging contract during Q1 2009. This was concluded in mid-2008 to hedge foreign exchange risks of company’s operations . The overall loss of the execution of these contracts during Q1 2009 was USD150.8 million, partially mitigated by the foreign currency exchange gains coming from the operating activities of the parent company and its subsidiaries (Altai-koks and VIZ-Stal) of USD74.7million.

EBITDA

Q1 2009 EBITDA declined to USD196.7 million, a decrease of 77% y-o-y, and the EBITDA margin was 15%, a 21 p.p. decline y-o-y.

Net loss

In Q1 2009 the Company incurred a net loss amounting to USD193.8 million, which was due to net FX rate loss of USD113 million and recognition of USD142.6 million as a share in losses of the joint venture company Steel Invest and Finance S.A. (more details on page ХХ).

Consolidated balance sheet

As of 31 March, 2009 the Group’s assets totaled USD11,797.2 million, a 16% decrease compared to 31 December, 2008. The key reason is the change in the RUR/USD exchange rate in the reporting period.

The share of shareholders equity in the Group’s liabilities as of 31 March, 2009 amounted to 63%, rising by one percentage point as compared to the 2009 year start.

Net debt as of 31 March, 2009 reached USD915.1 million (an increase of USD73.6 million or 9% to the 2008 year end). Net debt grew due to lower level of cash and cash equivalents in Q1 2009, the bulk of which was allocated for investments.

The Q1 2009 Net debt/EBITDA ratio reached 0.24. Long-term liabilities make up 61% of the Company’s debt. Short-term liabilities are distributed evenly throughout 2009. Half of the Company’s short-term borrowings are ruble denominated.

Working capital fell by 20% and amounted to USD4,271.2 million, which is attributable to lower amount of cash, receivables and inventories.

A decrease in taxes receivable and receivables from customers drove down the Accounts receivable to USD1,187.2 that is 20% lower than at the 2008 year end.

Inventories fell by USD505.6 million and totaled USD1,050.1 million due to cuts in volumes and cost of raw materials stocks, work-in-process and finished products volumes and prices.

Accounts payable decreased by USD717.2 million and reached USD1,162.0 million. This was caused by recognition in Other creditors as of 31 December 2008 of the debt to the company under the common control for the TMTP shares amounting USD241.8 million and the settlement amount related to the dispute with DBO Holdings Inc. of USD234.0 million.

Streamlining of working capital across the Group enabled it to release USD390.9 million.

Return on assets (ROA) and return on equity (ROE) are negative as the Group recorded net loss in Q1 2009.

Cash flow

Operating cash flow

Operating cash flow in Q1 2009 amounted to USD382.2 million (+53% y-o-y) influenced by changes in operating assets primarily in inventories and liabilities as well as cuts in raw materials prices. Having cut its inventories, the Group released funds of USD 294.4 million; having changed its receivables, the Group got USD 98.3 million.

Cash flow from investment activity

Q1 2009 cash outflow from investment activities was USD870.5 million. For the acquisition and construction of property, plant and equipment (PPE) the Company allocated USD203.0 million.

USD 234.0 million was paid by NLMK under the settlement agreement with DBO Holdings Inc.

Q1 2009 investments amounted USD306.5 million, these are mostly short term deposits in Russian banks with state participation.

Also in Q1 2009 NLMK granted a USD128.5 million loan to Steel Invest and Finance S.A. (JV with Duferco) and its subsidiary. Duferco Group, NLMK’s partner in the joint venture, also provides financial support in the same amount to the JV.

Cash flow from financial activities

Net cash used in financial activities in Q1 2009 amounted to USD76.4 million. The cash outflow from financial activities occurred mainly due to loan and notes repayment.

Net cash decrease reached USD564.8 million. Cash and cash equivalents in Q1 2009 totaled USD1,546.1 million.

The Group’s Q1 2009 cash position amounted to USD1,884.4 million, including short term financial investments.

Steel segment

USD. million	Q1 2009	Q4 2008	%	Q1 2009	Q1 2008	%
Revenue from external customers	1 136.3	1 835.8	-38%	1 136.3	1 779.5	-36%
Revenue from intersegmental operations	18.2	26.5	-31%	18.2	85.0	-79%
Gross profit	267.6	616.2	-57%	267.6	703.5	-62%
Operating profit	91.2	436.4	-79%	91.2	529.2	-83%
Profit before minorities	(63.0)	(66.0)		(63.0)	423.4

The Group's financial performance is largely defined by the performance of the steel segment, which comprises NLMK, VIZ-Stal (a producer of electrical steel), DanSteel A/S (a plates producer), Beta Steel (since October 2008, US-based steel and flats producer), trading companies Novexco Limited, Cyprus and Novex Trading S.A., Switzerland (since May 2008), as well as a number of service companies.

In Q1 2009, the steel segment companies produced 1.8 million tonnes of steel (-26% y-o-y), 0.6 million tonnes of commercial slabs (-26% y-o-y) and 1.1 million tonnes of rolled products (-22% y-o-y), 44% of which are high value added products (cold-rolled, electric and pre-painted steel). Beta Steel Corp. sold in Q1 2009 0.08 million tonnes of rolled products while it produced 0.08 million tonnes.

FY2008 revenue from external customers amounted to USD1,136.3 million, which was 36%lower y-o-y. Operating profit was USD91.2 million (-83% y-o-y). The decrease in the headlinenumbers is driven by plunge in prices attributable to weaker demand.

Revenue in Q1 2009 decreased q-o-q due to lower prices and reduced share of HVA products, including transformer steel, (see above p. 5)

Another factor to drive down the financials was the usage in Q1 2009 of inventories formed in 2008 and accounted for at high cost.

Long products segment

USD, million	Q1 2009	Q4 2008	%	Q1 2009	Q1 2008	%
Revenue from external customers	102.5	58.3	76%	102.5	348.5	-71%
Revenue from intersegmental operations	49.7	139.8	-64%	49.7	35.8	39%
Gross profit /(loss)	6.3	(28.4)		6.3	76.1	-92%
Operating profit /(loss)	(25.6)	(173.7)		(25.6)	37.0
Profit/(loss) before minorities	(97.1)	(373.0)		(97.1)	(25.5)

The Long products segment includes Maxi-Group companies consolidated by NLMK from December 2007.

The core activities of these companies are scrap collection and processing, steel-making and long products and metalware production.

In Q1 2009 Maxi-Group produced 0.4 million tonnes of steel, a 16% increase q-o-q. In Q1 2009 the enterprise produced 0.04 million tonnes of billets, 0.3 million tonnes of long products, and 0.04 million tonnes of metal-ware. Total Q1 2009 volumes of Maxi-Group ferrous and non-ferrous scrap sales amounted to 0.22 million tonnes, including 0.19 million tonnes sold within Maxi-Group.

Q1 2009 revenue from external customers amounted to USD102.5 million, a 71% decrease y-o-y, while the operating loss reached USD25.6 million against the operating profit of USD 37.0 million in Q1 2008. Lower segment's Q1 2009 financials are attributable to a significant downturn in sales prices.

Q1 2009 operating loss reached USD25.6 million that is less than in Q4 2008 where goodwillimpairment was accounted for at the amount of USD128.4 million. Operational loss decreased dueto lower average prices for purchased scrap q-o-q.

The Q1 2009 loss before minorities reached USD97.1 million and is attributable to the high debt burden of the Company.

Mining segment

USD, million	Q1 2009	Q4 2008	%	Q1 2009	Q1 2008	%
Revenue from external customers	12.5	12.2	2%	12.5	20.9	-40%
Revenue from intersegmental operations	76.7	121.6	-37%	76.7	245.0	-69%
Gross profit	34.1	86.1	-60%	34.1	175.2	-81%
Operating profit	24.0	74.2	-68%	24.0	156.4	-85%
Profit before minorities	25.0	89.5	-72%	25.0	128.5	-81%

During Q1 2009 NLMK's Mining segment comprised Stoilensky GOK, Dolomite and Stagdok. These companies mainly supply raw materials to NLMK's production facilities in Lipetsk and also sell limited volumes outside the Group.

In the reporting period, Stoilensky GOK, the principal mining company within the Group, produced 2.2 million tonnes of iron ore concentrate (-25% y-o-y) and 0.2 million tonnes of sinter ore (-40% y-o-y).

An unfavourable market environment triggered a slump in average prices for Stoilensky GOK products and weaker financial performance in Q1 2009.

Revenue from external customers in Q1 2009 amounted to USD12.5 million (-40% y-o-y).

Lower supplies of iron ore raw materials to the NLMK main production site, as a result of cuts in steel-making volumes at Lipetsk site in Q1 2009 and high stocks at the beginning of 2009, influenced the decrease in revenue from intersegmental operations in Q1 2009 (-69% y-o-y).

As 86% of sales of the Mining segment are made within the Group, the segment's share in the Q1 2009 consolidated revenue is less than 1%.

Coke-chemical segment

USD, million	Q1 2009	Q4 2008	%	Q1 2009	Q1 2008	%
Revenue from external customers	38.0	132.3	-71%	38.0	184.3	-79%
Revenue from intersegmental operations	43.1	16.9	154%	43.1	75.2	-43%
Gross profit /(loss)	6.6	(46.2)		6.6	68.5	-90%
Operating profit /(loss)	(3.4)	(73.8)		(3.4)	39.1
Profit/(loss) before minorities	8.2	(29.4)		8.2	23.9	-66%

The Coke-chemical segment comprises Altai-koks and its subsidiaries. Altai-koks is one of the largest Russian coke producers with Q1 2009 output of 0.6 million tonnes of dry coke, a 34% decrease y-o-y.

In Q1 2009 sales volumes of Altai-koks amounted to 0.6 million tonnes of coke, a decrease of 36% y-o-y. As the Lipetsk production site decommissioned four of its coke batteries, coke sales to Lipetsk operations grew by 32% to 0.3 million tonnes. Export sales (primarily to Kazakhstan and JV with Duferco) amounted to 0.1 million tonnes of coke, a y-o-y decrease of 74%.

Q1 2009 revenue from external customers amounted to USD38.0 million (-79% y-o-y). The revenue decreased primarily due to lower coke sales volumes and prices.

As four coke-batteries were decommissioned at NLMK’s main production site during Q4 2008 and Q1 2009 and steel production volumes grew, the sales of coke to NLMK site in Lipetsk grew by 5 times q-o-q, which offsets lower sales to other customers.

Altai-koks’ Q1 2009 profit before minorities amounting to USD8.2 million is mainly attributable to positive foreign exchange differences.

Others

USD, million	Q1 2009	Q4 2008	%	Q1 2009	Q1 2008	%
Revenue from external customers	4.1	20.1	-79%	4.1	20.1	-80%
Revenue from intersegmental operations	-	1.9	-100%	-	1.0	-100%
Gross profit	1.8	9.4	-80%	1.8	10.3	-82%
Operating profit	1.8	5.5	-68%	1.8	11.2	-84%
Profit before minorities	2.4	3.8	-35%	2.4	7.0	-65%

Other operating segments primarily include three operational units with operating results not exceeding the materiality threshold. These segments include commercial seaport services (TMTP stake disposal was completed in January, 2009), insurance and other services.

Lower financials of other segments in Q1 2009 as compared to the quarters under analysis are attributable to TMTP disposal from January 2009.

OJSC Novolipetsk Steel

Interim condensed consolidated balance sheets

as at March 31, 2009 and December 31, 2008 (unaudited)

(All amounts in thousands of US dollars, except for share data)

	As at March 31, 2009	As at December 31, 2008
ASSETS

Current assets
Cash and cash equivalents	1,546,145	2,159,989
Short-term investments	338,301	8,089
Accounts receivable and advances given, net	1,187,166	1,487,847
Inventories, net	1,050,121	1,555,762
Other current assets	90,417	99,960
Deferred income tax assets	59,020	-
Current assets held for sale	-	34,432
	4,271,170	5,346,079
Non-current assets
Long-term investments, net	718,793	815,527
Property, plant and equipment, net	6,031,938	6,826,139
Intangible assets, net	210,751	235,283
Goodwill	530,080	613,668
Other non-current assets	34,473	33,546
Non-current assets held for sale	-	194,286
	7,526,035	8,718,449
Total assets	11,797,205	14,064,528

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Accounts payable and other liabilities	1,162,047	1,879,213
Short-term borrowings	1,090,067	1,079,806
Current income tax liability	26,532	10,497
Current liabilities held for sale	-	10,959
	2,278,646	2,980,475
Non-current liabilities
Deferred income tax liability	288,402	296,875
Long-term borrowings	1,709,451	1,929,772
Other long-term liabilities	113,158	128,944
Non-current liabilities held for sale	-	5,393
	2,111,011	2,360,984
Total liabilities	4,389,657	5,341,459

Commitments and contingencies	-	-

Stockholders' equity
NLMK stockholders' equity
Common stock, 1 Russian ruble par value - 5,993,227,240 shares issued and outstanding at March 31, 2009 and December 31, 2008	221,173	221,173
Statutory reserve	10,267	10,267
Additional paid-in capital	137,740	52,395
Accumulated other comprehensive loss	(1,659,412)	(549,879)
Retained earnings	8,762,192	8,956,013
NLMK stockholders' equity	7,471,960	8,689,969
Non-controlling interest	(64,412)	33,100
Total stockholders' equity	7,407,548	8,723,069
Total liabilities and stockholders' equity	11,797,205	14,064,528

OJSC Novolipetsk Steel

Interim condensed consolidated statements of income

for the three months ended March 31, 2009 and 2008 (unaudited)

(All amounts in thousands of US dollars, except for earnings per share amounts)


	For the three months ended March 31, 2009	For the three months ended March 31, 2008
	For the three months ended March 31, 2009	For the three months ended March 31, 2008

Sales revenue	1,293,326	2,353,260

Cost of sales
Production cost	(874,389)	(1,194,925)
Depreciation and amortization	(96,625)	(119,354)
	(971,014)	(1,314,279)

Gross profit	322,312	1,038,981

General and administrative expenses	(89,810)	(79,923)
Selling expenses	(110,849)	(151,416)
Taxes other than income tax	(22,562)	(31,230)

Operating income	99,091	776,412

(Loss) / gain on disposals of property, plant and equipment	(2,104)	6,097
(Losses) / gains on investments, net	(1,472)	6,421
Interest income	17,897	32,578
Interest expense	(53,968)	(55,466)
Foreign currency exchange, net	(113,004)	28,958
Other expenses, net	(56,913)	(32,059)

(Loss) / income from continuing operations before income tax	(110,473)	762,941

Income tax benefit / (expense)	1,439	(128,282)

(Loss) / income from continuing operations, net of income tax	(109,034)	634,659

Equity in net losses of associate	(142,638)	(7,841)

Net (loss) / income	(251,672)	626,818

Less: Net loss / (income) attributable to the non-controlling interest	57,851	(9,094)

Net (loss) / income attributable to OJSC Novolipetsk Steel stockholders	(193,821)	617,724
(Loss) / income per share - basic and diluted:
(Loss) / income from continuing operations attributable to OJSC Novolipetsk Steel stockholders per share (US dollars)	(0.0323)	0.1031
Net (loss) / income attributable to OJSC Novolipetsk Steel stockholders per share (US dollars)	(0.0323)	0.1031

Weighted-average shares outstanding, basic and diluted (in thousands)	5,993,227	5,993,227

OJSC Novolipetsk Steel

Interim condensed consolidated statements of cash flows

for the three months ended March 31, 2009 and 2008 (unaudited)

(thousands of US dollars)


	For the three months ended March 31, 2009	For the three months ended March 31, 2008
	For the three months ended March 31, 2009	For the three months ended March 31, 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) / income	(251,672)	626,818
Adjustments to reconcile net (loss) / income to net cash provided by operating activities:
Depreciation and amortization	96,625	119,354
Loss / (gain) on disposals of property, plant and equipment	2,104	(6,097)
Losses / (gains) on investments, net	1,472	(6,421)
Equity in net losses of associate	142,638	7,841
Deferred income tax benefit	(26,778)	(70,379)
Loss on forward contracts	16,780	-
Other	10,072	4,600
Changes in operating assets and liabilities
Decrease / (increase) in accounts receivable	98,258	(260,800)
Decrease / (increase) in inventories	294,444	(229,482)
Increase in other current assets	(4,082)	(14,716)
(Decrease) / increase in accounts payable and other liabilities	(15,205)	60,175
Increase in current income tax payable	17,507	19,173
Net cash provided by operating activities	382,163	250,066
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment	1,559	4,178
Purchases and construction of property, plant and equipment	(203,038)	(355,244)
Settlement of abandoned acquisition	(234,000)	-
Proceeds from sale of investments and loans settled	34	21,238
Purchases of investments	(306,526)	(19,255)
Acquisitions of stake in existing subsidiaries	-	(28,169)
Payment for acquisition of interests in new subsidiaries	-	(299,928)
Loan issued	(128,532)	-
Net cash used in investing activities	(870,503)	(677,180)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings and notes payable	262,905	853,254
Repayment of borrowings and notes payable	(320,770)	(438,492)
Capital lease payments	(17,647)	(8,980)
Dividends to minority shareholders of existing subsidiaries	(4)	(21)
Dividends to shareholders	(916)	(252)
Net cash (used in) / provided by financing activities	(76,432)	405,509
Net decrease in cash and cash equivalents	(564,772)	(21,605)
Effect of exchange rate changes on cash and cash equivalents	(49,072)	48,338
Cash and cash equivalents at the beginning of the period		1,154,641
Cash and cash equivalents at the end of the period		1,181,374

The full version of consolidated financial statements (US GAAP) for Q1 2009 can be found on the web-site at: www.nlmksteel.com.

Reference information

(1) NLMK Group US GAAP Q1 2009 financial statements

(2) US GAAP Q1 2009 financial statements presentation

About NLMK

Novolipetsk Steel (LSE: NLMK) is one of the world’s leading producers of steel, with 2008 revenue exceeding USD11 billion, output over 10.5 million tonnes. The key production facilities located in Russia, the EU and USA employ 60,000 people.

The company produces a wide range of steel products, including slabs and billets, hot-rolled, cold-rolled, galvanized and electrical steel and other HVA products. In 2008 NLMK delivered its products to customers from 70 countries.

NLMK shares are traded in Russia on MICEX and RTS, and GDRs – on the London Stock Exchange.

Appendix 1.

Q1 2009 EBITDA calculation

	Q1 2009	Q1 2008
Net profit (loss)	-194	618
Equity in net losses of associate	143	8
Net interest expense	36	23
Income tax	-1	128
Loss on disposal of fixed assets	2	-6
Impairment losses	0	0
Accretion expense on asset retirement obligation	0	0
Depreciation and amortization	97	119
Net foreign currency exchange	113	-29
Gains (losses) from financial investments	1	-6
EBITDA	197	855

Appendix 2.

Sales by regions, in ,000 tonnes

Region	Q1 2008	Q2 2008	Q3 2008	Q4 2008	2008	Q1 2009
Russia	1 010.3	1 140.5	1 109.5	504.7	3 765.1	570.4
EU	464.8	517.7	404.1	293.0	1 679.7	572.8
Middle East incl. Turkey	557.7	673.5	414.6	320.8	1 966.6	532.4
North America	292.8	317.6	239.7	257.8	1 107.9	97.0
Asia	137.6	313.4	361.1	340.7	1 152.9	493.4
Other	142.6	147.8	133.8	164.7	588.8	69.8
Total	2 605.8	3 110.5	2 662.8	1 881.8	10 261.0	2 335.8

Appendix 3.

Sales by product, in ,000 tonnes

Product	Q1 2008	Q2 2008	Q3 2008	Q4 2008	2008	Q1 2009
Pig iron	266.3	204.3	97.3	48.4	616.3	89.6
Slabs	589.0	917.8	837.2	763.9	3 108.0	645.2
Hot-rolled thick plates	136.3	153.2	104.3	110.1	504.0	71.9
Hot-rolled steel	423.8	478.7	346.0	146.2	1 394.6	562.6
Cold-rolled steel	376.2	434.9	398.2	229.5	1 438.8	337.4
Hot-dip galvanized steel	96.5	118.8	124.4	80.0	419.6	58.2
Color-coated steel	79.6	99.6	100.2	60.4	339.8	57.8
Transformer steel	82.5	88.6	91.3	79.9	342.3	36.3
Dynamo steel	79.4	100.3	88.7	56.5	324.9	34.4
Billets	121.3	162.5	147.5	109.9	541.2	71.9
Long products (incl. rebar)	327.6	300.9	292.9	164.8	1 086.2	334.7
Metal-ware	27.3	50.9	34.8	32.3	145.3	35.9
Total	2 605.8	3 110.5	2 662.8	1 881.8	10 261.0	2 335.8

Appendix 3.

Sales revenue by region, Q1 2009

	USD million	%
Russia	406.2	31.4%
EU	325.5	25.2%
Middle East incl. Turkey	247.0	19.1%
North America	68.5	5.3%
Asia	201.5	15.6%
Other	44.7	3.5%
Total	1 293.3

Appendix 4.

Production cost, Q1 2009

Item	USD million	Share, %
Iron ore	20.5	2.3%
Coke and coal	153.1	17.5%
Scrap	106.8	12.2%
Ferroalloys	36.7	4.2%
Other materials	61.6	7.0%
Electric energy	55.7	6.4%
Natural gas	38.6	4.4%
Other fuel materials	12.5	1.4%
Labour	110.4	12.6%
Other	174.1	19.9%
Changes in balances in finished and semi-finished products, work-in-progress and deferrals	104.1	11.9%
Total	874.4

Appendix 4.

Working capital, Q1 2009

USD million	31.03.2009	31.12.2008
Current assets	4 271	5 346
Cash and cash equivalents	1 546	2 160
Short-term financial investments	338	8
Accounts receivable	1 187	1 488
Inventories	1 050	1 556
Other current assets, net	149	134
Current liability	2 279	2 980
Accounts payables	1 162	1 879
Short term loans	1 090	1 080
Other current liabilities	27	21
Working	1 993	2 366

This information is provided by RNS

The company news service from the London Stock Exchange

END

QRFILFFIREIFIIA

Date		Source	Headline
26th Dec 2022	9:00 am	EQS	Novolipetsk Steel: Upcoming delisting of Global Depositary Shares
26th Dec 2022	8:00 am	EQS	Novolipetsk Steel: Upcoming delisting of Global Depositary Shares
20th Dec 2022	2:00 pm	EQS	Novolipetsk Steel: Update on NLMK's depositary receipt programme
20th Dec 2022	1:00 pm	EQS	Novolipetsk Steel: Update on NLMK's depositary receipt programme
28th Nov 2022	4:00 pm	EQS	Novolipetsk Steel: Update regarding the coupon payment for the Eurobonds due 2024
28th Nov 2022	3:00 pm	EQS	Novolipetsk Steel: Update regarding the coupon payment for the Eurobonds due 2024
17th Oct 2022	1:00 pm	EQS	Novolipetsk Steel: Q3 & 9M 2022 NLMK Group Trading Update
17th Oct 2022	1:00 pm	EQS	Novolipetsk Steel: Q3 & 9M 2022 NLMK Group Trading Update
27th Sep 2022	3:30 pm	EQS	Novolipetsk Steel: NLMK GROUP PROVIDES UPDATE ON NOTEHOLDERS’ CONSENT SOLICITATION
27th Sep 2022	3:30 pm	EQS	Novolipetsk Steel: NLMK GROUP PROVIDES UPDATE ON NOTEHOLDERS’ CONSENT SOLICITATION
20th Sep 2022	1:08 pm	EQS	NLMK GROUP PROVIDES UPDATE ON NOTEHOLDERS’ CONSENT SOLICITATION
20th Sep 2022	1:08 pm	EQS	NLMK GROUP PROVIDES UPDATE ON NOTEHOLDERS’ CONSENT SOLICITATION
13th Sep 2022	9:00 am	EQS	NLMK GROUP PROVIDES UPDATE ON NOTEHOLDERS’ CONSENT SOLICITATION
13th Sep 2022	9:00 am	EQS	NLMK GROUP PROVIDES UPDATE ON NOTEHOLDERS’ CONSENT SOLICITATION
6th Sep 2022	3:30 pm	EQS	NLMK GROUP PROVIDES UPDATE ON NOTEHOLDERS’ CONSENT SOLICITATION
6th Sep 2022	3:30 pm	EQS	NLMK GROUP PROVIDES UPDATE ON NOTEHOLDERS’ CONSENT SOLICITATION
18th Aug 2022	3:00 pm	EQS	Novolipetsk Steel: Automatic conversion notice
18th Aug 2022	3:00 pm	EQS	Novolipetsk Steel: Automatic conversion notice
15th Aug 2022	4:30 pm	EQS	Novolipetsk Steel: LAUNCH OF NOTEHOLDERS’ CONSENT SOLICITATIONS
15th Aug 2022	4:30 pm	EQS	Novolipetsk Steel: LAUNCH OF NOTEHOLDERS’ CONSENT SOLICITATIONS
9th Aug 2022	9:00 am	EQS	Novolipetsk Steel: Notice to holders of depository receipts
9th Aug 2022	9:00 am	EQS	Novolipetsk Steel: Notice to holders of depository receipts
25th Jul 2022	9:00 am	EQS	Q2 & 6M 2022 NLMK Group Trading Update
25th Jul 2022	9:00 am	EQS	Q2 & 6M 2022 NLMK Group Trading Update
19th Jul 2022	12:00 pm	EQS	Novolipetsk Steel (NLMK): NOTICE TO NOTEHOLDERS
19th Jul 2022	12:00 pm	EQS	Novolipetsk Steel (NLMK): NOTICE TO NOTEHOLDERS
1st Jul 2022	2:00 pm	RNS	NLMK holds Annual General Meeting of Shareholders
7th Jun 2022	8:00 am	RNS	BoD recommends not to pay out 4Q21 & 1Q22 dividend
30th May 2022	8:30 am	RNS	Change in the composition of the BoD
24th May 2022	3:00 pm	RNS	NLMK Board of Directors resolves to convene AGM
16th May 2022	11:30 am	RNS	NLMK depositary receipts remain in circulation
4th May 2022	1:00 pm	RNS	Change in the composition of the BoD
22nd Apr 2022	2:00 pm	RNS	Change in the composition of the BoD
19th Apr 2022	5:00 pm	RNS	Notice on depositary receipts
4th Apr 2022	3:00 pm	RNS	S&P, Moody’s, and Fitch withdraw NLMK's rating
1st Apr 2022	12:00 pm	RNS	Clarification on financial statements
5th Mar 2022	4:20 pm	EQS	Fitch takes rating action on NLMK Group
1st Mar 2022	4:43 pm	RNS	Second Price Monitoring Extn
1st Mar 2022	4:38 pm	RNS	Price Monitoring Extension
3rd Feb 2022	8:00 am	RNS	NLMK GROUP 12M AND Q4 2021 IFRS FINANCIAL RESULTS
3rd Feb 2022	8:00 am	RNS	NLMK BoD recommends dividends for Q4'21
27th Jan 2022	10:00 am	RNS	NOTICE OF NLMK Q4 2021 IFRS RESULTS
20th Jan 2022	11:00 am	RNS	Q4 2021 AND 12M 2021 NLMK GROUP TRADING UPDATE
23rd Dec 2021	11:06 am	RNS	NLMK 2022 Financial Calendar
26th Nov 2021	1:00 pm	RNS	NLMK shareholders approve 3Q 2021 dividends
21st Oct 2021	9:00 am	RNS	NLMK Group Q3 2021 IFRS Financial Results
21st Oct 2021	9:00 am	RNS	NLMK BoD recommends dividends for Q3'21
13th Oct 2021	10:00 am	RNS	Q3 2021 and 9M 2021 NLMK GROUP TRADING UPDATE
27th Sep 2021	1:00 pm	RNS	NOTICE OF NLMK Q3 2021 IFRS RESULTS
27th Aug 2021	2:00 pm	RNS	NLMK shareholders approve 2Q 2021 dividends

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