SVST.L Regulatory News (SVST)

21 May 2008 07:00



21 May 2008

Financial Results for the three months ended 31 March, 2008

 ($ million unless otherwise stated)

Notes: 

1 EBITDA represents profit from operations plus depreciation and amortisation adjusted for gain (loss) on disposals of property plant and equipment

2 Net profit attributable to shareholders

3 Dividends announced on the basis of respective period results, translated at the exchange rate as of the date of declaration by Board of Directors

OAO Severstal (LSE: SVST; RTS: CHMF), today reports results for the three months to 31 March 2008.  

Q1 2008 Highlights:

Revenues up 16.7% to a record $4,309 million for the first three month of 2008

EBITDA of $1,036 million, up 14.6% year-on-year 

Net profit slightly down to $439 million in Q1 2008, primarily due to a larger share of taxable profit at Lucchini and in North America

EPS slightly down to $0.44 from $0.45 year-on-year

Strong domestic and global demand for coal and iron ore drives good performance in Mining division 

Russian economic growth continues to support strong domestic steel consumption

Note: Comparable periods are Q1 2008 on Q1 2007  

Alexei Mordashov, CEO of OAO Severstal, said, "I am pleased to announce that revenues are up 16.7% and EBITDA is up 14.6% year-on-year. With a favourable outlook for pricing and anticipated growth in sales volumes across our businesses, we continue to expect 2008 to be another year of good progress for Severstal."

Chief Executive's Review

Russian Steel benefited from strong domestic economic growth, which continues to support high steel consumption rates. The 23.6% fall in EBITDA year-on-year at Russian Steel was due to increases in raw materials prices occurring ahead of price increases for rolled steel products in Russian and international markets. The Izhora Pipe Mill demonstrated significant year-on-year growth, with EBITDA margin increasing from 14.3% in Q1 2007 to 25.6% in Q1 2008. Pipe production was down from the Q4 2007 level due to a planned maintenance outage in January.

Severstal Mining saw a 42.6% rise in EBITDA year-on-year, benefiting from increases in coal and iron ore prices. The division's strong financial performance is underpinned by continuing strong global and domestic demand for coal and iron ore. 

Severstal International comprises our North American and Lucchini businesses.

North America showed a 29.9% increase in revenues in Q1 2008 compared with Q1 2007. SNA's underlying performance was affected by the fall in production volume following the blast furnace accident in January. We expect the business to return to solid EBITDA territory over the rest of the year. Q1 2008 included a $156 million gain (total amount of gain $177 million less $ 21 million - profit sharing with union) from the termination of a long-term electricity supply contract at SNA. SeverCorr demonstrated strong production and sales performance with shipments of 295,000 tonnes and positive EBITDA in Q1 2008. On 7 May 2008 Severstal completed the acquisition of Sparrows Point.

At Lucchini, EBITDA for the first three months increased by 9.2% compared with the same period last year. Revenues were up by 8.1%. EBITDA margin was 13.4%, approximately in line with the Q1 2007 level of 13.3%. The European market remains strong and we have positive expectations for the remainder of 2008.

Financial Summary for 3M ended 31 March 2008

Severstal's consolidated revenues increased by 16.7% to $4,309 million in the first three months of 2008 compared with $3,693 million in Q1 2007. Higher average prices and volume growth were the main factors behind this growth.

Cost of sales were $3,166 million in the first three months of 2008 compared with $2,531 million for the same period of 2007, an increase of 25.1%. The main drivers behind this change were cost increases in raw materials. Energy and labour costs inflation was partially offset by headcount reductions and energy saving programmes. Cost of sales as a percentage of consolidated revenues increased to 73.5% in Q1 2008 compared with 68.5% in Q1 2007. Price increases for raw materials took place ahead of price increases for steel products which occurred towards the end of Q1 and have continued to rise favourably in Q2. 

Gross profit decreased by 1.6 % to $1,143 million in first three months of 2008 compared with $1,162 million for the same period of 2007.

Profit from operations increased by 6.7% to $765 million in the first three months of 2008. This increase was due to a strong production performance as well as strong prices for coal, iron ore and steel products.

Group operating margin fell to 17.8% in Q1 2008 from 19.4% in Q1 2007. Russian Steel was the main contributor to the reduction due to cost inflation in raw materials occurring ahead of subsequent price increases for our output.  

Consolidated EBITDA increased by 14.6% to $1,036 million in the first three months of 2008 from $904 million in the first three months of 2007. This growth is largely attributable to the performance of Mining, Izhora Pipe Mill, Lucchini and North America. Russian Steel demonstrated a 23.6% decline in EBITDA y-o-y due to the phasing factors referred to above. 

Income tax expense was $233 million in the first three months of 2008 against $190 million for the same period of 2007. This change reflects an increase in pre-tax profit of 2.7%, as well as a lower share of taxable profit at Russian Steel, which enjoys a more favourable tax regime and at the same time a larger share of taxable profit at Lucchini and in North America, which are subject to a less favourable tax regime.

For the first three months of 2008, Severstal reported consolidated net profit attributable to shareholders of $439 million compared with $458 million in the first three months of 2007, a decrease of 4.1 % y-o-y. 

EPS fell slightly to $0.44 from $0.45 in Q1 2007.

Net debt, calculated as total indebtedness less cash and cash equivalents, less short-term bank deposits, decreased from $1,500 million as at 31 December 2007 to $1,384 million as at 31 March 2008. Total indebtedness increased from $3,786 million as at 31 December 2007 to $4,111 million as at 31 March 2008. Cash, cash equivalents and short-term bank deposits increased from $2,286 million as at 31 December 2007 to $2,727 million as at 31 March 2008. The increase in cash was mainly attributable to cash flows from operating activities.

Segmental performance Q1 2008 vs. Q4 2007

On a sequential quarterly basis, Mining increased EBITDA by 99.1% on the back of increased selling prices. These price increases, and the later phasing of selling prices referred to above, led to a reduction in EBITDA of 18.7% at Russian Steel and 6.1% in Metalware. EBITDA at Izhora Pipe Mill fell by 33.9% on the back of a scheduled maintenance outage and higher input prices.

For Severstal International, after stripping out the one-off impacts referred to above, underlying EBITDA for the Dearborn plant improved by $22 million over Q4 2007 on the back of a further production ramp-up of blast furnace "C" commissioned in Q4 2007. Lucchini's impressive quarter-on-quarter EBITDA growth of 153.6% benefited from a combination of good underlying trading and various negative one-off items in Q4 2007.

Dividend 

At the meeting held on 15-16 May 2008, Severstal Board of Directors recommended a dividend of 5.20 rubles per share for Q1 2008 with the record date of 15 May 2008. Each GDR represents one share in the Company. 

Approval of the dividend is expected at the AGM which will take place on 27 June 2008. 

Outlook

With a favourable outlook for pricing and anticipated growth in sales volumes across our businesses, we continue to expect 2008 to be another year of good progress for Severstal.

For further information:

Severstal

Dmitry Druzhinin, Investor Relations

Olga Antonova, Public Relations

+7 495 540 7766

Tulchan Communications

Dominic Fry/Tom Murray

+44 207 353 4200

Severstal would like to invite you to participate in a conference call with Sergei Kuznetsov, Chief Financial Officer of Severstal. The call will be held on Wednesday, May 21 2008 at 5.00 pm (Moscow) / 2.00 pm (London) / 9.00 am (New York)

Russia dial-in: 8108 002 097 2044

UK dial-in: 0800 694 0257

US dial-in: 1866 966 9439

International dial-in for other countries: +44 (0) 1452 555 566

Participant code: 47581810

The call will be recorded and there will be a replay facility available as follows:

Tel: +44 (0) 1452 55 0000

Replay access number: 47581810#

Further information on Severstal can be found on its website at www.severstal.com