SVST.L Regulatory News (SVST)

10 Sep 2007 07:06

OAO Severstal10 September 2007 SEVERSTAL For Immediate Release 10 September 2007 Severstal's H1 2007 results demonstrate further progress Financial Results for the six months ended 30 June, 2007($ million unless otherwise stated) H1 2006 H1 2007 Change y-o-y Revenue 5,883 7,711 31.1% Profit from operations 820 1,484 81.0% EBITDA 1 1,303 2,094 60.7% Net profit 2 426 999 134.5% EPS, $ 0.46 0.99 115.2% Notes: 1 EBITDA represents profit from operations plus depreciation and amortisation, and gain (loss) on disposals of property plant and equipment 2 Net profit attributable to shareholders OAO Severstal (LSE: SVST; RTS: CHMF), today reports half year results reflectinga significant improvement compared with the same period last year due to thecontinuation of positive first quarter trends. H1 2007 Highlights: •A record $7,711 million in revenues, up 31.1% year-on-year •EBITDA of $2,094 million, up 60.7% year-on-year •Net profit up 134.5% to $999 million •Operating margin up to 19.2% from 13.9% due to higher prices and management action •EPS of $0.99, up 115.2% year-on-year •Higher average prices across all markets and segments •$500 million of dividends for 1H 2007, of which $102 million paid for Q1 and $398 million recommended by the board for Q2, compared with $126 million in 1H 2006 •Positive outlook for the rest of 2007 Alexei Mordashov, CEO of OAO Severstal, said, "I am pleased to report a verypositive set of half year results for Severstal, with market conditionsimproving in all markets apart from North America. We continue to be well placedto benefit from the growing Russian economy and stable steel markets in Europe." Chief Executive's Review These results demonstrate improved trends in the key areas of our business withexception of the North American market. EBITDA growth in H1 2007 was 60.7% year-on-year. Prices continue to be strong inboth Russian and export markets and there was a significant improvement involumes compared with H1 2006. Russian Steel built on its good performance in Q12007 with an excellent second quarter, showing a 68.5% increase in EBITDAyear-on-year. Our Mining business has also had an exceptional first half compared with thesame period last year. EBITDA was up by some 46.7% year-on-year. Prices were upon average by 16.7% with a 10.4% growth in volumes. In Q2 2007, the EBITDAmargin in Mining was slightly down compared to Q1 2007 as a result of lowervolumes and unfavourable changes in product mix at our Vorkuta mine, where theshare of soft grades of coal was higher than projected. Our European operations, Lucchini, performed strongly, in line withexpectations. EBITDA increased by 54.1% in H1 2007 in comparison with the sameperiod the last year. Poor market conditions in North America in H1 2007 affected SNA's results withEBITDA down 15.2% year-on-year. We expect that volume cuts and stabilisedinventory levels across the industry are beginning to improve the overall marketoutlook. However, as expected, the relining of SNA's blast furnace "C" in Q3will impact on SNA's volume in Q3. Izhorsky pipe mill, the producer of large diameter pipes, demonstratedsignificant growth with EBITDA margin increasing from 14.3% in Q1 to 31.3% inQ2. Investing for the Future In light of the strong outlook for the global steel market, Severstal believesthere is the potential to invest significant capital in organic growth projectsbetween 2007 and 2011, particularly in Russia. These plans are based on existingmarket conditions and reflect Severstal's best estimate of where it can investmost profitably to grow margins sustainably and achieve high returns oninvestment. The plans will be adjusted in the future as and when marketconditions change. Severstal currently plans to invest approximately $6 billion in its RussianSteel division over this period. The money will be spent on two new mini mills,each with a capacity of one million tonnes, and on the development of morevalue-added and long products at the company's Cherepovets steel mill. Some $2 billion is expected to be invested in the Mining division between nowand 2011 with the aim of growing coal production from 9.7 million tonnes in 2006by approximately 30% by 2011. Production of pellets and iron ore concentrate isplanned to grow from its current level of 14 million tonnes by approximately15%. The company also plans to double the amount of scrap collected over theperiod. Approximately 15% of the total capex spend is expected to be invested atLucchini, with a further 10% at SNA. Plans at SNA include improving theperformance of the existing plants with the potential for further investmentthere and at SeverCorr depending on those assets' performance and the prevailingmarket conditions nearer the time. H1 2007 Financial Summary Severstal's consolidated revenues increased by 31.1% to $7,711 million in H12007 from $5,883 million in H1 2006, attributable to higher average pricinglevels in all geographies, volume growth and product mix improvements. Costs were $5,362 million in H1 2007, compared with$4,330 million in H1 2006. The primary drivers behind this change were higherraw material, energy and labour costs. Cost of revenues as a percentage ofconsolidated revenues decreased to 69.5% (H1 2007), from 73.6% in H1 2006,reflecting the company's ability to pass cost increases to end customers. Gross profit increased by 51.2% from $1,554 million in H1 2006 to $2,349 millionin H1 2007. Profit from operations increased by 81.0% to $1,484 million in H1 2007 from $820million in H1 2006. This increase was largely due to positive steel prices.Group operating margin went up to 19.2% in H1 2007 from 13.9% in H1 2006. Consolidated EBITDA increased by 60.7% from $1,303 million in H1 2006 to $2,094million in H1 2007. This growth is mainly attributable to the strong performanceof Russian Steel, which successfully exploited opportunities in the Russiandomestic market. Our Mining business and Lucchini also contributed to theoverall improvement. Income tax charges for H1 2007 were $384 million compared with $270 million inH1 2006. In H1 2007, Severstal reported consolidated net profit attributable toshareholders of $999 million compared with $426 million in H1 2006. EPS for the first half of 2007 amounted to $0.99, 115.2% higher than for thefirst half of 2006. Cash surplus, calculated as the difference between financial debt and cash andcash equivalents plus short-term bank deposits, increased for the three monthsended June 30, 2007 from $173 million to $403 million. Total indebtednessdecreased from $3,009 million to $2,869 million. Cash, cash equivalents andshort-term bank deposits increased from $3,182 million to $3,272 million, mainlyattributable to the results of operating activities. Dividend Severstal's Board of Directors, held on 30-31 August 2007, has recommended aninterim dividend of 10.0 rubles per share and correspondingly per globaldepositary receipt ("GDR") for Q2 2007 with the record date of 20 August 2007.Each GDR represents one share in the Company. The Board's recommendation isbased on the company's strong financial results in H1 2007. Approval of thedividend payment is expected at the company's EGM on 28 September 2007.Severstal is to maintain its dividend policy of paying a minimum of 25% of netprofits received by the end of the reporting period (calculated according toIFRS). Outlook Given Severstal's strong first half performance, and with current marketconditions underpinned by strong Russian economic growth, price stability inEurope, and planned improvements at SNA, the Board is currently comfortable withmarket expectations for the full year. For further information: Severstal Dmitry Druzhinin, Investor RelationsOlga Antonova, Public Relations+7 495 540 7766 Tulchan CommunicationsDominic Fry/Tom Murray+44 207 353 4200 Severstal will be holding a conference call for analysts and investors at 5pmMoscow Time on Monday 10 September 2007. Dial-in details are: Time: 5pm (Moscow Time), 2pm (London Time), 9am (East Coast Time) Russia dial-in: 8108 0021 651 012UK dial-in: 0800 953 1444US dial-in: 1866 220 1452International dial-in for other countries: +44 (0) 1452 542 300Participant code: 15949646 Further information on Severstal can be found on its website atwww.severstal.com. A description of the company's governance arrangements can be found at http://www.severstal.com/eng/company_profile/corporate_governance/document1726.shtml This information is provided by RNS The company news service from the London Stock Exchange