SVST.L Regulatory News (SVST)

Severstal reports Q1 2012 financial results

Moscow, Russia - May 24, 2012 - OAO Severstal (LSE: SVST), one of the world's leading vertically integrated steel and mining companies, today announces its Q1 2012 financial results.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 31 MARCH 2012

Notes:

1) These amounts reflect adjustments made in connection with the presentation of discontinued operations, final purchase price allocation and the early adoption of the revised IAS 19 "Employee benefits".

2) EBITDA represents profit/(loss) from operations plus depreciation and amortization of productive assets adjusted for gain / (loss) on disposals of property, plant and equipment and intangible assets.

3) Attributable to shareholders of OAO Severstal.

4) EPS is calculated for 926.5 million shares for Q1 2012 and for 1005.2 million shares for Q1 and Q4 2011.

Q1 2012 vs. Q4 2011 ANALYSIS:

§ Decline in quarterly revenues and earnings due to lower realized prices and an additional allowance in respect of inventories at Severstal Russian Steel;

§ EBITDA down 26.7% to $562 million (Q4 2011: $767 million) and EBITDA margin decreased to 15.3% (Q4 2011: 20.6%) partly attributable to the change in our working capital management approach at Severstal Russian Steel;

§ Excluding the negative one-off of $56.7 million, Q1 2012 EBITDA would be $618.7 million with EBITDA margin of 16.8%;

§ Revenue down 1.3% to $3,679 million (Q4 2011: $3,727 million);

§ Decrease in net profit by 7.8% to $427 million (Q4 2011: $463 million). Net profit decreased less than EBITDA and was supported by stronger rouble and the effect of the separation of Nordgold;

§ Recommended dividend payment of 4.07 roubles per share (approximately $0.13) for the 3 months ended 31 March 2012.

FINANCIAL POSITION HIGHLIGHTS:

§ Robust liquidity position: $2,244 million in cash and cash equivalents, comfortably covering short-term debt of $1,699 million;

§ Net Debt/EBITDA remains at 1.1x at end of Q1 2012, below target level of 1.5x;

Alexey Mordashov, CEO of Severstal, commented:

"The first quarter of 2012 was somewhat weaker than the previous quarter, mainly due to lower demand and domestic steel prices. Our EBITDA margin declined but still remained one of the highest in the steel industry due to the resilience of our business model and assets quality. That said, our Severstal Resources delivered another strong performance, and Severstal International's results were markedly improved against Q4 2011. Although visibility in the global economic environment remains limited, we see slightly improved fundamentals for the global steel market in Q2, compared to Q1".

CHIEF EXECUTIVE'S REVIEW OF THE THREE MONTHS ENDED 31 MARCH 2012

Our divisions demonstrated mixed performance in Q1 2012. Severstal Resources was broadly flat q/q after the elimination of non-cash one-off costs items in Q1 2012 at PBS and Karelsky Okatysh and iron ore and coking coal prices only slightly lower than Q4 2011. Severstal International significantly improved its quarterly results due to solid demand in the US. Severstal Russian Steel's performance was negatively affected by lower prices and demand on the internal market, as well as by non-cash items relating to inventories.

The Group's cash capital expenditure in Q1 2012 was $278 million, down 45% from the previous quarter. The q/q decrease in capex was in Russia and comprised mainly capital reconstruction. In the US we commissioned two new galvanizing lines at Dearborn and Columbus in Q1. Our US capex program is substantially complete. Hence our major 2012 capex projects are focused on Russia, which are the Balakovo mini-mill, the reconstruction of coke battery #7 at Cherepovets and a thermoelectric power station burning coalmine methane in Vorkuta. Our FY 2012 capex target across our divisions remains at $1.7 billion which is very close to our capex amount in 2011.

RUSSIAN STEEL

Severstal Russian Steel's Q1 2012 revenue was down 4.9% q/q to $2,226 million (Q4 2011: $2,341 million) due to declining steel prices, weaker product mix and lower sales volumes on the domestic market. This, together with an additional allowance in respect of inventories (primarily spare parts) of $56.7 million, led to EBITDA contracting by 52.9% q/q to $186 million in Q1 (Q4 2011: $395 million). The share of high-value-added products went down slightly to 45% from 46% in Q4 2011 due to higher export sales of semi-finished products, while the proportion of sales volumes to the domestic market decreased to 53% from 57% in Q4 2011.

The outlook for the global steel industry remains challenging, however we see improving fundamentals for Russian Steel in Q2 due to more stable steel prices and firm domestic demand. Export markets remain unstable: sluggish demand in South Europe may lead the steel prices down, that said buying before Ramadan in the Middle East could provide some upside for the steel market.

SEVERSTAL RESOURCES

Severstal Resources recorded lower revenue in Q1 2012 due to weaker prices for iron ore and coking coal, as well as lower sales volumes in Russia and overall weaker global demand. The division's revenue went down 8.5% q/q to $811 million (Q4 2011: $886 million). Lower revenue and broadly flat costs led to a 6.4% decrease in EBITDA to $322 million (Q4 2011: $344 million) with EBITDA margin up by 0.9 ppts q/q to 39.7%.

Adjusting for non-cash one-off items, total cash costs at PBS returned to $100/t (Q4 2011: $170/t). Total cash costs at Vorkuta were up to $86/t in Q1 (Q4 2011: $72/t) due to an annual increase in labor costs and a lower contribution of low-cost semi-soft coal in the total product mix. Iron ore costs remained largely unchanged at Olkon at $51/t and were down to $60/t at Karelskiy Okatysh.

SEVERSTAL INTERNATIONAL

Overall strong demand in the US in Q1 2012 led to a boost in sales at SNA with rolled products sales increasing by 19% q/q. The launch of two modern galvanizing lines at Columbus and Dearborn in Q1 helped increase sales of galvanized products by 28% q/q and 19% y/y.

Solid end demand drove prices upwards (+6% q/q average for SNA rolled products) which together with higher sales volumes boosted SNA revenue by 22.9% to $1,095 million (Q4 2011: $891 million) and EBITDA surged 3.7x q/q to $66 million (Q4 2011: $18 million). Profitability metrics registered improvement also with EBITDA/t increasing significantly by 3 times q/q to $54/t and EBITDA margin increasing by 4.0 ppts to 6.0%.

Overall US steel production was up 7% y/y in Q1 2012, while imports rose 30% y/y due to favorable prices. Auto sector demand remains solid with auto sales up 13% y/y in Q1. New orders of durable goods increased 7% YTD through Q1 and private residential and non-residential construction showed strong signs of recovery, advancing 19% and 17% YTD correspondingly in the quarter.

DIVIDEND

The Board is recommending a dividend of 4.07 roubles per share (approximately $0.13) for the three months ended 31 March 2012.

Approval of the dividend is expected at the Company's AGM which will take place on 28 June 2012. The record date is 15 May 2012.

OUTLOOK

In Russia we anticipate higher demand in Q2 due to seasonal construction growth. Export markets remain volatile due to the subdued European demand, although Q2 could see some uptick in prices and higher demand on the export markets due to buying ahead of Ramadan in the Middle East.

In the US demand remains solid with the automotive industry registering 13% y/y increase in auto sales in Q1. Other consuming industries look also encouraging with new orders of durable goods increasing 7% YTD in Q1 and private residential and non-residential construction showed some signs of recovery. We expect the positive trend to continue into Q2.

Overall the global economic situation remains fragile, however leading indicators show moderate recovery on our key markets in the second half of the year.

http://www.rns-pdf.londonstockexchange.com/rns/0138E_-2012-5-24.pdf

http://www.rns-pdf.londonstockexchange.com/rns/0138E_1-2012-5-24.pdf

For further information, please contact:

Severstal Investor Relations

Vladimir Zaluzhsky

T: +7 (495) 926-77-66

vladimir.zaluzhsky@severstal.com

Severstal Public Relations

Elena Kovaleva

T: +7 (495) 926-77-66

elena.kovaleva@severstal.com 

Severstal's financial communications agent - Hudson Sandler

Andrew Hayes / Andrew Leach / Maria Ignatova / Alex Brennan

T: +44 (0) 20 7796 4133

A conference call on Q1 2012 results for investors and analysts hosted by Alexey Kulichenko, Chief Financial Officer, will be held on May 24, 2012 at 13.30 (London) 16.30 (Moscow).

Participant dial in: +44 (0) 1452 555 566 (International)

Participant dial in: 0844 493 3800 (UK Local Call)

Conference ID: 80002286

The call will be recorded and there will be a replay facility available for 7 days as follows:International Dial in: +44 (0) 1452 55 00 00

UK Free Call Dial In: 0800 953 1533Encore replay access number: 80002286#

Full financial statements are available at http://www.severstal.com/eng/ir/results_reports/financial_reports/ 

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ОАО Severstal is one of the world's leading vertically integrated steel and steel related mining companies, with assets in Russia, the USA, the Ukraine, Latvia, Poland, Italy, Liberia and Brazil. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $15,812 million and EBITDA of $3,584 million in 2011. Severstal's crude steel production in 2011 reached 15.3 million tonnes. www.severstal.com