SVST.L Regulatory News (SVST)

Severstal reports Q3 and 9M 2011 financial results

Moscow, Russia - December 8, 2011 - OAO Severstal (LSE: SVST), one of the world's leading vertically integrated steel and mining companies, today announces its Q3 and 9M2011 financial results.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 30 SEPTEMBER 2011

Notes:

1) These amounts reflect adjustments made in connection with the presentation of discontinued operations and with the completion of purchase price allocation.

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.

Q3 2011 vs. Q2 2011 ANALYSIS:

§ Further quarterly growth in revenues and earnings reflecting higher sales volumes;

§ EBITDA up 1.9% to $1,130 million (Q2 2011: $1,109 million) and EBITDA margin only slightly down to 23.7% (Q2 2011: 25.3%);

§ Revenue up 8.9% to $4,772 million (Q2 2011: $4,383 million);

§ Decrease in net profit by 28.7% to $429 million (Q2 2011: $602 million), arising from a $266 million change in FX losses in Q3 2011 vs. Q2 2011 due to weak Ruble;

§ Recommended dividend payment of 3.36 rubles per share (approximately $0.11) for the nine months ended 30 September 2011.

9M 2011 vs. 9M 2010 ANALYSIS:

§ Impressive growth in profit and revenue owing to favorable price environment and robust demand for steel, iron ore and coking coal;

§ EBITDA up 34.2% to $3,173 million (9M 2010: $2,364 million) and EBITDA margin up to 24.6% (9M 2010: 24.0%);

§ Revenue up by 30.8% to $12,882 million (9M 2010: $9,847 million);

§ Strong improvement in profitability: 9M 2011 net profit of $1,550 million (9M 2010: net loss of $225 million).

FINANCIAL POSITION HIGHLIGHTS:

§ Solid cash cushion of $1,995 million in cash and equivalents in excess covering short-term debt of $1,536 million;

§ Further decrease in Net Debt/EBITDA to 1.0x at end of Q3 2011, below target level of 1.5x;

§ Improvement in debt maturity calendar and reduction in the cost of capital: on July 26, 2011, Severstal issued $500.0 million in 6.25% Eurobonds due in 2016.

Alexey Mordashov, CEO of Severstal, commented: "Q3 2011 was another strong quarter for Severstal, allowing us to make further improvements on the revenue and EBITDA lines. We did our best to take advantage of the strong Q3 demand from the construction industry in Russia. That, together with continued high raw materials and gold prices enabled us to maintain a solid EBITDA margin of 23.7%. Our North American operations' financial performance returned to Q1 2011 levels, impacted by lower steel prices in the region. Severstal North America posted 4.4% EBITDA margin. Our expansion program at Columbus with the ramp up of 2nd Electric Arc Furnace and Caster facilities drove increases in sales volumes in North America. Our financial position remains strong with net debt/EBITDA ratio falling to 1.0x, while our cash cushion increased to$1,995 million. Though the global economic landscape remains uncertain and we expect lower orders from customers at the end of the year, in Q1 2012 the market is expecting some positive signs of recovery in the industry".

CHIEF EXECUTIVE'S REVIEW OF THE NINE MONTHS ENDED 30 SEPTEMBER 2011

Over 9M 2011 Severstal demonstrated superior growth of revenue and earnings, driven by the favorable market environment, our exposure to high-growth emerging markets, the Group's vertical integration and our low-cost position.

9M 2011 was characterized by strong growth of the Russian steel market with Q3 being the strongest quarter from demand perspective due to usual seasonality. In Q3, the Russian Steel division's revenue rose to $2,989 million (Q2 2011: $2,807 million) and EBITDA increased by 14.4% to $499 million (Q2 2011: $436 million).

Global coking coal and iron ore prices remained elevated during 9M 2011 owing to strong emerging markets demand and supply deficit. The Steel Resources segment markedly increased sales of coking coal concentrate and iron ore products in Q3. However, a degree of price correction during the quarter as well as higher costs at Vorkutaugol kept earnings below those seen in Q2.

Lower realised prices in Q3 impacted the financial results of our North American segment, where EBITDA declined to $42 million (Q2 2011: $76 million). However, we continued to ramp up volumes at Columbus Phase II, which helped to increase SNA HRC sales by 76% in Q3.

The Group's cash capital expenditure in Q3 2011 was $600 million, up 34.5% from the previous quarter. We are therefore on track to spend around $2 billion on our capex projects. We successfully launched the new cold-rolling complex (PLTCM) in Dearborn in Q3. In Q4, we are planning to commission a new color-coated line in Cherepovets, as well as a new hot-dip galvanizing line in Dearborn and downstream rolling facilities as part of Columbus Phase II expansion.

RUSSIAN STEEL

Severstal Russian Steel increased steel products sales by 11% in Q3 2011 on account of the Russian high construction season. The segment increased shipments to domestic customers, improving its product mix in the process by selling 9% less semi-finished products while increasing rolled products shipments by 17% and downstream products by 5%. This helped boost the segment's revenue by 6.5% to $2,989 million (Q2 2011: $2,807 million). Growing sales volumes together with lower raw materials prices contributed to a solid 14.4% EBITDA growth to $499 million (Q2 2011: $436 million), while segmental EBITDA margin increased by 1.2 ppts to 16.7% (Q2 2011: 15.5%).

As we had anticipated, the delayed start of the construction season in Russia was fully realised in Q3 2011. High domestic demand for construction-related products allowed us to boost galvanized steel sales by 50% q/q, long products by 34% and color-coated steel by 9%. This helped increase the share of high value-added (HVA) products in the portfolio to 44% in Q3 (Q2 2011: 42%).

Our Izhora Pipe Plant continued to operate at full capacity in Q3 in spite of weakening demand for the large-diameter pipes. In Q3 the plant was completing shipments of LD pipes to the Bovanenkovo-Ukhta gas pipeline.

The price dynamics for the Russian Steel segment was mixed in Q3: HRC, CRC and semi-finished products saw some price softening, while galvanized, color-coated and long products saw some price increases, mainly due to high demand from the construction industry.

STEEL RESOURCES

Q3 2011 was a mixed quarter for the Steel Resources segment. Sales volumes of coking coal concentrate and iron ore products increased, with PBS and Karelskiy Okatysh seeing 46% and 18% q/q growth of coking coal concentrate and iron ore pellets respectively. As forecast, Vorkutaugol's coking coal concentrate sales remained largely flat.

On a more negative note, global bulks prices retreated from the highs in Q2, leading to some price correction on the Russian market. However, volumes increases outweighed the impact of price increases, with revenue growing by 5.3% q/q to $1,057 million (Q2 2011: $1,004 million). Cost increases at Vorkutaugol prevented the Steel Resources segment's revenue growth from passing through to EBITDA which dropped slightly by 3.2% to $460 million (Q2 2011: $475 million). EBITDA margin was 43.5%.

The major reasons for Vorkutaugol's cost spike were the delay in commissioning of a large new longwall face at Vorgashorskaya mine and seasonal increase in repairs. These issues have been resolved in Q3, and we anticipate Vorkuta's costs to normalize in Q4. Costs at other units in the Steel Resources segment decreased in Q4.

SEVERSTAL NORTH AMERICA

Severstal North America sales volumes increased by 30.9% in Q3 2011 compared to Q2 2011, with the bulk of the growth attributable to Columbus expansion at Phase II. This volume spike was partially offset by lower selling prices, resulting in revenue increase by 18.6%. Cost of sales went up by 26.8% over the period, driven by increase in volumes and flat/increasing raw materials prices, leading to EBITDA of $42 million (Q2 2011: $76 million).

In Q3 2011 Columbus utilized additional capacities from a second Electric Arc Furnace complex, commissioned ahead of schedule in June, and increased production by 55%. Second Push Pull Pickle Line and second Hot Dipped Galvanizing Line were started on schedule in September and October respectively. Dearborn launched a new Continuous Pickle Line and Tandem Cold Mill (PLTCM) in August ahead of schedule; Hot Dip Galvanizing line (HDGL) is scheduled to be commissioned in December as planned.

Steel demand in North America remained strong through Q3, bolstered by strong automotive sales and pipe and tube demand; YTD steel demand through the second week of November was 74.8 million metric tons, which represents an increase of 7.1% over 2010. We expect demand to weaken in Q4 due to seasonality, especially in the automotive and construction markets.

GOLD

Nordgold continued to improve its operational and financial performance. The gold price rose further in Q3 2011, reaching a new record high of over $1,920 per ounce in early September. Revenue in 9M 2011 increased by 64.3% to $797 million (9M 2010: $485 million).

Q3 2011 production increased by 15.0% y-o-y to 192.1k gold equivalent ounces. Production increase was mainly driven by continuing progress with operational optimization and ramp up of the processing throughput at Lefa (13% growth in production y/y), Buryatzoloto (16% y/y), Berezitovy (46% y/y) and Neryungri (46% y/y). Lefa showed a meaningful increase in processed ore volume of 58% y/y in Q3. In 9M 2011, Nordgold produced 566 koz, a y/y increase of 10% driven by growing contributions from Berezitovy and Neryungri, as well as by the consolidation of Crew Gold.

EBITDA increased 51.6% to $379 million (9M 2010: $250 million). EBITDA margin remain strong at 47.6% (9M 2010: 51.5%).

Nine month revenues increased by 64.3% to $797 million, reflecting increased production volumes and stronger average realized gold price of $1,529/oz, which was 28.7% higher than in the comparable period in 2010.

Total cash costs in Q3 2011 showed 6% q/q reduction to $681/oz due to business optimization, further cost control implementation at our assets. In the nine month period, total cash costs were $675/oz. Going forward, we expect cash costs to stabilize at this level due to an improved production profile and less punishing macro environment.

Q3 2011 capex was $84.0 million, a q/q increase of 24%.

DIVIDEND

The Board is recommending a dividend of 3.36 rubles per share (approximately $0.11) for the nine months ended 30 September 2011.

Approval of the dividend is expected at the Company's EGM which will take place on 30 December 2011. The record date is 15 November 2011.

OUTLOOK

The global economic landscape remains uncertain, and we expect lower orders from customers at the end of the year. However the market is expecting some positive signs of recovery in Q1 2012 related to restocking, stabilizing raw material prices and start of the construction season in Asia. In Russia, despite relatively strong demand, Q4 2011 is traditionally comparatively weak, so some decrease in consumption is anticipated. In US, we forecast demand to slow in Q4 2011 due to steel market seasonality, especially in the automotive and construction markets. On the positive side, Q3 2011 US GDP grew by 2.0%, while industrial production continues to increase and construction activity is showing signs of bottoming out.

SUBSEQUENT EVENT

In November 2011, the Group decided to separate the Gold segment by exchange of 100% shares of Nord Gold N.V., the segment's holding company, for OAO Severstal shares and GDRs based on the relative fair values. The separation is expected to be completed in January 2012. The transaction will be accounted as a deduction from equity equaling to the net assets of the separated segment at the date of the transaction.

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 Q3 and 9 months 2011 results for investors and analysts hosted by Alexei Kulichenko, Chief Financial Officer, will be held on December 8, 2011 at 14.00 (London) 18.00 (Moscow).

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

Participant dial in: 0871 700 0345 (UK National Call)

Conference ID: 29644430

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 00UK call dial in: 0845 245 5205Encore replay access number: 29644430#

Full financial statements are available at http://www.severstal.com/eng/ir/results_reports/financial_reports/ Click on, or paste the following link into your web browser, to view the associated PDF document.http://www.rns-pdf.londonstockexchange.com/rns/5884T_-2011-12-8.pdfhttp://www.rns-pdf.londonstockexchange.com/rns/5884T_1-2011-12-8.pdf

Nordgold, the gold segment within Severstal, will hold a separate conference call related to Nordgold's Q3 and 9 months results. The call for investors and analysts hosted by Nikolai Zelenski, Chief Executive Officer, and Sergey Zinkovich, Chief Financial Officer, will be held on 9 December 2011 at 9.00 (London) 13.00 (Moscow). The press-release and presentation will be published on Nordgold's website www.nordgold.com at 7.00 (London) 11.00 (Moscow).

Participant dial in: +7 495 705 9450 (Russia)

Participant dial in: +44 (0)20 7784 1036 (UK)

Conference ID: 4067104

Enquiries: 

Nordgold

Alexey Shchedrin

T: +31 20 406 4480

FTI Consulting, Financial Communications for Nordgold

Т: +44 20 7831 3113 Ben Brewerton / Chris Welsh

***

ОАО Severstal is one of the world's leading vertically integrated steel and steel related mining companies, with assets in Russia and the USA, in Ukraine, Latvia, Poland, Italy, Liberia and Brazil. Severstal's gold business, Nordgold was established in 2007 and comprises mines and exploration projects in Russia, Kazakhstan, Burkina Faso and Guinea. Severstal is listed on RTS and MICEX and the company's GDRs are traded on the LSE. Severstal reported revenue of $13,573 million and EBITDA of $3,263 million in 2010. Severstal's crude steel production in 2010 reached 14.7 million tonnes. www.severstal.com