SVST.L Regulatory News (SVST)

Severstal reports Q4 and FY 2011 financial results

Moscow, Russia - April 19, 2012 - OAO Severstal (LSE: SVST), one of the world's leading vertically integrated steel and mining companies, today announces its Q4 and FY2011 financial results.

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER AND YEAR ENDED 31 DECEMBER 2011

Notes:

1) These amounts reflect adjustments made in connection with the presentation of discontinued operations, with the completion of 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.

FY 2011 vs. FY 2010 ANALYSIS:

§ Strong growth in earnings and revenue due to overall steel market growth and significant rebound in prices both for steel and major raw materials;

§ Following the decision to separate Nordgold from Severstal, Nordgold's results are shown as discontinued operations in Severstal's Q3, Q4 and FY2011, as well as FY2010 financial results. Hence, in 2011 Severstal's EBITDA excluding Nordgold went up by 25.1% to $3,584 million, compared to $2,864 million in 2010 excluding Nordgold. EBITDA margin slightly improved to 22.7%, compared to the previous year(FY 2010: 22.3%);

§ Revenue up by 23.3% to $15,812 million (FY 2010: $12,819 million);

§ Turnaround at the bottom line: FY 2011 net profit of $2,035 million (FY 2010: net loss of $575 million).

Q4 2011 vs. Q3 2011 ANALYSIS:

§ Decline in quarterly revenues and earnings due to lower sales prices and volumes;

§ EBITDA (ex. Nordgold) down 24.7% to $767 million (Q3 2011: $1,018 million) and EBITDA margin slightly decreased to 20.6% (Q3 2011: 22.5%). The Q4 2011 EBITDA includes $52 million one-off provisions related to accounts receivables and derivative liability. Net of the one-off, EBITDA would be approximately $819 million;

§ Revenue down 17.5% to $3,727 million (Q3 2011: $4,519 million) reflecting the weak market environment;

§ Increase in net profit by 7.9% to $463 million (Q3 2011: $429 million);

§ Recommended dividend payment of 3.56 rubles per share (approximately $0.12) for the 12 months ended 31 December 2011. This represents approximately 25% of the Q4 2011 net profit. The dividend is to be approved at the AGM on 28 June 2012. If approved, the dividend amount for all the quarters of 2011 will total 15.19 rubles, which is more than two times higher than the respective figure for the whole 2010.

FINANCIAL POSITION HIGHLIGHTS:

§ Robust liquidity position of $1,864 million in cash and cash equivalents, fully covering short-term debt of $1,087 million;

§ Committed unused long-term credit lines of $393 million;

§ Net Debt/EBITDA remains at 1.1x at end of Q4 2011, better than the target level of 1.5x.

Christopher Clark, Chairman of Severstal, commented:

"2011 was a year of significant improvement of the Company results. Our strong performance and confidence in our strategy allows the Board to recommend a dividend of 3.56 rubles per share (approximately $0.12).

I would like to take this opportunity to thank all of our colleagues for their hard work and commitment during the year."

Alexey Mordashov, CEO of Severstal, commented:

"In Q4 2011 we maintained our EBITDA margin at more than 20% despite weaker steel demand and uncertainty in the global markets which impacted prices for steel, coking coal and iron ore. Our performance for the full year was strong with increased group revenue, profit and EBITDA margin slightly improved on last year at 22.7% - one of the highest in the industry.

During the year we focused our portfolio by selling three underperforming assets in the US and deciding to separate our gold business to become a pure steel and steel related mining company. We also continued our strong CAPEX track-record by investing $1,777 million during the year further improving the quality of our operations. 

There are potential headwinds for the global economy and steel industry in 2012 arising from uncertainty on the European and Chinese markets. However we believe that our high-class asset portfolio and focused strategy mean we are well positioned to face them and continue to perform well."

CHIEF EXECUTIVE'S REVIEW OF THE TWELVE MONTHS ENDED 31 DECEMBER 2011

Severstal generated a solid financial and operating performance in 2011, driven by a stronger steel and bulk market, an improved asset portfolio, full vertical integration and enhanced exposure to premium class product niches.

We saw good growth in steel demand across our key regions in 2011 - Russia (around 13.8% y/y) and the United States (around 11.5% y/y). Rising iron ore and coking coal prices also supported our performance.

Each of our three divisions evidenced EBITDA growth in FY11 with Russian Steel and Steel Resources providing similar contribution to the overall earnings improvement. Severstal North America delivered the highest growth by more than doubling EBITDA on a y/y basis and improving EBITDA margin and EBITDA/t ratios. The worsening global economic environment exacerbated a retreat in prices and demand into year end, which negatively impacted Q4 results.

The Group's cash capital expenditure in Q4 2011 was $508 million, up 3% from the previous quarter, resulting in an annual cash CAPEX of $1,716 million, which was in line with full year guidance, provided in the beginning of the year. During FY11 we completed our large investment program in the US by doubling steelmaking and finishing capacities at Columbus and launching the new cold-rolling complex (PLTCM) in Dearborn. In Russia we continued to work on our Balakovo mini-mill which we are on-track to launch in early 2013. In Cherepovets we launched the second color-coated line in Q4 2011, doubling our color-coated capacities to 400 ktpa and further strengthening our positions in the high valued-added product area.

RUSSIAN STEEL

Severstal Russian Steel's Q4 revenue was down 21.7% q/q to $2,341 million on lower sales volumes (15.8% down q/q) and prices. Decrease in volumes was expected and driven by lower demand in Q4, exceptionally strong demand in Q3, sale of inventories in Q3 and some inventory build-up by the division's traders in Q4 on anticipation of higher prices in Q1 2012. These accumulated stocks were sold in Jan-Feb'12 at higher prices. Share of high-value-added products was 46% in Q4, up from 44% in Q3. The share of sales on the domestic market went up to 59% in 2011, from 54% in 2010.

Lower revenue affected Q4 EBITDA to contract by 20.8% to $395 million (Q3 2011: $499 million). However lower input prices and the higher share of value-added products pushed Q4 EBITDA margin up by 0.2 ppts to 16.9% (Q3 2011: 16.7%) and which is higher than the 16.3% EBITDA margin of Q4 2010.

Despite a decrease in Q4, Russian Steel's FY11 performance was stronger year on year with revenue rising by 19.6% to $10,547 million (FY 2010: $8,815 million) and EBITDA up by 6.6% to $1,784 million (FY 2010: $1,674 million). This growth was a result of both increased sales volumes (+1.7% y/y) and price. We also managed to improve our product mix by decreasing sales of semi-finished products (-8% y/y) and increasing sales of rolled (+2% y/y) and downstream (+9% y/y) products. The launch of the third galvanizing line at Cherepovets in Dec'10 helped increase sales of galvanized products by 43% y/y, and we expect further improvements in the portfolio after commissioning the second color-coated line at Cherepovets in Dec'11 which doubled our color-coated capacities to 400 ktpa.

STEEL RESOURCES

Q4 2011 saw lower revenues and earnings at Steel Resources as a result of weaker pricing across the portfolio and lower volumes at our iron ore units and PBS, although Vorkuta raised its sales volumes by 7% q/q. This translated into the division's EBITDA reducing to $344 million (Q3 2011: $460 million). As for the full year 2011 results, Steel Resources' EBITDA was up 39.0% to $1,604 million (FY10: $1,154 million) with EBITDA margin of 43.2% (FY10: 42.2%).

Almost all Steel Resources units were able to increase their output and sales in FY11, with PBS seeing the highest growth of coking coal sales of 30% y/y to 2.5 million tons. The only exception to this trend was Vorkuta where coking coal sales dropped by 4% y/y to 5.1 million tons due to the planned decommissioning of a longwall at the Severnaya mine in mid-FY11. The new longwall is expected to be launched during FY12, thus returning Vorkuta's coking coal volumes to approximately FY10 level.

On the cost side all units saw increases on an annual basis, in line with industry-wide cost inflation trends.

Vorkuta managed to lower its unit cash costs in Q4 to $72/t from $127/t in Q3. This expected decrease was due to the commissioning of a huge longwall at the Vorgashorskaya mine in Q4 and boost in semi-soft concentrate output.

The division's Q4 2011 EBITDA was impacted by the $52 million one-off provisions related to accounts receivables and derivative liability.

SEVERSTAL NORTH AMERICA

2011 was a turning point for our North American division which saw its EBITDA per tonne ratio double from $24 to $48. In March 2011, we completed the sale of three of our five metallurgical facilities in the USA which not only improved our balance sheet, but also allowed us to focus on operational management of the remaining two most efficient plants in North America, and to accelerate and complete our major investment programme at these plants. During 2011, the capacity of Columbus plant increased two-fold, from 1.55 to 3.1 million tonnes/year, and our Dearborn complex was enriched with a new Pickle Line Tandem Cold Mill and Hot Dip Galvanizing Line, some of the most advanced equipment of this type in the USA.

Steel demand in the US was lower in Q4, which impacted all the key consumer industries. Overall flat rolled steel demand growth in the NAFTA region was solid at 7% in 2011, benefiting from the recovering auto, agricultural, machinery and container industries, as well as the booming oil & gas sector, with construction still remaining depressed.

In Q4 Severstal North America sales volumes were down 5% q/q due to lower steel demand. As for the product mix HRC products decreased by 11%, while CRC and galvanized products were up 8% and 2% respectively. Annual volumes were up 6% with the major increase coming from HRC sales, which in turn were driven by the Columbus expansion where we launched the second EAF in Jun'11.

Weaker demand in the US resulted in softening of steel prices in Q4, leading to a quarterly decrease in SNA EBITDA to $18 million (Q3 2011: $42 million) and EBITDA margin squeeze to 2.0%, compared to 4.4% in Q3. Nevertheless FY11 EBITDA margin at SNA increased to 5.3% as compared to 3.1% in FY10, while FY11 EBITDA/t doubled to $48/t (FY10: $24/t).

DIVIDEND

The Board is recommending a dividend payment of 3.56 rubles per share (approximately $0.12) for the 12 months ended 31 December 2011. This represents approximately 25% of the Q4 2011 net profit.

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 expect steel demand to slightly exceed GDP growth as the share of investments in GDP is set to grow. Increasing car market volume and local production will support steel consumption by the automotive industry.

In the US demand remains steady with the strong automotive sector continuing to perform well and construction starting to show modest signs of recovery. We anticipate import pressure to continue while import price arbitrage exists. HRC demand is stable driven by oil & gas tubes and pipes, machinery and agriculture, while the HDG market is gaining strength on recovering activity in the construction sector.

Despite sustained macroeconomic uncertainty, Q1 2012 has seen some recovery in steel demand and pricing. We expect global steel prices to remain firm until the summer period, when some price correction may occur due to steel production ramp-up and real demand deceleration. We anticipate price upturn to return after the summer due to demand revival. China's economic growth could decelerate due to slowdown in its residential property market, although additional monetary easing has potential to improve the economic situation in the country. Uncertainty over European sovereign debt and the Eurozones' banking system remain major risks.

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 Q4 and 12 months 2011 results for investors and analysts hosted by Alexey Mordashov, Chief Executive Officer and Alexey Kulichenko, Chief Financial Officer, will be held on April 19, 2012 at 14.00 (London) 17.00 (Moscow).

Participant dial in: +44 (0)1452 580 733 (International)

Participant dial in: 0871 700 0331 (UK National Call)

Conference ID: 71279435

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: 0800 953 1533Encore replay access number: 71279435#

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/6337B_-2012-4-18.pdf

http://www.rns-pdf.londonstockexchange.com/rns/6337B_1-2012-4-18.pdf

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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