SVST.L Regulatory News (SVST)

Severstal reports Q4 2010 and FY2010 financial results

Moscow, Russia - March 3, 2010 - OAO Severstal (LSE: SVST), one of the world's leading integrated steel and mining companies, today announces its financial results for the fourth quarter and the full year of 2010.

CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010 AND Q4 2010

Notes:

1) Loss attributable to shareholders of OAO Severstal. The net loss for Q4 2010 includes the loss from the discontinued operation of the Lucchini and North America disposal groups. The Lucchini segment was classified as held for sale as at 31 March 2010. As of December 31, 2010 Severstal Sparrows Point LLC, Severstal Warren LLC, Severstal Wheeling Inc and Mountain State Carbon LLC, which are an operating entities within the North America reporting segment, were classified as held for sale following the management's decision to sell these entities within 12 months after the reporting date. For further detail, please refer to the Severstal consolidated financial statements for FY 2010 at www.severstal.com.

2) 2009 figures do not include Lucchini and North America disposal groups.

3) 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.

4) Dividends announced on the basis of respective period results, translated at the exchange rate as of the date of recommendation by Board of Directors.

FY 2010 HIGHLIGHTS:

§ Revenue up 41.5% to $13,573 million (FY 2009: $9,594 million);

§ Substantially improved EBITDA and EBITDA margin following the decision to focus Severstal International on Dearborn and Columbus while classifying the underperforming assets as assets held for sale;

§ Group EBITDA up 105.3% to $3,263 million (FY 2009: $1,589 million);

§ Group EBITDA margin increased to 24.0% (FY 2009: 16.6%);

§ Profit from continuing operations of $1,427 million;

§ Loss attributable to shareholders of $577 million due to discontinued operations;

Q4 2010 HIGHLIGHTS:

§ Solid financial performance reflecting benefits of vertical integration and global economic recovery;

§ Good revenue and EBITDA growth at Russian Steel and Severstal Resources: Nordgold EBITDA up 27.4% to $121 million;

§ Decision to sell certain underperforming US assets and to focus Severstal International on Dearborn and Columbus;

§ The Board is recommending a dividend of 2.42 rubles per share;

§ Group revenue up 7.5% to $3,726 million and EBITDA up 6.4% to $899 million;

§ Group EBITDA margin of 24.1%;

§ Profit from continuing operations of $261 million;

§ Loss attributable to shareholders of $352 million due to discontinued operations;

OUTLOOK:

§ Improving market conditions with increasing production and sales volumes;

§ Benefits of vertical integration and expanding presence in markets with higher growth characteristics;

§ Steel prices remain strong due to raw material price growth and restocking;

§ Russia and CIS steel demand estimated to increase by 8% in 2011.

FINANCIAL POSITION HIGHLIGHTS:

§ Operating cash flow remains high with $1,128 million generated in H2 2010;

§ Net Debt/EBITDA reached of 1.3x at the end of 2010, below target of 1.5x;

§ Full year 2011 maturities total $1,331 million and are well diversified both by source of debt and currency;

§ Good access to domestic and international debt capital markets including issuing a $3 billion Eurobond programme in October 2010.

Alexey Mordashov, CEO of Severstal, commented: "The world economic recovery last year brought more visibility and optimism to our business and from the second quarter of 2010 we performed in line with our expectations. During the year we were cash generative and further strengthened our financing structure. Our strength as an integrated steel and mining group means Severstal is well placed to benefit from these trends. We continue to focus our investment activities on areas where we see the greatest potential for growth and as a result we are further investing in steel-related mining and gold projects, as well as in the expansion of our Russian steel operations. In North America we are focusing our investment on completion of modernization projects at competitive assets. Accelerating economic growth in our key markets in 2011 should produce another strong year for Severstal as demand for steel improves and raw material prices rise."

CHIEF EXECUTIVE'S REVIEW OF THE FULL YEAR ENDED 31 DECEMBER 2010

Our full year 2010 consolidated sales increased by 41.5% to $13,573 million from $9,594 million in 2009. The increase was primarily due to a $2,636 million increase in sales of the Russian Steel segment, a $1,613 million increase in sales of Severstal Resource, and a $600 million increase in sales of the North America segment.

Notable drivers of our revenue growth in 2010 were sales of steel products to the Russian market, sales of mining products to our steelmaking assets and to third parties and the rapid expansion of our gold business.

Our mining division continues to increase its contribution to our profits. In 2010, EBITDA contribution from Severstal Resources and Severstal Russian Steel were almost equal: $1,677 million from Severstal Russian Steel versus $1,551 million from Severstal Resources. While in Q4 2010, Severstal Resources' EBITDA exceeded that of Severstal Russian Steel by $104 million.

Our wholly-owned indirect subsidiary Nordgold which runs our gold operations has rapidly grown into an established pure-play gold producer focused on emerging markets with strong fundamentals and is a growing contributor to Severstal's financial results.

Our cash capital expenditures in 2010 totaled $1,251 million2 and were in line with our target for the year, as we continued to invest selectively across our operations in order to expand mining and steel production volumes, increase output of high added value steel products, improve our operational efficiency and reduce costs.

We will continue to focus capital expenditure in 2011 on on-going projects, to improve operating efficiency, and ensure that the Company maintains industry leading standards of health and safety. Our target investment programme for 2011 is above $2 billion, which is approximately two times the level of 2009. A significant proportion of this will be invested in Severstal Russian Steel, with the remaining in Severstal Resources and Severstal International (North America).

We continually review our asset portfolio and strategic development priorities to ensure that we generate the highest returns for shareholders from the allocation of capital to development opportunities open to us as an international steel and mining company. We are focused on consolidated steel and mining markets with high growth potential and where we can operate our integrated model at a competitive position on the regional cost curve. We will also continue to focus investment in gold.

SEVERSTAL RUSSIAN STEEL

Highlights:

§ Q4 2010: Domestic sales increased by 5.8% with prices slightly weaker due to seasonal factors. Revenue increased by 9.2% to $2,473 million (Q3 2010: $2,264 million) and EBITDA increased by 19.8% to $406 million QoQ with EBITDA margin of 16.4%;

§ FY 2010: Revenue up 42.7% to $8,815 million (FY 2009: $6,179 million) and EBITDA up 27.1% to $1,677 million (FY 2009: $1,319 million).

The Division's strong performance throughout 2010 reflects stronger steel demand, mainly from the domestic market. We increased crude steel output by 16% in 2010 and raised sales by the same amount to 7.7 million tonnes of rolled products. The highest growth rates were shown by semi-finished products (+67% YoY in tonne sales), cold-rolled sheet (+22% YoY in tonne sales), large diameter pipes (+21% YoY in tonne sales), and hot-rolled strip and plate (+16% YoY in tonne sales).

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The domestic Russian market accounted for 61% of total revenue of Severstal Russian Steel in 2010. We aim to increase that percentage in the current year as Russian steel consumption remains below pre-slump levels. We estimate demand for steel will rise by 8% in 2011 driven by key customers in the construction, automotive and oil and gas industries.

Export sales by Russian Steel increased by 25% over 2009. Europe remained our key market, accounting for 17.7% of full year sales, followed by the Middle East, China, Central & South-East Asia, and Africa which together contributed 15.1%. Our diversified product mix means we are able to adjust our production and sales to cater for regional and industry trends and produce higher sales and margins.

As indicated above, 2010 revenue was driven by both volume and price factors. Weighted average selling prices of the Russian Steel segment increased across the whole product range with the most notable changes in semi-finished (+36% YoY), long products (+35% YoY), cold-rolled sheet (+30% YoY) and hot-rolled strip and plate (+28% YoY). Favourable markets allowed us to post full year 2010 revenue of $8,815 million (FY 2009: $6,179 million). EBITDA totalled $1,677 million (FY 2009: $1,319 million). Full year 2010 EBITDA margin declined to 19.0% from 21.3% in 2009 due to appreciating raw materials acquired mostly from our own mining assets at market prices.

The Division's performance in Q4 2010 was slightly above our expectations. Domestic sales increased by 5.8% compared to Q3 2010 with prices slightly weaker due to seasonal factors. In Q4 2010, revenue increased by 9.2% to $2,473 million (Q3 2010: $2,264 million) due to increased sales of downstream products, mainly large diameter pipes (+32% QoQ in tonne sales), on the domestic market and semi-finished products on export (+100% QoQ in tonne sales). EBITDA increased by 19.8% to $406 million (Q3 2010: $339 million). EBITDA margin increased to 16.4% from 15.0% in Q3 2010. In Q1 2011 our focus is to increase production and sales volumes and further develop our Continuous Improvement and Customer Care programmes.

In line with our plans, we completed several major projects during the year. These included the construction and launch of the Sheksna Pipe Plant close to our main Russian steelmaking facilities in Cherepovets. The plant is capable of producing 250,000 tonnes of electric welded pipes and other products for the construction industry per year. In July, the Gestamp-Severstal-Kaluga Stamping Facility was commissioned in the Kaluga Region, one of the biggest Russian centres of high-quality automotive steel demand. It produces body components for the Volkswagen plant located in the same area. Target annual output is 13 million stamped parts. In December 2010, a hot dip galvanizing line with the annual capacity of 400,000 tonnes was commissioned at the Cherepovets Steel Mill after reconstruction. Severstal continues the construction of the Balakovo mini-mill in the Saratov region (central Russia), with an expected capacity of one million tonnes per year upon completion in 2013. The Balakovo mini-mill is expected to produce long products for the construction and infrastructure industries.

The aim of this organic investment is to increase Severstal's growth potential in attractive higher-growth market sectors.

SEVERSTAL RESOURCES

Highlights:

§ Q4 2010: Continued momentum in the Division. Revenue up 21% to $1,106 million (Q3 2010: $914 million) and EBITDA increased by 15.4% to $510 million (Q3 2010: $442 million) with EBITDA margin of 46.1%. The gold business strongly increased its contribution;

§ FY 2010: Revenue up 86.2% to $3,484 million (FY 2009: $1,871 million) and EBITDA up 294.7% to $1,551 million (FY 2009: $393 million).

Severstal Resources increased production and sales across all key products both in Russia and the USA where the Division runs the PBS Coals company. Year-on-year combined sales in tonnes of coking coal concentrate, iron ore pellets, and gold increased by 43%, 12% and 16%, respectively. The weighted average selling prices for the main products of Severstal Resources progressed with the following pace: iron ore (+173% YoY), coking coal concentrate (+61% YoY), and gold (+25% YoY). As a result revenue was driven by both volume and prices.

In financial terms 2010 was one of the strongest years ever for our mining division. Revenue increased to US$3,484 million (up 86.2% YoY), EBITDA totalled US$1,551 million (up 294.7% YoY). Full year EBITDA margin was 44.5% with Q3 and Q4 2010 reaching as high as 48.4% and 46.1%, respectively. This reflects a combination of favourable market conditions, the flexibility of our production and sales team, and the effect of last year's initiatives to increase the efficiency of our operations.

Nordgold has rapidly grown through acquisitions and organic growth over the last three years into an established gold producer with assets in emerging markets. In 2010, it contributed a total of $372 million to the Resources Division's EBITDA, or 24%, and full year EBITDA margin was 49.3%. Having announced on 11th February 2011 that we have postponed Nordgold's initial public offering, we will continue to develop the business. We are confident that given its strong fundamentals Nordgold will meet our predicted growth targets.

Our mining activities will continue to provide a strong source of growth and we intend to expand iron ore and coal production as well as other mining operations. In 2010, we laid a solid foundation for future growth with new mining greenfield projects in Russia and Africa. In 2010, Severstal won a license for a large coking coal deposit in Russia and made progress obtaining permits for its Putu Range iron ore greenfield project in Liberia, Western Africa. In February 2011, an independent mineral resource report estimated a doubling in resources in Putu's iron ore deposits to 2.4 billion tonnes. We are now working on afeasibility study at this asset, and intend to build a sizeable iron ore complex.

In 2011 the total amount of capital investment at Severstal Resources will be approximately $632 million and will include a project to modernize production equipment across the division's iron ore mills and coalmines, the completion of a thermoelectric power station burning coalmine methane in Vorkuta, an exploration of the Putu iron ore deposit in Liberia, the continued development of the division's gold mining assets and a coalmine at PBS Coals.

SEVERSTAL INTERNATIONAL

Highlights:

§ Decision to sell certain underperforming US assets;

§ Lucchini to be deconsolidated starting from Q1 2011;

§ Q4 2010: Still challenging market environment with revenue for continuing operations (Dearborn and Columbus) declining by 12.0% to $608 million (Q3 2010: $691 million) with EBITDA of $2 million (Q3 2010 EBITDA of $34 million). Assets operate close to full capacity and steel prices started picking up as of the end of Q4 2010;

§ FY 2010: Revenue from continuing operations (Dearborn and Columbus) up 26.0% to $2,912 million (FY 2009: $2,312 million) and EBITDA of $86 million, compared to FY 2009 negative of $114 million.

In North America, our priority continues to be to ensure that our assets provide a more flexible and efficient cost base. In that respect we have taken a decision to focus on the development of our core North American assets - Columbus and Dearborn, which together represent a solid mid-sized US steelmaker with good geographical and customer diversification, state-of-the-art assets and partial integration into coking coal through PBS Coals, also part of Severstal. After working hard to improve efficiency at our other North American assets: the Warren, Wheeling and Sparrows Point facilities, we have concluded that these assets do not fit our development strategy.

As a result of the re-focussing of our North American business, on March 2, 2011 Severstal entered into a definitive agreement to sell the subsidiary of Severstal North America ("SNA") which owns facilities at Warren, OH, Wheeling, WV, and Sparrows Point, MD to The Renco Group, Inc. As transaction consideration, Severstal will receive $125 million in cash, a $100 million secured note, and the repayment of $317 million of third-party debt at closing. Renco will also assume various Severstal financial liabilities including employee-related and environmental liabilities totaling $650 million. The transaction is expected to complete in March 2011, subject to customary completion conditions, including expiration or early termination of the Hart-Scott-Rodino waiting period.

We remain committed to operating in North America, which we view as a significant and attractive long term growth market. Though still challenging, the US steel market gradually recovered in 2010. Our full year 2010 crude steel output in US increased by 18%, compared to 2009, enabling Severstal North America to sell around 3.7 million tonnes of rolled products, up 15% on 2009 figures.

In 2010, full year revenue of Columbus and Dearborn increased by 26% to $2,912 million (FY 2009: $2,312 million) driven by volumes and prices, Severstal North America generated positive EBITDA of $86 million versus negative EBITDA of $114 million in 2009 on the back of Columbus and Dearborn.

We expect the cost position of Columbus and Dearborn to further improve as a result of an improving steel market environment and further investment in their operational efficiency. In 2011 the total amount of capital investment at Severstal North America will be approximately $465 million. We will commission a new cold rolling complex and hot dip galvanizing line at Dearborn which will substantially improve processing costs and enable us to produce new value-added products. We will also complete Phase II at Columbus which will add a further 1.5 million tonnes of mini-mill capacity a year to our North American operations. Under Phase II we will be launching a 2nd hot dip galvanizing line at Columbus to further increase our share of high value-added products. Ongoing strength in the US automotive market should boost demand for the product portfolio of Columbus and Dearborn.

The Warren, Wheeling and Sparrows Point facilities have been classified as held for sale as at 31 December 2010. The sale of these assets will better position Severstal to focus on the development of the Dearborn and Columbus facilities, which are some of the most modern and efficient in North America. For the purposes of financial reporting for Q4 and FY2010, Q3 2010 and FY2009 financial results have been restated accordingly to reflect the effect of discontinued operations in respect to the North America disposal group.

In Europe, Severstal has a 49.2% stake in Lucchini. In February 2011, Severstal signed an amendment to Lucchini's share purchase agreement canceling the buy-back call option which allows Severstal to deconsolidate Lucchini starting from Q1 2011 financial reporting.

DIVIDEND

The Board is recommending a dividend of 2.42 rubles (approximately $0.08) per share for the twelve months to 31 December 2010. This represents approximately 25% of Q4 2010 net profit of continued operations.

The Board is seeing improving Company performance, growing profit from continuing activities, and hence recommends maintaining the dividend payment restored in Q3 2010.

Approval of the dividend is expected at the Company's AGM which will take place on 27 June 2011. The record date is 22 May 2011.

OUTLOOK

In 2010, Severstal capitalized on improving market conditions by increasing production and sales volumes, maintaining high margins, using the benefits of vertical integration, and further expanding its presence in markets with higher growth potential.

In our view, in the first half of 2011 the steel market is likely to remain strong as a result of high raw material pricing and steel products restocking. This improvement in steel margins is likely to stimulate increased steel output globally. As a result, in the second half of the year we expect steel and raw material prices to moderate, while production volumes remain high as average capacity utilization stays below 80% against a background of solid demand growth. We expect gold prices to remain firm as political instability continues in some regions.

In Russia and CIS steel demand is estimated to increase by approximately 8% year-on-year in 2011, supported by infrastructure investment, investments in pipelines and a revival of residential construction. Raw materials price inflation will benefit vertically-integrated steelmakers.

In the US, we expect that following the sharp steel prices increase since the end 2010, the market will remain tight but continue its growth on the back of restocking, improvement of end customer demand and growth of key raw material prices. The automotive industry will continue to be the best steel consuming segment.

Accelerating economic growth in our key markets in 2011 should produce another strong year for Severstal as demand for steel improves and raw material prices rise.

For further information, please contact:

Severstal

Vladimir Zaluzhsky

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

M: +7 (925) 006-51-80

vladimir.zaluzhsky@severstal.com

Severstal's financial communications agent - Hudson Sandler

Andrew Hayes / Andrew Leach / Maria Ignatova

T: +44 (0) 20 7796 4133

A conference call for investors and analysts will be held from London on Thursday, 3rd March 2011at 14:30 London time, which is 17:30 Moscow time.

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

Participant dial in: 0871 700 0345 (UK only)

Conference ID: 46825355

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 free call dial in:0800 953 1533Encore replay access number: 46825355#

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 integrated steel and mining companies. The company's shares are traded on the Russian Trading System (CHMF), MICEX (CHMF) and LSE (SVST). With assets in Russia, Ukraine, Kazakhstan, Italy, the USA and Africa, Severstal reported revenue of $13,573 million and EBITDA of $3,263 million in 2010*. The Company's crude steel output reached 14.7 million tones* in 2010, which makes Severstal one of the largest steelmakers globally by production. Severstal's mining assets in Russia and the USA mean that the Company has almost full self-sufficiency in coking coal and iron ore in Russia, and good self-sufficiency in coking coal in the USA. Severstal's gold business, part of its Resources Division, is one of the largest gold producers in Russia.

* Excluding Lucchini and North America disposal groups.

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