3rd Dec 2007 07:00
OAO Severstal03 December 2007 3 December 2007 Severstal demonstrates strong year-on-year growth for 9M of 2007 Financial Results for the nine months ended 30 September, 2007 ($ million unless otherwise stated) --------- --------- --------- -------- -------- -------- 9M 2006 9M 2007 Change Q2 2007 Q3 2007 Change, q-o-q y-o-y --------- --------- --------- -------- -------- --------Revenue 9,123 11,283 23.7% 4,041 3,557 (12.0%)Profit fromoperations 1,408 2,029 44.1% 849 545 (35.8%)EBITDA1 2,149 2,986 38.9% 1,173 891 (24.0%)Net profit2 825 1,326 60.7% 604 326 (46.0%)EPS, $ 0.89 1.32 48.3% 0.60 0.32 (46.6%)DPS3, $ 0.21 0.61 190.5% 0.41 0.10 (75.6%) 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 3 Dividends announced on the basis of respective period results, translated atthe exchange rate as at the date of Board of directors' decision. OAO Severstal (LSE: SVST; RTS: CHMF), today reports results for the nine monthsto 30 September 2007 which show strong improvement compared with the same periodlast year. Third quarter production was impacted by one-off events, resulting inlower revenues and profit than in the second quarter. Financial Highlights for 9M ending 30 September 2007: • A record $11,283 million in revenues for the first nine months, up 23.7% year-on-year • EBITDA of $2,986 million, up 38.9% year-on-year • Net profit up 60.7% to $1,326 million • Operating margin up to 18.0% from 15.4% due to higher prices and cost control measures • EPS of $1.32, up 48.3% year-on-year • Q3 production impacted by planned blast furnace relining at SNA and disruption to production at Cherepovets and Vorkutaugol Alexei Mordashov, CEO of OAO Severstal, said, "I am pleased to announce stronggrowth for Severstal for the first nine months of the year with net profit andEPS up 60.7% and 48.3% year-on-year respectively. Third quarter production wasimpacted by one-off events, resulting in lower revenues and profit than in thesecond quarter. As a result of operational improvements, a robust and growing Russian economy,and relatively strong prices in other world markets, the Board remains confidentof meeting market expectations for the full year." Chief Executive's Review EBITDA growth for the first nine months of 2007 increased by 38.9% compared withthe same period last year. Prices continue to be strong in Q3 2007 in bothRussian and overseas markets. Russian Steel continued to lead our growth,showing a 46.7% increase in EBITDA year-on-year. Strong economic growth inRussia underpins high steel consumption rates and underlines the Russiandomestic premium to export prices. Severstal's mining business also performed strongly in the period compared withthe same period last year: EBITDA was up by 18.3%, and prices were up on averageby 16.4%, with a 2.4% growth in volumes. In our European business, Lucchini, EBITDA for the first nine months increasedby 42.3% when compared with the same period last year. Revenues were up by14.3%, resulting in an increase in EBITDA margin to 12.9% for the first ninemonths of the year compared with 10.4% for the same period last year. Izhorsky pipe mill, the producer of large diameter pipes, demonstratedsignificant growth. EBITDA margin increased from 31.3% in Q2 to 32.5% in Q3. In Q3, however, an industrial accident at our Vorkutaugol mine in late June andrailroad bottlenecks in Karelsky Okatysh caused a slowdown in mining productionrates in Q3 compared with Q2. As a result of the actions taken by the company toaddress these problems, we expect to see improvements at the Vorkutaugol mineand in the mining division as a whole in Q4. Market conditions in North America and the planned outage of blast furnace "C"for relining negatively affected SNA's results during the period with EBITDAdown 60.4% year-on-year. Management took a number of actions in the third quarter to improve production.SNA resumed operations at blast furnace "C" in October with capacity expected toexceed previous production capabilities by 30%, with operating costs over 20%lower. Cherepovets has increased production volumes in Q4. Vorkutaugol hasrestored production levels in line with planned rates. Financial Summary for 9M ending 30 September 2007 Severstal's consolidated revenues increased by 23.7% to $11,283 million in thefirst nine months of 2007 ($9,123 million in 9M 2006), attributable to threemain factors: higher average prices, volume growth and product mix improvements. Costs were $7,955 million in the first nine months of 2007 compared with $6,619million for the same period of 2006. The primary drivers behind this change werecost inflation in raw materials, energy and labour. Cost of revenues as apercentage of consolidated revenues decreased to 70.5% (72.6% in 9M 2006)reflecting the company's ability to pass cost increases on to end customers. Gross profit increased by 32.9% to $3,328 million in first nine months of 2007compared with $2,504 million for the same period of 2006. Profit from operations increased by 44.1% to $2,029 million in the first ninemonths of 2007. This increase was due to positive steel prices and cost controlmeasures. Group operating margin went up to 18.0% (15.4% in 9M 2006). Consolidated EBITDA increased by 38.9% to $2,986 million in the first ninemonths of 2007 ($2,149 million in 9M 2006). This growth is largely attributableto the strong performance of Russian Steel, which exploited growth opportunitiesin the Russian domestic market. Our Mining business and Lucchini alsocontributed to the overall growth during the period. Income tax charges were $527 million in the first nine months of 2007 as against$403 million for the same period of 2006. This change reflects an increase inpre-tax profit by 51.4%%, offset by one-off events. For the first nine months of 2007, Severstal reported consolidated net profitattributable to shareholders of $1,326 million compared with $825 million in 9M2006, an increase by 60.7% y-o-y. EPS was $1.32, 48.3% higher than for the comparable period of 2006. Cash surplus, calculated as the difference between debt and cash and cashequivalents plus short-term bank deposits, decreased for the first nine monthsof 2007 from $158 million as at 31 December 2006 to $149 million. Totalindebtedness increased from $3,006 million as at 31 December 2006 to $3,139million as at 30 September 2007. Cash, cash equivalents and short-term bankdeposits increased from $2,848 million as at 31 December 2006 to $3,288 millionas at 30 September 2006, mainly attributable to the results of operatingactivities. Acquisition of gold mining assets Severstal's strategy for the gold market is based on making relatively small,opportunistic investments to exploit the synergies and expertise in its existingcore mining business. Severstal aims to invest in gold mining businesses atattractive valuations and to supplement these with new license grants. During the quarter, Severstal acquired a 29.7% stake in Celtic ResourcesHoldings PLc. and plans to acquire a controlling stake in Celtic ResourcesHoldings Plc., which operates gold mines in Kazakhstan. Severstal also acquiredother small mining interests in Russia during the period. Dividend Severstal's Board of Directors, held on 22-23 November 2007, has recommended adividend of 2.5 rubles per share and per global depositary receipt ("GDR") forQ3 2007 with the record date of 14 November 2007. Each GDR represents one sharein the Company. This recommendation is based on strong financial results in thefirst nine months of 2007. Approval of the dividend is expected at the EGM which will take place on 20December 2007. Outlook As a result of the operational improvements, described above, a robust andgrowing Russian economy, and relatively strong prices in other world markets,the Board remains confident of meeting market expectations for the full year. For further information: SeverstalDmitry 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 5 pmMoscow Time on Monday 3 December 2007. Dial-in details are: Time: 5pm (Moscow Time) , 2pm (London Time), 9am (East Coast Time) Russia dial-in: 8108 0020 972 044UK dial-in: 0800 6940 257US dial-in: 1866 966 9439International dial-in for other countries: +44 (0) 1452 555 566Participant code: 26498799 Further information on Severstal can be found on its website atwww.severstal.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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