JSC Severstal announces its audited results for the year ended 31 December 2006

Severstal’s consolidated revenues increased by 19.1% to $12,423 million in 2006 from $10,432 million in 2005, attributable to a stable price environment in all geographies and product mix improvements, as well as the effect of consolidation of Lucchini, which was included only for eight months for 2005.

Consolidated cost of sales, amounted to $8,943 million in 2006, compared with
$6,833 million in 2005. Cost of revenues as a percentage of consolidated revenues increased to 72.0% (2006), from 65.5% in 2005. The primary drivers behind this change were higher growing energy and labour costs, as well as increase in depreciation after the revaluation of PP&E (property, plant & equipment) primarily in Russian Steel segment. PP&E is periodically revalued to be stated at fair market value. Gross profit was down 3.3% y-o-y at
$3,479 million from $3,599 million in 2005.

Revenues from non-Russian sales amounted to $7,519 million or 60.5% of total sales compared with $6,687 million, or 64.1% the previous year. The increased share of Russian revenues was attributable to strong price dynamics in the Russian market and structural changes in sales within the Russian Steel segment in favour of the domestic market.

Profit from operations decreased by 15.8% to $1,954 million in 2006 from $2,320 million in 2005. This decrease was largely due to pricing for raw materials and steel in 1H 2006 in the domestic Russian market. In Q3 2006 Russian spot steel prices, as well as prices for iron ore, pellets and coal concentrate recovered from the year’s low in Q2, and continued to be steady through the year. On the other side, operating profit was under cost pressure from higher energy and labour costs. The negative influence of cost inflation was partially offset by management gains in consumption efficiency and technological optimization. Group operating margin went down to 15.7% in 2006 from 22.2% in 2005.

Consolidated EBITDA increased to $2,987 million (up 4.7%) in 2006 from $2,853 million in 2005. Increase in EBITDA reflects the fact, that financial result of Lucchini in 2005 was consolidated for 8 months (it was consolidated by Severstal from end of April 2005). On a comparable basis, EBITDA in 2006 declined 2.2% against pro-forma EBITDA of
$3,054 million in 2005. EBITDA margin of 24.0% in 2006 was lower than in 2005, when it was 27.3%.

In 2006, the income tax charge amounted to $543 million, which gives an effective tax rate of 31.0%, up from 23.6% in 2005.

In 2006, Severstal reported consolidated net profit attributable to shareholders of
$1,181 million vs. $1,696 million in 2005. The lower net profit was affected by an increase in depreciation and one-off items, such as gain on reversal of impairment of property, plant and equipment in 2005, and gain on restructuring of tax liabilities in 2005.

2006 EPS amounted to US$1.27, or $0.59 lower than in 2005.

Net debt, calculated as the difference between cash and cash equivalents plus short-term bank deposits and financial debt decreased from $922 million to $154 million. Increase in total indebtedness from $2,924 million to $3,002 million was counterweighted by increase in cash, cash equivalents and short-term bank deposits from $2,002 million to $2,848 million. This increase is mainly attributable to proceeds from the share issue in November.