Financial Results for the 12 months ended 31 December, 2007

Financial Results for the 12 months ended 31 December, 2007

($ mln unless otherwise stated)

 

Notes:
1 EBITDA represents profit from operations plus depreciation and amortisation adjusted for 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 at the exchange rate as of the date of declaration by Board of Directors

OAO Severstal (LSE: SVST; RTS: CHMF), today reports full year results for the year ended 31 December, 2007 which show good growth compared with the previous year. Severstal ended the year with strong earnings momentum.

A record $15,245 mln in revenues for 2007, up 22.5% year-on-year

EBITDA of $3,680 mln, up 24.5% year-on-year

Net profit up 33.1% to $1,936 mln

EBITDA margin increased to 24.1% in 2007 from 23.8% a year earlier

EPS of $1.92, up 22.3% year-on-year

Final dividend of $0.17  making a total of $0.77 for the full year, an increase of  97.4% from the previous year

Chris Clark, Non–Executive Chairman of OAO Severstal, commented: “These positive results show that we are continuing to grow our business well, particularly in Russia. Severstal’s vertically-integrated business model is well placed to prosper in today’s volatile markets”.

Alexei Mordashov, CEO of OAO Severstal, said, “I am pleased to announce good growth for Severstal in 2007 with net profit up 33.1% and EPS up 22.3% year-on-year. With the exception of North American operations, all our businesses posted considerable gains during the year. Based on the strong earnings and cash flows we are increasing the dividend payout to 40.1 % of net profit, remaining in line with our dividend policy of paying 25% of consolidated net profit.

“We expect 2008 to be another year of progress for Severstal”.

EBITDA for 2007 increased by 24.5% compared with the same period last year. The increase is due to positive price trends, healthy demand in Russia and stability in European steel markets. We have also been able to pass cost inflation on to our customers.

Russian Steel continued to lead our growth, showing a 26.8% increase in EBITDA year-over-year to $2,530 mln. EBITDA margin in Russian Steel remained approximately at the same level, 31.7% in 2007 compared to 31.6% in 2006.

EBITDA in our Mining business was up 13.3% in 2007 to $501 million, and prices were higher compared to 2006. Production of coal declined by 2% due to geological problems and an accident in Vorkuta.  Iron ore production was up by 6%.

SNA’s results for the year were impacted by weaker market conditions in North America and a planned outage related to the rebuild of blast furnace “C”. As a result, EBITDA declined to $21 mln.

Lucchini, our European business, reported EBITDA of $416 mln, up 23.8% on the previous year due to higher prices and a favourable dollar-euro exchange rate. Revenues were up by 11.9%. EBITDA margin increased by 11.1% in 2007 compared to 10.0% in 2006.

In Metalware, our new strategy of moving into high value-added products resulted in 2007 EBITDA of $87 mln, a 77.6% increase over 2006.

Izhora Pipe Mill, our large-diameter pipe manufacturer, demonstrated significant growth both in sales volumes - 301 thousand tn in 2007 compared to 12 thousand tons in 2006 - and financial results - EBITDA of $151 mln on revenues of $551 mln. EBITDA margin for this business in 2007 was 27.4%.

Severstal’s consolidated revenues increased by 22.5% to $15,245 mln in 2007 compared with $12,449 mln in 2006. The growth is attributable to three main factors: higher sales prices, volume growth and product mix improvements.

Costs were $10,542 mln in 2007 compared to $8,601 mln for the previous year. The primary drivers of this change were cost inflation in raw materials, energy and labour. Cost of sales as a percentage of consolidated revenues stayed relatively flat at 69.2%, compared with 69.1% in 2006, reflecting our ability to contain cost growth.

Gross profit increased by 22.2% to $4,703 mln in 2007, compared with $3,848 mln in 2006.

Profit from operations increased by 22.8% to $2,842 mln in 2007 due to favorable steel prices and cost control measures.

Group operating margin was unchanged at 18.6%

Consolidated EBITDA increased by 24.5% to $3,680 mln in 2007 compared to $2,957 mln in 2006. This growth is largely attributable to the strong performance of Russian Steel, which exploited growth opportunities in the Russian domestic market, and Lucchini, which enjoyed price stability in its local currency and benefited from the weaker dollar. Our Mining business, Izhora Pipe Mill and Metalware also contributed to our overall growth during the period.

Income tax charges were $681 million in 2007 compared with $635 million in 2006.

In 2007, Severstal reported consolidated net profit attributable to shareholders of $1,936 mln compared with $1,454 mln in 2006, an increase by 33.1%.  

EPS were $1.92, 22.3% up on 2006, based on net earnings of $1,936 mln and weighted average shares outstanding of 1,008 mln.

Net debt, calculated as the difference between debt and cash and cash equivalents, plus short-term bank deposits, increased from $158 mln as of 31 December 2006 to $1,114 mln as of 31 December 2007.

Total indebtedness increased from $3,006 mln as of 31 December 2006 to $3,327 mln as of 31 December 2007.

Cash, cash equivalents and short-term bank deposits decreased from $2,848 mln as of 31 December 2006 to $2,213 mln as of 31 December 2007, mainly attributable to the company’s investment activities. Our modernisation programme is aimed at expansion of production capacities and the scope of our operations. In 2007 Severstal acquired 86.3% of the issued share capital of Celtic Resources Holdings Plc for a total consideration of $ 264.6 mln, other gold-mining assets and purchased several gold licences. In January 2008, Severstal acquired the remaining 13.7% stake in Celtic Resources Holdings Plc for $ 44 mln.

On 3 March, 2008 Severstal announced a change in accounting policy for fixed assets switching from the Revaluation method to the Cost model. The company’s 2007 results are therefore prepared using Historical Cost accounting which aids in making a comparison between steel companies like for like and avoids the volatility caused by repeated valuationsl

At Severstal's Board meeting on 11-12 March 2008, the Directors recommended a dividend of 4.00 rubles per share and per global depositary receipt ("GDR") for Q4 2007 with a record date of 15 May 2008. Each GDR represents one share in the Company. This recommendation is based on the company’s strong financial results for 2007.

Approval of the dividend is expected at the AGM which will take place on 27 June 2008.

Wider economic markets are currently showing signs of some volatility. However, given the current favourable pricing environment in Russia and the USA, a robust European market and Severstal’s vertically integrated business model, the Board is confident that 2008 will be another year of progress.