OREANDA-NEWS. July 3, 2007. OAO Severstal (LSE: SVST; RTS: CHMF), reports first quarter results reflecting a significant improvement compared with the same period last year and a continuation of positive Q4 trends.

Q1 2007 Highlights:
Strong year-on-year growth
Favourable prices across all geographies and markets
Increases in raw materials, energy and labour costs passed on to customers
2006 investment programme yielding good returns
A record $3,677 million in revenues, up 34.9% compared with Q1 2006
Strong EBITDA growth at $921 million in Q1 2007, up 43% from $644 million in Q1 2006
Improved efficiency, better product mix and cost control added around $100m to EBITDA compared to Q1 2006
Net profit up 82.5% to $396 million for Q1 2007 from $217 million in Q1 2006
Strong Russian domestic market for steel and iron ore products
Steel prices in Russia and Europe demonstrating  sustainable growth
Strong performance in the mining business: EBITDA up 50.0% year-on-year
Significant improvement in Lucchini
Q1 investment programme of $267 million in line with budget and forecast
Continuation of the positive trends seen in Q4 2006

Alexei Mordashov, CEO of OAO Severstal, said, “I am pleased to report that Severstal has made a positive start to the new financial year with continued growth. We are building successfully on the changes we made last year to provide us with a strong platform for the future.”

Chief Executive’s Review

Compared with the same period last year, this quarter demonstrates improved trends in the key areas of our business.

Russian Steel continued the good performance of Q4 2006 with an excellent first quarter showing a 52.7% increase in EBITDA compared with the same period last year. Prices continue to be strong in both Russian and export markets and there has also been a significant improvement in volumes compared to Q1 2006. 

Severstal’s Mining business has also had an exceptional first quarter both compared to Q1 2006 and Q4 2006: EBITDA was up by some 50.0% compared with the same period last year and by 42.7% compared with Q4 2006. Prices are up on average by 14% with a similar growth in volumes.

Severstal’s overseas business each produced improving EBITDA margins for Q1 2007 over  Q4 2006.

Severstal North America reported a nearly 6.3% improvement in EBITDA compared with Q4 2006.  Lucchini’s EBITDA for the first quarter is up nearly 39.8% compared with the same period last year as a result of higher prices and volumes, and favourable raw materials prices.

Q1 2007 Financial Summary

Severstal’s consolidated revenues increased by 34.9% to $3,677 million in Q1 2007 from $2,725 million in Q1 2006, attributable to a stable price environment in all geographies and product mix improvements.

Consolidated cost of sales were $2,611 million in Q1 2007, compared with
$1,977 million in Q1 2006. Cost of revenues as a percentage of consolidated revenues decreased to 71.0% (Q1 2007), from 72.6% in Q1 2006. The primary drivers behind this change were higher growing raw material, energy and labour costs.

Gross profit has grown by 42.6% from $748 million in Q1 2006 to $1,067 million in Q1 2007.

In the first quarter of 2007, revenues from non-Russian sales amounted to $2,253 million, or 61.3% of total sales. The comparable figure for the first quarter of 2006 was $1,842 million, or 67.6% of total sales.

Profit from operations increased by 53.0% to $635 million in Q1 2007 from $415 million in Q1 2006. This increase was largely due to buoyant steel prices trend. Group operating margin went up to 17.3% in Q1 2007 from 15.2% in Q1 2006.

Consolidated EBITDA increased by 43.0% from $644 million in Q1 2006 to $921 million in Q1 2007. This growth is mainly attributable to the strong financial performance of Russian Steel, and our Mining and Lucchini businesses, and the continuing stabilisation of steel prices in all markets.

Primary drivers of this increase were sales volumes of hot-rolled strip and plate, long products and metalware products, which rose by 28.0%, 70.9% and 90.4% respectively. Average sales prices for coal and coking coal concentrates went up by 17.4%, by 39.7% for long products, and by 24.6% for metalware products.

Income tax charges for Q1 2007 were $168 million compared with $123 million in Q1 2006.

In Q1 2007, Severstal reported consolidated net profit attributable to shareholders of
$396 million compared with $217 million in Q1 2006.

EPS for the first quarter of 2007 amounted to $0.39, $0.15 higher than for the first quarter of 2006.

Net debt, calculated as the difference between financial debt and cash and cash equivalents plus short-term bank deposits, decreased for the three months ended March 31, 2007 from $155 million to a cash surplus of $174 million. Increase in total indebtedness from $3,002 million to $3,008 million was offset by an increase in cash, cash equivalents and short-term bank deposits from $2,847 million to $3,182 million. This increase is mainly attributable to the results of operating activities.

A dividend for Q1 2007 of 2.6 Rubles ($0.10) per share (one GDR represents one underlying ordinary share) has been approved by the EGM held in Cherepovets.