OREANDA-NEWS. April 05, 2010. MMK continued generating positive profit for the period – on the background of break-even 9 months of 2009 profit for the period amounted to USD 219 mln in Q4 2009

Targeted investments enabled MMK to boost efficiency during the reported period and will provide support going forward

HIGHLIGHTS OF MMK GROUP CONSOLIDATED INCOME STATEMENT (USD million)

 

Q4 2009

Q3 2009

+/-

Sales of MMK Group

1 674

1 404

19%

EBITDA *

670

309

115%

EBITDA margin of MMK Group

40.0%

22.0%

-

Profit for period of MMK Group

219

76

193%

* EBITDA calculation is presented in Note 7 to Consolidated Financial Statements for the year ended December 31, 2009

MMK Group sales grew by 19% in Q4 2009 and amounted to USD 1, 674 mln. This figure was affected by export sales growth of steel traders within MMK Group, as well as consolidation of Belon’s sales for Q4 2009

MMK investments projects focused on asset base upgrade and development of HVA products in demand enable the Group to generate the necessary cash-flow and maintain high profitability through steel and raw materials cycle.

EBITDA amounted to USD 670 mln, which is USD 351 mln higher q-o-q 

EBITDA margin in Q4 2009 grew by 18% and amounted to 40.0%

Thoughtful approach to acquisitions yields good results – revaluation of investment into 50% of Onarbay Enterprises Ltd (holding company, controlling 82.6% of Belon) - to bring the stake to the market price on the date of gaining control over the asset - positively affected EBITDA of MMK Group

MMK Group generated positive profit for the period in Q4 2009 in the amount of USD 219 mln

MMK GROUP PARENT COMPANY HIGHLIGHTS (USD million)

 

Q4 2009

Q3 2009

+/-

Sales of MMK

1 335

1 323

1%

EBITDA

617

374

39%

EBITDA margin of MMK

46.2%

28.3%

-

Profit for the period of MMK

304

152

50%

Sales of the parent company (OJSC MMK) stayed almost unchanged to gain 1% to USD 1,335 mln

At the same time EBITDA grew by 39% to amount to USD 617 mln

EBITDA margin reached record 46.2%

Profit for the period doubled and equaled USD 304 mln in Q4 2009

In the course of 2009 MMK increased production of highly profitable product types – galvanized and colour-coated steel – by 8% and 32% accordingly y-o-y owing to new facilities commissioning

MMK gained 17% Russian rolled steel market share to retain leadership. The bulk of MMK production – above 4.9 tons in 2009 - was shipped to the domestic market (Russian and CIS) which accounts for 56% of the overall shipments

Shipments to the markets of Russia and CIS in money terms accounted for 64% of total sales. Pipe manufacturers remain major customers of MMK in the domestic market with 37% share of MMK domestic shipments in 2009.

MMK export originate from different regions of the world, including MMK key export market – Middle East, as well as Europe, Asia, North, Central and Latin America, Africa and Australia.

Profitability and cash-flow statement highlights

Due to higher revenue growth vs. operational costs, MMK Group increased the amount of operating profit to USD 234 mln in Q4 2009 from USD 82 mln in Q3 2009 to reach 14% operational margin.

Cash outflow to investments into property, plant & equipment increased by 31% in Q4 2009 to USD 388 mln from USD 296 mln in Q3 2009, particularly due to construction finalization of Continuous slab caster #6 and Secondary steel treatment unit.

MMK growth by means of acquisitions was carried out with borrowed funds, while the CAPEX programme was funded mostly with generated cash-flow and if necessary with cash on the balance.

Balance sheet highlights

MMK maintains one of the strongest balances in the sector. Debt amount is the least among the Russian steel companies. The balance sheet is characterized by high level of stability: equity accounts for 67% of total assets at the end of 2009.

PP&E grew by 16% by the end of 2009 to amount to USD 11 276 mln mostly owing to acquisition of Belon and commissioning of production facilities.

The efficient working capital management policy made it possible to gain leadership in inventories turnover and to balance accounts receivable and payable as much as possible (the balance of accounts receivable and payable stands at USD 13 mln only).

Total debt at the end of 2009 stood at USD 2,118 mln. MMK management was successful in bringing down the short-term debt and in lowering the cost of debt in 2009.

The average interest rate for MMK group debt was brought down from 7.87% at the beginning of 2009 to 5.74% at December 12, 2009.

MMK short-term debt remained mostly unchanged in Q4 2009 at USD 828 mln. In the whole, MMK short-term debt was reduced by 36% in 2009 through redemption of expensive and short-term loans. In addition, USD 285 mln of short term debt is represented by revolving credit facilities of traders within MMK Group. Thereby, net short term debt amounted to USD 543 mln.

The share of short-term debt in the total debt structure kept on decreasing and equaled 39% by the end of 2009 (vs. 53% at the end of Q3 2009 and 75% at the beginning of 2009).

Total debt/EBITDA ratio at the end of 2009 stands at 1.65х.

MMK policy to pursue balanced organic growth strategy in 2009 proved to be efficient - the company did not have to rely upon additional liquidity sources (such as proceeds from disposal of assets) or make use of long-term investments.

2009 RESULTS – SOLID PLATFORM FOR FURTHER SUSTAINABLE GROWTH

2010 production is expected to exceed 2009 level by 30%.

Optimal sales geography and shift in product portfolio to further increase the share of high value added products present flexibility to react to conjuncture

MMK continues implementing its MMK-Atakas project in its key export market – Middle East.

High level of self-sufficiency in raw materials and energy provide stability at raw materials prices growth: MMK is 30% self-sufficient in iron ore, 50% in coking coal, 100% in scrap and 85% in electricity.

Expansion of Belon business will make it possible to increase self-sufficiency in coking coal and enhance financial performance.

Completion of Mill 5000 complex (including slab-caster #6 and secondary steel treatment unit) allows to develop production of plate of high-strength steel grades (up to x120) and bring the mill to full capacity.