OREANDA-NEWS. September 4, 2007. Open Joint Stock Company Magnitogorsk Iron and Steel Works (LSE: MMK), one of the leading Russian integrated steel making companies, announces the results of its consolidated financial statements for the first six months of 2007 according to US GAAP.  

1. Financial results

The revenue of MMK Group in the first half of 2007 increased by 43,88% compared to the first six months of 2006 and amounted to USD   4 000 million.

•          The income from operating activities came to USD 1 077 million or 26,93% of the revenue.  The growth compared to the first half of 2006 amounted to 56,09%.

•         The consolidated net income of the company for the first half of 2007 increased by 47,28% from the similar period of the last year and amounted to USD 866 million, i.e. USD 0,083 per share.   The net income accounted for 21,65 % of the revenue. 

•         EBITDA for the first six months of 2007 came to USD 1 205 million or 30,13% of the  revenue. Compared with the first half of 2006 EBIDTA of the company grew by USD 420 million or 53,50%.  

The main company of the Group is OJSC Magnitogorsk Iron and Steel Works. The share of  OJSC MMK’s sales to third parties accounts for  59,58% of the gross revenue of the Group and together with the sales of MMK Group metal traders  – for 90,88% (see table 2). Obviously the operating results of OJSC MMK have a determining influence on the financial results of the Group. 

The following changes occurred in the revenue structure of MMK Group compared with the similar period of the last year: 1) the revenue and the share of OJSC MMK,  the parent company of the Group, in the consolidated sales  increased by  47,3% due to the growth of  steel prices and steel shipments to the domestic and CIS markets; 2) the  growth of the revenue from the increased export  sales of steel products through the Group metal traders amounted to  31,1%; 3) the revenue of MMK Group subsidiaries increased by  76,3%. In particular, the revenue of MMK-Metiz grew by USD 119 million, the revenue of  Stroitelny Complex  grew by USD 12 million,  and the revenue of MMK-Profil-Moscow grew by USD 6 million. The revenue of Bakalskoye Rudoupravlenie in the amount of USD 14 million is consolidated into the Group revenue.

In the first half of 2007 OJSC Magnitogorsk Iron and Steel Works produced 6 476 thousand tons and sold 5 951 thousand tons of commercial steel products, which is respectively by 9,4% and 10,6 % more than in the first  six months of 2006. Increase in production and sales volumes is accounted for by the expansion of the company’s production facilities.

The average price of 1 ton of steel products sold by OJSC MMK during the first half of 2007 amounted to USD  578, which is USD 122 or 26,8% higher than in the similar period of 2006.

The production costs were primarily influenced by the production increase and growth of average purchase prices for main raw materials and supplies. The selling and distribution expenses of the Group during the first six months of 2007 grew by USD 65 million or 34%, mainly due to the expenses on transportation  of the increased volumes of steel products through the Group metal traders.

The administrative expenses were reduced by USD 13 million or 9,7%. Such reduction resulted, among others, from the reimbursement by the Depositary Bank of the costs and expensed incurred by the Company in the course of initial public offering of GDRs of OJSC MMK at the London Stock Exchange in the amount of USD 9 million, from the received insurance indemnification with respect to the accident at Rolling Shop No. 5 in the amount of USD 4 million and from the revaluation of the securities in the amount of USD 4 million.

Social expenses rose due to the increase of expenses for charity, including USD 7 million spent for the construction of Ice-Hockey Metallurg Arena.

The increase of other taxes by USD 15 million is related to the growth of the Group's volume of operations. The most significant influence was exerted by the increase of the property tax since new fixed assets had been put into operation.

The operational income in the first half of 2007 rose year-on-year by 56,09%. The operating margin amounted to 26,93% (24,82% in the first half of 2006).

The earnings before taxes and minority interests as well as the Net profit in the first half of 2007 were increasing more slowly than the operational income due to the decrease of financial incomes as well as due to the decrease of positive foreign exchange difference by USD 58 million or 65,2%.

EBITDA grew by 53,5% and amounted to USD 1205 million. The ratio EBITDA of the Group / ton of steel amounted to USD 186, which is year-on-year higher by USD 53,5 USD or by 40,4%. EBITDA margin came to 30,1%, which is higher than the average in the industry.

For more detailed information look on http://www.mmk.ru/eng/press/news/article.wbp?article-id=CA9A00C3-AC10-1016-017F-409C79E3C136