OREANDA-NEWS. OAO Severstal (LSE: SVST; RTS: CHMF), today reports half year results reflecting a significant improvement compared with the same period last year due to the continuation of positive first quarter trends.

H1 2007 Highlights:
• A record $7,711 million in revenues, up 31.1% year-on-year
• EBITDA of $2,094 million, up 60.7% year-on-year
• Net profit up 134.5% to $999 million
• Operating margin up to 19.2% from 13.9% due to higher prices and management action
• EPS of $0.99, up 115.2% year-on-year
• Higher average prices across all markets and segments
• $500 million of dividends for 1H 2007, of which $102 million paid for Q1 and $398 million recommended by the board for Q2, compared with $126 million in 1H 2006
• Positive outlook for the rest of 2007

Alexei Mordashov, CEO of OAO Severstal, said, “I am pleased to report a very positive set of half year results for Severstal, with market conditions improving in all markets apart from North America. We continue to be well placed to benefit from the growing Russian economy and stable steel markets in Europe. ”

Chief Executive’s Review

These results demonstrate improved trends in the key areas of our business with exception of the North American market.

EBITDA growth in H1 2007 was 60.7% year-on-year. Prices continue to be strong in both Russian and export markets and there was a significant improvement in volumes compared with H1 2006.  Russian Steel built on its good performance in Q1 2007 with an excellent second quarter, showing a 68.5% increase in EBITDA year-on-year.

Our Mining business has also had an exceptional first half compared with the same period last year. EBITDA was up by some 46.7% year-on-year. Prices were up on average by 16.7% with a 10.4% growth in volumes. In Q2 2007, the EBITDA margin in Mining was slightly down compared to Q1 2007 as a result of lower volumes and unfavourable changes in product mix at our Vorkuta mine, where the share of soft grades of coal was higher than projected.

Our European operations, Lucchini, performed strongly, in line with expectations. EBITDA increased by 54.1% in H1 2007 in comparison with the same period the last year.

Poor market conditions in North America in H1 2007 affected SNA’s results with EBITDA down 15.2% year-on-year. We expect that volume cuts and stabilised inventory levels across the industry are beginning to improve the overall market outlook. However, as expected, the relining of SNA’s blast furnace “C” in Q3 will impact on SNA’s volume in Q3.

Izhorsky pipe mill, the producer of large diameter pipes, demonstrated significant growth with EBITDA margin increasing from 14.3% in Q1 to 31.3% in Q2.

Investing for the Future

In light of the strong outlook for the global steel market, Severstal believes there is the potential to invest significant capital in organic growth projects between 2007 and 2011, particularly in Russia. These plans are based on existing market conditions and reflect Severstal’s best estimate of where it can invest most profitably to grow margins sustainably and achieve high returns on investment. The plans will be adjusted in the future as and when market conditions change.

Severstal currently plans to invest approximately $6 billion in its Russian Steel division over this period. The money will be spent on two new mini mills, each with a capacity of one million tonnes, and on the development of more value-added and long products at the company’s Cherepovets steel mill.

Some $2 billion is expected to be invested in the Mining division between now and 2011 with the aim of growing coal production from 9.7 million tonnes in 2006 by approximately 30% by 2011. Production of pellets and iron ore concentrate is planned to grow from its current level of 14 million tonnes by approximately 15%. The company also plans to double the amount of scrap collected over the period.

Approximately 15% of the total capex spend is expected to be invested at Lucchini, with a further 10% at SNA.  Plans at SNA include improving the performance of the existing plants with the potential for further investment there and at SeverCorr depending on those assets’ performance and the prevailing market conditions nearer the time.

H1 2007 Financial Summary

Severstal’s consolidated revenues increased by 31.1% to $7,711 million in H1 2007 from $5,883 million in H1 2006, attributable to higher average pricing levels in all geographies, volume growth and product mix improvements.

Costs were $5,362 million in H1 2007, compared with
$4,330 million in H1 2006. The primary drivers behind this change were higher raw material, energy and labour costs. Cost of revenues as a percentage of consolidated revenues decreased to 69.5% (H1 2007), from 73.6% in H1 2006, reflecting the company’s ability to pass cost increases to end customers.

Gross profit increased by 51.2% from $1,554 million in H1 2006 to $2,349 million in H1 2007.

Profit from operations increased by 81.0% to $1,484 million in H1 2007 from $820 million in H1 2006. This increase was largely due to positive steel prices. Group operating margin went up to 19.2% in H1 2007 from 13.9% in H1 2006.

Consolidated EBITDA increased by 60.7% from $1,303 million in H1 2006 to $2,094 million in H1 2007. This growth is mainly attributable to the strong performance of Russian Steel, which successfully exploited opportunities in the Russian domestic market. Our Mining business and Lucchini also contributed to the overall improvement.

Income tax charges for H1 2007 were $384 million compared with $270 million in H1 2006.

In H1 2007, Severstal reported consolidated net profit attributable to shareholders of
$999 million compared with $426 million in H1 2006.

EPS for the first half of 2007 amounted to $0.99, 115.2% higher than for the first half of 2006.

Cash surplus, calculated as the difference between financial debt and cash and cash equivalents plus short-term bank deposits, increased for the three months ended June 30, 2007 from $173 million to $403 million. Total indebtedness decreased from $3,009 million to $2,869 million. Cash, cash equivalents and short-term bank deposits increased from $3,182 million to $3,272 million, mainly attributable to the results of operating activities.

Dividend
Severstal's Board of Directors, held on 30-31 August 2007, has recommended an interim dividend of 10.0 rubles per share and correspondingly per global depositary receipt ("GDR") for Q2 2007 with the record date of 20 August 2007. Each GDR represents one share in the Company. The Board’s recommendation is based on the company’s strong financial results in H1 2007. Approval of the dividend payment is expected at the company’s EGM on 28 September 2007.  Severstal is to maintain its dividend policy of paying a minimum of 25% of net profits received by the end of the reporting period (calculated according to IFRS).

Outlook

Given Severstal’s strong first half performance, and with current market conditions underpinned by strong Russian economic growth, price stability in Europe, and planned improvements at SNA, the Board is currently comfortable with market expectations for the full year. For more Detailed information look on http://www.severstal.com/eng/press_center/news/document2065.shtml