OREANDA-NEWS. Metinvest B.V., the parent company of an international vertically integrated steel and mining group of companies (jointly referred to as “Metinvest”), today announces its audited consolidated financial results for the 12 months ended 31 December 2012.

Igor Syry, General Director of Metinvest commented: “Conditions in the global steel and mining industry were testing last year, as certain regions continued to experience the effects of the global financial crisis, notably the EU. Despite the turbulence, we preserved sales volumes, made a major acquisition, demonstrated progress in our investment projects, and expanded our distribution network. We also implemented considered cost-cutting and environmental measures in an efficient manner, proving that our business model remains both flexible and resilient, and demonstrating that we take our corporate responsibility seriously.

Our headline financial results reflected the overall conditions in the industry. For 2012, consolidated revenues came to USD 12,565 million, while operating profit reached USD 979 million and net profit totalled USD 435 million. At the same time, our operational results were more favourable. Crude steel production amounted to 12,459 thousand tonnes, down 13% y-o-y, while we mined 11,623 thousand tonnes of coking coal, up 3%, and produced 36,224 thousand tonnes of iron ore concentrate, up 1%. Overall sales volumes for the Metallurgical division were down by just 1%, while for the Mining division they were up 3%.

One of the key events for Metinvest last year was the acquisition of 49.9% in Zaporizhstal, one of Ukraine’s largest steelmakers. Zaporizhstal produced 3,777 thousand tonnes of crude steel in 2012, and it manufactures semi-finished steel products and a diversified mix of flat products, including hot and cold-rolled plates and coils. As such, the acquisition is fully in line with our overall strategy of boosting steel output, moving along the value chain by increasing the share of finished products, and expanding and diversifying our customer base.

Another milestone was the approval of our long-term Technological Strategy. Together with our long-term Financial Strategy, also initiated last year, it is a key roadmap for our investments in increasing operational efficiency and product quality, ensuring world-class standards of workplace safety, and dramatically reducing our environmental impact. We have made the strategy flexible, so that we can react promptly to any change in our needs and the availability of funding. We have prioritised projects that have the shortest payback period and are the most cost-efficient. In addition, before launching new projects, we will ensure that the necessary financing has been arranged and ring-fenced.

While the market conditions caused us adjust our capital expenditure to USD 765 million in 2012, we made substantial progress in numerous key technological projects. At Ilyich Steel, we completed a major overhaul of blast furnace no. 2 and launched a new turbine air blower at blast furnace no. 3. We also finished the construction of the pulverised coal injection (PCI) unit, which will significantly reduce the use of natural gas and coke in the blast furnace shops. At Azovstal, we installed and undertook cold and hot testing of an accelerated cooling unit at the plate mill, a process that delivers better products at lower cost. At Yenakiieve Steel, we began building a PCI unit, as well as a new air separation unit with Air Liquide. Spending on the Metallurgical division alone exceeded USD 310 million last year.

In the Mining division, we made significant investments in new, state-of-the art safety systems at Krasnodon Coal, while expanding coal output from the Affinity mine at United Coal Company. Spending on the Mining division alone exceeded USD 420 million last year.

Our decisions regarding key technological projects also demonstrated our commitment to corporate social responsibility last year. In response to concern from local communities about the environmental situation in and around Mariupol, home to Ilyich Steel and Azovstal, we accelerated plans to close older facilities that contribute more to pollution. At Ilyich Steel, in addition to completing the PCI unit, we launched a project to upgrade the sinter plant. At Azovstal, alongside decommissioning the open-hearth furnaces, we closed three obsolete coke batteries and mothballed the sinter plant. In addition, at Yenakiieve Steel, we are at the design stage in a project to build a new, environmentally friendly sinter plant, the first such initiative since Ukraine became an independent state more than 20 years ago.

The prosperity of local communities is another critical aspect of responsible business behaviour. Last year we focused our efforts on long-term planning and stakeholder engagement. In cities where Metinvest operates we set up local expert committees of partners from the government, NGO and multilateral sectors. The committees are liable for identifying and monitoring priority social programmes to be implemented for future city development. Metinvest social investments in 2012 totalled USD 12 million and were spent on infrastructure, healthcare, sport and education.

We continued to concentrate on expanding our sales and distribution networks in key markets last year. In Ukraine, we acquired four metals service centres in the west of the country, reinforcing our already dominant market position. In Russia, we acquired Belgorodmetallosnab, a large warehouse complex and steel product transhipment centre in Belgorod, and opened a warehouse in Penza, in line with our focus on the regions closest to our production assets.

As the overall environment remains difficult, 2013 looks set to be another challenging year. At the same time, we are confident that our flexible strategy, numerous initiatives to cut costs and improve profitability, and prudent approach to borrowing will enable us to maintain our strong financial position”.

Sergiy Novikov, Finance Director of Metinvest, added: “Conditions in the markets for steel and bulk commodities remained challenging in 2012. The prices of steel and iron ore and coal products followed a broadly similar trend: after remaining stable, albeit historically low, in the first quarter, they then declined fairly rapidly from the end of the second quarter until the fourth, when a modest bounce took place. While this impacted our headline financial results, we were quick to introduce cost-cutting initiatives, flexible in our approach to capital expenditure, and successful in securing new borrowing facilities. As a result, our financial position remains solid.

The slump in prices for our key products brought our profitability under pressure. EBITDA came to USD 1,985 million for the year. This gave a margin of 16%, which was better than expected in a difficult year.

At the same time, we succeeded in the tight management of costs, proving our ability to respond prudently during periods of turbulence. Distribution costs rose by 7%, although this was mainly due to an increase in railway tariffs, while general and administrative expenses were unchanged y-o-y.

We also maintained our conservative approach to borrowing. Our net debt to EBITDA ratio was 1.9, and our ability to secure new sources of financing indicates that lenders remain confident in us. Last year, we repaid a USD 1.5 billion, five-year global refinance facility, our largest ever borrowing, as well as repaid ahead of schedule a €410 million, seven-year senior facilities agreement, as part of a drive to optimise our parent company’s corporate debt. In addition, we arranged two new three-year pre-export finance facilities in the amount of USD 325 million and USD 300 million – both of which were oversubscribed – and a debut €25 million 10-year export credit agency facility.

In 2012, we generated net cash from operating activities of USD 1,146 million. As at the year-end, our cash balance stood at USD 530 million.

While the outlook for our key markets, particularly Europe, is still uncertain, we are well prepared to operate in such an environment. Our ongoing investments in more modern production technology are bringing noticeable cost and efficiency gains, while our flexible business model and conservative debt management help to maintain a steady financial footing”.