OAO Severstal Reports Second Quarter Results
08/29/2011 - OAO Severstal announced net profit of $602 million on revenue of $4,383 million for the second quarter, and net profit of $1,122 million on revenue of $8,110 million for the six months ended June 30, 2011.
OAO Severstal announced net profit of $602 million on revenue of $4,383 million for the second quarter, and net profit of $1,122 million on revenue of $8,110 million for the six months ended June 30, 2011.
Second Quarter Results — The $602 million net profit reflects a 15.8% increase from net profit of $520 million in the previous quarter (Q1 2011), and the net profit margin was 13.7%. Severstal attributed the increase to good sales and robust price environment.
EBITDA was $1,109 million, an 18.7% increase compared to EBITDA$934 million in the previous quarter (Q1 2011). EBITDA margin increased to 25.3% compared to EBITDA of 25.1% in the previous quarter (Q1 2011) due to strong Steel Resources performance and continuing improvement at North American operations resulting in significantly higher selling prices.
Revenue of $4,383 million reflects a 17.6% increase compared to revenue of $3,727 million in the previous quarter (Q1 2011).
Six Month Results — Net profit of $1,122 million compares to a net loss of $593 million in the comparable year-ago period.
EBITDA of $2,043 million reflects a 34.5% increase compared to EBITDA of $1,519 million in the comparable year-ago period, and EBITDA margin increased to 25.2% vs. EBITDA margin of 23.8% in the first half of 2010.
Revenue of $8,110 million reflects a 27.1% increase compared to revenue of to $6,382 million in the first half of 2010.
Management Comments — “Our strong performance in the 2nd quarter and the whole 1st half of the year 2011 again demonstrated the benefits of our vertically-integrated model, low-cost operations and focus on high growth and high margin segments,” commented Alexey Mordashov, CEO of Severstal. “Increases in the prices of major raw materials, coupled with strong price environments in the global steel and gold markets, led to significant EBITDA growth on the back of EBITDA margin at over 25%.
“We remain on track to fulfill our planned 2011 capital expenditure program, with some projects running ahead of schedule,” continued Mordashov. “Our Net Debt/EBITDA level continued to improve to 1.1x, below the targeted 1.5x, and we will look to maintain our reasonable level of debt and solid liquidity position going forward. That said, we understand potential risks associated with the current challenging economic environment, but strongly believe that our major advantages – raw materials self-sufficiency, low-cost operations, balanced product-mix and flexible sales structure – leave us in a better position for the second half of the year compared to the competition”.
Mordashov noted that Severstal’s strong performance over the first half of 2011 reflects the strength of the company’s vertically-integrated business model, low-cost operations and focus on high-growth and high-margin segments. He also said that elimination of Q1 seasonal factors at Russian Steel and Steel Resources and the improved pricing environment led to sales volumes recovery and boosted consolidated revenues to $4,383 million (vs. consolidated revenues of $3,727 million in Q1 2011) and EBITDA to $1,109 million ($934 million in Q1 2011).
“In Q2 2011 we saw continuing improvement at our North American operations, despite the negative tornado impact which caused several days stoppages at Columbus in May,” continued Mordashov. “EBITDA at Severstal North America increased by 68.9% to $76 million (Q1 2011: $45 million), with EBITDA margin and EBITDA per tonne increasing to 9.4% and $92, respectively.
“Another quarter-on-quarter increase in coking coal and iron ore prices led to a very strong performance of the Steel Resources segment. Our full vertical integration in Russia allowed us to capitalize on the growing input prices and improve consolidated earnings and profitability.
“Our cash capital expenditure in Q2 2011 was $446 million, up 23.5% on the seasonally lower previous quarter,” continued Mordashov. “We maintain our $2 billion CAPEX target for FY2011, with increased investment planned in H2 2011. Our projects (Columbus Phase II, modernization of Dearborn, Balakovo mini-mill Greenfield, 2nd color coating line in Cherepovets, a new coal mine at PBS Coals, a thermoelectric power station burning coal mine methane in Vorkuta, etc.) are progressing well with some of them, such as the modernization of Dearborn, running ahead of schedule.
Outlook— The company said that despite challenging macroeconomics, it anticipate global steel prices to stabilize in Q3 as a result of low steel margins, thin inventories and an improving demand-supply balance. Overall demand is expected to revive due to:
· Seasonal demand revival in the Middle East and East Asia after the end of Ramadan and the monsoon season, as well as the end of the holiday season in the U.S. and Europe;
· Pick-up in automotive production due to removal of supply-chain disruptions after Japan’s earthquake;
· Solid construction activity in China on the back of government infrastructure and affordable housing programs.
The company expects price levels for coking coal and iron ore to remain resilient, benefiting vertically integrated producers. Steel supply is expected to grow in the U.S., and decrease in other regions due to seasonal maintenance works and the ban on iron ore production in India.
In Russia, the company expects real steel demand to remain firm in Q3 across all steel consuming sectors due to a recovery in fixed capital investments and seasonally increased construction activity. The Middle East and South East Asia, both major Russian export markets, are also expected to grow due to increased construction activity.
The company believes that the U.S. government’s decision to raise the debt ceiling could weaken the US dollar in the longer run, which should positively impact steel exports and export-oriented manufacturing. The company said that demand fundamentals in the U.S. remain positive in the automotive and export-oriented machinery, while construction does not show signs of recovery. The company believes that current low steel inventories will create opportunities for price growth with signs of improvement in real demand.
The company also asserted its strong belief that Severstal’s vertically-integrated model, low-cost operations, good product-mix and focus on high growth and high margin segments leave it well positioned for Q3 and beyond.
ОАО Severstal is one of the world’s largest vertically integrated steel and mining companies. With assets in Russia and other CIS countries, USA, Europe and Africa, Severstal reported revenue of $13,573 million and EBITDA of $3,263 million in 2010. Severstal’s crude steel production in 2010 reached 14.7 million tonnes.
