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Severstal Reports Financial Results for 2nd Quarter, First Half of 2010

09/08/2010 - OAO Severstal reports a net profit of $192 million on revenue of $4.245 billion for the second quarter, and a net loss of $593 million on revenue of $7.387 billion for the first half of 2010.

OAO Severstal reported a net profit of $192 million on revenue of $4.245 billion for the second quarter, and a net loss of $593 million on revenue of $7.387 billion for the first half of 2010.
 
Second Quarter Results — Net profits from continuing operations — excluding Lucchini — totaled $393 million, a solid improvement from $77 million for the previous quarter (Q1-2010). Revenue of $4.245 billion reflects a 35.1% increase vs. revenue of $3.142 billion in the previous quarter.
 
EBITDA of $955 million reflects a 94.1% increase vs. EBITDA of $492 million in the previous quarter. EBITDA margin was 22.5%, which compares to an EBITDA margin of 15.7% in the previous quarter.
 
In the second quarter, Severstal International (North America) reported a positive EBITDA of $59 million, and was almost break-even with a $1 million loss from operations. Results compare to a $138 million loss from operations in the previous quarter (Q1-2010).
 
The company noted that all of its Divisions benefited from increased production volumes, higher sale prices and enhanced operational efficiency whilst absorbing higher raw material, energy and transportation costs.
 
The company’s Severstal Russian Steel Division reported revenue of $2,415 million, a 45.1% increase from revenue of $1,664 million for the previous quarter (Q1-2010). EBITDA of $528 million is up 30.7% compared to EBITDA of $404 million in the previous quarter. Over the quarter, the Division increased its output in response to strengthening local steel demand with average selling prices up 9.7%.
 
The company’s Severstal Resources Division reported revenues of $870 million, up 46.5% vs. revenues of $594 million in the previous quarter (Q1-2010). EBITDA of $420 million was up 134.6% vs. EBITDA of $179 million in the previous quarter. Over the quarter, this Division increased production to meet growing demand, and enjoyed higher average selling prices.
 
The company’s Severstal International (North America) Division reported revenue of $1,447 million for the second quarter, up 23.7% vs. revenue of $1,170 million for the previous quarter (Q1 2010). EBITDA of $59 million compares to a loss of $83 million in the previous quarter.
 
First Half Results — The net loss of $593 million compares to a net loss of $946 million in the first half of 2009. Profit from continuing operations — excluding Lucchini — was $470 million, which compares to a loss of $803 million in the first half of 2009.
 
Revenue of $7,387 million reflects a 53.6% increase vs. revenue of $4,810 million in the first half of 2009. EBITDA was $1,447 million vs. EBITDA of minus $30 million in the first six months of 2009, while EBITDA margin was 19.6% vs. an EBITDA margin of minus 0.6% in the first half of 2009.
 
Cash and Short-Term Deposits totaled $2,005 million as of the end of June 2010;
 
The company also reported improved performance across all of its Divisions in the first half, including a 63.4% increase in revenue for Severstal Russian Steel, to $4,079 million (vs. $2,497 million in the first half) and a 182.4% increase EBITDA up to $932 million (H1 2009: $330 million).
 
The company’s Severstal Resources Division reported an 87.7% increase in revenue in the first half (up to $1,464 million vs. $780 million in the first half of 2009) and a 364.3% increase in EBITDA (up to $599 million vs. $129 million in the first half of 2009).
Also in the first half, the company’s Severstal International (North America) Division reported a 38.9% increase in revenue (to $2,616 million vs. $1,884 million in the comparable year-ago period). The Division also reduced its EBITDA loss to $24 million (vs. a loss of $479 million in the first half of 2009) and reduced its loss from operations to $139 million (vs. minus $605 million in the first half of 2009).
 
Management Comments — “As anticipated, we have been able to build on the underlying progress reported in the first quarter into the second quarter,” commented Alexey Mordashov, CEO of Severstal. “This reflects the fundamental strengths of our integrated operations and the higher production and prices being achieved, as the economic outlook improves, particularly in Russia.
 
“We are well placed to exploit the opportunities in our markets given our competitive cost base, vertically-integrated model and strong financing position,” added Mordashov. “We are confident in future development”.
 
Outlook — In projecting its near-term outlook, the company noted that while global steel prices had already softened in the early part of the third quarter, the company expects steel markets to improve through the balance of the year, with prices supported by higher raw materials costs. The company expects re-stocking and stronger market demand to drive volumes at Severstal Russian Steel, with the oil and gas, automotive and construction sectors continuing to strengthen as the year progresses. The company said that Severstal Resources should continue to benefit from better output pricing, which gives Severstal a competitive advantage as a result of its integrated business model.
 
The company believes the pace of recovery will continue to be gradual in the US, with steel prices also supported by re-stocking and higher raw material prices.
 
The company also said it will continue to focus on its cost efficiency initiatives, targeted investment, and on increasing sales volumes to improve unit efficiency.