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OAO Severstal (56IZ)


Thursday 07 September, 2006

OAO Severstal

Financials for 6M 2006

OAO Severstal
07 September 2006

Dear Sirs,

OAO Severstal introduces a consolidated financial statement for the six months
ended June 30, 2006 prepared in accordance with IFRS.

The purpose of this release is to provide you with an overview of Severstal's
financial performance during the first half of 2006 and to welcome any questions
you might have in this regard. Below is a summary of the key highlights. The
full text of the consolidated financial statement for the six months ended June
30, 2006 could be downloaded from

Severstal's statements is issued with regard to results of mining assets'
consolidation, which was completed in June 2006. Severstal believes that the
consolidation will strengthen its position as a leading metal and mining
producer both in Russia and globally and effectively increase its ability to
create value for its stakeholders.

Consolidated sales

Despite a decrease in selling prices over reported period versus the same period
last year, when steel, coal and iron ore prices were at record levels the
Company's total sales revenues amounted to USD 4,376.7 million. It is only 2.1%
less than the level of the 1H2005.

Units performance

In Russian Steel Operations weak export prices were compensated by strong
domestic demand and more stable price situation. Increase in volumes was
directed to Russian market with higher margins through the product mix. EBITDA
decline was caused by drop in the average price, especially in the export sales,
but value-added products supported margins and protected long-term relationship
with key accounts. Growth in operational costs was underlined by inflation of
factors mostly outside core raw-material base. Drop in coal and pellet prices
helped to restrained the negative impact of higher prices of energy, scrap,
ferroalloys, labour and transportation. SG&A and distribution expenses were down
y-o-y. Investment both in upstream and downstream peaked in 1H 2006, giving an
opportunity to increase sales of value-added products in 2H 2006 and 2007and
improve production efficiency.

Outlook for 2H 2006 in Russian Steel Operations is positive.

In Russian Mining Operations lower coal and pellets prices were behind drop in
EBITDA, but improved product mix limited the negative influence of this factor.
Growth in operational costs was in line with sector performance in Russia. The
most rapid growing items were fuel and energy, while strict control of labour
costs helped to limit their influence on cost inflation. Investment both in
Vorkutaugol modernization and exploration of new fields increased capital
requirements in 1H 2006, but built strong ground for quality and volume growth
in 2007 and later, as well as cost cuts in Vorkuta beginning 2007.

Outlook for 2H 2006 is positive.

In North American Operations managerial improvements were behind the strong
performance in 1H 2006. Improved sales mix and volumes on the growing trend on
the US market supported the sales growth in this segment by 12.1% y-o-y. Another
factor in EBITDA growth was regular slab supply from Lucchini on long-term base.
Operational costs under strong management control. As a result increase in
natural gas and pellets price were balanced by coke and scrap favorable pricing
and savings from application of best operating practices and operating
efficiencies. Best in the group SG&A control resulted in cut back on this item.

Outlook for 2H 2006 is positive


Driven by increase in physical production volumes and growth in costs of energy,
scrap, ferroalloys, labour and transportation, the consolidated cost of sales
increased in 1H 2006 by USD 544 million or 21.2% as compared to results of the
first half of 2005, and reached USD 3,103 million. The leading pace of the
expenditures growth has proportionally affected financials of the company.

The consolidated EBITDA for the six months ended June 30, 2006 to USD 1,076
million from USD 1,562 million in 1H2005, translating into a 24.6% margin
compared with 34.9% last year.

Sincerely yours,

Dmitry Druzhinin

[email protected]

tel.: +7 (495) 540-7766

fax: +7 (495) 150-8800

                      This information is provided by RNS
            The company news service from the London Stock Exchange

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