10 Sep 2009 12:22

MMK posts profit in Q2, IFRS revenue up 8%

MOSCOW. Sept 10 (Interfax) - Magnitogorsk Iron & Steel Works (MMK) closed the second quarter of 2009 with net profit of $59 million to International Financial Reporting Standards (IFRS), compared with losses of $110 million in the first quarter of 2009, the Russian steel major said in an earnings report.

Sales revenue grew 8% compared with the first quarter of 2009 to $1.038 billion.

EBITDA soared 109% to $207 million. MMK expects financial performance to improve in Q3 compared with Q2. "The strategy to increase the share of high value added products, continued investments in developing unique products on the domestic market, as well as effective actions taken by MMK management allow to expect further improvement of Q3 2009 economic results compared to Q2 2009," it said.

MMK expects output in Q3 2009 to soar 35% from Q2 2009 and to be operating at full capacity in September.

Analysts from 17 investment companies and banks told Interfax in a consensus forecast that they expected MMK's revenue to go up 5.5% quarter-on-quarter in April-June to $1.108 billion. EBITDA was expected to have soared 90% to $187 million, and MMK was expected to post net losses of $14 million, so the actual results were far better than forecast.

MMK said its EBITDA margin doubled in Q2 to 20%.

"Despite the unfavorable macroeconomic situation MMK continued investing into strategically important projects: Q2 2009 CAPEX amounted to $571 million, totaling $929 million for H1 2009. The investments made were in general related to completing the construction of Plate Mill 5000 and color coating line #2," MMK said.

Total debt was $1.6 billion and net debt - $865 million. Total debt continued to decrease in Q2 while short-term debt fell 20% due to the early repayment of loans to Russian banks.

MMK said short-term debt fell to 56% of total debt at the end of Q2 2009, from 75% at the beginning of 2009. In addition, revolving credit facilities of traders affiliated with MMK for financing steel shipments accounted for 22% of the short-term debt.

"The balance sheet is characterized by a high level of stability: equity accounts for 71% of total assets, the debt to equity ratio stands at 17.6%, which are the best ratios in the Russian steel sector. The debt/EBITDA (for last 12 months) ratio stands at 1.78," MMK said.

MMK continues to optimize the structure and the cost of debt. The company paid off a loan of 5.8 billion rubles to Gazprombank prematurely in June 2009, ahead of time, and 4 billion rubles prematurely to VTB in August.

MMK produced 1.919 million tonnes of commercial roll in Q2 2009, roughly as much as in Q1 2009. However in Q2 2009 MMK increased production of high value added products: output of cold-rolled sheet grew by 47%, output of downstream products increased by 36%, and no commercial billets and slabs were produced.

MMK said the domestic market remained its priority market. The volume of domestic shipments amounted to 55% of total sales in Q2 2009. In value terms, shipments to Russia and CIS accounted to 64% of Group sales.

The share of high value product shipments increased from 21% in Q1 2009 to 30% in Q2 2009 and accounted for 40% of total sales.

MMK said its export sales are diversified to minimize the adverse impact of volatility in selected markets. Sales generated from shipments to Asia and the Far East in H1 2009 accounted for 14% of total sales. In particular, sales to China amounted to 7% of total sales.

MMK is one of Russia's biggest steel producers. Viktor Rashnikov, the board chairman, is its main beneficiary, controlling 86.6% of the company.