28 Aug 2009 13:47

Russia's Novolipetsk Steel ends H1 with net loss of $243 mln

MOSCOW. Aug 28 (Interfax) - Russia's Novolipetsk Steel (NLMK) ended the first half of 2009 with a net loss of $242.9 million, the company said in a statement.

EBITDA (earnings before interest, taxes, depreciation and amortization) fell 80% to $431 million in January-June 2009 compared to the same period of 2008, while sales revenue declined 50% to $2.586 billion.

Net losses totaled $49 million in the second quarter of 2009, sales revenue - $1.29 billion and EBITDA - $234 million. The forecasts for these figures were fairly accurate at $41 million, $1.28 billion and $232 million, respectively.

The company expects its EBITDA margin to total 20%-25% in the third quarter compared to 17% in the first half and 18% in the second quarter.

NLMK also increased its production forecast for 2009 by 4% to 10.5 million tonnes of steel.

Financial highlights of NLMK ($ mln):

Q2 2009 Q1 2009 H1 2009 H1 2008
Sales revenue 1 292.9 1 293.3 2 586.3 5 883.6
Gross profit 371.3 322.3 693.7 2 649.2
Operating profit 105.5 99.1 204.6 2 069.7
EBITDA 234.3 196.7 431.0 2 234.1
Net profit (loss) (49.1) (193.8) (242.9) 1 530.8

"In Q3 2009 we expect to see a significant improvement in our financial and operating performance following the stabilization, and then positive dynamics in prices which started at the end of Q2 2009," the company said.

Steel production is to total 2.9 million tonnes in the third quarter of 2009, up 8% from the second quarter.

The company invested $413.8 million in production in the first half of 2009, down 50% from the same period of 2008. More than 70% of that investment went to the company's main production facility in Lipetsk, "including the construction of a new Blast furnace #7, revamping converter #1 and upgrading of the transformer steel shop," the statement says.

"In H1 2009, the loss from realized forward exchange contracts was $271.7 million. As of the end of H1 2009, the company had unrealized forward contracts for an aggregate notional amount of $1.707 billion, with a net fair value of $325.2 million. The decrease of the fair value of unrealized forward contracts of $119.6 million is due to a decrease in the notional amount as the forward contacts were executed in H1 2009 and decrease in the USD/RUR exchange rate," the company said.

"In H1 2009 NLMK recognized its share in losses recorded by Steel Invest and Finance S.A., amounting to $258.8 million. Loss incurred during the six months of 2009 resulted from one-off inventory revaluations due to the weak market conditions. During the reporting period, NLMK granted a $315.2 million loan to Steel Invest and Finance S.A. and its subsidiary to finance its current operations and increase working capital. A proportional financial support was also granted by the joint venture partner, Duferco Group," the statement says.

"In the EU, a process of destocking is still underway, however we saw steel demand gradually stabilizing and July and August steel prices improving," it says.

Net debt as of 30 June, 2009 reached $736.5 million, down $105 million or 12% compared to the 2008 year end. Net debt declined due to debt repayment during the first six month of 2009 conducted according to the debt payment schedule and stable cash flow generated by the Group during the period.

The H1 2009 net debt/EBITDA ratio reached 0.27.

Long-term liabilities make up 60% of the Company's debt. Short-term liabilities are distributed evenly throughout 2009.

Working capital fell 22% and amounted to $4.16 billion, which is attributable to lower volume of receivables and inventories. Accounts receivables dropped to $882.3, or 41% lower than at the 2008 year end. This decrease in receivables was mainly driven by lower volumes and weaker prices during the period.

Inventories fell by $524.5 million and totaled $1.031 billion due to cuts in volumes and cost of raw materials stocks, work-in-process and volumes of finished products. Accounts payable decreased by $769.9 million and totaled $1.109 billion.

Streamlining of working capital across the Group enabled it to release $902.7 million.

H1 2009 production costs (excluding depreciation and amortization) amounted to $1.67 billion (down 44% year-on-year). Q2 2009 production costs dropped by $78.9 million (down 9% quarter-on-quarter). Given this, the Q2 2009 average costs per tonne of slabs amounted to around $200, a decline of 20% quarter-on-quarter. This decline in Q2 2009 production costs was mainly attributable to the use of raw materials purchased at lower prices. An additional driver of lower production cost was the high utilization rate of the production facilities and production optimization.

Return on assets (ROA) and return on equity (ROE) are negative as the Group recorded net loss in H1 2009.

The NLMK group includes the core production facility Novolipetsk Steel , Denmark's DanSteel A/S, iron ore producer Stoilensky Mining and Processing , coke producer Altai-Koks, transformer steel producer VIZ-Stal and steel mini-mill developer Maxi Group.

Vladimir Lisin, NLMK's board chairman, controls an 84.6% stake in the company via Fletcher Group Holdings and LKB-Invest, while management owns a 2.5% stake.