MMK | 09 May 2007 г. | 15:24

MMK announces the results of its consolidated financial statements for the first six months of 2007 according to US GAAP

MMK announces the results of its consolidated financial statements for the first six months of 2007 according to US GAAP



Open Joint Stock Company Magnitogorsk Iron and Steel Works announces the results of its consolidated financial statements for the first six months of 2007 according to US GAAP.   
1. Financial results
The revenue of MMK Group in the first half of 2007 increased by 43,88% compared to the first six months of 2006 and amounted to USD   4 000 million.
·          The income from operating activities came to USD 1 077 million or 26,93% of the revenue.  The growth compared to the first half of 2006 amounted to 56,09%.
·         The consolidated net income of the company for the first half of 2007 increased by 47,28% from the similar period of the last year and amounted to USD 866 million, i.e. USD 0,083 per share.   The net income accounted for 21,65 % of the revenue. 
·         EBITDA for the first six months of 2007 came to USD 1 205 million or 30,13% of the  revenue. Compared with the first half of 2006 EBIDTA of the company grew by USD 420 million or 53,50%.   
Income statement of MMK Group          (Table 1)
 
The first half of the year
Year on year change
Million USD
2007
2006
Million USD
%
Gross revenue
4 000
2 780
1 220
43,88%
Income from operating activities
 
1 077
 
690
 
387
 
56,09%
Margin on revenue
26,93%
24,82%
 
 
Income before tax and minority interest
 
 
1 119
 
 
779
 
 
340
 
 
43,65%
Margin on revenue
27,98%
28,02%
 
 
 
Net income
 
866
 
588
 
278
 
47,28%
Margin on revenue
21,65%
21,15%
 
 
Comprehensive income
1 045
588
457
77,72%
Margin on revenue
26,13%
21,15%
 
 
 
EBITDA *
 
 
 
1 205
 
 
 
785
 
 
 
420
 
 
 
53,50%
Margin on revenue
30,13%
28,24%
 
 
Basic and fully diluted earnings per common share (USD)
 
 
 
0,083
 
 
 
0,058
 
0,025
 
43,10%
* Earnings Before Interests, Tax, Depreciation and Amortization = Income from operating activities + Depreciation and Amortization + Loss on disposal of property, plant and equipment
The main company of the Group is OJSC Magnitogorsk Iron and Steel Works. The share of  OJSC MMK’s sales to third parties accounts for  59,58% of the gross revenue of the Group and together with the sales of MMK Group metal traders  – for 90,88% (see table 2). Obviously the operating results of OJSC MMK have a determining influence on the financial results of the Group.  
Sales of MMK Group to third parties                                    (table 2)
 
The first half of the year
Year on year change
Million USD
2007
2006
Million USD
%
Revenue of OJSC ММК
2 383
1 618
765
47,28%
Margin on Gross revenue
59,58%
58,20%
 
 
 Revenue of Group Metal-traders
1 252
955
297
31,10%
Margin on Gross revenue
31,30%
34,35%
 
 
 Revenue of other companies of the Group
365
207
158
76,33%
Margin on Gross revenue
9,13%
7,45%
 
 
Gross revenue
4 000
2 780
1 220
43,88%
The following changes occurred in the revenue structure of MMK Group compared with the similar period of the last year: 1) the revenue and the share of OJSC MMK,  the parent company of the Group, in the consolidated sales  increased by  47,3% due to the growth of  steel prices and steel shipments to the domestic and CIS markets; 2) the  growth of the revenue from the increased export  sales of steel products through the Group metal traders amounted to  31,1%; 3) the revenue of MMK Group subsidiaries increased by  76,3%. In particular, the revenue of MMK-Metiz grew by USD 119 million, the revenue of  Stroitelny Complex  grew by USD 12 million,  and the revenue of MMK-Profil-Moscow grew by USD 6 million. The revenue of Bakalskoye Rudoupravlenie in the amount of USD 14 million is consolidated into the Group revenue.
In the first half of 2007 OJSC Magnitogorsk Iron and Steel Works produced 6 476 thousand tons and sold 5 951 thousand tons of commercial steel products, which is respectively by 9,4% and 10,6 % more than in the first  six months of 2006. Increase in production and sales volumes is accounted for by the expansion of the company’s production facilities.
The average price of 1 ton of steel products sold by OJSC MMK during the first half of 2007 amounted to USD  578, which is USD 122 or 26,8% higher than in the similar period of 2006.
Breakdown of MMK Group sales by product types                                    (table 3)
 
The first half of the year ,
Year on year change
Million USD
2007
2006
Million USD
%
Billets and Slabs
131
1
130
х131
Margin on revenue
3,28%
0,04%
 
 
Flat-rolled products
2 293
1 547
746
48,22%
Margin on revenue
57,33%
55,65%
 
 
Long products
417
251
166
66,14%
Margin on revenue
10,43%
9,03%
 
 
Downstream products
905
793
112
14,12%
Margin on revenue
22,63
28,53%
 
 
Other products and benefits
254
188
66
35,11%
Margin on revenue
 
 
 
 
Gross revenue
4 000
2 780
1 220
43,88%
 
The growth of the consolidated revenue compared with the last year is ensured by the increase in production volumes and sales of all types of steel products, and in particular:
·         Increase in the sales of slabs and billets. This increase is due to the expansion of steel making facilities and the resulting increased production of commercial slabs and billets.
·         Increase in the sales of long products and their margin on the revenue due to launching of new types of products at the state of the art section mills.   
·         Growth of the revenue from sales of flat and downstream products;
·         Increase in the sales of other products and services by the companies of the Group.  
Operating expenses of MMK Group                                                                        (table 4)
 
The first half of the year ,
Year on year change
Million USD
2007
2006
Million USD
%
Cost of products sold (exclusive amortization and depreciation)
2 348
1 631
717
43,96%
Amortization and depreciation
99
89
10
11,24%
Selling and distribution expenses
256
191
65
34,03%
Administrative expenses
121
134
-13
-9,70%
Social costs
47
31
16
51,61%
Taxes other than income taxes
40
25
15
60,00%
The production costs were primarily influenced by the production increase and growth of average purchase prices for main raw materials and supplies. The selling and distribution expenses of the Group during the first six months of 2007 grew by USD 65 million or 34%, mainly due to the expenses on transportation  of the increased volumes of steel products through the Group metal traders.
The administrative expenses were reduced by USD 13 million or 9,7%. Such reduction resulted, among others, from the reimbursement by the Depositary Bank of the costs and expensed incurred by the Company in the course of initial public offering of GDRs of OJSC MMK at the London Stock Exchange in the amount of USD 9 million, from the received insurance indemnification with respect to the accident at Rolling Shop No. 5 in the amount of USD 4 million and from the revaluation of the securities in the amount of USD 4 million.
Social expenses rose due to the increase of expenses for charity, including USD 7 million spent for the construction of Ice-Hockey Metallurg Arena.
The increase of other taxes by USD 15 million is related to the growth of the Group's volume of operations. The most significant influence was exerted by the increase of the property tax since new fixed assets had been put into operation.
The operational income in the first half of 2007 rose year-on-year by 56,09%. The operating margin amounted to 26,93% (24,82% in the first half of 2006).
The earnings before taxes and minority interests as well as the Net profit in the first half of 2007 were increasing more slowly than the operational income due to the decrease of financial incomes as well as due to the decrease of positive foreign exchange difference by USD 58 million or 65,2%.
EBITDA grew by 53,5% and amounted to USD 1205 million. The ratio EBITDA of the Group / ton of steel amounted to USD 186, which is year-on-year higher by USD 53,5 USD or by 40,4%. EBITDA margin came to 30,1%, which is higher than the average in the industry.
The free cash flow of the MMK Group                                                        (Table 5)
 
First half of the year,
Year-on-year change (compared to the similar period of the previous year)
USD million
2007
2006
  USD million
Funds flow from operations *
99 9
68 4
3 15
Change in working capital
-6
-2 4
18
Net cash provided by operating activities
993
660
333
CAPEX
-364
-310
-54
Free cash flow
629
3 50
279
* Funds flow from operations = The flow of funds from operational activities before the change in the working capital
The operational cash flow generated by the Group (USD 993 million in the first half of 2007 - Table 5), is sufficient to ensure stable operations of all the Companies of the Group and to perform a large-scale investment program.
The outflow of the working capital came to USD 6 million.
The cash expenses in the first half of 2007 for the investments in the property, plant and equipment and intangible assets amounted to USD 364 million.
In the first half of 2007 OAO MMK paid dividends in the amount of USD 357 million (excluding the dividends on treasury shares).
2. Financial performance
The MMK Group balance, USD million                                                                    (Table 6)
 
30.06.2007
31.12.2006
Total current assets, including
3 895
2 480
Cash and cash equivalents
548
338
Short-term bank deposits
1 278
228
Short-term investments
306
325
Trade accounts receivable
472
422
Allowance for doubtful accounts receivable
-11
-12
Inventories
687
688
Other receivables and current assets
615
491
Non-current assets, including
3 683
3 209
Property, plant and equipment
3 023
2 764
Other non-current assets
659
445
Total Assets
7 577
5 689
Non-current liabilities, including
729
686
Long Term Debt and capital lease obligations
578
606
Other long-term liabilities
151
80
Current liabilities, including
1 147
964
Short Term Debt
498
400
Trade accounts payable
290
225
Other payables and current liabilities
359
339
Minority Interests
23
12
Equity
5 678
4 027
Total liabilities and stockholders’ equity
7 577
5 689
 
The MMK Group financial performance is characterized by:
High liquidity. Current assets increased by USD 1415 million or by 57% (mainly due to the proceeds from the initial public offering), the current liabilities of the Company grew by USD 183 million or by 19% (due to the growth of loans and bank loans and to the growth of accounts payable). The current liquidity ratio grew from 3,02 as of the end of 2006 to 3,4 as of the end of the first half of 2007. The cash on the Group's accounts as of the end of the first half of 2007 amounted to USD 548 million. The MMK free cash resources are placed in highly liquid financial instruments: bank deposits, trading papers.
Low dependency on external sources of financing. The financial leverage calculated as the ratio of Total liabilities to the Owners' equity as of the end of the first half of 2007 amounted to 0,33. The ratio of the liabilities for loans and bank loans to the Owners' equity and to EBITDA during the year came to 0,19 and 0,45 respectively. The net cash position of the Group amounted to USD 750 million.
Analytical results                                                                                         (Table7)
Ratios
1-е пол. 2007
EBITDA margin
30,1%
Return on Average Equity (ROAE) = Net Income / Total Equity *
35 , 7 %
Net cash provided by operating activities / EBITDA
8 1 , 6 %
Current ratio = Current Assets / Current Liabilities
Х 3 ,40
Leverage = Total Liabilities / Total Equity
Х 0, 33
Debt / Equity
Х 0, 19
Debt / EBITDA *
Х 0,4 5
Interest EBITDA Coverage = EBITDA/  Interest Expense
Х 3 2 , 6
Debt
1 076
Net Debt / (Net Cash Position) = Debt – Cash and equivalents – Short-term deposits
(750)
  • Net income and EBITDA are calculated using coefficient 2 in order to obtain the annual figure.
Source: Metal Supply and Sales
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