Severstal-metiz: good financial results

“Implementation of the niche product strategy, intensifying the specialization of the company, costs optimisation, including infrastructure maintenance and customer relations development enabled us to achieve the goals we had set”. This is how Olga Naumova, CEO of the Severstal-metiz Company summarises the 2008 results.

Good financial results – EBITDA equaled 113.9 million dollars (a 30% increase in comparison with 2007) – were primarily a result of the favourable situation in the key markets served by the company in the first half of 2008. “The influence of the world financial crisis became appreciable in the 3^rd quarter of 2008 and increased in the 4^th quarter. In addition, the end of the year was characterised by typical seasonal production decline. Both factors resulted in lower consumer demand in our key markets of construction, automotive and machinery construction”, Olga Naumova comments.  Cold-drawn and low-carbon product groups showed the most significant downturn: -50% and -30% respectively.

During 2008 the Severstal-metiz Group of Companies persevered with its strategy of developing niche markets, which meant that the company concentrated on production of high value added products with services and potential for interaction with individual customers rather than simple commmodity products. As a result within the group’s product portfolio the share of steel wire ropes increased by 1% and high-carbon and alloyed steel wire by 2%. At the same time the proportion of low value added low-carbon wire reduced by 2%. That orientation together with the reduction of wire and wire products demand in the last six months of 2008 in almost all of the company’s domestic markets* led to a reduction of  finished product shipments by 19% from 1047.3 thousand tones in 2007 to 847.1 thousand tones in 2008. 

The Italian wire rope market dominated by the Redaelli Company continued to be stable compared to other markets. As a result of its acquisition (in July, 2008) the Group strengthened its position in the priority segment of high-carbon products  by extending its product range through the inclusion of speciality wire ropes of complex structure produced by the Italian company. In addition Severstal-metiz also commenced service and engineering development within the wire rope business utilising Redaelli’s experience.

During 2008 Severstal-metiz systematically reduced costs and improved its internal efficiency. Infrastructure optimisation projects (around 10% of all investments) were of paramount importance for the company: These projects included “North-South” in Volgograd, Russia, (optimisation of factory area and concentration of production in the southern part of the enterprise), “Centre” in Cherepovets, Russia, (all the activity of the enterprise to be concentrated on one compact territory in the central part of the site) and optimisation of the wiredrawing production facility at Dneprometiz in Dnepropetrovsk, Ukraine.

In 2008 companies within the Group actively developed the manufacture of new products. Severstal-metiz started the production of a new design of steel fibre “Hendix” (which enables builders to increase reinforcement efficiency and labour productivity); compacted wire ropes, designed especially for aggressive environments and machinery with strict operational requirements; large diameter copper coated solid welding wire (for the pipe industry); galvanised welded mesh more resistant to the influence of environmental conditions; corrugated mesh for the chemical industry, used for sieving wet and dry materials which are difficult to separate; high strength grade fasteners and new fastening elements for Russian Railways. Investments in these projects averaged half of overall investments in 2008**.

2009 requires far more determined actions from Severstal-metiz concerning improvements in internal efficiency and the promotion of effective new products in the market which are capable of bringing real economic benefits to clients. “In conditions of deep financial crisis mutual programmes of cost cutting will help us and our partners to remain highly competitive”, believes Olga Naumova. In her opinion, today’s demand will stay low for the whole of 2009 in contrast to last year’s market level***. Competition in the market will grow fiercer and this will have beneficial consequences for customers as well as stimulate the recovery of the industrial sector (through the exclusion of inefficient players, productivity and efficiency improvement, etc).

***
*More than 7% decrease in Russia, more than 16% decrease in the Ukraine and more than 22% decrease in Great Britain.

**Total value of investments in 2008 reached 31.5 million dollars, the maximum in the company’s history (4% higher than in 2007).

***Around 70% below 2008 (according to the Russian Prommetiz Association’s report).