Severstal reports Q1 2012 financial results

CONSOLIDATED FINANCIAL RESULTS FOR THE QUARTER ENDED 31 MARCH 2012

Notes:

1) These amounts reflect adjustments made in connection with the presentation of discontinued operations, final purchase price allocation and the early adoption of the revised IAS 19 “Employee benefits”.

2) EBITDA represents profit/(loss) from operations plus depreciation and amortization of productive assets adjusted for gain / (loss) on disposals of property, plant and equipment and intangible assets.

3) Attributable to shareholders of OAO Severstal.

4) EPS is calculated for 926.5 million shares for Q1 2012 and for 1005.2 million shares for Q1 and Q4 2011.

Q1 2012 vs. Q4 2011 ANALYSIS:

- Decline in quarterly revenues and earnings due to lower realized prices and an additional allowance in respect of inventories at Severstal Russian Steel;

- EBITDA down 26.7% to $562 million (Q4 2011: $767 million) and EBITDA margin decreased to 15.3% (Q4 2011: 20.6%) partly attributable to the change in our working capital management approach at Severstal Russian Steel;

- Excluding the negative one-off of $56.7 million, Q1 2012 EBITDA would be $618.7 million with EBITDA margin of 16.8%;

- Revenue down 1.3% to $3,679 million (Q4 2011: $3,727 million);

- Decrease in net profit by 7.8% to $427 million (Q4 2011: $463 million). Net profit decreased less than EBITDA and was supported by stronger rouble and the effect of the separation of Nordgold;

- Recommended dividend payment of 4.07 roubles per share (approximately $0.13) for the 3 months ended 31 March 2012.

FINANCIAL POSITION HIGHLIGHTS:

- Robust liquidity position: $2,244 million in cash and cash equivalents, comfortably covering short-term debt of $1,699 million1;

- Net Debt/EBITDA remains at 1.1x at end of Q1 2012, below target level of 1.5x;

RUSSIAN STEEL

Severstal Russian Steel’s Q1 2012 revenue was down 4.9% q/q to $2,226 million (Q4 2011: $2,341 million) due to declining steel prices, weaker product mix and lower sales volumes on the domestic market. This, together with an additional allowance in respect of inventories (primarily spare parts) of $56.7 million, led to EBITDA contracting by 52.9% q/q to $186 million in Q1 (Q4 2011: $395 million). The share of high-value-added products went down slightly to 45% from 46% in Q4 2011 due to higher export sales of semi-finished products, while the proportion of sales volumes to the domestic market decreased to 53% from 57% in Q4 2011.

The outlook for the global steel industry remains challenging, however we see improving fundamentals for Russian Steel in Q2 due to more stable steel prices and firm domestic demand. Export markets remain unstable: sluggish demand in South Europe may lead the steel prices down, that said buying before Ramadan in the Middle East could provide some upside for the steel market.

SEVERSTAL RESOURCES

Severstal Resources recorded lower revenue in Q1 2012 due to weaker prices for iron ore and coking coal, as well as lower sales volumes in Russia and overall weaker global demand. The division’s revenue went down 8.5% q/q to $811 million (Q4 2011: $886 million). Lower revenue and broadly flat costs led to a 6.4% decrease in EBITDA to $322 million (Q4 2011: $344 million) with EBITDA margin up by 0.9 ppts q/q to 39.7%.

Adjusting for non-cash one-off items, total cash costs at PBS returned to $100/t (Q4 2011: $170/t). Total cash costs at Vorkuta were up to $86/t in Q1 (Q4 2011: $72/t) due to an annual increase in labor costs and a lower contribution of low-cost semi-soft coal in the total product mix. Iron ore costs remained largely unchanged at Olkon at $51/t and were down to $60/t at Karelskiy Okatysh.

SEVERSTAL INTERNATIONAL

Overall strong demand in the US in Q1 2012 led to a boost in sales at SNA with rolled products sales increasing by 19% q/q. The launch of two modern galvanizing lines at Columbus and Dearborn in Q1 helped increase sales of galvanized products by 28% q/q and 19% y/y.

Solid end demand drove prices upwards (+6% q/q average for SNA rolled products) which together with higher sales volumes boosted SNA revenue by 22.9% to $1,095 million (Q4 2011: $891 million) and EBITDA surged 3.7x q/q to $66 million (Q4 2011: $18 million). Profitability metrics registered improvement also with EBITDA/t increasing significantly by 3 times q/q to $54/t and EBITDA margin increasing by 4.0 ppts to 6.0%.

Overall US steel production was up 7% y/y in Q1 2012, while imports rose 30% y/y due to favorable prices. Auto sector demand remains solid with auto sales up 13% y/y in Q1. New orders of durable goods increased 7% YTD through Q1 and private residential and non-residential construction showed strong signs of recovery, advancing 19% and 17% YTD correspondingly in the quarter.

DIVIDEND

The Board is recommending a dividend of 4.07 roubles per share (approximately $0.13) for the three months ended 31 March 2012.

Approval of the dividend is expected at the Company’s AGM which will take place on 28 June 2012. The record date is 15 May 2012.