NLMK 1H net profit climbs on strong demand and higher prices

NLMK posts 2Q 2011 net profit of $587 million under US GAAP
Russian steelmaker, NLMK, has posted a 2Q 2011 net profit of $587 million under US GAAP.

The net result was up 50% quarter on quarter from $392 million in 1Q 2011, with 2Q EBITDA up 43% quarter on quarter to $837 million, on the back of a 26% quarter on quarter rise in revenues to $3 billion.

The 2Q figures made for a 1H 2011 net income of $979 million, up 66% on the 1H 2010 net profit of $590 million, with 1H 2011 EBITDA increasing 23% year on year to $1.4 billion, on the back of a 39% year on year increase in revenues to $5.3 billion.

NLMK Chief Financial Officer, Galina Aglyamova, was upbeat about the figures, saying an improved market environment coupled with cost control led to a strong performance in 1Q flowing through into 2Q.

“NLMK’s sales volumes increased 13% and revenue was up 26% supported by better market conditions. The geography of sales improved while average selling prices increased. Despite the higher average prices for raw materials, NLMK managed to retain control over production costs and increase its EBITDA by 43% quarteronquarter, and the EBITDA margin by 3 p.p. to 28%.”

Aglyamova added that consolidation of the recently acquired Steel Invest and Finance rolling assets would help diversification, greater production of higher margin product, and operating performance going forward.She particularly noted the contribution to the financial outlook the acquisition made.

“In Q3 we expect our operating performance to improve, driven primarily by the consolidation of Steel Invest and Finance rolling assets. Through growing the share of value added, the Company’s sales structure will improve significantly following the acquisition. As a result, the Company will substantially reduce risks related to pricing volatility in the slab market and achieve greater penetration of the more stable finished product markets. This was acknowledged by the leading rating agencies – in Q2 they upgraded NLMK’s credit rating to investment grade, making us the only company in the Russian metals and mining universe with an investment grade from the three leading rating agencies.”

Aglyamova also stated that production volumes would be further supported by the launch of new capacity in Lipetsk, but with headwinds stemming from raw material price increases and consolidation costs.

“We are also planning to launch our new blast furnace at the Lipetsk site at the end of Q3. As a result, output and sales in the following periods will grow significantly. At the same time, we expect the Q2 further growth in raw material prices to impact our production costs in Q3. Coupled with the growth of overall production costs the consolidation of Steel Invest and Finance rolling assets may have a negative impact on our profitability.”