Severstal 1H 2011 returns to profit as vertical integration strategy builds bottom line

Russian steelmaker, Severstal, has posted a 1H 2011 Net Profit of $1.1 billion under IFRS.

The 1H 2011 bottom line showed a sharp turnaround from a $593 million net loss posted for 1H 2010, with 1H EBITDA rising 34.5% year on year to $2 billion,on the back ofa 27% year on year increasein revenues to $8.1 billion.

The 1H results included a 2Q 2011 net profit of $602 million up 15.8% on 1Q 2011, with 2Q EBITDA rising 18.7% quarter on quarter to $1.1 billion, as 2Q revenues climbed 17.6% quarter on quarter to reach $4.4 billion.

The Company said the financials were driven by a favourable pricing environment, coupled with growing demand for steel and bulk products.

Alexey Mordashov, CEO of Severstal, was upbeat about the results, noting they reflected a sound strategic approach focussing on vertical integration and cost structure optimization.

“Our strong performance in the 2nd quarter and the whole 1st half of the year 2011 again demonstrated the benefits of our vertically-integrated model, low-cost operations and focus on high growth and high margin segments. Increases in the prices of major raw materials, coupled with strong price environments in the global steel and gold markets, led to significant EBITDA growth on the back of EBITDA margin at over 25%. We remain on track to fulfill our planned 2011 capital expenditure programme, with some projects running ahead of schedule. Our Net Debt/EBITDA level continued to improve to 1.1x, below the targeted 1.5x, and we will look to maintain our reasonable level of debt and solid liquidity position going forward.”

Mordashov also said that the current work model will continue providing strong competitive advantages in 2H 2011.

“That said, we understand potential risks associated with the current challenging economic environment, but strongly believe that our major advantages – raw materials self-sufficiency, low-cost operations, balanced product-mix and flexible sales structure – leave us in a better position for the second half of the year compared to the competition.”

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