Annual Report 2007 - Severstal

Russian Steel
Crude steel production in Russia, 2007
Metal products production in Russia, 2007
Evraz 19.4%
MMK 18.3%
Severstal 16.4%
NLMK 12.5%
Metallinvest 9.0%
Mechel 7.7%
Other 16.7%
MMK 20.6%
Evraz 20.1%
Severstal 17.9%
NLMK 14.5%
Metallinvest 9.0%
Mechel 7.5%
ESTAR 1.7%
Other 8.7%
Source: Chermet.
Source: Chermet.
Russian Steel is Severstal’s largest segment by revenue.
In 2007 it was the third largest steel company in Russia by
volume of crude steel production (16.4%) and third in terms
of rolled products (17.9%).
Russian Steel benefits from a good geographical location,
which gives us favourable access to the raw materials we need, to
our transportation networks and our markets.
We produce a wide range of products through this part of our
business, including hot-rolled sheets, profiles, and cold-rolled coated
sheets – encompassing special-grade sheets for the automotive
industry, hot-rolled plates and long products. We mainly sell our
steel products in our domestic market, serving the needs of the
Russian automotive, construction, shipbuilding, engineering and
other industries.
We produced 11.9 million tonnes of crude steel and 10.8 million
tonnes of semi-finished rolled and downstream products in 2007.
Revenue from our steel businesses was US$7.969 billion, an increase
of 26.1% on 2006. EBITDA was US$2.53 billion, up 26.7% on the
previous year.
Russian Steel comprises:
Cherepovets Steel Mill
Located in Cherepovets, this mill specialises in steel production
(with the total steelmaking capacity of 13.2 million tonnes a year).
It also produces a wide assortment of flat and long-rolled
products, including hot and cold-rolled flat products, galvanised
and colour coated products and long-steel applications. Rolling mill
5000, situated in Kolpino, produces hot-rolled plates and strips.
Severgal
Also located in Cherepovets, Severgal produces high-quality
galvanised steel for the automotive and other industries.
Trading and service companies
You can read about these companies in our consolidated
financial statements.
Changes in the structure of our steel business
We acquired Neva-Metall and Neva-MetallTrans, companies
specialising in the trans-shipment of containers and other cargo, to
guarantee the export of all our rolled metal products through the
port of St. Petersburg. Acquiring these companies was strategically
important for the security of our transportation and logistics.
We established the Armeta Centras UAB (Lithuania) and
Severstal-Ukraine LLC sales companies to expand our sales’
geography.
We also sold OOO Uralmash MO as a part of a restructuring
process, in line with our policy to sell our non-core assets. We
reorganised SIA Steel Invest (Latvia) as part of a merger with
Severstal Lat.
Strategy
The principal objectives of Russian Steel are to:
– Increase the output of high-margin products
– Increase our share in the most profitable market segments,
namely:
– plate for pipes and shipbuilding industries
– constructing mini-mills to manufacture rolled products for the
construction industry
– high-quality products for engineering.
– Improve cost control and efficiency.
Key performance indicators
In 2007, Russian Steel’s revenue grew by US$1.65 billion. This was
26.1% up on the previous year due to a sales increase of 795,700
tonnes (7.9%) of steel products, a growth in sales prices and a
weakening dollar. Taken together, this resulted in an average price
increase for steel products of US$101 per tonne. Production costs
grew significantly in 2007 due to the rise in cost of raw materials,
as well as higher average wages, but were offset by increased
prices for rolled products. As a result, our 2007 operating margin
remained at 27.2%, the same level as in 2006.
2007 EBITDA grew by 26.7%. EBITDA per tonne of
production grew by 17.2% to a healthy US$232. Our EBITDA
margin remained stable at 31.8%.
Severstal Annual Report 2007 41