Annual Report 2007 - Severstal

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Business review Piombino sales by industry Ascometal sales by industry Railway industry 25.4% Steel industry 20.4% Trading and regional distribution 10.3% Bearings 5.6% Machine building 4.8% Automotive 3.5% Construction 3.5% Other 26.5% Automotive 34.5% Machine building 24.1% Bearings 16.2% Railway industry 3.7% Other 21.5% Sales by industry Most of Piombino’s deliveries were to the steel processing, machine building and railway industries. Other important customers are bearing manufacturers, and the construction and automotive industries. Shipments to the automotive industry were 48% higher in volume, and 76% higher in revenue, compared with 2006. Ascometal sales of long products to the automotive industry were 6% higher in volume and 18% in revenues in 2007 compared with 2006. Other important sectors include the bearing and springs market, and machine building and railway industries. Key markets Lucchini has more than 1,000 customers in its main markets in Italy, France and Germany. Lucchini sells its Piombino products primarily in the Italian domestic market, and nearly half of its Ascometal products in the French domestic market. Lucchini’s main objectives include maintaining and strengthening its cost leadership position in Italy and Western Europe and pursuing development in new, high-growth markets such as Eastern Europe and the Far East. Lucchini has commercial offices in Zurich, Barcelona, New York, Singapore, Dusseldorf and Manchester (UK) and exports its products to more than 60 countries. Lucchini has centralised sales and marketing departments. Sales by Market, Lucchini 2007 2006 Change US$ US$ year-onmillion % million % year % Market Europe 3,220 85.7 2,851 85.0 12.9 Americas 244 6.5 344 10.2 (29.1) Asia 290 7.7 162 4.8 79.0 Russian Federation 3 0.1 – – – Total 3,757 100.0 3,357 100.0 11.9 Capital expenditure Neither Piombino nor Ascometal implemented any big capital projects in 2007. Lucchini Group’s total capital expenditure was 57% higher than in 2007 compared to 2006. It amounted to US$199.3 million in 2007 compared to US$126.7 million in 2006. The growth was related mainly to development projects (aimed at improving quality and performance and reducing cost) which made up 52% of total 2007 capex. The remainder was maintenance capex aimed primarily at maintaining existing facilities. Some 80.7% of capital expenditure relates to industrial projects. The remaining 19.3% relates to IT, safety, environmental and non-production projects. 52 Severstal Annual Report 2007
Metalware Sales by industry in Russia and the Belarus Republic Construction 24.1% Mass-scale retail market 22.9% Russian railway 12.3% Automotive industry 8.1% Engineering industry 8.1% Metalware production 7.3% Other 17.2% Our Metalware segment includes Severstal-metiz – Cherepovets plant, Volgograd plant, Orel plant (Russia), Dneprometiz (Ukraine), Carrington Wire (Great Britain) and four other subsidiaries (Russia): Steellace, UniFence, UniSpring, Orelcord. It has a leading position (25% of the market share) in the Russian metalware industry, an 18 % share in the Ukrainian market, and a 23% share in the UK market. The segment manufactures cold-drawn products (cold-drawn steel, railway fasteners, steel shapes), highcarbon products (wire, wire ropes), low-carbon products (wire, nails, fibre), welding materials (flux cored wire, solid welding wire, electrodes), mesh (chain-link mesh, woven mesh, welded mesh, gabions), fasteners for common applications, and other products including spring blocks, consumer goods and steel cord. The Metalware segment’s annual production capacity is 1.5 million tonnes of wire and wire products, with a range including over 55,000 types of goods. The segment has a diversified portfolio of suppliers, including almost all large manufacturers of raw materials in CIS and Europe – such as Cherepovets Steel Mill, OEMK, MMK, MMZ, ArcelorMittal, Corus, Lucchini and OVAKO. About 55% of required volume of raw materials used in metalware production comes from Cherepovets Steel Mill. In 2007, the segment’s plants manufactured 1,048 thousand tonnes of metalware. Sales revenues were US$1.01 billion, while EBITDA was US$87.3 million. Structure Severstal-metiz comprises plants in Cherepovets, Volgograd and Orel: – The Cherepovets plant focuses on high-value-added products (cold-drawn, high-carbon, low-carbon segments) – The Volgograd plant specialises in high-carbon products, including steel wire and wire ropes – The Orel plant focuses on welding materials and fasteners. Severstal’s stake in Severstal-metiz is 97%. Dneprometiz is located in Dnepropetrovsk, Ukraine. It specialises in low-carbon products, manufacturing high-value-added products. In terms of production volumes, Dneprometiz is Ukraine’s largest manufacturer of metalware. In 2007, Severstal-metiz held 60%+1 of the shares in Dneprometiz, which corresponded to 58.2% of the Group effective ownership interest at 31 December 2007. Carrington Wire operates in Elland, Great Britain. The plant occupies a leading position within the UK steel wire products market. Its total production capacity, approximately 150,000 tonnes a year, is derived from high-carbon, low-carbon and coldheading wire. In 2007, Severstal-metiz held all shares in Carrington, which corresponded to 97% of the Group effective ownership interest at 31 December 2007. Metalware segment also includes a number of specialised subsidiary interests in Russia: – UniFence (formerly known as Policher) is located in Orel and Cherepovets, manufactures mesh – UniSpring (formerly known as ChSPZ-MKR) is located in Orel and Cherepovets, manufactures spring blocks – Orelcord (formerly known as TrefilArbed Rus) is located in Orel, produces steel cord, technical cord for conveyer belt, brass plated bead wire and hose wire – Steellace is located in Orel and Volgograd, manufactures consumer goods. In 2007, Severstal-metiz increased its shareholding in UniSpring and Orelcord to 100%, which resulted in the Group having an effective shareholding of 97% at 31 December 2007, in accordance with Severstal-metiz’s strategy of increasing highvalue-added production aimed at the domestic markets. Strategy The company’s strategic goals are: – Concentrating on high-margin products – Creating additional client services – Product specialisation and optimising the infrastructure. Severstal Annual Report 2007 53
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Annual Report 2007
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Page 5 and 6: Sales by delivery destination 2007
Page 7 and 8: Corporate structure In April 2008,
Page 9 and 10: Dividend payments were 40.1% of 200
Page 11 and 12: Our strategy for growth is to: - Re
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Page 17 and 18: The mining area of Vorkutaugol cons
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