LSE listed leading Russian steel producer Novolipetsk Steel announced Q2 2009 Russian Accounting Standards financial results for its major companies1

NLMK said that “Q2 2009 net profit increased substantially compared to Q1 2009 due to the accrual of dividends for FY 2008 contributed by NLMK’s subsidiaries during the Q2.”

It added that “Key drivers of a YoY decline in the company’s Q2 2009 financial performance were lower sales volumes and depressed prices resulting from subdued demand.”

A. NLMK (Main production site in Lipetsk)
Q2 2009 net profit grows QoQ at Lipetsk

A growth in sales volumes, driven mainly by sales of slabs and coated steel, was the key factor contributing to sequential Q2 2009 revenue growth at NLMK’s main production site despite lower average sales prices during the period. Thus higher sales volumes coupled with the utilization of lower priced raw materials purchased in 2009 resulted in a 43% quarter-on-quarter rise in gross profit.

Q2 2009 net profit increased substantially compared to Q1 2009 due to the accrual of dividends for FY 2008 contributed by NLMK’s subsidiaries during the second quarter.

Key drivers of YoY decline in the company’s Q2 2009 financial performance were lower sales volumes and depressed prices resulting from subdued demand.

(In thousand RUB)

B. VIZ Stal
VIZ Stal sales revenue sequentially increases in Q2 2009

In Q2 2009 sales volumes of transformer steel grew 69%QoQ driven by a transfer of orders for transformer steel from the Lipetsk production site where the transformer steel shop has been temporarily stopped for upgrade to VIZ-Stal. Higher sales volumes backed by an insignificant decline in sales prices of -6%QoQ were the key factors driving sales revenue and gross profit in Q2 2009.

Decline in net FX differences led to lower net profit in Q2 2009.

The adverse economic environment spurred a decline in global demand for transformer steel that in turn led to lower sales volumes and depressed financial results in Q2 2009 compared to the corresponding period of last year.

In Q3 2009 we will see signs of revival in the transformer steel market and therefore expect VIZ-Stal sales volumes to exceed 20% sequentially.

(In thousand RUB)

C. Stoilensky GOK
Stoilensky posts stronger financial results in Q2 2009

Stoilensky’s better Q2 2009 financial performance compared to the previous quarter was mainly due to an increase in sales volumes at both the main production site in Lipetsk and third-party customers. In Q2 2009 gross profit growth outpaced that of sales revenue by 33pp, due mainly to the successful implementation of management program directed at the production efficiency of the company.

Lower prices for iron ore concentrate and sinter ore were the key factors contributing to decreased Q2 2009 sales revenue compared to the corresponding period last year.

(In thousand RUB)

D. NSMMZ (Nizhneserginsky plant)
NSMMZ shows better performance in Q2 2009

Q2 2009 sales revenue sequentially grew due to higher sales volumes during the period.

Higher production costs, driven mainly by rising scrap prices, adversely impacted Q2 2009 gross profit.

Operating profit in Q2 2009 was - RUB 158 million, attributable mainly to growing production costs. Net loss sequentially decreased to RUB 1.16 billion. This decrease compared to the previous quarter results from the absence of nonrecurring items incurred in Q1 2009.

A YoY decline in the Q2 2009 financial performance was mainly attributable to a slump in prices and decreased sales volumes resulting from deteriorated demand.

(In thousand RUB)

E. Altai koks
Improvement in Altai koks Q2 2009 sales revenue

In Q2 2009 sales revenue at Altai-koks improved QoQ due to an increase in sales volumes resulting from increased steel production at NLMK’s Lipetsk site coupled with the decommissioning of two coke batteries at the Lipetsk site’s coke operations. In Q2 2009 operating profit reached RUB 365 million a increase of RUB 1.1 billion QoQ.

This is attributable to lower production costs in Q2 2009, as high priced coal inventories were worked through in Q1 2009 coupled with increased utilization rate in Q2 2009. In Q2 2009 Altai-koks posted a net loss due to non-recurring charges compared to net profit in the previous quarter. Provisions for coal and coke inventories impairment accrued in December 2008 and positive foreign exchange differences secured Altai-Koks’ Q1 2009 net profit.

Q2 2009 financial performance of Altai-koks decreased YoY due to a lower level of sales volumes and prices for coke products.

(In thousand RUB)

F. NTK (Transportation Company)
Growth in NTK Q2 2009 revenue

The QoQ increase in transportation volumes, share of export deliveries and number of cars leased by third parties contributed to an improved financial performance in Q2 2009.

During the period net profit insignificantly decreased due to the provision for doubtful debts made in Q2 2009 and a decrease in gains from foreign exchange operations.

An increase in railway tariffs throughout 2008 and the Q1 and higher shipment volumes contributed to NTK’s sales revenue growth YoY.

The key factor contributing to lower QoQ financial results was increased leasing and rent expenses in the cost structure resulting from an increase in rolling stock taken under financial and operational lease.

Another reason for this weaker performance was a provision for doubtful debts made in Q2 2009. By the end of Q2 2009, NTK’s owned and leased rolling stock had grown to 4,860 units.

(In thousand RUB)