The Russian steel producer Magnitogorsk Iron and Steel Works (MMK) has issued its consolidated financial results for the second quarter of 2009 under the International Accounting Standards (IAS).
Accordingly, in the second quarter of 2009, MMK was the first company among its Russian peers to register a switch from negative to positive on the net income line, and said it expects the recovery to continue in the third quarter of 2009. MMK's Q2 net income amounted to $59 million, which is $169 million higher than in Q1 2009, its EBITDA equaled $207 million which is $108 million higher compared to Q1 2009, while its EBITDA margin doubled compared to the previous quarter and amounted to 20 percent, which is the highest margin among other Russian steel producers.
In addition, MMK was also less indebted than its main Russian counterparts, with its total debt at the end of Q2 amounting to $1.6 billion, and its net debt equaling only $865 million. MMK said it reduced its short-term debt by 20 percent in Q2 after a premature repayment of credit facilities to Russian banks.
Meanwhile, during the period in question MMK's sales increased by eight percent quarter on quarter to $1.038 billion. The volume of domestic shipments amounted to 55 percent of MMK's total sales in Q2 2009, while in money terms shipments to Russia and the CIS accounted to 64 percent of group's sales. The share of high value product shipments increased from 21 percent in Q1 2009 to 30 percent in Q2, and accounted for 40 percent of MMK's total sales revenue. MMK's export sales are diversified to minimize the adverse impact of volatility in individual markets. Thus, sales generated from shipments to Asia and the Far East in H1 2009 accounted for 14 percent of its total sales, with sales to China accounting for seven percent of total sales.
In Q2 2009, MMK's crude steel production increased by four percent quarter on quarter to 2.16 million mt, while its output of commercial steel products changed insignificantly compared to Q1 to 1.919 million mt. During the period in question, MMK focused on the increase of its volume of high value-added products. Thus, in Q2 MMK's output of cold rolled sheet grew by 47 percent while its output of downstream products increased by 36 percent, both compared to Q1, but it did not produce any commercial billets and slabs.
Despite the unfavorable macroeconomic situation, MMK continued its investments in strategically important projects. Q2 2009 CAPEX amounted to $571 million, thus totaling $929 million for H1 2009. The investments made were in general related to completing the construction of its new plate mill 5000 and of its color coating line No. 2, commissioned in July, which will allow MMK to increase its share of high value-added products to 54 percent by 2013.
In Q3 2009, MMK expects its output to grow by 35 percent quarter on quarter, while its rolling capacity utilization rate should reach 94 percent of its Q3 2008 levels, with a 100 percent capacity utilization rate in September.
As the domestic market remains the priority for MMK as it provides for high levels of profitability and sales, in Q3 MMK expects to increase its domestic shipments by over 30 percent compared to Q2 2009.