Open Joint Stock Company Magnitogorsk Iron and Steel Works, one of the leading Russian integrated steel making companies, announces the results of its consolidated financial statements for the nine months of 2007 according to US GAAP.  

1. Financial results

·  The revenue of MMK Group in the nine months of 2007 increased by 32.31% compared to the nine months of 2006 and amounted to USD   6 150 million.

·  The operating income reached 1 626 million or 26.44% of the revenue.  The growth compared to the nine months of 2006 amounted to 24.88%.

·  The 2007 9 months' consolidated net income of the Company increased by 30.31% against the same period of last year and amounted to USD 1 393 million, i.e. USD 0.13 per share.   The net income accounted for 22.65 % of the revenue. 

·  EBITDA for the nine months of 2007 reached USD 1 821 million or 29.61% of the  revenue. Compared with the nine months of 2006 EBIDTA of the Company grew by USD 374 million or 25.85%.  

Income Statement of MMK Group                                                                            (Table 1)

* Earnings Before Interests, Tax, Depreciation and Amortization = Income from operating activities + Depreciation and Amortization + Loss on disposal of property, plant and equipment

The main company of the Group is OJSC Magnitogorsk Iron and Steel Works. The share of  OJSC MMK’s sales to third parties accounts for  57.89% of the gross revenue of the Group and together with the sales of MMK Group steel traders, for 90.08% (see table 2). It is obvious that the operating results of OJSC MMK have a determining influence on the financial results of the Group. 

Sales of MMK Group to third parties                                                                   (Table 2)

The following changes occurred in the revenue structure of MMK Group compared with the similar period of the last year: 1) the revenue of OJSC MMK,  the parent company of the Group, in the consolidated sales  increased by  33.4% due to the growth of  steel prices and steel shipments to the domestic and CIS markets; 2) the  growth of the revenue from the increased export  sales of steel products through the Group steel traders stood at 22.4%; 3) the revenue of MMK Group subsidiaries increased by 68.5%. In particular, the revenue of MMK-Metiz grew by USD 157 million, the revenue of  ZAO Stroitelny Complex, by USD 23 million,  and the revenue of MMK-Profil-Moscow, by USD 25 million. The revenue of Bakalskoye Rudoupravlenie in the amount of USD 23 million is included in the Group revenue.

In the nine months of 2007 OJSC Magnitogorsk Iron and Steel Works produced 9 934 thousand tons and sold 9 071 thousand  tons of commercial steel products, which is respectively 8.1% and 8.6 % more than in the same period of 2006. Increase in production and sales volumes is accounted for by the expansion of the company’s production facilities.

The average price of 1 ton of steel products sold by OJSC MMK during the nine months of 2007 amounted to USD  586, which is USD 101 or 20.7% higher than in the same period of 2006.

Breakdown of MMK Group sales by product types                                                        (Table 3)

The growth of the consolidated revenue compared with last year was prompted by increased production and sales of all types of steel products, in particular:

· Increase in sales of slabs and billets. This increase was due to the expansion of the Company's steel making facilities and the resulting increased production of commercial slabs and billets.

· Increase in sales of long products and their share in the total revenue thanks to the start-up of new state-of-the-art section mills.  

· Growth of the revenue from sales of flat and downstream products;

· Increase in the sales of other products and services by the companies of the Group. 

Operating expenses of MMK Group                                                                                (Table 4)

Production costs were primarily influenced by the production increase and growth of average purchase prices for main raw materials and supplies.

Selling and distribution expenses of the Group during the nine months of 2007 grew by USD 98 million or 32.6%, mainly due to the expenses of transportation  of the increased volumes of steel products through the Group metal traders.

Administrative expenses increased by USD 12 million, or 5.6%, which is less than the growth of total costs, due to one-off irregular gains.

Social expenses rose due to the increase of expenses for charity, including USD 7 million spent for the construction of Ice-Hockey Metallurg Arena.

The increase of other taxes by USD 18 million is related to the growth of the Group's volume of operations. The most significant influence was due to the increase by USD 13 million of the property tax since new fixed assets had been put into operation.

The operational income in the nine months of 2007 rose by 24.88% year-on-year. The operating margin stood at 26.44% (28.01% in the nine months of 2006). The reduction of the margin is attributable to a faster growth of production costs compared to the revenue's growth in the III Q of 2007.

The earnings before taxes and minority interests as well as the net profit for the nine months of 2007 were increasing at a faster pace than the operational income due to the increase of financial and other income, including the growth of interest income by USD 40 million, or 80.00%, and due to positive foreign exchange gain of USD 24 million, or 22.4 %.

EBITDA grew by 25.8% and amounted to USD 1,821 million. The Group EBITDA per ton of steel produced amounted to USD 186, USD 26 or 16.4% up on the previous year's figure. EBITDA margin reached 29.6%, which is higher than the industry's average.

The free cash flow of the MMK Group                                                                      (Table 5)

* Funds flow from operations = The flow of funds from operational activities before the change in the working capital

The flow of funds from operations in the nine months of 2007 stood at USD 1,562, which is higher than the previous year's level.

The outflow of the working capital reached USD 325 million.

The volume of the operations cash flow stood at USD 1,237 million.

Cash expenses for investments in the fixed and intangible assets in the nine months of 2007 amounted to USD 775 million.

The outflow of funds for payment of dividends under OJSC MMK's shares for the same period amounted to USD 459 million (including dividends under treasury shares).

2. Financial performance

The MMK Group balance, USD million             (Table 6)

The MMK Group financial performance is characterized by:

High liquidity. The current assets increased by USD 1,575 million or by 64% (mainly due to the proceeds from the initial public offering), while the current liabilities of the Company grew by USD 453 million or by 47% (due to the growth of loans and accounts payable). The current liquidity ratio grew from 2.57 as of the end of 2006 to 2.87 as of the end of the nine months of 2007. The cash funds on the Group's accounts as of 30.09.2007 amounted to USD 369 million. The MMK free cash resources are placed in highly liquid financial instruments, such as bank deposits (USD 1,283 million) and trading securities (USD 368 million).

Low dependency on external sources of financing. The financial leverage calculated as the ratio of Total Liabilities to Total Equity as of the end of the nine months of 2007 stood at 0.35. The Debt/Equity and Debt/EBITDA ratios during the year stood at 0.19 and 0.49, respectively. The net cash position of the Group amounted to USD 454 million.

Analytical Indicators                                                 (Table7)

* Net income and EBITDA were calculated using ratio 2 in order to obtain the annual figure.

The 2007 nine months' consolidated financial statements prepared according to US GAAP can be seen at: https://www.mmk.ru/rus/shareholders/b_reports/i_reports/index.wbp

The presentation of the 2007 nine months' consolidated financial statements prepared according to US GAAP can be seen at: https://www.mmk.ru/rus/shareholders/presentations/index.wbp