Striving for Excellence
Annual Report and Accounts 2009
|
Striving for Excellence
Annual Report and Accounts 2009 |
Our flexible cost base, vertically integrated model and solid financial position provide additional competitive advantage. Revenue for the year decreased to US$13,054 million as a result of difficult market conditions, particularly in the first half of the year. Cost reduction measures contained the net loss to US$1,037 million. We achieved a significant improvement in second half performance across all divisions, with net losses reduced to US$91 million versus net loss of US$946 million achieved in the first half of the year.
We generated strong free cash flow of US$751 million, primarily through working capital release, and strengthened the balance sheet by diversifying sources of debt funding and lengthening its maturity.
Despite the difficult market conditions, we continued to focus on our longer-term strategic initiative to be a leader in creating value, by delivering sustainable margins and industry-leading returns. This included the introduction of our ‘Mission, Vision and Values’ across all our divisions. These are focused on achieving excellence in everything we do, further developing our people and ensuring we operate to shared goals, values and standards.
2009 was a turning point to reemphasize and reconfigure our strategy. The global crisis has reminded us about inherent industry cyclicality and demonstrated ultimate importance of business resilience and earnings sustainability. This reinforced our conviction in a low-cost, vertically integrated business model. In line with this principle, we have adopted a new set of financial and industrial targets which will set tough but aspiring goals and will play the role of a powerful disciplinary factor in building our asset structure. This will also send a strong signal to ourselves and a signal to all our customers, shareholders, investors and business partners that we have a clear strategic vision and a streamlined strategic plan.
We know how to achieve our objectives utilizing key industrial growth drivers in the most efficient way via reinforcement and replication of winning business models we operate at Severstal.
Our key financial objective is to become one of the global industry leaders by EBITDA, while retaining one of a leading position by margins and returns on investment. We believe that our integrated business model can deliver industry leading returns over the cycle and we will continue to target at least 70% to 80% self sufficiency in iron ore and coking coal globally.
Our top investment priority is to expand in Russia and other CIS countries and carefully explore business opportunities in other high-growth emerging markets, particularly in mining. Severstal's top priority in North America is to restructure and rationalize our assets and bring them to sustainable profitability in the still difficult market conditions. We will also leverage our mining expertise via selective investment in non-steel related sectors such as gold.
Capital expenditure was US$1.0 billion in 2009, in line with our target for the year. In 2010, we will increase our capital expenditure programme to US$1.4 billion, reflecting our improved confidence in the market outlook.
We will spend approximately US$685 million on key projects in the Russian Steel Division, US$356 million in the Resources Division and US$413 million in North America. These investments will support the Company’s organic growth and enhance our competitive position. They will be focused on enhancing our vertically integrated model and mini-mill capacity to target growth in the Russian infrastructure and construction markets and on improving our competitive position in higher-value-added markets in the USA.
Severstal Russian Steel is a world-class, low-cost producer of steel which delivered strong results throughout a difficult 2009. Despite a significant decline in revenue to US$6,179 million, the division generated EBITDA of US$1,319 million with an EBITDA margin of 21.3%. The cost per unit of slab production decreased by 42.3% year-on-year to US$269 supporting an increase in exports which increased to 53.1% of total sales by volume.
As part of our capital expenditure programme in 2010, we plan to start construction of a mini-mill in Balakovo (Saratov region). We expect this mini-mill to produce 1 million tonnes of long steel a year by 2013, which will support organic growth. Downstream expansion in Russia, including investments in production of fabricated box sections at Sheksna and in the second polymer coating line at Cherepovets, is aimed at increasing the share of customised products in our portfolio mix.
Although our mining division saw revenue decline to US$1,871 million, its achieved EBITDA was US$393 million. Cost-cutting measures and a weaker Russian rouble in 2009 resulted in reductions in the cost per unit of production across our operations. As the majority of our sales are made in the spot markets, we expect to be able to take advantage of rising commodity prices.
Our gold business has grown rapidly over the last two years. In 2009, it contributed US$236 million to the Resources Division’s EBITDA as a result of favourable gold prices and organic growth in production units.
Revenue was US$4,023 million with reported negative EBITDA of US$654 million for 2009. The second half of the year saw an improved performance and we believe that the North American market will continue to improve in 2010, contributing to better utilisation of capacity. We expect ongoing cost-saving measures, including labour and production efficiencies, to deliver stronger results in 2010.
Over the longer term, we expect the cost position of our North American business to improve as a result of further investment in operational efficiencies. In 2010, we will invest US$413 million in projects, including replacing the tandem mill at Dearborn. This will substantially improve processing costs at Dearborn’s cold rolling facilities and pickling lines by 2013. We will also begin Phase II at Columbus and by its completion, expected to be in 2012, this project will add a further 1.5 million tonnes of mini-mill capacity a year to our North American operations.
For 2009, Lucchini’s revenue was down to US$1,757 million and EBITDA was negative US$203 million. Sales volumes in 2009 were almost half of those in 2008, with a significant negative impact on EBITDA. EBITDA was also affected by a less favourable product mix, as well as higher per-unit costs, which were only partially off set by cost-cutting initiatives.
We believe the outlook for 2010 has improved. Growing demand from China for coking coal and iron ore has already led to higher spot prices for these raw materials to date in 2010. We believe this trend will be sustained during the current year giving Severstal a strong competitive cost advantage through our vertically integrated business model. Combined with the benefits of the cost management and debt reduction initiatives implemented during 2009, we believe we are well positioned to benefit from improving steel markets in 2010 and invest in growth and an enhanced product mix.
Alexey Mordashov
Chief Executive Officer
Адрес оригинала: http://reports.severstal.com/eng/business_review/chief_executive_review/index.phtml
Дата 23.09.2011