NLMK's 2007 Profit Increases by 9%

Novolipetsk Steel on Monday posted an expected 9 percent increase in net profit that ranked it the country's most profitable steelmaker in 2007, as high prices and cost cutting outweighed a small drop in output.

The company, owned by the country's fourth-richest man, Vladimir Lisin, said it planned to use debt to finance more acquisitions and investments in 2008, when higher steel prices could add another 60 percent to revenues and 35 to 40 percent to earnings.

Chief financial officer Galina Aglyamova said the global liquidity crisis had not hampered Novolipetsk, which financed acquisitions in Russia and the United States with cash flow.

"This year, we do plan to use debt to finance dynamic development of the company through asset acquisitions and capital expenditures," Aglyamova said in a statement.

Novolipetsk, or NLMK, is Russia's fourth-largest steelmaker by volume, but its 2007 net profit of $2.25 billion exceeded that of larger rivals Severstal, Evraz Group and Magnitogorsk Iron & Steel Works.

The profit was exactly in line with the average forecast of 10 analysts polled by Reuters. Revenues rose 26 percent in 2007 to $7.72 billion, slightly above forecast, while earnings before interest, tax, depreciation and amortization were up 28 percent year on year to $3.37 billion.

"An increase in sales of high-value-added products coupled with growing demand for steel products, as well as ongoing production costs control, enabled NLMK to achieve a high level of operating profit," president Alexei Lapshin said.

"Steelmaking and rolling facilities have been operating at almost 100 percent capacity," Lapshin said.

NLMK said in the statement that it expected steel prices to keep growing in the second quarter after an increase in the first three months of the year, before flattening midyear.

The consolidation of VIZ-Stal, an electrical steel producer, also helped boost the company's sales prices last year. Revenues from NLMK's steel segment grew 24 percent to $6.95 billion.

NLMK produced 9.1 million tons of crude steel in 2007, down 0.8 percent because of the temporary disruption of work at one of its blast furnaces.

The company is investing $4.4 billion from 2007 to 2011 to upgrade its existing facilities, which center on the large integrated steel plant in the city of Lipetsk, south of Moscow.

In December, NLMK acquired a 50 percent plus one share stake in Maxi Group, which processes scrap into steel at various sites across Russia, for $558 million.

It also launched a project in November with TBEA Co, a major Chinese transformer producer, to operate a joint venture service center to process and sell transformer steel in China.

NLMK controls the Dansteel plant in Denmark and has a share in a joint venture with steel trading group Duferco, which operates steel plants in Europe and the United States.

NLMK's 2007 net profit exceeds those of its domestic rivals Evraz, which posted net profit of $2.14 billion, Severstal, with $1.94 billion, and Magnitogorsk, with $1.77 billion.

NLMK's stock closed up 3.8 percent at 116.94 rubles.

NLMK will pay 3 rubles (13 cents) per share in full-year 2007 dividends, including the 1.5 rubles already paid.