Russian steel maker NLMK is likely to show a fall in its 2005 net profit with margins dented by lower world steel prices and more expensive raw materials, analysts said.
According to the mean of eight analysts, NLMK is expected on Tuesday to announce a fall in 2005 net profits to around $1.38 billion from $1.77 billion in 2004.
Year-on-year revenue is set to fall 4.4 percent to $4.34 billion, while the company's EBITDA margin - a key measure of operational effectiveness - is expected to dip to 47.6 percent from 56.5 percent in 2004.
"From the point of view of its cash flows and strength of its balance sheet, NLMK probably remains Russia's best steel maker," said Slava Smolyaninov, UralSib's chief metals analyst.
"But lower steel prices in 2005 meant that producers of raw materials raked in more added value ... and it was mainly faster price growth for raw materials that cut NLMK's profit margin."
Deutsche UFG's Olga Okuneva said that despite the weaker steel market last year, NLMK's EBITDA margin was still much higher than the world steel industry's average of 13 percent. "NLMK's high profitability has become possible due to the right policy of its management aimed at further consolidation of its raw material assets and the right export-oriented strategy, backed up by long-term contracts with consumers and a product line that is in high demand," she said.
EBITDA is earnings before interest, taxation, depreciation and amortisation.
Media have speculated that NLMK's core shareholder, Vladimir Lisin, who owns more than 80 percent of the firm, may be seeking to buy a stake of up to 15 percent in the world's number two steel firm Arcelor.
NLMK has refused to comment on the rumours, and Arcelor has been coy over whether it may sell a stake to billionaire Lisin to fend off a hostile $25 billion take-over bid by Mittal Steel.
NLMK is debt-free, and its high creditworthiness is further bolstered by a cash mountain of some $1.5 billion, analysts say, adding that a large foreign acquisition would not be a problem.
"From the point of view of potential acquisitions, they could easily borrow another $4 billion," Smolyaninov said.