9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking...
Transcript of 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking...
![Page 1: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/1.jpg)
9M2011 RESULTS PRESENTATION DECEMBER 15, 2011
![Page 2: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/2.jpg)
DISCLAIMER
This presentation does not constitute or form part of and should not be construed as,
an offer to sell or issue or the solicitation of an offer to buy or acquire securities of
Mechel OAO (Mechel) or any of its subsidiaries in any jurisdiction or an inducement to
enter into investment activity. No part of this presentation, nor the fact of its
distribution, should form the basis of, or be relied on in connection with, any contract
or commitment or investment decision whatsoever. Any purchase of securities should
be made solely on the basis of information Mechel files from time to time with the U.S.
Securities and Exchange Commission. No representation, warranty or undertaking,
express or implied, is made as to, and no reliance should be placed on, the fairness,
accuracy, completeness or correctness of the information or the opinions contained
herein. None of the Mechel or any of its affiliates, advisors or representatives shall
have any liability whatsoever (in negligence or otherwise) for any loss howsoever
arising from any use of this presentation or its contents or otherwise arising in
connection with the presentation.
This presentation may contain projections or other forward-looking statements
regarding future events or the future financial performance of Mechel, as defined in
the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.
We wish to caution you that these statements are only predictions and that actual
events or results may differ materially. We do not intend to update these statements.
We refer you to the documents Mechel files from time to time with the U.S. Securities
and Exchange Commission, including our Form 20-F. These documents contain and
identify important factors, including those contained in the section captioned “Risk
Factors” and “Cautionary Note Regarding Forward-Looking Statements” in our Form
20-F, that could cause the actual results to differ materially from those contained in
our projections or forward-looking statements, including, among others, the
achievement of anticipated levels of profitability, growth, cost and synergy of our
recent acquisitions, the impact of competitive pricing, the ability to obtain necessary
regulatory approvals and licenses, the impact of developments in the Russian
economic, political and legal environment, volatility in stock markets or in the price of
our shares or ADRs, financial risk management and the impact of general business
and global economic conditions.
The information and opinions contained in this document are provided as at the date
of this presentation and are subject to change without notice
2
![Page 3: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/3.jpg)
FINANCIAL HIGHLIGHTS
![Page 4: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/4.jpg)
58% 58% 59% 56%
31% 32% 32% 36%
5% 4% 4% 3%6% 6% 5% 5%
9M10 9M11 2Q11 3Q11
Steel Mining Ferroalloys Power
EBITDA(1) BY SEGMENTS
SEGMENTS OVERVIEW
EBITDA BY SEGMENTS
$ Mln
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
$ Mln
6,976 9,617 3,472 3,210
Mining segment‟s share in revenue grew to 36% as sales in
other segments decreased.
Steel contributed most of the positive dynamics in the Q3
EBITDA on the back of improved economics.
Mining contributed 75% of the consolidated EBITDA for
9m2011
4
REVENUE FROM THIRD PARTIES
9M2010 9M2011
127
452
12 12 17
620
132
416
40 21
-0,6
609
150
361
35 35
-15
567
65
558
19 5
-35
612
153
512
3
-7
17
678
Steel Mining Ferroalloys Power Cons.adj. Consolidated
3Q10 4Q10 1Q11 2Q11 3Q11
20%
75%
2% 3%
20%
73%
3% 4% Steel
Mining
Power
Ferroalloys
![Page 5: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/5.jpg)
871 893 8281 104 1 147
207 211 260
277 251
42% 38%33%
40%37%
0%
20%
40%
60%
0
400
800
1 200
3Q10 4Q10 1Q11 2Q11 3Q11
Revenues (lhs) Intersegment revenues (lhs)
Adj. EBITDA margin (rhs)
MINING SEGMENT PERFORMANCE
Revenue up 4% as sales volumes increased.
Profitability slightly down as thermal coal sales temporarily up
due to power utilities restocking
Yakutugol back at full capacity, cash costs down for Russian
coal operations.
Revenue up
FX loss of $290 mn results in $14mn of Net Income.
CASH COSTS, US$/TONNE COS STRUCTURE
REVENUE, EBITDA(1)
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
$1,262 mn $1,723 mn
5
$ Mln
26 2733
91
32 2940
86
3933
48
95
37 37 39
94
35 3241
96
Coal SKCC Coal YU Iron Ore Bluestone
3Q10 4Q10 1Q11 2Q11 3Q11
50% 49%
18% 18%
7% 9%16% 14%9% 10%
9M10 9M11
Other
Depreciation and depletionEnergy
Staff costs
Raw materials and purchased goods
![Page 6: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/6.jpg)
EXTERNAL SALES STRUCTURE
MINING SEGMENT PERFORMANCE
Coking coal:
• Q-o-q export sales from Russia increase, domestic sales
lower, resulting in flat average realised price in consolidating
markets.
Antracite and PCI and iron ore sales flat q-o-q
China‟s share up from 12% to 28% of segment‟s sales in Q3
Overall Asia‟s share up to 41% of the segment‟s sales in Q3
6
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
307
147119
6185
319
158
112
57
86
342
167
122
56
103
354
210
109
51
111
309
206
98
48
106
Coke Coking coal Anthracite and PCI
Steam coal* Iron ore
3Q10 4Q10 1Q11 2Q11 3Q11
32% 26% 27%18%
19%18% 18%
18%
6% 13% 14%
12%
21% 17% 12% 28%
15% 17% 21% 13%
3% 4% 3% 5%4% 5% 5% 6%
9M10 9M11 2Q11 3Q11
Russia Europe CIS China Asia w/o China Middle East Other
45%54% 55% 57%
9%
16% 17% 16%12%
10% 9% 9%12%
6% 4% 4%13%9% 9% 9%
9% 5% 6% 5%
9M10 9M11 2Q11 3Q11
Coking coal Anthracites and PCI Coke Steam coal Iron ore Other
*Restated to include middlings
![Page 7: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/7.jpg)
CASH COSTS, US$/TONNE COS STRUCTURE
1 536 1 566
1 757
2 060
1 796
61 7889
75
70
8% 8% 8%
3%
8%
0%
3%
6%
9%
12%
0
500
1 000
1 500
2 000
3Q10 4Q10 1Q11 2Q11 3Q11
Revenues (lhs) Intersegment revenues (lhs)
Adj. EBITDA margin (rhs)
REVENUE, EBITDA(1)
STEEL SEGMENT PERFORMANCE
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
$3,341 mn $4,839 mn
7
$ Mln Segment‟s revenue down 13% as sales volumes decreased
by 18% due to less 3rd party product resale operations.
Cash costs down as coke and iron ore prices decrease.
EBITDA 2.3x up to $153mn as efficiency improve.
Net income of $18mn in Q3 vs. a Net Loss of $71mn in Q2
465 472 489435 442 459529 532 546584 581 596575 575 585
Billets Wire Rod Rebar
3Q10 4Q10 1Q11 2Q11 3Q11
78% 80%
9% 8%10% 8%
2% 2%1% 2%
9M10 9M11
Other
Depreciation
Energy
Staff costs
Raw materials and purchased goods
![Page 8: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/8.jpg)
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
55% 52% 50% 58%
17% 24% 23%24%
4% 1% 3%0%7% 7% 7%
7%14% 11% 13% 6%
3% 5% 4% 5%
9M10 9M11 2Q11 3Q11
Russia Europe Asia CIS Middle East Other
EXTERNAL SALES STRUCTURE
STEEL SEGMENT PERFORMANCE
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
Share of domestic sales grew as export of semi-finished steel
decreased
Europe‟s share in revenue continued to grow
Share of resale operations decreased to 30% of segment‟s
revenue in Q3 from 36% in Q2
Operating expenses down 22%
487610
812854 693
1 861
534631
893869
670
2 117
584713
903965
803
2 398
591715
1005992
848
2 726
637 744 966 925823
2 760
Billets Rebar Engineering steel
Wire Carbon flat Forgings and stampings
3Q10 4Q10 1Q11 2Q11 3Q11
8
21% 19% 23%11%
22% 22%23%
26%
13% 13%13%
14%
4% 6%6%
7%4% 4%
4%5%
10% 12%12%
13%5% 6% 6%
7%4% 3%3% 4%
17% 14% 10% 13%
9M10 9M11 2Q11 3Q11
Billets Rebar Hardware
Carbon flat Alloyed long Engineering steel
Forgings and stampings Stainless products Other
![Page 9: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/9.jpg)
CASH COSTS, US$/TONNE COS STRUCTURE
Nickel
FERROALLOYS SEGMENT PERFORMANCE
REVENUE, EBITDA(1)
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
Revenue from 3rd parties up down 21% q-o-q to $104 mn as
prices edged down and volumes decreased
Cash cost dynamics:
- Ni cost down 14% on lower coke prices
- Cr cost down 11% as production increased
- FeSi cost up 5% on higher electricity tariff
Operating expenses up 11% as exports of Cr and FeSi grew
Q3 EBITDA still positive at 3% of the revenue
9
$ Mln
103125 124 132
104
48 49 5371
60
8%
23%20%
10%
2%
0%
10%
20%
30%
0
50
100
150
200
250
3Q10 4Q10 1Q11 2Q11 3Q11
Revenues (lhs) Intersegment revenues (lhs)
Adj. EBITDA margin (rhs)
17 868 18 821
22 235
23 936
20 579
706
2 336
734
2 107
882
2 302
834
2 435
873
2 155
Ferrosilicon Chrome
3Q10 4Q10 1Q11 2Q11 3Q11
183 161 239
178 169
Chrome Ore Concentrate
$399 mn $491 mn
54% 52%
9% 9%
18% 18%
12% 13%
7% 8%
9M10 9M11
Other
Depreciation
Energy
Staff costs
Raw materials and purchased goods
![Page 10: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/10.jpg)
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
EXTERNAL SALES STRUCTURE
FERROALLOYS SEGMENT PERFORMANCE
Downward price trend continued.
Cr 3rd party sales up 21% as mining at Voskhod continued to
ramp up
FeSi 3rd party sales volumes further down 19% as one
furnace was idled for modernisation
Lack of carry-over volumes from Q2 resulted in an apparent
decrease of Ni 3rd party sales by 21% q-o-q
Higher exports of FeSi (at the expense of the domestic
market) and Cr resulted in increasing share of markets
beyond Russia and Europe.
10
23% 29% 28% 27%
61%57% 61% 58%
10% 5% 5% 8%6% 9% 6% 7%
9M10 9M11 2Q11 3Q11
Russia Europe Asia Other
53% 53% 58% 50%
20% 20% 18%17%
23% 21% 19%27%
3% 4% 4% 4%1% 2% 1% 2%
9M10 9M11 2Q11 3Q11
Nickel Ferrosilicon Chrome Chrome ore Other
Nickel Ferrosilicon Chrome
1 424 1 692
1 757 1 606
1 418
3Q10 4Q10 1Q11 2Q11 3Q11
2 470
2 580 2 556
2 331
2 269
20 164
22 714
26 327 25 156
21 380
![Page 11: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/11.jpg)
POWER SEGMENT PERFORMANCE
AVERAGE ELECTRICITY SALES PRICES AND CASH COSTS (RUSSIA), US$/MWH COS STRUCTURE
REVENUE, EBITDA(1)
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
$ Mln Lowest season for power and heat generation resulted in a
7% q-o-q decrease in sales.
A lesser decrease in COS due to high coal prices resulted in
the gross margin to contract to $50 mn – or 17% of the
revenue
EBITDA down to negative $7mn
43,1 42,4
52,4 51,5 53,5
24,7 24,428,4 29,8
50,1
3Q10 4Q10 1Q11 2Q11 3Q11
Sales price Cash costs
$553mn $728 mn
11
135186
225177
164
95105
143124
113
5%
7%
10%
2%
-3%-4%
0%
4%
8%
0
100
200
300
400
3Q10 4Q10 1Q11 2Q11 3Q11
Revenues (lhs) Intersegment revenues(lhs)
Adj. EBITDA margin (rhs)
85% 88%
3% 3%2% 2%2% 2%
8% 5%
9M10 9M11
Other
Depreciation
Energy
Staff costs
Raw materials and purchased goods
![Page 12: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/12.jpg)
STABLE FINANCIAL PERFORMANCE
REVENUE DYNAMICS REVENUE, EBITDA(1) AND NET PROFIT
$ Mln
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets,
amount attributable to non-controlling interests and gain/loss from remeasurement of contingent liabilities at fair value
$ Mln
Revenue – down 8% q-o-q to $3.2 bn due to lower sales in the steel, ferroalloy and power segments
- gross margin improved q-o-q to 37%
EBITDA(1) – up 11% q-o-q to $678 mn
- margin improved to 21%
Net Income – down q-o-q to $26 after an FX loss of $296m
3Q2011 financial performance q-o-q highlights:
3 4723 210
-177-85
0
1 000
2 000
3 000
4 000
2Q2011 Volume Price 3Q2011
12
2645 27702934
34723210
620 609 567 612 678
341195 309
19226
23% 22%19%
18%
21%
0%
10%
20%
30%
40%
0
500
1 000
1 500
2 000
2 500
3 000
3 500
3Q10 4Q10 1Q11 2Q11 3Q11Revenue (lhs) Adj. EBITDA (lhs)
Net profit (lhs) Adj. EBITDA
![Page 13: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/13.jpg)
OPERATING CASH FLOW NET CASH FLOW
$ Mln
562
(147)(48)
(710)
(1 119)
(1 420)
375
1 210
1 716
Operating activities Investment activities Financial activities
CASH GENERATION CAPACITY
$ Mln
Operating cash-flow posted a negative $15m as inventory and receivables started to build up by the end of Q3:
$612mn of investments in Q3 financed entirely by long-term debt
2009 2010
52 56
-347
314
-15
2% 2%
-12%
9%
-1%
-12%
0%
12%
(400)
(200)
0
200
400
3Q10 4Q10 1Q10 2Q11 3Q11
Operating cash flow (left scale) as % of sales (right scale)
13
9M 2011
![Page 14: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/14.jpg)
DEBT PROFILE AS AT DECEMBER 1, 2011 LOANS REPAYMENT SCHEDULE AS AT DECEMBER 1, 2011
$ Mln
RUR 51%
Other <1%
EUR 9%
USD 40%
DEBT PROFILE
$ Mln
Adjusted Net Debt grew to $8.7bn as of the end of Q3
Half of the debt repayable in 2012 is revolving. Current $2.1
bn of cash and available undrawn credit lines sufficient to
meet redemptions in 2012.
Credit portfolio evenly split between RUR, $ and EUR
reflecting revenue in these currencies
Debt covenant of Net Debt/EBITDA maintained at 3.5:1 as of
the end of Q3
14
FINANCIAL RATIOS
620 609567 612
678
4,03,5 3,4 3,5 3,5
4,45,1 4,2 4,2 4,2
0,0
2,0
4,0
6,0
0
200
400
600
3Q10 4Q10 1Q11 2Q11 3Q11
Adj. EBITDA (lhs)Net Debt / Adj. EBITDA for covenants testing (rhs)Adj. EBITDA/Interest expense, net, per quarter (rhs)
256
1093
327 194
368
478
319319
66
1 198
1 1851 341
689
704
2011 2012 2013 2014 2015 2016 and after
Repayment of other term loans (incl. capex financing)
RUB Сommercial papers and bonds (incl. put options)
Renewable working capital and trade finance lines
Russian Banks 46%
Foreign Banks 33%
RUR Bonds 21%
![Page 15: 9M2011 RESULTS PRESENTATION · This presentation may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel,](https://reader035.fdocuments.us/reader035/viewer/2022081407/5f1d67f20841ae6afe66204d/html5/thumbnails/15.jpg)
Revenue 3,210 3,472 -7.5%
Cost of sales (2,025) (2,288) -11.5%
Gross margin 36.9% 34.1%
Operating profit 529 476 11.1%
Operating margin 16.5% 13.7%
Adjusted EBITDA(1) 678 612 10.8%
Adjusted EBITDA(1) margin 21.1% 17.6%
Net Income 26 192 - 86.5%
Net Income margin 0.8% 5.5%
Sales volumes(2), „000 tonnes
Mining segment 6,026 5,648 6.7%
Steel segment 1,858 2,278 -18.4%
FINANCIAL RESULTS OVERVIEW
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests
and gain/loss from remeasurement of contingent liabilities at fair value
(2) Includes sales to the external customers only
US$ MILLION UNLESS OTHERWISE STATED 3Q11 2Q11 CHANGE, %
15