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1H2011 RESULTS PRESENTATIONOCTOBER 11, 2011
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
FINANCIAL HIGHLIGHTS
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
4,331 6,407 2,934 3,472
Positive price dynamics increase the share of Steel division
in 3rd party revenue in 1H2011
Mining segment demonstrated highest revenue and EBITDA
dynamics in Q2 – 33% and 54% of respective growth
Mining Segment‟s share in consolidated EBITDA up from
62% in Q1 to 86% in Q2
4
REVENUE FROM THIRD PARTIES
1Q2011 2Q2011
113
428
335
-46
532
127
452
12 12 17
620
132
416
4021
-0,6
609
150
361
35 35
-15
567
65
558
19 5
-35
612
Steel Mining Ferroalloys Power Cons.adj. Consolidated
2Q10 3Q10 4Q10 1Q11 2Q11
10%
86%
1%3%
26%
62%
6%
6%Steel
Mining
Power
Ferroalloys
58% 60% 60% 60%
30% 30% 28% 30%
8% 6% 8% 5%4% 4% 4% 4%
1H10 1H11 1Q11 2Q11Steel Mining Ferroalloys Power
760 871 893828
1 104
234
207 211 260
27743%
42%38%
33%40%
0%
20%
40%
60%
0
400
800
1 200
2Q10 3Q10 4Q10 1Q11 2Q11
Revenues (lhs) Intersegment revenues (lhs)
Adj. EBITDA margin (rhs)
MINING SEGMENT PERFORMANCE
Dynamic improvement in financial results:
• EBITDA up 54% q-o-q
• EBITDA margin reaches 40% in 1Q 2011
• Lower FX gain behind Net Income 12% q-o-q increase to
$326m
Cash costs decreased across all operations with exception of
Yakutugol
Release of inventory accumulated during 4Q2010 and
1Q2011 at higher cost due to the sub-optimal mining
efficiencies related to the washing plant shutdown
temporarily drove the cash cost per tonne $2 up at Yakutugol.
Ruble appreciation added another $2 .
CASH COSTS, US$/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
$785 mn $1,111 mn
5
$ Mln
27 26 30
87
26 2733
91
32 2940
86
3933
48
95
37 37 39
94
Coal SKCC Coal YU Iron Ore Bluestone
2Q10 3Q10 4Q10 1Q11 2Q11
43% 50%
21% 18%10% 10%17% 14%
9% 8%
1H10 1H11
Other
Depreciation and depletion
Energy
Staff costs
Raw materials and purchased goods
EXTERNAL SALES STRUCTURE
MINING SEGMENT PERFORMANCE
Positive price dynamics across coking coal, iron ore and
coke
3rd parties anthracites and PCI sales volumes up by 98%
q-o-q increasing to 17% of Segment‟s Revenue in Q2
Coking coal sales are 55% of Segment‟s Revenue in Q2 -
up by 24% q-o-q as production at Yakutugol recovered
Steam coal sales dwindle as production shifted to
metallurgical coal
Sales to Asian markets increase to 33% of Segment‟s
Revenue in Q2 as Yakutugol‟s HCC returned to the market
6
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
329
164
114
61
97
307
147119
7185
319
158
112
7086
342
167
122
59
103
354
210
109
57
111
Coke Coking coal Anthracite and PCI
Steam coal Iron ore
2Q10 3Q10 4Q10 1Q11 2Q11
34% 30% 35%27%
22%19%
19%
18%
4% 13%12%
14%
33% 29% 25% 33%
3% 3% 2% 3%4% 6% 7% 5%
1H10 1H11 1Q11 2Q11
Russia Europe CIS Asia Middle East Other
44%52% 47%
55%
9%
15%12%
17%13%
11%14%
9%13%
7% 10%4%14%
9% 10% 9%7% 6% 7% 6%
1H10 1H11 1Q11 2Q11
Coking coal Anthracites and PCI Coke Steam coal Iron ore Other
CASH COSTS, US$/TONNE COS STRUCTURE
1 093 1 3911 536
1 5661 757
2 06052
5761 78
89
75
4%
8% 8% 8% 8%
3%
0%
3%
6%
9%
12%
0
500
1 000
1 500
2 000
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
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
$2,081 mn $3,306 mn
7
$ MlnSegment‟ revenue up 17% to $2.1 bn q-o-q on growing
prices and volumes.
Cash costs under pressure:
- Significant growth of raw material prices
- Shutdown of blast furnace for scheduled maintenance
- Ruble appreciation
EBITDA down 56% q-o-q to $65m
473 479 496465 472 489435 442 459
529 532 546584 581 596
Billets Wire Rod Rebar
2Q10 3Q10 4Q10 1Q11 2Q11
76% 81%
9% 8%11% 9%
2% 2%2% 2%
1H10 1H11
Other
Depreciation
Energy
Staff costs
Raw materials and
purchased goods
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
54% 50% 49% 50%
16% 24% 24% 23%
5% 1% 3%7% 7% 7% 7%
14% 14% 15% 13%4% 4% 5% 4%
1H10 1H11 1Q11 2Q11
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
Improved pricing environment across most of our
steel products q-o-q
Sales volumes up as MSG grows distribution and the
investment program shows result:
• Rebar – up 46%
• Stainless flat steel – up 18%
36% of Segment‟s Revenue in Q2 generated by resale
operations
Continued increase of Europe‟s share in Segment Sales –
from 16% in 1H10 to 24% in 1H11
510619
796837 662
2 050
487610
812
854693
1 861
534 631
893869
670
2 117
584713
903965
803
2 398
591 715
1005992 848
2 726
Billets Rebar Engineering steel
Wire Carbon flat Forgings and stampings
2Q10 3Q10 4Q10 1Q11 2Q11
8
21% 23% 24% 23%
22% 21% 18% 23%
13% 12% 12%13%
4% 6% 6%6%4% 4% 4%
4%8% 10% 10%10%5% 6% 6%
6%4%3% 3%
3%19% 15% 18% 12%
1H10 1H11 1Q11 2Q11
Billets Rebar Hardware
Carbon flat Alloyed long Engineering steel
Forgings and stampings Stainless products Other
CASH COSTS, US$/TONNE COS STRUCTURE
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 by 6% q-o-q to $132 mn
Intersegment revenue grew by 34% q-o-q as the Steel
Segment increased output of stainless and alloyed steel
Cash cost dynamics:
- Ni cost up 7% on rising coke prices
- Cr cost up 6% on higher concentrate price
- Cr Ore Concentrate cost down 25% on higher volumes and
lower energy use
- FeSi cost down 5% on lower electricity tariff
Q2 EBITDA down to 10% of the revenue
$258 mn $329 mn
9
$ Mln
133103 125 124 132
5248
49 5371
18%
8%
23%
20%
9%
0%
5%
10%
15%
20%
25%
0
50
100
150
200
250
2Q10 3Q10 4Q10 1Q11 2Q11
Revenues (lhs) Intersegment revenues (lhs)
Adj. EBITDA margin (rhs)
18 61817 868
18 821
22 235
23 936
Nickel
616
2 214
706
2 336
734
2 107
882
2 302
834
2 435
Ferrosilicon Chrome2Q10 3Q10 4Q10 1Q11 2Q11
52% 51%
9% 10%
18% 19%
12% 13%
9% 7%
1H10 1H11
Other
Depreciation and depletion
Energy
Staff costs
Raw materials and purchased goods
204 183 161239178
Chrome Ore Concentrate
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
EXTERNAL SALES STRUCTURE
FERROALLOYS SEGMENT PERFORMANCE
Generally downward price trend
Cr 3rd party sales up 29% as mining at Voskhod ramped up
FeSi 3rd party sales volumes down14% as one furnace idled
for a complete revamp
Ni volumes carry-over from the Q1 result in a 28% sales
growth.
Europe‟s share up to 61% of revenue in Q2 on higher Ni and
Cr sales
10
22% 30% 33% 28%
63%56% 51% 61%
12% 4% 4% 5%3% 10% 12% 6%
1H10 1H11 1Q11 2Q11
Russia Europe Asia Other
53% 54% 51% 58%
19% 21% 24% 18%
24% 18% 17% 19%
3% 4% 4% 4%1% 3% 3% 1%
1H10 1H11 1Q11 2Q11
Nickel Ferrosilicon Chrome Chrome ore Other
22 039
20 164
22 714
26 32725 156
Nickel Ferrosilicon Chrome
2 663
2 470
2 5802 556
2 331
1 477 1 4241 692 1 757 1 606
2Q10 3Q10 4Q10 1Q11 2Q11
POWER SEGMENT PERFORMANCE
AVERAGE ELECTRICITY SALES PRICES AND CASH COSTS (RUSSIA), US$/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
Low season resulted in a 21% q-o-q drop in sales.
Cash costs under control despite rising raw material prices
EBITDA down to $5m
43,4 43,1 42,4
52,4 51,5
24,8 24,7 24,428,4 29,8
2Q10 3Q10 4Q10 1Q11 2Q11
Sales price Cash costs
$379 mn $499 mn
11
148 135
186225 177
9795
105
143
124
2%
5%
7%
10%
2%0%
4%
8%
0
100
200
300
400
2Q10 3Q10 4Q10 1Q11 2Q11
Revenues (lhs) Intersegment revenues(lhs)
Adj. EBITDA margin (rhs)
93% 88%
3%3% 6%
2% 2%1% 1%
1H10 1H11
Other
Depreciation
Energy
Staff costs
Raw materials and purchased goods
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 – up 18% q-o-q to $3.5 bn
- gross margin flat q-o-q at 34%
EBITDA(1) - up 8% q-o-q to $612 mn
- margin flat at 18%
Net Income – down 38% q-o-q to $192
- FX gain $11m in Q2 vs $153m in Q1
Improvement in 2Q2011 financial performance q-o-q:
2 9343 472
361177
0
1 000
2 000
3 000
1Q2011 Volume Price 2Q2011
12
24312645
27702934
3472
532 620 609 567 612
38341
195 309 192
22% 23% 22%
19% 18%
0%
10%
20%
30%
40%
0
500
1 000
1 500
2 000
2 500
3 000
3 500
2Q10 3Q10 4Q10 1Q11 2Q11Revenue (lhs) Adj. EBITDA (lhs)
Net profit (lhs) Adj. EBITDA
OPERATING CASH FLOW NET CASH FLOW
$ Mln
562
(147)(34)
(710)
(1 119)
(808)
375
1 210
826
Operating activities Investment activities Financial activities
CASH GENERATION CAPACITY
$ Mln
Operating cash-flow improved significantly to post $314m on higher coal and steel sales:
- higher PCI, anthracite and HCC sales as washing plant at Yakutugol resumed operation
- improved stock turnover at MSG as construction season began
Investments of 808 mln dollars in 1H2011 financed entirely by long-term debt
2009 2010
-7%
2% 2%
-12%
9%
-159
52 56
-347
314
-12%
0%
12%
(400)
(200)
0
200
400
2Q10 3Q10 4Q10 1Q10 2Q11
Operating cash flow (left scale) as % of sales (right scale)
13
1H 2011
DEBT PROFILE AS AT AUGUST 31, 2011 LOANS REPAYMENT SCHEDULE AS AT AUGUST 31, 2011
$ Mln
RUR 50%
Other <1%
EUR 10%
USD 39%
DEBT PROFILE
$ Mln
Substantial part of repayments shifted to 2012
Over $1.7bn in cash and available credit lines sufficient to
meet scheduled repayments in 2011
Credit portfolio evenly split between RUR, $ and EUR
reflecting revenue in these currencies
Debt covenant of Net Debt/EBITDA renegotiated to a level of
3.5:1 till end of 2011
14
FINANCIAL RATIOS
532
620 609567
612
4,9
4,03,5 3,4 3,53,3
4,45,1
4,2 4,2
0,0
1,0
2,0
3,0
4,0
5,0
6,0
0
200
400
600
2Q10 3Q10 4Q10 1Q11 2Q11
Adj. EBITDA (lhs)
Net Debt / Adj. EBITDA for covenants testing (rhs)
Adj. EBITDA/Interest expense, net, per quarter (rhs)
384
1582
246
173
347
519
346 347
189
947
1 191
1 256
701
731
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 48%
Foreign Banks 27%
RUR Bonds 25%
Revenue 3,472 2,934 18.3%
Cost of sales (2,288) (1,913) 19.6%
Gross margin 34.1% 34.8%
Operating profit 476 448 6.3%
Operating margin 13.7% 15.3%
Adjusted EBITDA(1) 612 567 7.9%
Adjusted EBITDA(1) margin 17.6% 19.3%
Net Income 192 309 - 37.9%
Net Income margin 5.5% 10.5%
Sales volumes(2), „000 tonnes
Mining segment 5,648 4,890 15.5%
Steel segment 2,230 2,024 10.2%
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 2Q11 1Q11 CHANGE, %
15