1Q2012 RESULTS PRESENTATION · 2020-04-02 · Carbon flat Alloyed long Engineering steel Forgings and stampings Stainless flat products Other 584 713 920 965 787 2,398 591 715 976

1Q2012 RESULTS PRESENTATION JUNE 20, 2012

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

60% 56% 53% 56%

28% 32% 36% 32%

4% 4% 4% 4%8% 8% 7% 8%

1Q11 1Q12 4Q11 1Q12

Steel Mining Ferroalloys Power

SEGMENTS OVERVIEW

REVENUE FROM THIRD PARTIES EBITDA BY SEGMENTS

Consolidated revenue flat q-o-q amounting to $2,950 mn

Net income up 8% q-o-q to $218 mn

Mining segment continues to dominate the consolidated

EBITDA with its share up to 86%

1Q2011 1Q2012

$ Mln

$ 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 4

Steel Mining Ferroalloys Power

EBITDA(1) BY SEGMENTS

6% 6%

26% 62%

6%

10%

86%

2,934 2,950 2,929 2,950

-2%

150

361

35 35

-15

567

65

558

195

-35

612

153

512

3

-7

17

678

-50

593

-11

3 1,5

536

49

358

-7

28 35

463

Steel Mining Ferroalloys Power Cons.adj. Consolidated

1Q11 2Q11 3Q11 4Q11 1Q12

Market volatility and temporary halt of some underground

mines operations led to Q1 revenue decrease q-o-q to $933

mln…

…with EBITDA posting $358 mln in Q1

Cash costs at Russian assets went up due to ruble

appreciation and lower production at Southern Kuzbass

MINING SEGMENT


and gain/loss from remeasurement of contingent liabilities at fair value

$ Mln

CASH COSTS, US$/TONNE COS STRUCTURE

$552 mn $555 mn

5

828

1 104 1 1471 061 933

260

277 251264

226

33%

40%37%

45%

31%

0%

20%

40%

60%

0

400

800

1 200

1Q11 2Q11 3Q11 4Q11 1Q12

Revenues (lhs) Intersegment revenues (lhs) Adj. EBITDA margin (rhs)

REVENUE, EBITDA(1)

3933

48

95

37 37 39

94

3532

41

96

3532

42

113

40 3545

100

Coal SKCC Coal YU Iron Ore Bluestone

1Q11 2Q11 3Q11 4Q11 1Q12

50% 50%

18% 20%

10% 10%

14%14%

8% 6%

1Q11 1Q12

Other

Depreciation and depletion

Energy

Staff costs

Raw materials and purchased goods

35%25% 22% 25%

19%

14% 15% 14%

12%

12% 16% 12%

9%28% 23% 28%

16% 10% 18% 10%

2% 5%3%

5%7% 6% 3% 6%

1Q11 1Q12 4Q11 1Q12

Russia Europe CIS China Asia w/o China Middle East Other

47% 51% 54% 51%

12%

20%23%

20%14%

7%5%

7%2%2%

2%2%10% 4%

3%4%

10% 12% 9% 12%5% 4% 4% 4%

1Q11 1Q12 4Q11 1Q12

Coking coal Anthracites and PCI Coke Coking products Steam coal Iron ore Other

MINING SEGMENT

6

REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE

Anthracites and PCI sales down 24% q-o-q as demand in

Europe dwindled…

…However coking coal sales volumes unchanged q-o-q

despite seasonal factors and idling of certain operations…

…Although unable to fend off the general pressure on price

The share of China grew to 28% of sales as demand

elsewhere remained volatile

*Restated to include middlings

EXTERNAL SALES STRUCTURE

342

167

122

56

103

354

210

109

51

111

309

206

98

48

106

291

181

104

43

101

263

142

95

49

82

Coke Coking coal Anthracite and PCI

Steam coal* Iron ore

1Q11 2Q11 3Q11 4Q11 1Q12

STEEL SEGMENT

7




REVENUE, EBITDA(1)

Despite low season and harsh weather conditions sales

volumes of steel grew by 8% q-o-q …

… bringing Revenue up 7% to $1.7 bn

Cash costs heading down…

… leading to a reverse in EBITDA to $49 mn

$1,487 mn $1,479 mn

$ Mln

1 757

2 060 1 796

1 5411 649

89

75

70

7679

8%

3%

8%

-3%

3%

-5%

-2%

1%

4%

7%

0

500

1 000

1 500

2 000

1Q11 2Q11 3Q11 4Q11 1Q12

Revenues (lhs) Intersegment revenues (lhs)

Adj. EBITDA margin (rhs)

529 532 546584 581 596

575 575 585555

503 511497 499515

Billets Wire Rod Rebar

1Q11 2Q11 3Q11 4Q11 1Q12

79% 76%

8% 9%

10% 11%

2% 2%1% 2%

1Q11 1Q12

Other

Depreciation

Energy

Staff costs


49% 53%58%

53%

24% 21%22%

21%

2% 2%7%8%

5% 8%

15% 11% 9% 11%

5% 5% 6% 5%

1Q11 1Q12 4Q11 1Q12

Russia Europe Asia CIS Middle East Other

STEEL SEGMENT

8





Steel prices demonstrate resilience despite low season

helping MSG to de-stock

Share of lower margin semi-finished products down by 37%

in 1Q2012 vs.1Q2011

Fall in rebar sales in Russia is offset by almost two-fold

growth in European sales in Q1 28%

18% 16% 18%

18%24% 26% 24%

12%12% 14% 12%

8%9% 8% 9%

4% 4% 5% 4%

11% 13% 12% 13%

6% 7% 8% 7%3% 3% 3% 3%

10% 10% 8% 10%

1Q11 1Q12 4Q11 1Q12

Semi-finished products Rebar HardwareCarbon flat Alloyed long Engineering steelForgings and stampings Stainless flat products Other

584713

920965

787

2,398

591715

976992

848

2,726

637744

966 925822

2,760

585 686

904 860 742

2,703

546

692866

880

734

2,647

Billets Rebar Engineering steel

Wire Carbon flat Forgings and stampings

1Q11 2Q11 3Q11 4Q11 1Q12


Nickel

FERROALLOYS SEGMENT

REVENUE, EBITDA(1)



Sales volume growth in all ferroalloys products pushed the

1Q12 revenue up by 16% q-o-q to $153 mn decreasing gross

loss by 43%

Cash costs of Cr under control, while heading down for Cr

concentrate and FeSi as production of both grows

Growing sales and improved economics slash EBITDA loss by

32%

9

$ Mln

$146 mn $168 mn

124 132104 116 125

53

71

6016

28

20%

10%

2%

-9%

-5%

-12%

-7%

-2%

3%

8%

13%

18%

23%

-20

30

80

130

180

230

1Q11 2Q11 3Q11 4Q11 1Q12

Revenues (lhs) Intersegment revenues (lhs) Adj. EBITDA margin (rhs)

40%50%

11%

8%

24%18%

15% 15%

10% 9%

1Q11 1Q12

Other

Depreciation

Energy

Staff costs


1Q11 2Q11 3Q11 4Q11 1Q12

20.6K

21.4K

22.2K

23.9K

20.6K

882

2.3K

834

2.4K

873

2.2K

912

2.1K

877

2.1K

Ferrosilicon Chrome

239 178 169 184 172

Chrome Ore Concentrate

26.3K 25.2K

21.4K

18.1K 19.1K

Nickel

33%24% 23% 24%

51% 66%

55%

66%

4%

4%

14%

4%12%6% 8% 6%

1Q11 1Q12 4Q11 1Q12

Russia Europe Asia Other

51% 56% 55% 56%

24% 12% 12% 12%

17% 25% 27% 25%

4% 5% 4% 5%4% 2% 2% 2%

1Q11 1Q12 4Q11 1Q12

Nickel Ferrosilicon Chrome Chrome ore Other

FERROALLOYS SEGMENT

10



Flat to positive price dynamics across all products support

better economics

Share of exports to Europe grew to 66% as:

• Some sales of FeCr rederected from Asia supported by

better price environment in Europe

• Demand for FeNi from own plants decreased allowing for

increased export sales

1.8K 1.6K

1.4K 1.3K 1.3K

Ferrosilcon

1Q11 2Q11 3Q11 4Q11 1Q12

2.6K

2.3K

2.3K

2.2K 2.2K

Chrome

POWER SEGMENT

11

AVERAGE ELECTRICITY SALES PRICES AND CASH COSTS (RUSSIA), US$/MWH COS structure

REVENUE, EBITDA(1)

Financials improve as due to high season for electricity and

heat consumption:

• Revenue up 16% q-o-q

• EBITDA up x9 to $28 mn q-o-q

• Net income up to $11 mn vs operating loss of $6 mn in 4Q11

Cash costs at Southern Kuzbass Power Plant down 24% as

sales grow on lower input materials and maintenance



225

177 164

211243

143124

113

126

136

10%

2%

-3%

1%

7%

-4%

-2%

0%

2%

4%

6%

8%

10%

0

100

200

300

400

1Q11 2Q11 3Q11 4Q11 1Q12

Revenues (lhs) Intersegment revenues(lhs) Adj. EBITDA margin (rhs)

$ Mln

56,1

51,5 53,551,5 51,9

28,4 29,8

50,1

33,825,8

1Q11 2Q11 3Q11 4Q11 1Q12

Sales price Cash costs

90% 90%

3% 3%4% 4%

2% 1%1% 2%

1Q11 1Q12

Other

Depreciation

Energy

Staff costs


$259 mn $278 mn

WITHSTANDING MARKET VOLATILITY

12

REVENUE DYNAMICS REVENUE, EBITDA(1) AND NET PROFIT



Reduction of the Mining Segment top line offset by growth in revenue in other segments which translated in flat q-o-q sales at $2,950 mn

EBITDA down 14% q-o-q, but margin is at 16% - still one of the most attractive in the industry

Net income up by 8% q-o-q to $218 mn with $171 accounted for by FX gain

1Q2012 FINANCIAL PERFORMANCE Q-O-Q HIGHLIGHTS:

$ Mln $ Mln

2,929 2,950

141- 120

0

1 000

2 000

3 000

4 000

4Q2011 Volume Price 1Q2012

2,934

3,4723,210

2,929 2,950

567 612678

536 463309

19226

201 218

19%18%

21%

18%16%

0%

10%

20%

30%

0

500

1 000

1 500

2 000

2 500

3 000

3 500

1Q11 2Q11 3Q11 4Q11 1Q12

Revenue (lhs) Adj. EBITDA (lhs) Net profit (lhs) Adj. EBITDA

CASH GENERATION CAPACITY

13

OPERATING CASH FLOW DYNAMICS NET CASH FLOW

Measures to adjust production to current demand and optimize the working capital bear fruit: cashflow from operations at $345 mn in Q1

with $118 mn coming from working capital release

Operating cashflow exceeds investments, facilitating debt repayment.

$ Mln FY’10 FY’11*

-347

314

-15

270*

345

(350)

(150)

50

250

450

1Q11 2Q11 3Q11 4Q11 1Q12

Operating cash flow

1Q12

(147)

404 345

(1 119)

(1 676)

(276)

1 210

2 079

(305)

Operating activities Investment activities Financial activities

* Excluding the effect of loan to Estar * Excluding the effect of loan to Estar

Total debt reduced in Q2 to date to under $9bn.

Financial ratios as of Q1 well within the renegotiated covenant

levels.

Cash and available credit lines as of June 15 amount to $2 bn.

DEBT PROFILE AS AT JUNE 15, 2012

DEBT PROFILE

FINANCIAL RATIOS

14

$ Mln

567 612678

536463

3,4 3,5 3,53,9

4,24,2 4,2 4,2 4,4

3,3

0,00,51,01,52,02,53,03,54,04,55,05,5

0

200

400

600

1Q11 2Q11 3Q11 4Q11 1Q12Adj. EBITDA (lhs)

Net Debt / Adj. EBITDA for covenants testing (rhs)

Adj. EBITDA/Interest expense, net, per quarter (rhs)

RUR 48%

Other

<1%

EUR 9%

USD 42%

Russian Banks

45%

Foreign Banks

30%

RUR Bonds

25%

LOANS REPAYMENT SCHEDULE AS AT JUNE 15, 2012

701

1 251

1 721

1 087

334 354

153

460

614

154

1228

556

22815 47

2012 2013 2014 2015 2016 2017 and after

Renewable working capital and trade finance lines

RUB Сommercial papers and bonds (incl. put

options)

Repayment of other term loans (incl. capex financing)

$ Mln

Net Debt / Adj. EBITDA level agreed with creditors

for the end of 2012 (rhs)

Adj. EBITDA / Interest Expense level agreed with creditors

for the end of 2012 (rhs)

Revenue 2,950 2,929 0.7%

Cost of sales (1,975) (1,995) -1.0%

Gross margin 33.0% 31.9%

Operating profit 314 377 -16.7%

Operating margin 10.6% 12.9%

Adjusted EBITDA(1) 463 536 -13.6%

Adjusted EBITDA(1) margin 15.7% 18.3%

Net Income 218 201 8.5%

Net Income margin 7.4% 6.9%

Sales volumes(2), „000 tonnes

Mining segment 6,001 6,124 -2.0%

Steel segment 1,941 1,791 8.4%

FINANCIAL RESULTS OVERVIEW



(2) Includes sales to the external customers only

US$ MILLION UNLESS OTHERWISE STATED 1Q12 4Q11 CHANGE, %

15

Documents

1Q2012 RESULTS PRESENTATION · 2020-04-02 · Carbon flat Alloyed long Engineering steel Forgings and stampings Stainless flat products Other 584 713 920 965 787 2,398 591 715 976