1q2013 results presentation
DESCRIPTION
Financial results for the 1Q 2013.TRANSCRIPT
1Q2013 RESULTS PRESENTATION JUNE 18, 2013
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
56% 58% 62% 58%
32% 31% 27% 31%
4% 2% 3% 2%8% 9% 8% 9%
1Q12 1Q13 4Q12 1Q13
Steel Mining Ferroalloys Power
SEGMENTS OVERVIEW
REVENUE FROM THIRD PARTIES EBITDA BY SEGMENTS
$ 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 gain/loss from remeasurement of
contingent liabilities at fair value, impairment of long-lived assets and goodwill, result of disposed companies (incl.the result from their disposal) provision for amounts due from related parties and losses from discontinued
operations, net of income tax. 4
Steel Mining Ferroalloys Power
EBITDA(1) BY SEGMENTS
2,949 2,481 2,521 2,481
71
358
-7
29 37
487
115
302
-7
6-0,6
415
88
305
-3-6
5
388
98
33
-31
15 7
123
57
124
4 241
210
Steel Mining Ferroalloys Power Cons.adj. Consolidated
1Q12 2Q12 3Q12 4Q12 1Q13
1Q2012
6%
16%
80%
1Q2013
11% 2%
28% 59%
-2%
Consolidated revenue is flat q-o-q at $2.5 bn
As loss making steel assets are either disposed off or idled
steel segment decreased its share in the consolidated
revenue from 62% to 58% q-o-q
Mining segment continues to dominate the consolidated
EBITDA with its share of 59%
MINING SEGMENT
$ Mln
CASH COSTS, US$/TONNE COS STRUCTURE
$553 mn $527 mn
5
REVENUE, EBITDA(1)
945
895
781676
769
213193
168
143137
31%28%
32%
4%
14%
-10%
20%
50%
0
300
600
900
1,200
1Q12 2Q12 3Q12 4Q12 1Q13
Revenues (lhs) Intersegment revenues (lhs) Adj. EBITDA margin (rhs)
4236
45
100
4232
45
88
39
28
43
89
41
29
45
115
43
34
52
88
Coal SKCC Coal YU Iron Ore Bluestone
1Q12 2Q12 3Q12 4Q12 1Q13
50%44%
20%21%
10%12%
14% 15%
6% 8%
1Q12 1Q13
Other
Depreciation and depletion
Energy
Staff costs
Raw materials and purchased goods
(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 gain/loss from remeasurement of
contingent liabilities at fair value, impairment of long-lived assets and goodwill, result of disposedcompanies (incl.the result from their disposal) provision for amounts due from related parties and losses from discontinued
operations, net of income tax.
Improved spot pricing environment followed by increased
export sales led to 14% q-o-q revenue growth to $769 mn
…with EBITDA back with a 4x improvement!
Cash costs at Russian assets slightly up on seasonal
factors
Cash cost at Bluestone down q-o-q after re-launch of
idled mines
50%39% 37% 39%
19%
24%22%
24%
7%8%
11%8%
2%2% 3% 2%
8%8% 9% 8%
12%16% 16% 16%
2% 3% 2% 3%
1Q12 1Q13 4Q12 1Q13
Coking coal Anthracites and PCI Coke Coking products
Steam coal Iron ore Other
MINING SEGMENT
6
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
*Restated to include middlings
EXTERNAL SALES STRUCTURE
263
142
101
54
82
236
129
96
49
84
229
122
80
4965
214
9369
51 59
207
95
6352
92
Coke Coking coal Anthracite and PCI Steam coal* Iron ore
1Q12 2Q12 3Q12 4Q12 1Q13
25% 29% 32% 29%
15%13%
14%13%
12% 3%5%
3%
28%33%
29%33%
10% 12% 10% 12%
5% 6% 7% 6%5% 4% 3% 4%
1Q12 1Q13 4Q12 1Q13
Russia Europe CIS China Asia w/o China Middle East Other
Coking coal sales up 22% q-o-q due to increase in export sales
to Asia on improved demand and pricing
Exports of anthracite and PCI grew by 23% as sales to Asian
markets and Brazil substantially increased
Iron ore average FCA price up 55% Q-o-Q
Share of Russia in sales continues to fall, as penetration into
new export markets grows.
STEEL SEGMENT
7
CASH COSTS, US$/TONNE COS STRUCTURE
REVENUE, EBITDA(1)
$1,480 mn $1,248 mn
$ Mln
1,649
1,898
1,700
1,5571,430
79
67
5073
70
4%
6%
5%6%
4%
-5%
-2%
1%
4%
7%
10%
13%
0
500
1,000
1,500
2,000
1Q12 2Q12 3Q12 4Q12 1Q13
Revenues (lhs) Intersegment revenues (lhs) Adj. EBITDA margin (rhs)
494 499 515
436 452470
409 431452
408437 444
407439 447
Billets* Wire Rod Rebar
1Q12 2Q12 3Q12 4Q12 1Q13
76% 76%
9% 9%
11% 10%
2% 2%2% 3%
1Q12 1Q13
Other
Depreciation
Energy
Staff costs
Raw materials and purchased goods
*Carbon and low-alloyed billets (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 gain/loss from remeasurement of
contingent liabilities at fair value, impairment of long-lived assets and goodwill, result of disposed companies (incl.the result from their disposal) provision for amounts due from related parties and losses from discontinued
operations, net of income tax.
Revenue down 8% q-o-q due to seasonal demand slowdown
Romanian plants disposal and cost control measures across
the board help to maintain profitability…
… resulting in 1Q13 EBITDA of $57 mn
Bottom line affected by $91 mn of one-off negative result
from disposal of Romanian assets
53%63% 61% 63%
21%
17% 20% 17%2%
5% 2% 5%8%
10% 13% 10%11%
4% 4% 4%5%1% 1%
1Q12 1Q13 4Q12 1Q13
Russia Europe Asia CIS Middle East Other
STEEL SEGMENT
8
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
EXTERNAL SALES STRUCTURE
18% 16% 16% 16%
24% 24% 26% 24%
3% 2% 2% 2%
17%15% 14% 15%
7%8% 7% 8%
13%13% 14% 13%
9%9% 8% 9%
9% 13% 13% 13%
1Q12 1Q13 4Q12 1Q13
Semi-finished steel products Rebar Stainless flat products
Carbon long products Forgings and stampings Hardware
Carbon flat Other
550
692
4303
2647
932 734551692
4195
3082
891724533
684
4038
2545
894700517
677
3910
2411
927
700492635
3999
2505
912
689
Semi-finished steel products
Rebar Stainless flat products
Forgings and stampings
Hardware Carbon flat
1Q12 2Q12 3Q12 4Q12 1Q13
(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 gain/loss from remeasurement of
contingent liabilities at fair value, impairment of long-lived assets and goodwill, result of disposed companies (incl.the result from their disposal) provision for amounts due from related parties and losses from discontinued
operations, net of income tax.
Share of Europe falls to 17% as East-European business is
reduced and sales are shifted to a more buoyant Russian
market.
Disposal of Romanian assets, idling of DEMZ and cutting of
resale business with Estar result in a reduction in rebar, billet
and wire sales volumes, though compensated with higher
gross margin of 17%.
CASH COSTS, US$/TONNE COS STRUCTURE
Nickel
N/A
FERROALLOYS SEGMENT
REVENUE, EBITDA(1)
Revenue down 21% q-o-q due to termination of Ni sales
Cash costs demonstrate moderate growth on higher
electricity tariff
Idled Ni production and trimmed chrome production support
economics of the segment with 5% EBITDA margin vs. -37%
in 4Q12
Adjusted net loss decreased 70% vs 4Q12
9
$ Mln
$168 mn $63 mn
125132
91
69
54
28 22
23
14
14-5% -5% -3%
-37%
5%
-50%
-30%
-10%
10%
30%
50%
70%
90%
0
50
100
150
200
1Q12 2Q12 3Q12 4Q12 1Q13
Revenues (lhs) Intersegment revenues (lhs) Adj. EBITDA margin (rhs)
50%
22%
9%
9%
18%
30%
15%
28%
8% 11%
1Q12 1Q13
Other
Depreciation
Energy
Staff costs
Raw materials and purchased goods
1Q12 2Q12 3Q12 4Q12 1Q13
21.4K
19.1K
19.7K
N/A
877
2.06K
845
2.11K
848
2.10K
907
2.08K
961
2.12K
Ferrosilicon Chrome
172 149 151 113 127
Chrome Ore Concentrate
(1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests gain/loss from remeasurement of
contingent liabilities at fair value, impairment of long-lived assets and goodwill, result of disposed companies (incl.the result from their disposal) provision for amounts due from related parties and losses from discontinued
operations, net of income tax.
19,126
17,202
15,327 16,314
24%
44% 44% 44%
66% 16%
31%
16%
4%
13%
13%
13%
6%
27%
12%
27%
1Q12 1Q13 4Q12 1Q13
Russia Europe Asia Other
FERROALLOYS SEGMENT
10
REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE
EXTERNAL SALES STRUCTURE Export sales of FeSi grow from 21% in 4Q12 to 52% in 1Q13
as demand in Asia picks up
Cr sales volumes in line with production, dropping 41% q-o-q
as inventories are liquidated
As Ni plant is halted share of segment‟s sales to Europe
down from 66% to 16% with Russia and Asia taking over.
Adjustment of Cr operations result in higher Cr concentrate
sales, showing better economics.
1Q12 2Q12 3Q12 4Q12 1Q13
Nickel Ferrosilicon Chrome
56%
12%
12%
35%
27%
35%
26%
34%
42%
34%
5%
28%15%
28%
1% 3% 4% 3%
1Q12 1Q13 4Q12 1Q13
Nickel Ferrosilicon Chrome Chrome ore Other
1,309
1,227
1,299
1,254 1,242
2,184 2,218
1,928 1,891
1,998
N/A
POWER SEGMENT
11
AVERAGE ELECTRICITY SALES PRICES AND CASH COSTS (RUSSIA), US$/MWH COS STRUCTURE
REVENUE, EBITDA(1)
Financials improve due to high season for electricity and heat
consumption
• Revenue up by 3% q-o-q
• EBITDA up by 55% q-o-q to $24 mn
• Net income up to $7 mn vs net loss of $41 mn in 4Q12
$ Mln
51,7 53,5 54,7 53,856,2
25,828,0
30,1
24,5
26,2
1Q12 2Q12 3Q12 4Q12 1Q13
Sales price Cash costs
90% 89%
3% 4%5% 5%
1% 1%1% 1%
1Q12 1Q13
Other
Depreciation
Energy
Staff costs
Raw materials and purchased goods
$262 mn $255 mn
230168
140
220
227
136
113
109
126129
8%
2%
-2%
4%
7%
-5%-3%-1%1%3%5%7%9%11%13%15%17%19%
0
100
200
300
400
1Q12 2Q12 3Q12 4Q12 1Q13
Revenues (lhs) Intersegment revenues(lhs) Adj. EBITDA margin (rhs)
(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 gain/loss from remeasurement of
contingent liabilities at fair value, impairment of long-lived assets and goodwill, result of disposed companies (incl.the result from their disposal) provision for amounts due from related parties and losses from discontinued
operations, net of income tax.
Consolidated P&L
12
REVENUE DYNAMICS REVENUE, EBITDA(1) AND NET PROFIT
Consolidated EBITDA up 71% q-o-q to $210 mn on better profitability in the mining, power and ferroalloys segments. Unaffected by any
one-off factors
1Q2013 net result affected by $91 mn of one-off negative result from disposal of Romanian assets and $75 mn of FX loss
1Q2013 FINANCIAL PERFORMANCE Q-O-Q HIGHLIGHTS:
$ Mln $ Mln
2,521 2,481
-67
26
0
1,000
2,000
3,000
4Q2012 Volume Price 1Q2013
29493093
27112521 2481
487 415 388123 210218
-823
55
-1114
-321
17%13% 14%
5%8%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
(1,200)
(700)
(200)
300
800
1,300
1,800
2,300
2,800
3,300
1Q12 2Q12 3Q12 4Q12 1Q13
Revenue (lhs) Adj. EBITDA (lhs) Net profit (lhs) Adj. EBITDA
(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 gain/loss from remeasurement of
contingent liabilities at fair value, impairment of long-lived assets and goodwill, result of disposed companies (incl.the result from their disposal) provision for amounts due from related parties and losses from discontinued
operations, net of income tax.
Cash Flow Statements
13
OPERATING CASH FLOW DYNAMICS NET CASH FLOW
Continuing working capital management added another $51 mn to the CFO that totaled $69 mn in 1Q2013
Inventory reduction release another $155 million though almost offset by extension of payment terms to keep the sales up.
Investment cashflow at $192 mn in 1Q13, resulting only in an insignificant increase in debt thanks to ruble depreciation.
$ Mln FY’11* FY’12
341306
456
208
69
(50)
150
350
1Q12 2Q12 3Q12 4Q12 1Q13
1Q’13
399
1,311
69
(1,674)
(839)
(192)
2,079
(792)
50
Operating activities Investment activities Financial activities
* Excluding the effect of loan to Estar
Successful refinancing and improved liquidity to service upcoming maturities
Net debt stable, estimated at $9.55 bln (including financial lease)
as of June 1, 2013
Cash and available credit lines total $0.8 bln as of June 1, 2013
A new RUR 40 bln (~ $1.3 bln) 5 year facility from VTB and $1 bln
3–5 year credit lines from Gazprombank have substantially eased
the liquidity pressure from repayments in 2013 and were partially
applied to reduce debt service in 2014 – 2015
DEBT PROFILE AS OF JUNE 1, 2013
RUR 59%
USD 34%
EUR 7%
Other 0
Russian
Banks
62%
14
DEBT MATURITY SCHEDULE AS OF JUNE 1. 2013 WITH PRO FORMA* DEBT MATURITY SCHEDULE AS OF APRIL 10, 2013 WITH PRO FORMA
0 152 33 - 0
636
2,105 2,117
1,385 1,047
413
15
483 322
483
-
-
160
- -
-
-
-
127
140
86
51
37
15
1,090
2,761
2,525
1,919
1,083
427
0
500
1000
1500
2000
2500
3000
3500
10.4.13 2013 2014 2015 2016 2017 2018 and after
Renewable lines Other term loans
Expiration of put options on bonds Maturity of bonds
Expiration of financial lease
173
587
329
1,089
Cash
Other undrawn credit lines
ECA undrawn amount
Foreign
Banks
22%
Bonds
16%
0 123 84 - - - -
506
1,788 1,866 1,630
1,336
584
81
472 314
472
-
-
156
- -
-
-
-
97
139
86 51
37
15
965
2,483 2,267
2,153
1,373
598
0
500
1000
1500
2000
2500
3000
3500
1.6.13 2013 2014 2015 2016 2017 2018 and after
Renewable lines Other term loans
Expiration of put options on bonds Maturity of bonds
Expiration of financial lease
283
367
141
790
Cash
Other undrawn credit lines
ECA undrawn amount
* assuming refinancing of GBP lines according to the terms of executed
committed credit facilities
Revenue 2,481 2,521 -1.6%
Cost of sales (1,743) (1,882) -7.4%
Gross margin 29.8% 25.4%
Operating profit / (loss) 61 (933) -
Operating margin 2.5% -37.0%
Adjusted EBITDA(1) 210 123 70.7%
Adjusted EBITDA(1) margin 8.5% 4.9%
Net Income / (loss) (321) (1 114) -71.2%
Net Income margin -12.9% -44.2%
Sales volumes(2), „000 tonnes
Mining segment 6,060 5,570 8.8%
Steel segment 1,724 1,872 -7.9%
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 gain/loss from remeasurement of contingent
liabilities at fair value, impairment of long-lived assets and goodwill, result of disposed companies (incl.the result from their disposal) provision for amounts due from related parties and losses from discontinued operations, net
of income tax.
(2) Includes sales to the external customers only
US$ MILLION UNLESS OTHERWISE STATED 1Q13 4Q12 CHANGE, %
15