9m2011 results presentation · this presentation may contain projections or other forward-looking...

9M2011 RESULTS PRESENTATION DECEMBER 15, 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

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

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)



$1,262 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

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


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



REVENUE, EBITDA(1)

STEEL SEGMENT PERFORMANCE



$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



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


STEEL SEGMENT PERFORMANCE



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


Nickel

FERROALLOYS SEGMENT PERFORMANCE

REVENUE, EBITDA(1)



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



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




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

POWER SEGMENT PERFORMANCE

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

REVENUE, EBITDA(1)



$ 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)


85% 88%

3% 3%2% 2%2% 2%

8% 5%

9M10 9M11

Other

Depreciation

Energy

Staff costs


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

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

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%

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



(2) Includes sales to the external customers only

US$ MILLION UNLESS OTHERWISE STATED 3Q11 2Q11 CHANGE, %

15

9m2011 results presentation · this presentation may contain projections or other forward-looking...

Documents