1h2011 results presentation · 1h2011 results presentation october 11, 2011. disclaimer ... 2q10...

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)



$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


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



REVENUE, EBITDA(1)

STEEL SEGMENT PERFORMANCE



$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


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


STEEL SEGMENT PERFORMANCE



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


FERROALLOYS SEGMENT PERFORMANCE

REVENUE, EBITDA(1)



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



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


204 183 161239178

Chrome Ore Concentrate



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)



$ 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)


93% 88%

3%3% 6%

2% 2%1% 1%

1H10 1H11

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 – 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



(2) Includes sales to the external customers only

US$ MILLION UNLESS OTHERWISE STATED 2Q11 1Q11 CHANGE, %

15

1h2011 results presentation · 1h2011 results presentation october 11, 2011. disclaimer ... 2q10...

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