Press Releases

Mechel Reports the 1H 2012 Financial Results

2October2012
Moscow, Russia October 2, 2012 Mechel OAO (NYSE: MTL), a leading Russian mining and steel group, today announced financial results for the 1H 2012.

 

Revenue amounted to $6.0 billion

Consolidated adjusted EBITDA amounted to $849 million

Net loss attributable to shareholders of Mechel OAO amounted to $605 million


 

Mechel OAO’s Chief Executive Officer Yevgeny Mikhel commented on the 1H 2012 financial results:

“The first half of 2012 witnessed a series of milestone events for the Group – we completed a large-scale debt restructuring process and set off to execute on the company’s new strategy of divesting non-strategic assets, improving operating cash flow and reducing debt.

“The key markets for the products exported by Mechel’s mining and steel divisions gradually deteriorated in the first half of 2012. Even though the Group’s divisions operated quite stably in terms of production and distribution, the Group’s financial results were strongly affected, inter alia, by non-recurrent accounting write-offs, resulting from declining market environment, as well as foreign exchange loss. However, the company took measures to improve its operational and financial performance by way of cutting production costs and accessing new sales markets, thus achieving positive cash flow in the reporting period.” 

Consolidated Results For The 1H 2012


US$ thousand

1H 2012 (1)

1H 2011 (1)

Change Y-on-Y

Revenue from external customers

6,035,955

6,406,944

-5.8%

Intersegment sales

877,427

1,092,366

-19.7%

Operating (loss) / income

(156,580)

924,685

-116.9%

Operating margin

-2.59%

14.43%

-

Net (loss) / income attributable to shareholders of Mechel OAO

(605,004)

501,022

-220.8%

Adjusted net income  (1) (2)

40,982

501,022

-91.8%

Adjusted EBITDA (1) (3)

848,848

1,179,174

-28.0%

Adjusted EBITDA, margin (1)

14.06%

18.40%

-

(1) See Attachment A.

(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income.

 


US$ thousand

2Q 2012 (1)

1Q 2012 (1)

Change Q-on-Q

Revenue from external customers

3,085,908

2,950,047

4.6%

Intersegment sales

408,864

468,563

-12.7%

Operating (loss) / income

(470,607)

314,027

-249.9%

Operating margin

-15.25%

10.64%

-

Net (loss) / income attributable to shareholders of Mechel OAO

(823,023)

218,019

-477.5%

Adjusted net (loss) / income (1) (2)

(177,037)

218,019

-181.2%

Adjusted EBITDA (1) (3)

385,446

463,402

-16.8%

Adjusted EBITDA, margin (1)

12.49%

15.71%

-

(1) See Attachment A.

(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income.

 

The net revenue in 2Q 2012 increased by 4.6% and amounted to $3.1 billion compared to $3.0 billion in 1Q 2012. The operating loss amounted to $471 million or -15.25% of the net revenue, compared to the operating income of $314 million or 10.64% of the net revenue in 1Q 2012.

In 2Q 2012, Mechel’s consolidated financial result attributable to shareholders of Mechel OAO, decreased by 477.5% to net loss of $823.0 million compared to the net income of $218.0 million in 1Q 2012. If to eliminate  the effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects) the adjusted net loss amounts to $177.0 million in 2Q 2012.

The consolidated adjusted EBITDA in 2Q 2012 decreased by 16.8% to $385.4 million, compared to $463.4 million in 1Q 2012. Depreciation, depletion and amortization in 2Q 2012 for the Company were $157.2 million, an increase of 0.9% compared to $155.8 million in 1Q 2012.

 

Mining Segment Results For The 1H 2012


US$ thousand

1H 2012 (1)

1H 2011 (1)

Change Y-on-Y

Revenue from external customers

1,813,921

1,931,936

-6.1%

Intersegment sales

432,684

537,452

-19.5%

Operating income

468,138

766,511

-38.9%

Net income attributable to shareholders of Mechel OAO

211,480

616,620

-65.7%

Adjusted net income (1) (2)

232,186

616,620

-62.3%

Adjusted EBITDA(1) (3)

660,021

919,155

-28.2%

Adjusted EBITDA, margin (4)

29.38%

37.22%

-

(1) See Attachment A.

(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income

(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

 


US$ thousand

2Q 2012 (1)

1Q 2012 (1)

Change Q-on-Q

Revenue from external customers

881,180

932,741

-5.5%

Intersegment sales

207,085

225,599

-8.2%

Operating income

192,570

275,568

-30.1%

Net (loss) / income attributable to shareholders of Mechel OAO

(30,024)

241,504

-112.4%

Adjusted net (loss) / income (1) (2)

(9,318)

241,504

-103.9%

Adjusted EBITDA(1) (3)

301,906

358,116

-15.7%

Adjusted EBITDA, margin (4)

27.74%

30.92%

-

(1) See Attachment A.

(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income.

(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales

 

Mining Segment Output and Sales For The 1H 2012

Production:


Product name

1H 2012,

thousand tonnes

1H 2011,
thousand tonnes

1H 2012 vs.
1H 2011, %

Coal (run-of-mine)

13,380

12,533

7%

 

Product Sales:


Product name

1H 2012,

thousand tonnes

1H 2011,
thousand tonnes

1H 2012 vs.
1H 2011, %

Coking coal concentrate

6,238

5,993

4%

Including coking coal concentrate supplied to Mechel enterprises

1,297

1,564

-17%

PCI

1,074

710

51%

Anthracites

1,350

1,068

26%

Including anthracites supplied to Mechel enterprises

189

161

17%

Steam coal

2,896

3,418

-15%

Including steam coal supplied to Mechel enterprises

718

865

-17%

Iron ore concentrate

2,073

2,209

-6%

Including iron ore concentrate supplied to Mechel enterprises

158

931

-83%

Coke

1,853

1,686

10%

Including coke supplied to Mechel enterprises

1,339

1,119

20%

 

Mining segment’s revenue from external customers in 2Q 2012 totaled $881.2 million or 29% of the consolidated net revenue, a decrease of 5.5% over net segment’s revenue from external customers of $932.7 million, or 32% of the consolidated net revenue in 1Q 2012.

The operating income in the mining segment in 2Q 2012 decreased by 30.1% to $192.6 million, or 17.7% of total segment’s revenue, compared to the operating income of $275.6 million, or 23.8% of total segment revenue for the 1Q 2012. The adjusted EBITDA in the mining segment in 2Q 2012 decreased by 15.7% and amounted to $301.9 million compared to segment’s adjusted EBITDA of $358.1 million in 1Q 2012. The adjusted EBITDA margin for the mining segment in 2Q 2012 was 27.7% compared to 30.9% in 1Q 2012. Depreciation, depletion and amortization in the mining segment amounted to $84.9 million which is 4.0% higher than $81.6 million in 1Q 2012.

Mechel Mining Management Company OOO’s Chief Executive Officer Boris Nikishichev commented on the mining segment’s results: “On the back of substantially reduced demand and lower prices for all of our products, we have taken strong action to restore production capabilities, increase export sales and diversify our client base in order to prevent a rapid decline in revenue in the mining division. Increased exports of coking coal, PCI and anthracite to Asia coupled with redirection of iron ore concentrate shipments from Russia to China, allowed us to substantially mitigate the reduced pricing effect, thus justifying the company’s long-term strategy with a strong focus on met coals and more deliveries made to the Asia-Pacific region.

In spite of the volatile environment, we continued to allocate appropriate resources to develop our Elga project. A three-million tonne p.a. seasonal coal washing plant was recently launched with commercial scale coal production and processing scheduled to commence at Elga next year.

Certain progress was made to restore and expand our mining capabilities at Southern Kuzbass: Sibirginsk mine resumed its operation in April, the works on vertical shaft sinking were finished at Sibirginsk mine in May as part of stage 2 expansion, Olzherasskaya-New mine resumed its operations in early September. The second longwall is expected to be operational at Lenin mine in late October. Taking into account the profitability of coal production even at current lower prices, the development of our existing and prospective mining assets will help us to mitigate the negative impact of the economic recession and maximize a positive effect once the market environment improves.”

 

Steel Segment Results For The 1H 2012


US$ thousand

1H 2012 (1)

1H 2011 (1)

Change Y-on-Y

Revenue from external customers

3,546,794

3,817,400

-7.1%

Intersegment sales

145,527

163,797

-11.2%

Operating (loss) / income

(460,363)

162,371

-383.5%

Net loss attributable to shareholders of Mechel OAO

(640,841)

(56,254)

1,039.2%

Adjusted net loss (1) (2)

(152,452)

(56,254)

171.0%

Adjusted EBITDA (1) (3)

139,841

215,215

-35.0%

Adjusted EBITDA, margin (4)

3.79%

5.41%

-

(1) See Attachment A.

(2) Adjusted net loss is net loss adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income

(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

 


US$ thousand

2Q 2012 (1)

1Q 2012 (1)

Change Q-on-Q

Revenue from external customers

1,897,661

1,649,133

15.1%

Intersegment sales

66,538

78,989

-15.8%

Operating (loss) / income

(471,029)

10,666

-4,516.3%

Net loss attributable to shareholders of Mechel OAO

(625,277)

(15,564)

3,917.5%

Adjusted net loss (1) (2)

(136,888)

(15,564)

-779.5%

Adjusted EBITDA (1) (3)

91,251

48,589

87.8%

Adjusted EBITDA, margin (4)

4.65%

2.81%

-

(1) See Attachment A.

(2) Adjusted net loss is net loss adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income

(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

 

Steel Segment Output and Sales For The 1H 2012

Production:


Product name

1H 2012,

thousand tonnes

1H 2011,
thousand tonnes

1H 2012 vs.
1H 2011, %

Pig iron

2,015

1,837

10%

Steel

3,392

3,009

13%

 

Product Sales:


Product name

1H 2012,

thousand tonnes

1H 2011,
thousand tonnes

1H 2012 vs.
1H 2011, %

Flat products

391

349

12%

Including those produced by third parties

237

213

11%

Long products

1,978

1,897

4%

Including those produced by third parties

403

379

6%

Billets

1,224

1,411

-13%

Including those produced by third parties

611

1,041

-41%

Hardware and welded mesh

463

463

0%

Including those produced by third parties

25

23

9%

Forgings

28

30

-7%

Stampings

56

58

-3%

 

Mechel’s steel segment’s revenue from external customers in 2Q 2012 amounted to $1.9 billion, or 61% of the consolidated net revenue, an increase of 15.1% over the net segment’s revenue from external customers of $1.6 billion, or 56% of consolidated net revenue, in 1Q 2012.

In 2Q 2012, the steel segment’s operating loss totaled $471.0 million, or -24.0% of total segment’s revenue, versus the operating income of $10.7 million, or 0.6% of total segment’s revenue, in 1Q 2012. The adjusted EBITDA in the steel segment in 2Q 2012 increased by 87.8% and amounted to $91.2 million, compared to the adjusted EBITDA of $48.6 million in 1Q 2012. The adjusted EBITDA margin of the steel segment was 4.65% in 2Q 2012, versus the adjusted EBITDA margin of 2.81% in 1Q 2012. Depreciation and amortization in steel segment reduced by 5.7% from $43.7 million in 1Q 2012 to $41.2 million in 2Q 2012.

Mechel-Steel Management Company OOO’s Chief Executive Officer Vladimir Tytsky commented on the steel segment’s results: “In spite of the global economy still remaining weak, we managed to further improve our performance in the second quarter. Sales measured by volume increased by nearly 18% quarter-on-quarter contributing to a 15% growth in the segment’s revenue. Sales grew as driven by both increased saleable volumes and a 130-thousand tonne reduction in inventory at Mechel Service Global. Given the positive effect from a circa 10% reduction in production costs for the key products on the back of relatively flat market prices, adjusted EBITDA increased virtually twofold quarter-on-quarter. Net of the negative accounting write-offs, including the foreign exchange loss, the Q2 net income is also well above the same result of Q1.”

 

Ferroalloys Segment Results For The 1H 2012


US$ thousand

1H 2012 (1)

1H 2011  (1)

Change

Y-on-Y

Revenue from external customers

257,107

255,653

0.6%

Intersegment sales

49,955

123,365

-59.5%

Operating (loss) / income

(169,067)

10,774

-1,669.2%

Net loss attributable to shareholders of Mechel OAO

(163,094)

(22,746)

617.0%

Adjusted net loss (1) (2)

(80,097)

(22,746)

-252.1%

Adjusted EBITDA (1) (3)

(14,878)

54,323

-127.4%

Adjusted EBITDA, margin (4)

-4.85%

14.33%

-

(1) See Attachment A.

(2) Adjusted net loss is net loss adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income

(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

 


US$ thousand

2Q 2012 (1)

1Q 2012 (1)

Change

Q-on-Q

Revenue from external customers

132,376

124,730

6.1%

Intersegment sales

22,141

27,814

-20.4%

Operating loss

(135,297)

(33,770)

300.6%

Net loss attributable to shareholders of Mechel OAO

(107,055)

(56,040)

91.0%

Adjusted net loss (1) (2)

(24,057)

(56,040)

-57.1%

Adjusted EBITDA (1) (2)

(7,381)

(7,498)

-1.6%

Adjusted EBITDA, margin (3)

-4.78%

-4.92%

-

(1) See Attachment A.

(2) Adjusted net loss is net loss adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income  .

(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

 

Product Sales:


 

Product name

1H 2012,

thousand tonnes

1H 2011,
thousand tonnes

1H 2012 vs.
1H 2011, %

Nickel

8

8.4

-5%

Including nickel supplied to Mechel enterprises

1

3

-67%

Ferrosilicon

35

45.9

-24%

Including ferrosilicon supplied to Mechel enterprises

15

14.2

6%

Chrome

40

26.1

53%

Including chrome supplied to Mechel enterprises

4

7.9

-49%

 

Ferroalloys segment’s revenue from external customers in 2Q2012 amounted to $132.4 million, or 4% of the consolidated net revenue, an increase of 6.1% compared with the segment’s revenue from external customers of $124.7 million or 4% of the consolidated net revenue, in 1Q2012.

In 2Q2012, the operating loss in the ferroalloys segment rose by 300.6% and totaled $135.3 million, or -87.6% of total segment’s revenue, as compared to operating loss of $33.8 million, or -22.1% of total segment’s revenue, in 1Q2012. The adjusted EBITDA in the ferroalloys segment in 2Q2012 increased by 1.6% and amounted to negative $7.4 million, compared to segment’s adjusted negative EBITDA of $7.5 million in 1Q2012. The adjusted EBITDA margin of the ferroalloys segment comprised -4.8% in 2Q2012 compared to the adjusted EBITDA margin of -4.9% in 1Q2012. Ferroalloys segment’s depreciation, depletion and amortization in 2Q2012 were $27.4 million, an increase of 3.4% over $26.5 million in 1Q2012.

Mechel-Ferroalloys Management OOO’s Chief Executive Officer Sergei Zhilyakov noted:  “The segment demonstrated rather stable performance in the reporting period. In spite of the weaker market for nickel and ferrosilicon, we managed to keep our revenue flat quarter-on-quarter, primarily due to higher sales volumes of chrome ore concentrate and ferrochrome. EBITDA remained flat. At the same time net loss, net of non-recurrent accounting write-offs, decreased more than twofold quarter-on-quarter. Once the upgraded furnace is fully operational at the Bratsk Ferroalloy Plant, additional positive effect is further expected from higher ferrosilicon production and sales volumes.”

 

Power Segment Results for The 1H 2012


US$ thousand

1H 2012 (1)

1H 2011 (1)

Change

Y-on-Y

Revenue from external customers

418,133

401,955

4.0%

Intersegment sales

249,261

267,752

-6.9%

Operating (loss) / income

(31,358)

33,359

-194.0%

Net (loss) / income attributable to shareholders of Mechel OAO

(48,619)

13,473

-460.9%

Adjusted net income (1) (2)

5,274

13,473

-60.9%

Adjusted EBITDA (1) (3)

27,794

40,552

-31.5%

Adjusted EBITDA, margin(4)

4.16%

6.06%

-

(1) See Attachment A.

(2) Adjusted net (loss) income is net (loss) income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects) 

(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income  .

(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

 


US$ thousand

2Q 2012 (1)

1Q 2012 (1)

Change

Q-on-Q

Revenue from external customers

174,691

243,442

-28.2%

Intersegment sales

113,099

136,162

-16.9%

Operating (loss) / income

(56,237)

24,879

-326.0%

Net (loss) / income attributable to shareholders of Mechel OAO

(60,053)

11,435

-625.2%

Adjusted net (loss) / income (1) (2)

(6,160)

11,435

-153.9%

Adjusted EBITDA (1) (3)

287

27,510

-99.0%

Adjusted EBITDA, margin(4)

0.10%

7.25%

-

(1) See Attachment A.

(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects)

(3)  Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for the loan given to related parties, amounts attributable to noncontrolling interests and interest income.

(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.

 

Power Segment Output and Sales For The 1H 2012


Product name

1Q 2012

1Q 2011

1Q 2012 vs. 1Q 2011, %

Electric power generation (ths. kWh)

2,252,048

2,117,425

6%

Heat power generation (Gcal)

4,398,183

3,940,848

12%

 

Mechel’s power segment’s revenue from external customers in 2Q 2012 comprised $174.7 million, or 6% of consolidated net revenue, a decrease of 28.2% compared with the segment’s revenue from external customers of $243.4 million or 8% of consolidated net revenue in 1Q2012.

The operating loss in the power segment in 2Q2012 amounted to $56.2 million, or -19.5% of the total segment’s revenue in the same period compared to the operating income of $24.9 million, or 6.6% of the total segment’s revenue, in 1Q2012. The adjusted EBITDA in the power segment in 2Q2012 decreased by 99.0% totaling $0.3 million, compared to the adjusted EBITDA of $27.5 million in 1Q2012. The adjusted EBITDA margin for the power segment in 2Q2012 amounted to 0.1% compared to 7.3% in 1Q2012. Depreciation and amortization in power segment in 2Q2012 decreased by 12.2% comparing with the 1Q2012 from $4.1 million to $3.6 million.

Mechel-Energo OOO’s Chief Executive Officer Yuri Yampolsky noted: “Quite expectedly, the 2Q 2012 results appeared to be slightly weaker quarter-on-quarter due to the seasonal decline in demand. What is worth mentioning, however, is that in spite of the low demand, the segment’s operational performance is currently better than the relevant targets. Also, periods of low capacity utilization are traditionally used to complete repair and maintenance arrangements and get ready for the heating season in autumn and winter.”

 

Recent Highlights

  • In August 2012, Mechel announced a dividend payment (including taxes) of 7,694,945,433.30 rubles (approximately US $241.2 million), based on the Company’s results for the 2011 fiscal year.
  • In September 2012, Mechel announced the signing of a cooperation agreement for supplying OJSC “RAO Energy Systems of East” with coal from Elga Coal Complex. The agreement sets forth the key principles of the two sides’ long-term cooperation regarding the use of coal from the Elga deposit. Once probes of Elga’s coals are delivered to OJSC “RAO Energy Systems of East” subsidiary JSC “DTE” and in case test burning yields positive results, Mechel Mining may gradually increase supplies of the Elga deposit’s coals up to a total of 60 million tonnes over 15 years.
  • In September 2012, Mechel announced that coal mining at Southern Kuzbass Coal Company OAO’s New-Olzherassk Underground has been resumed.
  • In September 2012, Mechel reported decisions made by the Board of Directors. Based on the results of an analysis of Mechel OAO’s assets presented by the management, the Board of Directors unanimously approved divestment of the following assets as not consistent with the new development strategy: enterprises that make up Mechel’s Eastern European Steel Division S.R.L., Donetsk Electrometallurgical Plant PJSC (Ukraine), Invicta Merchant Bar Ltd. (UK), UAB “Mechel Nemunas” (Lithuania), Mechel Service Global B.V. (except Mechel Service OOO (Russia)), Voskhod-Chrome LLP (Kazakhstan), Voskhod-Oriel LLP (Kazakhstan), Tikhvin Ferroalloy Plant OOO (Russia), Southern Urals Nickel Plant OAO (Russia), Kuzbass Power Sales Company OAO (Russia), Toplofikatsia Rousse EAD (Bulgaria). In order to speed up implementation of the mining division’s priority project — development of the Elga coal deposit — the Board of Directors also recommended evaluating the possibility of a potential divestment of a minority stake in Mechel Mining OAO to a strategic partner (but such stake not to exceed 25%).
  • In October 2012, Mechel announce the commissioning of a seasonal washing plant and production of the first volumes of concentrate of coking coal mined at the Elga deposit.

 

***

Financial Position

Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 1H 2012 amounted to $577.7 million, of which $335.6 million was invested in the mining segment, $208.3 million was invested in the steel segment, $28.0 million was invested in the ferroalloy segment and $5.8 million was invested in the power segment.

 

As of June 30, 2012, total debt was at $8.8 billion. Cash and cash equivalents amounted to $150.7 million and net debt amounted to $8.7 billion (net debt is defined as total debt outstanding less cash and cash equivalents) at end of 2Q 2012.

 

The management of Mechel will host a conference call today at 10:00 a.m. New York time (3:00 p.m. London time, 6:00 p.m. Moscow time) to review Mechel’s financial results and comment on current operations. The call may be accessed via the Internet at http://www.mechel.com, under the Investor Relations section.

 

***

 

Mechel OAO

Vladislav Zlenko

Director of Investor Relations

Mechel OAO

Phone: 7-495-221-88-88

Fax: 7-495-221-88-00

vladislav.zlenko@mechel.com

 

***

 

Mechel is one of the leading Russian companies. Its business includes four segments: mining, steel, ferroalloy and power. Mechel unites producers of coal, iron ore concentrate, steel, rolled products, ferroalloys, hardware, heat and electric power. Mechel products are marketed domestically and internationally.

 

***

 

Some of the information in this press release 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.


Attachments to the 1H 2012 Earnings Press Release

 

Attachment A

Non-GAAP financial measures. This press release includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP.

Adjusted EBITDA represents earnings before Depreciation, depletion and amortization, Foreign exchange gain/(loss), Gain/(loss) from remeasurement of contingent liabilities at fair value, Interest expense, Interest income, Net result on the disposal of non-current assets, Impairment of long-lived assets and goodwill, Provision for loan given to related parties, Amount attributable to noncontrolling interests and Income taxes. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of our net revenues. Our adjusted EBITDA may not be similar to EBITDA measures of other companies. Adjusted EBITDA is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that our adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions and other investments and our ability to incur and service debt. While interest, depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our adjusted EBITDA calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the metals and mining industry.

Adjusted net income / (loss) represents net income / (loss) before Impairment of long-lived assets and goodwill and Provision for the amounts due from related parties, including the effect on income tax and amounts attributable to noncontrolling interests. Our adjusted net income / (loss) may not be similar to adjusted net income / (loss) measures of other companies. Adjusted net income / (loss) is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that our adjusted net income / (loss) provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations. While impairment of long-lived assets and goodwill and provision for the amounts due from related parties are considered operating costs under generally accepted accounting principles, these expenses represent the non-cash current period allocation of costs associated with assets acquired or constructed in prior periods. Our adjusted net income / (loss) calculation is used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the metals and mining industry.

Adjusted EBITDA can be reconciled to our consolidated statements of operations as follows:

Consolidated results


US$ thousand

1H 2012

1H 2011

Net (loss) / income

(605,004)

501,022

  Add:

Depreciation, depletion and amortization

313,062

278,791

Forex loss / (gain)

120,801

(164,209)

Loss from remeasurement of contingent liabilities at fair value

929

856

Interest expense

325,121

290,966

Interest income

(36,569)

(7,029)

Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for the loan given to related parties

674,047

(5,388)

Amount attributable to noncontrolling interests

(10,672)

46,551

Income taxes

67,133

237,614

Adjusted EBITDA

848,848

1,179,174

 


US$ thousand

2Q 2012

1Q 2012

Net (loss) / income

(823,023)

218,019

  Add:

Depreciation, depletion and amortization

157,205

155,857

Forex loss / (gain)

291,716

(170,915)

Loss from remeasurement of contingent liabilities at fair value

469

460

Interest expense

164,060

161,061

Interest income

(17,798)

(18,772)

Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for the loan given to related parties

674,567

(516)

Amount attributable to noncontrolling interests

(25,688)

15,016

Income taxes

(36,059)

103,192

Adjusted EBITDA

385,446

463,402

 

Adjusted Net income / (loss) can be reconciled as follows:


US$ thousand

1H 2012

1H 2011

Net (loss) / income

(605,004)

501,021

Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties

693,806

-

Amount attributable to noncontrolling interests

(27,778)

-

Income taxes

(20,042)

-

Adjusted net income

40,982

501,021

 


US$ thousand

2Q 2012

1Q 2012

Net (loss) / income

(823,023)

218,019

Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties

693,806

-

Amount attributable to noncontrolling interests

(27,778)

-

Income taxes

(20,042)

-

Adjusted net (loss) / income

(177,037)

218,019

 

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:


US$ thousand

1H 2012

1H 2011

Revenue, net

6,035,955

6,406,944

Adjusted EBITDA

848,849

1,179,174

Adjusted EBITDA, margin

14.06%

18.40%

 


US$ thousand

2Q 2012

1Q 2012

Revenue, net

3,085,908

2,950,047

Adjusted EBITDA

385,446

463,402

Adjusted EBITDA, margin

12.49%

15.71%

 

Mining Segment


US$ thousand

1H 2012

1H 2011

Net income

211,480

616,620

  Add:

Depreciation, depletion and amortization

166,495

162,190

Forex loss / (gain)

95,535

(190,186)

Loss from remeasurement of contingent liabilities at fair value

929

856

Interest expense

140,824

171,239

Interest income

(54,628)

(87,907)

Net result on the disposal of non-current assets

1,582

378

Amount attributable to noncontrolling interests

28,180

40,751

Income taxes

69,623

205,214

Adjusted EBITDA

660,021

919,155

 


US$ thousand

2Q 2012

1Q 2012

Net income

(30,024)

241,504

  Add:

Depreciation, depletion and amortization

84,875

81,620

Forex loss / (gain)

197,945

(102,410)

Loss from remeasurement of contingent liabilities at fair value

469

460

Interest expense

72,291

68,533

Interest income

(31,053)

(23,575)

Net result on the disposal of non-current assets

1,166

419

Amount attributable to noncontrolling interests

10,264

17,916

Income taxes

(4,026)

73,649

Adjusted EBITDA

301,906

358,116

 

Adjusted Net income/loss can be reconciled as follows:


US$ thousand

1H 2012

1H 2011

Net income

211,480

616,620

Provision for amounts due from related parties

20,706

-

Adjusted net income

232,186

616,620

 


US$ thousand

2Q 2012

1Q 2012

Net (loss) / income

(30,024)

241,504

Provision for amounts due from related parties

20,706

-

Adjusted net (loss) / income

(9,318)

241,504

 

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:


US$ thousand

1H 2012

1H 2011

Revenue (including intersegment sales)

2,246,605

2,469,388

Adjusted EBITDA

660,021

919,155

Adjusted EBITDA, margin

29.38%

37.22%

 


US$ thousand

2Q 2012

1Q 2012

Revenue (including intersegment sales)

1,088,265

1,158,340

Adjusted EBITDA

301,906

358,116

Adjusted EBITDA, margin

27.74%

30.92%

 

Steel Segment


US$ thousand

1H 2012

1H 2011

Net loss

(640,841)

(56,254)

  Add:

Depreciation, depletion and amortization

84,895

61,494

Forex loss

25,073

36,878

Interest expense

182,027

160,067

Interest income

(5,884)

(9,042)

Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for the loan given to related parties

518,980

(1,582)

Amount attributable to noncontrolling interests

(22,692)

(99)

Income taxes

(1,716)

23,753

Adjusted EBITDA

139,841

215,215

 


Print it

US$ thousand

2Q 2012

1Q 2012

Net loss

(625,277)

(15,564)

  Add:

Depreciation, depletion and amortization

41,244

43,651

Forex loss / (gain)

116,228

(91,155)

Interest expense

95,163

86,864

Interest income

(2,861)

(3,023)