Mechel · RUS:MTLR

Mechel — Q1 2007 Earnings Presentation

17 slides from Mechel's earnings presentation, Jul 11, 2007

  1. Slide 1: 2007 First Quarter Results Presentation

    2007 First Quarter Results Presentation July 11, 2007

  2. Slide 2: Disclaimer

    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 Steel Group OAO (Mechel) or any of its subsidiaries in any jurisdiction or an inducement to enter into inv

  3. Slide 3: 1Q07 Financial Highlights

    1Q07 Financial Highlights ¾ Strong 1Q07 vs. 1Q06 financial results +65.9% Revenue $1.4 billion +160.5% EBITDA $355.5 million +219.6% Net Income $205 million ¾ Well balanced strategy ¾ Strong Management ¾ Focus on shareholder value 3

  4. Slide 4: 1Q07 realized projects

    1Q07 realized projects ¾ Acquisition of Southern Kuzbass Power Plant • Installed electric power capacity of 554 MWt • Reduction of production costs by generating own electric power ¾ Commissioning of a new Concaster at Mechel Targoviste • Cost savings through reduction of liquid steel consumption ra

  5. Slide 5: Mining 1Q07 vs. 1Q06

    Mining 1Q07 vs. 1Q06 ¾ Net profit in 1Q07 vs. 1Q06 grew by 277.9% ¾ EBITDA margin doubled to 33.3% ¾ Increased coal and nickel production volumes •Coal output increased 13% •Nickel output increased 22% ¾ Positive market fundamentals Coking coal Steam coal 2.2 2.2 2.3 $150 2.5 $60 2 2 1.8 $120 $50 1.

  6. Slide 6: Steel 1Q07 vs. 1Q06

    Steel 1Q07 vs. 1Q06 ¾ Net profit in 1Q07 vs. 1Q06 grew by 185% ¾ Cost saving and efficiency improvements: • Increased output of high value added products • Increased share of concasted steel ¾ Moscow Coke&Gas Plant and new coking battery at CMP allow for sharp increase in coke production ¾ Positive

  7. Slide 7: 1Q07 Financial Highlights

    1Q07 Financial Highlights ¾ Strong 1Q07 vs. 1Q06 financial results +65.9% Revenue $1.4 billion +445.7% Operating income $322 million +219.6% Net Income $205 million ¾ Well balanced strategy ¾ Strong Management ¾ Focus on shareholder value 7

  8. Slide 8: Financial Review

    Financial Review 8

  9. Slide 9: Sales Overview

    Sales Overview Consolidated revenue Š Company benefited from higher sales prices across both segments 1,500 +183 1,416 +379 Š Increased steel sales volumes 1,000 854 (US$mn) Š Proportion of high value-added products in steel segment increased 500 0 1Q 06 Price Volume 1Q 07 Variance factors Steel seg

  10. Slide 10: Steel Sales: Structure and Prices

    Steel Sales: Structure and Prices Sales structure Š Improved sales mix to include greater 100% percentage of higher-margin products 17% 17% 80% 5% Š Continuing strong demand trends in 16% 13% construction industry drove increased 60% 10% 8% 11% 11% pricing 3% 5% 40% Š Growing share of higher-margin

  11. Slide 11: Mining Sales: Structure and Prices

    Mining Sales: Structure and Prices Sales structure* Š Strong coal and iron ore prices were key 100% 8% 5% drivers of sales growth 17% 29% 80% Š Average nickel prices up 28% in the 1Q07 13% 60% 11% Š Further growth of sales to Europe 22% 23% 40% Š Privatization of power generation 20% 40% companies g

  12. Slide 12: Cost Structure

    Cost Structure Š Selling expenses to sales decreased to 8.4% from 12.0% q-o-q as a result of sales structure changes Š Tighter cost control results in G&A expenses fall to 5.4% from 7.2% q-o-q Mining segment COS structure Steel segment COS structure 10% 4% 2% Raw materials and 9% Raw materials and 7

  13. Slide 13: Segment Operations

    Segment Operations Mining segment Steel segment 1,800 40% 3,200 24 40% 75 57 2,800 1,500 377 337 2,400 30% 30% 1,200 3,062 2,000 323 (US$mn) (US$mn) 42 900 20% 1,600 20% 2,757 2,710 1,336 1,200 600 15 1,095 185 168 878 10% 800 1,614 10% 300 995 414 421 400 0 0% 0 0% 2003 2004 2005 2006 1Q07 2003 200

  14. Slide 14: Financial Performance Analysis

    Financial Performance Analysis Revenue – Gross margin Š Strong positive trend in revenue and 5,000 80% profitability growth 4,398 70% 3,636 3,805 4,000 60% 50% (US$mn) Š Benefits of capital expenditure 3,000 2,028 40% 2,000 program 1,416 30% 20% 1,000 10% Š Positive macroeconomic factors that 0 2003

  15. Slide 15: Strong Balance Sheet to Support Growth

    Strong Balance Sheet to Support Growth Operating cash flow Š Strong operating cash flow 800 20% 16.3% provides flexibility to : 600 12.6% 13.9% 15% 621 — Fund capex program (US$mn) 555 400 8.1% 10% 6.2% — Expand current operations 200 5.9% 296 5% 197 — Reduce short-term debt 0 81 120 0% 2002 2003 20

  16. Slide 16: Solid Financial Position

    Solid Financial Position Š Share of Unsecured Debt increased to 79% at 31 March 2007 from 57% at 31 December 2006 Š Debt/EBITDA ratio of 0.29 is one of the lowest in the industry Š Flexibility to pursue value enhancing M&A opportunities and fund capex Debt to EBITDA ratio Maturity Profile 800 1.36 1

  17. Slide 17: First Quarter 2007 Results Overview

    First Quarter 2007 Results Overview $ million unless 1Q07 1Q06 Change, % otherwise stated Revenue 1,416 854 66% Cost of revenue (876) (592) 48% Operating income 328 59 456% EBITDA 355 134 165% EBITDA margin 25.1% 15.8% Net Income 205 63 225% Net Income margin 14.5% 7.4% EPS (USD per ADR) 1.47 0.48 2

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