Mechel · RUS:MTLR
Mechel — H1 2007 Earnings Presentation
20 slides from Mechel's earnings presentation, Oct 3, 2007
Slide 1: First Half 2007 Results Presentation
First Half 2007 Results Presentation October 3, 2007
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 OAO (Mechel) or any of its subsidiaries in any jurisdiction or an inducement to enter into investment acti
Slide 3: Mr. Igor Zyuzin, CEO, Mechel OAO
Mr. Igor Zyuzin CEO Mechel OAO 3
Slide 4: Record 1H07 Results
Record 1H07 Results ¾ Strong 1H07 vs. 1H06 financial results +55.0% Revenue $3.0 billion +136.0% EBITDA $813.7 million +169.4% Net Income $489.5 million ¾ Well balanced strategy ¾ Strong Management ¾ Focus on shareholder value 4
Slide 5: Acquisitions to boost growth
Acquisitions to boost growth ¾Southern Kuzbass Power Plant • Designed electric power capacity of 550 MWt • Additional margins by selling electricity and heat power • Reduction of production costs by generating own electric power ¾Bratsk Ferraloy Plant • 13% of Russian ferrosilicon production • Sourc
Slide 6: 1H07 Financial Highlights
1H07 Financial Highlights ¾ Strong 1H07 vs. 1H06 financial results +55.0% Revenue $3.0 billion +252.8% Operating income $739.0 million +169.4% Net Income $489.5 million ¾ Well balanced strategy ¾ Strong Management ¾ Focus on shareholder value 6
Slide 7: Mr. Vladimir Polin, CEO, Mechel Management OOO
Mr. Vladimir Polin CEO Mechel Management OOO 7
Slide 8: Comprehensive Production Modernization Program
Segment Modernization Comprehensive Production Modernization Program Efficiency enhancing projects realized: ¾ Commissioning of a new continuous casting machine at Romanian steel plant Mechel Targoviste ¾ Comissioning of a modern equipment complex to produce high-tensile stabilized reinforcing wire
Slide 9: 1H2007 Production Growth
1H2007 Production Growth Mining Segment production Product output, Thousand 1H07vs.1H06 1H07 tonnes % Coal 8,870 10 Coking coal 4,223 (6) Steam coal 4,647 29 Iron ore concentrate 2,376 (1) Nickel 8.4 20 Steel Segment production Product output, Thousand 1H07vs.1H06 1H07 tonnes % Hardware 336 17 Rolle
Slide 10: Expansion of Mechel's sales network
Expansion of Mechel’s sales network Trading company Mechel-Service established new retail and service sites to meet high demand for construction rolled products Targets achieved: ¾ Increased sales volumes of steel products to end customers ¾ Expansion of sales geography ¾ Additional margins on sold
Slide 11: Mr. Stanislav Ploschenko, Acting CFO, Mechel OAO
Mr. Stanislav Ploschenko Acting CFO Mechel OAO 11
Slide 12: Sales Overview
Sales Overview Consolidated revenue Company benefited from higher 3,200 +823 +237 2,987 sales prices across both segments 2,400 1,927 Increased steel sales volumes (US$mn) 1,600 Increased proportion of high value- 800 added product sales in steel segment 0 1H06 Price Volume 1H07 Variance facto
Slide 13: Steel Sales: Structure and Prices
Steel Sales: Structure and Prices Sales structure* Improved sales mix to include 100% 17% 17% greater percentage of higher- 80% 16% 5% 14% margin products 60% 9% 8% 10% 10% 4% Growing contribution from 40% 24% 5% 23% investments 20% 7% 5% 14% 12% 0% Billets 1H06 Wire Rod Rebar 1H07 Stainless fla
Slide 14: Mining Sales: Structure and Prices
Mining Sales: Structure and Prices Sales structure* Strong coal and iron ore prices 100% 7% 6% 14% Further growth of sales to Europe 80% 13% 30% 60% Privatization of power generation 9% 25% 21% companies gives additional steam 40% coal supply opportunity 20% 41% 34% 0% 1H06 1H07 Coking coal St
Slide 15: Cost Structure
Cost Structure Improved gross margin in both segments Selling expenses as a percentage of sales decreased to 8.51% from 11.27% y-o-y as a result of sales structure changes G&A expenses fell to 5.61% from 6.24% y-o-y Mining segment COS structure Steel segment COS structure 8% 3% 2% Raw material
Slide 16: Segment Operations
Segment Operations Steel segment Growth of EBITDA margin in both 2,500 40% segments 28 2,000 30% (US$mn) 1,500 10 3x increase in mining segment 20% 1,000 operating margin 2,089 10% 500 1,313 0 0% 2x increase in steel segment 1H06 1H07 operating margin Mining segment 1,500 40% Higher synergie
Slide 17: Financial Performance Analysis
Financial Performance Analysis Revenue – Gross margin Strong positive trend in revenue and 5,000 80% profitability growth 4,398 70% 3,636 3,805 4,000 60% 2,987 50% (US$mn) Benefits of capital expenditure 3,000 2,028 40% 2,000 program 30% 20% 1,000 10% Positive macroeconomic factors that 0 2003
Slide 18: Strong Balance Sheet to Support Growth
Strong Balance Sheet to Support Growth Operating cash flow Strong operating cash flow 800 24.0% 25% provides flexibility to: 20% 600 16.3% 716 — Fund capex program 12.6% 15% (US$mn) 400 621 — Expand current operations 6.2% 8.1% 555 10% 5.9% 200 296 5% — Reduce short-term debt 120 81 0 0% — Fund M&
Slide 19: Solid Financial Position
Solid Financial Position Share of Unsecured Debt increased to 91% at 30 June 2007 from 57% at 31 December 2006 Debt/EBITDA ratio of 0.24 is one of the lowest in the industry Flexibility to pursue value enhancing M&A opportunities and fund capex Debt to EBITDA ratio Maturity Profile 800 1.36 1.
Slide 20: 1H 2007 Results Overview
1H 2007 Results Overview $ million unless 1H07 1H06 Change, % otherwise stated Revenue 2,987 1,927 55% Cost of sales (1,761) (1,319) 34% Operating income 739 209 253% EBITDA 814 345 136% EBITDA margin 27.2% 17.9% Net Income 489 182 169% Net Income margin 16.4% 9.4% EPS (USD per ADR) 3.53 1.35 162% S