Mechel · RUS:MTLR
Mechel — 9M 2007 Earnings Presentation
20 slides from Mechel's earnings presentation, Dec 11, 2007
Slide 1: 9 Months Results Presentation
9 Months Results Presentation December 11, 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 9M07 Results
Record 9M07 Results ¾ Strong 9M07 vs. 9M06 financial results +47.9% Revenue $4.6 billion +80.2% EBITDA $1.2 billion +89.7% Net Income $706 million ¾ Well balanced strategy ¾ Strong Management ¾ Focus on shareholder value 4
Slide 5: Yakutian Acquisitions: in line with strategy
Yakutian Acquisitions: in line with strategy ¾ Yakutugol Russia’s largest coking coal exporter (sells mostly to Japan, South Korea, and Taiwan) The only producer of K9 hard coking coal in Russia Coal reserves are estimated at 200 million tonnes 5.4 mn tonnes of coking coal and 4.2 mn tonnes
Slide 6: 9M07 Financial Highlights
9M07 Financial Highlights ¾ Strong 9M07 vs. 9M06 financial results +47.9% Revenue $4.6 billion +117.7% Operating income $1.0 billion +89.7% Net Income $706 million ¾ Well balanced strategy ¾ Strong Management ¾ Focus on shareholder value 6
Slide 7: Mr. Vladimir Polin, CEO, Mechel Management OOO
Mr. Vladimir Polin CEO Mechel Management OOO 7
Slide 8: 9M07 Production Growth
9M07 Production Growth Mining Segment Production Product output, Thousand 9M07vs.9M06 9M07 tonnes % Coal 13,409 8.3 Coking coal 6,354 (8.4) Steam coal 7,055 29.7 Iron ore concentrate 3,714 (0.9) Nickel 12.84 21.9 Steel Segment Production Product output, Thousand 9M07vs.9M06 9M07 tonnes % Hardware 51
Slide 9: Power Segment: in line with strategy
Power Segment: in line with strategy ¾ Southern Kuzbass Power Plant ¾ Kuzbass Power Sales Company – the largest power distributing company in Siberia controlling more than 50% of regional power sales Total power generating capacity of 817.5 MW Southern Kuzbass Chelyabinsk Metallurgical Moscow Coke&G
Slide 10: Expansion of Mechel's sales network
Expansion of Mechel’s sales network Trading company Mechel-Service established new retail and service sites to meet high demand for construction rolled products Targets achieved: ¾ Increased sales volumes of steel products to end customers ¾ Expansion of sales geography ¾ Additional margins on sold
Slide 11: Mr. Stanislav Ploschenko, Acting CFO, Mechel OAO
Mr. Stanislav Ploschenko Acting CFO Mechel OAO 11
Slide 12: Sales Overview
Sales Overview Consolidated revenue Company benefited from higher sales 5,000 + 115 + 217 4,647 + 1,173 prices across both mining and steel 4,000 segments 3,142 (US$mn) 3,000 Increased steel sales volumes 2,000 Recent acquisitions in energy 1,000 segment contributed US$217 million 0 9M06 Price
Slide 13: Steel Sales: Structure and Prices
Steel Sales: Structure and Prices Sales structure* 45% growth in revenue from external 100% 17% 16% customers 80% 5% 15% 14% Improved sales mix to include greater 60% 8% 9% 10% percentage of higher-margin products 4% 10% 5% 40% Focus on growing domestic market 25% 23% 20% 7% 5% Growing contr
Slide 14: Mining Sales: Structure and Prices
Mining Sales: Structure and Prices Sales structure* 27% contribution to the consolidated 100% 3% 3% revenue 80% 18% 30% 13% Strong coal and iron ore prices 60% 10% 25% Further growth of sales to Europe 40% 26% Privatization of power generation 20% 41% 31% companies gives additional steam 0%
Slide 15: Cost Structure
Cost Structure Higher degree of vertical integration after the acquisition of Bratsk Ferroalloy Plant and Southern Kuzbass Power Plant Stable cost structure Overall selling expenses as a percentage of sales decreased to 8.83% from 10.25% y-o-y as a result of sales structure changes COS structu
Slide 16: Segment Operations
Segment Operations Growth of EBITDA margin in mining segment 2x increase in mining segment operating margin Higher synergies from stronger vertical integration Despite strong input material growth steel segment operating margin further improved Mining segment Steel segment Energy segment 1,8
Slide 17: Financial Performance Analysis
Financial Performance Analysis Revenue – Gross margin 9M07 financial results exceeded 5,000 4,647 80% FY2006 4,398 70% 3,636 3,805 4,000 60% 50% (US$mn) 3,000 Strong positive trend in revenue and 2,028 40% 2,000 profitability growth 30% 20% 1,000 10% Benefits of capital expenditure 0 0% 2003 2
Slide 18: Strong Balance Sheet to Support Growth
Strong Balance Sheet to Support Growth Operating cash flow Record operating cash flow was 1,000 18.1% 20% 16.3% sufficient to finance investment 800 12.6% 15% program and M&A 600 (US$mn) 8.1% 10% 843 Cash flow from investing activities 400 6.2% 5.9% 621 555 driven by new acquisitions (US$512 200
Slide 19: Solid Financial Position
Solid Financial Position Share of Unsecured Debt increased to 87%1 at 30 September 2007 from 57% at 31 December 2006 Debt/EBITDA ratio of 0.64 is one of the lowest in the industry 0.4x Net Debt/EBITDA2 position provides significant financial flexibility to pursue value enhancing M&A opportunit
Slide 20: 9M07 Results Overview
9M07 Results Overview $ million unless 9M07 9M06 Change, % otherwise stated Revenue 4,647 3,142 48% Cost of sales (2,830) (2,069) 37% Operating income 1,052 483 118% EBITDA 1,205 669 80% EBITDA margin 25.9% 21.3% Net Income 706 372 90% Net Income margin 15.2% 11.8% EPS (USD per ADR) 5.09 2.76 84% Sa