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Mechel Reports Results for the 2008 First Quarter

July 14, 2008

MOSCOW, July 14 /PRNewswire-FirstCall/ — Mechel OAO , a leading Russian integrated mining and metals group, today announced financial results for the first quarter ended March 31, 2008.

Igor Zyuzin, Chief Executive Officer, commented, “Our final results for the 2008 first quarter came in as we expected, and reflect strong operational and financial performance. Conditions in the markets we serve continue to be favorable and are driven by a combination of growth factors. We are very pleased to have reported record revenue and we remain focused on the successful execution of our operating strategy.”

   US$ thousand                    1Q 2008         1Q 2007          Change                                                                    Y-on-Y   Revenues                      2,328,201       1,418,590           64.1%   Net operating income            642,139         302,489          112.3%   Net operating margin              27.58%          21.32%             -   Net income                      500,009         190,709          162.2%   EBITDA*                         853,097         339,772          151.1%   EBITDA margin                      36.6%           24.0%             -   * See Attachment A.     Consolidated Results  

Net revenue in the first quarter of 2008 rose by 64.1% to $2.3 billion from $1.4 billion in the first quarter of 2007. Operating income rose by 112.3% to $642.1 million, or 27.58% of net revenue, in the first quarter of 2008, compared to operating income of $302.5 million, or 21.32% of net revenue, in the first quarter of 2007.

For the first quarter of 2008, Mechel reported consolidated net income of $500 million, or $1.20 per ADR / diluted share, an increase of 162.2% over consolidated net income of $190.7 million, or $0.46 per ADR / diluted share, in the first quarter of 2007.

Consolidated EBITDA rose by 151.1% to $853 million in the first quarter of 2008, compared to $340 million in the first quarter of 2007.

   Mining Segment Results    US$ thousand                1Q 2008         1Q 2007(1)        Change                                                                 Y-on-Y   Revenues from    external customers         856,033          409,259           109.2%   Intersegment sales          194,095          168,421            15.2%   Operating income            416,182          176,606           135.7%   Net income                  302,728          106,969           183.0%   EBITDA*                     512,899          198,305           158.6%   EBITDA margin(2)               48.8%            34.3%              -   * See Attachment A.   1 - 1Q 2007 results have been recalculated to reflect the separate       reporting for the power segment.   2 - EBITDA margin is calculated as a percentage of consolidated revenues       of the segment, including intersegment sales.     Mining Segment Output    Product               1Q 2008, thousand tonnes        1Q 2008 vs. 1Q 2007    Coal                            7,279                        + 60%   Coking coal                     4,313                        + 94%   Steam coal                      2,966                        + 27%   Iron ore concentrate            1,163                         + 6%   Nickel                            4.4                         + 7%    

Mining segment revenue from external customers for the first quarter of 2008 totaled $856 million, or 36.8% of consolidated net revenue, an increase of 109.2% over segment revenue from external customers of $409 million, or 28.8% of consolidated net revenue, in the first quarter of 2007.

Operating income of the mining segment in the first quarter of 2008 increased by 135.7% to $416.2 million, or 39.6% of total segment sales, compared to operating income of $176.6 million, or 30.6% of total segment sales, in the first quarter of 2007. EBITDA in the mining segment in the first quarter of 2008 increased by 158.6% to $512.9 million compared to EBITDA of $198.3 million in the first quarter of 2007. The EBITDA margin in the mining segment was 48.8% for the first quarter of 2008, compared to 34.3% in the first quarter of 2007.

   Steel Segment Results    US$ thousand               1Q 2008          1Q 2007(3)         Change                                                                  Y-on-Y   Revenues from    external customers       1,278,720          990,223            29.1%   Intersegment sales           66,172           22,398           195.4%   Operating income            197,825          130,708            51.3%   Net income                  183,981           89,543           105.5%   EBITDA*                     329,538          146,275           125.3%   EBITDA margin(4)               24.5%            14.5%              -   * See Attachment A.   3 - 1Q 2007 results have been recalculated to reflect the separate       reporting for the power segment.   4 - EBITDA margin is calculated as a percentage of consolidated revenues       of the segment, including intersegment sales.     Steel Segment Output    Product              1Q 2008, thousand tonnes     1Q 2008 vs. 1Q 2007    Coke                            917                      - 4%   Pig iron                        970                      + 4%   Steel                         1,563                      + 5%   Rolled products               1,366                      + 7%   Hardware                        183                     + 16%    

Steel segment revenue increased by 29.1% in the first quarter of 2008 to $1.28 billion, or 54.9% of consolidated net revenue, from $990 million, or 69.8% of consolidated net revenue, in the first quarter of 2007.

Operating income for the steel segment in the first quarter of 2008 increased by 51.3 % to $197.8 million, or 14.7% of total segment sales, compared to operating income of $130.7 million, or 12.9% of total segment sales in the first quarter of 2007. EBITDA for the steel segment for the first quarter 2008 increased by 125.3% to $329.5 million compared to segment EBITDA of $146.3 million in first quarter of 2007. The EBITDA margin for the steel segment was 24.5% in the first quarter of 2008 compared to 14.5% in the first quarter of 2007.

   Power Segment Results    US$ thousand                1Q 2008          1Q 2007(5)       Change                                                                 Y-on-Y    Revenues from    external  customers        193,448           19,108          912.4%   Intersegment sales           98,661           21,116          367.2%   Operating income             27,585            3,498          688.6%   Net income / (loss)          15,049            2,522          496.7%   EBITDA*                      33,508            3,667          813.8%   EBITDA margin(6)               11.5%             9.1%             -   * See Attachment A.   5 - 1Q 2007 results for the power segment were previously reported as part       of the mining and steel segments.   6 - EBITDA margin is calculated as a percentage of consolidated revenues       of the segment, including intersegment sales.    

Revenue from Mechel’s power segment in the first quarter of 2008 totaled $193.4 million, or 8.3% of consolidated net revenue, an increase of 912.4% compared to revenue from sales to external customers of $19.1 million or 1.3% of consolidated net revenue, in the first quarter of 2007.

Operating income for the power segment in the first quarter of 2008 was $27.6 million, or 9.4% of total segment revenues, an increase of 688.6% compared to operating income of $3.5 million, or 8.7% of total segment revenues, in the first quarter of 2007. EBITDA for the power segment in the first quarter of 2008 increased by 813.8% to $33.5 million, compared to EBITDA of $3.7 million in the first quarter of 2007. The EBITDA margin in the segment was 11.5% in the first quarter of 2008, compared to 9.1% in the first quarter of 2007.

   Recent Highlights   --  In June 2008, Mechel announced that a groundbreaking ceremony marking       the commencement of railroad construction was held at the 60th       kilometer landmark of Verhny Ulak Station of the Baikal-Amur Mainline       together with Transstroy Engineering Corporation ZAO. This spur-track       will connect the Elga deposit with the Baikal-Amur Mainline.  The       total length of the railroad will be approximately 315 kilometers. The       railroad's design includes approximately 420 engineering structures,       including 194 bridges. The railroad's throughput capacity after       completion of all construction stages will be approximately 25.0-30.0       million tonnes annually. Commissioning of the railroad for permanent       operations is expected to commence before September 30, 2010.    --  In July 2008, Mechel announced the signing of a contract between its       Chelyabinsk Metallurgical Plant OAO ("CMP") subsidiary and Danieli to       supply technology and equipment to construct a rail and structural       steel mill at CMP. The mill's capabilities will enable low cost       production of high quality railroad rails up to 100 meters in length       using state-of-the-art technologies for steel rolling, hardening,       straightening, finishing, and rail quality control and a wide range of       other products with steady geometric section parameters and lower       metal consumption due to its precision and thermal strengthening.    Financial Position  

Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the first quarter of 2008 amounted to $175.5 million, of which $41.2 million was invested in the mining segment, $126.9 million in the steel segment and $7.4 million in the power segment.

For the first quarter of 2008, Mechel spent $0.7 million on the acquisition of minority interests in subsidiaries.

As of March 31, 2008, total debt amounted to $3.2 billion. Cash and cash equivalents amounted to $145.4 million and net debt amounted to $3.0 billion (net debt is defined as total debt outstanding less cash and cash equivalents) as of March 31, 2008.

The management of Mechel will host a conference call today at 3:00 p.m. New York time (8:00 p.m. London time, 11:00 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.

To listen to the conference call via phone, please call the number below approximately 10 minutes prior to the scheduled time of the call, quoting Mechel, and the chairperson’s name, Alexander Tolkach.

                      Conference Call Phone Numbers:                         US Toll: +1 913 312 1269                     UK Toll Free:  0 800 051 7166                   Russia Toll Free: 810 800 2544 1012   

A replay of the call will be available until 11:59PM New York time on July 22nd. To access, please dial, US: +1 719 457 0820; UK: 0 808 1011 153, Russia: 810 800 270 210 12. From all areas, enter: 2498919# to access.

   Mechel OAO   Alexander Tolkach   Head of International Relations & Investor Relations   Mechel OAO    Phone: 7-495-221-88-88   Fax: 7-495-221-88-00   alexander.tolkach@mechel.com   

Mechel is one of the leading Russian mining and metals companies. Mechel unites producers of coal, iron ore, nickel, steel, rolled products, and hardware. 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 2008 First Quarter 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 financial measures. 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.

Earnings Before Interest, Taxation, Depreciation and Amortization (EBITDA) and EBITDA margin. EBITDA represents earnings before interest, taxation, depreciation and amortization. EBITDA margin is defined as EBITDA as a percentage of our net revenues. Our EBITDA may not be similar to EBITDA measures of other companies 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 income statement. We believe that 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 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. EBITDA can be reconciled to our consolidated statements of operations as follows:

   US$ thousands                          1Q 2008             1Q 2007    Net income                             500,009             190,709   Add:   Depreciation, depletion and   amortization                           111,393              52,871   Interest expense                        56,324               7,928   Income taxes                           185,371              88,264   Consolidated EBITDA                    853,097             339,772    

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

   US$ thousands                          1Q 2008             1Q 2007    Revenue, net                         2,328,201           1,418,590   EBITDA                                 853,097             339,772   EBITDA margin                             36.6%               24.0%      Consolidated Balance Sheets   (in thousands of U.S. dollars, except share amounts)                                                 March 31, 2008  December 31,                                          Notes   (unaudited)      2007   Assets   Cash and cash equivalents                     $   145,397    $   236,779   Accounts receivable, net of allowance    for doubtful accounts of $27,622 as    of March 31  2008 and $26,781 as of    December 31, 2007                                480,767        341,756   Due from related parties                           15,989          4,988   Inventories                              4      1,131,345        993,668   Deferred cost of inventory in transit               9,180         13,190   Deferred income taxes                              15,468         12,331   Prepayments and other current assets              763,320        633,993   Total current assets                            2,561,466      2,236,705    Long-term investments in related parties           96,124         92,571   Other long-term investments                        56,881         58,595   Intangible assets, net                              7,978          7,408    Property, plant and equipment, net              3,952,629      3,701,762   Mineral licenses, net                    6      2,178,151      2,131,483   Other non-current assets                 7         68,241         67,918   Deferred income taxes                               9,407         16,755   Goodwill                                          954,269        914,446   Total assets                                 $  9,885,146   $  9,227,643    LIABILITIES AND SHAREHOLDERS' EQUITY   Short-term borrowings and current    portion of long-term debt               8   $    993,387   $  1,135,104   Accounts payable and accrued expenses:     Advances received                               165,494        147,739     Accrued expenses and other current      liabilities                                    222,549        144,083     Taxes and social charges payable                249,356        123,794     Unrecognized income tax benefits      13         76,915         79,211   Trade payable to vendors of    goods and services                               228,286        222,753   Due to related parties                              4,397          3,596   Asset retirement obligation,    current portion                         9          5,995          5,366   Deferred income taxes                              27,974         33,056   Deferred revenue                                    8,594         20,949   Pension obligations, current portion    10         66,636         63,706   Finance lease liabilities,    current portion                                   12,767         11,708   Total current liabilities                       2,062,350      1,991,065     Long-term debt, net of    current portion                         8      2,191,607      2,321,922   Asset retirement obligations,    net of current portion                  9         67,809         65,928   Pension obligations, net of    current portion                        10        284,229        266,660   Deferred income taxes                             721,824        701,318   Finance lease liabilities, net of    current portion                                   73,279         73,377   Other long-term liabilities                         1,660          1,917   Minority interests                                352,816        300,523    SHAREHOLDERS' EQUITY   Common shares (10 Russian rubles par    value; 497,969,086 shares authorized,    416,270,745 shares issued and    outstanding as of  March 31, 2008    and December 31, 2007)                 12        133,507        133,507   Additional paid-in capital                        415,070        415,070   Accumulated other comprehensive income            430,097        305,467   Retained earnings                               3,150,898      2,650,889   Total shareholders' equity                      4,129,572      3,504,933   Total liabilities and shareholders'    equity                                      $  9,885,146   $  9,227,643      Consolidated Income Statements   (in thousands of U.S. dollars, except share and     Three months ended   per share amounts)                                       March 31,                                                        2008        2007                                              Notes  (unaudited) (unaudited)   Revenue, net (including related party    amounts of $21,326 and $22,110 during    three months 2008 and 2007,    respectively)                              14   $ 2,328,201 $ 1,418,590    Cost of goods sold (including related    party amounts of $9,684 and $49,111    during three months 2008 and 2007,    respectively)                                    (1,244,779)   (873,453)       Selling, distribution and operating       expenses:       Selling and distribution expenses                (295,955)   (121,813)       Taxes other than income tax                       (21,526)    (34,678)      Accretion expense                         9          (822)     (1,039)      Provision for doubtful accounts                      (418)     (2,043)      General, administrative and other       operating expenses                              (122,562)    (83,075)      Total selling, distribution and       operating expenses                              (441,283)   (242,648)      Operating income                                  642,139     302,489    Gross profit                                       1,083,422     545,137       Income from equity investments                        310       2,839      Interest income                                     4,937       1,076      Interest expense                                  (56,324)     (7,928)      Other income, net                                   3,871      (2,387)      Foreign exchange gain                             128,776       9,278   Other income and (expense):  Total other income and (expense), net                  81,570       2,878      Income tax expense                                (185,371)    (88,264)     Minority interest in income of      subsidiaries                                      (38,329)    (26,439)  Income before income tax, minority   interest, discontinued operations and   extraordinary gain                                   723,709     305,367    Income from continuing operations                    500,009     190,664   Income from discontinued operations,    net of tax                                                -          45    Net income                                         $ 500,009   $ 190,709   Currency translation adjustment                      128,139      16,804   Change in pension benefit obligation                  (2,049)        (28)   Adjustment of available-for-sale    securities                                           (1,460)      2,591   Comprehensive income                               $ 624,639   $ 210,076    Basic and diluted earnings per share:       12   Earnings per share from continuing    operations                                           $ 1.20      $ 0.46   Income per share effect of discontinued    operations                                             0.00        0.00   Net income per share                                  $ 1.20      $ 0.46    Dividends declared per share                          $ 0.00      $ 0.00    Weighted average number of shares    outstanding                                     416,270,745 416,270,745        Interim Consolidated Statements of Cash Flows     Three months ended   (in thousands of U.S. dollars)                         March 31,                                                      2008         2007                                                   (unaudited)   (unaudited)   Cash Flows from Operating Activities   Net income                                       $ 500,009     $ 190,711   Adjustments to reconcile net income to    net cash provided by operating    activities:      Depreciation                                     86,285        48,535      Depletion and amortization                       25,108         4,336      Foreign exchange gain                          (128,776)       (9,278)      Deferred income taxes                            (7,428)       (6,213)      Provision for doubtful accounts                     418         2,043      Inventory write-down                                115         1,506      Accretion expense                                   822         1,039      Minority interest                                38,329        26,439      Gain on revaluation of trading       securities                                           -        14,760      Change in undistributed earnings of       equity investments                                (310)        2,839      Non-cash interest on long-term tax and       pension liabilities                              5,479         1,245      Loss on sale of property, plant and       equipment                                        2,207         4,812      Gain on sale of non-marketable       securities                                      (1,664)            -      Amortization of syndicated loan       origination fee                                  1,639             -      Income from discontinued operations                   -           (45)      Gain on accounts payable with expired       legal term                                        (858)       (6,347)      Gain on forgiveness of fines and       penalties                                            -        (6,399)      Pension service cost and amortization       of prior period service cost                     2,472         1,029   Net change before changes in working    capital                                           523,847       271,012   Changes in working capital items, net of    effects from acquisition of new    subsidiaries:      Accounts receivable                            (130,261)      (75,756)      Inventories                                     (97,097)         (803)      Trade payable to vendors of goods and       services                                        (2,399)      (29,759)      Advances received                                12,938        60,732      Accrued taxes and other liabilities             187,797        39,775      Settlements with related parties                (10,322)        1,923      Current assets and liabilities of       discontinued operations                              -            30      Deferred revenue and cost of inventory       in transit, net                                 (8,345)       16,496      Other current assets                           (104,502)       (7,142)      Unrecognized income tax benefits                 (3,322)        1,741    Net cash provided by operating activities          368,334       278,249    Cash Flows from Investing Activities      Investment in Prommet and subsidiaries                -        (4,181)      Acquisition of minority interest in       subsidiaries                                      (726)      (15,577)      Proceeds from disposals of non-       marketable securities                            4,070             -      Proceeds from disposals of property,       plant and equipment                                976           848      Purchases of mineral licenses                      (809)       (1,061)      Purchases of property, plant and       equipment                                     (174,686)      (57,986)    Net cash used in investing activities             (171,175)      (77,957)       Interim Consolidated Statements of Cash Flows   (in thousands of U.S. dollars, except              Three months ended   share amounts)                                           March 31,                                                       2008         2007                                                    (unaudited) (unaudited)   continued from previous page    Cash Flows from Financing Activities      Proceeds from short-term borrowings             663,893        82,476      Repayment of short-term borrowings             (991,987)     (171,605)      Proceeds from long-term debt                     29,549         4,971      Repayment of long-term debt                      (2,083)            -      Repayment of obligations under finance       lease                                           (6,260)       (2,416)    Net cash used in financing activities             (306,888)      (86,574)       Effect of exchange rate changes on cash       and cash equivalents                            18,347         2,097       Net (decrease) increase in cash and       cash equivalents                               (91,382)      115,815       Cash and cash equivalents at beginning       of period                                      236,779       172,614      Cash and cash equivalents at end of       period                                       $ 145,397     $ 288,429    Supplementary cash flow information:      Interest paid, net of amount       capitalized                                  $ (17,857)     $ (4,250)      Income taxes paid                            $ (119,437)   $ (103,022)    Non-cash Activities:   Net assets of subsidiaries contributed by    minority shareholders in exchange for    shares issued by subsidiaries                         $ -       $ 2,743   Acquisition of equipment under finance    lease                                             $ 1,230      $ 11,935  

Mechel OAO

CONTACT: Alexander Tolkach, Head of International Relations & InvestorRelations, of Mechel OAO, Phone, +7-495-221-88-88, Fax, +7-495-221-88-00,alexander.tolkach@mechel.com

Web site: http://www.mechel.com/




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