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Mechel Reports the 1Q 2013 Financial Results



Mechel Reports the 1Q 2013 Financial Results

                       Revenue amounted to $2.5 billion
            Consolidated adjusted EBITDA amounted to $210 million
 Net loss attributable to shareholders of Mechel OAO amounted to $321 million

MOSCOW, June 18, 2013 (GLOBE NEWSWIRE) -- Mechel OAO (NYSE:MTL), a leading
Russian mining and steel group, today announced financial results for the 1Q
2013.

Evgeny Mikhel, Mechel OAO's Chief Executive Officer, commented on the 1Q 2013
financial results:

"The first quarter was marked by an important step forward toward optimizing
Mechel's asset structure. We disposed of Romanian steelmaking assets, which
did not fit into the company's reviewed strategy and had a negative impact on
our financial results. We expect that the sale of loss-making steel
enterprises will have a positive influence on the economics of the steel
division and the Group as a whole in the medium-term already."

"As a whole, in the reported period the company demonstrated a marked
improvement of its financial results as compared to the previous period. We
made operational profit and saw a noticeable increase in EBITDA. This became
possible due to a pick-up in the steel raw materials market seen in the
beginning of this year, despite a seasonal correction in the steel products
markets.

Unfavorable price trends, observed since early this year, make undoubted
pressure on the market players' financial results. At the same time, we are
certain that optimizing the asset structure, debt portfolio and control over
expenditure and investment will enable Mechel to successfully go through the
market slowdown."

Consolidated Results For The 1Q 2013
 
US$ mln             1Q'13    1Q'12     Change    1Q'13   4Q'12^(1)   Change
                    ^(1)     ^(1)(4)   Y-on-Y    ^(1)                Q-on-Q
Revenue from        2,481    2,949     -15.9%    2,481   2,521       -1.6%
external customers
Intersegment sales  349      456       -23.5%    349     356         -2.0%
Operating income /  61       317       -80.8%    61      (933)       --
(loss)
Operating margin    2.5%     10.7%     --        2.5%    -37.0%      --
Net (loss) / income
attributable to     (321)    218       --        (321)   (1,114)     -71.2%
shareholders of
Mechel OAO
Adjusted net (loss) (233)    220       --        (233)   (161)       44.7%
/ income ^(1) (2)
Adjusted EBITDA     210      487       -56.9%    210     123         70.7%
^(1) (3)
Adjusted EBITDA,    8.5%     16.5%     --        8.5%    4.9%        --
margin ^(1)
^(1) See Attachment                                                   
A.
^(2)  Adjusted net income is net income adjusted for effects of impairment of
long-lived assets and goodwill, loss from discontinued operations, result from
companies' disposal 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, loss from discontinued operations, forex
gain/(loss), net result on the disposal of non-current assets, impairment of
long-lived assets and goodwill, provision for amounts due from related
parties, amounts attributable to noncontrolling interests, result of disposed
companies (incl the result from their disposal) and interest income.
^(4)  Adjusted to effect from discontinued operations
 

Mining Segment Results For The 1Q 2013
 
US$ mln               1Q'13    1Q'12      Change    1Q'13    4Q'12    Change
                      ^(1)     ^(1)(5)    Y-on-Y    ^(1)     ^(1)     Q-on-Q
Revenue from external 769      945        -18.6%    769      676      13.8%
customers
Intersegment sales    137      213        -35.7%    137      143      -4.2%
Operating income /    43       276        -84.4%    43       (24)     --
(loss)
Net (loss) / income
attributable to       (104)    242        --        (104)    (67)     55.2%
shareholders of
Mechel OAO
Adjusted net (loss) / (104)    242        --        (104)    (67)     55.2%
income ^(1) (2)
Adjusted EBITDA^(1)   124      358        -65.4%    124      33       275.8%
(3)
Adjusted EBITDA,      13.7%    30.9%      --        13.7%    4.0%     --
margin ^(4)
^(1) See Attachment                                                    
A.
^(2) Adjusted net income is net income adjusted for effects of impairment of
long-lived assets and goodwill, loss from discontinued operations, result from
companies' disposal 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, loss from discontinued operations, forex
gain/(loss), net result on the disposal of non-current assets, impairment of
long-lived assets and goodwill, provision for amounts due from related
parties, amounts attributable to noncontrolling interests, result of disposed
companies (incl the result from their disposal) and interest income.
^(4) Adjusted EBITDA margin is calculated as a percentage of consolidated
revenues of the segment, including intersegment sales.
^(5) Adjusted to effect from discontinued operations
 

Mining Segment Output and Sales For The 1Q 2013
                                                                 
Production:
Product name                    1Q'13,          4Q'12,          Change Q-on-Q
                                thousand tonnes thousand tonnes
Run-of-mine coal                6,406           6,970           -8%
                                                                  
Product Sales:
Product name                    1Q'13,          4Q'12,           Change Q-on-Q
                                thousand tonnes thousand tonnes
Coking coal concentrate         2,843           2,513            13%
Including coking coal
concentrate supplied to Mechel  613             640              -4%
enterprises
PCI                             817             725              13%
Anthracites                     541             453              19%
Including anthracites supplied  4               25               -84%
to Mechel enterprises
Steam coal                      1,551           1,420            +9%
Including steam coal supplied   427             419              2%
to Mechel enterprises
Iron ore concentrate            1,039           1,171            -11%
Including iron ore concentrate  5               12               -55%
supplied to Mechel enterprises
Coke                            796             854              -7%
Including coke supplied to      519             546              -5%
Mechel enterprises

Mechel Mining Management Company OOO's Chief Executive Officer Boris
Nikishichev commented on the mining division's results:

"This year's first quarter saw certain volatility in the markets of raw
materials for steelmaking. Despite the slump in coking coal prices in
long-term contracts, the spot market was characterized by the periods when
prices outgrew the long-term contract level. Also, spot prices for iron ore
grew rather significantly. This situation, combined with our efforts to expand
our client base and redistribute sales into the most attractive markets,
enabled us to greatly improve our mining division's operational profit."

"As part of our strategy on developing ties with the world's major steelmakers
and diversifying our markets, early this year we signed long-term contracts
for coking coal supplies totaling up to 2.5 million tonnes a year with China's
Baosteel Resources and Shasteel Group, as well as South Korea's POSCO. These
contracts will help guarantee the sales of our products as the global markets
for raw materials remain highly volatile. Apart from signing major contracts,
attracting a large number of new Chinese clients interested in smaller coal
supplies also helped to increase and diversify our sales."

"In order to ensure necessary production volumes both now and in the future,
we continue technical revamping of our enterprises and investment in promising
projects. For example, in the first quarter, new mining and transport
equipment was brought in at Southern Kuzbass Coal Company and Yakutugol
Holding Company, and, in June, we signed an agreement on setting up a joint
venture in Yakutia with Mechel Group's longstanding partner BelAZ, which will
meet the Group's needs in technical maintenance and repairs of dump trucks
both at Yakutugol's current open pits and at the developing Elga coal deposit.
Measures aimed to maintain and develop our mining enterprises' technical base
are a priority for the division and will enable us not only to preserve and
consolidate our company's position in the current situation, but also to
promptly react to a possible improvement of the market situation in the medium
term."

Steel Segment Results                                                 
For The 1Q 2013
 
US$ mln               1Q'13    1Q'12    Change      1Q'13    4Q'12   Change
                      ^(1)     ^(1)     Y-on-Y      ^(1)     ^(1)    Q-on-Q
Revenue from external 1,430    1,649    --13.3%     1,430    1,557   -8.2%
customers
Intersegment sales    70       79       --11.4%     70       73      -4.1%
Operating income /    10       11       -9.1%       10       (861)   --
(loss)  
Net loss attributable
to shareholders of    (205)    (16)     1,181.3%    (205)    (925)   -77.8%
Mechel OAO
Adjusted net loss     (119)    (16)     643.7%      (119)    (39)    205.1%
^(1) (2)
Adjusted EBITDA ^(1)  57       71       -19.7%      57       98      -41.8%
(3)
Adjusted EBITDA,      3.8%     4.1%     --          3.8%     6.0%    --
margin ^(4)
^(1) See Attachment                                                   
A.
^(2) Adjusted net income is net income adjusted for effects of impairment of
long-lived assets and goodwill, loss from discontinued operations, result from
companies' disposal 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, loss from discontinued operations, forex
gain/(loss), net result on the disposal of non-current assets, impairment of
long-lived assets and goodwill, provision for amounts due from related
parties, amounts attributable to noncontrolling interests, result of disposed
companies (incl the result from their disposal) 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 to 3^rd Parties For The 1Q 2013
                                                                 
Production:
Product name                    1Q'13,          4Q'12,          Change Q-on-Q
                                thousand tonnes thousand tonnes
Pig iron                        972             1,054           -8%
Steel                           1,300           1,430           -9%
                                                                  
Product Sales:
Product name                    1Q'13,          4Q'12,           Change Q-on-Q
                                thousand tonnes thousand tonnes
Flat products                   185             184              1%
Including those produced by     94              94               0%
third parties
Long products                   841             966              -13%
Including those produced by     233             242              -4%
third parties
Billets                         355             652              -46%
Including those produced by     88              130              -33%
third parties
Hardware and welded mesh        204             239              -15%
Including those produced by     12              17               -29%
third parties
Forgings                        19              18               5%
Stampings                       25              28               -11%

Mechel-Steel Management Company OOO's Chief Executive Officer Vladimir Tytsky
noted in commenting on the steel segment's results:

"As a whole the past quarter was characterized by a certain stability in
demand and prices for the construction product range, which the division's
enterprises mostly focus their production on. We have to a certain degree
decreased the volume of billet and rod sales, which was primarily due to our
disposal of the Romanian assets and the halting of our Ukrainian plant.
Throughout the quarter we have successfully controlled expenditures and
despite the seasonal slump of our key markets, managed to demonstrate
operational profit and a positive EBITDA."

"The launch of the universal rolling mill at Chelyabinsk Metallurgical Plant,
which currently undergoes hot testing, will be the key event which will have a
major impact on the division's future activities. The mill has currently
successfully tested the technology of producing several types of structural
shapes and sections, including rails. The mill's launch will have a positive
effect on the division's profitability, as all of the low-margin billets
currently produced will be processed further to produce high-quality
structural shapes and rails."

Ferroalloys Segment Results For The 1Q 2013
 
US$ mln               1Q'13    1Q'12    Change     1Q'13    4Q'12    Change
                      ^(1)     ^(1)     Y-on-Y     ^(1)     ^(1)     Q-on-Q
Revenue from external 54       125      -56.8%     54       69       -21.7%
customers
Intersegment sales    14       28       -50.0%     14       14       0.0%
Operating loss        (15)     (34)     -55.9%     (15)     (66)     -77.3%
Net loss attributable
to shareholders of    (19)     (56)     -66.1%     (19)     (87)     -78.2%
Mechel OAO
Adjusted net loss     (19)     (56)     -66.1%     (19)     (63)     -69.8%
^(1) (2)
Adjusted EBITDA ^(1)  4        (7)      --         4        (31)     --
(3)
Adjusted EBITDA,      5.4%     -4.9%    --         5.4%     -36.8%   --
margin ^(4)
^(1) See Attachment A.
^(2) Adjusted net income is net income adjusted for effects of impairment of
long-lived assets and goodwill, loss from discontinued operations, result from
companies' disposal 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, loss from discontinued operations, forex
gain/(loss), net result on the disposal of non-current assets, impairment of
long-lived assets and goodwill, provision for amounts due from related
parties, amounts attributable to noncontrolling interests, result of disposed
companies (incl the result from their disposal) 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                     1Q'13,          4Q'12,          Change Q-on-Q
                                 thousand tonnes thousand tonnes
Nickel                           0               0.5             0%
Including nickel supplied to     0               0               0%
Mechel enterprises
Ferrosilicon                     22.8            22              4%
Including ferrosilicon supplied  8.4             7.6             11%
to Mechel enterprises
Chrome                           10.1            17              -41%
Including chrome supplied to     1.4             2               -30%
Mechel enterprises

Mechel-Ferroalloys Management Company OOO's Chief Executive Officer Sergey
Zhilyakov noted:

"Throughout the first quarter the division worked as Southern Urals Nickel
Plant's production facilities were fully halted, which among other factors
enabled us to attain marked improvement of the ferroalloys division's
financial results. The persistent volatility of key sales markets led to
changes in the structure of our product sales. We have cut down on supplies of
ferrosilicon to the domestic market, where demand slumped, reorienting our
volumes toward export, where the market was more stable.

A certain decrease in ferrochrome sales was due primarily to the process of
selling accumulated stocks coming to completion. Nevertheless, Tikhvin
Ferroalloy Plant continues to successfully manufacture its products using
three furnaces, producing more than scheduled in the annual plan. We have also
increased sales of chrome ore concentrate, which had a positive effect on our
economics as average chrome ore concentrate prices in 1Q2013 were higher than
in the previous quarter."

 
Power Segment Results                                                 
for The 1Q 2013
 
US$ mln               1Q'13    1Q'12      Change     1Q'13   4Q'12   Change
                      ^(1)     ^(1)(5)    Y-on-Y     ^(1)    ^(1)    Q-on-Q
Revenue from external 227      230        -1.3%      227     220     3.2%
customers
Intersegment sales    129      136        -5.1%      129     126     2.4%
Operating income      21       28         -25.0%     21      12      75.0%
Net income  / (loss)
attributable to       7        11         -36.4%     7       (41)    --
shareholders of
Mechel OAO
Adjusted net income   8        14         -42.9%     8       3       166.7%
^(1) (2)
Adjusted EBITDA ^(1)  24       29         -17.2%     24      15      60.0%
(3)
Adjusted EBITDA,      6.7%     7.8%       --         6.7%    4.5%    --
margin^(4)
^(1) See Attachment A.
^(2) Adjusted net income is net income adjusted for effects of impairment of
long-lived assets and goodwill, loss from discontinued operations, result from
companies' disposal 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, loss from discontinued operations, forex
gain/(loss), net result on the disposal of non-current assets, impairment of
long-lived assets and goodwill, provision for amounts due from related
parties, amounts attributable to noncontrolling interests, result of disposed
companies (incl the result from their disposal) and interest income.
^(4) Adjusted EBITDA margin is calculated as a percentage of consolidated
revenues of the segment, including intersegment sales.
^(5) Adjusted to effect from discontinued operations
 

Power Segment Output and Sales For The 1Q 2013
 
Product name                         1Q'13     4Q'12     Change Q-on-Q
Electric power generation (ths. kWh) 1,194,337 1,175,399 2%
Heat power generation (Gcal)         2,723,119 2,536,507 7%

Mechel-Energo OOO's Chief Executive Officer Yuri Yampolsky noted:

"In the reported period, the division demonstrated an expected good result. We
had operational and net profit and achieved a significant improvement of
EBITDA. It was largely due to the seasonal high demand for our products. The
division fulfilled its production plans, providing uninterrupted supply of
heat and electricity to its customers during the most important period in the
year. We now enter summer, which is traditionally characterized not only by
lower electricity consumption, but also active work on technical maintenance
and preparation of our production facilities for the next cold season."

Recent Highlights

  * In April, Mechel announced signing a memorandum of understanding with
    Baosteel Resources Int. Co. Ltd. The memorandum stipulates that Mechel
    OAO, through its subsidiary Mechel Carbon Singapore will supply Baosteel
    Resources with up to 960,000 tonnes of coking coal annually. The price
    will be corrected monthly.
     
  * In April, Mechel announced the resolutions of Mechel OAO's Board of
    Directors to convene the Annual General Shareholders' Meeting of Mechel
    OAO on June 28, 2013, to approve the agenda for the Annual General
    Shareholders' Meeting, to prepare the list of the shareholders eligible to
    take part in the Annual General Shareholders' Meeting based on the data in
    the Shareholders' Register as of May 17, 2013.
     
  * In April, Mechel announced signing several loan agreements with
    Gazprombank OAO totaling 1 billion US dollars.
     
  * In April, Mechel announced its Board's dividend recommendation to the
    annual general shareholders' meeting regarding the payment of dividends
    based upon the results of the 2012 fiscal year:
     
  * In April, Mechel announced that its mining division's trading subsidiary
    Mechel Carbon (Singapore) Pte. Ltd. has signed a three-year contract with
    South Korea's POSCO corporation for supply of coking coal. The agreement,
    signed on April 30, 2013, stipulates that Mechel Carbon (Singapore) will
    supply POSCO with 500,000 tonnes of coking coal per year. Besides that,
    Mechel Carbon also signed with POSCO a one-year contract for supply of
    200,000 tonnes of PCI coal in 2013.
     
  * In May, Mechel announced that successful hot testing was held at the
    complex of Chelyabinsk Metallurgical Plant's universal rolling mill.
     
  * In June, Mechel announced signing a coking coal supply agreement with
    China's Shasteel Group. According to the signed agreement, Mechel Carbon
    (Singapore), trading subsidiary of Mechel OAO's mining division, will
    directly supply Shasteel Group with 40,000 to 80,000 tonnes of coking coal
    a month from Russian Far East ports, starting from June 2013. Coking coal
    prices will be determined on a monthly basis.
     
  * In June, Mechel reported that hot testing of rail rolls production at
    Chelyabinsk Metallurgical Plant's universal rolling mill has begun.

Financial Position

Capital expenditure on property, plant and equipment and acquisition of
mineral licenses for the 1Q 2013 amounted to $172.4 million, of which $101.7
million was invested in the mining segment, $60.2 million was invested in the
steel segment, $7.0 million was invested in the ferroalloy segment and $3.5
million was invested in the power segment.

As of March 31, 2013, total debt was $9.3 billion. Cash and cash equivalents
amounted to $170 million and net debt amounted to $9.2 billion (net debt is
defined as total debt outstanding less cash and cash equivalents) at end of 1Q
2013.

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 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 1Q 2013 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), Loss from discontinued operations,
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 amounts
due from related parties, Result of disposed companies (incl. the result from
their disposal), 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 Loss from
discontinued operations, Result from companies' disposal, 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                                             1Q 2013   1Q 2012
Net (loss) / income                                      (320,645) 218,020
 Add:
Depreciation, depletion and amortization                 149,013   154,666
Forex loss / (gain)                                      75,466    (170,915)
Loss from remeasurement of contingent liabilities at     492       460
fair value
Interest expense                                         173,148   161,061
Interest income                                          (4,707)   (18,772)
Net result on disposal of non-current assets, impairment
of long-lived assets and goodwill and provision for      (4,862)   (527)
amounts due from related parties
Loss from discontinued operation, net of income tax      1,121     2,250
Result of disposed companies (incl. the result from      100,262   22,080
their disposal)
Amount attributable to non-controlling interests         (8,118)   15,016
Income taxes                                             48,406    103,317
Adjusted EBITDA                                          209,576   486,656
                                                                    
 
US$ thousand                                             1Q 2013   4Q 2012
Net loss                                                 (320,645) (1,114,473)
 Add:
Depreciation, depletion and amortization                 149,015   135,805
Forex loss / (gain)                                      75,466    (82,884)
Loss from remeasurement of contingent liabilities at     492       493
fair value
Interest expense                                         173,148   184,880
Interest income                                          (4,707)   (18,056)
Net result on disposal of non-current assets, impairment
of long-lived assets and goodwill and provision for      (4,863)   916,462
amounts due from related parties
Loss from discontinued operation, net of income tax      1,121     43,746
Result of disposed companies (incl. the result from      100,262   22,390
their disposal)
Amount attributable to noncontrolling interests          (8,118)   (7,376)
Income taxes                                             48,405    41,791
Adjusted EBITDA                                          209,576   122,778

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

 
US$ thousand                                             1Q 2013   1Q 2012
Net (loss) / income                                      (320,645) 218,019
Impairment of long-lived assets and goodwill and         (4,397)   --
provision for amounts due from related parties
Loss from discontinued operation, net of income tax      1,121     2,250
Result from companies' disposal                          91,293    --
Adjusted net (loss) / income                             (232,628) 220,269
 
US$ thousand                                             1Q 2013   4Q 2012
Net loss                                                 (320,645) (1,114,473)
Impairment of long-lived assets and goodwill and         (4,397)   909,868
provision for amounts due from related parties
Loss from discontinued operation, net of income tax      1,121     43,746
Result from companies' disposal                          91,293    --
Adjusted net loss                                        (232,628) (160,859)

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

 
US$ thousand            1Q 2013   1Q 2012
Revenue, net            2,480,679 2,949,151
Adjusted EBITDA         209,576   486,656
Adjusted EBITDA, margin 8.45%     16.50%
                                               
US$ thousand            1Q 2013   4Q 2012
Revenue, net            2,480,679 2,521,449
Adjusted EBITDA         209,576   122,778
Adjusted EBITDA, margin 8.45%     4.87%

 
Mining Segment
 
US$ thousand                                               1Q 2013   1Q 2012
Net (loss) / income                                        (103,928) 241,601
 Add:
Depreciation, depletion and amortization                   85,652    81,620
Forex loss / (gain)                                        69,464    (102,410)
Loss from remeasurement of contingent liabilities at fair  492       460
value
Interest expense                                           77,107    68,533
Interest income                                            (20,585)  (23,575)
Net result on disposal of non-current assets               (618)     418
Amount attributable to noncontrolling interests            (6,263)   17,916
Income taxes                                               22,551    73,650
Adjusted EBITDA                                            123,872   358,213
                                                                      
 
US$ thousand                                               1Q 2013   4Q 2012
Net loss                                                   (103,928) (67,475)
 Add:
Depreciation, depletion and amortization                   85,652    73,994
Forex loss / (gain)                                        69,464    (67,635)
Loss from remeasurement of contingent liabilities at fair  492       493
value
Interest expense                                           77,107    75,358
Interest income                                            (20,585)  (17,478)
Net result on the disposal of non-current assets           (618)     6,441
Amount attributable to noncontrolling interests            (6,263)   7,402
Income taxes                                               22,551    22,008
Adjusted EBITDA                                            123,872   33,108

Adjusted Net income / loss can be reconciled as follows:

 
US$ thousand                                   1Q 2013   1Q 2012
Net (loss) / income                            (103,928) 241,601
Provision for amounts due from related parties --        --
Adjusted net (loss) / income                   (103,928) 241,601
                                                          
 
US$ thousand                                   1Q 2013   4Q 2012
Net loss                                       (103,928) (67,475)
Provision for amounts due from related parties --        (11)
Adjusted net loss                              (103,928) (67,486)

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

 
US$ thousand                           1Q 2013 1Q 2012
Revenue (including intersegment sales) 905,697 1,158,340
Adjusted EBITDA                        123,872 358,213
Adjusted EBITDA, margin                13,68%  30.92%
                                                
 
US$ thousand                           1Q 2013 4Q 2012
Revenue (including intersegment sales) 905,697 819,282
Adjusted EBITDA                        123,872 33,108
Adjusted EBITDA, margin                13,68%  4.04%

 
Steel Segment
 
US$ thousand                                               1Q 2013   1Q 2012
Net loss                                                   (205,442) (15,564)
 Add:
Depreciation, depletion and amortization                   42,769    43,651
Forex loss / (gain)                                        11,933    (91,155)
Interest expense                                           97,950    86,864
Interest income                                            (3,653)   (3,023)
Net result on disposal of non-current assets, impairment
of long-lived assets and goodwill and provision for        (5,128)   457
amounts due from related parties
Result of disposed companies (incl. the result from their  100,248   22,080
disposal)
Amount attributable to noncontrolling interests            (1,778)   (3,398)
Income taxes                                               20,406    30,757
Adjusted EBITDA                                            57,305    70,669
                                                                      
 
US$ thousand                                               1Q 2013   4Q 2012
Net loss                                                   (205,442) (925,496)
 Add:
Depreciation, depletion and amortization                   42,769    44,925
Forex loss / (gain)                                        11,933    (22,973)
Interest expense                                           97,950    105,030
Interest income                                            (3,653)   (16,197)
Net result on disposal of non-current assets, impairment
of long-lived assets and goodwill and provision for        (5,128)   887,103
amounts due from related parties
Result of disposed companies (incl. the result from their  100,248   22,390
disposal)
Amount attributable to noncontrolling interests            (1,778)   (11,129)
Income taxes                                               20,406    14,300
Adjusted EBITDA                                            57,305    97,953

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

 
US$ thousand                                               1Q 2013   1Q 2012
Net loss                                                   (205,442) (15,564)
Impairment of long-lived assets and goodwill and provision (4,397)   --
for amounts due from related parties
Result from companies' disposal                            91,293    --
Adjusted net loss                                          (118,546) (15,564)
                                                                      
 
US$ thousand                                               1Q 2013   4Q 2012
Net loss                                                   (205,442) (925,496)
Impairment of long-lived assets and goodwill and provision (4,397)   886,672
for amounts due from related parties
Result from companies' disposal                            91,293    --
Adjusted net loss                                          (118,546) (38,824)

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

 
US$ thousand                           1Q 2013   1Q 2012
Revenue (including intersegment sales) 1,500,127 1,728,122
Adjusted EBITDA                        57,305    70,669
Adjusted EBITDA, margin                3.82%     4.09%
                                                  
 
US$ thousand                           1Q 2013   4Q 2012
Revenue (including intersegment sales) 1,500,127 1,629,807
Adjusted EBITDA                        57,305    97,955
Adjusted EBITDA, margin                3.82%     6.01%

 
Ferroalloys Segment
 
US$ thousand                                                 1Q 2013  1Q 2012
Net loss                                                     (18,719) (56,040)
 Add:
Depreciation, depletion and amortization                     17,954   26,480
Forex loss / (gain)                                          (5,789)  22,663
Interest expense                                             7,495    8,093
Interest income                                              (5)      (212)
Net result on disposal of non-current assets, impairment of  956      103
long-lived assets and goodwill
Result of disposed companies (incl. the result from their    14       --
disposal)
Amount attributable to noncontrolling interests              (828)    (1,430)
Income taxes                                                 2,595    (7,155)
Adjusted EBITDA                                              3,673    (7,498)
                                                                       
 
US$ thousand                                                 1Q 2013  4Q 2012
Net loss                                                     (18,719) (87,288)
 Add:
Depreciation, depletion and amortization                     17,954   14,194
Forex (gain) / loss                                          (5,789)  7,711
Interest expense                                             7,495    11,836
Interest income                                              (5)      (3)
Net result on disposal of non-current assets, impairment of  956      22,915
long-lived assets and goodwill
Result of disposed companies (incl. the result from their    14       --
disposal)
Amount attributable to noncontrolling interests              (828)    (4,668)
Income taxes                                                 2,595    4,765
Adjusted EBITDA                                              3,673    (30,538)

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

 
US$ thousand                                    1Q 2013  1Q 2012
Net loss                                        (18,719) (56,040)
Impairment of long-lived assets and goodwill    --       --
Amount attributable to noncontrolling interests --       --
Income taxes                                    --       --
Adjusted net loss                               (18,719) (56,040)
                                                          
 
US$ thousand                                    1Q 2013  4Q 2012
Net loss                                        (18,719) (87,288)
Impairment of long-lived assets and goodwill    --       23,205
Income taxes                                    --       729
Adjusted net loss                               (18,719) (63,354)

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

 
US$ thousand                           1Q 2013 1Q 2012
Revenue (including intersegment sales) 67,735  152,544
Adjusted EBITDA                        3,673   (7,498)
Adjusted EBITDA, margin                5.42%   -4.92%
                                                
 
US$ thousand                           1Q 2013 4Q 2012
Revenue (including intersegment sales) 67,735  83,038
Adjusted EBITDA                        3,673   (30,538)
Adjusted EBITDA, margin                5.42%   --36.77%

 
Power Segment
 
US$ thousand                                                  1Q 2013 1Q 2012
Net income                                                    6,632   11,337
 Add:
Depreciation, depletion and amortization                      2,640   2,917
Forex gain                                                    (142)   (13)
Interest expense                                              10,154  5,624
Interest income                                               (22)    (15)
Net result on disposal of non-current assets, impairment of   (73)    (1,505)
long-lived assets and goodwill
Loss from discontinued operation, net of income tax           1,121   2,250
Amount attributable to noncontrolling interests               751     1,928
Income taxes                                                  2,853   6,063
Adjusted EBITDA                                               23,914  28,586
                                                                       
 
US$ thousand                                                  1Q 2013 4Q 2012
Net income / (loss)                                           6,632   (41,026)
 Add:
Depreciation, depletion and amortization                      2,640   2,691
Forex (gain) / loss                                           (142)   12
Interest expense                                              10,154  8,299
Interest income                                               (22)    (21)
Net result on disposal of non-current assets, impairment of   (73)    3
long-lived assets and goodwill
Loss from discontinued operation, net of income tax           1,121   43,746
Amount attributable to noncontrolling interests               751     1,019
Income taxes                                                  2,853   718
Adjusted EBITDA                                               23,914  15,441

Adjusted Net income/loss can be reconciled as follows:

 
US$ thousand                                        1Q 2013 1Q 2012
Net income                                          6,632   11,337
Loss from discontinued operation, net of income tax 1,121   2,250
Adjusted net income                                 7,753   13,587
                                                             
 
US$ thousand                                        1Q 2013 4Q 2012
Net income / (loss)                                 6,632   (41,026)
Loss from discontinued operation, net of income tax 1,121   43,746
Adjusted net income                                 7,753   2,720

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

 
US$ thousand                           1Q 2013 1Q 2012
Revenue (including intersegment sales) 356,423 366,138
Adjusted EBITDA                        23,914  28,586
Adjusted EBITDA, margin                6.71%   7.81%
                                                
 
US$ thousand                           1Q 2013 4Q 2012
Revenue (including intersegment sales) 356,423 345,299
Adjusted EBITDA                        23,914  15,441
Adjusted EBITDA, margin                6.71%   4.47%

                                                              
Consolidated Balance Sheets                                   
(in thousands of U.S. dollars, except share                   
amounts)
                                              March 31, 2013 December 31, 2012
                                              (unaudited)     
ASSETS                                                        
Cash and cash equivalents                     $170,207       $294,958
Accounts receivable, net of allowance for
doubtful accounts of $94,750 as of March 31,  813,686        705,462
2013 and $84,367 as of December 31, 2012
Due from related parties, net of allowance of
$920,990 as of March 31, 2013 and $919,113 as 534,900        451,377
of December 31, 2012
Inventories                                   1,821,739      2,073,189
Deferred income taxes                         29,038         31,629
Current assets of discontinued operations     69,979         59,223
Prepayments and other current assets          458,314        561,789
Total current assets                          3,897,863      4,177,627
                                                              
Long-term investments in related parties      174,634        7,853
Other long-term investments                   13,858         14,671
Property, plant and equipment, net            7,665,864      7,798,839
Mineral licenses, net                         4,595,347      4,658,657
Other non-current assets                      173,523        183,566
Deferred income taxes                         53,640         55,243
Goodwill                                      778,023        798,847
Total assets                                  $17,352,752    $17,695,303
                                                              
LIABILITIES AND EQUITY                                        
Short-term borrowings and current portion of  $2,465,738     $1,460,750
long-term debt
Accounts payable and accrued expenses:                        
Trade payable to vendors of goods and         976,638        1,053,344
services
Advances received                             120,691        154,881
Accrued expenses and other current            491,287        337,433
liabilities
Taxes and social charges payable              248,154        314,283
Unrecognized income tax benefits              46,922         20,202
Due to related parties                        227,815        199,097
Asset retirement obligation, current portion  4,463          5,023
Deferred income taxes                         34,336         38,485
Current liabilities of discontinued           17,104         17,801
operations
Pension obligations, current portion          19,128         20,044
Dividends payable                             2,536          3,086
Finance lease liabilities, current portion    128,781        132,090
Total current liabilities                     4,783,593      $3,756,519
                                                              
Long-term debt, net of current portion        6,856,504      7,929,489
Asset retirement obligations, net of current  43,902         44,831
portion
Pension obligations, net of current portion   172,639        177,218
Deferred income taxes                         1,485,903      1,499,990
Finance lease liabilities, net of current     314,048        347,768
portion
Due to related parties                        15,420         16,862
Other long-term liabilities                   400,360        382,969
                                                              
EQUITY                                                        
Common shares (10 Russian rubles par value;
497,969,086 shares authorized, 416,270,745    133,507        133,507
shares issued and outstanding as of March 31,
2013 and December 31, 2012)
Preferred shares (10 Russian rubles par
value; 138,756,915 shares authorized,         25,314         25,314
83,254,149 shares issued and outstanding as
of March 31, 2013 and December 31, 2012)
Additional paid-in capital                    844,529        845,215
Accumulated other comprehensive loss          (284,472)      (326,933)
Retained earnings                             2,179,633      2,500,278
Equity attributable to shareholders of Mechel 2,898,511      3,177,381
OAO
Noncontrolling interests                      381,872        362,276
Total equity                                  3,280,383      3,539,657
Total liabilities and equity                  $17,352,752    $17,695,303

 
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands of U.S. dollars)                        3 months ended March 31,
                                                      2013         2012
                                                      (unaudited)  (unaudited)
Revenue, net (including related party amounts of                   $
$166,388 and $144,235 during 3 months 2013 and 2012,  $2,480,679   $2,949,151
respectively)
Cost of goods sold (including related party amounts
of $163,375 and $285,261 during 3 months 2013 and     (1,742,786)  (1,971,143)
2012, respectively)
Gross profit                                          737,893      978,008
                                                                    
Selling, distribution and operating expenses:                       
Selling and distribution expenses                     (492,076)    (494,596)
Taxes other than income tax                           (23,653)     (31,936)
Accretion expense                                     (1,456)      (1,292)
Loss on write-off of property, plant and equipment    (1,077)      (438)
Impairment of goodwill and long-lived assets          (980)        --
Recovery of provision for amounts due from related    4,397        --
parties
Provision (recovery of provision) for doubtful        (11,036)     118
accounts
General, administrative and other operating expenses, (151,330)    (133,074)
net
Total selling, distribution and operating expenses    (677,211)    (661,218)
Operating income                                      60,682       316,790
                                                                    
Other income and (expense):                                         
Income from equity investments                        1,333        705
Interest income                                       4,707        18,772
Interest expense                                      (173,148)    (161,061)
Foreign exchange (loss) gain                          (75,466)     170,915
Other income (expenses), net                          (97,344)     (7,518)
Total other income and (expense), net                 (339,918)    21,813
(Loss) income from continuing operations, before      (279,236)    338,603
income tax and discontinued operations
                                                                    
Income tax expense                                    (48,406)     (103,317)
(Loss) income from continuing operations              (327,642)    235,286
                                                                    
Net loss from discontinued operations, net of income  (1,121)      (2,250)
tax
Net (loss) income                                     (328,763)    233,036
Less: Net loss (income) attributable to               8,118        (15,016)
noncontrolling interests 
Net (loss) income attributable to shareholders of     $(320,645)   $218,020
Mechel OAO
Less: Dividends on preferred shares                   --           --
Net (loss) income attributable to common shareholders (320,645)    218,020
of Mechel OAO
                                                                    
Net (loss) income                                     (328,763)    233,036
Currency translation adjustment                       (26,821)     252,864
Change of currency translation adjustment due to      59,545        
disposal of subsidiaries
Change in pension benefit obligation                  (502)        3,330
Adjustment of available-for-sale securities           (428)        354
Comprehensive (loss) income                           $(296,969)   $489,584
Comprehensive loss (income) attributable to           18,786       (55,408)
noncontrolling interests
Comprehensive (loss) income attributable to           (278,183)    434,176
shareholders of Mechel OAO

 
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
                                                       3 months ended March 31
                                                       2013        2012
                                                       (unaudited) (unaudited)
Cash Flows from Operating Activities                                
Net (loss) income from continuing operations           (319,524)   220,270
attributable to shareholders of Mechel OAO
Net (loss) income from continuing operations           (8,118)     15,016
attributable to non-controlling interests
Net (loss) income from continuing operations           $(327,642)  $235,286
Adjustments to reconcile net (loss) income from
continuing operations to net cash provided by                       
operating activities:
Depreciation                                           117,878     114,401
Depletion and amortization                             31,135      40,265
Foreign exchange loss (gain)                           75,466      (170,915)
Deferred income taxes                                  (2,286)     (25,179)
Provision (recovery of provision) for doubtful         11,036      (118)
accounts
Change in inventory reserves                           8,564       19,849
Accretion expense                                      1,456       1,292
Change in asset retirement obligations                 (1,702)     (1,228)
Loss on write-off of property, plant and equipment     1,077       438
Impairment of long-lived assets                        980         --
Recovery of provision for amounts due from related     (4,397)     --
parties
Income from equity investments                         (1,333)     (705)
Non-cash interest on pension liabilities               3,161       2,964
Gain on sale of property, plant and equipment          (2,758)     (1,040)
Gain on accounts payable with expired legal term       (147)       (329)
Gain on forgiveness of fines and penalties             (6)         (22)
Loss on disposal of subsidiaries                       91,293      --
Amortization of loan origination fee                   14,663      11,255
Loss resulting from accretion and remeasurement of     492         460
contingent obligation
Pension service cost, amortization of prior service    1,726       1,451
cost and actuarial (gain) loss, other expenses
Changes in working capital items, net of effects from               
acquisition of new subsidiaries:
Accounts receivable                                    (135,338)   (84,140)
Inventories                                            155,124     176,661
Trade payable to vendors of goods and services         4,162       (2,834)
Advances received                                      (31,172)    (1,337)
Advances received                                      55,709      24,900
Settlements with related parties                       (58,310)    (71,237)
Other current assets                                   46,962      73,912
Net operation cash flows of discontinued operations    (14,146)    (2,896)
Unrecognized income tax losses                         27,724      --
Net cash provided by operating activities              69,371      341,154
                                                                    
Cash Flows from Investing Activities                                
Acquisition of DEMP, less cash acquired                (8,068)     (8,158)
Acquisition of Port Vanino                             (518,823)   --
Disposal of Port Vanino                                500,058     --
Short-term loans issued and other investments          (798)       (310)
Proceeds from short-term loans issued                  5,379       600
Proceeds from disposals of property, plant and         3,023       7,752
equipment
Purchases of mineral licenses                          (824)       (515)
Cash flows from discontinued operations                            246
Purchases of property, plant and equipment             (171,549)   (270,709)
Net cash used in investing activities                  (191,602)   (271,094)
                                                                    
Cash Flows from Financing Activities                                
Proceeds from borrowings                               688,517     998,502
Repayment of borrowings                                (602,771)   (1,273,091)
Dividends paid                                         (112)       --
Dividends paid to noncontrolling interest              (378)       --
Acquisition of noncontrolling interest in subsidiaries (34)        (33)
Repayment of obligations under finance lease           (35,665)    (29,648)
Cash flows from discontinued operations                --          (524)
Net cash provided by (used in) financing activities    49,557      (304,794)
                                                                    
Effect of exchange rate changes on cash and cash       (52,077)    30,357
equivalents
                                                                    
Net (decrease) increase in cash and cash equivalents   (124,751)   (204,377)
                                                                    
Cash and cash equivalents at beginning of period       294,958     642,648
Cash and cash equivalents at end of period             $170,207    $438,271

CONTACT: 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

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