3Q 2012 Financial Results

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9M2012 RESULTS PRESENTATION

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3Q 2012 Financial Results

  1. 1. 9M2012 RESULTS PRESENTATION DECEMBER 12, 2012
  2. 2. 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 activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. Any purchase of securities should be made solely on the basis of information Mechel files from time to time with the U.S. Securities and Exchange Commission. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. None of the Mechel or any of its affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with the presentation. This presentation 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. The information and opinions contained in this document are provided as at the date of this presentation and are subject to change without notice 2
  3. 3. FINANCIAL HIGHLIGHTS
  4. 4. 58% 60% 61% 63% 32% 30% 29% 29% 4% 4% 4% 3%6% 6% 6% 5% 9M11 9M12 2Q12 3Q12 Steel Mining Ferroalloys Power SEGMENTS OVERVIEW REVENUE FROM THIRD PARTIES EBITDA BY SEGMENTS Consolidated revenue down 12% q-o-q to $2.7 bn Net income up in Q3 to $55 mn vs net loss in Q2 Steel segment increased its share in the consolidated revenue to 63% supported by a more stable pricing environment than in other segments Mining segment increased its share in the consolidated EBITDA to 82% $ Mln $ Mln (1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests gain/loss from remeasurement of contingent liabilities at fair value, impairment of long-lived assets and goodwill and provision for loan given to related parties, 4 Steel Mining Ferroalloys Power EBITDA(1) BY SEGMENTS 9,617 8,751 3,086 2,715 153 512 3 -7 17 678 -50 593 -11 3 1,5 536 49 358 -7 28 36 463 91 302 -7 0,3 -0,6 385 75 305 -3 -7 4,7 375 Steel Mining Ferroalloys Power Cons.adj. Consolidated 3Q11 4Q11 1Q12 2Q12 3Q12 2Q 2012 24% 78% -2% 3Q 2012 20% 82% -1%-1%
  5. 5. Segment 3rd party revenue down 12% to $777 mn in Q3 largely driven by decrease in sales of coking coal and weaker pricing Despite falling prices segment‟s EBITDA grew $3 mn q-o-q due to operating costs containment efforts EBITDA margin of 32% - the highest for the year 2012 Cost control measures result at reduced cash cost across all Russian operations MINING SEGMENT (1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests gain/loss from remeasurement of contingent liabilities at fair value, impairment of long-lived assets and goodwill and provision for loan given to related parties, $ Mln CASH COSTS, US$/TONNE COS STRUCTURE $1,748 mn $1,618 mn 5 1 147 1 061 933 881 777 251 264 226 207 172 37% 45% 31% 28% 32% 0% 20% 40% 60% 0 400 800 1 200 3Q11 4Q11 1Q12 2Q12 3Q12 Revenues (lhs) Intersegment revenues (lhs) Adj. EBITDA margin (rhs) REVENUE, EBITDA(1) 39 33 41 96 39 33 42 113 42 36 45 100 42 32 45 88 39 28 43 89 Coal SKCC Coal YU Iron Ore Bluestone 3Q11 4Q11 1Q12 2Q12 3Q12 49% 52% 19% 20% 8% 8% 13% 14% 11% 6% 9M11 9M12 Other Depreciation and depletion Energy Staff costs Raw materials and purchased goods
  6. 6. 26% 24% 21% 25% 18% 14% 11% 16% 13% 10% 10% 8% 17% 31% 36% 27% 17% 13% 13% 18% 4% 4% 4% 4%5% 4% 5% 2% 9M11 9M12 2Q12 3Q12 Russia Europe CIS China Asia w/o China Middle East Other 54% 47% 46% 43% 16% 21% 22% 22% 10% 8% 9% 10% 2% 2% 2% 2% 5% 4% 3% 5% 9% 13% 13% 14% 4% 5% 5% 4% 9M11 9M12 2Q12 3Q12 Coking coal Anthracitesand PCI Coke Coking products MINING SEGMENT 6 REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE Anthracite sales to Europe grew 2-fold, increasing European share in the revenue to 16% Sales to premium markets with better pricing - Japan and South Korea - increased by 8% and 3% respectively Coking coal sales down 18% partly compensated by a 20% growth in thermal coal and a 9% growth in iron ore sales *Restated to include middlings EXTERNAL SALES STRUCTURE 309 206 98 48 106 291 181 104 43 101 263 142 95 49 82 236 129 96 48 84 229 122 80 48 65 Coke Coking coal Anthracite and PCI Steam coal* Iron ore 3Q11 4Q11 1Q12 2Q12 3Q12
  7. 7. STEEL SEGMENT 7 CASH COSTS, US$/TONNE COS STRUCTURE (1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests gain/loss from remeasurement of contingent liabilities at fair value, impairment of long-lived assets and goodwill and provision for loan given to related parties, REVENUE, EBITDA(1) Segment‟s revenue down 10% as volumes decreased by 13% due to lower sales of flat steel and 3rd party semi- finished products Due to higher sales to a stronger domestic market and reduction of utilization rate at loss-making capacities in Europe EBITDA held strong q-o-q at $75 mn Lower raw materials resulted in rebar and billet cash cost decrease by 4% and 6% respectively $4,842 mn $4,640 mn $ Mln 1 796 1 541 1 649 1 898 1 700 70 76 79 67 50 8% -3% 3% 5% 4% -5% -2% 1% 4% 7% 10% 13% 0 500 1 000 1 500 2 000 3Q11 4Q11 1Q12 2Q12 3Q12 Revenues (lhs) Intersegment revenues(lhs) Adj. EBITDA margin (rhs) 575 575 585 545 503 511494 499 515 436 452 470 409 431 452 Billets* Wire Rod Rebar 3Q11 4Q11 1Q12 2Q12 3Q12 80% 79% 8% 8% 8% 9% 2% 2%2% 2% 9M11 9M12 Other Depreciation Energy Staff costs Raw materials and purchased goods *Carbon and low-alloyed billets
  8. 8. 52% 55% 53% 60% 24% 19% 18% 17% 1% 4% 7% 2%7% 10% 10% 12% 11% 9% 8% 7% 5% 3% 4% 2% 9M11 9M12 2Q12 3Q12 Russia Europe Asia CIS Middle East Other STEEL SEGMENT 8 REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE (1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests gain/loss from remeasurement of contingent liabilities at fair value, impairment of long-lived assets and goodwill and provision for loan given to related parties, EXTERNAL SALES STRUCTURE Share of Russia and CIS up to 72% of sales where demand remained relatively stable vs. Europe whose share decreased to 17% Share of semi-finished steel products down from 23% in Q2 to 18% in Q3 due to reduction of production at DEMZ and lower 3rd party resale operations Share of high-margin hardware increased to 14% of sales 23% 20% 23% 18% 22% 24% 24% 25% 3% 2% 2% 2% 16% 16% 14% 15% 6% 6% 6% 6% 13% 13% 12% 14% 7% 7% 6% 5% 10% 12% 13% 15% 9M11 9M12 2Q12 3Q12 Semi-finished steel products Rebar Stainless flat products Carbon long products Forgings and stampings Hardware Carbon flat Other 637 743 4903 2760 954 822 583 686 4332 2703 919 742 550 692 4303 2647 932 734551 692 4195 3082 891 724533 684 4038 2545 884 700 Semi-finished steel products Rebar Stanless flat products Forgingsand stampings Hardware Carbon flat 3Q11 4Q11 1Q12 2Q12 3Q12
  9. 9. CASH COSTS, US$/TONNE COS STRUCTURE FERROALLOYS SEGMENT REVENUE, EBITDA(1) (1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests gain/loss from remeasurement of contingent liabilities at fair value, impairment of long-lived assets and goodwill and provision for loan given to related parties, Reduction in Ni and Cr production and sales due to negative margin resulted in revenue down by 31% q-o-q As costs containment measures some of the smelting capacity at Southern Urals Nickel Plant and Tikhvin chrome plant idled Production adjustments resulted in a 57% reduction of negative EBITDA to just $3 mn 9 $ Mln $492 mn $456 mn 104 116 125 132 91 60 16 28 22 232% -9% -5% -5% -3% -20% -15% -10% -5% 0% 5% 10% 15% 20% -40 10 60 110 160 210 3Q11 4Q11 1Q12 2Q12 3Q12 Revenues (lhs) Intersegment revenues(lhs) Adj. EBITDA margin (rhs) 51% 50% 10% 9% 18% 17% 13% 16% 8% 8% 9M11 9M12 Other Depreciation Energy Staff costs Raw materials and purchasedgoods 3Q11 4Q11 1Q12 2Q12 3Q12 20.6K 21.4K 19.7K 20.6K 19.1K Nickel 873 2.15K 912 2.05K 877 2.06K 845 2.11K 848 2.10K Ferrosilicon Chrome 169 184 172 149 151 Chrome Ore Concentrate
  10. 10. 29% 28% 25% 36% 57% 53% 50% 37% 5% 12% 18% 14% 9% 7% 7% 13% 9M11 9M12 2Q12 3Q12 Russia Europe Asia Other FERROALLOYS SEGMENT 10 REVENUE BREAKDOWN BY REGION AVERAGE SALES PRICES FCA, US$/TONNE EXTERNAL SALES STRUCTURE Sales volumes of FeSi up 39% - mostly to the domestic market - as modernized capacity ramped up catching the price upside With the sales of FeSi up and Ni and Cr down the share of domestic market grew to 36% of the revenue 3Q11 4Q11 1Q12 2Q12 3Q12 Nickel Ferrosilicon Chrome 1 418 1 340 1 309 1 227 1 299 21 380 18 064 19 126 17 202 15 327 2 269 2 180 2 184 2 218 1 928 53% 45% 42% 35% 20% 14% 10% 21% 21% 29% 35% 26% 4% 11% 12% 16% 2% 1% 1% 2% 9M11 9M12 2Q12 3Q12 Nickel Ferrosilicon Chrome Chrome ore Other
  11. 11. POWER SEGMENT 11 AVERAGE ELECTRICITY SALES PRICES AND CASH COSTS (RUSSIA), US$/MWH COS structure REVENUE, EBITDA(1) Lowest season for power and heat generation resulted in a 16% q-o-q decrease in sales Cash costs slightly up as volumes decrease EBITDA down to negative $7 mn (1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests gain/loss from remeasurement of contingent liabilities at fair value, impairment of long-lived assets and goodwill and provision for loan given to related parties, $ Mln 53,5 51,5 51,9 54,4 55,7 50,1 33,8 25,8 28,0 30,1 3Q11 4Q11 1Q12 2Q12 3Q12 Sales price Cash costs 88% 88% 3% 3% 5% 6% 2% 1% 2% 2% 9M11 9M12 Other Depreciation Energy Staff costs Raw materials and purchased goods $728 mn $714 mn 164 211 243 175 147 113 126 136 113 109 -3% 1% 7% 0,1% -3% -5% -3% -1% 1% 3% 5% 7% 9% 11% 13% 15% 0 100 200 300 400 3Q11 4Q11 1Q12 2Q12 3Q12 Revenues (lhs) Intersegment revenues(lhs) Adj. EBITDA margin (rhs)
  12. 12. ADDRESSING COSTS – IMPROVING THE MARGINS 12 REVENUE DYNAMICS REVENUE, EBITDA(1) AND NET PROFIT (1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests gain/loss from remeasurement of contingent liabilities at fair value, impairment of long-lived assets and goodwill and provision for loan given to related parties, Consolidated EBITDA down only 3% q-o-q to $375 mn, as falling prices are countered by successful cost control measures Despite continuing downward trend in prices and volumes cost-cutting measures drive the EBITDA margin up to 14% Q3 net income positively affected by $127 mn of FX gain totaling $55 mn of net income 3Q2012 FINANCIAL PERFORMANCE Q-O-Q HIGHLIGHTS: $ Mln$ Mln 3 086 2 715 -226 -145 0 1 000 2 000 3 000 4 000 2Q2012 Volume Price 3Q2012 3210 2929 2950 3086 2715 678 536 463 385 375 26 201 218 -823 55 21% 18% 16% 12% 14% 0% 10% 20% 30% (900) (400) 100 600 1 100 1 600 2 100 2 600 3 100 3 600 3Q11 4Q11 1Q12 2Q12 3Q12 Revenue (lhs) Adj. EBITDA (lhs) Net profit (lhs) Adj. EBITDA
  13. 13. 3 YEAR RECORD OPERATING CASH GENERATION! 13 OPERATING CASH FLOW DYNAMICS NET CASH FLOW Production adjustment and better inventory management maximized the effect in the Q3, resulting in a record $458 mn cashflow from operations in Q3 Business generated more cashflow from operations in 9M2012 than in 2009 – 2011 altogether With Investments of $223 mn and dividends of $195 mn in Q3 the business still generated cash surplus to repay the debt. $ Mln FY’10 FY’11* -15 270* 345 304 458 (50) 150 350 3Q11 4Q11 1Q12 2Q12 3Q12 Operating cashflow 9M12 (147) 404 1 107 (1 119) (1 676) (802) 1 210 2 079 (102) Operating activities Investment activities Financial activities * Excluding the effect of loan to Estar * Excluding the effect of loan to Estar
  14. 14. DEBT PROFILE AS AT DECEMBER 1, 2012 Company succeeded in repaying approximately USD 0.55 bln since the beginning of the year (reduction of gross debt excluding effect of FX changes) Net debt stable at USD 9.3 bln (including financial lease) as of December 1, 2012 Cash and available credit lines total USD 1,170 mn as of December 1, 2012 STABILIZING DEBT LEVEL DESPITE A CHALLENGING YEAR FINANCIAL RATIOS 14 $ Mln 612 678 536 463 416 375 3,5 3,5 3,9 4,2 4,4 5,4 4,2 4,2 4,4 3,3 3,8 3,3 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 0 200 400 600 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 Adj. EBITDA (lhs) Net Debt / Adj. EBITDA for covenants testing (rhs) Adj. EBITDA/Interest expense, net, per quarter (rhs) Net Debt / Adj. EBITDA level agreed with creditors for the end of 2012 (rhs) Adj. EBITDA / Interest Expense level agreed with creditors for the end of 2012 (rhs) RUR 56% USD 36% EUR 8% Other <1% RUR Bonds 26% Foreign Banks 24% Russian Banks 50%
  15. 15. 141 1 029 Cash and cash equivalents Available undrawn lines 235 210 3 1 78 1287 2048 1699 578 544 86 483 483 483 482 322 14 148 120 72 44 45 0 500 1000 1500 2000 2500 3000 Renewable working capital and trade finance lines Repayment of other term loans Expiration of put options on bonds Maturity of RUR bonds Expiration of financial lease 1170 327 2213 2654 2577 1105 588 Significant reduction of short term debt from USD 3.4 bln to USD 2.4 bln since September 1, 2012 (short term portion decreased from 34% to 26% of total debt) Major third quarter transactions include: • Securing RUR 24 bln credit line with Sberbank on October 2012; • Amendment and restatement of USD 1 bln pre – export syndicated facility on December 4, 2012, granting additional grace period of 12 months and reducing short term portion of debt by approximately USD 0.6 bln; • Other refinancing and rising new money in the total amount of USD 323 mln since September 1, 2012. DEBT MATURITY IMPROVEMENT 15 DEBT MATURITY SCHEDULE AFTER PXF’S CHANGES AS OF DECEMBER 1, 2012 $ Mln Dec, 1, 2012 2012 2013 2014 2015 2016 2017 and after 422 666 406 1382 1777 1383 434 429 153 40 460 461 460 154 460 307 67 163 127 71 45 46 0 500 1000 1500 2000 2500 3000 Renewable working capital and trade finance lines Repayment of other term loans Expiration of put options on bonds Maturity of RUR bonds Expiration of financial lease 1517 1202 2711 2364 2222 939 475 DEBT MATURITY SCHEDULE AS AT SEPTEMBER 1, 2012 $ Mln 629 888 Cash and cash equivalents Available undrawn lines Sep, 1, 2012 2012 2013 2014 2015 2016 2017 and after
  16. 16. Revenue 2,715 3,086 -12.0% Cost of sales (1,985) (2,195) -9.6% Gross margin 26.9% 28.9% Operating profit / (loss) 127 (471) - Operating margin 4.7% -15.3% Adjusted EBITDA(1) 375 385 -2.6% Adjusted EBITDA(1) margin 13.8% 12.5% Net Income / (loss) 55 (823) - Net Income margin 2.0% -26.7% Sales volumes(2), „000 tonnes Mining segment 5,853 5,880 -0.5% Steel segment 2,072 2,389 -13.3% FINANCIAL RESULTS OVERVIEW (1) Adjusted EBITDA represents EBTIDA adjusted by forex gain/loss, interest income, net income on the disposal of non-current assets, amount attributable to non-controlling interests gain/loss from remeasurement of contingent liabilities at fair value, impairment of long-lived assets and goodwill and provision for loan given to related parties, (2) Includes sales to the external customers only US$ MILLION UNLESS OTHERWISE STATED 3Q12 2Q12 CHANGE, % 16

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