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Mechel's presentation (February, 2015)
The presentation provides an overview of Mechel, a leading vertically integrated mining and steel company. It discusses Mechel's position as a top-5 global metallurgical coal producer with attractive growth opportunities. It also outlines Mechel's integrated business model, competitive advantages from its infrastructure assets, and focus on specialty steel markets in Russia and Europe.
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Mechel's presentation (February, 2015)
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- 2. DISCLAIMER This presentation doesnot 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. 22
- 3. MECHEL AT AGLANCE
- 4. Mining 32% Steel 58% Power 10% Mining 61% Steel 30% Power 9% LEADING VERTICALLY INTEGRATED MINING& METALS COMPANY MECHEL INTEGRATED BUSINESS MODEL OPERATING HIGHLIGHTS, SALES Mining Segment Source: Company data - Share produced by third parties 0.5 0.3 9m 2013 9m 2014 Crude Steel, production Long products Billets Flat products 12.5 11.8 4.5 4.2 3.1 2.5 9m 2013 9m 2014 Met Coal Steam Coal Iron ore concentrate Steel Segment ‘000tonnes 4 Steel Mining Power FINANCIAL HIGHLIGHTS 9m 2014 Revenue Breakdown9m 2014 EBITDA(a)(1) Breakdown Mining Steel SALES & MARKETING LOGISTICS 3.6 2.7 0.7 3.2 2.3 0.08 ‘000tonnes (1) EBITDA(a) 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 goodwill and long-lived assets, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests, One-off accrual of taxes for prior periods and Income taxes.
- 5. INVESTMENT HIGHLIGHTS 5 Best-in-class globalcoking coal producer and exporter with attractive growth profile • One of the largest metallurgical coal producers globally • One of the leading exporters on the seaborne market • Developing one of the largest coking coal deposits globally Superior asset quality • One of the largest coal reserves base globally • Core assets positioned at the lower bound of the global cost curve • Ability to supply steel producers with a full range of metallurgical coal • First newly built rolling mill for high-speed long rails in Russia Strategically positioned to supply both Asia-Pacific and Atlantic seaborne markets • Uniquely positioned to supply metallurgical coal to attractive Asia Pacific markets • Access to key Far Eastern and European ports • Lower transportation cost to supply key growth markets in Asia • Own infrastructure including ports and rolling stock, secures access to end customers and export markets Vertically integrated steel business model • Steel business is virtually self-sufficient in coal and iron ore • Established distribution and sales platform in core markets Leading steel producer • Largest specialty steel producer in Russia • Second largest long steel producer in Russia • Largest distribution platform in Russia
- 6. Port Temryuk Russian Federation Lithuania Kazakhstan ElgaCoal Complex Yakutugol Korshunov Mining Plant Southern Kuzbass Coal Company Chelyabinsk Metallurgical Plant Urals Stampings Plant Beloretsk Metallurgical Plant Izhstal Moscow Coke and Gas Plant Vyartsilya Metal Products Plant Port Posiet Port Vanino* Port Kambarka Bratsk Ferroalloy Plant Southern Kuzbass Power Plant Moscow Mechel Coke Ukraine Mechel Nemunas BROAD GEOGRAPHIC FOOTPRINT TARGETING GROWTH MARKETS USA Mechel Bluestone West Virginia REVENUE BREAKDOWN BY MARKET (9m 2014) Mining Segment China 36% Russia 29% Europe 15% Asia w/o China 14% CIS 3% Middle East 3% Other 0% Steel Segment Russia 68% Europe 16% CIS 12% Asia 1% Middle East 1% USA 0.3% Other 1.7% Source: Company data Mining Steel Power Port Head office 6 *Access to port secured by contractual agreements Mongolia China
- 7. TSO % of Total Ordinary 416,270,74575% Preferred 138,756,915 25% Preferred Publicly Trading 57,209,577 10% Preferred held by Justice family 26,044,572 5% Preferred Share held by Mechel as treasury 55,502,766 10% Total 555,027,660 100% CAPITAL STRUCTURE CAPITALIZATION AND OWNERSHIP STRUCTURE Preferred Shares Ordinary Shares Public Float 32.6% Igor Zyuzin (with family) 67.4% Public Float 41% Justice Family 19% Mechel 40% Source: Company data OWNERSHIP STRUCTURE 7
- 8. NARROWED STRATEGY USINGKEY COMPETITIVE ADVANTAGES FOR VALUE GROWTH GROWTH IN SHAREHOLDER VALUE BASED ON VERTICALLY-INTEGRATED BUSINESS MODEL TOP-5 global metcoal producer1 Leader in Russia and CIS construction steel market2 Leader in specialty steel, stainless steel and hardware production3 Optimization of asset structure to deleverage4 8
- 9. 35.9 11.1 1.4 2.6 3.4 7.7 4.6 2.5 4.1 2.6 Production Consumption MMt MMt MMt MMt MMt ProductionConsumption Production Consumption Shipped through own ports Shipped overall (excl. US ports) Own rolling stock Overall 9 Production Consumption 9.6 4.5 3.3 7.8 5th largest metallurgical coal producer globally* with ability to supply steel producers with a wide range of metallurgical coal types, coke and iron ore concentrate. Own infrastructure helps to establish access to end customers. *Ex-China Source: Company data - Volumes shipped through Vanino port Sea Port capacity, 9m 2014 Cargo turnover, 9m 2014 Power, 9m 2014 Coking Coal Concentrate, 9m 2014 Iron Ore Feed, 9m 2014 Coke, 9m 2014 blnKWh VERTICALLY INTEGRATED MINING & STEEL BUSINESS MODEL WITH FOCUS ON COMPETITIVE ADVANTAGES
- 10. 4 361 3 690 2576 1 602 1 500 1112 1 082 826 411 350 0 1 000 2 000 3 000 4 000 5 000 BMA Mechel Evraz Vale Alpha Natural Resources Peabody BHP Anglo-American Walter Energy Glencore Xstrata 33,8 31,2 25,6 20,1 16,4 15,9 12,1 11,8 11,6 7,9 0 10 20 30 40 BMA Anglo-American Teck Alpha Natural Resources Mechel Peabody Rio Tinto Xstrata Walter-Energy BHP LEADING GLOBAL METALLURGICAL COAL PRODUCER 2nd largest metallurgical coal reserve base 5th largest metallurgical coal producer globally with superior leverage to metallurgical coal One of the largest global exporters of coking coal Top Ten Metallurgical Coal Exporters in 2013Ten Largest Metallurgical Coal Producers in 2013Ten Largest Metallurgical Coal Producers by Metallurgical Coal Reserves MMtMMt Source: Wood Mackenzie 2013 (1) Including 50% share of BMA (2) Including PCI and anthracite export Source: Company Filings All production numbers shown on an attributable saleable basis unless otherwise disclosed (1) Met coal with some minor thermal coal production (2) Small part may be third-party purchased coal (3) 100% for consolidated entities and attributable for JVs and associates (4) South Walker+Poitrel. BHP/Mitsui – 80/20 (5) Coking coal concentrate+PCI+Anthracites (6) Met coal only (7) With IIIawarra project Source: Company Filings, IMC All reserve numbers shown on a 100% run-of-mine basis unless otherwise disclosed (1) Assumes 100% of disclosed reserves are metallurgical (2) On a saleable, attributable basis (3) Reserves as of 30 June 2012 (4) Adjusted for acquisition of Raspadskaya 10 (1) (2) MMt (1) (1) (1) 65 22 22 18 17 15 14 14 13 11 0 20 40 60 80 BHP Billiton Teck Anglo American Peabody Alpha Glencore Xstrata Rio Tinto Walter Energy Mechel Vale S.A. (3) (4)) (3) (4) (6) (2) (1) (2) (5) (7) (6)
- 11. 0% 10% 20%30% 40% 50% 60% 70% 80% 90% 100%0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% LOW COST COKING COAL PRODUCER Source: AME Notes: (1) FOB excluding land freight and port costs Source: AME Cumulative Production (%) Australia USA & CanadaRussia Other Cumulative Production (%) Australia USA & CanadaRussia Other 0 50 100 150 200 0 50 100 150 200 Yakutugol MechelBlended 0 50 100 150 200 0 50 100 150 200 MechelBlended U$/t Yakutugol post - Elga About 80% of coking coal by open pit Access to cheap labor Low production cost Low raw material costs ESTIMATED EXPORT COKING COAL COST CURVE (FCA(1)) ESTIMATED EXPORT COKING COAL COST CURVE (FOB) U$/t 11 150 100 50 150 100 50
- 12. Port Posiet Yakutugol Southern Kuzbass Indonesia USA Canada Europe Australia India Japan China Russia 211.7 mnt (2) ABILITY TO SUPPLY ALL METCOAL MARKETS Major coking coal exporting regions Target markets for Mechel’s coking coal supplies Target markets for Mechel’s steam coal supplies Major coking coal importing regions Mechel’s routes 3rd parties routes Size of respective seaborne coking coal markets Notes: (1) FY2013 coal production (2) Total seaborne met coal imports (2013 est), China, India, Japan, South Korea. Source: MCQ47 Diversification / enhancement of sales channels to the fast-growing Asian and European markets Extensive range of metcoal grades allow for diversified product portfolio to serve a variety of customer needs Mechel’s own ports on the Sea of Japan and Azov Sea serve as a stable gateways to export markets Freight rates from port Posiet (Handysize 22 000 t) to Northern China $11 pmt to Yangtze River $12 pmt to Southern China $15.75 pmt to Thailand $16.60 pmt to Philippines $17 pmt to Indonesia $18.50 pmt India (West Coast / East Coast) $33 / $30 pmt to Japan $10.50 pmt 15.1 mn t (1) 9.9 mn t (1) 12 Freight rates from port Vanino (45 000 t) to Northern China $11.50 pmt to Yangtze River $12.50 pmt to Southern China $15 pmt to Thailand $14.95 pmt to Philippines $15 pmt to Indonesia $16 pmt India (West Coast / East Coast) $26.25/ $23 pmt to Japan $9 pmt Port Vanino
- 13. Source: Company data MECHELSERVICE GLOBAL -- MAP OF DISTRIBUTION HUBS 95 storage sites and service centers throughout Russia, CIS & Europe Real time market intelligence and pricing feedback Opportunity to address specific customer needs and sell more high-marginal, value-added products ADVANTAGES PRODUCT PRODUCTION VOLUME, 6m 2014 ‘000 tonnes RUSSIAN PRODUCTION SHARE RANK Spring wire 158%21 Wire products 131%323 Wire rod 132%429 High- tensile wire 237%17 Flat stainless steel 146%5 Rebar 318%791 LEADER IN SPECIALTY, STAINLESS STEEL & HARDWARE 13 Geographies of presence of Mechel Service Mechel Service facilities
- 14. • Logistics flexibilityon the Sea of Azov and Black Sea • Potential to increase export of coking coal, PCI and anthracite to Europe • Existing port capacity – 2 mln tonnes • Target capacity - 4 mln tonnes • Rolling stock of more than 11,900 railcars • Ensures uninterrupted transportation • Reduces dependency on Russian Railways, state-owned and independent freighters • Increase access to Asian coal customers via seaborne market • Existing port capacity – 7 million tonnes per year • Target capacity - 9 mn tonnes (Panamax vessels) after 2nd stage of modernization MECHEL’S INFRASTRUCTURE ALLOWS SECURED ACCESS TO FINAL CUSTOMERS • Increases logistics flexibility to Asian coal customers via seaborne market securing exports from Elga • Total turnover up to 10 million tonnes of cargo per year • Shorter transportation distances – lower rail and vessel freights TEMRYUK PORT MECHEL TRANS TRANSPORTATION COMPANY POSIET PORT VANINO PORT* 14 * Access to port secured by contractual agreements
- 15. KEY PROJECT CHARACTERISTICS 4.7 7.0 1.8 1.8 10.0 0,0 5,0 10,0 15,0 20,0 20122014 Posiet Temryuk Vanino 6.5 18.8 TEMRYUK POSIET VANINO EXISTING CAPACITY 1.8 MMt per year 7.0 MMt per year 10.0 MMt per year TARGET CAPACITY 4.2 MMt per year 9 MMt per year na DEVELOPMENT STAGE Modernization Modernization na VESSEL TYPE River-to-sea vessels Panamax (post modernization) Panamax TIMING 2017 na na Source: Company data Notes: * Volumes secured by contractual agreements Elga Coal ComplexYakutugol Southern Kuzbass Port Posiet Port Vanino Port Temryuk OWN SEAPORT FACILITIES OWN SEAPORT ANNUAL TURNOVER CAPACITIES, MMt * MECHEL TRANS – ACCESS TO SEABORNE MARKET 15 Access to main customers in Asia-Pacific and Europe secured through own ports infrastructure Port capacity aligned with expected growth in export volumes
- 16. ALIGNING ASSETS STRUCTUREWITH STRATEGY Mining Segment Korshunov Mining Plant Iron Ore Yakutugol Southern Kuzbass Coal Company Elga Coal Deposit Bluestone Coal Coke Mechel Coke Moscow Coke and Gas Plant Steel Segment Vyartsilya Metal Products Plant Beloretsk Metallurgical Plant Urals Stampings Plant Mechel Targoviste (Romania) Mechel Campia Turzii (Romania) Chelyabinsk Metallurgical Plant Buzau Plant (Romania) Otelu Rosu Plant (Romania) Izhstal Donetsk Electrometallurgical Plant Laminorul Plant (Romania) Mechel Nemunas (Lithuania) Ferroalloys Segment Ferronickel Ferrochrome Ferrosilicon Southern Urals Nickel Plant Tikhvin Ferroalloy Plant Voskhod Chrome Mining Plant (Kazakhstan) Bratsk Ferroalloy Plant Uvatskoye Deposit of Quartzite Power Segment Toplofikatsia Rousse Power Plant - Southern Kuzbass Power Plant Kuzbass Power Sales Company Generation Distribution Distribution Mechel Service Global * (ex Russia) Mechel Trading House Mechel Carbon Mechel-Mining Trading House Mechel Trading Mechel Service OOO (Russia) Invicta (UK) Group 1 Group 2 16 Improvement in financial results and cash flow Immediate deleverage Deal closed Deal closed Deal closed Deal closed Deal closed Deal closed Deal signed Deal closed * Divestment in progress through inventory sell down Mothballed Deal closed Deal closed
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- 18. ELGA DEPOSIT: RAMPUP SECURED BY VEB PROJECT FINANCING CURRENT STATUS KEY PROJECT METRICS LOCATION OPERATIONAL DETAILS COAL TYPE RESERVES JORC STANDARDS • Country Russia • Location South-East of Yakutia • Mine Type 100% OP • Start of operations August 2011 • High volatile hard coking coal • Steam coal • Middlings • 2.2 billion tonnes as of December 31, 2012 • Elga coal deposit reserves account for 67% of total reserves of Mechel • Russia, Asia-Pacific countries TARGET MARKETS LOCATION OF OPERATIONS Mongolia Yakutugol Elga Port Vanino Port Posiet China JapanKazakhstan Source: Company data 18 Railroad in place Wash plant up & running Workers settlement under construction Existing capacity up to 4-5 mn tonnes of coal mining, 2.7 mn tonnes of coal processing In FY 2014 1,2 mln tonnes mined, over 700,000 tonnes processed and about 1 mln tonnes shipped (includes coking coal concentrate , oxidized coal and middlings). Expected to produce about 3,5 mln tonnes of run-of-mine coal in 2015 Seasonal washing plant to become all year operational starting winter 2014-2015 Coal processing up to 2,7 mln tonnes starting from 2015 and till the first module of permanent washing plant is in place and operating (2018) VEB project financing of 1st stage of Elga development: up to12 mn tons of coal mined by 2018 Once 9 mn tons of coal is mined and processed at Elga, the project should become operating cashflow positive FURTHER EXPANSION
- 19. CAPACITY PRODUCTS CAPEX TARGET CONSUMERS High-speed and low-temperatureup to 100 meter long rails H-beams, channel bars, angles and grooves US$ 715 mn Up to 1.1 mn t Russian Railways Off-take secured by a 20-year supply agreement Russian Railways Strategy till 2030 provides for additional railway construction of more than 20,000 km, including more than 12,000 km of high-speed tracks Construction industry TIMING 2009 – 2013 UNIVERSAL ROLLING MILL – STRUCTURAL SHIFT IN LONG STEEL PRODUCTS PORTFOLIO Increased Output of High Value-Added Products Enhanced Profitability of Steel Division Structural Shift in the Long Steel Portfolio RAILS PRICING KEY PROJECT CHARACTERISTICS Source: Metal-Courier, Company data Notes: * There was no import of 100m length rails in 2014 19 982 963 920 932 653 637 630 623 652 637 631 623 1596 1 597 1386 0 1413 1 310 1310 0 530 517 504 494 0 500 1000 1500 2000 Average 2H2012 Average 1H2013 Average 2H2013 Average 1H2014 Billets (FOB ЧМ Россия) Rails 100m length (DES Vladivostok) Rails 100m length (DES St. Petersburg) L-bar (FOB Турция) Channel bar (FOB Турция) Beams (DAP Казахстан) Mill CURREN PROJECT STATUS The mill launched in July 2013 H-beams and rails sales to 3d parties ongoing. In 9 month 2014 period about 85,000 tonnes produced and sold. Rails have been sent to Russian Railways for certification
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- 21. 9M 2014 HIGHLIGHTS 21 In3Q 2014 metallurgical coal market was rather stable but prices were at their lows. Long steel products market looked better with some price increase on domestic market compared to 2Q 2014. Export sales amounted to 33% of total Revenue for 9M 2014 period with mining segment being the largest contributor to export sales. On a stable Revenue structure, share of Steel segment in Consolidated EBITDA increased from 29% in 9M 2013 to 45% in 9M 2014. Gross margin increased from 30% in 9M 2013 to 35% in 9M 2014. Net debt (excluding finance lease liabilities) amounted to $7.8 bln as of September 30, 2014. In 3Q 2014 Net debt decreased by 9% due to ruble depreciation and partial redemption of bonds. In 3Q 2014 bottom line affected by $551 mln of FX loss primarily due to loan revaluation. But adjusted Net loss decreased 90% q-o-q. In 3Q 2014 operating income grew to $107 mln on adjusted basis net of one-off accruals (Impairment of goodwill and long-lived assets, provision for amounts due from related parties, loss on write-off of PPE and additional taxes) compared with adjusted operating income of $41 mln in 2Q 2014.
- 22. 148 49 -4 193 83 34 11 121 63 -3 18 79 89 77 3 171 80 138 -7 219 Mining Steel PowerConsolidated 3Q13 4Q13 1Q14 2Q14 3Q14 695 1251 149 2095 626 1117 209 1953 571 929 200 1700 551 1027 166 1744 492 948 148 1588 Mining Steel Power Consolidated 3Q13 4Q13 1Q14 2Q14 3Q14 10% 32% 58% 8% 32% 60% SEGMENTS OVERVIEW REVENUE BY SEGMENTS $ Mln (1) EBITDA(a) 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 goodwill and long-lived assets, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests, One-off accrual of taxes for prior periods and Income taxes. 22 Steel Mining Power EBITDA(a)(1) BY SEGMENTS 3% 46%51% 9M 2014 4% 29% 67% 9M 2013 REVENUE BY SEGMENTS $ Mln EBITDA(a) (1) BY SEGMENTS $ 5,032 mln $470 mln $6,718 mln $599 mln
- 23. MINING SEGMENT 23 Stable EBITDA(a)margin of 12,5% in 3Q 2014. Operating income $1.3 mln in 3Q 2014 vs $2 mln Operating loss in 2Q 2014 Cash costs decrease q-o-q of 11% at Southern Kuzbass, 8% at Yakutugol, 7% at Moscow Coke and Gas Plant and 6% at Mechel Coke. Cash cost in 3Q2014 at Elga was $26 per tonne. Export sales on stable level of about 70%. Bluestone operations suspension negatively influences segment`s results. But Elga coal deposit shows first notable volumes. By the end of 2014 over 1.2 mln tonnes of ROM coal expected with more then 250 thousand tonnes of HCC concentrate produced. Share of iron ore sales down to 2% q-o-q of Segment’s revenue as we switched to supplying our Steel segment and lower production volumes.
- 24. 43% 23% 10% 16% 8% 9M2013 9M2014 Other Depreciation and depletion Energy Staffcosts Raw materials and purchased goods 42% 26% 10% 16% 6% 34 32 43 35 37 51 37 32 46 35 30 55 44 31 27 26 61 Coal SKCC Coal YU Coal Elga Iron Ore KGOK 3Q13 4Q13 1Q14 2Q14 3Q14 695 626 571 551 492 110 149 151 151 144 18% 11% 9% 13% 12% 0% 20% 40% 60% 0 300 600 900 3Q13 4Q13 1Q14 2Q14 3Q14 Intersegment revenues Revenues EBITDA(a) margin 0. MINING SEGMENT CASH COSTS, US$/TONNE 24 REVENUE, EBITDA(a)(1) (1) EBITDA(a) 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 goodwill and long-lived assets, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests, One-off accrual of taxes for prior periods and Income taxes. * Restated to include middlings AVERAGE SALES PRICES FCA, US$/TONNE COS STRUCTURE $1,417 mln $1,124 mln 178 71 57 49 78 176 78 66 44 85 161 65 62 39 85 170 47 53 40 76 166 53 59 41 65 Coke Coking coal Anthracite and PCI Steam coal* Iron ore 3Q13 4Q13 1Q14 2Q14 3Q14 $ Mln
- 25. Coking coal 40% Anthracites and PCI 28% Coke 10% Coking products 3% Steamcoal 11% Iron ore 6% Other 2% Coking coal 39% Anthracites and PCI 25% Coke 8% Coking products 2% Steam coal 8% Iron ore 16% Other 2% China 39% Russia 28% Europe 14% Asia w/o China 10% CIS 2% Middle East 3% USA 2% Other 2% MINING SEGMENT 25 REVENUE BREAKDOWN BY REGION REVENUE BREAKDOWN BY PRODUCTS 9M 2013 9M 2014 9M 2013 9M 2014 China 36% Russia 29% Europe 15% Asia w/o China 14% CIS 3% Middle East 3% USA 0,15%
- 26. STEEL SEGMENT 26 3Q 2014EBITDA(a) up 79% quarter on quarter on favorable market conditions and lower costs EBITDA(a) margin doubled from 7% in 2Q 2014 to 14% in 3Q 2014. Adjusted Operating income grew from $39 mln in 2Q 2014 to $102 mln in 3Q 2014. Adjusted Net income of $15 mln in 3Q 2014 after Net loss of $47 mln in 2Q 2014. Product mix mostly stable with further decrease of semi-finished products share to 3% in 3Q 2014 from 5% in 2Q 2014. Further downsizing of Mechel Service Global operations in Europe resulted in European sales share decline.
- 27. 504 419 425 823 507 436 448 863 427396 402 806 425 376 390 777 403 361 364 737 Billets* Wire rod Rebar Ferrosilicon** 3Q13 4Q13 1Q14 2Q14 3Q14 1251 1117 929 1027 948 50 72 72 55 46 4% 3% 0% 7% 14% 0% 10% 20% 30% 40% 0 300 600 900 1200 1500 3Q13 4Q13 1Q14 2Q14 3Q14 Intersegment revenues Revenues EBITDA(a) margin 533 504 488 516 564 607 594 530 590 616 3530 3501 3314 3545 3743 2457 2183 2398 2400 2341 835 873 783 800 814 663 676 696 714 721 1142 1110 1166 1201 1207 3Q13 4Q13 1Q14 2Q14 3Q14 Semi-finished steel products Rebar Stainless flat products Forgings and stampings Hardware Carbon flat Ferrosilicon** 76% 9% 10% 2% 3% 9M2013 9M2014 Other Depreciation and depletion Energy Staff costs Raw materials and purchased goods 70% 11% 12% 4% 3% STEEL SEGMENT 27 CASH COSTS, US$/TONNE REVENUE, EBITDA(a)(1) $ Mln (1) EBITDA(a) 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 goodwill and long-lived assets, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests, One-off accrual of taxes for prior periods and Income taxes. * Domestic sales ** Ferroalloy segment was combined with Steel segment AVERAGE SALES PRICES FCA, US$/TONNE COS STRUCTURE $3,475 mln $2,472 mln
- 28. Semi-Finished Steel Products 5% Rebar 29% Stainless flat 2% Carbonlong products 19% Forgings and stampings 9% Hardware 16% Carbon flat 8% Ferrosilicon 2% Other 10% Semi- Finished Steel Products 11% Rebar 28% Stainless flat 3% Carbon long products 16% Forgings and stampings 8% Hardware 15% Carbon flat 8% Ferrosilicon 1% Other 10% Russia 64% Europe 17% CIS 12% Asia 3% Middle East 3% USA 0,2% Other 0,8% Russia 68% Europe 16% CIS 12% Asia 1% Middle East 1% USA 0,3% Other 1,7% STEEL SEGMENT 28 REVENUE BREAKDOWN BY REGION REVENUE BREAKDOWN BY PRODUCTS 9M 20149M 2013 9M 20149M 2013
- 29. 87% 4% 7% 1% 1% 9M2013 9M2014 Other Depreciation and depletion Energy Staffcosts Raw materials and purchased goods 89% 4% 5% 1% 1% POWER SEGMENT 29 AVERAGE ELECTRICITY SALES PRICES AND CASH COSTS (RUSSIA), US$/MWH REVENUE, EBITDA(a)(1) $ Mln (1) EBITDA(a) 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 goodwill and long-lived assets, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests, One-off accrual of taxes for prior periods and Income taxes. COS STRUCTURE $647 mln $588mln Seasonal decline in segment’s results. Negative influence of ruble depreciation on Revenues. Net loss decreased by 60%. 149 209 200 166 148 98 115 105 90 86 -2% 3% 6% 1% -3% -10% 0% 10% 20% 30% 40% -100 0 100 200 300 400 3Q13 4Q13 1Q14 2Q14 3Q14 Intersegment revenues Revenues EBITDA(a) margin 35 28 27 29 36 54 55 53 55 52,2 3Q13 4Q13 1Q14 2Q14 3Q14 Cash costs Sales price
- 30. CONSOLIDATED P&L 30 REVENUE, $MLN FINANCIALPERFORMANCE HIGHLIGHTS: $ Mln $ Mln (1) EBITDA(a) 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 goodwill and long-lived assets, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests, One-off accrual of taxes for prior periods and Income taxes. Consolidated EBITDA(a) up 28% q-o-q to $219 mln on Steel segment`s strong results Further Gross margin and EBITDA(a) margin increase Bottom line affected by FX loss but Adjusted Net loss decreased in 3Q 2014 to just $15 mln. 2 095 1 953 1 700 1 744 1 588 31% 29% 32% 36% 38% 0% 10% 20% 30% 40% 50% 60% 70% 80% 0 500 1000 1500 2000 2500 3Q13 4Q13 1Q14 2Q14 3Q14 Revenue Gross margin, % 193 121 79 171 219 9% 6% 5% 10% 14% 0% 5% 10% 15% 20% 25% 30% 0 50 100 150 200 250 3Q13 4Q13 1Q14 2Q14 3Q14 EBITDA(a) EBITDA(a) margin EBITDA(a)(1) , $MLN
- 31. CASH FLOW &TRADE WORKING CAPITAL 31 CASH FLOW, $MLN Considerable payments on financing activities are met mainly by working capital decrease. Investment cash flow amounted to $436 mln in 9M 2014 with most of it going to Elga under project financing with VEB. TRADE WORKING CAPITAL MANAGEMENT, $MLN 275 72 699 -436 -417 0 200 400 600 800 1 000 1 200 Cash as of 31.12.2013 Operating activities Investment activities Financing activities Cash as of 30.09.2014 738 671 260 40 -120 Trade current assets Trade current liabilities Trade working capital 1 934 1 835 1 909 1 974 1 808 2 672 2 506 2 168 2 014 1 688 30.09.13 31.12.13 31.03.14 30.06.14 30.09.14
- 32. State banks 68% 22% Other 10%International banks Total debt reducedby $2.0 bln from $9.0 bln down to $7.0 bln as of December 1, 2014, mainly as an effect from ruble devaluation Since mid-year we entered into restructuring negotiations and suspended repayments of principal to financial institutions and cut interest payments. DEBT PROFILE DEBT MATURITY SCHEDULE, USD BLN CHANGES IN CREDIT PORTFOLIO AS OF DECEMBER 1, 2014, USD BLN DEBT PROFILE AS OF DECEMBER 1, 2014 By currency By banks 32 0.54 2.07 2.17 1.26 0.93 2014 2015 2016 2017 2018 and after * incl. debt under restructuring Debt $6 968 mln Note: converted at the exchange rate established by CB RF December 1, 2014 on the following date 8,95 0,29 2,01 0,32 6,97 Debt as of 31.12.13 Net repayments FX gain Swaps Debt as of 01.12.14 -0,29 -2,01 USD 53%RUR 40% EUR 7%
- 33. Revenue 5,032 6,718-25.1% Cost of sales (3,272) (4,670) -29.94% Gross margin 34.97% 30.49% Adjusted Operating income 124 216 -42.6% EBITDA(a) (1) 470 599 -21.5% EBITDA(a) margin 9.3% 8.9% Net Income / (loss) (1,223) (2,247) -45.6% Net Income margin -24.30% -33.44% Net Debt (excluding finance lease liabilities) 7,836 9,087 -13.8% CapEx 421 445 -5% Sales volumes(2), ‘000 tonnes 9m2014 9m2013 %, Mining segment 15,021 17,889 -16% Steel segment 3,746 5,070* -26% FINANCIAL RESULTS OVERVIEW (1) EBITDA(a) represents earnings before Depreciation, depletion and amortization, Foreign exchange gain / (loss), Loss from discontinued operations, Gain / (loss) from remeasurement of contingent liabilities at fair value, Interest expense, Interest income, Net result on the disposal of non-current assets, Impairment of goodwill and long-lived assets, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests, One-off accrual of taxes for prior periods and Income taxes. (2) Includes sales to the external customers only * Ferroalloy segment was combined with Steel segment US$ MILLION UNLESS OTHERWISE STATED 9m2014 9m2013 CHANGE, % 33
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- 35. OPERATIONAL RESULTS OVERVIEW SALES,thousand tonnes 9m 2014 9m 2013 9m 2014 vs. 9m 2013, % 3Q2014 2Q2014 3Q2014vs. 2Q2014, % Coking coal concentrate 7,781 8,349 -7 2,427 2,743 -12 PCI 2,443 2,567 -5 820 1,033 -21 Anthracites 1,526 1,603 -5 525 519 +1 Steam Coal 4,167 4,499 -7 1,639 1,167 +40 Iron ore concentrate 2,504 3,083 -19 618 913 -32 Coke 2,321 2,291 +1 830 735 +13 Ferrosilicon (65% and 75%) 65 72 -9 23 21 +12 Flat Products 332 468 -29 105 115 -9 Long Products 2,283 2,747 -17 695 806 -14 Billets 80 651 -88 19 27 -29 Hardware 584 653 -11 200 207 -3 Forgings 41 52 -22 15 14 +5 Stampings 64 76 -16 20 21 -6 Electric power generation (thousand kWh) 2,597,421 2,890,768 -10 732,043 854,187 -14 Heat power generation (Gcal) 4,165,232 4,728,075 -12 790,268 1,071,913 -26 PRODUCTION, thousand tonnes 9m 2014 9m 2013 9m 2014 vs. 9m 2013, % 3Q2014 2Q2014 3Q2014vs. 2Q2014, % Coal (run-of-mine) 17,008 20,430 -17 5,810 5,633 +3 Pig iron 2,910 2,908 0 1,010 964 +5 Steel 3,182 3,648 -13 1,055 1,096 -4 35
- 36. 36 ELGA DEPOSIT: RAILWAY,TECHOLOGICAL BASE, OPEN-PIT, MINING WORKS
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- 39. SHAPES PRODUCED ATUNIVERSAL ROLLING MILL 39