Mechel · RUS:MTLR
Mechel — FY2006 Earnings Presentation
24 slides from Mechel's earnings presentation, Oct 12, 2007
Slide 1: FY 2006 Results
FY 2006 Results Management Presentation
Slide 2: Disclaimer
Disclaimer This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of Mechel Steel Group OAO (Mechel) or any of its subsidiaries in any jurisdiction or an inducement to enter into inv
Slide 3: Record Financial Results
Record Financial Results ¾Record financial results since the creation of the company +15.6% Revenue +47.1% EBITDA +58.3% Net Income ¾ Well balanced strategy ¾ Strong Management ¾ Focus on shareholder value 3
Slide 4: FY 2006 Financial Performance
FY 2006 Financial Performance Revenue EBITDA* 5,000 4,398 1,200 1,068 30% 3,805 908 4,000 3,636 1,000 726 800 (US$m) (US$m) 3,000 2,028 600 20% 2,000 341 400 1,000 200 0 0 10% 2003 2004 2005 2006 2003 2004 2005 2006 EBITDA EBITDA margin, % Net profit * Total assets 800 20% 5,000 4,449 90% 603 4,000
Slide 5: Mining: Coal
Mining: Coal Volume Commissioning of Olzherasskaya mine Growth Acquisition of the Moscow Coke and Gas Plant Value Commissioning of new Coke battery at CMP Added Growth Acquisition of the Southern Kuzbass Power Plant: Electricity market provides additional outlet for coal production Mechel 2004-2006
Slide 6: Mining: Nickel and Iron Ore
Mining: Nickel and Iron Ore 14% volume growth Nickel Lowered cash cost per tonne Reached 5 million tonnes milestone ahead of schedule Iron Ore Strategy to maintain production with tight cost control Mechel 2004-2006 Iron Ore Production Mechel 2004-2006 Nickel Production 6 15 5 15 14 4 14 Mln.t 3 5 1
Slide 7: Steel: Successful Strategy Execution
Steel: Successful Strategy Execution Commissioning of the Concaster No.4 at CMP (1 mln. tonnes) Cost cutting Commissioning of new Coke battery at CMP and control projects Acquisition of scrap collecting and processing company, as well as other minor scrap collectors Product output, Thousand FY06 vs.
Slide 8: Steel: Lowering Production Costs
Steel: Lowering Production Costs ¾ Record margins ¾Roadmap to even better performance +13.0% Revenue of $3 062 million +153.4% EBITDA of $660 million EBITDA margin of 21.4% +503% Net Income of $406 million ¾ Cost saving and efficiency improvements ¾ Positive market fundamentals 8
Slide 9: Investment Program: Mining Segment
Investment Program: Mining Segment Total CAPEX for mining segment in 2007-2011 at $1.2 bn Erunakovskaya-1 4 mn tonnes mine construction of coal per year Southern Sibirginskaya mine construction 3.2 mn tonnes Kuzbass 2 extension of coal per year $700 mn Olzherasskaya-Glubokaya 1.5 mn tonnes mine cons
Slide 10: Investment Program: Steel Segment
Investment Program: Steel Segment Total CAPEX for steel segment in 2007-2011 at $1.5 bn Capacity of 1.7 mn tonnes, Blast furnace construction cost reduction Chelyabinsk Metallurgical Plant Capacity increase up to $1.3 bn Sinter plant extension 6.5 mn tonnes Modernization of concasters Concasted stee
Slide 11: Investment Program: Logistics
Investment Program: Logistics Total CAPEX Port Posiet 2007-2011 at $70 mln Capacity upgrade to 5 mln. tonnes per year Port Posiet $70 mln. Update port to handle Panamax ships 11
Slide 12: Financial Review
Financial Review 12
Slide 13: Sales Overview
Sales Overview Consolidated revenue Company benefited from higher sales prices in steel segment 4,500 +239 4,398 +80 Increase in volumes in mining segment +274 4,000 is a reflection of our strategy to develop 3,805 (US$mn) additional mines 3,500 Negative trend in coal prices was partly offset
Slide 14: Steel Sales: Structure and Prices
Steel Sales: Structure and Prices Sales structure Improved sales mix to include greater 100% 12% percentage of higher-margin products 17% 80% 14% Strong demand trends in construction 8% 15% 8% industry drove increased pricing 60% 13% 10% 6% 6% Additional value-added product sales from 40% 23%
Slide 15: Sales Geography and Mix
Sales Geography and Mix Revenue breakdown by region, FY 2006 Sales Mix, FY 2006 $4,398 mn CIS $4,398 mn 14% USA Non-Russia 12% Russia Non- Russia $2,286 mn $2,112 mn 48% 52% 48% Asia 9% Coal 19% ($829 mn) Iron Ore 4% ($168 mn) Europe Nickel 6% ($259 mn) Billets, structurals 16% ($712 mn) Russia 58%
Slide 16: Mining Sales: Structure and Prices
Mining Sales: Structure and Prices Sales structure* Drop in coking coal prices in 2006 is 100% 4% 6% 14% the primary reason for weaker mining 80% 19% 15% segment performance in 2006 13% 60% 25% 23% Positive outlook for healthy price 40% environment for coking coal in 2007 20% 42% 39% driven by h
Slide 17: Segment Operations
Segment Operations Mining segment Steel segment 1,800 40% 3,200 24 40% 38% 75 57 2,800 1,500 33% 377 30% 2,400 30% 337 1,200 3,062 2,000 323 21% 24% (US$mn) (US$mn) 42 900 20% 1,600 20% 2,757 16% 2,710 1,336 1,200 15% 16% 600 1,095 9% 185 878 10% 800 1,614 10% 300 414 400 0 0% 0 0% 2003 2004 2005 20
Slide 18: Targeted Capex Achieved Planned Results
Targeted Capex Achieved Planned Results Improved steel segment performance on back of efficient capex Growth in coal output in line with previously stated strategy Project Date of completion Effect New Sinter Plant at CMP - 1st line and August 2005, August 2006 $59.0 mn annual overall economic e
Slide 19: Cost Structure
Cost Structure Selling expenses to sales decreased to 9.5% from 11.8% as a result of sales structure changes Average cash cost per tonne for major products in 2006: coking coal $25-30, steam coal $15-20, iron ore $21, rebar $285, billets $275 Mining segment COS structure Steel segment COS struct
Slide 20: Net Income Analysis
Net Income Analysis Gain on forgiveness of restructured debts at Mechel Targoviste due to close of privatization contract ahead of schedule $45 mn Gain on revaluation of trading securities held by Moscow Coke and Gas Plant $51 mn Analysis of net income change 1,000 800 151 2 193 17 600 (US$mn) (
Slide 21: Financial Performance Analysis
Financial Performance Analysis Net Profit – EBITDA margin Strong positive trend in profitability 250 231 growth 190 35% 200 170 150 (US$mn) Three consecutive quarters of 119 25% 100 74 71 sustainable improvements in sales, 66 63 15% 50 net profit and EBITDA 0 5% 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q0
Slide 22: Strong Balance Sheet to Support Growth
Strong Balance Sheet to Support Growth Operating cashflow $317 million net debt position provides 800 20% 16.3% significant financial flexibility to: 600 12.6% 15% — Fund capex program 621 (US$mn) 555 400 8.1% 10% — Pursue value enhancing M&A 6.2% 5.9% opportunities 296 200 5% — Considerably expan
Slide 23: Solid Financial Position
Solid Financial Position Share of Unsecured Debt increased to 57% at 31 December 2006 from 52% at 31 December 2005 Considerable improvement in maturity profile Debt/EBITDA ratio as of 31 December 2006 was 0.46 is well within the stated target range Debt to EBITDA ratio Maturity Profile 800 1.3
Slide 24: FY 2006 Results Overview
FY 2006 Results Overview $ million unless 2006 2005 Change, % otherwise stated Revenue 4,398 3,805 16% Cost of revenue (2,869) (2,469) 16% Operating income 726 516 41% EBITDA 1,068 726 47% EBITDA margin 24.3% 19.1% Net Income 603 381 58% Net Income margin 13.7% 10.0% EPS (USD per share) 1.48 0.95 56